Innodata

0471210579jpg

How Organizations Work

Taking a Holistic Approach to Enterprise Health

ALAN P BRACHE

JOHN WILEY amp SONS INC

ffirsqxp 11501 127 PM Page i

Copyright copy 2002 by Kepner-Tregoe Inc All rights reserved

Published by John Wiley amp Sons Inc New York

No part of this publication may be reproduced stored in a retrievalsystem or transmitted in any form or by any means electronicmechanical photocopying recording scanning or otherwise exceptas permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act without either the prior written permission of thePublisher or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center 222 Rosewood DriveDanvers MA 01923 (978) 750-8400 fax (978) 750-4744Requests to the Publisher for permission should be addressed to thePermissions Department John Wiley amp Sons Inc 605 ThirdAvenue New York NY 10158-0012 (212) 850-6011 fax (212)850-6008 E-Mail PERMREQ WILEYCOM

This publication is designed to provide accurate and authoritativeinformation in regard to the subject manner covered It is sold withthe understanding that the publisher is not engaged in renderinglegal accounting or other professional services If legal advice orother expert assistance is required the services of a competentprofessional person should be sought

This title is also available in print as 0-471-20033-6

For more information about Wiley products visit our web site atwwwWileycom

How Organizations Work

Taking a Holistic Approach to Enterprise Health

ALAN P BRACHE

JOHN WILEY amp SONS INC

ffirsqxp 11501 127 PM Page i

Copyright copy 2002 by Kepner-Tregoe Inc All rights reserved

Published by John Wiley amp Sons Inc New York

No part of this publication may be reproduced stored in a retrievalsystem or transmitted in any form or by any means electronicmechanical photocopying recording scanning or otherwise exceptas permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act without either the prior written permission of thePublisher or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center 222 Rosewood DriveDanvers MA 01923 (978) 750-8400 fax (978) 750-4744Requests to the Publisher for permission should be addressed to thePermissions Department John Wiley amp Sons Inc 605 ThirdAvenue New York NY 10158-0012 (212) 850-6011 fax (212)850-6008 E-Mail PERMREQ WILEYCOM

This publication is designed to provide accurate and authoritativeinformation in regard to the subject manner covered It is sold withthe understanding that the publisher is not engaged in renderinglegal accounting or other professional services If legal advice orother expert assistance is required the services of a competentprofessional person should be sought

This title is also available in print as 0-471-20033-6

For more information about Wiley products visit our web site atwwwWileycom

Copyright copy 2002 by Kepner-Tregoe Inc All rights reserved

Published by John Wiley amp Sons Inc New York

No part of this publication may be reproduced stored in a retrievalsystem or transmitted in any form or by any means electronicmechanical photocopying recording scanning or otherwise exceptas permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act without either the prior written permission of thePublisher or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center 222 Rosewood DriveDanvers MA 01923 (978) 750-8400 fax (978) 750-4744Requests to the Publisher for permission should be addressed to thePermissions Department John Wiley amp Sons Inc 605 ThirdAvenue New York NY 10158-0012 (212) 850-6011 fax (212)850-6008 E-Mail PERMREQ WILEYCOM

This publication is designed to provide accurate and authoritativeinformation in regard to the subject manner covered It is sold withthe understanding that the publisher is not engaged in renderinglegal accounting or other professional services If legal advice orother expert assistance is required the services of a competentprofessional person should be sought

This title is also available in print as 0-471-20033-6

For more information about Wiley products visit our web site atwwwWileycom

iii

Contents

Foreword v

Acknowledgments vii

Chapter 1 Exploring the New Enterprise Model 1

Chapter 2 Understanding the External BusinessEnvironment 15

Chapter 3 Leading the Enterprise 31

Chapter 4 Creating Strategic Alignment 48

Chapter 5 Rethinking Business Processes 65

Chapter 6 Setting Goals and Measuring Progress 85

Chapter 7 Reframing Culture 99

Chapter 8 Managing Human Capabilities 120

Chapter 9 Leveraging Information and Knowledge 141

Chapter 10 Putting Organization Structure in Its Place 166

ffirsqxp 11501 127PM Pageiii

Chapter 11 Resolving Business Issues 184

Chapter 12 Putting It All Together 212

Index 227

iv CONTENTS

ffirsqxp 11501 127 PM Page iv

Foreword

Whether you run or work for a manufacturer a distributor afinancial institution a government agency a dotcom or tele-com or an organization of just about any size and type chancesare you and your colleagues face the relentless challenge ofimproving performance

There are of course many paths to raising performanceand achieving greater levels of business results Regardless ofwhich path theyrsquove followed those who have made the trek areoften disappointed Their hard-won changesmdashwhether in cus-tomer service quality cycle time cost containment morale orsafetymdashtend to be short lived The reason They havenrsquot zeroedin on the root cause of the issues or the factors necessary forsuccessful permanent resolution

Herersquos the fundamental flaw that Alan Brache points to inhis powerful new book Executives and managers just donrsquotknow how to pull the right levers in the right way at the righttime As a result major problems recur opportunities slipaway changes donrsquot last and the resources invested inimprovement efforts yield little if any return The costs can beenormous in terms of an organizationrsquos financial health itscompetitive position and its employee morale

Alanrsquos book offers a clear and integrated solution to remedythis flaw He presents a new ldquoEnterprise Modelrdquo one that takesinto account all the variables that influence performance Whatyou get from How Organizations Work is a 360-degree picture oforganizational dynamics and how they may be harnessed toeffect permanent improvements in performance

v

ffirsqxp 11501 127 PM Page v

The book establishes an interactive relationship with thereader by raising a set of questions with which to check his orher organizationrsquos vital signs After conducting this compre-hensive physical exam the reader comes away from the bookwith a complete understanding of the state of the organizationrsquoshealth

While bookstores are littered with volumes on change man-agement and performance improvement Alanrsquos book standsapart It is based on a comprehensive model it focuses on thebasics of blocking and tackling rather than on airy theorizingabout change it is a quick and easy read its diagnostic orienta-tion encourages reader involvement How Organizations Worksets out to break the source code of performance improvement

The book is aimed at executives and managers at everylevel especially those new to their job those whose performance-improvement efforts have not produced the expected resultsmdasha vast audience indeedmdashthose facing major change issues andthose with strengths in a limited number of areas who need toreach beyond them to make their change efforts succeed

Alanrsquos book is concise and written for executives and man-agers who are searching for practical concepts and approachesto help their organization become more effective and betterplaces to be How Organizations Work should prove to be the dis-covery for which they have been waiting

Rich TeerlinkRetired ChairmanCEO

Harley-Davidson Inc

vi FOREWORD

ffirsqxp 11501 127 PM Page vi

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

Chapter 11 Resolving Business Issues 184

Chapter 12 Putting It All Together 212

Index 227

iv CONTENTS

ffirsqxp 11501 127 PM Page iv

Foreword

Whether you run or work for a manufacturer a distributor afinancial institution a government agency a dotcom or tele-com or an organization of just about any size and type chancesare you and your colleagues face the relentless challenge ofimproving performance

There are of course many paths to raising performanceand achieving greater levels of business results Regardless ofwhich path theyrsquove followed those who have made the trek areoften disappointed Their hard-won changesmdashwhether in cus-tomer service quality cycle time cost containment morale orsafetymdashtend to be short lived The reason They havenrsquot zeroedin on the root cause of the issues or the factors necessary forsuccessful permanent resolution

Herersquos the fundamental flaw that Alan Brache points to inhis powerful new book Executives and managers just donrsquotknow how to pull the right levers in the right way at the righttime As a result major problems recur opportunities slipaway changes donrsquot last and the resources invested inimprovement efforts yield little if any return The costs can beenormous in terms of an organizationrsquos financial health itscompetitive position and its employee morale

Alanrsquos book offers a clear and integrated solution to remedythis flaw He presents a new ldquoEnterprise Modelrdquo one that takesinto account all the variables that influence performance Whatyou get from How Organizations Work is a 360-degree picture oforganizational dynamics and how they may be harnessed toeffect permanent improvements in performance

v

ffirsqxp 11501 127 PM Page v

The book establishes an interactive relationship with thereader by raising a set of questions with which to check his orher organizationrsquos vital signs After conducting this compre-hensive physical exam the reader comes away from the bookwith a complete understanding of the state of the organizationrsquoshealth

While bookstores are littered with volumes on change man-agement and performance improvement Alanrsquos book standsapart It is based on a comprehensive model it focuses on thebasics of blocking and tackling rather than on airy theorizingabout change it is a quick and easy read its diagnostic orienta-tion encourages reader involvement How Organizations Worksets out to break the source code of performance improvement

The book is aimed at executives and managers at everylevel especially those new to their job those whose performance-improvement efforts have not produced the expected resultsmdasha vast audience indeedmdashthose facing major change issues andthose with strengths in a limited number of areas who need toreach beyond them to make their change efforts succeed

Alanrsquos book is concise and written for executives and man-agers who are searching for practical concepts and approachesto help their organization become more effective and betterplaces to be How Organizations Work should prove to be the dis-covery for which they have been waiting

Rich TeerlinkRetired ChairmanCEO

Harley-Davidson Inc

vi FOREWORD

ffirsqxp 11501 127 PM Page vi

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

Foreword

Whether you run or work for a manufacturer a distributor afinancial institution a government agency a dotcom or tele-com or an organization of just about any size and type chancesare you and your colleagues face the relentless challenge ofimproving performance

There are of course many paths to raising performanceand achieving greater levels of business results Regardless ofwhich path theyrsquove followed those who have made the trek areoften disappointed Their hard-won changesmdashwhether in cus-tomer service quality cycle time cost containment morale orsafetymdashtend to be short lived The reason They havenrsquot zeroedin on the root cause of the issues or the factors necessary forsuccessful permanent resolution

Herersquos the fundamental flaw that Alan Brache points to inhis powerful new book Executives and managers just donrsquotknow how to pull the right levers in the right way at the righttime As a result major problems recur opportunities slipaway changes donrsquot last and the resources invested inimprovement efforts yield little if any return The costs can beenormous in terms of an organizationrsquos financial health itscompetitive position and its employee morale

Alanrsquos book offers a clear and integrated solution to remedythis flaw He presents a new ldquoEnterprise Modelrdquo one that takesinto account all the variables that influence performance Whatyou get from How Organizations Work is a 360-degree picture oforganizational dynamics and how they may be harnessed toeffect permanent improvements in performance

v

ffirsqxp 11501 127 PM Page v

The book establishes an interactive relationship with thereader by raising a set of questions with which to check his orher organizationrsquos vital signs After conducting this compre-hensive physical exam the reader comes away from the bookwith a complete understanding of the state of the organizationrsquoshealth

While bookstores are littered with volumes on change man-agement and performance improvement Alanrsquos book standsapart It is based on a comprehensive model it focuses on thebasics of blocking and tackling rather than on airy theorizingabout change it is a quick and easy read its diagnostic orienta-tion encourages reader involvement How Organizations Worksets out to break the source code of performance improvement

The book is aimed at executives and managers at everylevel especially those new to their job those whose performance-improvement efforts have not produced the expected resultsmdasha vast audience indeedmdashthose facing major change issues andthose with strengths in a limited number of areas who need toreach beyond them to make their change efforts succeed

Alanrsquos book is concise and written for executives and man-agers who are searching for practical concepts and approachesto help their organization become more effective and betterplaces to be How Organizations Work should prove to be the dis-covery for which they have been waiting

Rich TeerlinkRetired ChairmanCEO

Harley-Davidson Inc

vi FOREWORD

ffirsqxp 11501 127 PM Page vi

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

The book establishes an interactive relationship with thereader by raising a set of questions with which to check his orher organizationrsquos vital signs After conducting this compre-hensive physical exam the reader comes away from the bookwith a complete understanding of the state of the organizationrsquoshealth

While bookstores are littered with volumes on change man-agement and performance improvement Alanrsquos book standsapart It is based on a comprehensive model it focuses on thebasics of blocking and tackling rather than on airy theorizingabout change it is a quick and easy read its diagnostic orienta-tion encourages reader involvement How Organizations Worksets out to break the source code of performance improvement

The book is aimed at executives and managers at everylevel especially those new to their job those whose performance-improvement efforts have not produced the expected resultsmdasha vast audience indeedmdashthose facing major change issues andthose with strengths in a limited number of areas who need toreach beyond them to make their change efforts succeed

Alanrsquos book is concise and written for executives and man-agers who are searching for practical concepts and approachesto help their organization become more effective and betterplaces to be How Organizations Work should prove to be the dis-covery for which they have been waiting

Rich TeerlinkRetired ChairmanCEO

Harley-Davidson Inc

vi FOREWORD

ffirsqxp 11501 127 PM Page vi

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

Acknowledgments

My thanks to

Violet and Paul Brache my parents for encouraging me topursue a career that they find difficult to understand

Ben Tregoe cofounder of Kepner-Tregoe for introducingme to workplace learning the contributions that can bemade by a consultant and the power of rational thinking

The late Tom Gilbert cofounder of the Praxis Corporationfor helping me understand the factors that influencehuman performance

Geary Rummler my former partner in the Rummler-BracheGroup for awakening me to the central role of businessprocesses

My clients at Kepner-Tregoe and at the Rummler-BracheGroup who provided the crucibles in which the ideas inthis book were formed

Peter Tobia my literary agent for honing my messagemanaging our side of the publication process andenabling me to be one of those fortunate authors whodoesnrsquot need to get his hands dirty with financial matters

Bill Butterfield my document coordinator for his infectiousserenity can-do responses to my requests and patiencewith the numerous revisions of the manuscript of this book

And finally special thanks to Larry Alexander and MattHolt of John Wiley for their encouragement support andguidance

vii

ffirsqxp 11501 127PM Pagevii

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

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mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

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n)

Reg

ulat

ions

pol

icie

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cono

mic

con

ditio

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riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

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n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

ffirsqxp 11501 127PM Pageviii

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

AVOIDING THE CHANGE TRAP

A couple of years ago I addressed an in-house group of telecom-munications company executives I was introduced by the qual-ity director who was concerned that my message would be seenas too complex for the ldquodistill it to three bullet pointsrdquo orienta-tion of this group She wisely began by saying ldquoWe talk a lotabout making things simple and that is good however we donot want to make things simpler than they arerdquo

If organizations were simple we would have broken thecode long ago The typical company or agency would be a well-oiled machine However even small enterprises are typically acomplex network of interlocking factors

Executives most often characterized by short attentionspans dissatisfaction with the status quo and impatience withthe mere mortals in their employ delight in launching cru-sades As in the Middle Ages the objectives of these improve-ment crusades are to capture the Holy Land (the target market)and to convert the infidels (prospective customers and cur-rentpotential employees) to the faith Like the Christian Cru-sades they are launched with religious fervor They are wellfunded They are highly visible They are championed by truebelievers They are populated with the best and brightest Andthey produce mixed results

Sometimes these improvement crusades are massive andmultiyear In the late 1980s we saw quality crusades In the

1

1Chapt e r

Exploring the NewEnterprise Model

c01qxp 11601 743 AM Page 1

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

early 1990s reengineering was the cause ceacutelegravebre In the late1990s the business landscape was awash in enterprise resourceplanning The early 2000s have been characterized by acquisi-tions juggernauts modeled after the growth strategy of compa-nies like GE and Tyco Along the way these holy wars havespawned denominations and cults that pursue subcrusades thatride under banners such as Six Sigma high-performance teamssupply chain management cycle time reduction activity-basedcosting and the balanced scorecard

The noble intent of these initiatives is beyond question asis the sincerity of the beliefs that underpin them The issue isthe degree to which growth and efficiency programs (1) addressan organizationrsquos unique needs (2) cover all of the variablesthat influence their success and (3) are sustained long enoughto achieve their objectives

To change metaphors improving organizational health islike improving human health If there were a pill exercise pro-gram or diet regimen that cured all ills and prevented futuremaladies doctors would have even more time for golf Theelixirs that claim to address the full spectrum of physical well-ness make it ldquosimpler than it isrdquo The same is true of the potionsthat tout organizational wellness

GETTING TO ORGANIZATIONAL HEALTH

Even after a few thousand years of study the functionality of ahuman beingmdashespecially the nonmechanical aspects of behav-ior and performancemdashis not fully understood While theownerrsquos manual will become more complete as insights arederived from the recently sequenced genome mysteries willremain However three truths have emerged from the study ofanatomy physiology and psychology

1 Each organ muscle bone and nerve plays a uniquerole

2 An outstanding contribution from one component ofthe body-mind engine (well-developed muscles arobust heart a strong sense of smell a quick wit) cannot fully compensate for deficiencies in another com-

2 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 2

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

ponent (low-capacity lungs a broken wrist impairedhearing poor short-term memory)

3 The understanding of each component does not pro-vide a complete explanation of a personrsquos health Like asports team which may be less or more effective thanthe sum of its individual playersrsquo talents a body is anintegrated system in which the interactions are asimportant as the individual roles

These same truths hold true for an organization be it a busi-ness a part of a business (profit center product line regiondepartment plant store) a government agency a union acharity a church or even a family Organizational health is afunction of understanding and managing an intricate andentwined set of variables

CHANGING ORGANIZATIONAL DNA

Most people including those without any visible signs of diseasedo not optimize their physical and mental fitness or establish thefoundation of a long healthy life Similarly most organizationsdo not follow a diet and exercise program that maximizes per-formance Why Because most executives and managers

Do not understand the factors that influence health They areprobably aware of the importance of leadership and goalsand structure for example but may not fully grasp thenature and extent of the impact that each has on perfor-manceDo not understand how the factors interact For example theymay not appreciate the ways in which culture affects deci-sion making or the nuances of the symbiotic relationshipbetween business processes and skillsDo not know the actions they need to take to manage their orga-nizationrsquos health For example they may know that informa-tion systems need to serve the strategy but not understandhow to make that happen They may understand conceptu-ally that reward systems need to be linked to businessprocesses but not know how to align them

Changing Organizational DNA 3

c01qxp 11601 743 AM Page 3

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

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sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

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mat

eria

lco

mpo

nent

supp

liers

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ulat

ions

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icie

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ditio

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riorit

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Con

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ernm

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ocie

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omm

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ent c

orpo

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n

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ital

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ds

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ityd

ivid

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Pro

duct

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rvic

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Tech

nolo

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Peo

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Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

Focus on one or two variables rather than the whole systemThey embark on a culture transformation effort or an enter-prise resource planning (ERP) system installation or a TotalProductive Maintenance initiative without considering theeffect of and on other variables Like other integrated sys-temsmdashthe human body an automobile engine a multilat-eral trade alliancemdashtinkering with one component can havea positive or negative effect on other components

Is there anything that is hardwired The answer is no Orga-nizations have DNA made up of their historical productsserv-ices markets brand and culture However unlike in thehuman body organizational DNA can be changed The trans-formation begins with understanding

PRESCRIPTION FOR ORGANIZATIONALWELLNESS

A program for managing your organizationrsquos health is foundedon the answers to four questions

1 What are the variables that influence your organiza-tionrsquos performance

2 What is the role that each variable should perform3 How do the variables interact in a way that contributes

to your overall performance mosaic4 What can you do to improve performance

Organizational wellness like human wellness is a destina-tion that is never reached The remainder of this book usesthese four questions as the vehicles for describing the journeyTo begin we need an organization model that is the roughequivalent of a cutaway view of the human body This Enter-prise Model1 Figure 11 will serve as the anchor for our explo-ration of performance improvement

4 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 4

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

5

Lead

ersh

ip

Th

e b

usi

nes

s

Str

ateg

y

Bus

ines

s pr

oces

ses

Goa

ls

mea

sure

men

tT

he h

uman

capa

bilit

ies

Info

rmat

ion

know

ledg

em

anag

emen

t

Org

aniz

atio

nst

ruct

ure

role

sC

ultu

re

Com

petit

ors

Issu

e re

solu

tion

Sha

reho

lder

s

Raw

mat

eria

lco

mpo

nent

supp

liers

Sup

plie

rs

supp

liers

(ups

trea

min

dust

ryva

lue

chai

n)

Mar

ket

Res

ourc

epr

ovid

ers

Cus

tom

ers

Cus

tom

ers

cust

omer

s(d

owns

trea

min

dust

ry v

alue

chai

n)

Reg

ulat

ions

pol

icie

sE

cono

mic

con

ditio

nsP

riorit

ies

Con

cern

s

Gov

ernm

ent

The

eco

nom

yS

ocie

tyc

omm

unity

Par

ent c

orpo

ratio

n

Cap

ital

Nee

ds

Equ

ityd

ivid

ends

Pro

duct

sse

rvic

es

Tech

nolo

gy

Peo

ple

Mon

ey

Fig

ure

11

Th

e E

nte

rpri

se M

odel

c01qxp 11601 743 AM Page 5

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6

ORGANIZATION PERFORMANCE KNOWING THE VARIABLES

At the most macro level there are two sets of performance vari-ables those that are outside the organization (and in manycases outside its control) and those that are internal (and oftenseem to be out of control) There are three factors in the inter-nal equation structural variables human variables and vari-ables that have both a structural and human dimension

What Are the External Variables

Effective physicians and psychologists understand that long-term wellness programs are based on an understanding notonly of patientsrsquo inner workings but also of external influenceson them Similarly you are better able to improve your organi-zationrsquos performance if you understand its context which ismade up of these components

Customers and customersrsquo customers The price of admissionto the world-class performance game is ldquoprofound knowl-edgerdquo of your customers and the not-yet-customers in yourtarget markets If your customers are not end users you canbetter meet their needs if you know the requirements andbuying criteria of those whom they serve

An industryrsquos value chain is the flow of activities thatextends from the first step (for example identifying poten-tial oil drilling sites) through the last (providing gasoline toconsumers) Each step adds value to the one that precedes it

Value chains are dynamic By eliminating intermedi-aries and facilitating business-to-business and business-to-customer linkages the digital world is turning traditionalvalue chains on their heads As an organization evolves itexpands and contracts its scope However if you freeze-frame your organization at a moment in time it is occupy-ing a defined space in its industry Markets serve as theright-hand boundary of your place in this value chainSuppliers and suppliersrsquo suppliers Suppliers who representthe left-hand boundary of your organizationrsquos position in itsvalue chain provide the raw material components and

6 EXPLORING THE NEW ENTERPRISE MODEL

c01qxp 11601 743 AM Page 6