Competitive Advantage Through Organization Fitness

Building Strong Leaders and Organizations Since 1979

Cedar Rapids, Iowa

Organization Fitness

A model for:

1. Furthering competitive advantage

2. Redesigning an organization;

3. Increasing organizational effectiveness;

4. Implementing change; and

5. Creating human resources strategy.

Competitive Advantage The Traditional or “Michael Porter” View

Very few new competitors exist

No substitutes for the product or service exist

Buyers/suppliers have little bargaining power

Very little rivalry exists between competitors

Competitive Advantage The Revised View

Patents are not that valuable

Monopolies and regulated industries are vanishing

IT and the internet allow rapid diffusion of ideas

Economies of scale are less important

The New Competitive Advantage

“The unique ways that an organization architects itself to

achieve organization

fitness”

Framework for Organization Fitness

Work

Culture

Structure

People

Systems

Strategy

Products

Organization Components

Dimension Components

Structure Organization structure Business processes Work Design

Systems Procedures and policies HR systems IT and technology Product/service systems

Culture Values and norms Management philosophy

People Technical competencies Behavioral competencies

Organization Fitness

Like Humans, organizations can

have varying degrees of fitness

What Do You Have?

Jaguar styling

Porsche engine

BMW suspension

Rolls Royce interior

Steps to Architecting Greater Fitness

1. Review strategy and operating environment

2. Describe current structure, systems, culture and people

3. Identify structure, systems, culture and people needed to support business strategy

4. Identify gaps

5. Develop action steps

6. Measurement and follow up

Fortune 1000 Diversified Utility and Energy Provider

Case Example

Strategic Imperatives

Prepare for energy de-regulation

Create competitive mindset

Create value-added products and services

Innovate

Assemble leadership capabilities to lead a competitive enterprise

Current Organization

Organization Element DescriptionStructure Hierarchical

Highly staffed corporate center Designed for regulated business

Systems IT based on legacy systems Little real-time reporting Limited use of technology

People Very little competitive experience Long service; little diversity

Culture Longevity and loyalty Paternalistic

Required Organization

Organization Element DescriptionStructure Stronger customer service

function Greater emphasis on marketing Leaner, but not anorexic; nimble

Systems Quicker, cheaper and better Wider access to real-time info. Strategic HR management

People Transformational change leaders Greater diversity and varied work experience

Culture Performance-based; change ready Outwardly focused

Key Action Items

Organization Element DescriptionStructure New call center and processes

Formal marketing function Business development function

Systems Enterprise information system Automated meter reading Total compensation overhaul

People Robust leadership development Early retirement program effort Increased use of “outsiders”

Culture Built new cultural assumptions into HR systems

Measured progress

Organization Fitness at Two Retail Giants

Strategy

• Sell a limited number of items

• Lower cost for higher quality

• Rely on high volume

• Target small business owners

• Aim for upscale shoppers

• Pay workers well

• Sell a limited number of items

• Low cost over value

• Sell memberships

• Target mass consumer

• Keep labor costs low

Structure/Systems

• Buy directly from manufacturers

• Use own warehouses or depots

• High degree of integration in logistics

• Costco more streamlined; fewer levels

• Walmart highly centralized

• Sam’s Club/Walmart – World-Class IT

Culture

• Emphasizes individual worker

• Rewards initiative

• Employees empowered

• Highly egalitarian

• Emphasizes uniformity

• Customer is king; daily cheer

• Employee behavior specified

HR Systems and Metrics

• $17/hr average pay

• 92% of insurance covered

• 13% of workforce unionized

• Turnover rate of 6%

• $11.50/hr average pay

• 65% of insurance covered

• No unionization

• Turnover rate of 21%

The Wall Street View

“From the perspective of investors, Costco’s benefits

are overly generous. At Costco it's better to be

an employee or a customer than

a shareholder.”

Bill Dreher, Retail Analyst, Deutsche Bank Securities

The Academic View

“It is absolutely not true that all those companies that are not being nice to

their employees are simply stupid.”

Peter Cappelli, Professor of Management, Wharton

The Costco Success Story

What’s Professor Cappelli’s Point?

Using Fitness to Develop HR Strategy

Structure:What business processes need to be reconfigured or improved to help achieve business strategy?

Systems:Will changes in structure or staffing place new demands on recruitment, staffing, leadership development or succession planning?

Exercise

Enhancing Innovation Through Organization Fitness

Roadblocks to Achieving Fitness

Politics

Lack of discipline

Seeking problems for solutions

Inadequate resources

Key Lessons Learned

Strategy drives fitness

Can’t achieve by decree

No design is perfect; there is no one best design

Don’t change culture by changing culture

People are not the final source of competitive advantage

Strengths

Fad-proof

Comprehensive

Comprehensible

Applies at enterprise or operations levels