The Outstanding Organization: Generate Business Results by Eliminating Chaos and Building the Foundation for Everyday Excellence

The OUTSTANDING Organization

Generate Business Results by Eliminating Chaos and Building the Foundation for Everyday Excellence

The McGraw-Hill Companies, Inc.

Excerpt

CHAPTER 1

Cracks in the Foundation

First, master the fundamentals.

—Larry Bird

Setting out to write a book about outstanding organizations and how to become one is a daunting task. Ask 10 people what an outstanding organization is, and you are likely to get 10 different answers. Even worse, if you had asked the same 10 people to name the top five outstanding organizations 10 years ago, they likely would no longer list the same five today. "Outstandingness" is all too fluid and fleeting.

Nonetheless, I have to begin with my own definition of what characterizes an outstanding organization. My definition isn't mechanistic, as some definitions of excellence are. This is in part by necessity, because I believe that the designation of outstanding organization should be equally applicable to for-profit businesses, nonprofits, government agencies, and even community groups. This means that you can't have rigid measures such as profits or overhead costs or even customer satisfaction. I find such mechanistic measures of excellence unnecessarily constricting and ultimately off-base. More organizations that have been labeled excellent or outstanding using such measures have fallen into the dustbin of history than the number that have continued to live up to the label.

My definition of outstanding organizations is more subjective than objective; it requires some judgment to apply. Like Supreme Court Justice Stewart's dictum about pornography, people know outstanding organizations when they see them. In my experience, the number of people who truly think that their organization is outstanding when it isn't is relatively small.

But my definition isn't just about a subjective feeling. It's based on some very tangible results and even more so on evidence of specific capabilities. An outstanding organization is one that has consistently delivered high value, relative to the alternatives, to stakeholders for years, if not decades. The delivery of value can be measured in any number of ways and varies not only by type of organization but also by context. For instance, a business may measure value in terms of customer loyalty, profitability, and market share. Or it could measure growth, return on invested capital, and employee satisfaction. A government agency or nonprofit may measure constituents served per dollar spent, efficiency, or program outcomes. The important part isn't the specific measure of value but that the organization delivers value consistently for years (and thus stock market valuation generally is a terrible measure of whether an organization is outstanding).

However, I recognize that this definition isn't very useful for organizations that aspire to be outstanding. It's the equivalent to telling a middle-school basketball player that the key to success is being like Michael Jordan. True, but not helpful.

Three Capabilities of Outstanding Organizations

For organizations that desire to be outstanding, it's more important to focus on the capabilities of outstanding organizations than on the outcome—consistent value creation—that they attain. When we look at capabilities, it's easier to see and be specific about what makes an organization outstanding.

I've been working with organizations that want to improve some aspect of how they operate for the majority of my career—several hundred organizations in a wide range of sizes and industries at this point. I've also spent a great deal of time studying and learning from outstanding organizations that I've encountered and from the gurus of excellence—the authors and consultants who, in total, have worked with and studied hundreds of thousands of organizations.

All that work has led me to conclude that outstanding organizations, no matter what sector or environment they operate in, share three capabilities: They are excellent problem solvers, they improve continuously, and they are resilient.

Problem Solving

It's not much of a stretch to say that problem solving is the purpose of any organization. Organizations, in almost all cases, are formed to solve a problem—a gap between a current and desired condition—be it an unmet customer need or a social issue. Solving that problem inevitably involves other problems: how to identify, hire, and retain talented employees; how to improve product or service quality; how to deal with an unexpected supply shortage; how to improve administrative efficiency; how to react to a competitive or environmental change. In recent years, it has become popular to avoid the word problem in organizations, recasting it instead as an opportunity for improvement. While proponents of using more positive terms are surely well meaning, I think they've got it entirely wrong. The issue isn't that the word problem is negative, but that many organizations have forgotten that their core purpose is identifying and solving problems. These organizations then begin attempting to hide or avoid problems, forcing executives to perform semantic gymnastics (such as substituting opportunity for problem) that waste everyone's time and ultimately erode trust.

Outstanding organizations, in contrast, never fear calling a problem a problem. Even more important, they don't fear acknowledging that a problem exists. In fact, they go out of their way at every turn to find hidden problems and bring them out into the sunlight so that everyone can see them and can get on with the task of solving the problem in the best way possible.

Outstanding organizations, because they are constantly attuned to finding and solving problems, gain a great deal of expertise in identifying the most important problems and dealing with the root cause. Just to be clear, by problem solving I do not mean reactive firefighting. Simply "solving" problems in such a way that the same problem reappears in short order—or the "solution" simply causes a different problem that needs solving—isn't a marker of outstanding organizations.

True problem solving isn't something that just happens. Outstanding organizations teach effective problem solving through a highly detailed methodology that includes careful problem definition, root cause analysis, and evaluation of possible countermeasures (a term I use instead of solutions for reasons that I'll explain in Chapter 2). Then they take the time to study whether the countermeasures they chose work and take further action based on what they learned. But it's not the specifics of the methodology that matter. As I'll discuss in detail, the real thing that sets outstanding organizations apart in problem solving is that they have invested heavily in developing their people's skills. In other words, the discipline and engagement of people matters more than any element of a methodology.

Continuous Improvement

Continuous improvement builds on the core capability of problem solving, but the motivation for and the "spirit" around building this capability digs further into the culture of the organization. Solving problems is primarily about maintaining performance, and there's no way you can achieve consistency without it. But even with the best problem solving you can still be consistently mediocre. Continuous improvement is about raising the bar of performance another step towards excellence.

True continuous improvement isn't haphazard. It's not about a project here or there to improve some aspect of operations. Continuous improvement is a mindset and a culture that is always—every employee, every day—looking for opportunities to do the job better, even when the organization is performing at the highest level it ever has. Outstanding organizations don't work on improvement when it is convenient and stop when things get "too busy."

Maybe the best analogy is to elite athletes or musicians. Rarely do you see an Olympic swimmer or runner set a world record and announce that he or she has no plans to get better and break his or her own record. Similarly, the most widely lauded pianists, violinists, and their like still spend hours every day practicing specifically with the intention of getting better. They are devoted to continuous improvement—closing a defined gap between current and desired performance—even when a problem isn't immediately apparent. Outstanding organizations do the same; they dedicate significant chunks of time to working on the business, not just in the business.

Resilience

Some organizations take on an air of invincibility. They succeed on such a grand scale over such a length of time that people begin to assume that such organizations are perfect. When a challenge inevitably arises, the organization makes a slip, or conditions turn against it, those illusions are shattered. The truth is that no organization is perfect because each one is made up of imperfect people. No methodology, no charismatic executive, no governance scheme, no commitment to innovation, and no history of success or even mastery with problem solving or continuous improvement can generate perfection. Every organization will slip or stumble on occasion or face changing conditions. What distinguishes outstanding organizations is their resilience to these slips and stumbles and changing conditions.

Psychologists and social scientists increasingly have come to recognize the importance of resilience as a desirable personal trait. When looking at why different people with nearly identical starting points (be it extraordinary intelligence, wealth, poverty, disability, or another trait) end up at strikingly different levels of success, these scientists have found that the way a person reacts to a setback makes a huge difference. Some people are resilient in the face of a setback or disaster—they are able to redouble their efforts or shift course—whereas others dwell on the setback and essentially give up. Importantly, while some portion of resilience probably is inborn, most of it is a learned behavior. For instance, one way to increase a child's personal resilience is to tell him or her stories about how his or her parents or grandparents overcame obstacles. Having a family narrative of resilience equips children to believe that they can overcome obstacles and bounce back.

Since organizations are made up of people, it hardly should be surprising that resilience can be both an organizational capability and an outcome. And it is—in outstanding organizations. These organizations are able to deliver value over years and decades not because they never put a foot down wrong or are extremely lucky, but because when they do make a misstep, they are able to honestly acknowledge the issue and bounce back. No matter how grim the situation it may find itself in, the organization does not lose energy in attacking the problem; it does not blame customers, suppliers, the market, the customer service department, the sales teams, or the full moon for the circumstance; and it does not pretend that the issue will go away. Toyota Motor Corporation, Intel, and Southwest Airlines are three examples of companies that have demonstrated high levels of resilience in the face of significant external pressure and changing market conditions. Outstanding organizations don't get caught in the "We've always done it this way" trap. If the way they have always done it isn't working anymore, they stop doing it that way and find a new and better way to do it.

I'm far from the first author to attempt a definition of excellence in organizations. I think you'll find that my definition overlaps with some of the descriptions and characteristics posited by respected authors and consultants. I don't disagree with their versions of what an outstanding organization is, but many of the clients with whom I work are left scratching their heads after reading one of these modern (or not so modern) classics of the business bookshelf. They have attempted to follow the advice they see in these books, but don't see much progress in terms of their performance.

The Traditional Path To Becoming an Outstanding Organization

The quest for organizational excellence has a very long history. While such names as W. Edwards Deming, Jim Collins, Peter Drucker, Tom Peters, Peter Senge, and Gary Hamel are top of mind today, the modern movement can be traced all the way back to Frederick Winslow Taylor. Taylor, working in the early days of the industrial revolution, suggested that most businesses were poorly run and that the careful application of his management principles would lead to major increases in efficiency. His most famous work involved standing over workers with a stop watch and timing how long it took them to perform each task. He then set benchmarks for all workers based on the best performers.

Taylor's efforts launched the business consulting industry. It's at least mildly ironic that it later emerged that Taylor fudged much, if not most, of his data and invented many of his stories of improvement.

But Taylor's concept that most organizations were mediocre in terms of their management certainly has stood the test of time. In fact, over the last several years, a team led by Stanford economist Nicholas Bloom has documented that much of the difference in the economic performance between countries such as the United States and the United Kingdom versus India and China can be traced to poor management practices in the developing nations. Essentially good management is a technology that disperses around the world very slowly. Before you think that research reflects well on management in developed countries, let me point out that the difference is not that American companies, for instance, are very good at management but that abysmally poor performers get weeded out rather quickly. Thus, while the average level of performance of American companies is higher than that of Indian companies, that average level is still not very impressive.

This explains why Collins, Peters, and Senge have been perpetual best-sellers for decades and sales for W. Edwards Deming's classics Out of the Crisis and The New Economics have been steady and are beginning to rise again. And it explains the ongoing fascination with Lean, Six Sigma, and other improvement and excellence methodologies. Organizations all over know excellence when they see it, and they know that they are not excellent. Their desire for excellence has led them toward the modern disciples of Taylor—and to many other approaches to becoming outstanding.

I've worked with countless companies that have become devoted followers of best-selling authors—they've done all they can to create a vision, get the right people on the bus, and so on. Others have read The Toyota Way and many other books about Lean over and over again. Some have referred to my book, The Kaizen Event Planner (coauthored with Mike Osterling), and run scores of kaizen events focused on problem solving and continuous improvement. Yet the majority of these organizations don't get the results they want and need. The averages bear out their experience. Despite more than 100 years of organizational improvement literature, the average company still performs at shockingly low levels.

Stories about the failures of companies that have turned to Just-in-Time, Theory of Constraints, Lean, or Six Sigma are cropping up increasingly in the media. Several times a year, for instance, there seems to be a Wall Street Journal article about companies rethinking their approach or suggesting that their gains from deploying Lean were short-lived. These stories in general bear out my experience: No matter what the methodology many companies employ, they can't seem to get the results that such improvement methodologies promise. I'm not the only one seeing this. Many of my colleagues in the improvement industry are seeing this phenomenon too. Jeffrey Liker, author of The Toyota Way, which is in many ways the Bible of the Lean movement, has recently published a book specifically about this issue: the failure of companies to get lasting gains from implementing Lean.

Why? Why are so many companies unable to achieve the organizational improvement for which they are looking? Why do so many fail to reach their full potential despite a earnest commitment to becoming outstanding? I've been thinking about this almost nonstop for the 20-plus years I've been building, managing and improving operations. I think the answer is that most organizations start the journey to becoming outstanding in the wrong place. They start with tools, methodologies, such as SIPOC diagrams, value-stream maps, 5S, and Pareto diagrams, but they are not addressing the fundamental cause of mediocrity: rampant chaos in the organization. Chaos undermines an organization's best efforts to build strong capabilities.

Organizational Chaos

For many of you, I won't need to define organizational chaos. You know exactly what I am talking about: shifting priorities, unclear direction, unstable processes, unhappy customers, disengaged employees. However, I find that most organizations have become so accustomed to chaos that they don't even recognize it. Or if they recognize it, they don't believe there's anything they can do about it. It's business as usual. In fact, sadly, many organizations seem to have embraced chaos and called it a good thing. One example is the rising number of job descriptions that include "tolerance for ambiguity" as a necessary skill. Let me be clear: Chaos is never a good thing for an organization. While the world is fluid, and increasingly so, this is no excuse for ambiguity and chaos inside organizations. There is a need for flexibility—which I prefer to call, as earlier, resilience—but that is an entirely different thing from internal ambiguity and chaos. Rather than asking your workforce to accept and develop a skill set around coping with chaos, you should be doing everything you can to reduce the chaos to begin with.

I'm also not talking about energizing chaos—the type of externally driven change from customers and competitors that stimulates innovation, reduces complacency, and spurs teams to achieve new heights. Not only is this type of chaos largely unavoidable, in small doses, it's highly desirable.

I'm talking about the undesirable type of chaos—self-inflicted chaos—the disorder and confusion that your organization creates on its own and, by extension, has the power to reduce or eliminate completely. I'm talking about the type of chaos that robs your business of the energy it needs to innovate and respond to the marketplace's ever-increasing demands for faster, better, cheaper. Chaos sabotages your ability to provide value to your customers, satisfy shareholders, and offer a work environment that doesn't break employees' spirits. Left unchecked, chaos destroys everything that's good about an organization, its products, and the people who make them.

How Chaos Undermines Organizations

Chaos is the enemy of any organization that strives to be outstanding. Here's how it works: Chaos inserts hairline cracks into what could be an otherwise robust structure. Under pressure, these hairline cracks begin to grow, weakening the foundation and organizational supports that you need for execution. So it's no wonder that the improvement approaches you have attempted to adopt are failing to deliver as you had hoped. Turning to the next new thing isn't doing the trick because you're trying to build a high-rise structure on a foundation that can't support it. Imagine your business as the building in Figure 1.1.

(Continues...)

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Excerpted from The OUTSTANDING Organization by KAREN MARTIN. Copyright © 2012 by Karen Martin. Excerpted by permission of The McGraw-Hill Companies, Inc..
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