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Reflective Leaders and High-Performance OrganizationsHow Effective Leaders Balance Task and Relationship to Build High-Performing Organizations
By NICK A. SHEPHERD PETER J. SMYTH
iUniverse, Inc.Copyright © 2012 Nick A. Shepherd and Peter J. Smyth
All right reserved.
Effective leadership has evolved as a key factor in building successful organizations. This book has come about because of our desire to help organizations realize their potential. What does this mean? Every organization seeks to "optimize" its potential and to create its own "competitive advantage." Why is it, then, that so many potentially successful organizations fall below expectations? Running an organization is not rocket science, in spite of the literally millions of books designed to help individuals and organizations improve what they are doing. Our society spends billions of dollars on developing software systems and sending people on training programs; future leaders are exposed to intensive levels of education, often spending time away from families on MBA programs designed to help them perform more effectively. Why is it, then, that all of these investments so often fail to deliver the desired outcomes?
We believe our approach offers an alternative; in creating this book, we have taken an integrated view of organizational performance that blends a focus on both outcomes (the need to get results) and relationships (the need to create interdependent, cooperative, and collaborative cultures). We have also taken into account something that someone suggested many years ago. We were having a discussion with a client on the difference between training and education, and before we could respond, our two teenage daughters came home from school and said, "Dad, today we had sex education." About two weeks later, they came home and said, "Dad, today we had sex training." What was the difference? Education helps us understand why things happen, whereas training helps us learn new skills and knowledge and apply them.
There has been a lot of scientific research on how adults learn, and the key to this is typically that there must be a connection between the real world in which people live and the new ideas and knowledge that are being taught. Of course, the experience of moving through this learning must be enjoyable, and there might even need to be an emotional connection for the information to be retained and ultimately applied. We present first the "education" piece as we try to establish a context for our ideas based on the changes many of us experience in real life. Hopefully, we will create some "head nodding" as readers connect with the day-to-day challenges that they face and the experiences that have formed their individual history.
Once we have created this context, we will suggest a framework for developing and applying an improved approach to organizational leadership and management; through applying these approaches, we believe that readers will start to develop the "Ah ha" moment, when the simplicity of our ideas begins to crystallize. We will not just provide philosophy and conceptual approaches; we will also add practical tools and direction that our clients have used to put our methods into practice. Finally, we will present a number of case studies of organizations that we have worked with; these case studies show how to apply our ideas and also demonstrate measurable improvements in the day-to-day activities of the organization plus measurably improved outcomes from the organizational activity. A key to our approach is the recognition that while working in a positive environment is more fun, to succeed, the outcome of good working relationships must be greater success in task execution.
Each of us brings a very different background to both this book and to our clients. Peter has established himself as a leading practitioner in the field of humanistic counseling psychology and group work; he puts this extensive practical experience to use in both his clinical practice (The Counseling Institute), where he practices relational psychotherapy, and in his organizational work (from health care to manufacturing organizations) with boards, senior executives, management and leadership teams, and individual employees. Peter's doctoral dissertation on narcissism and attachment has a direct relationship to the issues that we discuss, and his extensive experience in the mental health field, along with his studies and practice in the areas of clinical social work and humanistic psychology, all provide a solid theoretical and technical background for understanding human behavior, and guess what? Organizations are, in fact, collections of people!
"An organization is where a group of different individuals with different talents comes together for the intention of achieving a common purpose."
Given that people form the foundation of any organization, it follows that understanding human behavior and enhancing the ability of people to work together must be a core competitive advantage of a successful organization.
Nick, on the other hand, comes from the "other side of the tracks"; in this partnership, Nick's background in finance and accounting, as well as his in-depth experience in several other areas, provides a very practical, results-oriented focus to the work that we do. Nick spent over twenty years in accounting, with increasing levels of responsibility; he rose to become the vice president of finance and administration of a privately owned industrial distribution business, and as an outcome of this role, he spent three years as the organization's president. He also spent six years as the vice president of finance of the Canadian subsidiary of a major US-based technology multi-national. Add to this his early experience in the retailing business and in the engineering areas of the entertainment and hotel business, plus the past twenty years as a management consultant, and his focus is definitely on the tangible aspects of getting the job done.
Peter and Nick came together over twenty years ago through a mutual friend in the consulting business. First impressions were, naturally, based on perceptions. Nick viewed Peter as dealing with the "soft stuff," while Peter viewed Nick as a "black and white—no area in between" bean counter. Over twenty years later, we have both come to learn that both aspects are critical to business success, and, in fact, the ideas presented in this book, as well as those shared with our clients, have taught us that it is not an "either/or" approach that works but one that combines the human dimensions of performance improvement with an effective focus on organizational outcomes.
As Nick has been prone to say recently, the work that Peter does is incredibly valuable and interesting, but so what? If the outcome is not a more effective organization, what does it really achieve? We believe this provides a competitive advantage to our approach, knowing that the authors have very different perspectives!
Let's move now to the business and social environment we find ourselves in. What Nick also accepts now, which Peter always knew, is that in fact, the people stuff is the hard stuff. The ideas in this book may be simple conceptually, but application and sustainability will be hard. Some of these ideas are included in the foundational commitments that form the basis of the globally recognized Toyota Management System (TMS), but we have now embedded the overall concepts into our own management model, RP5 (see the appendix). We believe that this framework offers an integrated yet simple approach that almost any organization can embrace and apply.
Further background on both authors is contained in the appendix.
The Changing Business Environment
Plenty of books have been written on the changing face of the economy—be it from a technological, social, global, demographic, or other perspective. What we want to focus on is the shift from a tangible economy to one based on intangibles. This shift is not new and has been developing for almost twenty years—in fact, it heralds the shift from the latter stages of the industrial economy to the early stages of the knowledge society. The "dot com" crash of the 1990s was a precursor, a bump in the road if you like, toward the recognition that the systems and approaches to management and leadership that worked in the past will not work in today's knowledge-based society. Peter's focus has in fact been on the intangibles: the ability of organizations to create value-adding relationships both internally and externally; Nick's concerns and focus have been on the inability of the accounting profession generally, and corporate accountability and performance measurement specifically, to account for the growing importance of intangibles to organizational performance. The impact on organizational value is significant, as shown in the Global Enterprise Value chart; however, never forget that whether an organization is "for profit" or "not for profit," its ability to harness human potential is a growing aspect of effectiveness.
Figure 1 shows how enterprise value during the last decade (excepting the financial meltdown in 2008, which has essentially already been corrected) has increasingly been attributed to intangibles. What does this mean? First, this survey, conducted annually by Brand Finance, looked at the market value (i.e., what investors believed the organization was worth in terms of market valuation) versus the "book value" (i.e., the value as shown in the organization's statement of assets and liabilities, which is presented as a part of the mandatory annual financial statements) of the global top ten thousand public companies—worth in aggregate over $50 trillion. What does this tell us?
1. The value of tangible assets is continuing to become less important. 2. The value of intangibles is becoming more important. 3. This trend is well established (looking back a further ten years will reveal the same pattern). 4. Reliance on financial statements and financial reporting of an organization's value is becoming less important (i.e., accounting data only shows us a limited aspect of how well an organization is actually performing).
Deeper investigation will reveal that while financial measurement is reasonably well understood and codified with standards and protocols, the understanding of intangibles is less understood and certainly not subject to effective quantification and codification. Many of the concepts that underpin this book are not new; the commitment to principles of Total Quality Management (TQM, Mahoney, 1994) started in the 1950s and 1960s; customer satisfaction was written about in the 1970s and 1980s by authors such as Tom Peters (In Search of Excellence and A Passion for Excellence) and Jan Carlzon of SAS (Moments of Truth); the development of organizational models for excellence such as the Baldrige Award; the work on knowledge management and intellectual capital by Karl Sveiby (Sveiby, 1997), Leif Edvinsson (Edvinsson, 1997), Tom Stewart (Stewart, 1997), and Baruch Lev (Lev, 2003); work on value chains by Michael Porter; and work by others on lean thinking. One of the more recent books on this subject by Mary Adams and Michael Oleksak (2010) provides a good background into the emerging issue of intangibles and demonstrates some of the emerging aspects of understanding this critical area. All of these changes are building blocks to a new economy, where a new set of operating paradigms is needed. At the pinnacle of this is the need for a whole new approach to corporate governance (see Nick's 2005 book on the subject, Governance, Accountability, and Sustainable Development: A New Agenda for the 21st Century).
This trend is important because a core aspect of an organization's intangible value depends upon its ability to create, maintain, and sustain effective relationships, both internally and externally. We believe that the trend shown in figure 2 illustrates the significance of this.
As the importance of tangible assets decreases, the importance of effective relationships increases. Why is this? Because relationships enable the effective development of intangible value; key intangibles that contribute to an organization's increasing intangible intensity include an engaged, creative, and innovative workforce; loyal and valued customers; suppliers who are treated as partners; interdepartmental activities that are collaborative and cooperative; and effective communications that underpin the sharing of information for the good of the whole organization. Effective leadership creates an organizational culture that is "change ready" and has the agility to move in response to rapidly changing conditions. A key reason why smaller organizations can often outperform larger ones is that they have stronger relationships between their component elements.
The sad aspect to this evolution is that it is not new! The little applied Tribal theory suggests that when an organization exceeds two hundred people, relationships start to deteriorate. One proponent of this approach was Frank Stronach, the successful Canadian entrepreneur who built Magna into a global force in the automotive parts industry. Frank established a solid foundation in the early days of his organization; he built independent, autonomous plants using the Tribal theory and placed emphasison the local managers being accountable for developing and running their own business unit; this approach was complemented by "partnering" with employees through the creation of a corporate "charter of rights" that established an employee profit-sharing scheme.
The seeds of the decline of General Motors were sown over twenty years ago; relationships with dealers as well as suppliers were heavily adversarial rather than based on a partnering approach. While the short-term outcomes were being celebrated as a result of programs such as supplier cost reduction, led by Ignacio Lopez, the corporation's supply chain was headed for discontent and failure. Many GM suppliers ended up in Chapter 11 even before GM itself was forced to accept its inability to sustain operations.
GM, along with many other manufacturers, went through major changes in the 1970s and 1980s as competition from the Japanese increased; in particular, this era focused on the development of quality management. Global gurus in the quality movement such as J. Edwards Deming (Walton, 1986) focused even at that time on the importance of building effective relationships. Deming's fourteen principles (shown below) demonstrated that effective organizational change must come from a holistic approach, which includes relationship building.
1. Create constancy of purpose for improvement of product and service. 2. Adopt the new philosophy. 3. Cease dependence on mass inspection. 4. End the practice of awarding business on price tag alone. 5. Improve constantly and forever the system of production and service. 6. Institute training. 7. Institute leadership. 8. Drive out fear. 9. Break down barriers between staff areas. 10. Eliminate slogans, exhortations, and targets for the workforce. 11. Eliminate numerical quotas. 12. Remove barriers to pride of workmanship. 13. Institute a vigorous program of education and retraining. 14. Take action to accomplish the transformation.
Many organizations ultimately failed to achieve their potential for quality improvement because they failed to focus on the challenging task of behavioral change, which is at the heart of effective relationships.
Mergers and acquisitions (M&As) is another area where the failure to address relationship management has been shown to be critical. This is especially true in service organizations where substantial sums of money change hands based on valuations that are heavily biased toward intangibles. Because the value paid by the acquiring organization often significantly exceeds the financial or book value of the entity being acquired, the extra amount paid has to go somewhere on the accounting records, so it is entered into an account called "Goodwill." This amount often exceeds billions of dollars, which must be validated by the accountants every year to ensure the amount has not been impaired. While the profession has developed many approaches to try and assess this, it remains an elusive asset to attribute an accurate value to.
The tragedy for shareholders and investors is that over 50 percent of M&As fail to achieve their projected benefits, and, in fact, these amounts are often written off as a loss. Why does this happen? Because organizational culture and human relationships in creating competitive advantage are not well understood, and often the acquiring company, in its efforts to integrate the two entities, actually destroys the inherent competitive advantage of the acquired entity.
Excerpted from Reflective Leaders and High-Performance Organizations by NICK A. SHEPHERD PETER J. SMYTH Copyright © 2012 by Nick A. Shepherd and Peter J. Smyth. Excerpted by permission of iUniverse, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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