How a High Performance Culture Creates Competitive Advantage By: Tim Allard, CEO Odyssey Inc. Contributors: Bill Stasior, Booz Allen and Hamilton, CEO and Chairman, retired Suzanne Allard, President Odyssey, Inc. The Challenge Every business faces the same fixed variables as their competitors. They serve the same clients, offer comparable products or services, and recruit staff from the same talent pool. Why do some organizations consistently and predictably outperform their peers in a broad spectrum of performance metrics? Culture is what differentiates them. And business leaders recognize this: a 2007 Bain and Company study found that 90 percent of executives believe corporate culture is as important as strategy for business success. Despite this apparent insight, fewer than 10 percent of companies will succeed at building a high performance culture. Why? According to the same study, many executives do not know how to go about it or where to begin. If culture is recognized at all within an organization, it is usually not well thought out, poorly designed, inconsistently applied or lacking leadership commitment. Without an organizational culture designed for high performance, the best strategy will not be optimized or consistently executed and the best brand will be diminished or ruined by poor quality, execution problems or customer service. In short, culture, as we define it, influences and affects every part of an organization’s operations and performance. This is indicated in the following study/graph: Average Economic Impact of Culture Among 12 Companies over 10 Years Without Performance Cultures With Performance Cultures 901% 756% 682% 282% 166% 74% 36% Employment Growth Revenue Growth Stock Price Growth 1% Tax Base (Net Income Growth) Data source: John P. Kotter and James L. Heskett, Corporate Culture And Performance (New York: Free Press, 1992). Performance Culture 2 What is a High Performance Culture? Culture is by design or default the collective intersection of an organization’s operating model and values, performance metrics, incentive structures, leadership practices and the discipline or lack thereof applied to all the above. Investment decisions, risk management, product/service innovation are all products of culture not drivers of culture. As a result, high performance cultures explicitly define Why the business exists, Who is selected to be on the team, How individuals and teams operate and What unique and competitively differentiated value they provide to their clients. Healthy organizations continuously evolve their strategies and tactics to take advantages of opportunities and manage risks, but the fundamental precepts of the organization are anchored within the culture. High performance cultures provide a stable foundation for organizations to thrive regardless of whether the economy is expanding or contracting. High Performance Culture Characteristics: •
There is a hyper-­‐focus on understanding and satisfying the client’s needs. •
The operating values are the soul of the organization and optimize individual and team interaction, so competent professionals can devote their time to client-­‐focused activities and avoid wasteful internal dysfunction. •
Performance management systems develop, compensate and promote people who contribute the most to business objectives while they model the operating values. •
Bureaucratic structure is limited allowing creativity, productivity and innovation to flourish. •
Decision-­‐making and accountability for results are driven down to the lowest possible level. •
Performance is measured by both what was produced and how it was produced. •
Everyone at every level has annual development objectives and is required to continuously and demonstrably improve their performance capacity every year. •
There is an orientation toward teamwork and team victories rather than individual stats and victories; as a result, the organization attracts competent professionals who are capable of performing at a high level within a team environment. Four Pillars on a Stable Foundation Graphically we describe a high performance culture as consisting of a three layer foundation supporting four pillars. Sustained and predictable high performance requires the organization be built upon a stable foundation of: • Competent and committed leadership •
Cultural integrity •
Continuous improvement and evolution © 2011 ODYSSEY, INC Performance Culture 3 On this foundation are the four pillars of why, who, how and what. If both the foundation and four pillars are strong, the culture is stable and the potential of the organization is optimized: •
Why the organization exists: its client centered mission. •
Who is on the team: Talented professionals who consistently perform at high levels and model operating values. •
How the organization operates: how we go to market, compensate (business model), develop, promote and conduct/govern ourselves (operating values). •
What the company does: market strategy and differentiated product/service mix producing the highest value and greatest impact for clients. How well the organization does in each of these foundations and pillars determines the level of sustained performance and the types of problems they will encounter internally and in the market. Foundation #1: Leading a Performance Culture Every culture transparently reflects the leader’s character, competencies and priorities. Performance culture leaders must demonstrate unwavering character, critical business and leadership competencies and a commitment to the client-­‐centered mission and operating values. The leadership team below the chief executive must be 100% committed to the mission, operating values and business strategy. In a performance culture, different points of view are encouraged to join the decision making dialogue, but once a decision has been made, dialogue and debate ends. © 2011 ODYSSEY, INC Performance Culture 4 Research by Harvard professors Kotter and Heskett has shown “the single most visible factor that distinguishes major cultural changes that succeed from the ones that fail is competent leadership at the top.” The durability of the culture will be continuously tested, so the CEO’s commitment to driving, nurturing and enforcing the core operating values, business strategy and client-­‐inspired objectives must be steadfast. There can be no exceptions! Building a performance culture is a long-­‐term commitment requiring constant vigilance to build and maintain. Implementing a performance culture is not a short-­‐term fix for poor performance and it cannot be done without the total commitment of the leader and their executive team. What Distinguishes Performance Culture Leaders? Most executives are competent in business school competencies. They understand basic financials, give a decent presentation and provide a rational reason for being excited about the organization’s future. Performance culture leaders have those general competencies, but they have additional qualities distinguishing them from the average leader. Performance culture leaders love to win, are tenacious and they do the right things for the right reasons. A performance culture leader’s patterns of behavior, intent and achievements are aligned, transparent and have integrity. We believe the following four attributes determine and facilitate a performance culture leader’s ability to sustain long-­‐term performance: •
Strong character •
Customer focus •
Distributed leadership style •
Models operating values While no one person can do everything well, these four attributes appear to create the foundation of long-­‐
term performance and professional satisfaction. In many cases, these four attributes manage to overcome deficits in less influential competencies. Strong character: Who they are and what they believe Character is the foundation on which a leader builds a career, because leadership operates on the currency of trust. Character is a pattern of behavior harnessing respect, determining credibility and earning trust. How a leader deals with circumstances tells you many things about their character. Crisis does not make character but it certainly does reveal it. Adversity makes a leader choose between optional paths forward: character or compromise. Every time the leader chooses character he or she grows stronger as an individual and leader. Leaders can’t rise above and sustain performance beyond the limitations of their character. The pattern of a leader’s actions and words reveals both what the leader values, seeks to accomplish and why. © 2011 ODYSSEY, INC Performance Culture 5 This pattern of behavior reveals if the leader’s motivation is total self-­‐interest or a healthy balance of team advancement first and individual self-­‐interest second. Customer focus: Keeping the organization’s eye on the ball The fundamental reason for any organization to exist is to add value to customers or clients—meeting needs, solving problems, enhancing lives and facilitating others success. Performance culture leaders keep the organization’s energy focused externally on satisfying clients, driving innovation and beating competitors. They are quick to eliminate internal dysfunction, bureaucracy, political gamesmanship and anything or anyone that continuously disrupts team cohesion, collaboration and performance. Performance culture leaders are never far from clients or the market, as a result, they stay in touch with the never-­‐ending evolving trends, drivers and realities of the market. Being in touch with the market’s pulse allows the leader to keep existing products and services fresh, while positioning their organization for emerging opportunities. Distributed leadership: A leadership style distributing accountability and control With a distributed leadership model, the senior leader distributes tasks, control and decision making to the lowest possible level of the organization. A distributed leadership model facilitates a high operational tempo and business scalability, because talent at all levels is fully leveraged and the leader is never a bottleneck to daily operational progress. It also encourages competent and motivated professions to exercise a high level of entrepreneurial accountability, control and creativity over their work. It gives development opportunities to people at all levels of the organization; resulting in broader and deeper staff experience and capability. Motivating and getting the best out of highly skilled professionals is difficult unless those professionals: •
Are invested in the organization’s success and future •
Can voice and are empowered to exercise an appropriate level of creativity and control over their work •
Believe they are valued and respected for their contributions •
Trust that the leadership team is not saying and playing two different games •
Believe the leaders are competent to lead the organization forward Having a distributed leadership model means involving your team in the decision making process. It means the selective sharing of power and control to optimize decision-­‐making, speed and performance. Whether by delegating key decisions or simply soliciting ideas, sharing power and control with mature, competent and trustworthy people builds community, increases accountability, deepens commitment and demonstrates respect. There is no better way to make people feel valued and respected than to ask them, genuinely, for their advice and/or letting them make a key decision. You can pat people on the back and recognize their efforts, © 2011 ODYSSEY, INC Performance Culture 6 but such gestures are no substitute for involving them in important decisions. What’s more, staff members who play a part in a decision feel more invested in making it happen. Modeling operating values: How they operate and expect others to operate Performance culture leaders model and enforce the operating values because they know how people operate is critical to optimizing execution and performance. One of the best-­‐known corporate cultures is that of IBM in its heyday. Dating back to the 1930s, IBM employees had a reputation for being highly motivated and loyal. Tom Watson Sr., the chairman of IBM at time, is credited for the culture and business success. The core values at IBM were (1) respect for the dignity and the rights of each individual in the firm, (2) giving the best customer service of any company in the world, and (3) pursuing all tasks with the objective of accomplishing them in a superior way. Watson believed in these values, modeled them and drove them deep into the fabric of the organization. The resulting performance over multiple decades is legendary. Operating values in today’s high performance cultures are explicit and reflect the need for enabling highly talented people to effectively work with and through others. Foundation #2: Cultural Integrity Cultural integrity says, “Here are the rules for how the organization operates and they apply to everyone in every situation, no matter their title.” Cultural integrity is transparent not because an organization wants to be transparent but because people within the organization quickly figure out if an organization walks the talk and truly operates within its own espoused system of operating values. To attract and retain the best talent, organizations must demonstrate a professional’s creativity, energy and commitment to excellence are valued, will be fairly measured, recognized and rewarded. Cultural integrity brings credibility to the performance appraisal process, promotion decisions and compensation actions. Is it likely the most talented professionals are going to be attracted to, stay with, and give 110% to an organization without cultural integrity? If the top leaders do not demonstrate cultural integrity, others in the organization will be less likely to raise their game and will quickly deflect attention from their own poor performance or behavior and rightfully site the operating values don’t mean anything. On the other hand, executives and staff who demonstrate cultural integrity have built strong emotional bank accounts with the people with whom they regularly work and as a result are given broad leeway to operate without their intentions being questioned. Even the best leaders and institutions occasionally make mistakes. Organizations with cultural integrity acknowledge mistakes and appropriately and effectively respond in a timely fashion without threat, prodding or coercion. Warren Buffett’s annual letter to shareholders is a perfect example of both cultural © 2011 ODYSSEY, INC Performance Culture 7 integrity and performance culture leadership. For over 30 years, Buffett has been humble, direct and transparent about how his decisions and actions have lead to both successes and failures. Tom Watson Jr., the legendary former chairman of IBM, had the following to say to about cultural integrity in a speech at Columbia University: “The basic philosophy, spirit and desire of an organization have far more to do with its relative achievements than do technological or economic resources, organizational structure, innovation and timing. All these things weigh heavily on success. But they are, I think transcended by how strongly the people in the organization believe in its basic precepts and how faithfully they carry them out.” In other words, cultural integrity inspires trust, commitment and a desire to excel. Without cultural integrity, organizations encourage a shallow level of trust, accountability and commitment. This leads to higher turnover rates; greater difficulty recruiting the best talent, and a whole host of other issues distracting the organization and hurt performance. Foundation #3: Continuous Improvement In a performance culture, everyone at every level is systematically required to raise his or her performance capacity year after year. This requirement is linked to base compensation, individual and team bonus compensation, role ranking, promotions and succession planning. There are two equal sides to this continuous improvement equation: 1. Those with the most potential, who contribute the most and model the operating values are identified, developed and advanced to take on additional responsibilities and challenges. 2. Those who repeatedly do not perform/or live the operating values need to be removed from the organization. Most organizations and executives are comfortable focusing on number one, but are reticent to fully prosecute number two. If the organization is going to reach it highest potential, both sides of the continuous improvement equation must be pursued with equal vigilance. © 2011 ODYSSEY, INC Performance Culture 8 The Four Pillars of a Performance Culture Why Why does your organization exist? The organization’s “why” is the combination of an organization’s mission and identity. An inspired “why” authentically embraced and fully operationalized makes a huge difference in the level of internal commitment, energy, innovation and resulting performance. What’s more, an organization with a clear and inspired “why” attracts clients and employees who believe in what you believe in. Apple computer is a good example of an organization started with a clear identity and inspired mission, then lost their mission focus, and later regained it. When they acted from a clear sense of mission and identity they innovated, prospered and led their industry. During the time Steve Jobs was not running the company Apple lost their mission focus and identity clarity and, as a result, stopped innovating, lost money and market share. Apple’s authentic mission and identity has always been based in challenging the status quo by creating new innovative, nicely designed and easy to use products. Since Jobs returned and reinvigorated Apple’s innovative identity, Apple has revolutionized the music industry with Ipods and Itunes, the mobile phone market with the Iphone and the tablet market with the Ipad. © 2011 ODYSSEY, INC Performance Culture 9 Comparing and contrasting Apple with Dell is a good example of how important acting from a clear sense of a differentiated mission and identity are. Dell started with a mission to sell personal computers with personalized features backed by the best customer service in the industry. As the PC industry evolved it became commoditized and Dell found itself lost in a crowded field of low cost and profit commodity producers. The lack of differentiated mission and identity left them with shrinking sales and profits. Dell has stopped innovating. In a market dictating you must innovate and have some differentiated identity, the market has not been kind to Dell: Why a Clear Mission and Identity Makes “Cents” Apple Dell Mission Clarity and Focus High Low Revenue $87B $61B Profit 22.36% 5.26% Market Cap. $300 $30 Who Who is on your team? Until the right team is assembled, the leader and organization will find advancing their business objectives unnecessarily difficult because of excessive and on-­‐going quality, execution and interpersonal dysfunctions. Even with the best team there are always problems, but the nature of those problems are infrequent and transitory, versus systemic and frequent. Therefore, getting the right people on the team and the wrong people off the team must always be a top priority. Like a professional sports team looking to win a championship, the business organization must, at regular intervals, (usually annually) objectively assess its talent against recent performance commitments, potential for future performance, and adherence to operating values to determine if the relationship makes sense to continue. If you do not get low performers (including badly behaved people) off the team, you send a mixed message about what performance is and have less room to bring in better talent from the marketplace. Who are the right people? •
Competent professionals—who know their market and/or are functional subject matter experts. •
Buy into and operate within the operating values—they model the values through their actions, words and decisions. They work effectively with and through others. •
Deliver on commitments—they are self-­‐accountable and rarely fail to deliver on operational and financial performance commitments. © 2011 ODYSSEY, INC Performance Culture 10 Who are the wrong people that need to be removed from the team? •
Very smart people who are disruptive to team cohesiveness, collaboration and trust. There is no room for individuals who repeatedly demonstrate a pattern of disrespectful, abusive or self-­‐centered behavior. If you don’t remove this type of person you demonstrate your operating values are a farce. •
People who repeatedly do not perform because of a poor work ethic, competency deficiency or because they don’t buy into the business model or culture. It doesn’t matter why they consistently don’t perform, it only matters that they don’t. •
People who repeatedly demonstrate they are not committed to the team, operating values or organizational direction. It is a big world out there and if an individual can’t be productive or happy within your organization, it is not your job to convince them to be happy or productive. The majority of leaders do well identifying and developing the high potential professionals. Unfortunately most leaders are slow to remove poor performers and even slower to remove behavior problems hurting team cohesion, trust and overall performance. Both are equally important. How How does your organization operate? There are two primary dimensions to how a high performance culture operates. First is the operating model describing the functional, process and systems alignment of the organization. Second are the operating values, describing the individual and team behavior required to optimize the dynamically interdependent nature of today’s complex organizations. The operating model depicts the organization’s roles, systems, processes, and functional teams and how they interrelate and come together to create and deliver value and fulfill the mission. Much like a specific football offensive orientation, the operating model tells teams and individuals how they fit within the overall organizational system and what inputs and outputs flow through their teams, functions and roles. Operaong Model • Idenofies the funcoonal assignments, (outputs/inputs), process flows, sequencing and alignment of the organizaoon. Operaong Values • Describe the behavioral qualioes and characterisocs of how people operate in a high performance team environment. Operating values describe how people are expected to behave within the organization and out in the marketplace. Operating values encourage collaboration, effective communication, accountability, customer service, collegial relationships and related behaviors producing the best performance out of individuals and © 2011 ODYSSEY, INC Performance Culture 11 teams. Performance cultures have explicit working definitions of their operating values, and they use those descriptions to coach, develop and drive the values into the fabric of the organization. Performance cultures define total performance as both results (what got produced) and behavior (how production occurred). Operating values are made part of every annual assessment and their peers, staff and leaders anonymously provide input on an individual’s assessment as to how well they operate within the operating values. In a performance culture, operating values are measured and made part of every performance review, compensation action and promotion decision. As a result, performance cultures are more predictably able to execute strategy and service delivery because they develop and reward coordination and collaboration within and between functional teams. People don’t compete against themselves because their roles are clearly defined and their performance and compensation systems don’t pit individuals or teams against each other. An organization without explicit operating values measured by peers, staff and leaders and applied toward the annual assessment, defaults to some form of a “king model.” In the king model, the king’s subjective perception determines one’s performance and tenure. As a result, people compete against their peers to please and win favor with the king resulting in dysfunctional internal team and individual behavior. King models can work for short periods of time, but eventually they produce poor performance resulting from low commitment, trust, collaboration and professional satisfaction. In short, the king model is about pleasing the king! What What does the organization do? Performance cultures understand what the market needs and how they can add value. Whatever your organization does, it must be based in a deep understanding of market needs and be competitively differentiated from others. As we mentioned in the “Why” section, having a passion for what you do or offer is critical for inspired action from your employees and loyalty from your customers. If you are staying close to your clients and are listening to the continuously evolving needs, trends, regulations and technologies surrounding the market and your products or services, you can always find a way to add some unique value and differentiate your products and services from competitors. It does not matter if you are a professional services provider, a commercial real estate firm, a manufacturing company, retailer or industry association you must have a good answer to the following: •
Who are your potential customers and what do they need? Do you think you know or do you really know what the market wants? Have you done a deep dive to understand your target market’s needs and drivers? How do they determine value? How do they purchase? What is important to them: quality, selection, service, status, and or security? •
What do you do that is unique in the marketplace? Who are your competitors? Do you understand their strategy and how they are trying to sell? What do buyers think of them? Do they have any unique © 2011 ODYSSEY, INC Performance Culture 12 advantages that can or can’t be overcome? If you don’t know the answers to most of these questions you are at risk of being made less relevant or irrelevant. Without this information it is impossible to develop an intelligent and effective sales strategy because you have no way of knowing how to articulate differentiated value. Conclusion Most executives believe culture is a significant contributor to high performance but are unsure of where to begin to shape and develop their cultures to increase and sustain high performance. Our objective for this paper is to dissect an organization into its critical logical parts, so as to enable the reader to assess, modify and continuously improve them. For most organizations, there are significant opportunities to increase performance through the development of a high performance culture. To realize potential, the leader and leadership team have to be open to looking at themselves and accepting themselves for who they are and who they could become. The capacity and performance of every organization is largely a reflection of the capacity of its leadership team. If the leaders are unwilling or unable to evolve and grow, the organization’s opportunities for further growth will also be range bound and limited. Creating a high performance culture is a dynamic process requiring competent and committed leaders who can attract, build and inspire a team of top talent. With top talent on board, the leaders use performance models and compensation incentives to channel individual talent and energy toward team success and victories versus individual success at the expense of sustained team performance. Shared mission, operating values and a commitment to continuous improvement drive and evolve the organization to increased levels of performance. High performance culture professionals operate with a sense of shared purpose, commitment and belonging to something uniquely great. As a result, high performance cultures are more able to hire and retain the best talent and enjoy the highest loyalty from blue chip clients. © 2011 ODYSSEY, INC Performance Culture 13 © 2011 ODYSSEY, INC