A business organization will be judged to be moving towards high and then higher performance when the work done and the results obtained relect increasing value of products and services offered. That is what we mean by a viable business organization.
A high-performance work system contains a number of processes that support the achievement of a more viable organization whose products and services become more valuable, especially to customers but also to other stakeholders. A business organization is becoming more viable when the value of its outputs increases relative to the value of its inputs as a result of working on the inputs. Viability is a measure of the functioning effectiveness of the processes and systems of the high-performance work system. Viability measures what leaders have been doing to improve the business's value-add.
These are the three key leadership work processes that contribute to improved viability in a high-performance work system:
• Creating a harmonious relationship with customers
• Organizing around value-add processes
• Developing an effective change process
Creating a Harmonious Relationship with Customers
The importance of serving the needs of all stakeholders has been discussed. The role model leader seeks to go beyond satisfaction and loyalty to develop harmonious relations with all stakeholders. A harmonious relationship between customers and the role model leader's business will
improve the measurable value of the organization. There are those who believe the customer is the most important stakeholder; words like “the customer is king” and others are common. This may be a valuable approach for some businesses, but I believe the same passionate approach to serving all stakeholders is best.
In a harmonious relationship with the customer, the business organization beneits from increased revenues, longevity of the revenue stream, and often reduced costs. There are reduced costs because the business will not have to spend as much money inding and maintaining a roster of new customers. A harmonious relationship with a customer ensures a long relationship.
The beneits to the customer are also many. The customer knows he or she will receive the organization's highest quality in terms of products, technology and marketing at the level that most businesses extend to their long-standing A-list customers. And the organization will also often offer preferred pricing.
A values-based partnership creates innovative opportunities that add value for both partners. A harmonious, trusting relationship establishes, in effect, a new enterprise that works on and exploits entrepreneurial opportunities in the collective value chain of activities. Leaders in the two partnering businesses work together on those opportunities. In this valuesbased partnership, each partner has conidence in the role model leadership of the other.
When the business organization has a harmonious relationship with its owners, those owners get a rapid, high return on their invested money and the business acquires an ongoing resource that is essential for success. Owners are a unique customer of the business organization. Most investors recognize that the best action a business can take is to develop competent, future-looking leaders – that is, role model leaders who aspire to and are capable of developing an innovative high-performance business organization.
Organizing Around Value-Add Processes
Stephen (not his real name) was a very good engineer. He had been an excellent student during his university days and after graduation he joined a small machine manufacturing company, SmallCo, where his talents were highly valued. He contributed much to the company, and he, in turn, always said that he learned how to be a better engineer at SmallCo. Unfortunately, family issues required that he move to a different city, and he left that company. He was recruited to head the engineering division of LargeCo, a much bigger company that manufactured heavy machinery. He always said he was lucky to have been offered that position, but the industry by then knew he was a talented engineer and leader.
Stephen soon noticed that LargeCo was not nearly as successful as SmallCo: by almost all productivity and quality measures it was a weaker company. LargeCo had two distinct parts: about half its people and other resources were directed at a single large-volume product (product A); the other half were directed at seven much smaller-volume products (products B to H). Stephen also learned quickly that LargeCo's engineers worked in a very different way than SmallCo's. At SmallCo, the work was organized by a value-add process and it had been organized that way for years. Each job was broken down into speciic steps, and then competent people were as-
signed to those steps. That system worked well.
By contrast, work was carried out at LargeCo according to a structure. The much larger engineering division he had joined was a freestanding unit that was similar to other functional units such as human resources, R&D, inance, and accounting. Also, LargeCo was broken down into strategic business units (SBUs), and each SBU contained various marketing and manufacturing people and assigned representatives from the various functional units. The heads of the functional units managed administration, pay, and beneits of the functional people in the SBU, but the SBU heads managed the work of the functional people in the SBU.
This was a conventional structure: the SBU as an interfunctional business team. The leaders of the SBUs told Stephen that the role of company's functional organizations was to provide competent expertise to the SBUs and to serve the needs of customers as deined by the SBUs' leaders.
This was quite different from his experience at SmallCo, but he understood that LargeCo's intention was to “stock” each SBU with the required skills. When he discussed this with his new co-workers in the engineering division, they seemed quite content, and they understood that their job was to satisfy the needs of the SBU manager. Stephen was impressed with their work – they were highly skilled engineers. However, many pointed out that the rigid structure often made collaboration more dificult and actions more time consuming.
Stephen was troubled – the differences between LargeCo and SmallCo went beyond those you might expect to result from company of that size. At SmallCo, the manager had always been reminding him that his role was to serve customers, not the manager or the SBU. At SmallCo, needs had been determined by talking to the sales representatives and sometimes to
the external customers directly. Once the engineering work required to satisfy the customers had been determined, that work was mapped out step by step in way that would maximize the value-add. These steps were then assembled into logical value-add chains (VACs). Finally, engineering people were assigned to do the work as outlined by the VACs. In this way, the work needed to satisfy the company's customers was matched to people who were competent to do the work.
During Stephen's early days with LargeCo, he talked many times with the president who had hired him. At one point, he discussed an idea he had for improving the effectiveness of his engineering division. Intrigued, the president asked Stephen to expand his idea and make speciic recommendations before he got caught up in the present system.
Stephen asked two other experienced engineers to help, and they got to work. They met with the SBU managers and determined the speciic expectations of these important people. He learned that the expectations placed on the assigned engineering division people varied widely from one business to another. Product A's SBU leader required his assigned engineer to be primarily an expert in machine maintenance technology and practice. The seven smaller SBUs needed a wide variety of capabilities: one SBU needed the assigned engineer to be a capital project manager, another needed the assigned engineer to do considerable engineering design work, and others placed different emphasis on various engineering skills. But what really surprised Stephen was that a number of SBUs were asking their assigned engineers to carry out a variety of non-engineering tasks
– customer technical service, cost analysis, and, in one case, market analysis – for which these engineers had little capability. It seemed the SBU managers were asking for and being given engineering people and then they would ind ways to use those resources even when the people assigned to them weren't fully competent to carry out those assignments.
Stephen and his team inished their work and made the following recommendations to the president: that the engineering division be held accountable as a value-add business organization, that the mission of the engineering division be to serve the needs of the customers who required actual engineers, and that the engineering division be a source of valueadd engineering competence for the company. This meant that each SBU would contract for engineering expertise as needed. The work would be deined jointly by the speciic SBU and the engineering division, and then competent engineering talent would be assigned to the work. Sometimes this would require full-time assignments, and sometimes only part-time engineers from the engineering division were required. On occasion the
engineering division would even subcontract from outside irms to satisfy the needs of the SBUs and their customers.
The president of LargeCo accepted these recommendations on an experimental basis – he would try to turn the engineering division from a functional component division into a value-add one.
The result was that the right people were in in the right place at the right time. Productivity and quality improved signiicantly. Also, the people in the engineering division became much more motivated. They were closer to the customers, and they felt that they had a leadership role in the company and that they could change and improve things more effectively.
After a trial period, the president and the SBU leaders decided to expand this change by including all the other functional units. The change was, in effect, from a structure based on internal controls to one based on internal and external customer needs satisfaction. The leadership effort initiated by Stephen (they called him a role model leader when he received the company's highest award) had accomplished an important result for the company.
Conventional organizations place an overriding emphasis on structure. An example beyond Stephen's story relates to the design of a typical manufacturing plant. A conventional organization will think mainly in terms of controlling people and assets. Each layer of management will be given a clear message of accountability in terms of the layers above and below it. Job descriptions will describe what this means in terms of the roles of managers and other employees. The organization will be described in terms of boxes, with people's names and roles and with lines of control from box to box. This is how such organizations seek eficiency.
The organizational design of a high-performance work system is different. The role model leaders in this system are biased towards inluencing people to make positive change in order to grow the business rapidly and sustainably. To accomplish that, they must design the organization as a system that is effective, robust, and above all lexible. All three attributes are necessary in order to accommodate continuous improvement and change, which is the goal of the high-performance work system.