CFO Magazine - August 2010
What distinguishes high performing business units from less well performing ones? Why does one business unit achieve better results with the same resources than the others? Where is the difference and can it be eliminated? In other words, is it possible to let the entire organization perform well consistently? These were the questions with which a large Dutch company was wrestling. Here are some answers.
The pressure on organizations to consistently perform well is increasing. It is therefore no wonder that managers are heatedly searching for the organizational elements that are decisive for achieving consistently good results.
In order to be able to offer these managers a diagnostic tool, the Center for Organizational Performance conducted a High Performance Organizations (HPO) study for five years that examined the organizational elements that were part of excellent organizations all over the world.
HPOs are defined as organizations that achieve better financial results over a period of at least five to 10 years compared to competitors or comparable organizations. The basis for the HPO study was an analysis of more than 280 studies in the area of excellence.
The potential distinguishing elements that were found in these studies were tested in a worldwide survey, which resulted in the determination of 37 elements, clustered into five HPO factors, that appear to be decisive for an HPO in practice.
There were some surprising outcomes in this regard. For example, the type of organizational structure appeared not to be decisive for becoming an HPO, as long as it was simple and flat. The content of the strategy also appeared not to be decisive, as long as the strategy clearly differentiated the organization from the competition.
In addition, it appeared that implementing new ICT systems or HRM techniques (such as competency management) alone was not enough to become excellent. Such techniques and systems always had to support one of the HPO factors in order to be effective.
So what does make and keep an organization excellent? Or, what are the HPO factors? The first and most important HPO factor is the quality of management. Managers of excellent organizations are characterized by integrity, decision-making capability, action orientation, performance orientation, effectiveness, self-confidence and a strong leadership style.
They are so-called high performance individuals (HPIs): people who are lead in all their actions and their manner of working by principles of customer orientation, quality thinking and continuous improvement, through which they inspire others to achieve excellent performance.
The second HPO factor is the presence of an open and action-oriented organizational culture. An excellent organization stimulates interactive internal communication ("an open dialog") between member of an organization so that free and continuous vertical and horizontal information exchange takes place.
The third HPO factor is an organization’s long-term thinking: long-term continuity always comes before short-term profit at an HPO. The fourth factor that determines whether an organization is excellent is continuous improvement and renewal.
The excellent organization has a strategy that clearly distinguishes the organization from comparable competitors and subsequently continually improves its processes in order to be able to implement the strategy. The fifth and last HPO factor is the quality of the employees.
Employees of an HPO want to be responsible for their results and want to be inspired to achieve outstanding results.
DIAGNOSIS
After thorough examination the five HPO factors that make and keep an organization excellent are now known, an organization can measure itself based on these factors and subsequently improve. In order to get an idea of the organization’s status, an HPO survey is conducted among managers and employees.
The individual scores of the survey are then tallied and averaged, which results in a score per HPO factor on a scale of 1 (much improvement is needed) to 10 (excelling). These scores can be compared to the average HPO score in the sector in order to get an idea of the relative performance of the studied organization.
The results of the HPO diagnosis form the basis for improvement discussions within the organization and make it possible to undertake very targeted improvement measures. One of the first organizations that undertook a large-scale HPO diagnosis is a large Dutch company with branches in 13 regions and more than 2,000 employees.
As a whole the business operated well, but the results of the 13 regions among each other differed significantly and were also inconstant throughout the years. Management decided to carry out an HPO diagnosis in order to find out which organizational elements caused the ascertained difference in performance.
More than 500 members of staff (from management to employees) completed the HPO survey at the beginning of 2007. The individual scores were tallied per region and averaged per HPO factor, after which a clear difference was observed between the regions with the highest and the regions with the lowest scores.
It also appeared that the highest scoring region did not achieve the score of an HPO (at least 8.5 for all factors). Then the financial results of the 13 regions for the years 2004, 2005 and 2006 were standardized for market size so that the regions could be compared to each other.
The definition of an HPO stresses that the excelling organization performs better over a long period than comparable organizations. In the case of the Dutch company, only three years’ worth of financial information was available because a reorganization took place in 2003.
In addition, there was great emphasis within the organization on mutual comparison of the regions; these were in effect competing against each other for bonuses and the like. Figure 2 shows that, when the HPO scores and the financial results for the years 2004-2006 are viewed next to each other, there are striking similarities.
The regions with the highest HPO scores also have the best financial results. In contrast, the regions with the lowest HPO scores also have the worst financial results. Once the highest performing and the lowest performing regions are known, it is interesting to examine where the regions differ, or how these regions scored in regard to the various HPO elements.
After all, these are the elements that constitute the difference between failure and success for the Dutch company. For the examined organization, this appeared to be the following HPO elements. The highest performing regions differed significantly from the competition in their region due to their strategy, in which rendering the best possible service to the customer was a priority.
In contrast, the lowest performing regions has a “me too” strategy that did not significantly differ from that of the competitors and wherein customer service was paid insufficient attention. In the highest performing regions everything was reported that was important for achieving good performance and the financial and non-financial information was made available to everyone within the region.
In the lowest performing regions the performance management system was less in order and the little information that was available was only distributed among a select group of managers. The management in the highest performing regions enjoyed the trust of employees in the region and was also considered as being very effective, especially regarding the decisive handling of “non-performers.”
Employees in the lowest performing regions, in contrast, did not speak nearly as highly of their management.
BETTER, BEST
Based on the results of the HPO diagnosis, it was possible to make targeted suggestions for improvement to the lowest performing regions. First of all these regions were advised to develop a unique strategy that was geared towards the wishes and developments in the market.
This strategy intended to make sure that the region would have a market concept that would allow them to always be one step ahead of the competition. Subsequently, all sectors of the organization, and especially the processes therein, had to be set up in such a way that the unique strategy could be implemented seamlessly.
An important component in this regard was the communication process, whose intent was to ensure that not only (potential) customers were aware of the unique concept of the region but the employees of the region as well, so that they could present and sell the concept properly.
The next step was to structure the entire organization so that the customers could be optimally serviced. This meant that management and employees had to show true interest for their customers in order to get to know everything about them (their needs, wishes, situation, developments, etc.) in order to consistently advise what was best for them (and which is not necessarily the most profitable venture for the company itself).
The third suggestion was aimed directly at the region’s management, which had to fulfill their exemplary role in a more emphatic manner. The focus here was on making clearer choices: what to do and especially what not (or no longer) to do, subsequently consistently working on the agreed-upon points of improvement and leading by example for employees.
In order to give the regions a “kick start,” it was agreed that the employees would visit the highest performing region in order to then return with one improvement project per HPO factor, which would then be implemented the following year.
But suggestions were even made to the highest performing regions: after all, these had not yet achieved the average HPO score of 8.5 and therefore still had sufficient potential for improvement. An important point for improvement was to communicate less and seek out more dialog. To this end management needed to expressly ask for deviating opinions, listen to these opinions and subsequently work with them.
The emphasis on learning could also be increased. A targeted search for “triggers” for new ideas and experiments had to be conducted without being afraid of making mistakes (an inevitable part of innovation). Concretely, an agreement was made to start two very innovative projects in the coming year in which managers will be challenged to become true HPO leaders in order to make these projects a success.
To this end, progress has to be regularly evaluated with top management in an open and honest manner so that both management levels could learn how to handle criticism, problems and success. The HPO diagnosis allowed the Dutch company to search for those organizational elements that made the difference between success and failure for the company.
After identifying these elements, practical examples of improvement could be formulated and implemented in order to bring the entire organization to a higher level and thus achieve its ultimate objective: to be an HPO across the board!
Source: CFO Magazine
Contact Chiel Vink of the HPO Center for more information (vink@hpocenter.com).
Stem of voeg toe aan
