The Co3Org

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.

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.

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.

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.