The Five Keys To Building A High-Performance Organization

A Gartner review of the practices of successful companies in a variety of industries reveals five characteristics that are key to success

“What we found is that HPOs share five characteristics. They set ambitious targets and consistently and continuously achieve those objectives. They display a strong sense of purpose through shared values both inside (among employees) and outside the organization (among customers, suppliers, and other stakeholders). They have a strategic focus and alignment so that employees know how they are contributing to the results of the organization. They have the agility to adapt to changing circumstances quickly. And, finally, they have a common and shared business model throughout the organization.”

This article is an example of the tremendous amount of good research currently being conducted by the business process improvement community that can be leveraged to design performance metrics for the supply chain.

“The Mission: Set Ambitious Targets

“Many organizations claim that the primary function of a strategy is to describe how to maximize shareholder value. We feel that this is not fundamental enough. Strategies come and go over time. In high-performance organizations, the fundamental performance drivers are described by the mission statement. Corporate strategy is what links the mission statement with the personal objectives followed by employees.

“Pinpoint Shared Values

“Every organization has values, whether they’re spelled out or implicit. “Values” are not soft. New employees that join an organization and do not fit into its value system usually depart soon afterward. If the employees and management of an organization do not share the same values, every change proposed within the organization will be heavily debated and implementation will require significant effort. Even when values are agreed upon internally, if those values (i.e., what binds the organization together) do not align with customers’ values (i.e., what attracts customers to the company), the organization will struggle to innovate successfully. In HPOs, managers and employees agree on the company’s internal values, and those internal values match customers’ values.

“How To Execute

“The execution of a good strategy is at least as important as having that strategy in the first place. A company with no strategy but excellent execution may, in fact, be better off than a company with a good strategy that is badly implemented. Therefore, the first step in developing alignment is to put in place a measurement system to provide feedback on whether a strategy is working. There are many types of measurement systems; each has advantages and challenges. Regardless of which a company chooses, implementing it at the executive level and collecting feedback is not, by itself, enough to create focus and alignment. The measurement system has to be cascaded deep into the organization.

“Every company has two management loops. The first (the inner loop in exhibit 4, below) deals with operational, day-to-day, short-term management issues. Its performance indicators are known; typically they involve the speed, cost, and quality of processes. These metrics are monitored consistently. The second loop of management (the outer loop in exhibit 4) is more hands-off. New targets are determined, and different performance indicators may emerge as the environment changes or as ways to further optimize processes from the first loop become clearer. The problem within many companies is that the two loops of management are often disconnected. Each has its own set of performance indicators, and those metrics are only implicitly linked. Operational management, which is responsible for the first loop, may be unaware of the issues in the second loop, and vice versa.

“In high-performance organizations, however, the two loops are aligned. Corporate strategy is not only translated into high-level plans, but also linked to first-loop indicators. And these monitoring indicators are, in turn, explicitly linked to the feedback process. HPOs also have trigger-based processes that invoke the loops. If the organization’s strategy changes, new targets and process optimizations are communicated to the people responsible for the first loop of management so that they can update their management methods. If changes in the environment are picked up by the first loop, these immediately invoke the second loop of management to respond quickly. The different people responsible for the two loops communicate, and executives can see developments registered by the operational first loop in the context of the slower-moving — but further-reaching — second management loop. This whole process is part of an emerging trend called “business activity monitoring.”

“Data and Process Standardization

“For organizations that seek to become HPOs, it’s not enough to introduce an aligned strategy, define the mission statement of the organization, and identify the company’s values. Processes must also be efficient. Limited resources must be leveraged to maximize their value. At the very least, the organization must strive to become more efficient structurally than the competition. This is possible only if best practices, processes, and systems are recognized throughout the organization and if every part of the company follows a common business model. Very few companies realize this ideal.

“Management processes and systems can be standardized only if they share data and performance indicators. Most organizations are stymied in their standardization efforts because they have trouble agreeing on definitions for the data that underlies the performance indicators.

“Agility Is Key

“An abundance of research suggests that most organizations fail at executing strategies designed to improve their position in the market because the external environment changes faster than strategies can be devised. High-performance organizations achieve a high level of agility so that they can identify change and respond optimally — or, even better, set the pace for change within their industry.

“There are four primary ways to create agility in an organization. One is by centralizing processes, data, and systems companywide. This approach is usually highly IT-centric, but it ensures that changes need to be executed only once. This speeds up change processes and eliminates the chances for error. A second method for improving agility is through smart sourcing. Standardizing as many product components as possible and using subcontractors to produce and deliver those components can lead to a dramatic decrease in new-product-development time, so companies can respond quickly to market trends. A third model for improving agility is mastering the channel, as Wal-Mart is well-known for doing. The concept of “just-in-time inventory” is crucial here. If the organization monitors the complete value chain, it can react instantly to changing buying patterns. Products that sell faster than others can be restocked immediately. This approach also reduces waste of resources on excess capacity. Finally, project-based management can improve an organization’s agility. If corporate functions such as HR can be fluidly deployed as needed by strategic initiatives, rather than being housed within rigid departmental structures, teams can be formed and dissolved more rapidly to pounce on opportunities or respond to threats.

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