Organizational Alignment

 Implementing Strategy through Organizational Alignment

These notes were taken at Rice University in a Management program  held in May 2011, that was conducted by Dr.  Brent Smith

1)    Strategy: Define what needs to change: Concentrate on proper diagnosis, good assumptions.

2)    Change Management: How you Implement Change. You need to put your “hat” of becoming a Psychologist and Sociologist!

The companies that survive in the coming decades will be those that are able to respond quickly and effectively to changing environmental conditions. Leaders will have no choice but to be effective anticipators and managers of large scale change. Nadler & Associates (Founder of Delta- Change Management Co)

70% of all change initiatives FAIL!

Maquiavello: … “there is nothing more difficult to execute, no more dubious of success, no more dangerous to administrate, than to introduce new order of things”…

STEP 1: Becoming an Organizational Architect: Design an organization that will adjust to the objective.

Case Study: The Lincoln Electric Company

For more than 30 years, Lincoln had been the world’s largest manufacturer of arc welding products. The company was believed to have manufactured more than 40% of the arc welding equipment and supplies sold in the United States. In addition to its welding products, Lincoln produced a line of three-phase alternating-current industrial electric motors, but these accounted for less than 10% of sales and profits.

Lincoln’s 1974 domestic net income was $17.5 million on sales of $237 million.

Return on equity had ranged between 10% and 15%

Strategy

Simple Strategy:

Core Competencies:

1)     Low Cost & High Quality

2)     High Productivity (Low Cost)

3)     Innovation (High Quality)

Practicies for alignment:

Alignment (Example BSC):

·       Compensation (Based on Piece-rate – Each individual produce as much as he can) This could affect quality and create bottlenecks! Employees only get paid for GOOD products. Also could create competition. Most organizations do not use Piece-rate based compensation. PEOPLE HAVE TO BE WILLING TO WORK TOGETHER. Because of this, one element of the –large- year bonus is cooperation. It requires: 

o    A High degree of trust in the fairness of the amounts assigned for bonus.

o    Good relations between employees and management.

o    No big differeciation between employees and management.

·       Life employment (People made recommendations for Process improvement, without fear of losing the jobs!). This innovation is promoted via Compensation (Year Bonus) and Life employment. Before having someone with guarantee employment, all employees first go with a “Filter” to make sure they fit in the company.

·       Employees Ownership

·       Internal promotions: Do not hire people from outside!

It’s NOT about job satisfaction or quality of work. It’s about compensation!

Some people do not even like the job!!! The employees are only focused on money!

“Get the employees feel that their interest is aligned with the companies interest…”

“Get employees to trust and cooperate with management”

“What is the motivation when an executive tell us to work hard, if our compensation remains the same?”

What Lincoln can do if a strong international competitor entered the market? What was Lincoln reaction?

They expanded internationally…

They assumed that they model was easily portable. It did NOT worked that way! They lost so much money that almost broke the company because of one bad decision / assumptions!

This looses compromised the annual bonus! à Could Affect cooperation à could impact respect for management à Could affect productivity! à Could make employees leave the company

The management went to a Bank to ask to finance the bonus, and management explained that they made a huge mistake, and asked employees to work hard to recover the losses…!

Their practices had evolved for many years, and wanted to adapt it to other markets with other cultures and laws.

McKenzie 7-S: Lincoln

Company:

·       Strategy (Start point: Customer's Value Propositions) :  At what skills we must excel?

·       Structure: Very flat

·       Systems: Year end bonus. No Insurance.

People

·       Skills: Core competences fore the organization: Operational efficiency, process improvement.

·       Staff: Very unique individual. Someone that fits with the compensation model based on productivity!

Culture: Culture is the difficult thing to change!

·       Management Style: Trust, close relations.

·       Shared Values: Keep Unions Out.

70% of change management fail because they focus on structure and systems, but ignore the rest.

Books: Its based on the 7 S model!!!

1)     Balanced Scorecard (Kaplan and Norton)

2)     The Strategy Focus Organization (Kaplan and Norton)

Case Study: SAS (Software Co)

34 consicutive years of growth

92 of fortune 100 use SAS

Keys of Success:

1)     Product Innovation (Creativity)

2)     Customer Support

3)     Productivity

Some of their practice:

·       Flexible working Hours à Important for programmers (Work in the most productive hours)

·       35 Hours x week à Lowers the amount of errors

·       Sales: No commission based pay. They would NOT publish sales people results. à Avoids difference in payment between sales & Programmers (Igualitarian)

·       They pay LOWER salaries that same size competitors. Employees wont leave SAS for double the salary. Low turnover rate (3%) compared with industry turnover (near 20%). This saves an important amount of money.

·       Never laid off one employee à Innovation

·       No signing bonus, stock options.

·       Gym & Massages for employees

·       Everybody has a private office à Productivity

·       No dress code

·       No shareholders, No board of director

·       Montesory programs for working moms (1/3 of a regular school) à Productivity

·       Children lunch with the mother à More Productivity

·       Doctor consultation at site & Medical expenses are included à More Productive

·       Keep employees content à Low turnover!

·       Two Full time artist in place à Creativity!

·       Country Club (3 x Golf + Tennis):

What happens if SAS go public? Probably many benefits will have to go away!

SAS:

Systems – Strategy: No commissions sales promotes long term customer satisfation

Shared Values / Style : No performance appraisal promotes respect for people and value relations

Systems Strategy: Lavish Benefits minimizes turnover.

Alignment Model:

1)     Identify crucial performance or Opportunity Gaps.

2)     Describe / Analyze Critical Tasks and work processes. Skill Requirements. Intrinsic Incentives

3)     Check for Organizational alignments

4)     Develop Solutions (Proposed Changes)

Organization Architect:

·       Create a division of level, a functional organization

·       Define leadership roles

·       Performance management

·       Hire more qualified people and / or Train people

GAP Analysis: GAP analysis is a tool that helps companies compare actual performance with potential performance. At its core are two questions: "Where are we?" and "Where do we want to be?

Alignment model should be done every six months! (Focusing on what are the key factors for success, what structure you need, what skills are required, what management style, what shared values)

Buy Book: Winning by Innovation

Stages of Change Management

1)   Awareness

2)   Interested

3)   Trial

4)   Adoption

Change management success can be achieved when you do a good work in (1) Stakeholder analysis, (2) Understanding who are the early adopters and the people who are resistant to the project, and (3) understand the formal and informal networks.

CHANGE IS ALL ABOUT BUILDING MOMENTUM!!!

YOU SHOULD ALWAYS CONSIDER ALIGNMENT WHEN DOING CHANGE!

1)   Start with a Stakeholder analysis (Understand the people you are trying to chance). Who can be an advocate for the project: Who are Innovator, who are early majority, who are late majority, who are Resistors. Understand who are gatekeepers & Status aware. Social Networks Analysis (Formal or informal): How this people relate to each other. Informal networks are MORE important, as the people hang out because they want to, not because they have to! Understand the Culture of the Organization. Understand the Alignment of the Organization. How important is each person for the success of the project? Whom can she/he influence… ?

2)   Then, prepare your Strategy and Tactics. Try different things (try & errors). You need to work at all levels of the organization. Do not only focus (for example) only on the 6 top managers. Do not become stubborn!

3)   Its all about Timing! You move people from awarnes to the final stages of adoption!

4)   Communication: General communications on the changing initiative. You communicate ONLY when you have some new information.  Every single small win you should communicate using various media. Pace intelligently. No too little, not to much! Work at all levels using different media! Think on politicians (Face to face, and other media!)

a.     Intranet

b.     Executive Committee

c.      CEO memos

d.     External experts

5)   During Awareness: Benchmarking, explain WHY THIS CHANGE IS IMPORTANT!

6)   Losses vs Gains: Principle of scarcity! Is more influential. What happens if they do not adopt change?

After Awarness is created, while getting in other stages:

7)   Hire experts if needed

8)   Sending someone to convince is good when you are at the Interest or Trial stage.

INFLUENCE:

1)   Principle of Liking: We prefer to say yes to people we know and like. We tend to like people that are similar to us, compliment us, are associated with positive things.

2)   Loss Framing (Principle of scarcity): Its more influential. Example: There is going to be a shortage of beef. How many beef do you want? This is what Apple does when launching a product!

3)   Principle of social proof: We use the actions of others (that we find credible) to decide. “If Operators are busy, please call again”… makes you think that many people are interested.

4)   Principle of Authority: Milligram’s experiment of giving electric shocks to people if they answer wrong: 70% of the people went all the way to give the theoretical dangerous voltage. The authority was not his boss, it was simple an experiment…. Most people are “wired”. The guy was not happy with what he was doing. When the other person took responsibility of the outcome, the person continue following! Managing by decree is based on principle of authority. When people come to you asking for authorization, they usually avoiding taking responsibility. The best response is that “if you believe that is a good idea, you should take the initiative.” Make people assume responsibility.

·      Rarely works!

·      Creates an environment where Managers do not make decisions. They always go to the leader.

5)   Principle of Commitment and consistency: Ask people for a small commitment, and escalate it to a larger one!

6)   Principle of Reciprocity: People repay what they receive from others. Exchange do not have to be equal! “It’s the glue that holds society together”

7)   Principle of Concession: Ask for something difficult to say yes, and then lower it: I need a 150.000 $ to do a research project, and then ask for what you really need (ie: 100.000 $)

Robert B. Cialdini – (Book) INFLUENCE: THE ACT OF PERSUATION!

Change management is based on Influence and persuade people!

Exmple of Available Tactics for a change agent : (Used in a simulation: need to pick the righ ones at the righ time with the right people or group of people)

·      HQ Networks

·      Background Information

·      CEO Memo

·      Comitees

·      Customer Survey

·      Decree

·      Employee Survey

·      Executive Committee Meeting

·      External Speaker

·      Hire Expert

·      Informal Networks

·      Mass Communications

·      Meetings

·      Pilot Project

·      Seek Advice

·      Sent A to B

·      Top Management Meeting

·      Training Program

·      Lobbing

·      Workshop