Do you wish your organization were performing better? Of course, the answer is yes. And a "yes" answer will be more emphatic from those of you whose organizations are struggling. We all worry about our livelihood. Similar to the "nature versus nurture" question about whether one's genes or environment contributes more to an individual's personality and character, I pose this question: What influences an organization's future performance more - the competence of its current executive management team or the momentum or excess baggage of its culture?
Why am I asking such a profound question? My reason may be a weak excuse, but this specific monthly column on performance management is my 25th column written for DM Review.com, marking the beginning of my third year. I recently learned from the DM Review.com editors that this column was the most-read on their Web site and ranked No. 1 for 2006. So as a little celebration, I want this column to provide some straight talk to those readers who apparently like my that's-the-way-the-world-works style of writing. I feel I have earned the right to speak candidly and personally with you.
Wouldn't We All Love a Crystal Ball that Works?
Some of you have been either lucky or astute enough to choose to work in an industry or public sector agency that has and may still have enjoyed substantial upside growth. I had little appreciation for this until I read the book Strategy and the Business Landscape by the Harvard Business School Professor Pankaj Ghemawat. Ghemawat's book ranked the highest to lowest industry sectors on a return on equity (ROE) basis for the years 1978 to 1998. It made so much sense. The highest were cosmetics, pharmaceuticals and tobacco and the lowest were steel, air transportation, and paper and forest.
If you knew these differences in advance when you were young and just entering the labor market, you could have pursued the winners and had a nice tailwind at your back - plus a more secure personal financial future and possibly higher job satisfaction, too. It's more likely to be fun to work at a place that is growing than shrinking. Think of the exhilarating experience of the young workforce today - even this afternoon - at Yahoo! or Google.
Then there is the reality of our current personal career situations. Some of us work for an organization with sustained high growth, but we work in a division or department for managers who are losers or a pain. The flip side is some of us are employed in an organization, such as a newspaper that is adversely threatened by technology (e.g., the Internet), but every day is an exciting thrill compared to the rote jobs of some of our friends.
Why can't we all have fun? Organizational success is not a zero-sum game where the winner's gains are offset by the loser's. Although Adam Smith's historic breakthrough 1776 book, The Wealth of Nations, was 903-pages long, its fame came from a simple message - we can all have a more prosperous life together (if countries specialize in what they are best at). Why can't Adam Smith's principles apply at the organizational level? Why today are so many of the companies highlighted in Tom Peters' and Robert H. Waterman's best-selling book of 1982, In Search of Excellence, bankrupt or no longer in existence (e.g., Kmart, Wang Labs, Delta Airlines, Amdahl and Digital Equipment)? The big question I am asking is: How much is an organization's future performance going to be determined by its leadership team or by its culture?
The Decline of the Once Strong
An example is the Tata Group's (India's large conglomerate) February 2007 acquisition of the Corus Group, the descendent of British Steel. This is the largest acquisition ever by an Indian firm. This is a role reversal, where an organization of a former British colony has flexed its financial muscle to those who once were the rulers.
As another example, the U.S. automotive industry gives us a good laboratory experiment to test. I lived in Detroit in the 1990s. The decline of household auto manufacturer names, such as General Motors and Ford, can be mapped back to the oil crisis of the 1970s. That crisis allowed Japanese car manufacturers, such as Honda, to leverage their skills in manufacturing lawn mower and powerless 90cc motorcycles into producing fuel-efficient and defect-free automobiles.
The Big Three U.S. automakers are currently building a case with Washington politicians that their substantial health care costs resulting from an older (and more pensioned) labor force has made an unfair and uneven competitive playing field with younger foreign manufacturers like Toyota, which is about to eclipse General Motors as the global leader. With a new Democratic-controlled U.S. Congress and health care reforms like Gov. Schwarzenegger's in California, help for pension-burdened companies may be on the way.
But is this the solution or is the remedy much deeper? For example, the problem with the Detroit-based auto manufacturers may not even be about the lackluster products that they are accused of offering. The problem may be that large and/or or old companies have deep-seated cultures that may be fine for nostalgia but are too slow to change and adopt new values to achieve higher performance.
What Makes the Difference: Executive Talent and Moxie or the Organization's Culture?
We accept the practices of organizational change management to modify employee behavior. People typically resist change. Most people like the status quo - it is human nature. However, I have always questioned if a strong change management process can induce a change in an organization's culture. Culture runs deep in organizations.
I recently witnessed evidence that applying strategy maps and the associated balanced scorecard, two of the major components of the performance management framework, can change a culture. At the annual summit hosted by the Balanced Scorecard Collaborative, William V. Catucci, now the retired CEO of AT&T Canada's Long Distance Services, told a gripping story of how he turned a despondent and sinking company into a winner. In the late 1990s, Catucci's company had been losing market share and become extremely unprofitable. Worse yet, an employee morale survey reported a most dejected workforce. Had the company sunk too far to avoid bankruptcy?
Catucci had read an article about strategy maps and balanced scorecard. He rolled up his sleeves and began implementing in a disciplined way. Like a sailing ship's captain, he first set a new direction. That is a CEO's job. The big challenge is always determining how to get there. Very importantly, he communicated his direction to the managers and employees by defining the various strategic objectives to spark innovation, redesign business processes and become much more customer focused. Managers and employees were asked if they wanted to stay or leave the ship. Their commitment was crucial. Many resigned. The rest of the story is a success story. Within two years, the organization had doubled the customer base when the industry was growing at four percent. The company was now profitable, and revenue had increased from $273,000 to $370,000 per employee. Most importantly, employee morale measured an all-time high. In 1998, Catucci was a finalist for the Canada CEO of the Year award.
Everyone in the audience was riveted by Catucci's testimonial, and the applause at his conclusion was deafening. He described AT&T Canada's transformation as a culture change, and he attributed it to applying performance management methodologies.
Nurture or nature? When good leadership is equipped with the sound and proven methodologies that constitute performance management, an organization's culture can be changed for the better.