The Co3Org

Business Model

Popular entertainment occasionally uses man-on-the-street interviews to humorously display public ignorance about current events.  It is not so funny when a similar level of ignorance, not about current events but about the business of the business, is found within an  organization.  Unfortunately, we have found such business ignorance  is all too common.  By creating clarity of its business model, an organization can go a long way toward becoming high performing.  We use a four-part framework to define a business model: value creation, value proposition, focus for growth, and line-of-sight between individual efforts and organizational performance.

Value creation refers to the core process of producing products and/or services that customers will purchase.  Work efforts transform inputs into higher-value outputs and create the means for earning.  Efficiency of the core process reduces cost, enhances productivity, and speeds delivery.  Quality of core process outputs influences desirability and perceived value.

The value proposition reflects a choice for distinction.  Relative perceived value, from the point of view of potential customers, influences purchase decisions.  A company can better distinguish itself with a focus on excellence in one facet of the value equation - cost, speed, quality, service, or innovation - and competence in the others.

The focus for growth helps to establish investment priorities.  If growth depends on selling more products and services to existing customers, resources should flow toward customer relationships and customer intimacy.  Selling an existing product to more customers requires marketing expertise to enhance product awareness and direct product refinement.  Leveraging distribution channels requires resources to enhance those channels.  Leveraging a proprietary technology requires research and development of new applications for that technology.  Optimizing production capacity means investing in building capacity and optimizing utilization.

Line-of-sight requires a high-level understanding of the organization, the business of the organization, and where the individual fits into the work of the organization.  We use an organizational systems model to help define the universe of work effort, including direct contributions to the core process, contributions to support areas like talent management and information management, and different types of contributions from operators, coordinators, and strategists.  In addition to a basic understanding of individual fit within the organization there should be line-of-sight to performance measures. 

Understanding of the business model among all members of the organization helps greatly in aligning efforts and enhancing performance.  Ignorance of the business model tends to create lack of focus, inefficient diffusion of resources, misalignments, and lack of accountability.  The value of an organization depends on the collective accomplishments of its members.  Those accomplishments depend on a good understanding of the game plan and each individual's role in executing the game plan.

Earning

We would like to propose the contraction pr'it as an acceptable substitute for profit so as to represent it with a four-letter word in keeping with the sympathies of the times.  Although we have common cause with those who object to profits obtained through fraud, deceit, or guile, we are not ready to throw the baby out with the bathwater.  The basis of a free market economy is the ability to earn a profit by creating value, i.e. using effort and ingenuity to create outputs of greater worth than inputs.  Customers are the arbiters of that value and they vote with their wallets.

If we may rely on the simple value equation of value equals perceived quality divided by cost, it is clear that customers vote with their wallets based on receiving similar quality at a lower cost or higher quality for a similar cost or much higher quality at a cost that seems worth it.  Therefore our work needs to be directed at creating efficiencies that lead to lower cost without degrading quality or at creating better products/services whose perceived value justifies paying more. 

It is a strategic imperative to choose one way or the other.  Although a low-cost producer must deliver acceptable quality, and a high-quality producer must be efficient enough to remain affordable, the basis for distinction requires a tenacious focus.  You can have distinctive low pricing with acceptable quality, or you can have distinctive perceived quality at an acceptable cost, but if you aim for distinctive low pricing with distinctive high quality, you will more likely end up with mediocrity across the board.

Understanding the customer experience helps to shape a winning value proposition.   If the goal is to compete on cost, that does not necessarily mean a sole focus on purchase price.  The total cost of ownership might include consideration of reliability, durability, ease of use, and ease of maintenance.  Most people have probably learned, as we did from our mothers, that "we can't afford to buy cheap goods".  If the goal is to compete on quality, the options run the gamut from being easier to do business with, delivering results faster, providing higher levels of technical quality, providing higher levels of service quality, or simply creating more innovatively helpful solutions.

The customer is not always right; very often the customer is ignorant or confused.  A major component of earning a profit is investing in understanding customers' needs.  Great companies know their customers' needs better than their customers do, and they seek to provide goods and services that effectively address those genuine needs. This is the polar opposite of pressure selling goods and services that are not needed.  Resolving real needs is the basis for legitimate earning of profits.

Optimization

Getting the best results actually obtainable is, or should be, the goal of any organization.  Another way of looking at it is making the whole greater than the sum of its parts.  The larger the organization, the more resources are available to invest in getting those results.  In reality it seems the larger the organization, the more likely that the whole is less than the sum of its parts. 

As an organization grows larger there is a need to subdivide in order to maintain some semblance of order.  When the span of control exceeds the capacity of a leader, control tends to break down.  Therefore the whole is divided into parts; each of which is sized within the tolerance of its leader.  With this division comes a very natural phenomenon: those within the new boundaries are on the same team, while those outside the boundaries are not. 

The leader of the division, or function, or business unit will also very naturally attempt to optimize his part of the organization.  Therein lies the problem, for if you optimize a part, you suboptimize the whole.  Conversely, if you want to make the whole greater than the sum of its parts, you must suboptimize the part.  This principle is extremely counterintuitive to functional or business unit leaders.

The antidote to suboptimization is keeping the focus on the big picture.  Each of the leaders of the parts of an organization must retain at all times a consciousness of the performance of the whole.  This consciousness can be had with a two-pronged effort: 1) transparency of performance throughout the organization,  and 2) rewards contingent on a combination of performance of the whole and performance of the part.  As far as rewards are concerned there is one overriding concern: if the whole has not created the wealth necessary to support rewards, there are no rewards to distribute.

 

 

Competitive Advantage

The Holy Grail of business is competitive advantage; it is a mysterious concept, shrouded in consultant jargon, and definitely not available to the common man.  Or is it?  If you begin with the value equation, it is fairly straightforward to realize that customers make a purchase decision based on a lower cost for equal quality or higher perceived quality for a given cost.  There is nothing inherently mysterious about purchase decisions.

Strategically it is mandatory to chose whether to pursue distinction at the numerator or at the denominator of the value equation.  Why not do both, you ask.  Because you must focus to execute a strategy successfully.  Trying to do it all means two things: 1) you can't make a decision, and 2) you will be mediocre at both your cost and quality offerings.

If you have the scope and scale of Wal-Mart, you have an excellent chance of creating competitive advantage by being the low-cost source of goods.  Even with their scope and scale Wal-Mart must also attend to efficiency in everything they do.  They have particularly excelled in managing inventory and logistics by tightly collaborating with suppliers.  For most, however, competing on cost alone is more likely to be disadvantage than advantage.

Perceived quality includes a number of  potential differentiators, e.g. technical quality, service quality, innovation, and speed.  BMW offers the technical quality of German engineering.  Nordstrom's offers service that thrills their customers.  3M has used a technical capability in adhesive bonding to innovatively move from sandpaper to Post-It notes products.  Fed-Ex completely reset expectations with their promise to deliver documents overnight.  All of these companies are competing on something other than being the low-cost provider of a service.

If you are hoping to compete at the numerator level, rather than the denominator level, of the value equation, what is the secret?  How do you differentiate your offering in a way that makes the perceived quality worth more?  From our perspective there is only one source of competitive advantage, and that is a high-performing culture.  That culture must be aligned with your strategic choice on how to pursue advantage.  The behaviors, feelings, and knowledge of the people in your organization will make or break your potential advantage.  If people are making discretionary effort; if they care about results for customers; if they know what, know how, know why, and care why; they will create a perceptible difference that customers can appreciate.

Strategic Tension

Since the business environment is in a constant state of flux, and we require the strategic level of an organization to monitor and respond to external requirements and future requirements, it should come as no surprise that organizational leaders are often championing change.  Organizational operators, on the other hand, must create stability in order to deliver products and/or services efficiently and effectively.  The tension generated between the need for change and the need for stability can be healthy in its effect on organizational performance, or it can be deadly.  The difference is largely a matter of degree, i.e. how much tension is generated, and of the approach to managing the tension.

Managing strategic tension is a critical role for the coordinating level of the organization.  The coordinators must bridge the gap, what Jim Haudan calls the canyon, between strategic intent and successful execution.  Although we tend to think of these roles - strategic, coordinating, and operating - as loosely equivalent to executive, middle management, and front line, we might be better served by recognizing that each person in an organization can contribute something in all three roles.  Certainly, executives should primarily assume strategic roles, and front line workers are the operators, but high-performing companies benefit by blurring the role boundaries.

One of the best sources for monitoring the business environment is the front line, the people who touch the customer, who interface with competitors, who answer to regulators.  Some of the best ideas for how to respond to changes in the business environment will come from those most affected by the changes.  The ability to bubble up strategic input from the front lines to the executive suite creates a tremendous advantage in managing strategic tension: the people who will be affected most by a given change have had a role in generating that change. 

Leaders who understand the realities at the operating level of the organization tend to shape their desired changes in a way that heightens the chances for successful implementation.  Leaders who have worked their way up know operating level realities because they have experienced them first hand.  "Managing by walking around" is a practical concept: you are much more likely to understand operating level realities by getting out and observing for yourself than by remaining forever holed up in your executive suite.   Also, leaders must wage an active and ever-vigilant war against the idea that "bad news doesn't travel upstream".  If you want the truth, you must encourage the truth tellers; If you want to remain deluded, go ahead and slay the messenger.

Effective coordinators need a Zen-like capacity to function at the strategic level and the operating level at the same time.  By understanding both points of view, coordinators can help identify common ground, they can encourage effective dialogue, and they can help align change efforts and operating efforts to be more reinforcing and less conflicting.  Coordinators need to champion change to operators while facilitating the removal of barriers in the domain of executives.  Effective coordinators ensure organizational learning that fosters the sustaining capability of change management.

Synergy

Talk about a concept that has been tainted by overpromising and underdelivering, synergy seems to be on the wrong side of the "what's hot" and "what's not" lists these days.  Perhaps this is mainly due to the frequent failures of mergers and acquisitions to live up to their expected potential.  You might call it whatever you want, but making the whole greater than the sum of its parts is at the heart of teamwork and organizational performance.  We still call it synergy.

Some years ago the Los Angeles Lakers were formidable, having two all-time great players in Kobe Bryant and Shaquille O'Neal.  During the off season a couple of aging stars, Karl Malone and Gary Payton, signed on with the Lakers in hopes of winning a championship before ending their impressive careers.  Unfortunately for Malone and Payton, the Laker chemistry was deteriorating, and the group never really played to its potential.  Sports fans are all too familiar with the phenomenon of synergy because they often get to experience the consequences of its absence.

Corporations need not venture into mergers and acquisitions to be shortchanged on synergy.  Whenever "knowledge is power" afflicts the mindset of an organization, suboptimization will surely follow.  Since the value of knowledge grows with sharing, the idea of hoarding knowledge should be antithetical, and yet we see it all the time.  What we have never seen is an articulated corporate value of "hoarding knowledge".  When a behavior  is not what we ask for or hope for, we simply ought to follow the money by asking what is rewarding and reinforcing such behavior.  Then we can take action to make it more rewarding to share information and much less rewarding to hoard it.

Another common example of coming up short on synergy occurs in the arena of talent management.  A very capable subordinate usually gets known around the organization.  When other departments have an opening, their leads will naturally be seeking the best and brightest talent around.  If it's your very capable subordinate they are recruiting, you may foresee her opportunity as your worst nightmare: now you are stuck trying to replace Ms. Super Capable.  When managers are rewarded for developing people and getting business results, the chances of enabling synergy via a talent pipeline are greatly increased.

One last example of a synergy opportunity: resource allocation.  We will look at resource allocation in reverse - the resource takeaway.  When times are tough, the conventional wisdom leads to belt tightening which often takes the form of an across- the-board budget cut of X%.  Why is it across the board?  Because that is an easy and convenient way to be perceived as fair.  Ideally, cost savings would come disproportionately from wasteful or unproductive activities, and productive activities might actually deliver greater benefit with increased investment.  It is unlikely that many workers will volunteer that their efforts are wasteful or unproductive, but it is entirely possible that they would offer suggestions for eliminating "stupid stuff" from their day-to-day work activities. 

The presence or absence of synergy is observed in organizational culture.  Culture largely consists of behaviors that get rewarded, formally or informally, explicitly or implicitly.  Synergy is a valuable organizational capability that is well worth fostering, whether you intend to pursue mergers and acquisitions or not.

Trust

How valuable is trust to an organization?  Johnson & Johnson gave some perspective on that question with their reaction to the Tylenol Crisis in 1982.  They invested millions of dollars and hundreds of hours of leadership time in their crisis recovery efforts.  It was a great investment because Johnson & Johnson emerged from the crisis with a higher level of public trust, and the appreciation for their responsiveness continues to benefit them today.  The focus for Johnson & Johnson was on the trust of customers.  Other stakeholders are affected by the presence or absence of trust as well, although the impact of trust on employees, suppliers, and investors probably has a lower profile.

Consider a workplace climate characterized by low trust.  It would probably cause reluctance to take initiative, to feel empowered, to speak candidly, to learn from mistakes, or to share knowledge.  All of which would tend to make the organization slower, less efficient, and dumber.  High trust in the workplace, in contrast, would promote discretionary effort, empowerment, dealing with reality, learning, and collaboration. Such an environment would foster confidence, optimism, and good will which, in turn, would foster high performance.  As an organizational leader you would probably choose the high-trust, high-performing culture.  So why do we seem to naturally gravitate toward creating the low-trust environment?  Robert Hurley offered guidance in how to generate higher levels of trust in "The Decision to Trust", another high-utility article from HBR.

We worked with a client on a supply-chain-management project that sought to improve supplier performance in on-time delivery of components built to the correct specifications.  Although the client would not agree to include supplier representatives on the project team, it still did not take long to identify the key source of delays and incorrect components.  The client was not effectively communicating either the original specifications or subsequent changes, nor were they keeping the suppliers informed on schedule changes.  As one wag put it, "We have put a lot of suppliers out of business over the years".  This example is offered in the spirit of what not to do to develop mutual trust in supplier relationships.  Why bother to build trust as an integral part of your supply chain management?  How about the enabling of speed, efficiency, quality, service, and responsiveness.

As far as investors are concerned, trust seems like it would be a quaint, old-fashioned notion, doesn't it?  Not according to the Architecture for Intangibles.  The very foundation of market valuation of intangibles is the reliability of quarterly earnings.  If earnings are off, a prompt communication of that fact, an explanation of the cause, and the plan for getting back on track can be mitigating.  Trust that the company has a viable strategy for getting to higher levels of future performance also contributes to higher levels of valuation.  Lastly, trust in the company's ability to develop technical and social capabilities that progressively enhance performance helps not only with current valuation, but also with some level of investor tolerance for unexpected hiccups along the way.

Trust is hard earned.  You have to keep your promises, you must demonstrate integrity, you need to communicate, and you have to be seen as sufficiently competent to get the benefit of the doubt.  All of which can be lost with one slip up.  As Johnson & Johnson demonstrated, your response to that slip up might make or break you.  They could have argued that the Tylenol Crisis was not in any way their fault.  Wonder where that would have gotten them?

Productivity

"According to a groundbreaking new study by the Department of Labor, working—the physical act of engaging in a productive job-related activity—may greatly increase the amount of work accomplished during the workday, especially when compared with the more common practices of wasting time and not working" - the Onion.  Don't tell us we do not have diverse resources when it comes to researching organizational performance.  The sad thing is our opening statement sounds more like the typical morning news than satire.

We can certainly get an idea of productivity, especially relative productivity, with a measure like revenue per employee.  You could also get an idea of productivity by asking an employee, "did you have a productive day, or was some of your time wasted today".  If clarity exists regarding the mission of the organization, members have little confusion over whether they have contributed or not.  We will go out on a limb and state that time spent desperately trying to stay awake in meetings would not qualify as productive.

There are  five value-creating processes in any organization.  The core process is that which creates the value customers are willing to purchase.  Information management is a process that supports smart decision making, awareness of performance, and development of business wisdom.  Talent management delivers high-performing workers and a leadership pipeline.  Change management enables an agile organization that is able to keep up with its changing environment.  Last, but not least, supply chain management helps leverage internal resources for optimizing competitive advantage.

Stratification of types of work helps to maintain focus on resourcing for greatest impact.  Advantage work is that which creates distinction in the eyes of the customer and the potential customer.  Strategic support work may be invisible to the customer, but it is enabling of advantage work.  Transactional work is that which is necessary or required.  Non-value-added work is not necessary and should be stopped.  Some work gets done because it always has been done, but nobody can give another reason for it.  Just stop it!

Certainly, advantage work must be kept inside the walls.  With strategic support work we should consider whether it is proprietary or generic.  For instance, information management might be proprietary on the information side, but generic on the information infrastructure side.  Outsourcing of the generic piece, i.e. the data center and network maintenance, might make sense.  Since this is still strategic support, the mode of outsourcing should be a collaborative relationship with a trusted partner.  Transactional work might also be proprietary or generic, but outsourcing of generic transactional work can be on a contracting basis.  Regardless of whether we are dealing with generic strategic support or generic transactional work, we must embed accountability into our outsourcing, and that, as opposed to awarding contracts for low bids regardless of performance, is the optimal value created by supply chain management.

For the Co³Organization advantage work and strategic support work are the basis for its being compelling.  The appropriate assignment of internal resources vs. outsourcing is a critical component of congruence - these decisions make sense to everyone in the organization.  Cognizance, based on transparency of performance whether internal performance or supply chain performance, allows everyone to see for themselves the collective productivity.

The Snapshot

Organizational health parallels individual health as was discussed here.  If an individual has a health concern, even if that concern is confined to preventive maintenance, the first step of an intervention is a history and physical with a trusted physician as part of either a diagnostic assessment or an "annual physical" for health screening.  Most would consider initiating a course of treatment without first making a diagnosis as bad form, if not malpractice.  Yet, subjecting employees to seemingly random "flavor-of-the-month" programs pretty much amounts to the same thing.

An organizational snapshot assessment is the history and physical for organizational health.  The history consists of interviews with leadership and a representative diagonal slice across organizational associates.  These interviews are based on a small number of open-ended questions designed to get people talking about things that are top of mind.  The physical amounts to review of existing sources of pertinent information, e.g. surveys, annual reports, market reports, etc., and touring at least some of the facilities.  Data obtained in this fashion is a rich resource for assessing both the organizational systems and the culture.

At this point all we have is a lot of data; we would benefit by converting data to information.  A big help in this regard is the ability to organize interview data into categories representing the organizational systems model.  We like to emphasize positives as much as possible, since the invitation to opine on the company is typically viewed as a solicitation for critical input, and negatives tend to predominate.  We also attempt to include raw data and original phrasing as much as possible to allow inferences to be developed by internal members rather than external "experts".

Following the process of information management we next want to use the snapshot information to validate a consensus view of the organization and develop insights into cause-and-effect relationships with the presenting concerns.  The quantity of information often appears, at first, to be imposing, but groups can typically "walk" through the report and dialogue adequately in a two-hour session.  The deliverable for this effort is a common understanding of the current state of the organization, which serves as the basis for determining priorities in addressing performance issues.

To continue up the value progression for information management, we would ultimately like to learn from our experience.  That requires monitoring the results of priority initiatives and repeating the snapshot assessment at a suitable interval, generally one or two years down the line.  The comparison of two snapshots is not meant to be scientific or statistically significant, but it is often of great practical significance.

Problem Solving

How many corporate performance issues can be appropriately addressed with an organizational-systems-design approach?  We deem any issue that can be stated as "how do we work together to accomplish X" as ripe for org design.  Unfortunately, the methodology is often viewed narrowly as applicable only to large-scale corporate restructuring.  In fact, an organizational systems model is scalable, pertinent to anything from a work group to a global Fortune 50 enterprise.

With an issue defined and a team chartered to develop solutions recommendations, the first order of business is to define what are we trying to accomplish.  Using the framework of the Work System we define the beginning and the end and the transition between.  The work is initially defined from an optimal perspective: when everything goes right, here is what happens, and here is the result.  Then the discussion shifts to what can go wrong, e.g. where do we experience delays and where do we see defective outputs?  Next step is to develop ideas regarding how to eliminate the delays and defects.

After dealing with "what gets done", we go to "who does what".  Barring frequent reminders to keep what and who separate, the natural tendency is to define the work by defining all of the handoffs.  Keeping "what gets done" isolated greatly simplifies the definition of the work.  It also lays out a simple, no-handoff version of the work that lends itself to a streamlined assignment of roles and responsibilities.

Next consideration is what do we need to know to facilitate a streamlined process, and how will we know how we are doing regarding process performance.  The information flow should align with the streamlined version of roles and responsibilities.  Performance measures, if they are to really happen, require new roles and responsibilities.

Having the necessary skills, knowledge, and behaviors from the people responsible for the work is our next objective.  Typically, when changes have been made to the work, structure, and/or information systems, gaps will be created between necessary competencies and available competencies.  Therefore, a development plan is needed for existing staff and/or a hiring plan  for new staff to fill the gaps.

Rewards considerations rarely need to include formal compensation and benefits, but rewards should always be considered.  If a change is being proposed, the design ought to address making it easier to do the new way and more difficult to do the old.  Here is a simple area where change efforts often flounder, because it remains easier to do the old way, and often punishing in some way to do the new.

Renewal relative to problem solving has two principle aspects.  The first is learning by doing; the team that assesses the problem and develops the solution using a systems approach will be better able to tackle the next problem.  The second is monitoring the results of the change, modifying the design based on analysis of performance data, and capturing lessons learned.

A major factor in successful change efforts is engaging and involving the people most affected by the change.  The approach outlined above engages and involves those people in designing  the change.  When it comes time to implement the design, they experience more a sense of changing than of being changed.  We'll leave it to you to decide which type of change is likely to meet more resistance.

Human Capital

Financial capital is regarded as an asset and shows up as such on the balance sheet of a company.  Labor is treated as a cost and shows up on the profit and loss report.  The potential value of a merger or acquisition may be perceived as largely dependent on reduction of labor costs in the combined entity.  Any profit-challenged company will typically see labor as its single highest-cost expense and seek to improve profitability by reducing labor costs.  All of this is rather straightforward - obvious, if you will.  So why do people choose to complicate matters by fashioning this hybrid concept of capital + labor = human capital?

As the industrial age has given way to the information age, investors have felt increasingly disadvantaged by traditional methods of market valuation.  They have seen little correlation between book value and predictability of future earnings, for instance.  The reason is clear enough: organizations with inspired leadership, energized employees, integrity, creativity, and agility have won business and outperformed their competition.  These intangibles have accounted for a greater and greater portion of market value of publicly traded companies over time, but financial accounting has largely stayed focused on the traditional tangibles.

Business leaders may be torn between a perceived need to invest in people and a traditional sense of financial discipline.  This dilemma has not been helped, in the experience of many, by a questionable return on investment from typical corporate training.  The framework we prefer was described by Dave Ulrich and Norm Smallwood in How Leaders Build Value, i.e. people as a corporate asset can be understood by the concept of competence x commitment.  Competence reflects the knowledge and skills required to do the job.  Investments in competence should show a return that is demonstrated by improvements in job performance.  Commitment is demonstrated by behavior, e.g. making discretionary effort.  Investments in commitment take the form of management/leadership time and attention, engagement, and involvement. 

If employees are committed, but not competent, they might do more harm than good.  If they are competent, but not committed, performance will be far from optimal.  If they are neither competent nor committed, their business leaders ought to be ashamed.  Use of a multiplier in the formula competence x commitment is to emphasize that deficiencies on one side cannot be remedied by surplus on the other side.

People who are competent and committed are the essence of a high-performing culture.  They will win the business, keep the business, and refresh the business.  They will find ways to become more efficient and effective.  They are worthy of investment in their development and in their rewards, and that investment will be a bargain compared to the cost of employing those less competent and less committed.

Bruce Lewin at Four Groups recently posted an article on talent and strategic HR. You can read the rest of the article here.

Leadership

Leadership development in an individual can follow a progression from a capable individual contributor to an effective team member to a competent manager of people and resources to a leader who inspires commitment among followers.  There is another level, called Level-5 Leadership by Jim Collins in Good to Great, that is marked by personal humility and a passion for building a great organization.  This factor was foremost in distinguishing the great from the good, according to Collins.  Leader as an organizational architect/builder is a powerful concept that recognizes the best lever available: building an organization that generates a high-performance culture.

Our friend and colleague, Jim Haudan, who recently authored a terrific how-to book, The Art of Engagement, has said for years that "people will tolerate your conclusions, but they will act on their own".  If you will accept that premise, and it's hard to argue, it becomes clear that effective leadership will not be accomplished through one-way memos from the executive suite.  A leader cannot create a compelling organization through pronouncement.  What is required for people to come to their own conclusions?  No special effort at all.  What is required for people to arrive at conclusions in alignment with the company's strategic direction and its mission, vision, and values?  Dialogue.  What do we never have time for?  Dialogue.  Maybe it's time to rethink how we do meetings.  We also highly recommend Dialogue and the Art of Thinking Together by William Isaacs.

We have witnessed attempts by business leaders to become organizational architects by rearranging org charts; we have not seen these efforts accomplish what the business leaders were after.  Systems theory holds that changes in one system will affect all other interdependent systems, and therefore, we have the law of unintended consequences.  Our strong preference is to understand the desired change, engage the people most familiar with the areas involved in the change, and use a structured methodology to allow those people to redesign the organization in accordance with the desired change.  Here is where a Level-5 leader's trait of personal humility comes in handy.

Personal humility is also required from the leader of a cognizant organization.  Candid assessments of the complex business environment and of actual business performance allow the organization to deal with reality.  When a leader's ego conflicts with or rejects reality, irrational actions will surely follow.  A leader's healthy curiosity about performance, interest in learning from experience, and openness to input from across the organization will portend well for organizational performance.

Leadership is certainly a factor in organizational performance.  Leadership is also an organizational capability; organizational performance depends on leadership throughout the organization.  Dave Ulrich and Norm Smallwood wrote about leadership as an organizational capability in their latest book, Leadership Brand.  If a company is great because of its leader, what becomes of it when that leader offboards?  Our leader as organizational architect will hopefully care enough for the continuing organization to provide for its leadership development.

Accountability

Is it just us or does it seem that a plausible excuse is the actual deliverable at the conclusion of most internal corporate agreements these days?  We know of organizational leaders who have established no-excuses policies on the theory that it is a waste of resources to dialogue about the validity of an excuse; what is necessary is getting the job done.  An alternative approach was nicely outlined in an HBR article entitled "Promise-Based Management" by Donald Sull and Charles Spinosa.

A promise in this case is the outcome of a negotiated agreement.  If a superior requests something of a subordinate, the subordinate may agree, counter, or refuse the request.  It may sound odd to think that a subordinate would do anything other than agree to such a request, but managers who are actually interested in results may want to encourage this negotiation.  Assuming both parties are sincere, the discussion would be about what needs to happen to deliver on the manager's request.  When agreement is reached, a commitment goes with it - the promise.

Not uncommonly, after reaching such an agreement, circumstances change.  There may be new priorities or the parties may find they did not know what they did not know, but now they know.  Whenever circumstances change in a way that impacts ability to deliver on the original promise, renegotiation, or recontracting, must take place.  The difference between a renegotiation and an excuse is:  with renegotiation the intent remains fulfillment of the promise, whereas the excuse is intended more for release from the promise.

In their architecture for intangibles outlined in How Leaders Build Value, Dave Ulrich and Norm Smallwood hold that the very foundation of intangible value for organizations is keeping their promises.  For publicly traded companies attention is focused on promises for quarterly earnings, but we believe that idea holds true for promises to all stakeholders: employees, customers, and investors.

Promises to customers are generally built into a company's branding effort, but what about promises to employees?  Very often there is no explicit promise to employees.  We believe it would be wise to craft an explicit commitment statement to employees if we are serious in asking them to keep their promises.  That would set up an organizational capability of accountability.

We see a great deal of confusion regarding the terms responsibility and accountability.  Our distinction is this: responsibility is what you are supposed to do, and accountability represents what you actually do.  In Aubrey Daniels's ABC framework for performance management, responsibility is an antecedent and accountability is a behavior.  We often see another take on accountability where it is perceived as the "C", or consequence.  That is, accountability = blame.  In our view blaming ranks right up there with excuses as a waste of time.

Accountability is a concept right in line with one of Jim Collins's greatness criteria: a culture of discipline.  If the people in your organization are accountable, they will find the right ways to get things done.  You will not be expending management time and talent on making certain that workers get things done; management can direct its energy and resources on breaking down barriers, facilitating, coaching, and coordinating - because they are accountable, too.

Culture

An organization's culture is the means through which it gets results; everything else is just a plan.  A common response when we ask a group to define culture is: "the way things get done around here".  Our organizational construct includes behaviors, feelings, and knowledge as part of culture.  Behaviors are the bridge between intentions and results.  Strategic choices about the way to competitive advantage - lower cost, higher quality, faster delivery, etc. - are necessary to achieve sufficient organizational focus, but there is really only one authentic source of competitive advantage, and that is culture.

Some years ago we worked in an organization where Towers Perrin introduced the notion of three culture types: leased talent, familial, and employee/owner.  Leased talent describes a mercenary culture; people do their work to receive a paycheck, period.  They will follow the rules, show up on time, and give you a full eight hours a day, but you should not expect discretionary effort.  A familial culture is characterized primarily by a sense of entitlement.  If one is part of a family, one should receive an equal share with other family members.  If there are difficult decisions, they will be made by Mom or Dad.  This is a nice place to work because there is always cake in the break room to celebrate birthdays.  The employee/owner culture is based on a psychology of earning, rather than entitlement.  Members have an entrepreneur's understanding of customers as the sole source of revenue, and they recognize their need to contribute to winning customers' business.  They have a good place to work is because they have good work to do.

In her book, Danger in the Comfort Zone, Judith Bardwick described the relationship between productivity and stress.  At low stress levels there is low productivity associated with a sense of entitlement.  At high stress levels fear can cause organizational paralysis.  Moderate levels of stress, which we maintain are easily achieved through cognizance of the business environment and organizational performance, promote optimal productivity. 

In a similar vein, Mihaly Csikszentmihalyi (we do not pretend to be able to pronounce his name) wrote Flow: the Psychology of Optimal Experience, where he described the relationship between challenges and skills.  Challenges far exceeding skill levels lead to anxiety; challenges that seriously lag skill levels lead to boredom.  When a challenge represents a stretch relative to skill levels, and when there is no guarantee that an individual can rise to that challenge, but that individual develops the skills necessary to succeed, that individual experiences the intrinsic rewards associated with growth and a sense of accomplishment.  Not just the result, but also the experience of getting to the result are perceived as rewarding.

Culture is the result of choices made about an organization's focus and its systems.  Culture change efforts need to go back to the drawing board regarding:

1. What makes the organization compelling?

2. Are organizational systems congruent with organizational focus and with each other?

3. Is sufficient transparency in place to support cognizance of the business environment and organizational performance?

Renewal System

Marshall Goldsmith has published a book titled, What Got You Here Won't Get You There, that is targeted toward individuals, but the same insight will often apply to organizations.  We have engaged with a number of clients who fell victim to their own success.  One client's business was essentially a collection of product-development programs.  Program performance was tracked with a stoplight analogy: green for on schedule and on budget, yellow for identified issues, and red for impending crisis.  Every single program had "gone red" or was expected to "go red" at some point in the near term.  Yet, the financial performance had continued at a customary high level.  Entrenched ways were highly resistant to change, supported by the common belief: "We have always come through."  Discerning leaders were resigned  to wait for a disastrous financial reporting quarter before sincere change efforts could be launched.

Rarely do we encounter a business leader who fails to recognize the reality of the business environment: change, often rapid change, and complexity.  The change-adept organization monitors the external environment as well as internal performance, and continually assesses the need to respond.  Adaptive responses can be relatively incremental, e.g. continuous improvement efforts, or they may have to be transformative, discontinuous change, e.g. redesign.  Organizational agility is a capability that can be fostered, but if left untended and unmanaged, organizational sclerosis will be an ensuing liability.

Change is disruptive; inevitably, when something is done differently there will be a learning curve with an associated dip in performance.  We have witnessed, all too often, that performance dip will cause cold feet among sponsors of a change to this extent: what had been the business case for change becomes the good old days.  Agile companies recognize the performance dip as a temporary outcome of even the most well-designed change, and they persevere to benefit from the performance improvements that follow.

Learning is often a formally articulated corporate value, and becoming a learning company is a common aspiration.  Actually learning from your own experience, however, is all too uncommon.  We have seen corporate statements such as: "We value mistakes".  The intent being encouragement of trying new things and promotion of learning lessons from our mistakes.  In the absence of high levels of trust people will not believe that their mistakes are valued, so their efforts will not be directed at learning from a mistake, but rather hiding the mistake in hopes of smoothing things over before anybody notices.  And so we continue to make the same mistakes.

An effective renewal system requires a cognizant organization, one that is knowledgeable regarding its  business environment and it own performance.  There is a truism that directly applies: if it can't be measured, it can't be managed.  Cognizance is a necessary, but not sufficient attribute for renewal.  There must also be congruence in that a designed solution that requires change must make sense and be in obvious alignment with the overall organization.  Finally, where there is a will, there is a way.  A compelling organization helps its members understand why change is in their own best interest and engages them in making it happen.

Reward System

Compensation and benefits are part of the rewards system, but surprisingly not a huge part.  Frederick Herzberg wrote a classic article for HBR entitled "One More Time, How Do You Motivate Employees?".  He addressed a number of factors leading to job satisfaction and job dissatisfaction.  Salary -along with policy, supervision, work conditions, relationships, and status - was considered a hygiene factor, i.e. it could cause dissatisfaction if not good enough, but it would not serve as a motivator.  Motivators included achievement, recognition, work itself, responsibility, advancement, and growth.  Bottom line conclusion: "you need to make their jobs more interesting".

 

Herzberg's article was originally published in 1968, but it keeps getting republished as part of HBR Business Classics.  Abraham Maslow's well-known hierarchy of needs offers a similar insight into motivation.  The hierarchical needs begin with physiological (eating and drinking), then safety (security and health), then love/belonging (friendship and family), followed by esteem (confidence and achievement) and finally self-actualization (creativity and problem solving).  Higher level rewards from Maslow would correspond well with Herzberg's motivators.

 

From the above we see the importance of intrinsic rewards relative to extrinsic rewards.  Yet, the vast majority of rewards-related effort in organizations tends to focus on creating leverage out of extrinsic rewards.  The attention on extrinsic rewards should be directed primarily at alignment; we have seen how out-of-alignment rewards can create dissatisfaction.  We worked with a group charged with improving customer satisfaction at the time of delivery (of a very expensive, custom vehicle).  Orders were taken, custom vehicles were designed and built, then delivery was made.  Sometimes customers found that special requests had been forgotten, and they suffered disappointment on taking delivery.  The single greatest change coming out of that project was to stop giving 100% sales commissions on receipt of a purchase order, and reserve 50% of the commission to be earned on a successful delivery.  Customer satisfaction on delivery shot up.  There is certainly value in making a portion of compensation performance based.

 

Making jobs more interesting is not a trivial task.  One tactic we have employed is engaging workers in improving their work process, especially having a chance to stop doing stupid stuff.  Another powerful consideration is creating line-of-sight from individual job efforts to a final-output product or service.  People attach more meaning to their work when they understand the why of strategic intent and the how of making their contribution to overall performance.  Nobody seems to mind being a meaningful cog in a worthwhile machine.  We previously referenced a recent HBR article, "The Secrets to Successful Strategy Execution" by Neilson, et. al. which identified decision rights and information flow as the keys to execution.  The trust and increased responsibility accompanying decision rights and information flow  would be right in line with Herzberg's motivators.

 

In our brief discussion of performance management we spoke of catching people doing things right and providing positive reinforcement.  The trick here is to determine what constitutes positive reinforcement because it varies so much from person to person.  One of the tasks of management is getting to know subordinates well enough to distinguish those things that each might consider rewarding, and tailoring that knowledge into positive reinforcement.  In our experience a typical management response to a worker's doing something well is, "That's their job", i.e. nothing need be said unless there is a screw up.  We would heartily encourage rethinking that position.  There is no incremental cost to giving a pat on the back.

People System

As the work of the Information System is information management, the work of the People System is talent management.  By the same token the IT-line management partnership responsible for information management is paralleled by an HR-line management joint responsibility for talent management.  The same pitfalls await companies who relegate people issues entirely to the HR department as those who hand off all information management to IT. 

We have worked with a number of HR departments and always arrived at a similar definition of the process of talent management: initially attracting talent from the general labor pool, then selecting from applicants those most qualified and best fit, then onboarding to create a readiness to work, developing skills and knowledge to enhance competencies, managing to optimize performance, and finally "offboarding" through  promotion, transfer, retirement, or making a better fit elsewhere.  The crux of the matter was well stated by Jim Collins in Good to Great: "Get the right people in the right seats on the bus and the wrong people off the bus".

Although there has been general agreement on what the work of HR should be, there has also been a recognition that the actual work of HR is overwhelmingly devoted to variances in the talent management process that lead to people issues.  We are reminded of Drucker's deadly business sin: feeding problems and starving opportunities.  In our experience the way back to creating value in human capital always included scrupulous development within line management of talent management competencies and clarification of shared responsibilities between line management and HR.

Attracting talent is not a function of advertising; it is a function of being a good place to work.  A high-performance culture tends to attract and retain high performers.  A high performer who enters a low-performance culture will rather quickly adapt to lower performance standards or self-select outathere.  A low performer in a high-performance culture will likely suffer a foreign-body reaction.

Selecting the right candidate for hire is largely a matter of matching the required skills and knowledge as well as cultural fit.  Distinguishing trainable skills from innate attributes is key; don't try to train your dour introvert to become that friendly receptionist you so desperately need.  Behavioral interviewing, developed and performed as part of the line management-HR partnership, can be particularly helpful in making good selection decisions.

Onboarding efforts we have seen run the gamut from cursory, or nonexistent, orientation to months-long Corporate University.  One enterprising client established schools for training a relatively unskilled local population in the basics of the hospitality industry.  The schools were free to qualified locals, the client was able to choose to employ their preferred students, and the remaining students were  better able to obtain jobs from other local employers.  In this case the onboarding process began before selecting, and was, in fact, part of attracting.

Developing talent has a bit of a fuzzy boundary with onboarding,  It is important to distinguish what is necessary for a new hire to quickly be able to function productively from future development opportunities that can be addressed as part of career management.  Training is certainly a big part of development, but we like to think broadly and include varied job experience, mentoring, community involvement, etc.  Individual development plans can help feed a robust approach to succession planning.

Managing performance is all too often the weak link in talent management.  There is an instinctive tendency among managers to see their responsibility as catching people doing things wrong and providing some corrective remedy.  This is generally perceived by the caught people as punishment.  The natural reaction to punishment is not to do things right, but to avoid being caught doing things wrong.  In contrast, if managers sought to catch people doing things right, and sought to give effective, positive reinforcement, those caught people would be likely encouraged to do more of the same.  We recommend Aubrey Daniels's Performance Management as a practical guide.

Offboarding completes the process of talent management.  Whenever an employee gets promoted or makes a lateral move to a new job, the talent management process starts over at the beginning.  The ability to view offboarding as a natural part of the process (that eventually effects every single employee) helps create a healthy approach to dealing with the need for an individual to succeed elsewhere.  Someone who is a poor fit for a given position can be an excellent fit in another.  It helps no one when a poor-fit position is allowed to continue because nobody can muster up the courage to deal appropriately with the situation.

Information System

IT is the well-known abbreviation for information technology and typically the name of the corporate department responsible for same.  In our experience the department is heavy on technology, peopled by young computer and network experts, but light on information.  The necessary partnership between the owners/users of business information and the skilled technologists who create and maintain information infrastructure is often poorly developed.

We had the opportunity to help redesign an IT department when they sought to unify the efforts of data centers in two different countries.  As usual we began by defining the work of the department: capturing data so that quality data was available; processing data into useful information; using information to support decision making and gain experience; and learning from that experience to develop business wisdom.  The optimal value created by the work of the department was business wisdom, i.e. some confidence in the ability to anticipate the future and, therefore, make wiser business decisions in the present.  When we considered "who does what?", it was obvious that the department by itself could not accomplish its work.  It was mandatory for the business users of information to participate equally in the process of managing information.

Cognizant organizations know what is going on inside and outside of their "walls".  Business performance is much more than financial accounting, as was eloquently stated in The Balanced Scorecard by Kaplan and Norton.  Our version of the balanced scorecard has four categories: work climate/culture (internal social), process performance (internal technical), customer satisfaction (external social), and financial performance (external technical).  We view financial performance as external to emphasize the source of revenue over internal control of cost.  We also view financial performance as a lagging indicator; monitoring the work climate and process performance will generally offer leading indicators that management can more readily address.

Performance measurement has been one of the most difficult technical capabilities to implement in our experience.  Measurement itself is simple and straightforward.  There are four things that can be measured: quantity, quality, cost, and time.  There are two methods of measuring: counting and judging (judging may be relative through ranking or absolute through rating).  Since counting is viewed as objective and judging as subjective, there has been a long-standing bias toward counting, e.g. accounting, and measurement has tended to focus on those things that can be easily counted.  Measures that matter, on the other hand, tend to be more difficult and require judging, e.g. quality measures.  Nevertheless, we have such ample experience with subjective measures, e.g. J. D. Power's quality ratings of automobiles, that there is no technical impediment to assessing measures that matter.

The primary challenge to performance measurement in organizations is psychological: the fear that those measures will be used to punish performers.  Since the commonly presumed purpose of management is to catch people doing wrong, their fears of performance measures are not irrational.  Successful implementation of useful performance measures requires an organizational readiness based on a shared commitment to use measures for learning and performance improvement and to reward, not punish, participants.

Awareness of the external environment and understanding of the company's strategic responses to that environment are an important attribute of the cognizant organization.  As noted in our discussion about the structural system, this responsibility resides at the strategic level of the organization.  We have heard from thought leaders at some of the top companies in the world that keeping up with the complexity and rapid change in the external environment is their single greatest challenge.

One approach we admired came from the Public Affairs department at a client organization.  Their leader described that department's purpose as being " a window into the organization and a window out to the business environment".  We often think of public relations as putting a positive spin on an ugly situation so a company can minimize the damage, but this position was an anathema for our client.  In his opinion the only way to have credibility in the public eye was to promote transparency.  That meant monitoring the external environment, facilitating the strategic response, and making that response known inside and outside of the organization.

Structural System

How are we organized to get the work done?  The work system is about what we do; the structural system is about who does what.  Not uncommonly organizational structure is seen as a hierarchy represented by org charts, and a reorganization/restructuring is but a matter of reshuffling the org charts.  Problems with performance?  Here are your new org charts; that ought to fix it.  We would advocate a more holistic approach that addresses all organizational systems, certainly including structure, but definitely not excluding all else.

Three levels of roles and responsibilities are necessary in any organization: operating, coordinating, and strategic.  Not long ago downsizing was viewed as the smart thing to do; flattening the organization so the operating folks could hear directly from the strategic folks without having to play the old party game, "Telephone".  Many of the downsizing enthusiasts learned the value of the coordinating level the hard way.  Even the smallest of organizations have roles and responsibilities at all three structural levels, where a single individual may juggle all three roles.  As organizations grow a rough correlation develops between strategic and executive level, coordinating and middle management level, and operating and the front-line level.

The operating level produces the product and/or delivers the service to the customer.  They perform the core process; therefore, the customer cares about and responds to the operating level.  People at the operating level are closest to the work and closest to the customer.  They have insight into issues that interfere with their work and interfere with their ability to please the customer.  Input from the operating level should feed strategic planning.  Operators should be responsible, not only for doing their work, but also for improving their work.  A recent HBR article, "The Secrets to Successful Strategy Execution" by Neilson, et. al. described the keys to execution as decision rights and information flow, and we would add: to the operating level!

Coordinating-level employees are hierarchically positioned above operators, but ideally they serve in support of the operating level.  Individual contributors who get promoted to management positions are expected to amplify their contribution by distributing their know-how to subordinates.  Unfortunately, a skilled individual will often find it much easier to do the job herself that to teach someone else how.  Managers must be encouraged to teach, mentor, coach, and facilitate the work at the operating level.  In addition, the coordinating level has the critical role of eliminating barriers by managing across organizational boundaries.

At the strategic level attention is on the external environment and on the future of the organization.  Monitoring requirements and influences in the complex and ever-changing external environment is challenging; adapting to those evolving requirements and influences is even more challenging.  This probably explains why so few companies remain at the top of the heap for extended stretches of time.  As noted above, strategic monitoring includes open dialogue with the operating level of the organization.  We are all familiar with the maxim: bad news does not flow upstream.  That cannot hold in a high-performing organization.

In addition to the three levels of roles and responsibilities, structure deals with organizational boundaries.  As the business grows there is a need to divide into manageable parts, so boundaries are drawn around geographic segments, customer segments, or product segments most likely.  Boundaries also exist around functions, e.g. HR, Finance, IT, etc.  Every boundary creates the potential for an us vs. them phenomenon; it is human nature.  Therefore, it is incumbent on the high-performing organization to exert effort and expend resources on an effective coordinating level that manages across boundaries.  In the words of a past client who was part of a very high-performing organization, "We have boundaries, but they are very low walls."

Work System

The core process of value transformation is essentially the heart of the work system for the whole organization.  The process of converting inputs into a higher-value output that customers are willing to purchase represents the basis on which other organizational systems are designed, i.e. form follows function.  The organizational systems model is scalable, so the work system for the whole company deals with the core process, but the work system for a department (which is also an organization) might differ, e.g. the HR department's work is a process of talent management: attracting, selecting, orienting, developing, and  managing.

Definition of the work process is the same as definition of the core process: identify the initial input, identify the desired output, and define the process that converts the input to the output.  Typically there will be 3-5 phases of work activities that create discrete interim outputs, each adding value and progressing toward the desired final output.  Take wheat farming for example: there's an initial input of a need or market for wheat; initial activities involve preparing the soil for planting with a desired outcome of fertile soil; next is planting the seed in order to get good germination and health seedlings; then comes tending the field to ensure a healthy, productive crop; then harvesting the mature wheat; and finally marketing the harvest for a profitable return.

Discrete, interim outputs afford opportunities to measure process performance.  In our farming example it is possible to assess the fertility of the soil, the degree of successful germination, the health of the crop, the yield and quality of the harvest, and the financial return.  Process performance measurement is the key to process performance management.  By defining the work process in terms of sequential, value-building outputs, performance measurement is facilitated.

The tools that enable, improve, or automate a work process are also part of the work system.  Understanding the work before selecting and investing in tools is to be preferred to reversing that order.  Even the most desirable of tools will generally require some change in how work gets done, i.e. the introduction of new tools will cause an initial disruption in work.  That disruption will not surprisingly create resistance to change; just look at the struggle to introduce an electronic medical record into the health care industry.  In a competitive environment, flexibility that allows selective incorporation of useful tools into the work system enables agility that can lead to competitive advantage.

Work flow occurs across some type of work space.  The physical layout of how people work together can help or hinder work flow.  The principles of lean manufacturing  have caused rethinking the assembly line and moving toward cells where a team will build an entire product.  Various technologies are available to facilitate collaboration; they represent a tool that can overcome geographic challenges to group effort.  By giving consideration to work flow, significant barriers to collaborative effort can be reduced or eliminated.

Organizational Systems

Organizations are very much analogous to human organisms in that each is unique, but each is made up of a standard set of systems.  Human organ systems include nervous, cardiovascular, respiratory, gastrointestinal, endocrine, genitourinary, musculoskeletal, and integumentary.  Organizational systems include work, structure, information, people, reward, and renewal systems.  Good overall health requires healthy systems working in congruence, whether we reference individuals or organizations.

Although all organizations have a de facto version of the six systems, the likelihood of alignment and harmony is enhanced when those systems are designed.  As companies grow they tend to patch the organization together in order to meet the demands of the moment.  The patches are often intended as temporary fixes, but become permanent when there is not enough time to go back and create more durable solutions.  As the patches proliferate, the risks to organizational health and performance are multiplied.

Organizational uniqueness is a function of culture.  Culture is a product of organizational focus (mission, vision, values, and strategy) and organizational systems.  It's not hard to see high-performing cultures stemming from excellent alignment among focus and systems, and, on the other hand, misalignments leading to performance issues.  Since culture is a result of design choices within the organization, we highly recommend beginning culture change efforts with an organizational assessment and, where appropriate, redesign.

Just as physicians vigorously resist the notion of cookbook medicine because each patient is unique, there are no one-size-fits-all solutions for improving organizational performance.  At the same time, knowledge of the systems common to all is critically important for accurate diagnosis and treatment.  Physicians combine in-depth knowledge of the anatomy, physiology, and pathology of human organ systems with intimate knowledge of the individual patient to optimize that patient's health.  Leaders, as organizational architects, must similarly combine understanding of organizational systems and understanding of their unique organizations to optimize performance.

Strategy

Strategy is a critical part of organizational focus.  It reflects choices regarding how the organization distinguishes itself in the marketplace and how it will pursue growth.  In his book, Managing in a Time of Great Change, Peter Drucker identified a deadly business sin: feeding problems and starving opportunities.  This phenomenon is depressingly common in our experience; scarce corporate resources (money, time, talent, and management attention) get disproportionately consumed by problems while opportunities routinely go begging or get ignored.  Resource allocation does not have to work this way, yet it does appear to be the natural order of things.  Serious and committed strategic intent can overcome the natural order by prioritizing investments on building and maintaining capabilities, rather than waiting for crisis to mandate repairing capabilities.

The customer value proposition may be defined by a simple formula:

                                                V = Q/$

Value (V) is equal to quality (Q) divided by cost ($).  Folk wisdom is that you get what you pay for.  The savvy shopper believes diligence on her part will help get more for her money.  The simple fact of the matter is that a free economy allows consumers of goods and services to assign value by their willingness to pay.  Quality can be considered a number of ways, including technical quality, service quality, innovation, and speed. 

Companies are advised to focus efforts toward distinction on excelling in one, and only one, component of the value formula.  Most companies of distinction are known by their choice: Wal-Mart is the low cost retailer, FedEx delivers overnight, Nordstrom's salespeople spoil customers with service, BMW provides the technical quality of German engineering, and 3M keeps coming up with Post-it style innovations.  All value parameters are important in that subpar performance in any one creates a competitive disadvantage.

Choices for growth can focus on customers, product, production capacity, or technology.  Customer-focused growth involves understanding customer's needs so well that more solutions can be developed and delivered to meet those needs, e.g. a consulting firm engaging in follow-on projects with a client.  Product-focused growth involves finding more customers for existing and evolving products/services, e.g. we've made a great widget - the more people find out about it the more people want to buy it.  Production-capacity focus requires creating more capacity and utilizing that capacity efficiently and effectively, e.g. an airline, hotel, or oil refinery.  Technology focus relies on a technology platform from which new solutions are developed, e.g. a defense contractor with a expertise in radar develops new radar applications for new missions.

Strategic choices define opportunities.  Forward-looking companies make their choices explicit and support them with investment.  Problems are certainly worked, but, with one exception, problems are not the top priority that consumes all available resources.  The exception is when a problem represents a competitive disadvantage - that becomes top priority until performance is up to par.

Values

Values posters adorn the office walls of many companies, evidence of widespread awareness that values should be a part of defining organizations.  Those companies with a strong set of values will attract and retain employees who share those values, while rebuffing those who do not.  The strength of organizational values is related to the consistency with which articulated values - the ones on the wall posters - are modeled and rewarded.  If a manager who makes his numbers while violating corporate values gets bonused to the hilt regardless, people recognize that numbers are important and values are not.  Guess what types of behaviors are being promoted.

Sometimes it seems that the Scout Law - trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, brave, clean, and reverent - has served as the basis for developing corporate values statements.  We might be better served by assuming a reasonable standard of human decency is the ante for employment and defining a core group of corporate values that strategically support the mission and vision.  Values should facilitate wise decision-making that is congruent across the entire organization.  When the violation of an organizational value is refused, even though it would have been profitable to violate it in the short run, that value is well embedded and serving as a useful guidepost.  Of course the reason for identifying values in the first place is to aid in the building of a durable, successful, and compelling organization.

We have been privileged to be associated with the RBL Group and its principals, Dave Ulrich and Norm Smallwood.  Their book, How Leaders Build Value, identified a number of organizational capabilities that contribute impressive intangible value: leadership, talent, accountability, shared mindset, collaboration, learning, and agility.  Such a list might be a useful starting place in identifying "what is important around here".  GE, for instance, is known as much for their investment in leadership as they are for their products.  It is certainly not a stretch to say "we value X, Y, and Z as corporate capabilities and we will build those capabilities as a critical part of our business strategy", and that scenario would be much less likely to lead to behaviors and decisions diametrically opposed to articulated values.

Vision

A vision is, simply stated, a description of the desired future for your organization.  We deal with vision after getting clear on a succinct mission statement describing the organization's reason for being.  To contribute to a company's intangible value, its vision must be credible to stakeholders.  Part of being credible is recognizing the current organization in its future vision.  If the vision is otherwise wonderful, but it seems to be portraying a different organization altogether, it will fail to serve.  The mission statement must be sufficiently durable to remain pertinent in the future, e.g. the hospital whose mission is to improve the health of its patients and community should be working on that mission now and still working on it 20-30 years from now.  The vision then becomes about performance relative to the mission and the culture that enables performance.

Organizational performance is defined by three categories of results: results for employees, results for customers, and results for owners/investors.  We deal with results in this order because of the answers to the question, "What comes first?".  Employees produce the results for customers, and customers produce the revenues that allow a return for investors.  Although the three-legged stool is an apt analogy for organizational results (you may not fall short in any one of the three results categories without jeopardizing the health of the enterprise), when planning how to do something about results, it is usually much more productive to begin at the beginning, with employees.  It is also true that the overwhelming choice in the real world is to begin at the end, with financial results.  Regardless, in our desired future state we aim for optimal performance in each of the three categories.

Employee Results

What is it like to work at our future organization?  Do people get energized by their work or only by the clock's striking five o'clock?  Are our people competent and committed or just one or the other or neither?  Do our people recognize their contribution to our overall results? Do people feel their authority is appropriate for their responsibilities?  Is the information required for good decision making conveniently available to the decision makers?  Does everybody have a realistic understanding of the business environment and business performance?  Do people have the opportunity to develop to their potential?  Are formal and informal rewards consistent with and appropriate for performance?  Does the organization learn from people's experience? 

Employee results are reflected in the culture.  The desired future should include  a recognition of the behaviors, feelings, and knowledge that will deliver customer and investor results.

Customer Results

Do our customers prefer us?  Do we stand out to the good in some way and to the bad in no way?  Are they receiving perceived value for their money?  Will they continue to do business with us?  Will they recommend us to others?  Are top-tier customers willing to work with us to make our performance better? 

Customers' results depend not just on the quality of product or service they receive, but also on the experience of doing business with us.  Our employees create the product or service, and they also create the customer experience. 

Investor Results

An abundance of financial results information is nearly always available, given the accounting requirements for most organizations.  However, no amount of financial engineering will ever compensate for a shortfall in employee or customer results.  We have witnessed, time and again, the seemingly logical reaction to problems with the bottom line: cut costs X% across the board.  The X is determined with a spreadsheet and is calculated to allow just the right amount to fall to the bottom line.  Unfortunately, the spreadsheet is unable to factor in changes to employee and customer behaviors stemming from the arbitrary and indiscriminate cuts.  So the cost-cutting plan is oft employed, but seldom, if ever, successful.  Conversely, a team of people with hands-on experience for any given business issue can often use a structured methodology to redesign the way work gets done, improving quality of outputs, reducing waste and inefficiency, and reducing costs (sometimes dramatically) associated with the targeted business performance issue.

In our future organization, financial results will no doubt be sterling.  We will make them so by understanding how we can arrive at such results. 

The vision of our desired future will include successful performance relative to our mission, a high-performing culture, high levels of employee competence and commitment, and enviable top-line and bottom-line financial performance.

Mission

If you will accept our definition of organization - a group of people working together for a common purpose -you will recognize that the purpose statement, or mission statement, is the foundation on which an organization is built.  Clarity of mission aids greatly in maintaining alignment throughout the organization.  It is somewhat surprising then to find how often the mission statement seems to get filed under airy-fairy.

Organizations generally must somehow create something of value to justify their existence.  For-profit companies are very much aware that they need the revenue from customers' purchases in order to remain viable.  Those customers tend to part with their money only in exchange for perceived value.  The process of creating that value is the core process of the organization, and the mission statement should be a reflection of that core process.

Hospitals might easily arrive at a mission statement that reflects improving the health of their patients and community.  An oil refinery converts crude oil into useful consumer products and substrates.  A consulting firm helps clients to improve business performance.  A manufacturing firm converts raw materials or components into a useful product.  Each of these examples represents a collective effort, applying corporate resources to the task of creating value or adding value. 

The value creation process, or core process, is not hard to define at a conceptual level.  Begin by identifying the initial input and the final output, e.g. in health care the initial input would be a patient health issue and the optimal final output would be resolution of that health issue.  Major phases of activities leading to the desired end are marked by discrete interim outputs.  Continuing with our health care example, the initial need, or health issue, would prompt a phase of accessing care (output: availability), then evaluating the health issue (output: diagnosis), then treating the health issue (output: treated issue), and finally monitoring progress (output: resolution of issue).  The entire process represents a value transformation.

For a mission statement to be part of a compelling organizational construct it must be embedded in the consciousness of that organization.  All too often the temptation to embellish is so powerful that the mission statement becomes a paragraph or a page.  When any given associate of the company can articulate the mission statement on request and without warning, that mission is embedded as an organizing principle of that company.  Not so if the associate has to look it up.

What Is a Co3Org?

Performance, execution, results... there is little debate on what matters for organizations, but great consternation on how to deliver.  In our experience with organizational design, enabling desired performance can be boiled down to a simple formula: Compelling X Congruent X Cognizant.

Compelling

Understanding the business of the business should be foundational; how do we create the value our customers will purchase?  We are no longer surprised to find that a client organization struggles to answer this basic question.  One of us was a member of an organization whose first proposed mission statement was "to maximize profit".  That's not the question; how are you proposing to earn your profit?

Is there a credible and compelling future for the organization?  Has anyone bothered to give it some thought?  A shared vision is a powerful force in aligning an organization, and the more people believe it achievable, the more value they assign to the organization.

Strategic focus on what we do / what we don't do, who are customers are / who they are not, and what distinguishes our company all help create a sense of identity/brand.  In Good to Great, Jim Collins described the hedgehog concept: all of the great companies had incredible focus.  We have seen far more of the opposite - fear of focus because it might limit opportunities.

Ultimately, to be compelling  requires not just the presence of a defined mission, an inspiring vision, a shared set of values, and a strategic focus, but all of that must be understood and embedded in the organization.  Investors, employees, leaders, and customers should all have the same sense of organizational identity and be able to articulate it simply.

Congruent

Organizational health is similar to human health in that it depends on a standard set of systems that need to work in harmony.  Lack of alignment between one part of an organization and another depletes scarce resources: money, time, and talent.  Understanding organizational systems and creating alignment across the entire organization does not happen without intention and effort.  The natural state of all growing organizations is progressive disorder, but this can be managed when leaders see the need for architecting the growing organization.

Cognizant

We hear the calls for organizational transparency more and more, but we don't see it actually happening.  Accountability is still interpreted as who gets the blame when things go wrong.  The way to high performance is to have the entire organization knowledgeable about the business environment and about business performance.  Denial and delusion are, unfortunately, all too common; they are often the preferred means of dealing with the painful truth, but they represent an incredible impediment to optimizing performance.

The Co3Org knows and loves who they are, what they do, and where they are going - their story is compelling.  Organizational systems are aligned with organizational focus and with each other - they are congruent.  The entire organization is highly aware of what is going on in the business environment and with their own performance - they are cognizant.  Sounds simple, and yet it is so rarely observed in nature.