Driving Org Perf in Complex Times MKinnich July 2008 (2)

8/8/2019 Driving Org Perf in Complex Times MKinnich July 2008 (2)

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DRIVINGORGANIZATIONAL

PERFORMANCE INCOMPLEX TIMES


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Copyright 2008 Right Management Inc. 2Right Management Inc. is a wholly-owned subsidiary of Manpower Inc.

On average, 95% of theworkforce we studied arenot aware of, or do notunderstand, the companystrategy.

Robert Kaplan and David Norton(Harvard Business Review, Oct.

2005)

DRIVING ORGANIZATIONAL PERFORMANCE IN

COMPLEX TIMES

By Mark Kinnich, VP Consulting Services Midwest Region and Strategy Execution GlobalSubject Matter Expert with Right Management

Todays business discussions revolve around continuingly increased levels of

complexity for all organizations. Executing strategysuccessfully in this environment is a greater challengethan most business leaders have ever faced.

This article presents a powerfulyet often

overlookedapproach for driving performance

improvement through leveraging human capital,centering on increasing organizational alignment and

enhancing engagement.

So, how do companies incorporate such change while staying afloat in duringuncertain times?

C H A L L E N G E S T O O R G A N I Z A T I O N A L P E R F O R M A N C E

Todays Business Climate

Executing strategy was difficult before and it is getting even harder. In 2007 an MIT

Sloan Management Review noted that less than 45% of Board Directors believe thattheir companies are fully capturing strategic objectives. While this may not be

surprising given the complexity of the business environment, it is still not anacceptable level of performance. Most companies formulate strategies, however,

according to recent studies, 70-90% of them fail to execute and, when asked to

assess their results, only 1 in 3 companies report achieving significant strategicsuccess.

That historical lack of success and capability is being brought into the current

business environment. The list of current critical business drivers now includes globalcompetition and many markets are in the midst of challenging economic times. Thedegree of difficulty may vary by industry but, according to CFO Magazine (April

2008), nearly 90 percent [of CEOs surveyed] say the economy will not return to

normal growth conditions until late 2009, and as a result of this economicuncertainty, 60 percent of CFOs have postponed expansion plans. Yet, interestingly

enough, and to highlight the problem of approaching issues one dimensionally,

eighty-six percent of companies with foreign sales say the declining dollar hashelped them by accelerating their business overseas.


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RE D F L A G I N D I C A T O R S :

How does an organization recognize issues ofmisalignment and lack of engagement?

Symptoms of misalignment include:

Lack of knowledge of how value is createdacross the organization and what criticalpart each function/ business unit plays in

creating value.

Lack of a balanced measurement systemthat includes leading and lagging measuresas well as financial, operating unit

performance, talent, and employee

engagement measures.

Inconsistent leadership styles/values/culture throughout the organization.

Decisions being implemented differently(or not at all) in different parts of theorganization.

Decision making processes that are overlypolitical, slow, or wrong.

Hesitancy to bring up organizationalconcerns because of their sensitivity

(conflict avoidance) or the oppositetendency to be emotionally abusive.

Leadership Teams having the samediscussion over and over again without

coming to resolution, taking action, andsolving the problem.

Inability to talk about all elements of thebusiness (financial, operational, andpeople) with equal levels of intelligence

and insight.

Although credit is an issue for manycompanies, those with stronger balance

sheets will continue to pursue mergersand acquisitions. Even before the currentcredit crisis (and its associated dominoeffect), rising fuel costs began impacting

many industry segments across the globe.

In fact, some experts are predicting adampening of globalization and anincrease in regionalization due to rising

energy costs worldwide.

Global competition, the credit crisis,

energy issues, shifts in wealth to oil

producing nations, and the current U.S.economy are driving a need for further

consolidation whether that meansmergers and acquisitions or plant closings

and other belt-tightening measures. AsCharles Darwin noted It is not the

strongest of the species that survives, nor

the most intelligent. It is the one that isthe most adaptable to change. Certainly

there is a need for Six Sigma and Leaninitiatives and other valuable methods to

drive improvement throughout anorganization. While process improvements

are impactful, it is equally important totake a holistic view of the organization

and ask how organizations can gaingreater leverage from the people side of

the business.

People & Performance

Various studies have pegged the current

average employee engagement level inorganizations to a range of 30% to 45%

of the workforce. That means an appalling

majority of employees are notsignificantly engaged in their companies

and/or their jobs and, as a result, are notfully engaged in driving organizationalperformance. This also means there are

considerable gains to be made. Gains (as

indicated by employee engagement


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Doing the right thing isimportant, which is where strategycomes in. But doing that thingwellexecutionis what setscompanies apart.

Jeffrey Pfeffer interview based on hisbook: What Were They Thinking?:

Unconventional Wisdom AboutManagement. (July 13, 2007).

research) could include customer satisfaction, operating margin, operating income,and earnings per share among others. These potential performance gains are in part

determined by employee engagement.

Understanding the people side of the business performance equation is key toperformance in any time but especially so in difficult times. The often quoted Jack

Welsh (former General Electric CEO) was right in noting that It goes without saying

that no company, small or large, can win over the long run without energizedemployees who believe in the mission and understand how to achieve it. Thats why

you need to take the measure of employee engagement at least once a year throughanonymous surveys in which people feel completely safe to speak their minds.

The leadership challenge of executing on strategy while creating a long-termsustainable organization is more difficult than ever before. More demands and

conflicting priorities can impact leaders effectiveness and it is increasingly evident inemployee engagement information. .

For example, one mining organization, when the market price for the raw materials itproduced more than tripled, changed its strategy from cost containment to

volume production at maximum speed. The ability to drive a new set of behaviors

through all levels of leadership and employees was critical. To quickly takeadvantage of opportunities, the company needed to optimize efforts of the entire

workforce. The organization succeeded due to a well-defined specific focus and the

ability to engage people in achievement of the strategy.

From a human capital viewpoint, there are multiple perspectives to consider, for

example; talent management, employee engagement, leadership, culture,

organization design, productivity, retention, recruiting, etc. Addressing any of thesemay improve the leverage an organization gets from their workforce, but which one

is the right one?

A L I G N M E N T = P O W E R T O A C H I E V E

An underlying factor in performance (whether it is at the team, department, ororganization level) is the degree of alignment that exists. Alignment betweenstrategy, structure, leadership, and people practices creates the values (or culture)

of the organization, and drives employee engagement, customer satisfaction and,ultimately, organizational performance. Misalignmentsaps energy from an organization which can show

itself in the form of wasted efforts, slower decisionmaking, lack of collaboration, internal competition, orlack of responsiveness internally or to the customer.


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T H E P O W E R O F A L I G N M E N T

Alignment gives you the power to getand staycompetitive by bringing

together previously unconnected partsof your organization into aninterrelated, comprehensible system.

Alignment creates an organizationalculture of shared purpose.

By integrating core business factors,market factors, overall direction,leadership, and culture, alignment

gives your organization the power to

achieve consistent, defined levels of

growth and peak performance.

The Power of Alignmentby George Labovitz & Victor Rosanksy (1997)

Alignment is critical to sustainable organizational performance. CEOs are more oftenreplaced for an inability to execute against the stated strategy rather than the

strategy itself. Aligning the organization to more fully utilize the workforce is one ofthe highest leverage areas for improved performance. Alignment is essentially anagreement on the organizations direction (whatwe need to do), its operatingphilosophy/practice (howwe intend to do it) and relationships (whyit is important).

Through this agreement, aligned organizations unleash the untapped intelligence and

energy of the workforce.

Several decades of research have shownthat increased employee engagement

drives improved customer loyalty which,in turn, drives improved bottom line

results. Employee engagement metrics

provide leading indicators of down-stream financial performance. By using

systematic approaches for alignment:

Aligned organizations are morefocused and more nimble. They

know where they can and cannot beflexible.

Aligned organizations have fasterdecision making and correctdecisions are made at multiple levels

of the organization. This is a result

of strategic and operational clarity employees at all levels know how

certain matters should be addressedand address them readily and

consistently across the organization.

Aligned organizations have a consistent environment, tend to hire people who willsucceed in that environment, and empower people to act within the strategic

framework in alignment with the strategic priorities.

The benefits of alignment add up to increased near and long-term organizationalperformance. Aligned organizations attract better talent, keep that talent, and are

able to capture more of employees work-related efforts conducted duringdiscretionary time. Such companies build organizational capability throughout sothat, when a key executive or contributor leaves, the organization keeps on winning.

Five Key Questions

Companies have metrics to measure business accomplishments (revenue, margins,productivity, ROCE, RONA, EBITDA, stock price, etc.). Similarly, indicators ofalignment point out increased/decreased organizational performance over time.


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Using the following five key questions allows an organization to explore itsalignment. Since the focus of this article is strategy execution through leveraging

human capital, this set of questions are people oriented (i.e. not focused oncustomer satisfaction or production quality metrics for example).

Question #1: Do employees at all levels understand how the organization (or their

business unit) intends to successfully compete in the marketplace (price, value,

service, innovation, etc.) and how they can contribute to that value proposition?

Question #2: Has leadership established a mission and vision, a consistent set ofvalues, a leadership and operating philosophy, and a commitment to driveorganization success (vs. functional success)?

Question #3: Is the organizations value chain (how value is produced for the

customer across functions and business units) well understood (clear roles,capabilities and process handoffs defined) and managed (metrics to support

continuous improvement)?

Question #4: Do the people practices clearly drive strategic achievement? Are thepeople practices aligned with the mission, vision, values, leadership and operatingphilosophy of the organization?

Question #5: Do the leaders regularly pay attention to a set of employee metricsthat inform their actions on how to build a more capable organization (metrics suchas level of engagement, talent, retention, ability to acquire talent, internal

promotions, lateral moves, etc.)?

The absence of answers (or inadequate answers) to these key questions helpsidentify areas that are hindering (or creating outright barriers) to improvedorganizational performance. These five questions provide a starting point for creating

higher levels of alignment in an organization. An organization that pays attention to

these key questions is more likely to create and sustain a work environment that ishighly engaging to employees.


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Framework for Driving Organizational Performance

Business Environment

StrategyStrategy

LeadershipLeadership

Employee

Engagement

Employee

Engagement

CustomerExperience

CustomerExperience

OrganizationalPerformance


People Systemsand Processes


Structure,Capacity,

Capabilities

Structure,Capacity,

Capabilities

Values Culture

Business Environment

StrategyStrategy

LeadershipLeadership

Employee

Engagement

Employee

Engagement

CustomerExperience

CustomerExperience





Structure,Capacity,

Capabilities

Structure,Capacity,

Capabilities

Values Culture

A P P R O A C H T O A L I G N I N G T H E O R G A N I Z A T I O N

There are many views about how organizations approach strategy execution. Onesuch viewpoint that has proven successful for Right Management clients is shown in

the graphic below. Effective strategy implementation, as illustrated here, is driven byhow the organization aligns the elements of leadership, structure, and people

processes, creating a culture or work environment that facilitates a high level of

employee commitment to the organizations goals and customers.

This high level frameworkprovides a simple way ofdefining how alignment is

created. The real depth andbenefit of alignment is achievedwhen the details within each of

the key elements are defined

and operationalized in such away that consistency is createdthroughout the organization.

Consistency is not the enemy of

innovation as some may think.Consistency of operationalfactors allows the creativity and

innovation to flourish where itshould be flourishing (focused

on the customer valueproposition defined by the

organizations needs andstrategies).

Within each of the alignment elements in the framework, there are additional areas

to be explored. The examples below demonstrate how lack ofalignment in specificareas can impact organizational performance. While an organization would need to

ensure alignment in all areas, the examples below highlight one specific area forillustration purposes.

Organizational Alignment Examples

Strategy AlignmentIn a down economy, a regional trucking company wasable to better meet customer needs by providing a seamless distribution network

and, by doing so, increase its revenue through strategic alliances. The alliancesexpanded the companys geography so they could provide their customers withthe same level of service on a much broader scale. The company already had the

infrastructure needed to handle this increased demand, so the gain in sales

provided good bottom-line margin.


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Copyright 2008 Right Management Inc. 8

Right Management Inc. is a wholly-owned subsidiary of Manpower Inc.

Leadership AlignmentA business unit identified as the growth engine forthe whole organization had invested significantly in leadership development.

Starting at the top level leaders, all managers participated in a world classdevelopment experience. The results showed a significant increase in decisionmaking speed. Leadership capability was enhanced as evidenced by an increasedability to engage employees in the mission, strategy, and goals of the

organization. Sixty percent of participants received promotions or additions to

their responsibilities, and leaders from this business unit were selected for assuccession lists for leadership positions across the organization.

Structure/Role/Capability AlignmentOne organization doubled its salesvolume by restructuring the salespersons and sales assistants role. Therestructuring drove increased focus on the key drivers of organizational goals.

Previous sales activity was high, but lacked focus on high leverage opportunities.

Using data to segment customers and focus marketing and sales efforts, thecompany first identified where significant gains could be made. By restructuring

the salespersons and sales assistants jobs, existing resources were reallocatedmore effectively. Sales assistants focused more on one type of customer segment

and salespersons concentrated on the higher value customer category. As aresult, sales revenue increased dramatically without adding any new sales

resources. Additional alignment was created through changes in the incentive

plan and the VP of Sales and Marketing received leadership coaching.

People Practice AlignmentA global organization was growing quickly anddidnt have the leadership talent ready to place in new positions. This lack ofbench strength was slowing down the companys ability to expand into important

markets. Given their industry leadership position, the company sought to develop

the talent internally vs. hiring from the outside. An analysis revealed three keypositions (Branch Manager, Director of Operations, and Project Managers)essential to success as well as identifying the competencies needed to produce

results in those positions, and the experience criteria needed for solidcompetency levels. A three phase development program was initiated to provideleaders in these positions opportunities at job rotation, mentor relationships, and

specific core skills training. The combined assessment and development approach

reduced the time to develop leaders in these key positions from an average ofmore than eight years to a three year timeframe.

Employee Engagement AlignmentAn organization held a major governmentcontract of $500 million which represented about half of the current annual

revenue and the future revenue stream for the organization. When the contractbudget was cut by 10%, the contractor passed along the project reduction to the

provider organization but did not reduce the deliverables or change the schedule.Those 10% cuts were then allocated across the organization. What had been avery challenging program in the minds of the managers and supervisors had

become impossible. Middle managers and first line supervisors were dedicated to

executing with integrity and quality, but they held no belief that the new budgetscould be met. The company introduced a simple incentive plan that rewarded

incremental gains from the previous budget towards the new budget. The


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E X E C U T I V E P E R S P E C T I V E S

Our business is very competitive and a keysuccess factor is continual innovation. Thisrequires speed and agility in decision-making andorganization-wide implementation.

Aligning our executive and expanded leadershipteam around a clear strategy, values, leadershipexpectations, and organizational performancehas improved our focus around innovation, newproduct time to market, productivity, andfinancial performance.

Mike Whelan, Group Vice President, Beckman CoulterWe had implemented many initiatives toimprove our strategy execution and businessperformance: Kaizen, Strategic Deployment, Leanprocesses and others. They were all very helpfulbut not enough to get us where we needed to be.

It isnt just about defining the what but also thehow and the why. We have started the journeyto develop greater leadership team alignment.Although our journey is just beginning, the valueof achieving a highly aligned leadership team isalready evident. We are able to discuss sensitivetopics affecting our team performance and makethe needed adjustments.

Kim Bassett-Heitzmann, President, Bassett Mechanical

incentives and public recognition of the improvements gave the middle managersa sense of achievement which, in turn, changed the mindset from one of certain

failure to one of possible success. Leaders became more engaged in developingsolutions to meet the budget crisis. As a result, several areas of the programexceeded targets and the overall program concluded at a point close to the newbudget.

Executive Leadership Team Alignment

The Framework for Driving Organizational Performance has resonated with manysenior executives, enabling dialogue about where their organizations could enhancealignment and drive improved organizational performance. While the concept

diagram is simple, executives agree that it is more difficult to achieve success thanto describe the process.

The key to improving strategy execution

throughout the organization is employeealignment. Employees respond to a numberof factors in organizational strategy:

The organizations strategy and whetherthey see it as a winning one.

The leadership team and whether theysee cohesion at that level and have

confidence in the leaders competence.

The management structure and whetherit facilitates efficient, effective work orget in the way.

The people practices (pay, incentives,career development, performancemanagement, vacation and sick pay

policies, etc.) and whether employees

get what they want in exchange for theircontribution to the organizationssuccess.

Alignment must begin with the leadershipteam. Important considerations include:

how leaders intend to execute strategythrough management structure and processes; and how they intend to capture

employee contributions to the organizations goals. It is not possible to have a highlyaligned organization without a highly aligned leadership team. Alignment is not

something that is done to others, but something that is modeled at all levels of the

organization.


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E X E C U T I V E P E R S P E C T I V E S

Historically, our leadership team has managedfrom a strong values-driven perspective. Buildingon this core focus by gaining executive teamalignment on other key dimensions has addedrichness to leadership discussions on topics suchas how we intend to show up as leaders, whichstrategic objectives create real value, and howour customer value proposition affects ouroperations.

This focus has helped us prioritize initiatives andinvestments which has, in turn, improvedperformance. Another plus is that it is moreenjoyable to manage the business with a highlycommitted group of leaders.

John Kapanke, CEO, ELCA Board of Pensions

Highly aligned organizations have a significantcompetitive advantage. Examples of

misalignment are plentiful. For example, theimpact of executive misalignment cansignificantly affect other parts of theorganization and shake the very foundation of

an organization. The following are two

examples that illustrate the impact ofleadership misalignment on the organization.

Examples of Misalignment in Leadership

In one high tech manufacturingorganization, the leader of a key customer

contact area was using a customer as aconduit of information to upper management in hopes that the customer could

get the organization to operate differently (more in line with how that executivewanted). As a result, the customer developed a lack of confidence in theorganization that nearly caused the loss of a several hundred million dollar

project. While this may seem to be an extreme case of executive misalignment, it

is not that unusual or unique. Leaders often have so much confidence in theirbeliefs, perceptions, and ways of operating, that they personally believe their

actions are in the best interest of the organization (i.e. The organization would

work so much better if they just did it my way.) Occurrences can be seen in therifts between manufacturing and sales, research & development andmanufacturing, or marketing and research & development. These rifts dont exist

in highly performing organizations. That doesnt mean that at times there isnt

tension between those very different functions, but it does mean that the tensionis around howto best achieve an agreed upon direction. It also means that thetension can be resolved so that all parties can focus on execution.

In another example, some executive team members were at odds with eachother. There was agreement with the strategy, but not with howthe organization

could work together to create value for the customer. Leaders were publicly vocal

about their personal perspectives of how the organization should operate and thediffering perspectives adversely affected the employees confidence in leadership,

thereby causing difficulties and increased stress working across functions. In thisorganizations journey towards greater alignment, the leadership team learned

how to productively discuss and reach agreement on vision, executive leadership

operating requirements, and the ways in which the organization creates value(across functions). Even though the larger management team was not directly

involved, they acknowledged the impact that the leadership teams improvementhad on their work and morale. In addition, the confidence and trust they felttowards the executives dramatically improved.


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Leadership team alignment is the first step in creating an organization thatdemonstrates excellence in strategy execution. The touch points that are critical for

the leadership team to agree on and execute in concert with each other are:

Set the mission, vision, values and strategy for the organization. Identify the customer value proposition. Establish the organizations design (of which management structure is just one

key element).

Determine how value will be created across the organization. Sanction the people practices. Create an environment where employees can be committed to the organizations

success.

Continuous Process

After ensuring the leadership team is aligned, the company must set about

identifying the other areas most needing to come into greater alignment and beginwork there, progressing to create greater alignment throughout all parts of the

organization.

Alignment is not a static concept but one that needs to be reassessed at key times

such as during major investment decisions, acquisitions/mergers, organization re-

design, and hiring of key executives, as well as during strategy development. Allorganizations experience change and opportunities that naturally create a need for

reassessment, redevelopment, and reconfirmation of alignment.

Alignment can occur through many organizational elements, making it easier foremployees at all levels to perform consistently with the way the Executive Teams

strategy and, thus increasing the level of energy moving in toward intended

outcomes or results. When creating a new organization, it is imperative to considerall these elements together to ensure the organization is built in an aligned manner

from the start. When working with an existing organization, it makes sense toidentify which of these areas will provide the greatest leverage to improve strategy

execution and work on the top ones first. An example of one new organizationsapproach is illustrated below:

New Organization Alignment ExampleA global consumer food productsorganization decided to centralize its research & development function rather

than replicate it in each geographic business unit. The company intended thatproduct development would be more global and wanted to ensure that productinvestments decisions were being made from a whole-enterprise perspective. An

analysis indicated that these changes were needed to stop the stock price slide

the organization was experiencing.


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I believe that the change in Oricasculture was the main reason thecompany turned around sosuccessfully, as reflected in theshare price, which rose from $4 to$20 within three years.

CEO, Orica Ltd.

Such a significant organizational shift required a new mission, vision and strategy.Values needed to be (re-)confirmed. New business processes were required. A

new organization design was developed that would drive strategy achievementand remain linked to unique geographic tastes. Among the many people systemsneeding to be addressed, the first focus was set on a new set of corecompetencies, a development process, and a performance management process.

Each organizational element was developed to ensure strong alignment withstrategy and integration with one another. The results of this aligned organization

were impressive: new product investments and developments resulted insignificant global success and stock price recovery.

S U C C E S S F U L S T R A T E G Y E X E C U T I O N

That we are in a challenging business environment is obvious. The drivers that aremost impacting a specific business will be unique to an organizations market,business environment, and internal capability. The impact of these challenges may

show on a companys financial structure, IT systemneeds, product development capability, etc. In any

case, the impacts will also affect an organizations

employee basefrom leadership to the backofficeto front-line employees.

Improving the level of alignment in an organizationcreates a competitive advantage. Benefits include:reduced waste in decision making time and increasedspeed and effectiveness for creating value throughout the organization. Alignment

also helps capture more of the hearts and minds of all employees. The improvedorganizational performance can positively impact revenue, operating margin, andshare price even in these challenging and complex times.

Driving Org Perf in Complex Times MKinnich July 2008 (2)

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