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.

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.

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.

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.