Innodata

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How Organizations Work

Taking a Holistic Approach to Enterprise Health

ALAN P BRACHE

JOHN WILEY amp SONS INC

ffirsqxp 11501 127 PM Page i

Copyright copy 2002 by Kepner-Tregoe Inc All rights reserved

Published by John Wiley amp Sons Inc New York

No part of this publication may be reproduced stored in a retrievalsystem or transmitted in any form or by any means electronicmechanical photocopying recording scanning or otherwise exceptas permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act without either the prior written permission of thePublisher or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center 222 Rosewood DriveDanvers MA 01923 (978) 750-8400 fax (978) 750-4744Requests to the Publisher for permission should be addressed to thePermissions Department John Wiley amp Sons Inc 605 ThirdAvenue New York NY 10158-0012 (212) 850-6011 fax (212)850-6008 E-Mail PERMREQ WILEYCOM

This publication is designed to provide accurate and authoritativeinformation in regard to the subject manner covered It is sold withthe understanding that the publisher is not engaged in renderinglegal accounting or other professional services If legal advice orother expert assistance is required the services of a competentprofessional person should be sought

This title is also available in print as 0-471-20033-6

For more information about Wiley products visit our web site atwwwWileycom

How Organizations Work

Taking a Holistic Approach to Enterprise Health

ALAN P BRACHE

JOHN WILEY amp SONS INC

ffirsqxp 11501 127 PM Page i

Copyright copy 2002 by Kepner-Tregoe Inc All rights reserved

Published by John Wiley amp Sons Inc New York

No part of this publication may be reproduced stored in a retrievalsystem or transmitted in any form or by any means electronicmechanical photocopying recording scanning or otherwise exceptas permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act without either the prior written permission of thePublisher or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center 222 Rosewood DriveDanvers MA 01923 (978) 750-8400 fax (978) 750-4744Requests to the Publisher for permission should be addressed to thePermissions Department John Wiley amp Sons Inc 605 ThirdAvenue New York NY 10158-0012 (212) 850-6011 fax (212)850-6008 E-Mail PERMREQ WILEYCOM

This publication is designed to provide accurate and authoritativeinformation in regard to the subject manner covered It is sold withthe understanding that the publisher is not engaged in renderinglegal accounting or other professional services If legal advice orother expert assistance is required the services of a competentprofessional person should be sought

This title is also available in print as 0-471-20033-6

For more information about Wiley products visit our web site atwwwWileycom

Copyright copy 2002 by Kepner-Tregoe Inc All rights reserved

Published by John Wiley amp Sons Inc New York

No part of this publication may be reproduced stored in a retrievalsystem or transmitted in any form or by any means electronicmechanical photocopying recording scanning or otherwise exceptas permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act without either the prior written permission of thePublisher or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center 222 Rosewood DriveDanvers MA 01923 (978) 750-8400 fax (978) 750-4744Requests to the Publisher for permission should be addressed to thePermissions Department John Wiley amp Sons Inc 605 ThirdAvenue New York NY 10158-0012 (212) 850-6011 fax (212)850-6008 E-Mail PERMREQ WILEYCOM

This publication is designed to provide accurate and authoritativeinformation in regard to the subject manner covered It is sold withthe understanding that the publisher is not engaged in renderinglegal accounting or other professional services If legal advice orother expert assistance is required the services of a competentprofessional person should be sought

This title is also available in print as 0-471-20033-6

For more information about Wiley products visit our web site atwwwWileycom

iii

Contents

Foreword v

Acknowledgments vii

Chapter 1 Exploring the New Enterprise Model 1

Chapter 2 Understanding the External BusinessEnvironment 15

Chapter 3 Leading the Enterprise 31

Chapter 4 Creating Strategic Alignment 48

Chapter 5 Rethinking Business Processes 65

Chapter 6 Setting Goals and Measuring Progress 85

Chapter 7 Reframing Culture 99

Chapter 8 Managing Human Capabilities 120

Chapter 9 Leveraging Information and Knowledge 141

Chapter 10 Putting Organization Structure in Its Place 166

ffirsqxp 11501 127PM Pageiii

Chapter 11 Resolving Business Issues 184

Chapter 12 Putting It All Together 212

Index 227

iv CONTENTS

ffirsqxp 11501 127 PM Page iv

Foreword

Whether you run or work for a manufacturer a distributor afinancial institution a government agency a dotcom or tele-com or an organization of just about any size and type chancesare you and your colleagues face the relentless challenge ofimproving performance

There are of course many paths to raising performanceand achieving greater levels of business results Regardless ofwhich path theyrsquove followed those who have made the trek areoften disappointed Their hard-won changesmdashwhether in cus-tomer service quality cycle time cost containment morale orsafetymdashtend to be short lived The reason They havenrsquot zeroedin on the root cause of the issues or the factors necessary forsuccessful permanent resolution

Herersquos the fundamental flaw that Alan Brache points to inhis powerful new book Executives and managers just donrsquotknow how to pull the right levers in the right way at the righttime As a result major problems recur opportunities slipaway changes donrsquot last and the resources invested inimprovement efforts yield little if any return The costs can beenormous in terms of an organizationrsquos financial health itscompetitive position and its employee morale

Alanrsquos book offers a clear and integrated solution to remedythis flaw He presents a new ldquoEnterprise Modelrdquo one that takesinto account all the variables that influence performance Whatyou get from How Organizations Work is a 360-degree picture oforganizational dynamics and how they may be harnessed toeffect permanent improvements in performance

v

ffirsqxp 11501 127 PM Page v

The book establishes an interactive relationship with thereader by raising a set of questions with which to check his orher organizationrsquos vital signs After conducting this compre-hensive physical exam the reader comes away from the bookwith a complete understanding of the state of the organizationrsquoshealth

While bookstores are littered with volumes on change man-agement and performance improvement Alanrsquos book standsapart It is based on a comprehensive model it focuses on thebasics of blocking and tackling rather than on airy theorizingabout change it is a quick and easy read its diagnostic orienta-tion encourages reader involvement How Organizations Worksets out to break the source code of performance improvement

The book is aimed at executives and managers at everylevel especially those new to their job those whose performance-improvement efforts have not produced the expected resultsmdasha vast audience indeedmdashthose facing major change issues andthose with strengths in a limited number of areas who need toreach beyond them to make their change efforts succeed

Alanrsquos book is concise and written for executives and man-agers who are searching for practical concepts and approachesto help their organization become more effective and betterplaces to be How Organizations Work should prove to be the dis-covery for which they have been waiting

Rich TeerlinkRetired ChairmanCEO

Harley-Davidson Inc

vi FOREWORD

ffirsqxp 11501 127 PM Page vi

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

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odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

Chapter 11 Resolving Business Issues 184

Chapter 12 Putting It All Together 212

Index 227

iv CONTENTS

ffirsqxp 11501 127 PM Page iv

Foreword

Whether you run or work for a manufacturer a distributor afinancial institution a government agency a dotcom or tele-com or an organization of just about any size and type chancesare you and your colleagues face the relentless challenge ofimproving performance

There are of course many paths to raising performanceand achieving greater levels of business results Regardless ofwhich path theyrsquove followed those who have made the trek areoften disappointed Their hard-won changesmdashwhether in cus-tomer service quality cycle time cost containment morale orsafetymdashtend to be short lived The reason They havenrsquot zeroedin on the root cause of the issues or the factors necessary forsuccessful permanent resolution

Herersquos the fundamental flaw that Alan Brache points to inhis powerful new book Executives and managers just donrsquotknow how to pull the right levers in the right way at the righttime As a result major problems recur opportunities slipaway changes donrsquot last and the resources invested inimprovement efforts yield little if any return The costs can beenormous in terms of an organizationrsquos financial health itscompetitive position and its employee morale

Alanrsquos book offers a clear and integrated solution to remedythis flaw He presents a new ldquoEnterprise Modelrdquo one that takesinto account all the variables that influence performance Whatyou get from How Organizations Work is a 360-degree picture oforganizational dynamics and how they may be harnessed toeffect permanent improvements in performance

v

ffirsqxp 11501 127 PM Page v

The book establishes an interactive relationship with thereader by raising a set of questions with which to check his orher organizationrsquos vital signs After conducting this compre-hensive physical exam the reader comes away from the bookwith a complete understanding of the state of the organizationrsquoshealth

While bookstores are littered with volumes on change man-agement and performance improvement Alanrsquos book standsapart It is based on a comprehensive model it focuses on thebasics of blocking and tackling rather than on airy theorizingabout change it is a quick and easy read its diagnostic orienta-tion encourages reader involvement How Organizations Worksets out to break the source code of performance improvement

The book is aimed at executives and managers at everylevel especially those new to their job those whose performance-improvement efforts have not produced the expected resultsmdasha vast audience indeedmdashthose facing major change issues andthose with strengths in a limited number of areas who need toreach beyond them to make their change efforts succeed

Alanrsquos book is concise and written for executives and man-agers who are searching for practical concepts and approachesto help their organization become more effective and betterplaces to be How Organizations Work should prove to be the dis-covery for which they have been waiting

Rich TeerlinkRetired ChairmanCEO

Harley-Davidson Inc

vi FOREWORD

ffirsqxp 11501 127 PM Page vi

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

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nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

Foreword

Whether you run or work for a manufacturer a distributor afinancial institution a government agency a dotcom or tele-com or an organization of just about any size and type chancesare you and your colleagues face the relentless challenge ofimproving performance

There are of course many paths to raising performanceand achieving greater levels of business results Regardless ofwhich path theyrsquove followed those who have made the trek areoften disappointed Their hard-won changesmdashwhether in cus-tomer service quality cycle time cost containment morale orsafetymdashtend to be short lived The reason They havenrsquot zeroedin on the root cause of the issues or the factors necessary forsuccessful permanent resolution

Herersquos the fundamental flaw that Alan Brache points to inhis powerful new book Executives and managers just donrsquotknow how to pull the right levers in the right way at the righttime As a result major problems recur opportunities slipaway changes donrsquot last and the resources invested inimprovement efforts yield little if any return The costs can beenormous in terms of an organizationrsquos financial health itscompetitive position and its employee morale

Alanrsquos book offers a clear and integrated solution to remedythis flaw He presents a new ldquoEnterprise Modelrdquo one that takesinto account all the variables that influence performance Whatyou get from How Organizations Work is a 360-degree picture oforganizational dynamics and how they may be harnessed toeffect permanent improvements in performance

v

ffirsqxp 11501 127 PM Page v

The book establishes an interactive relationship with thereader by raising a set of questions with which to check his orher organizationrsquos vital signs After conducting this compre-hensive physical exam the reader comes away from the bookwith a complete understanding of the state of the organizationrsquoshealth

While bookstores are littered with volumes on change man-agement and performance improvement Alanrsquos book standsapart It is based on a comprehensive model it focuses on thebasics of blocking and tackling rather than on airy theorizingabout change it is a quick and easy read its diagnostic orienta-tion encourages reader involvement How Organizations Worksets out to break the source code of performance improvement

The book is aimed at executives and managers at everylevel especially those new to their job those whose performance-improvement efforts have not produced the expected resultsmdasha vast audience indeedmdashthose facing major change issues andthose with strengths in a limited number of areas who need toreach beyond them to make their change efforts succeed

Alanrsquos book is concise and written for executives and man-agers who are searching for practical concepts and approachesto help their organization become more effective and betterplaces to be How Organizations Work should prove to be the dis-covery for which they have been waiting

Rich TeerlinkRetired ChairmanCEO

Harley-Davidson Inc

vi FOREWORD

ffirsqxp 11501 127 PM Page vi

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

The book establishes an interactive relationship with thereader by raising a set of questions with which to check his orher organizationrsquos vital signs After conducting this compre-hensive physical exam the reader comes away from the bookwith a complete understanding of the state of the organizationrsquoshealth

While bookstores are littered with volumes on change man-agement and performance improvement Alanrsquos book standsapart It is based on a comprehensive model it focuses on thebasics of blocking and tackling rather than on airy theorizingabout change it is a quick and easy read its diagnostic orienta-tion encourages reader involvement How Organizations Worksets out to break the source code of performance improvement

The book is aimed at executives and managers at everylevel especially those new to their job those whose performance-improvement efforts have not produced the expected resultsmdasha vast audience indeedmdashthose facing major change issues andthose with strengths in a limited number of areas who need toreach beyond them to make their change efforts succeed

Alanrsquos book is concise and written for executives and man-agers who are searching for practical concepts and approachesto help their organization become more effective and betterplaces to be How Organizations Work should prove to be the dis-covery for which they have been waiting

Rich TeerlinkRetired ChairmanCEO

Harley-Davidson Inc

vi FOREWORD

ffirsqxp 11501 127 PM Page vi

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

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c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

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ip

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s

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uman

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Info

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ion

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ledg

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emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

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re

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tion

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ernm

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ital

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ds

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ivid

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duct

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ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

goods that go into your products and services They inturn may have suppliersResource providers which include

Schools companies and agencies that provideworkers

Banks and venture capitalists that provide money Academic institutions research labs and other

companies that provide technology Organizations to which your company or agency

outsources functions such as manufacturing distri-bution accounting market research and humanresource administration

Competitors who meet the needs of the market with similaror substitute products and servicesGovernment which includes elected officials courts centralbanks and regulatory agenciesThe economy which is not merely a function of govern-ment It includes factors such as growth or contractioninflation or deflation financial optimism or fear currencyvaluations commodity prices household income and jobcreationThe society and community which have interests in and con-cerns about quality of life the environment employmentand corporate citizenshipIf your organization is part of a larger entity your corporateparent which influences a subsidiary through its strategyculture funding mandates and prioritiesShareholders who provide funding and general direction inreturn for equity growth and dividends

These universal variables may need to be supplemented byindustry-specific external factors For example weather is a keyvariable for agriculture and leisure businesses

Healthy interfaces with these external entities are built on aplatform of understanding For each of the factors defined above

How well do you understand the trends strategy needspriorities and processes of this variable

Organization Performance Knowing the Variables 7

c01qxp 11601 743 AM Page 7

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

How well do you understand the ways in which this vari-able does and should influence youHow well do you understand the ways in which you do andshould influence this variable

The more deeply you understand these variables thegreater your appreciation for the water in which your organiza-tion swims

These external variables are addressed in more depth inChapter 2

What Are the Structural Variables

Four of the internal variables install a system procedure ormechanism for doing business While these structural variablesall need people to make them work their primary contributionis to establish the floors and framing of the organizational housein which people live

Business processes are at the heart of your operationsbecause they are the vehicles through which work getsdone Customer-touch processes include business develop-ment order fulfillment customer service and productdevelopment They are supported by internal processessuch as hiring planning financial reporting and resourceallocation

While processes are only as good as the people who pop-ulate them you cannot rely on exemplary talent to triumphover flawed systems Business processes are structuralbecause they provide the steps protocols and roles withinwhich people do their jobs

The business processes variable is addressed in Chapter 5Goals begin with the financial and nonfinancial targets foryour overall business These goals cascade through all orga-nizational levels and ultimately describe the expectations ofall individuals and teams Goals become a management toolthrough a measurement system in which performance infor-mation is gathered monitored and used as the basis forproblem solving and decision making

The goalsmeasurement variable is addressed in Chapter 6

8 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 8

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

Information management is the backbone of an organizationThis variable includes your computer systems and theinformation they house generate correlate and massage Italso includes the facts and perceptions that are in nondigitalfiles and peoplersquos heads In an organization managing thisvariable well valuable information and learning are cap-tured and made accessible in a knowledge management sys-tem Those who need information on products customersprocesses and capabilities can readily access it

The informationknowledge management variable isaddressed in Chapter 9Organization structure is the formal grouping of roles andresponsibilities (for example by function product customeror geography) and the reporting hierarchy It reflects thepositional power in the organization and has a significantinfluence on workflows day-to-day management andcareer development

The organization structure variable is addressed in Chap-ter 10

What Are the Human Variables

The three human variables focus on the skills motivation andbehaviors of people They explore what people are able to doand what they actually do in their organizational lives

Leadership is the set of behaviors through which those withboth positional power and influencing power steer the pri-orities activities and results of others in your organizationLeadership includes visioning contextualizing communi-cating aligning mobilizing energizing inspiring enablingrewarding and developing

The leadership variable is addressed in Chapter 3Culture includes the norms folkways practices and unwrit-ten rules that guide the way an organization conducts busi-ness By examining your organizationrsquos culture you gaininsight into participation risk orientation innovationinteraction style pace and communication

The culture variable is addressed in Chapter 7

Organization Performance Knowing the Variables 9

c01qxp 11601 743 AM Page 9

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

Human capabilities are the skills and knowledge of yourworkforce Managerial skills technical skills and physicalskills are the lifeblood of even the most automated opera-tions This variable also includes the individual values thatsupport or inhibit performance

The human capabilities variable is addressed in Chapter 8

What Are the Variables That Are Equally Structural and Human

Two variables strike a balance between the human and struc-tural dimensions

Strategy is the framework of choices that define the natureand direction of your organization Your strategy shouldanswer these questions

1 What values and beliefs will drive our decisions andculture

2 What productsservices will we offer3 What marketscustomers will we serve4 What will make us successful5 What results will we achieve

Strategy defines your organizationrsquos place in the econ-omy and society It is the variable that defines the ldquowhatrdquo ofyour organization The other eight internal variables arecomponents of the ldquohowrdquo

The structural dimension of strategy is the product deci-sions market decisions and goals that define the bound-aries within which you conduct business The humandimension is the vision that guides those decisions andsteers your organization to their implementation

The strategy variable is addressed in Chapter 4

Issue resolution is the way in which you and your colleaguesidentify concerns set priorities solve problems make deci-sions and develop and implement plans Issues may be cur-rent or future and present threats or opportunities Asissues surface in each of the other variables (for examplebusiness process issues organization structure issues cul-

10 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 10

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

ture issues capability issues) world-class organizationseffectively and efficiently resolve them

The structural aspect of issue resolution is comprised ofthe steps people follow and the templates they use whenaddressing their concerns The human dimension is the ana-lytical and creative thinking that has to flow through thosesteps and the nature and extent of participation in each step

The issue resolution variable is addressed in Chapter 11

The overarching internal variable questions are

Do you understand how each of these factors influences theperformance of your organizationDo you know how you are performing in each of theseareasDo you know which of these factors represent the most sig-nificant current and future threats and opportunities

Each chapter has a detailed self-assessment that shouldenable you to answer yes to each of these questions

TAKING A HOLISTIC VIEW

As Figure 12 shows these variables like the organs in the bodyor the components of a bicycle do not exist in isolation

To resolve almost every complex issue you must addressmore than one variable Furthermore the installation of anysignificant change requires managing multiple variables

For example the executives of a hotel chain may go off to themountain and come down with the tablets of a new strategy thatplaces their future focus on the business traveler This newvision will not be successfully implemented without changes tobusiness processes (for example check-inout messaging)human capabilities (for example meeting planning customerservice) and culture (for example emphasis on speed establish-ing decision-making authority at the customer contact point)

You cannot effectively address organization structure with-out examining the strategy and business processes that structureshould support You cannot change culture without developing

Taking a Holistic View 11

c01qxp 11601 743 AM Page 11

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

12 EXPLORING THE NEW ENTERPRISE MODEL

human capabilities You cannot formulate or implement strategywithout leadership The key to successful change is the identifi-cation and integration of the relevant variables

The sequence and integration of variables are addressed inChapter 12

HOW CAN WE IMPROVE PERFORMANCE

Executives in healthy organizations have learned a number oflessons from the Enterprise Modelrsquos holistic view of perfor-mance

Figure 12 The Compartmental View and the Integrated View

Compartmental View Integrated View

c01qxp 11601 743 AM Page 12

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

The first step on the road to performance improvement isrecognizing the external and internal variables and the roleplayed by eachYou can only achieve strategic resultsmdashincreased share-holder value growth in revenue and return an enhancedbrandmdashand operational resultsmdashincreased quality reducedcost reduced cycle timemdashthrough the management ofthese variablesMost improvements require the integrated treatment ofmore than one variable An enterprise is a system not a col-lection of independent componentsThe variables are more than treatments for an existing dis-ease Like people who address elevated cholesterol levelsbefore they lead to heart problems world-class executivescontinuously assess each variable and address deficienciesbefore they become issues that affect their financial resultsOrganizations should have regular comprehensive physicalexams that diagnose each factor that affects organizationalhealth Address weaknesses within the context of the otherfactors ensuring that the treatment does not have sideeffects that are worse than the diseaseExecutives should manage all of the variables that canimpact the outcome of a change initiative

People have different health goals Some are striving forlongevity Others simply want to be strong for whatever periodof time they have on the planet Some want to accomplishsomething athletically Others see physical and mental healthas part of a spiritual journey Some just want to look good

Similarly organizations have different definitions of healthFor some the sole goal is increasing shareholder value For oth-ers it is to grow to a certain size For some it is doing some-thing meaningful and lasting for the earth and its inhabitantsFor others it is providing a place in which employees can fulfilltheir intellectual andor financial dreams Some just want tolook good

Managing organizational health like managing physicaland mental health requires a major commitment of time How-ever there is no investment that has a higher potential return

How Can We Improve Performance 13

c01qxp 11601 743 AM Page 13

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

NOTE

1 For an earlier and less comprehensive version of the EnterpriseModel see the systems model in Geary Rummler and AlanBrache Improving Performance How to Manage the White Space onthe Organization Chart (San Francisco Jossey-Bass 1995)

14 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 14

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

15

Understanding theExternal Business

Environment

2

Martin Althen appears to have things under control The president ofSumpter Diagnostics a chain of medical testing laboratories that servedoctors and hospitals has an office that looks like the cockpit of a spaceshuttle Displayed as dials in an instrument panel he has measures ofsales profit test quality technician productivity cost per lab and per testtest result turnaround time and patient wait time He is proud of the factthat in spite of Sumpterrsquos growth he visits every one of the 25 labs everyquarter and knows at least 80 percent of the employees by name

However Martin still does not think he has his finger fully onSumpterrsquos pulse He has not been sleeping well lately because

Demand fluctuates widely and because his overhead is mostlyfixed his profitability varies with itThe volume and types of tests change without warning and hislabs find themselves with too many test kits for some diagnosticsand too few for others Training technicians in new proceduresdrains precious time and moneySumpter routinely loses valued long-term apparently satisfiedcustomers especially health maintenance organizations Martindoes not know whyGovernment and private insurance claim documentation require-ments appear to change dailyHe continually hears about advances in testing technology butdoes not have the time to explore themGood technicians do not remain with Sumpter nearly as long asthey used to Replacing them is increasingly difficult

Chap t e r

c02qxp 11501 128 PM Page 15

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16

16 THE EXTERNAL BUSINESS ENVIRONMENT

Martin is a participative executive He spends most of each daydiscussing these issues in meetings with his headquarters team andwith his lab managers in the field These meetings are cathartic butMartin is rarely satisfied with the decisions Thinking that he mightbe the problem he has deliberately excluded himself from the mem-bership of many of the teams he has formed to address some of thekey issues These teams meet regularly but appear to be little morethan debating forums in which theories abound and nothing hap-pens When decisions are made they seem to be based solely on theanecdotal experience of the more assertive team members

Martin has good intentions and runs a pretty tight ship How-ever he is buffeted by the winds of change He is too frequentlysurprised by developments in his industry His approach toissues tends to be internally focused He does not have theexternal intelligence upon which to base decisions He needs tobetter understand his environment

Good physicians and psychologists need context Beforeprobing your inner person they want to understand the envi-ronment in which you function What is your work setting (Doyou work in a sealed office tower a store your home on air-planes at construction sites) What are your job responsibili-ties and what demands do they put on you How would youdescribe your home surroundings What pressures are youunder on the home front At both work and nonwork locationswith whom do you interact regularly and what is theformatnature of those interactions What are your extracurric-ular pursuits Because physical and mental health are signifi-cantly influenced by external factors doctors cannot treat yourldquowhole personrdquo without understanding the environment inwhich you function

Similarly you need to understand the context within whichyour business operates Your external business environmentincludes both variables on which you have little or no influence(for example interest rates trade policies the price of raw mate-rials) as well as those that have resulted from your choices (forexample the markets you serve your alliance partners thesources of your funding) Before you can understand and improvethe internal variables you need to understand the milieu that isdepicted in Figure 21

c02qxp 11501 128 PM Page 16