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DRIVING

ORGANIZATIONAL
PERFORMANCE IN
COMPLEX TIMES
D RIVING O RGANIZATIONAL P ERFORMANCE IN
C OMPLEX T IMES
By Mark Kinnich, VP Consulting Services Midwest Region and Strategy Execution Global
Subject Matter Expert with Right Management

Today’s business discussions revolve around continuingly increased levels of


complexity for all organizations. Executing strategy
successfully in this environment is a greater challenge “On average, 95% of the
than most business leaders have ever faced. workforce we studied are
not aware of, or do not
This article presents a powerful—yet often understand, the company
strategy.”
overlooked—approach for driving performance
improvement through leveraging human capital, Robert Kaplan and David Norton
centering on increasing organizational alignment and (Harvard Business Review, Oct.
2005)
enhancing engagement.

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

CHALLENGES TO ORGANIZATIONAL PERFORMANCE

Today’s 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 that
their companies are fully capturing strategic objectives. While this may not be
surprising given the complexity of the business environment, it is still not an
acceptable 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 strategic
success.

That historical lack of success and capability is being brought into the current
business environment. The list of current critical business drivers now includes global
competition and many markets are in the midst of challenging economic times. The
degree 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 economic
uncertainty, 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 has
helped them by accelerating their business overseas.”

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Although credit is an issue for many
companies, those with stronger balance
sheets will continue to pursue mergers RED FLAG INDICATORS:
and acquisitions. Even before the current
credit crisis (and its associated domino How does an organization recognize issues of
effect), rising fuel costs began impacting misalignment and lack of engagement?
many industry segments across the globe.
In fact, some experts are predicting a Symptoms of misalignment include:
dampening of globalization and an
increase in regionalization due to rising • Lack of knowledge of how value is created
energy costs worldwide. across the organization and what critical
part each function/ business unit plays in
Global competition, the credit crisis, creating value.
energy issues, shifts in wealth to oil
producing nations, and the current U.S. • Lack of a balanced measurement system
economy are driving a need for further that includes leading and lagging measures
consolidation — whether that means as well as financial, operating unit
mergers and acquisitions or plant closings performance, talent, and employee
and other belt-tightening measures. As engagement measures.
Charles Darwin noted “It is not the
strongest of the species that survives, nor • Inconsistent leadership styles/values/
the most intelligent. It is the one that is culture throughout the organization.
the most adaptable to change.” Certainly
there is a need for Six Sigma and Lean • Decisions being implemented differently
initiatives and other valuable methods to (or not at all) in different parts of the
drive improvement throughout an organization.
organization. While process improvements
are impactful, it is equally important to • Decision making processes that are overly
take a holistic view of the organization political, slow, or wrong.
and ask how organizations can gain
greater leverage from the “people side” of • Hesitancy to bring up organizational
the business. concerns because of their sensitivity
(conflict avoidance) or the opposite
People & Performance tendency to be emotionally abusive.

Various studies have pegged the current • Leadership Teams having the same
average employee engagement level in discussion over and over again without
organizations to a range of 30% to 45% coming to resolution, taking action, and
of the workforce. That means an appalling solving the problem.
majority of employees are not
significantly engaged in their companies • Inability to talk about all elements of the
and/or their jobs and, as a result, are not business (financial, operational, and
fully engaged in driving organizational people) with equal levels of intelligence
performance. This also means there are and insight.
considerable gains to be made. Gains (as
indicated by employee engagement

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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 to


performance 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 energized
employees who believe in the mission and understand how to achieve it. That’s why
you need to take the measure of employee engagement at least once a year through
anonymous surveys in which people feel completely safe to speak their minds.”

The leadership challenge of executing on strategy while creating a long-term


sustainable organization is more difficult than ever before. More demands and
conflicting priorities can impact leaders’ effectiveness and it is increasingly evident in
employee engagement information. .

For example, one mining organization, when the market price for the raw materials it
produced 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 take
advantage 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 these
may improve the leverage an organization gets from their workforce, but which one
is the right one?

ALIGNMENT = POWER TO ACHIEVE

An underlying factor in performance (whether it is at the team, department, or


organization level) is the degree of alignment that exists. Alignment between
strategy, structure, leadership, and people practices creates the values (or culture)
of the organization, and drives employee engagement, customer satisfaction and,
ultimately, organizational performance. Misalignment
saps energy from an organization which can show “Doing the right thing is
itself in the form of wasted efforts, slower decision important, which is where strategy
comes in. But doing that thing
making, lack of collaboration, internal competition, or well—execution—is what sets
lack of responsiveness internally or to the customer. companies apart.”
Jeffrey Pfeffer interview based on his
book: What Were They Thinking?:
Unconventional Wisdom About
Management . (July 13, 2007).

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Alignment is critical to sustainable organizational performance. CEOs are more often
replaced 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 of
the highest leverage areas for improved performance. Alignment is essentially an
agreement on the organization’s direction (what we need to do), its operating
philosophy/practice (how we intend to do it) and relationships (why it is important).
Through this agreement, aligned organizations unleash the untapped intelligence and
energy of the workforce.

Several decades of research have shown


that increased employee engagement
drives improved customer loyalty which,
THE POWER OF ALIGNMENT
in turn, drives improved bottom line
• Alignment gives you the power to get—
results. Employee engagement metrics
and stay—competitive by bringing
provide leading indicators of down-
together previously unconnected parts
stream financial performance. By using
of your organization into an
systematic approaches for alignment:
interrelated, comprehensible system.
• Aligned organizations are more
• Alignment creates an organizational
focused and more nimble. They
culture of shared purpose.
know where they can and cannot be
flexible.
• By integrating core business factors,
market factors, overall direction,
• Aligned organizations have faster
leadership, and culture, alignment
decision making and correct
gives your organization the power to
decisions are made at multiple levels
achieve consistent, defined levels of
of the organization. This is a result
growth and peak performance.
of strategic and operational clarity –
employees at all levels know how The Power of Alignment
certain matters should be addressed by George Labovitz & Victor Rosanksy (1997)
and address them readily and
consistently across the organization.

• Aligned organizations have a consistent environment, tend to hire people who will
succeed 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 organizational


performance. Aligned organizations attract better talent, keep that talent, and are
able to capture more of employees’ work-related efforts conducted during
discretionary time. Such companies build organizational capability throughout so
that, 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 of
alignment point out increased/decreased organizational performance over time.

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Using the following five key questions allows an organization to explore its
alignment. Since the focus of this article is strategy execution through leveraging
human capital, this set of questions are people oriented (i.e. not focused on
customer 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 of
values, a leadership and operating philosophy, and a commitment to drive
organization success (vs. functional success)?

Question #3: Is the organization’s 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 the
people practices aligned with the mission, vision, values, leadership and operating
philosophy of the organization?

Question #5: Do the leaders regularly pay attention to a set of employee metrics
that inform their actions on how to build a more capable organization (metrics such
as 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 helps
identify areas that are hindering (or creating outright barriers) to improved
organizational 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 is
highly engaging to employees.

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APPROACH TO ALIGNING THE ORGANIZATION

There are many views about how organizations approach strategy execution. One
such viewpoint that has proven successful for Right Management clients is shown in
the graphic below. Effective strategy implementation, as illustrated here, is driven by
how 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 organization’s goals and customers.

Framework for Driving Organizational Performance


Business Environment
This high level framework
provides a simple way of
Strategy
defining how alignment is
created. The real depth and
benefit of alignment is achieved
when the details within each of Structure,
People Systems
Capacity, Leadership
Leadership
the key elements are defined Capabilities and Processes
and operationalized in such a
Values Culture
way that consistency is created
throughout the organization. Employee
Consistency is not the enemy of Engagement
innovation as some may think.
Consistency of operational
factors allows the creativity and Customer
Experience
innovation to flourish where it
should be flourishing (focused
on the customer value Organizational
proposition defined by the Performance
organization’s needs and
strategies).

Within each of the alignment elements in the framework, there are additional areas
to be explored. The examples below demonstrate how lack of alignment in specific
areas can impact organizational performance. While an organization would need to
ensure alignment in all areas, the examples below highlight one specific area for
illustration purposes.

Organizational Alignment Examples

• Strategy Alignment—In a down economy, a regional trucking company was


able to better meet customer needs by providing a seamless distribution network
and, by doing so, increase its revenue through strategic alliances. The alliances
expanded the company’s geography so they could provide their customers with
the 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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• Leadership Alignment—A business unit identified as the “growth engine” for
the whole organization had invested significantly in leadership development.
Starting at the top level leaders, all managers participated in a world class
development experience. The results showed a significant increase in decision
making speed. Leadership capability was enhanced as evidenced by an increased
ability 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 as
succession lists for leadership positions across the organization.

• Structure/Role/Capability Alignment—One organization doubled its sales


volume by restructuring the salespersons’ and sales assistants’ role. The
restructuring 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, the
company first identified where significant gains could be made. By restructuring
the salespersons’ and sales assistants’ jobs, existing resources were reallocated
more effectively. Sales assistants focused more on one type of customer segment
and salespersons concentrated on the higher value customer category. As a
result, 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 Alignment—A global organization was growing quickly and


didn’t have the leadership talent ready to place in new positions. This lack of
bench strength was slowing down the company’s 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 key
positions (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 solid
competency levels. A three phase development program was initiated to provide
leaders 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 of
more than eight years to a three year timeframe.

• Employee Engagement Alignment—An organization held a major government


contract of $500 million which represented about half of the current annual
revenue and the future revenue stream for the organization. When the contract
budget 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 a
very 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 budgets
could 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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incentives and public recognition of the improvements gave the middle managers
a sense of achievement which, in turn, changed the mindset from one of certain
failure to one of possible success. Leaders became more engaged in developing
solutions to meet the budget crisis. As a result, several areas of the program
exceeded targets and the overall program concluded at a point close to the new
budget.

Executive Leadership Team Alignment

The Framework for Driving Organizational Performance has resonated with many
senior executives, enabling dialogue about where their organizations could enhance
alignment and drive improved organizational performance. While the concept
diagram is simple, executives agree that it is more difficult to achieve success than
to describe the process.

The key to improving strategy execution


throughout the organization is employee
EXECUTIVE PERSPECTIVES
alignment. Employees respond to a number
“Our business is very competitive and a key
of factors in organizational strategy: success factor is continual innovation. This
requires speed and agility in decision-making and
• The organization’s strategy and whether organization-wide implementation.
they see it as a winning one. Aligning our executive and expanded leadership
team around a clear strategy, values, leadership
• The leadership team and whether they expectations, and organizational performance
has improved our focus around innovation, new
see cohesion at that level and have product time to market, productivity, and
confidence in the leaders’ competence. financial performance.”
Mike Whelan, Group Vice President, Beckman Coulter
• The management structure and whether
it facilitates efficient, effective work or “We had implemented many initiatives to
improve our strategy execution and business
get in the way. performance: Kaizen, Strategic Deployment, Lean
processes and others. They were all very helpful
• The people practices (pay, incentives, but not enough to get us where we needed to be.
career development, performance It isn’t just about defining the ‘what’ but also the
management, vacation and sick pay ‘how’ and the ‘why’. We have started the journey
policies, etc.) and whether employees to develop greater leadership team alignment.
get what they want in exchange for their Although our journey is just beginning, the value
of achieving a highly aligned leadership team is
contribution to the organization’s already evident. We are able to discuss sensitive
success. topics affecting our team performance and make
the needed adjustments.”
Alignment must begin with the leadership Kim Bassett-Heitzmann, President, Bassett Mechanical
team. Important considerations include:
how leaders intend to execute strategy
through management structure and processes; and how they intend to capture
employee contributions to the organization’s goals. It is not possible to have a highly
aligned 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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EXECUTIVE PERSPECTIVES
Highly aligned organizations have a significant
competitive advantage. Examples of “Historically, our leadership team has managed
misalignment are plentiful. For example, the from a strong values-driven perspective. Building
impact of executive misalignment can on this core focus by gaining executive team
alignment on other key dimensions has added
significantly affect other parts of the richness to leadership discussions on topics such
organization and shake the very foundation of as how we intend to show up as leaders, which
an organization. The following are two strategic objectives create real value, and how
examples that illustrate the impact of our customer value proposition affects our
operations.
leadership misalignment on the organization.
This focus has helped us prioritize initiatives and
investments which has, in turn, improved
Examples of Misalignment in Leadership
performance. Another plus is that it is more
enjoyable to manage the business with a highly
• In one high tech manufacturing committed group of leaders.”
organization, the leader of a key customer John Kapanke, CEO, ELCA Board of Pensions
contact area was using a customer as a
conduit of information to upper management in hopes that the customer could
get the organization to operate differently (more in line with how that executive
wanted). As a result, the customer developed a lack of confidence in the
organization 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 their
beliefs, 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 the
rifts between manufacturing and sales, research & development and
manufacturing, or marketing and research & development. These rifts don’t exist
in highly performing organizations. That doesn’t mean that at times there isn’t
tension between those very different functions, but it does mean that the tension
is around how to best achieve an agreed upon direction. It also means that the
tension can be resolved so that all parties can focus on execution.

• In another example, some executive team members were “at odds” with each
other. There was agreement with the strategy, but not with how the 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 the
differing perspectives adversely affected the employees’ confidence in leadership,
thereby causing difficulties and increased stress working across functions. In this
organization’s 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 team’s improvement
had on their work and morale. In addition, the confidence and trust they felt
towards the executives dramatically improved.

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Leadership team alignment is the first step in creating an organization that
demonstrates 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 organization’s 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 employee’s can be committed to the organization’s


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 begin
work 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. All
organizations 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 for
employees at all levels to perform consistently with the way the Executive Team’s
strategy and, thus increasing the level of energy moving in toward intended
outcomes or results. When creating a new organization, it is imperative to consider
all 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 to
identify 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 organization’s
approach is illustrated below:

• New Organization Alignment Example—A global consumer food products


organization decided to centralize its research & development function rather
than replicate it in each geographic business unit. The company intended that
product development would be more global and wanted to ensure that product
investments 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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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 achievement
and remain linked to unique geographic tastes. Among the many people systems
needing to be addressed, the first focus was set on a new set of core
competencies, a development process, and a performance management process.

Each organizational element was developed to ensure strong alignment with


strategy and integration with one another. The results of this aligned organization
were impressive: new product investments and developments resulted in
significant global success and stock price recovery.

SUCCESSFUL STRATEGY EXECUTION

That we are in a challenging business environment is obvious. The drivers that are
most impacting a specific business will be unique to an organization’s market,
business environment, and internal capability. The impact of these challenges may
show on a company’s financial structure, IT system
needs, product development capability, etc. In any “I believe that the change in Orica’s
case, the impacts will also affect an organization’s culture was the main reason the
employee base…from leadership to the back company turned around so
office…to front-line employees. successfully, as reflected in the
share price, which rose from $4 to
$20 within three years.”
Improving the level of alignment in an organization
creates a competitive advantage. Benefits include: CEO, Orica Ltd.
reduced waste in decision making time and increased
speed and effectiveness for creating value throughout the organization. Alignment
also helps capture more of the hearts and minds of all employees. The improved
organizational performance can positively impact revenue, operating margin, and
share price even in these challenging and complex times.

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