They focus on the ‘right things’
High performance organizations concentrate their effort where it is likely to make a difference. They focus on the critical success factors for achieving key corporate objectives and delivering greater customer and shareholder value. Coulson-Thomas (2005), in his study of over 2000 enterprises in many sectors, reveals how profitable and expanding companies remain competitive:
While losers play other people’s games, winners stay in control. They create new arenas of opportunity in which they excel. They remain relevant and vital. They develop additional income streams, enhance capabilities and refresh intellectual capital. They provide additional options and extend choice. They launch further ventures and establish new markets.
High performance organizations develop strong cultures and practices that attract good people to work for them and make them successful in their markets.
Collins and Porras (1995) studied 18 exceptional ‘visionary’ companies, with an average age of nearly 100 years, and compared their performance to that of similar or good competitors. They explain the lasting success of the ‘visionary’
companies by their strong and relatively non-changing, ‘cult-like’ cultures; they are careful to select people who can work successfully within such environ-ments. They have strong leaders, good products, successful market insights and high levels of profits. These profits are seen to be the results of such cultures, rather than the driving force behind them.
In another study, the research firm ISR (Maitland, 2002) identified a num-ber of cultural factors that differentiate high performance organizations from others. These all demonstrate:
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An obsession with quality High performance companies obsess over the quality of what they do. Employees are much more likely to feel that achieving high quality is a priority in their day-to-day work and that their company’s products and services have a good reputation. They do not feel under pressure to sacrifice quality in order to save costs.•
Innovation The best companies innovate and then they innovate again.Employees believe that their company outperforms its competitors in the rapid development of new products and services, in responding quickly to market changes and in technological innovation.
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Putting customers first High performance companies exist in order to serve their customers, not their shareholders. They put themselves out to develop tailored responses. They develop unique or special offerings for them. They are proactive and don’t wait to be asked. They don’t sell to customers, they help them to buy. They ensure their customers are not disadvantaged by change. Significantly greater numbers of employees think that their organiza-tion is customer-oriented, that it provides better customer service than its competitors, and that its customers hold it in high regard.•
Investment in employees High performance companies know that their employees are their most important asset. They don’t only say this, they mean it – and invest accordingly. Employees are much more likely to feel that their contribution is recognized, that they have good opportunities for promotion and that they are able to develop and grow in their work.Employees who feel this way are far more likely to rally round in bad times and to stick around in good times – two of the reasons why employ-ers that invest in their people are more successful than those that hire and fire at will.
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A healthy culture High performance companies are fulfilling places to work. Employees are not asked to sacrifice or compromise their personal standards and values in order to achieve organizational objectives. On the contrary, the best companies set an example for employees to aspire to.Employees are much more likely to believe their organization operates with integrity, both internally and externally.
They reconcile different, potentially conflicting stakeholder needs
Competitive pressures are driving even well-established industries such as oil and pharmaceuticals with their relatively longer-term business cycles, to cut down lead times and get products to market fast. These operational demands mean that the emphasis on the short term is driven even deeper into the business psyche. In today’s global marketplaces, businesses are usually only as good as their last results and investment analysts rarely
look beyond current and short-term financial projections to make their assessment of a company’s worth.
Shareholder value
High performance means different things to different stakeholders, whether these are customers, shareholders, boards, executives and employees of the company, let alone communities, governments and political groups.
Shareholders for instance may take a far more short-term view of high per-formance than employees or communities. The search for shareholder value underpins much cost-cutting and the more radical reengineering exercises of the 1990s. From a shareholder or financial analyst perspective, the loss of jobs in order to improve the book value of a company makes sense, whereas to affected employees and the local community, such decisions can seem disastrous. While longer-term sustainability of the enterprise may be important to employees, management and the community, it may be far less important to investors who may view a company as no more than a bunch of assets to be realized.
Senior managers are usually caught between the need to please share-holders, by driving costs down and increasing profitability, and the needs of the organization and its employees. Whilst shareholder value has been the holy grail for companies in recent decades, the view that this should take precedence over other interests is starting to be challenged. Ongoing busi-ness success requires close connection with the changing environment and the ability to change strategy if required. Ironically, if change is driven solely from a shareholder perspective, it is more likely to provoke employee resistance and thus slow down the organization’s ability to change rapidly.
Measuring the right things
What organizations are usually measured on reflects what matters to those to whom the organization is accountable. Conventional business measures of performance are financial – such as compound asset growth, compound equity growth, ratio of market value to book value, return on equity and return on sales, return on capital employed and economic value-added, or value for money in the public sector. However, financial measures alone do not reflect the perspectives of all the stakeholders to whom the organization is accountable. Indeed, financial returns only occur after other actions have been taken. Using financial indicators as a guide to how well the organization is performing can only indicate the success of actions already taken, rather than act as a real guide to future success.
In devising the balanced business scorecard approach, Kaplan and Norton (1996) recognized that measures can be strategic. Balanced Scorecard think-ing suggests that, in order to ensure future success, each perspective must have needs satisfied, as in the public sector scorecard in Figure 6.1.
The measures are chosen to reflect key aspects of the organization’s overall value and performance.‘Lead’ measures must be set for areas where performance most powerfully affects an organization’s strategic position with key stakeholders such as customers. These include value creation measures for customers, enhancement of internal processes, including innovation and effectiveness in key tasks, to deliver desired value propositions to targeted customers and learning and development. ‘Lag’ measures can enable progress to be tracked.
This balanced view of where success comes from is reflected in the UK Investors in People (IIP) programme, which has been implemented in over 40 000 organizations since the 1990s. It is probably the strongest indication yet that organizations see effective people management as key to achieving long-term success. It is implicit in the development of human capital accounting methods. Similarly, sector-specific standards with the implementation of the European Foundation for Quality Management (EFQM) Business Excellence Model provide the business rationale for employee empowerment. However, in many companies using these approaches, employees still do not really see wider opportunities to contribute to decision-making.
Organizations that build their business model around high performance and flexibility make great use of people management practices and ensure
Business Perspective How do those to
whom we are accountable view us?
Community Perspective How are we viewed
by others?
Strategic Perspective How do we continue
to improve our performance What must we be
good at?
Employee Perspective
How do our employees view us?
Customer Perspective
How do our customers view us?
Figure 6.1 A Balanced Community Scorecard.
that people management is mainstreamed throughout the organization.
Hierarchical management gives way to flatter, cross-functional structures.
Conventional task management, with its emphasis on people as costs, gives way to knowledge management, which seeks to grow the people asset.
High performance organizations have customer-focused purpose Successful organizations focus intensely on customers and their needs. They invest in ways to improve products and provide superior customer service.
They do not forget that clients and their needs underpin their organization’s existence. They focus on retaining customer loyalty as much as on attracting new customers. Marks & Spencer at the start of the new millennium seemed set to fail largely because the marketplace perceived the image of the fashion goods on offer to be no longer what customers wanted. The firm’s fortunes have started to revive partly thanks to a radical strategic overhaul which placed the tastes and preferences of the customer at the centre of their investment.
Focusing on customers’ needs and preferences can be frustrating and costly, especially as these change over time and can seem fickle and fashion-led.
Responding to tough competition from all corners means that company margins get squeezed and the race is on to be the first in the marketplace with new goods that will attract customers. Witness the battle between BA and Virgin Atlantic in the race to attract the lucrative market in business class travellers. Prior to the partial collapse of transatlantic travel following September 11, 2001, the two air-lines were competing neck and neck to provide fully reclinable seats and other expensive benefits to the traveller. Now that confidence in long haul air travel appears to have returned, the race is on yet again, even if both companies initially saw their profits drop dramatically with the fall-off in transatlantic trade.
Ignoring customer needs is not an option. In some ways these needs are remarkably consistent. Customers always want the highest quality goods when they want them at a price they can afford. In his latest book, The Agenda: What every business must do to dominate the decade (2001), Michael Hammer focuses on how the world’s major organizations build a business strategy. He has identified nine steps, of which the major point is that in order to activate the
‘customer is king’ principle, fundamental change is required both within and between organizations. As the ‘father’ of reengineering, Michael Hammer has come in for much criticism in recent years. Hammer himself accepts that the concept of radical re-engineering started to turn sour by the late 1990s. Now he outlines a vision for a business landscape defined by collaboration. He urges companies to build collaborative relationships with their partners, redesign inter-enterprise processes to cut down duplication. This will require data to be shared openly and work to be relocated to whoever can best carry it out.
Whilst many of the theorists of high performance argue in favour of balancing different stakeholder needs, Richard Ellsworth in Leading with Purpose (2002), a study of 20 major organizations that have stood the test of time, suggests that having clarity of purpose is essential to business success.
He makes the case that business success (measured in terms of the total return
to shareholders compared with an industry mean (mean being 100%) varies according to where the organization’s purpose is focused. Ellsworth does not discount the value of being shareholder-focused, pointing out that organiza-tions in his study which were clearly shareholder-focused outperformed their industry mean by 117%. Those that attempted to balance a range of different stakeholder needs underperformed the mean (84%). What marks out the high-est performing companies in terms of higher than industry average business results is a clear focus on customers, with the companies that were clearly customer-focused doing best against the mean (136%).
Ellsworth notes that organizations with strong customer-focused purpose tend to:
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Make it easier to create positive change•
Reduce internal conflicts and politics•
Enable the retention of talent•
Enable more creativity•
Create more sense of meaning at work•
Create a stronger culture.This suggests that in order to produce sustainable success, an organization has to move slowly in order to go fast, focusing on getting things right for customers and employees if shareholder needs are going to be met satisfactorily.
Various measurement approaches reflect a similar set of priorities. In Balanced Scorecard terms, employees are the key to both the effective use of internal processes and to providing great customer experience, which in turn drives high business returns and profitability. Similarly, the service–value–profit chain is gaining respectability in commercial circles. The assumptions behind such a perspective are that when employees feel satisfied they give better service to cus-tomers which should in turn lead to better business results. A Sainsbury’s staff attitude survey, for instance, found that the more satisfied staff were at work, the happier customers were with the service they received (Whitehead, 1998).
Getting the best out of people, helping them to become customer-focused and providing them with conducive conditions in which to work – especially the hours they are expected to be at work – involves investing in employees and providing a measure of job security.
This is where the logic of the short-term focus starts to break down. Human performance takes time to reach its peak and may require development and investment before it yields top returns.
Employee perspectives on high performance
Employees generally want their organizations to succeed. Working for a successful organization is thought to increase employee satisfaction.
According to research in the UK by ISR, companies that achieve above average net profit margins and returns on invested capital, compared with the industry in which they operate, also have higher levels of employee satisfaction and commitment.
Yet employees tend to see good business results as only part of the definition of high performance. Harvard Business School Professors John Kotter and James Heskett(1992) found a correlation between companies that value employ-ees and business success. The authors asked industry analysts a series of ques-tions about the culture of 22 companies, which the interviewees had to rate from one (definitely not) to seven (absolutely, yes). To the question: ‘How highly does (a specified organization) value its employees?’ the 12 better-performing firms averaged a score of 5.8 while the lower 10 scored an average of 4.1.
This is reflected too in Roffey Park’s Management Agenda survey. Of course, employees differ on where they place their emphasis in defining what high performance is all about. To some people, high performance is all about the
‘outputs’ with ‘business success’ being all about the commercial benefits the change brings, such as increased flexibility, better customer service and their company’s improved reputation within their industry. For many others high per-formance is about the organization having an appetite for change and being much more innovative. For others still, high performance is about internal improvements, with the change resulting in increased employee commitment, retention and satisfaction. Respondents agree though that a high performance organization as one that is a great place to work, has a culture supportive of innovation and knowledge creation, has flexibility built in and is strongly val-ues-based. Employees recognize the need for organizations to be adaptable to changing circumstances, and able to move swiftly to seize market opportuni-ties. They also recognize that sustainable high performance is built from the sum of individual performances. High performance cultures enable individu-als to be the best that they can be. They appear to achieve the highest performance from people and at the same time provide real opportunities for job satisfaction. Employees it seems want business success as well as personal success, not business success at personal cost.
They aim for sustainable success over the long term
Arie de Geus (1997), formerly coordinator of corporate planning for Royal Dutch/Shell, has written in his book, The Living Company, about the research commissioned by Shell to identify what differentiated large companies that had survived for a hundred years or longer with their identities intact from those that had disappeared. The study discovered 40 such organizations, including Rolls–Royce, Du Pont and Sumito. In contrast, the lifespan of other large organizations averaged a mere 40 years.
Characteristics of ‘living companies’
De Geus found that all the ‘living’ companies had common characteristics:
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They were conservative in financing. Having money ‘in the pocket’ gave these organizations control of their timing.•
They were sensitive to the world around them. Their top leaders were part of the wider world and aware of the changing environment.•
They had a sense of cohesion and corporate identity. Both employees and leaders had a good understanding of what the company stands for. Leaders and employees are happy to act consistently with these values.•
They had a management style that was tolerant of experimentation and eccentricity ‘at the margin’. They had decentralized structures and delegated authorities. They left space in the organization and controlled the context rather than the contents.These qualities form the basis of developing the organization’s capacity for reshaping itself. De Geus has developed the premise that if companies are to survive they need to give up a purely economic model of corporate success and should cultivate the characteristics of a living being.
Similarly, research carried out by Collins and Porras (Built to Last, 1995) points to the fact that success for commercial companies in the past, whether measured in terms of longevity, profitability, or both, was linked to their ability to establish themselves as a human community of successive generations of people. In the 18 ‘visionary’ companies studied, success was not dependent on putting the maximization of profits/shareholder value as the top managerial priority. Human sustainability involved developing the social capital of employees.
In companies such as IBM, Merck, Johnson & Johnson, the belief in company values is described as almost ‘cult-like’. These companies are good at managing for change. They are financially conservative.
Rather than focusing purely on the bottom line, evident in other organiza-tions in attitudes such as recruitment treated as gap filling and ‘we’re too busy to train’, the visionary companies tend not to focus on profit for its own sake. ‘Visionary’ companies change their strategies and, in some cases, their values, but they stick firmly to their core purpose. They are
Rather than focusing purely on the bottom line, evident in other organiza-tions in attitudes such as recruitment treated as gap filling and ‘we’re too busy to train’, the visionary companies tend not to focus on profit for its own sake. ‘Visionary’ companies change their strategies and, in some cases, their values, but they stick firmly to their core purpose. They are