Organizational Performance: The Key to Success in the 21St Century

Copyright © 2016 by Curt J. Howes.

Library of Congress Control Number:   2015914342

ISBN:   Hardcover     978-1-5144-0388-4

             Softcover       978-1-5144-0387-7

             eBook            978-1-5144-0386-0

All rights reserved. No part of this book may be reproduced or transmitted

in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system,

without permission in writing from the copyright owner.

Any people depicted in stock imagery provided by Thinkstock are models,

and such images are being used for illustrative purposes only.

Certain stock imagery © Thinkstock.

Rev. date: 02/10/2016

Xlibris

1-888-795-4274

www.Xlibris.com

719127

CONTENTS

Foreword

Preface

Acknowledgments

Part 1 Introduction to the Organization Performance System

Chapter 1 Introduction

Chapter 2 The Organization as a Performance System

Part 2 The Core Foundations

Chapter 3 The Value Proposition and Empowerment

Chapter 4 Technical System/Capabilities

Chapter 5 Financial/Commercial Factors

Part 3 he Organizational-Performance Drivers

Chapter 6 Strategy and the Business Model

Chapter 7 Leadership

Chapter 8 The Organization and Operating Model

Chapter 9 Human Capital

Chapter 10 High-Performance Culture

Chapter 11 Governance and Management Systems

Chapter 12 Organization Transformation

Chapter 13 Organizational Communication

Part 4 Execution

Chapter 14 Executing the Organization Performance System for Results

Epilogue

References/ Recommended Readings

Author Bio

FOREWORD

Just five months after the September 11, 2001 terrorist attacks, the Winter Olympic Games were scheduled to be held in Salt Lake City, Utah. There would be an unprecedented level of security to protect the events, the athletes, and the public. With up to fifteen thousand soldiers, federal agents, state police, local police, and private security staff on hand, U.S. Defense Secretary Donald Rumsfeld noted, We literally have more [armed forces] in the area around Salt Lake City for the Olympics than we do in Afghanistan.¹ In addition, there were over thirty thousand Olympic volunteers who were instructed regarding how to be alert to security issues during the games.

Preparing for the games included erecting high quality temporary housing, effectively and safely, for the extra security personnel in a matter of weeks. I wanted my company, Morrell International, to lead the way, and through an innovative plan, coupled with effective marketing and planning, my company won the bid. We sprang into action to install six warehouse-type facilities accommodating three hundred to twelve hundred employees each. They had fully catered kitchens, bathrooms, showers, game rooms, TV rooms with couches and chairs, and divided sleeping areas. They were built in thirty-four days and then taken down in two weeks following the Olympics, which was all accomplished in record time.

At about this same time, the author of this book, Curt Howes, just two days before the opening ceremonies, was on a flight from Amsterdam to his home in Salt Lake City. He had planned to volunteer at the Olympics for three weeks. As the plane entered Utah airspace, a passenger stood up despite the restriction to remain seated during the descent. The crew frantically demanded that the passenger sit down, but he headed down the aisle anyway. As the flight attendants approached the man, it was clear that he didn’t speak any English. To the relief of the other passengers they were able to guide him back to his seat. This kept the plane from being diverted to another airport, as had been established as a safety precaution should this type of incident arise. The nation’s citizens and airlines were on edge. Curt and I had not yet met, but we were actively engaged in helping pull off one of the most successful Winter Olympics during a critical time in our nation’s history.

Ten years later, Curt and I were introduced by a common colleague who suggested that I have Curt advise me on my organization. I was an entrepreneur who developed new ideas and accelerated them to business opportunities. Based on what my staff had learned from efficiently housing the security of the 2002 Olympics, we won opportunities during the Iraq War to build housing, mess halls, water-bottling companies, and gravel roads with unprecedented speed to support the military effort. We accomplished this task in part by safely infiltrating a country at risk.

I had also developed many other enterprises, including an entertainment business, a ranch and farm, a lodge, an entertainment hotel, and snowboards made of recycled materials. My strengths were in developing new business ideas with compelling value propositions and quickly deploying available high-quality resources. To do so, I defined the technical requirements and resources. I also needed a financial model to make the ideas commercially successful. What I struggled with was building consistently effective organizations that would lead to sustainable growth and success. I found I was the focal point for all employees on all matters. I didn’t have an overall system to integrate and coordinate with all my leaders and employees across my organization.

In May 2012, Curt and I met in my living room to discuss my challenges and his organizational management ideas. What he described filled the gaps between what I was good at and what I needed help with. I was intrigued. I had proven myself successful as an entrepreneur. I had great ideas with great value propositions, and I’d pulled together the technical capabilities needed to make my ideas happen. I had also experienced great financial success. Now I needed an organizational system for sustainable performance. I didn’t understand all the language at the time, but Curt’s model provided a clear framework and uncovered a need that I’d had trouble articulating. Within a week, Curt was interviewing many of my leaders to identify issues related to the eight performance drivers so that my organization could rise to the next level. We examined several important questions:

• How do we make the business strategy clearer and align everyone with the organization’s diverse businesses?

• How do we get all the leaders to drive the strategy and to provide leadership to avoid the need for all employees to connect with me?

• How do we design the organizational structure so that it operates effectively and has the right roles, linkages, and responsibilities communicated clearly?

• How do we ensure we have the best people—those who are committed, aligned, and in the right positions?

• How do we create a culture that supports the entrepreneurial and innovative spirit my company was based on (but had moved away from) to efficiently carry out work?

• How do we implement management and governance processes to measure and track performance, to manage risk, and to comply with policies and procedures?

• How do we implement the change needed to build whatever future we decide on?

• What communication gaps prevent us from addressing the areas above?

Through exploring these questions and getting valuable recommendations during the interviews, we gained new insights on how to build a sustainable business. These insights came during a time of significant transition in my business model with the drawdown of troops in Iraq which eliminated the need for many of my company’s services there. Reviewing all these issues forced me to look at my organization holistically for long-term sustainability rather than just focusing on a single problem to solve an immediate concern. Likewise, most books cover a single topic, and they don’t provide the broader perspective. This one does. That makes it a valuable gem. It doesn’t try to cover all the territory for each subject; rather, it provides an eighty-to-twenty balance to get you started with in-depth insight.

I don’t know anyone who has more credentials to advise on how to build sustainable businesses than Curt. His vast experience is impressive. He worked for eighteen years with one of the largest companies in the world—ExxonMobil—providing consulting on internal organizational effectiveness and running the corporation’s leadership-training programs. He also helped develop and implement organizational-change strategies for resource industries (oil, gas, chemicals, utilities, and natural resources) for Accenture, one of the largest consulting companies in the world. Additionally, he’s provided customized solutions to many companies in partnership with EY and his own company, Organization Performance Strategies. He also provides direction for the organizational-behavior-and-HR track of Brigham Young University’s MBA program, a program that the Financial Times identified in 2012 as the best university program in the world. He also teaches case studies there and in a graduate program at Utah State University. He has consulted on every continent in the world except Antarctica.

My extensive business experience confirmed his belief that leaders typically focus on (1) the big idea that translates into value propositions for products and services, (2) the technical approach to deliver the products and services, and (3) the financial components. Those are the fundamentals to get in the game. What often trips us up is all the other stuff—strategy, leadership, organization, people, and culture issues. We need better governance and management systems to pull everything together and to ensure sustainability. We must also implement systematic change. And once we solve for all the problems, resulting from poor communication, our organizations can really excel.

When Curt sent me an early transcript of this book, I stayed up and read much of it, not stopping until early in the morning. The concepts resonated within me and helped me understand more fully the rationales behind much of what I had focused on several years before. I wished I’d had this book as reference material then. It provides a great resource to leaders and to consultants, internal and external, who advise leaders on how to improve and sustain performance. This is not a basic book; it provides more-advanced insights, ideas, tools, and methodologies. Leaders are busy, so they typically only read information on the topics that matter most to them at that point in their organization’s journey. But what is more important is understanding how each part of the puzzle fits into the context of the whole. It is difficult to focus on all areas at once since a business needs to be developed and changed while the business is operating. Pace and focus are critical in launching a journey that leads to sustainable results.

Enjoy challenging, building, and testing your own ideas on how to apply the concepts in this book to your own organization. The examples included in each chapter not only provide insights on the topics but are also enjoyable to read. So get started and enjoy the journey to developing your organization’s performance system—one that leads to competitive advantage and sustainable results.

Phil Morrell

Morrell International

June 22, 2015

PREFACE

On May 25, 1961, U.S. president John F. Kennedy set the ambitious goal to send a man to the moon and return him safely by the end of the decade. At the time, it was unclear how to accomplish this aspiration. However, it was clear that the project would require significant funding, the best minds and technologies, innovation, and the coordination of multiple partners and functions. On July 20, 1969, the astronaut Neil Armstrong made the first human step on the moon, declaring, That’s one small step for man, one giant leap for mankind. The story of this enormous accomplishment isn’t just about the first steps on the moon but also about all that was required to integrate the intellectual talents and resources to make this remarkable feat possible. In short, this accomplishment required the development of a highly effective organizational-performance system. That’s what this book is about.

Skip forward thirty-five years, and I’m working on a large-scale project in Russia. While flying from Moscow to Nizhnevartovsk in Siberia, I was reflecting on the interviews that I and my team had just completed for a large oil company. The interviews were a preliminary step in transforming the company’s supply chain, which was our ultimate goal. We were charged with improving the company’s purchasing, warehousing, and demand-planning for upstream oil materials and services. These changes would require redesigning their technical processes and technology enablers, as well as building the right infrastructure for success.

Interestingly, during the interviews, 90 percent of the issues that the leaders and employees expressed the most concern about were not the technical aspects of the supply chain. Rather, the issues were mostly related to personnel, leadership, organization, alignment, culture, and behavior. To them, it seemed that the technical side of the design would take care of itself with the proper expertise, and they only wished me Good luck with the handling of all the intangible organization stuff and the people-related concerns. Those interviewed also seemed to think the problem was always the fault of the other guys. My team was now headed to the field to meet with operation leaders and employees—some of the other guys. I wondered what they would tell us. I had a feeling it would be more of the same.

As we neared the end of our red-eye, we couldn’t see the topography below, and we heard an announcement to put away our computers, put our seats upright, and get ready to land. As we descended below the clouds, we could pick out a few lights on what appeared to be a snow-packed ski run for the plane to land on. I still don’t know how we stopped on the frozen tundra that morning.

After landing, we proceeded down a portable staircase onto the tarmac. At forty degrees below zero, the cold bit into our faces as we walked to the small airport building to get our bags. After gathering our luggage, we walked outside to the SUVs waiting to take us to our hotel. We welcomed the heat inside the SUV. We were dressed to the max with warm hats, coats, and gloves, but we still weren’t prepared for the cold of Siberia. In contrast, our client’s project lead, Nicholas, who was from that region, was wearing a coat much lighter than ours and was without a hat or scarf.

Over the next few days, we conducted extensive interviews with managers and employees from the field organization—the frontline for drilling and producing oil. Many of them said essentially the same thing. Here’s a sample:

• What is the strategy, and why are we doing this project? (strategy clarification)

• The leaders in Moscow don’t talk to us and don’t really understand our issues! (leadership)

• We have a large geographical distance, so how can you centralize our operations? It doesn’t seem possible! (organizational structure)

• What will be controlled centrally, and what will be controlled in the field? (governance and delegation)

• We have local suppliers that we have used for a long time and that we know how to work with, so don’t go changing all that. (decision authority)

• We need much-more-effective supervision. (leadership)

• You need to understand our culture and history, or what you are trying to do differently won’t work. (cultural challenges)

• The people will be hard to change! (transformational change)

• People get promoted by connections, not performance. It’s who you know. (human capital)

• How do you monitor how this system works? You can’t manage it from Moscow. (governance)

• It is nice to be interviewed because we usually don’t get asked for our opinions. (communication)

• Good luck, but I don’t think the change will work. (transformational change)

The interview results in the field had similar patterns to the interviews at the headquarters. Very few employees were concerned about the technical aspects of transforming the supply chain. Even though they knew the technical component was an important part of the project, they didn’t ask about how the software worked, what the workflow for warehouse management would be, or how demand-forecasting would be completed. Rather, they focused on the intangible but very real nontechnical issues. These are the issues the employees and managers were passionate about and I had observed with other organizations.

After several days of interviews, we headed back to the airport for a return flight to Moscow. Before we boarded the plane, Nicholas—our primary project contact—presented us with a gift. Though we communicated through a translator during our time together, we had developed a good relationship, which we reinforced through friendly nods, smiles, and handshakes. He had taken us to see a river famous for its fish; entertained us at dinners with what seemed to be an infinite number of toasts, tributes, and laughter; and was overall a great host. As a parting gift, he gave us each a frozen fish from the river we’d visited. It was a wonderful gesture, but I had no idea what to do with a newspaper-wrapped fish on the flight. We thanked Nicholas, and once we were on the plane, I put my fish in the overhead compartment. Halfway through our seven-hour flight, the fish started to smell, but needless to say, we were all happy to land safely in Moscow and leave the fishy aroma behind us.

The questions that were asked during the interviews lead to a single underlying issue for leaders: What is it that one must try to achieve to differentiate oneself? True, there are many issues that can be fixed, but what is the strategic thread that ties them all together? The many elements that compose the development of an organization’s performance system need to be integrated to a strategic theme. For BMW, it may be The Ultimate Driving Machine; for Walmart, Save Money. Live Better; for Ford, Go Further; for the state of Utah, Life Elevated; and for GE, Imagination at Work. What sits below these themes are the design and architecture of an organizational-performance system. This should be unique and distinctive for each organization and foster competitive advantage and sustainable results.

The interviews during this Russian project and the many others I’ve participated in have reinforced to me that intangible nontechnical issues are part of an organization system. These issues also have a significant impact on the technical and financial aspects of an organization. Some issues may be symptoms of problems, while other are the root causes. And although these issues often seem less noticeable than the technical systems, leaders and employees have plenty to say about them. And the comments aren’t usually positive.

These issues are also highly interconnected. An ineffective strategy might really be a problem of ineffective communication. A poorly performing employee might be the result of the way an organization or work is designed. An inability to govern performance might be the product of an ineffective organizational culture. An inability to improve performance may be a symptom of ineffective leadership.

These issues lead to common patterns, which I’ve seen time and again as I’ve worked on projects around the world. These repeated patterns drove my innovation of a framework to analyze organizational issues, diagnose the underlying problems, and develop strategies to improve and transform organizational performance. I call this framework the Organization Performance System. Its core foundations are an organization’s value proposition, technical systems and capabilities, and financial/commercial factors. These components are required for an organization to merely operate. But performances in these areas are largely determined by factors such as the strategy/business model, organization and operating model, leadership, human capital, culture, governance/management systems, and organization transformation. The performance of the overall system is dependent on organizational communication, which is frequently the biggest roadblock to effectiveness.

Data from The Brookings Institution helps to put into perspective the importance of the measurement and management of intangible assets. In 1982, tangible assets represented 62% of a company’s market value on average. By 1992 this figure had dropped to 38%. A 2000 study placed the average market value of tangible assets in many companies as low as 15%. In other words, up to 85% of a company’s performance is related to intangible capital. (Lev, B. (2001). Intangibles: Management, measurement and reporting. Washington, DC: Brookings Institution Press.)

When dealing with these intangible issues, most leaders feel out of their comfort zones. This is understandable because they became established in their professions based on their technical training, not on their abilities to address the somewhat-elusive and below-the-surface issues that make or break an organization. While a leader may wish it weren’t the case, managing these issues is critical to the long-term sustainability of their organization.

The good news is that these issues can be identified, defined, analyzed, and resolved. Leaders can implement strategic, integrated solutions to form an organizational system that delivers high performance. This integrated system is the key to achieving sustainable success.

Various scholars and practitioners have developed and discussed management principles through the twentieth and twenty-first centuries. One notable contributor was the late quality-management guru W. Edwards Deming. He taught the Japanese how to transform their product quality and economy after World War II, and he did the same in the United States in the 1980s and 1990s. In addition to applying the hard science of statistical-process control, the Shewhart control charts, and an understanding of variation in a manufacturing system to improve quality and performance, he also understood the role of leadership. In his 1988 book Out of the Crisis, he outlined fourteen points for management, which included the creation of a constancy of purpose to continually improve products and services. He also included institutionalizing leadership, breaking down barriers between departments, and putting everyone to work to achieve transformation.

Deming’s premise was that the problem was not the people but the system. He also argued that some of the most important issues in performance are unknowable. He instructed managers to appreciate (1) all the underlying processes involved in creating products and services, (2) the role of variation and statistical sampling, (3) the theory of knowledge, and (4) the psychology of understanding people. He called this systems approach profound knowledge and said that it was rare.

In addition to Deming’s germinal contributions, researchers and consultants expanded management knowledge and practices by improving organizational performances through strategies and concepts such as process reengineering (Hammer and Champy), Six Sigma (Bill Smith, Motorola engineer), organizational capability (David Ulrich), The Fifth Discipline/systems thinking (Peter Senge), the Drucker Institute on Management (Peter Drucker), total return to shareholders (G. Bennett Stewart III), balanced scorecards and maps (Kaplan and Norton), leadership improvement (Jim Collins and John Kotter), strategy (Michael Porter), and culture drivers. This book takes a look at new ideas and familiar concepts that are framed in new ways. It also focuses on the fundamentals because, in some cases, the best way forward is to go back to the basics.

The concepts discussed in this book form the Organization Performance System. These are the keys to obtaining a competitive advantage in the twenty-first century—a critical objective in today’s upside-down world filled with political strife, wars, economic upheavals, and transformative business models. So let’s get started!

ACKNOWLEDGMENTS

While I was working on my master’s degree at Brigham Young University, one of my professors shared with my class a paper he had written. It was titled So You Want to Be a Consultant. Although I had been enthralled with the course work in organizational behavior and communications, I hadn’t quite decided how this would apply to my future. My professor’s paper captivated my imagination, helping clarify what I wanted to do. That professor was Dr. Brent D. Peterson. Thirty-five years later, he continues to be a mentor whose support I greatly value.

The number of people whom I’ve learned from, whom I’ve drawn insights from, and who have allowed me to apply my practices are extensive. In the early years, it was Brigham Young University professor Bill Dyer, who taught me how to make contacts to start my career, which resulted in me being hired by Exxon. My first Exxon manager, Bill Faison, provided direction, as well as opportunities, and encouragement to help develop my craft. There were many others along the way, including Bob Hofsteader, manager of the Exxon Research and Engineering Education Center. He believed in me more than I believed in myself, promoting me to opportunities that taught me much of what fed my thinking on the Organization Performance System model. I also worked with and learned from many world-class faculty members at Exxon’s leadership-development programs I coordinated, including Stephen R. Covey, By Barnes from Harvard, Fernando Bartoleme from Insead, Noel Tichy from the University of Michigan, and the faculty from the International Institute for Management Development in Lausanne, Switzerland.

At Accenture, I had the opportunity to expand my consulting horizons to many different industries that framed and shaped the broader application of the organizational principles and practices that I had developed. Randy Muck, a senior partner at Accenture, provided early support and encouragement. Dr. Susan Bennett was likewise instrumental. John Downie, a senior partner at Accenture, has continued to provide encouragement and support regarding key opportunities not only while I was at Accenture but also afterward when I established my own practice.

With my own practice, I partnered extensively with Ernst & Young in the Middle East, which provided another platform to test, apply, and refine many of the ideas in this book. Ahmed Taher and Jalal Bibi are not only colleagues but are also great friends whose support over the years I have greatly valued. Joe Norris from Accenture likewise provided opportunities, including projects in Australia.

I have worked with numerous clients that have provided opportunities to shape and test my ideas. One client stands out as a friend and partner: Joseph H. Bryant. I had the privilege to work with him at BP Angola, at Unocal, and with his new company Cobalt International Energy. He is one of those special leaders who treats you with respect and sees what others don’t see, and he provides tremendous leadership to the people around him. I also want to recognize Phil Morrell, CEO of Morrell International, for his courage and marketing strategy to implement bold ideas that others wouldn’t think of. I thank him for writing the foreword in this book.

A special thanks goes to my many clients over the years that have provided the