Building Great Organizations – A Review of Important Literature By A V Vedpuriswar Objectives Much has been written about organizational excellence. Here, we look at some of the most cited works and try to capture the essence. Part – I The 4 principles of enduring success By Christian Stadler Harvard Business Review, July - 2007 Defining greatness Research by Stadler reveals that in terms of total return for shareholders, top companies did 62 times better than the general market. An investment of $1 in 1953 would be worth $4,077 today. By contrast, the comparison companies beat the general market by a factor of eight, and $1 would have reaped $713. Stadler’s four principles of enduring success Exploit before you explore. Diversify your business portfolio. Remember your mistakes. Be conservative about change. Exploit Before You Explore To measure exploration, Stadler used R&D spending as a percentage of sales and patents issued as a percentage of sales. For exploitation, he used return on equity, return on sales, and return on investment. Though they did not neglect exploration, as a strategy the winners consistently preferred exploitation efforts to exploration initiatives. Companies can compensate for insufficient exploration capabilities by being more efficient exploiters. But they are not able, over the long run, to make up for a lack of exploitation capabilities through better exploration. In other words, great companies don’t only innovate. They grow by efficiently exploiting the fullest potential of existing innovations. Glaxo vs Wellcome When Henry Wellcome started his business together in 1880, he wanted to make a name for himself as a medical pioneer. In pursuit of this aim, he sponsored much of the field research then under way in tropical medicine. Glaxo’s story was very different. Founder Joseph Edward Nathan, started a new subsidiary in 1905 to commercialize a patent he had purchased for manufacturing dried milk. Thanks to a well-organized marketing campaign waged by his son Alec, the company quickly became Britain’s leading supplier of dried infant milk. Seventy-six years later, Glaxo repeated the trick with Zantac, the ulcer medication it introduced in 1981. At the time, the leaders were SmithKline, Pfizer, and Eli Lilly. Glaxo was a latecomer, launching Zantac five years after SmithKline’s best-selling ulcer medication, Tagamet. Zantac had no remarkable scientific or medical advantage over Tagamet. The only difference was that Zantac was packaged in such a way that fewer pills were required each day. SmithKline continued to invest heavily in R&D, but Glaxo fared much better in terms of sales and profitability so much so that it was eventually able to purchase its more innovative competitor in 2000. Ericsson Vs Nokia Ericsson’s strong army of researchers had made the company a pioneer with its GPRS wireless data communication and third-generation mobile technology standards. Unfortunately, these advances came at a high price: large-scale duplication of research efforts, hefty R&D expenditures, and big, risky bets on the future direction of mobile technology. When the telecom industry entered into recession in 2001, Ericsson was hit hard. It laid off approximately 60,000 people and closed many research centers. Eventually it decided to combine its mobile business with Sony’s. Nokia, on the other hand, focused on exploitation. With margins under pressure in the mid-1990s, Nokia streamlined operations, cut inventories, and renegotiated component prices and delivery terms. When the telecom industry entered a recession, Nokia was far better prepared than Ericsson, and it remains a leading global competitor in mobile telephony. Diversify Your Business Portfolio Few people today would dispute that conglomeration is a poor strategy. But firms focusing on a single business or set of capabilities too do not seem much better when viewed from a long-term perspective. Single-business companies perform very well in the short run, but over several decades, a different picture emerges. Many of the single-business firms simply cease to exist. Once their primary offering reaches the end of its life span, the only possible next steps are decline, merger, or sale. Which is why great companies are as suspicious of focusing too narrowly as they are careful about diversifying. Alliance vs A&M: Product diversification The story of the German insurance giant Allianz, is a study in how to build a broad customer base. From its creation in 1890, the company had a strategy of diversifying its business portfolio. On the other hand Aachener und Münchener (A&M), founded in 1824, showed little ambition to become a broadly based insurance provider. While Allianz went from strength to strength, A&M struggled. Lafarge vs Ciments Francais: Geographic diversification Geographic diversification is as important as product range, as the contrasting experiences of the two leading French cement producers show. Lafarge began as a family-controlled cement producer in southern France. Lafarge felt that it could not rely on its home market alone and diversified internationally at an early date. The first step abroad was a large contract to deliver 110,000 tonnes of lime for the construction of the Suez Canal in 1864. After World War II, Lafarge used the cash generated by post war growth to speed its internationalization and diversify into related industries, such as aggregates and ready- mix concrete. When the first oil crisis ended the building boom in France in 1973, Lafarge was doing business in 15 countries. Growth opportunities in the developing world thus compensated for the slowdown in France. Originally, in 1846, a producer of Portland cement in northern France, Ciments Francais operated almost exclusively in France for the next 100 years. Ericsson vs Nokia: Vendor diversification Supply-side diversification also matters. On March 17, 2000, a fire in a Philips factory in Albuquerque, New Mexico, disrupted the global mobile-phone supply chain. Nokia had alternative suppliers in the U.S. and Japan, which were able to deliver most of the components destroyed in Albuquerque. Ericsson, on the other hand, had no backup suppliers. In an early cost-cutting exercise, the company had decided to concentrate on a single supplier – and paid the price. While the Albuquerque incident had no lasting negative effect for Nokia, it marked the beginning of Ericsson’s steady decline in mobile telephony. Remember your mistakes What really separates the great companies from the good ones is that the great companies also remember their mistakes. They take learning from mistakes very seriously, taking care not to make the same mistake again. Shell vs BP Take the case of Shell. Henri Deterding had led the merger in 1907 of his Royal Dutch Petroleum Company with Shell Transport and Trading to form the Royal Dutch/Shell Group. Deterding’s strong personality and impressive record gave him a position of unchallenged power inside Shell. Unfortunately, it also put him in a position to consider financial and moral support for Adolf Hitler, whom Deterding saw as the man most likely to preserve Europe from the Communists. Luckily for Shell, he retired in 1936, before he could make any commitments that would have embarrassed the company later on. The company did not forget its narrow escape: Deterding’s successors were never allowed to be so powerful. In 1964, the board rejected advice from McKinsey & Company to install an American-style chief executive officer, whose official powers would have matched those Deterding once wielded. Instead, the board installed a Committee of Managing Directors as the top executive authority in the company. Its chairman was only marginally more responsible than its other members. These arrangements stayed in place for decades, and only recently – following a crisis triggered by the company’s overstatement of its proven oil and gas reserves – has Shell opted for a classic CEO leadership model. Still, even now, it has remained remarkably careful to avoid placing an authoritarian leader at the top. BP, in contrast, appears not to have drawn any lessons when in 1951 Iran nationalized its assets, which accounted for fully 75% of the company’s oil supply. After receiving compensation two years later following a coup, BP failed to diversify its asset base significantly in the ensuring decades, ending up heavily dependent on a small number of sites in Alaska and the North Sea. As oil prices plummeted toward the end of the 1990s, those assets lost value, and BP found itself caught short again. BP is now as heavily dependent on sites in Russia and other former Soviet states as it was on its Iranian assets. HSBC vs Standard Chartered The Hong Kong and Shanghai Banking Corporation was set up in 1865 by the merchant community in Hong Kong to finance international trade. A close relationship with the bank’s main customers guaranteed a strong start, but there were also drawbacks. Financing investments in fixed assets in China turned out to be riskier than anticipated, and access to London capital was more complicated for HSBC than it was for its UK-based competitors. HSBC was badly affected when a severe recession struck in 1873. The bank decided to adopt a more balanced management approach. In 1876, it established a second executive board in London, creating a balance of power between the trade finance business in the East and the capital allocation center in London. The bank also continued to build up reserves and made sure that senior managers no longer had business interests outside the bank. Standard Chartered, in contrast, did not learn from its biggest mistake, which was creating a centralized London-based management system, which had a limited understanding of the China market. It lost major business to HSBC on numerous occasions – in the mid-1860s, for instance, it lost out because repayment periods for trade bills were shortened by London against the advice of local managers. Nonetheless, the company stuck to the old system. In the following decades, the firm survived despite, not because of, its centralized management. Local branch managers simply ignored orders from London, which they saw as unfit. Be Conservative About Change Great companies go through radical change only at very selective moments in their history. Jumping onto every new management wave is not for them. These companies use their core values and principles as guidelines and approach change in a culturally sensitive manner that requires patience to work through. Siemens Siemens took a very deliberate approach to its changes, initiating them only when it could see a clear strategic case for restructuring the business portfolio and then taking its time over implementation to make the transformation as painless as possible for the workforce. Change came to Siemens for four reasons, any one of which would on its own have provided ample justification. First, management recognized that the long-standing separation between its high- current (power generation) and low current (telecommunications) technologies was no longer appropriate. Second, as the group faced pressure to merge these two subsidiaries, management was also aware that the company’s long-standing consumer business was fitting less and less well with the high- and low-current activities, which were driving growth. Third, on top of these strategic considerations was the fear of what would happen when then-chairman Ernst von Siemens retired. Finally, the German government was preparing legislation that would force the corporation to reveal sensitive information about its operations unless it consolidated its subsidiaries. Siemens was very deliberate in the way it responded to those pressures. It began laying the groundwork for the disposition of its consumer businesses in 1957, when it brought its radio, TV, and appliances businesses together to create a new subsidiary, Siemens Electrogeräte. Over the following years, it closed or sold off the radio and TV production businesses, leaving it with a rump appliance business, which it spun off into a joint venture with Robert Bosch, a leading appliance maker, in 1967, a full decade after it had begun the process. Initially, BSH Bosch und Siemens Hausgeräte was hardly more than a joint sales force, and only over the years did it start to integrate production. The company was no less deliberate in its response to the pressure to integrate the low current and high current subsidiaries. Halske and Schuckert. The decision to merge them was announced in 1965, but it was not until 1969 that the two subsidiaries were formally replaced by six divisions: components, data technology, energy technology, installation technology, medical technology, and telecommunications. Culturally, the change took even longer. Management left many of the traditional arrangements and practices in place for as long as 20 years after the reorganization had been formally completed. Arguably, the convergence was not completed until the late 1980s, when another transformation process was initiated. In contrast, silver medalist AEG took a far hastier and less sensitive approach. Part – II Good to Great By Jim Collins Good to Great Jim Collins makes some pertinent observations, in his book, based on extensive research: Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. The good-to-great companies do not focus principally on what to do to become great. They focus equally on what not to do and what to stop doing. Technology and technology-driven change have virtually nothing to do with the transformation from good to great. Technology can accelerate a transformation, but cannot cause a transformation. Mergers and acquisitions play virtually no role in igniting a transformation from good to great. Two big mediocre entities joined together never make one great company. The good-to-great companies pay scant attention to managing change, motivating people, or creating alignment. They create the right conditions so that the problems of commitment, alignment, motivation, and change do not have to be dealt with separately. The good-to-great companies have no name, tag line, launch event, or program to signify their transformations. Indeed, some were unaware of the magnitude of the transformation at the time. Only later, in retrospect, did it become clear. They produced a truly revolutionary leap in results, but not by a revolutionary process. The good-to-great companies are not, by and large, in inherently attractive industries. In fact, some are in terrible industries. Greatness is not a function of circumstances. Greatness, is largely a matter of conscious choice. Compared to high-profile leaders with big personalities who make headlines and become celebrities, the good-to-great leaders are self-effacing, quiet, reserved, even shy. These leaders are a paradoxical blend of personal humility and professional will. Good-to-great leaders first get the right people on the bus, the wrong people off the bus, and the right people in the right seats. Then they figure out where to drive it. Every good-to-great company embraces unwavering faith that it will succeed, regardless of the difficulties. At the same time, such companies have the discipline to confront the hard reality, however unpleasant it might be. Going from good to great implies a better understanding of competence. Just because something is a company’s core business, or because it has been doing it for years does not necessarily mean it can be the best in the world at it. And if it cannot be the best in the world in its core business, then its core business cannot form the basis of a great company. All companies have a culture, some companies have discipline, but few companies have a culture of discipline. When there is discipline, hierarchy, bureaucracy and excessive controls are not needed. A culture of discipline combined with entrepreneurship, leads to great performance. Let us examine some of these points in a little more detail. Level 5 Leadership Compared to high-profile leaders with big personalities who make headlines and become celebrities, the good-to-great leaders seem to have come from Mars. Self- effacing, quiet, reserved, even shy – these leaders are a paradoxical blend of personal humility and professional will. They are more like Lincoln and Socrates than Patton or Caesar. First who… Then What. Good-to-great leaders first got the right people on the bus, the wrong people off the bus, and the right people in the right seats – and then they figured out where to drive it. Confront the Brutal Facts (Yet Never Lose Faith) Good-to-great companies embrace the Stockdale Paradox. They maintain unwavering faith that they can and will prevail in the end, regardless of the difficulties, AND at the same time have the discipline to confront the most brutal facts of their current reality, whatever they might be. The Hedgehog Concept (Simplicity within the Three Circles) To go from good to great requires transcending the curse of competence. Just because something is a core business – just because the company has been doing it for years or perhaps even decades – does not necessarily mean the company can be the best in the world at it. And if the company cannot be the best in the world at its core business it absolutely cannot from the basis of a great company. It must be replaced with a simple concept that reflects deep understanding of three intersecting circles. A Culture of Discipline All companies have a culture, some companies have discipline, but few companies have a culture of discipline. When a company has disciplined people, it does not need hierarchy. When there is disciplined thought, bureaucracy is not needed. Disciplined action obviates the need for excessive controls. A culture of discipline combined with entrepreneurship leads to great performance. Technology Accelerators Good-to-great companies think differently about the role of technology. They never use technology as the primary means of igniting a transformation. Yet, paradoxically, they are pioneers in the application of carefully selected technologies. The Flywheel and the Doom Loop Those who launch revolutions, dramatic change programs, and wrenching restructuring are unlikely to succeed. No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembled relentlessly pushing a giant heavy flywheel in one direction, turn upon turn, building momentum until a point of breakthrough, and beyond. Part – III Built to last By Collins and Porras Built to last By Collins and Porras According to Collins, the Good-to-Great ideas lay the groundwork for the ultimate success of the Built to Last ideas. Good-to-Great provides the core ideas for getting a flywheel turning from build up through breakthrough, while Built to Last outlines the core ideas for keeping a flywheel accelerating long into the future and elevating a company to iconic stature. Each of the Good-to-Great findings enables all four of the key ideas from Built-to- Last. Those four key ideas are: Clock Building, Not Time Telling. Building an organization that can endure and adapt through multiple generation of leaders and multiple product life cycles; as opposed to being built around a single great leader or a single great idea. Genius of AND. Embracing both extremes on a number of dimensions at the same time. Instead of choosing A or B, the built to last companies figure out how to have A and B – purpose and profit, continuity and change, freedom and responsibility, etc. Core Ideology. Instilling core values and core purpose as principles to guide decisions and to inspire people throughout the organization over a long period of time. Preserve the Core/Stimulate Progress. Preserving the core ideology as an anchor point while stimulating change, improvement, innovation, and renewal in everything else. Change practices and strategies while holding core values and purpose fixed. Set and achieve Bhags consistent with the core ideology. Part – IV In Search of Excellence By Peters and Waterman The 8 attributes of excellent companies Peters & Waterman identified eight attributes that characterised excellent, innovative companies: A bias for action. These companies like to get on with it. Even though these companies may be analytical in their approach to decision making, they are not paralyzed by endless analysis. In many of these companies the standard operating procedure is ”Do it, fix it, try it.“ Close to the customer. These companies learn from the people they serve. They provide unparalleled quality, service, and reliability – things that work and last. Autonomy and entrepreneurship. These companies foster many leaders and many innovators throughout the organization. They don’t try to hold everyone on so short a rein that they can’t be creative. They encourage practical risk taking, and support good hires. Productivity through people. The excellent companies treat the rank and file as the root source of quality and productivity gain. They do not regard capital investment as the fundamental source of efficiency improvement. Hands-on value driven. CEOs walk the plant floors and regularly visit retail outlets and assess them on the factors the company holds dear. Stick to the knitting. While there were a few exceptions, the odds for excellent performance seem strong to favour those companies that stayed reasonably close to businesses they know. Simple form, lean staff. The underlying structure, forms and systems in the excellent companies are elegantly simple. Top-level staffs are lean. Simultaneous loose-tight properties. The excellent companies are both centralized and decentralized. Even as they push autonomy down to the shop floor or product development team, they are fanatic centralists around the few core values they hold dear. Part – V Understanding the new paradigm The Individualised corporation: Ghoshal & Bartlett Transformation of management roles & tasks Operating level managers Senior level managers Top level managers Changing role From implementers to From controllers to coaches From resource entrepreneurs allocators to institutional leaders Primary value Focus on productivity, innovation, Support and coordinate to bring Provide a sense of added growth within frontline units large company advantage to direction, commitment independent frontline units and challenge to people throughout the organization Key activities & Creating and pursuing new growth Developing individuals and Challenging embedded tasks opportunities supporting their activities assumptions and promoting stretch Attracting and developing resources Linking dispersed knowledge, Institutionalizing a set of & competencies skills and best practices norms and values to across units support cooperation and trust Managing continuous performance Managing the tension between Creating an overarching improvement within unit short term performance and long corporate purpose and term ambition ambition. Management competencies for new roles Role/Task Attitude / Traits Knowledge / Experience Skills / Abilities Operating level entrepreneurs Results-oriented competitor Detailed operating knowledge Focuses energy on opportunities Creating & pursuing Creative, intuitive Knowledge of business’s Ability to recognize potential opportunities technical, competitive and and make commitments customer characteristics Attracting and utilizing scarce Persuasive, engaging Knowledge of internal & Ability to motivate and drive skills & resources external resources people Managing continuous Competitive Persistent Detailed understanding of the Ability to sustain organizational performance improvement business operations energy around demanding objectives Senior management People-Oriented Integrator Broad Organizational Develops People and developers Experience Relationships Reviewing, developing, Supportive, patient Knowledge of people as Ability to delegate, develop and supporting individuals and their individuals and understanding empower initiatives how to influence them Linking dispersed knowledge, Integrative, Flexible Understanding of the Ability to develop relationships skills and practices interpersonal dynamics among & build teams diverse groups Managing short term and long Perceptive, demanding Ability to link short term Ability to reconcile differences term pressures priorities and long term goals while maintaining tension Top level leaders Institution-Minded Visionary Understanding company in its Balances alignment and context challenge Challenging embedded Challenging Stretching Grounded understanding of the Ability to create an exciting, assumptions & setting stretch company, its businesses & demanding work environment targets operations Building a context of Open minded, fair Understanding of the Ability to inspire confidence and cooperation and trust organization as a system of belief in the institution and its structures, processes and management cultures Creating an over arching sense Insightful, inspiring Broad knowledge of different Ability to combine conceptual of corporate purpose & ambition companies, industries and insight with motivational societies challenges Part – VI Getting into action mode The importance of purposeful action: Creating a bias for action: Ghoshal & Bruch Most managers know roughly if not exactly what is to be done but few get around to action mode. People who exhibit purposeful action possess two critical traits: energy and focus. Energy implies a high level of personal involvement and effort, engaged, and self- driven behavior. Focus requires discipline to resist distraction, overcome problems and persist in the face of unanticipated setbacks. Four kinds of managerial behaviour The Frenzied: They are highly energetic but very unfocused and appear to others as frenzied, desperate, and hasty. The Procrastinators: They postpone the work that really matters to the organization because they lack both energy and focus. They often feel insecure and fear failure. The Detached: They are disengaged or detached from their work altogether. They are focused but lack energy and often seem aloof, tense, and apathetic. The Purposeful: They get the job done. They are highly focused and energetic and come across as reflective and calm, amidst chaos. Motivation and Willpower Motivation might suffice in helping managers sustain organizational routines. But the more important tasks are usually complex and require creativity and innovation. When dealing with ambitious goals, high uncertainty and extreme opposition, managers have to rely on a different force, the power of their will. Willpower goes beyond motivation. It enables managers to execute disciplined action, even when they are disinclined to do something, uninspired by the work, or tempted by other opportunities. Willpower gives managers an insatiable need to produce results. Willpower enables managers to overcome barriers, deal with setbacks, and persevere to the end. Wilful managers resolve to achieve their intention, no matter what. The Three Traps of Nonaction The trap of overwhelming demands The trap of unbearable constraints. The trap of unexplored choices. The trap of overwhelming demands. Purposeful action-takers manage their demands by: developing an explicit personal agenda practicing slow management structuring contact time shaping demands and managing expectations. The trap of unbearable constraints. To unshackle themselves from this trap, purposeful action-takers adopt strategies like: Mapping relevant constraints Accepting trade-offs Selectively breaking rules Tolerating conflicts and ambiguity The trap of unexplored choices The third trap of non action is unexplored choices. Many managers concentrate on immediate needs and requirements. They do not perceive or exploit their freedom to make choices about what they would do and how they would do it. Unleashing Organizational Energy for Collective Action The real challenge for most organizations is to tap their energy and channelise it into purposeful action. Comfort Zone Corporations that have succeeded for long periods in a relatively stable environment often settle into the comfort zone. Characterized by weak but positive emotions such as calm and contentedness, they lack the internal vitality, alertness, and emotional tension necessary for initiating bold, new strategic initiatives. Inertia stems from the belief that they have found the ultimate success formula. Resignation zone Companies in the resignation zone have the same low-energy intensity as those in the comfort zone. But these people find themselves in the grip of weak emotions, such as frustration and disappointment. Typically, they suffer from low levels of emotional commitment, alertness, and effort. Persistent mediocrity makes people lose their confidence in dealing with problems or challenges. Believing that nothing they can do would make any difference, they passively resign themselves to their fate. Companies in the resignation zone believe that they are simply not good enough to succeed. Corrosion Zone Companies in the corrosion zone show a high degree of energy, intense levels of activity and emotional involvement. They draw that intensity from strong emotions, such as anger, fear, or hate. The interplay of high energy and destructive responses is one of the most debilitating energy states in which a company can find itself. With much of the company’s energy dedicated to internal conflicts, rumors, micropolitics, or other destructive activities, the effort needed to cope with fear, suspicion, and rivalry drains people’s vitality and stamina, leaving little left for productive work. Productive Zone Unlike companies in the corrosive, resignation and comfort zones, those in the productive zone display high emotional tension, alertness, and activity. Employees work with a sense of urgency, driven by enthusiasm, positive excitement, joy, and pride in their work rather than anger, fear, or internal rivalry. Typically, these companies strive for challenges that surpass the routine, the obvious, and the normal. While low-energy companies look for standardization and institutionalization, avoiding surprises and risks whenever possible, companies in the productive zone thrive on surprises, the excitement of the unknown, and novel opportunities. A sense of urgency and alertness, allows them to process information and mobilize resources rapidly. Inevitably, these organizations also have leaders who direct their people toward shared purposes, channeling the company’s potential by aligning its collective perception, emotions, and activities to pursue business-critical activities. Slaying the dragon and Winning the princess Companies that achieve truly radical change have leaders who adopt one of three approaches for focusing the energy of their organizations and moving them into the productive zone. Some adopt the slaying-the-dragon strategy, driving their people out of the comfort zone by focusing their emotion, attention, and action on a crisis or a threat to overcome. Others pursue a winning-the princess strategy, moving their organizations into the productive zone by building people’s enthusiasm for realizing a specific, motivating dream. A few others use a combination of these strategies Strategies for summoning willpower There are six strategies that leaders can use to help managers summon their will power Strategy 1: Help managers visualize their intention Strategy 2: Prepare managers for obstacles Strategy 3: Encourage managers to confront their ambivalence Strategy 4: Develop a climate of choice Strategy 5: Build a self-regulating system Strategy 6: Create a desire for the sea Building employee loyalty Broad loyalty to an organization is increasingly difficult to achieve and sustain. Besides, such general commitment, even if achieved, does not necessarily lead to purposeful action on specific tasks. A diffused sense of organizational loyalty often creates a taken-for-granted kind of relationship between managers and the company that actually dulls the edge of execution. The best way leaders can build effective organizational commitment, is through a bottom-up style that emphasizes personal ownership and commitment to specific initiatives and goals.
Pages to are hidden for
"Mobile Technology Breakthrough in 1990S"Please download to view full document