By Sean Culey
It is easy to look good in a boom. It is a lesson that the executives at Chaos Corp have learnt the hard way.
In the last edition of The European Business Review, I described two very different ways that similar (in terms of products, markets and opportunities) but fictitious companies, Chaos Corp and Progression Plc, were responding to the current economic downturn. Progression saw the crisis as an opportunity to rally its people behind a common cause; building on the solid foundations they had been developing over the years.
Chaos had outgrown its ability to control the organisation effectively. They lived in the mistaken belief that big equals great, and growth, regardless of cost, equals success. Their hubris had been their undoing and now they were in freefall. Being neither lean, agile, or more importantly, ‘in control’ of their empire meant that they were desperately cost cutting; losing talent, experience, capabilities – and (critically) team morale.
So can the leadership at Chaos transition the business from mediocrity into a great organisation? Or are they doomed to fail; another victim of the recession? Using the ‘7 Keys’ framework from the earlier articles for The European Business Review, I will convey how Chaos could gain control and turn things around.
[su_pullquote]The problem with many businesses is not that they don’t know enough; but that their fixed mindset means they expend their energy defending what they think they know.[/su_pullquote]
Confront the Brutal Facts
Chaos is currently caught in the maelstrom. From the leadership down to the front line they are frantically fire-fighting, trying multiple things all at once with no clear direction or strategy for their actions. Constant instructions to cut costs mean that they also are trying to do more with less.
So what can they do?
The way out of Chaos’s current malaise is not through trying to shrink to an economically affordable model. Nor is it through sticking their head in the sands and pretending everything is fine. Chaos urgently needs to take control of its future.
! Stephen R. Covey, in ‘The 7 Habits of Highly Effective People’, describes how you must first gain mastery over yourself – the ‘Private Victory’ – before you can move on to ‘Public Victory’.
Before any victory can be obtained, Chaos first needs to follow Covey’s foundational principle – the ability to paradigm shift. An organisation locked into a ‘fixed’ view of itself and the world it inhabits is only capable of ‘fixed’ results. Nothing prevents an organisation moving forward more effectively than people who believe that the way it worked in the past is the best and only way to work tomorrow. The problem with many businesses is not that they don’t know enough; but that their fixed mindset means they expend their energy defending what they think they know. Great businesses display a growth mindset; an insatiable, fanatical desire to constantly improve.
‘Private Victory’, Covey explains, comes from three habits – firstly; ‘Be Proactive’. Proactive people recognise that they are ‘responseable’; they are able to choose their response to a given situation. Reactive people, however, often blame the situation for how they respond to it, failing to recognise or acknowledge that this response is within their control.
Chaos needs to realise that it too can choose to succeed or fail. The leaders need to take control by accepting ‘the brutal facts’ and having the courage to ignore pressure to react from analysts and stockholders. This requires more courage than declaring redundancies and cost cutting. Then reflect, listen and consider the possibility that they may have been going in the wrong direction – and immediately make the conscious choice to control their future. As the Chinese proverb goes; “the best time to plant a tree was 20 years ago. The next best time is today.”
The Power of Aligned Integration
The goal is to be able to develop ‘Aligned Integration’. The power of the ‘7 Keys’ is not in the keys themselves (for every business has them), it is in ‘Synergism’; how they are developed, aligned and integrated so that they produce value far greater than the sum of their individual elements. This ‘Aligned Integration’ synergy constitutes:
[su_pullquote]The power of the ‘7 Keys’ is not in the keys themselves (for every business has them), it is in ‘Synergism’; how they are developed, aligned and integrated.[/su_pullquote]
• Alignment of operational day-to-day activities with Goals and Strategies
• Integration of end-to-end ‘Value Chain’ processes, aligned to a clearly defined customer focused strategy (per Value Chain)
• Synchronisation and integration of the ‘7 Keys’ – Direction, People, Processes, Metrics, Technology, Data and Culture in order to deliver value
The diagram on the right illustrates how the ‘7 Keys’ should be aligned and integrated to deliver a solid foundation from which the business can grow.
Purpose, Destination, Direction
The second of Covey’s Private Victory habits is ‘Begin with the End in Mind’. To paraphrase Jim Collins, Chaos needs to take time out from their ‘doom-loop’ behaviour to create clear understanding of which flywheel to start pushing. It needs to clearly define what it stands for, where it is going and how it is going to get there – what I call developing a soul, a mission and a plan. Companies succeed when they strive towards a compelling and shared purpose. Too often they focus on financial success and mistake outcomes (like growth and profit) for strategy.
George Merck, former president of the global pharmaceutical company Merck & Co., famously said; “we try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been.”
One of the major problems with Chaos is that it has no clear direction; no ‘North Star’ to follow. It needs to engage its best people in order to define why it exists; what is its ‘Purpose for Existing’? This is something that great companies clearly define, and which their customers value because there is a connection between that purpose and their own. Merck again provides a good example; “our business is preserving and improving human life. All of our actions must be measured by our success in achieving this goal.”
Jim Collins’ studies into organisational greatness also identified the link between great performance and embedded values and beliefs. In his first study, ‘Built to Last’, he identified that ‘born great’ organisations had a clearly defined and embedded core idealology. In his next research study, ‘Good to Great’, he found that those few companies that managed to transition from mediocre to magnificent had developed a real understanding of three main things:
• What they could realistically be best in the world at (1st or 2nd in its market)
• What they were truly passionate about doing
• What drives their economic engine
Transformation happens at the intersection of these three elements; when the whole organisation strives to become the best at something they are highly passionate about, in a way that delivers profits.
[su_pullquote]Transformation happens when the whole organisation strives to become the best at something they are highly passionate about, in a way that delivers profits.[/su_pullquote]
Chaos needs to define the purpose and values that it will live by. These should be principles that the organisation would hold regardless of market conditions, and which can be clearly communicated and deeply embedded in their culture.
Then it needs a plan. Strategies – working from the customer back. Michael Porter once said that “Sound strategy starts with having the right goal”. So what is the right goal? Well according to Drucker; “there is only one valid definition of business purpose: to create a customer. He alone gives employment.”
Chaos needs to identify which customers they want – then develop supply strategies aligned with whatever drives greatest value for them. This creates a ‘Customer Value Chain’ mentality; rather than the traditional functional focus. This approach requires deep understanding of why customers would choose your products and services over others – then designing the end-to-end Value Chain specifically to match this – from product development through to distribution, reverse logistics and disposal.
As they analyse products and services, Chaos’s managers also need to ask themselves; “If we weren’t in this already, would we go into it now?” If the answer is ‘no’, then they should identify how to get out of that market as soon and painlessly as possible. Such clarity of purpose and strategy will breathe new life into the organisation.
Upon his return to Apple in 1997, one of Steve Job’s first acts was to cancel the majority of existing projects in order to devote attention to developing differentiating products, like the iMac, which he felt better represented what Apple stood for. Products that ‘connected’ with their customers, and for which he and his team had passion for developing. The results have been well documented!
The ‘Value Chain’ approach requires segmenting the business into groups of products, services and customers / markets that; (a) you have decided that you want to target, and (b) share common behavioural traits and value requirements. Most businesses have several Value Chains, often with very different value drivers; but only have one set of functionally focused Supply Chain processes and metrics.
Value – Become Your Customers First Choice
Once Chaos has identified their different Value Chains, they need to define their ‘Customer Value drivers’, by looking at:
• Which customer needs, if serviced better than the competition, would result in us becoming the best in this supply chain?
• How do we best optimise the costs incurred in serving these needs?
Organisational structure should always be designed to support the strategy, and not vice versa. Chaos, like other companies, was pursuing a ‘low cost’ agenda when actually their customer’s value driver was reliability or responsiveness. This low cost mindset drove decisions to outsource and offshore certain capabilities, increasing the Supply Chain’s complexity, lead times and levels of risk whilst decreasing reliability and responsiveness. They had inadvertently designed a Supply Chain structure that produced results contrary to what the customer valued.
Segmenting the business based on customer value drivers helps ensure that the right strategy is supported with the appropriate organisational design. Chaos now needs to define the roles and behaviours required to deliver this strategy.
[su_pullquote]Creating a Customer Value Chain requires deep understanding of why customers would choose your products and services over others – then designing the end-to-end Value Chain specifically to match this.[/su_pullquote]
It’s the People, Stupid
Clearly defining organisational purpose, values and strategies pays massive dividends when it comes to people, for we are now in the ‘knowledge worker’ and ‘24/7’ social media age, with blurred work/life boundaries. Developing effective team members requires defining how their role contributes value to the organisation, how they are expected to behave, and how success is measured and rewarded. It links both to Maslow’s hierarchy and the need for self-fulfilment, and Covey’s ‘habits’. People want to know that they add value; that they are doing the right things in the right way, fulfilling both their own purpose for existing and the organisation’s – and will gravitate to companies where they can achieve both.
Justifying Merck’s Mectizan donation, CEO Roy Vagelos said, “Our policy on Mectizan and other gifts made Merck a place where people were proud and excited to work because they wanted to make lives better around the world. It helped us recruit the best people and build company morale. It was consistent with Merck’s fundamental corporate philosophy of doing well by doing good.”
Chaos needs to take their defined corporate purpose and values, and ensure organisational adherence by embedding them into their team’s personal objectives. This helps to identify the ‘right people’ and the ‘right seats’, but also highlights the ‘wrong people’. The right people are those whose character, values and principles align to that of the organisation. Someone who gets results but doesn’t care how they get them is the wrong person. Dan Jacobs, Head of Talent at Apple, is famously quoted as saying, “I’d rather have a hole in the organisation than an asshole!”
Becoming ‘T’ Shaped
The newly identified end-to-end Customer Value Chains now require an end-to-end Customer Value Team to run them. The team requires ‘T’ shaped people from different functions – people who have the right mindset, breadth of knowledge of the end-to-end business, and functional expertise in their own area. People who can work together to deliver a common goal, eliminate distrust, break down functional barriers and develop joined-up, integrated and value focused processes and solutions.
[su_pullquote]Strong leadership is essential, requiring courage to ignore short term pressures, to trust the team, listen first, keep an open mind, and provide support for the new approach by freeing the best people from their current short term problem solving in order to make this new opportunity work.[/su_pullquote]
The Customer Value Team approach creates a matrix organisation structure that, whilst still focused on functional excellence, is designed to deliver customer value. ‘Magic’ happens when people can see direct alignment between their role and value creation. This approach creates understanding as to what value is, how it is measured, and how each role contributes and integrates with the rest of the Value Chain. Incorporating members from Finance in the team achieves two things; a constant eye on the ‘economic engine’, and recognition that the chain generates value and not just costs.
Strong leadership is essential, requiring courage to ignore short term pressures, to trust the team, listen first, keep an open mind, and provide support for the new approach by freeing the best people from their current short term problem solving in order to make this new opportunity work.
Louis Gerstner, in ‘Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround’ stated “in the end, an organisation is nothing more than the collective capacity of its people to create value.”
Culture – The Way We Do Things Round Here
Gerstner also declared “I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game.” Likewise, Peter Drucker stated that ‘Culture eats strategy for breakfast!’
These statements recognise that the biggest organisational challenge is often not external, but internal corporate culture; when, ‘the way we do things round here,’ actually works against you.
One of the major symptoms of an ineffective culture is an inability to successfully execute key goals. A global 2009 study by the Conference Board found that the top two concerns amongst top executives were:
• Excellence in execution
• Consistent execution of strategy by top management
Why the concern on execution? Because organisations that cannot execute their most important goals must call into question whether their executives have the ability to successfully lead. Leadership without the discipline of execution is ineffective and makes all other attributes redundant.
The last of Covey’s three ‘Private Victory’ habits is ‘Put First Things First’; the habit of execution. It is the ability to focus on important things, not just urgent ones. Chaos has to become, as Michael Porter once declared, schizophrenic. They have to maintain continuity of strategy whilst becoming good at continuously improving. So why don’t strategies and goals get successfully executed? One of the major reasons is a lack of trust; personal trust, inter-departmental trust and inter-company trust.
A word about trust
Stephen M.R. Covey, in ‘The Speed of Trust’ states that “above all, success in business requires two things: a winning competitive strategy, and superb organisational execution. Distrust is the enemy of both. I submit that while high trust won’t necessarily rescue a poor strategy, low trust will almost always derail a good one.”
Low trust organisations work slower and at higher cost, paying what Covey calls ‘a trust tax’. Transcendent values like trust and integrity translate into revenue and profit by allowing the business to make decisions at speed and low cost. To become a high trust organisation Chaos first needs to behave in a trustworthy way; by being transparent, confronting facts, measuring performance accurately, and most of all – successful execution and delivery of its promises.
Shared organisational purpose, values, agenda and language, and integrated, end-to-end Value Chain teams with clear measures of success all contribute to developing trust.
Measure for Success
Individual behaviours, especially those of the leaders, define the culture. There is no such thing as ‘organisational behaviour’ – there is only individual behaviour, collectivised. One of the best ways to drive the right behaviours is to have a direct link from the corporate values, purpose and Value Chain drivers to individual and team objectives. As Eli Goldratt famously said, “tell me how you measure me, and I will tell you how I will behave”. Personal objectives therefore should include guidance as to what the right behaviours ‘look like’, how their role in the Value Chain is measured, how it aligns to the overall strategy, and what conformance measures (such as compliance tasks and data maintenance) they are accountable for. This creates a direct relationship between ‘success in my role’ and ‘success for the organisation’.
[su_pullquote]Personal objectives should include guidance as to what the right behaviours ‘look like’, how their role in the Value Chain is measured, how it aligns to the overall strategy, and what conformance measures they are accountable for.[/su_pullquote]
Customer Value Chain segmentation enables success to be clearly defined and measured. If the strategy of the Value Chain is responsiveness, then the measures should be designed to, (a) ensure responsiveness in every aspect of the Value Chain and (b) be decomposed to transaction level to enable successful root cause analysis.
Benchmarking helps by setting performance targets that identify both the financial value, and cost, of closing the gaps. Including Finance in the team brings rigour to the measurement of the improvements in economic value resulting from business improvements, creating greater understanding as to how the front line drives the bottom line. Taking a Lean/Kaizen based approach by placing large, compelling Value Chain Scoreboards where the team operates, so they can constantly monitor performance, also helps create engagement.
End-to-end Value Chain measures replace the functional, disjointed metrics that pulled the business in different directions, and the synergistic alignment between the delivery of the organisation’s strategic goals and the individual’s helps to create engagement, motivation and passion.
Superior Process Performance
Segmentation of the business into customer Value Chains also creates alignment between business processes and the strategic goals of the organisation. As both the strategy and team structure is based around delivering value to the customer, process integration naturally develops, breaking down the functional silo mindset that blights many organisations.
Process improvement initiatives traditionally focus on increasing ‘efficiency’; on ‘doing things right’, rather than on ‘effectiveness’; determining the ‘right things to do’. Peter Drucker once stated that “there is nothing so useless as to make efficient that which should not be undertaken at all.”
Effective activities are those that drive value – and as we have now defined what is of value and how it is measured, we can define what processes create an effective Value Chain. In our ‘Responsive’ Value Chain, effective processes are those that create and increase responsiveness.
Chaos’s process improvement initiatives can now be focused on:
• Increasing Effectiveness of processes that directly add value (i.e. increase responsiveness, reliability)
• Increasing Efficiency of that which is essential, but does not add customer value (data, quality, HR, finance, compliance)
• Eliminating that which destroys value (waste, redundancy, duplication)
The team can now focus on developing new ways of working that support and enable the Value Chain strategy; improving effective processes, making enabling ones more efficient, and removing waste. These end-to-end Value Chain processes should be mapped out in ‘swimlane’ fashion, highlighting the following:
• All integrated processes
• Roles and responsibilities
• Process handover points
• Relationship to strategic drivers
• Governance and compliance checkpoints
• Performance and conformance reports
This will create a dynamic, auditable repository of the business allowing for total process visibility and control.
The Role of Technology
Technology is often seen as a ‘silver bullet’ answer to business problems. However, research from Information Week showed that less than 25% of IT projects delivered a positive, financial ROI. This is mostly due to a gap between the business’s performance based success measures, such as service reliability, and IT’s operational based measures, such as whether the project was on time and within budget. IT implementations often focus on functional performance, not business benefits; on creating efficiencies, not effectiveness – and at times on processes that shouldn’t be undertaken at all.
Defining the Value Chains and their drivers and metrics allows Chaos to identify which processes create value, which processes are essential enablers, and which ones are wasteful. This provides clarity, direction and focus to IT investments.
Chaos should therefore become innovative in technological solutions that create a more effective Value Chain and create improvements in the strategic metrics. This ‘effective’ focus would include improving the planning, management and reporting of Value Chain; whereas the traditional focus on efficiency often only concentrates on improving or automating its transactional execution. In their Responsive Value Chain, Chaos would be wise to focus IT investment on ways to get more accurate and timely customer demand signals so that they can respond quicker – rather than the previous focus on cost reduction.
IT solutions for the enabling processes such as Finance and HR should focus on increasing their efficiency. In all cases, IT solutions should deliver clear benefits, require less effort than the processes they replace, and deliver a positive ROI.
Data – The Foundation of Truth
Any system is only as useful as the information it provides; a lesson Chaos struggled to learn. Its ERP system fell into disuse due to a lack of discipline in data ownership and maintenance, making reports inaccurate and unreliable. A small cottage industry arose in creating alternate, spreadsheet-based reports, which resulted in significant data duplication and redundancy creating misaligned plans and an enormous amount of effort collecting and validating information – all whilst still paying significant maintenance fees for the underutilised ERP system.
Resolving this will require focused effort on cleaning up the data; it is painful but essential.
Master and transactional data management roles should also be defined as part of the Value Chain team, with measures on data integrity included in the weekly team meetings. Chaos’s executives should now only accept performance and financial reports run directly from the core ERP system. Once the team understand their data accountabilities, and that executives are running performance and financial reports directly from their data, a very real burning desire to ensure that this data is clean and accurate will arise. Inclusion of data integrity measures and SLA’s in personal objectives makes it stick.
Aligned Integration – bringing it all together
The diagram on the left represents how the synergistic benefits described earlier can be achieved through the integration of the ‘7 Keys’ to support and control the end-to-end Value Chain, and provide alignment between organisational goals, direction, purpose and operational execution.
So what of Chaos Corp?
Chaos’ management team are working through the ‘7 Keys’, starting with defining their goals, purpose and strategies based on what their customers genuinely value. They have taken some tough decisions, and begun to exit those markets where the trilogy of ‘ability to succeed’, ‘passion’, and ‘profit potential’ doesn’t exist. They have restructured the business around the Value Chains that they can successfully compete in, and have identified the strategic drivers of each. Focus is now on becoming more effective, by eliminating all non-value adding and value destroying processes, and then by automating the remaining processes to make them efficient. The organisation now has objectives that are linked to the delivery of customer value.
As a result, morale is rapidly improving. Although they’re not out of the woods yet, every employee can see where the company is going – and, more importantly, they know exactly how their daily activities support that outcome. Chaos has clarity of purpose and clear direction, and is building solid foundations for the future – foundations of structure, control and disciplined execution.
Chaos has operationalised excellence.
(Please note: Expanding the concepts and implementation of Customer Segmented Value Chains and teams will be the topic of my next article in the next edition of The European Business Review.)
About the author
Sean Culey is a member of the European Leadership Team of the Supply Chain Council, the global, not-for-profit centre for Supply Chain Excellence, and founder of Aligned Integration Ltd. Previous to this he was CEO for SEVEN Collaborative Solutions, and Principal at Solving Efeso.
Sean has worked around the globe helping companies create dramatic increases in profitability and growth, breaking down their barriers to success through the alignment and integration of their people, processes, systems and data. He helps companies to navigate the journey from functional silos, creating foundations of control that enable continual improvement and innovation via his ‘Aligned & Integrated Organisations’ (AIO) approach designed to create end-to-end, integrated customer and profit focused Value Chain teams. This approach also helps companies align their Integrated Business Planning, Management and Execution processes. He also has 20 years’ experience of creating value from ERP investments such as SAP, and is an expert in helping companies to understand how to realise the value of these investments.
Sean is a frequent conference chair, speaker and author with many published articles on Organisational Greatness, Cultural Change, ERP and Value Chain excellence. His book ‘Becoming Great (by taking everyone with you) – Developing the Aligned and Integrated Organisation’ is due to be published late 2013.
He can be contacted via his company Aligned Integration at firstname.lastname@example.org