Why Some Well Managed Companies Fail: Transformation Systems

/ 16 Hours ago


By: Paul Odomirok, Senior Associate, Transformation Systems, Inc.

Over the past several months, we’ve all witnessed the failure of numerous well managed companies. A number of reasons have been given for these failures: poor economy, credit crisis, banking crisis, oil crisis, energy crisis, employee costs, material costs, transportation costs, customer apathy, as well as current administration policy and ineffective CEOs. Despite all of the emphasis we’ve placed on business management over the past 25 years by employing well educated MBAs, implementing sophisticated management systems and hiring highly compensated business managers, currently there exists a large fissure in our modern American business management archetype.

One dimension of this shortcoming emerges from our attempts to institute strong business management that dissuades continued focus on core purpose, vision and future direction for near-term monetary gain and profit. A colleague of mine articulates such a worst case scenario as follows: “Managing strictly for short term profitability is like driving down the road always looking in the rear-view mirror.” Wall Street is often cited as the culprit of this mentality. Of course, although profitability is a key critical element of business success, sacrificing all other performance and success factors for profit alone has proven fatal for many corporations. Companies that choose this path simply lose their purpose, their direction, and their way. This is the classic case of a business management focus with a complete lack of leadership.

Consider the distinct differences between management and leadership. The comparison between management and leadership of an organization was best explained by Ret. Rear Admiral Grace Hopper (Charleston, S.C., August, 1982): “You manage things. You can manage budgets, materials, policies, products and processes. However, you must lead people. You can’t manage people. People must be led.” Often, the management of organizations fails to lead the people, and opts for contemporary management philosophies, processes and systems.

Management can be characterized by organization, administration, supervision, control, status quo, stability and managing. On the other hand, attributes of leadership involve setting direction, aligning resources, motivating the people, communicating the purpose and mission, executing the plan, modeling the way, inspiring a shared vision, challenging the process, enabling others to act, encouraging the heart and leading (compiled from the work of Kotter, Deming, Welch, Drucker, Kouzes and Posner). Management versus Leadership is not a choice, but an all-inclusive decision.

The solution to the failure of well managed companies is revealed through the incorporation of strong leadership. Of course, instituting leadership tends to conflict with management characteristics, since leadership is more about the human condition, improving processes that are broken and changing/adjusting the course of the organization to keep it on its path of purpose and vision, than static, single focused, boxed in, operational execution.

Often, top leadership gets too involved, and too deep, into operational factors and they lose sight of direction, alignment and motivation of the people. Top leadership’s role is to lead the people toward the vision and keep the organization connected to its purpose. It is management’s job (i.e., “middle management”) to link the organization at the operational level to the established mission, goals and objectives. Junior management and group/team leads should be held responsible and accountable to lead personnel in successfully carrying out their individual functions. In order to accomplish this framework effectively, linked measures and metrics must be in place from top to bottom, covering all qualitative and quantitative performance success factors beyond financial achievement and market growth (e.g., Customer Satisfaction, Employee Satisfaction, Supplier Satisfaction, On-Time Delivery, Product/Service Quality, Product/Service Reliability, Waste Reduction, Innovation, Profitability, Product/Service Affordability).

Often, Toyota is hailed as a contemporary world class example of successful leadership and complete organizational implementation. Its foundation and framework is based on a simple, straightforward, layered approach: 1. Philosophy, 2. People and Partners, 3. Process, 4. Problem Solving (all part of the Lean approach to business). Another approach that has demonstrated effectiveness when implemented correctly has been the Malcolm Baldrige framework. Also, a seldom known and rarely used approach to framing leadership was created by Robert Greenleaf more than 35 years ago, and it included the following attributes referred to as ‘Servant Leadership”: Listening, Empathy, Healing, Awareness, Persuasion, Conceptualization, Foresight, Stewardship, Commitment to the growth of people, Building Community.

All of these examples (Toyota, Malcolm Baldrige and Servant Leadership) share common aspects. They institute metrics and measures beyond just the financial/market accomplishments to include people and overall performance, and they all emphasize a well rounded approach to organization leadership that focuses on the elements that prove to be successful over time: Purpose (Centered), People (Driven), Process (Efficiency), Performance (Accomplishment) and Profitability (Both Financial and People Focused). A simple model of this is illustrated below:

With the institution of powerful leadership and an increased emphasis on the human factor come a renewed spirit in the organization and motivation that yield creativity, innovation, improvement, productivity, performance and profitability. This was discovered by the T.E.A.M. Research Project, led by Dr. Teresa Amabile, Harvard Business School, 1995-2000. With this positive motivation comes a new perception within the organization, a new reality, positive events in the organization and positive thoughts, ideas and attitudes.

“People will support that which they help to create,” said Mary Kay Ash. With implementation of leadership, combined with inclusion and involvement of the people in solving the challenges and problems, comes a momentum and motivation that keep the organization moving forward. However, it’s not easy and problems will definitely occur. Over the years, the pursuit of quick fixes has proven there are: No Silver Bullets, No Magic Wands, No Instant Pudding, No Free Lunch, and certainly, No Easy Bail-Out. Regardless of the possible difficulties, the answer has been, and always will be: Leadership.

Paul Odomirok, MEd is a Senior Associate with Transformation Systems, Inc. Odomirok leads organizations through sustainable transformation working with more than 30 companies on over 50 initiatives. His expertise ranges across a variety of disciplines, including Lean, Six Sigma, Supply Chain and Management Development. As a Master Black Belt, he teaches Six Sigma Black Belt Training and Lean Manufacturing Principles. Odomirok has also founded several businesses and his research includes projects with Bell Labs and Harvard.

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