Is it possible that excellence isn't the "Ticket to Ride" that it once was? In its place a new standard is emerging; top companies of the 1990s are in pursuit of enterprise effectivenessUnderlying many business management fashions is a single technique. A similar single-mindedness is seen in calls for organisations to "focus on customers" or "focus on the bottom line for our shareholders". Later, when disappointment or disillusion sets in, the organisation moves on to a new technique or a new point of focus. "Organisational effectiveness" is emerging as a new approach to organisational management.
Like excellence, enterprise effectiveness is a means for an organisation to define and measure the extent of its success, but it does not share its predecessor's single techniques or points of focus. Rather, it reflects the complex nature of organisations. For CIOs, the pursuit of organisational effectiveness can be challenging but it offers opportunities to take broader roles in their organisation.
Just how an organisation becomes effective is a subject of debate. Brett Scarlett, senior manager at Unisys Information Systems (UIS) in Melbourne, has analysed a number of recent management theories and concluded that organisations should pursue organisational effectiveness by addressing the factors that are important to all their stakeholders. Scarlett has outlined his approach in a paper for UIS titled In Search of Organisational Effectiveness: Why Excellence Isn't Enough.
The paper's title refers to the pursuit of excellence that took place in the 1980s and early 1990s, especially after Tom Peters and Robert Waterman wrote their 1984 best-seller In Search of Excellence. Peters and Waterman cited lessons from successful US companies, but today many of those companies are no longer role models or the industry leaders they were 10 years ago. Excellence alone did not reliably deliver sustainable long-term performance and industry, Scarlett argues.
Scarlett does not see that the "search for excellence" is appropriate for all organisations at all times of their life cycles or across all activities. "It is not clear to me that organisations always want to be excellent or excellent in every aspect of everything they do," he says. For example, excellent employee satisfaction was irrelevant to one of Scarlett's clients when it was downsizing and did not mind if some employees left.
Scarlett began to develop his ideas on organisational effectiveness after reviewing the success of process redesigns in which he had been involved. "Some stakeholders were sure benefits were achieved; some were doubtful," he says.
"[And] to be honest, in some of those cases benefits were not achieved." He also noted research which indicated a low success rate for business process re-engineering (BPR) and started to form a view that this could be due to failure to define the expected benefits and outcomes of BPR.
In particular, he noted that BPR tended to concentrate on productivity and ignored other organisational objectives. This finding led Scarlett to pay greater attention to all the potential stakeholders in organisations. Much discussion of stakeholders concentrates on customers, but Scarlett thought this was inadequate. Other stakeholders such as the financial market and employees have different expectations to those of customers. "No wonder BPR is not always perceived as a success," Scarlett says.
He believes that the extent to which an organisation simultaneously responds to the demands of its internal and external stakeholders determines its effectiveness. The organisations that achieve the right balance of competing stakeholder demands will be positioned for industry dominance and long-term prosperity, he says. "Every enterprise - from the smallest retail shop to the world's largest conglomerate - exists to meet the needs of many diverse interest groups," Scarlett explains. "These stakeholders include management, employees, customers, owners, suppliers, financiers, as well as communities and governments."Community views in particular are becoming more important. "You see that from the "green" area but, broadly, community awareness and responsibility is going to broaden out how organisations are seen," he says.
Scarlett is critical of the single criteria used in some models of organisational effectiveness, as he believes they ignore the multi-faced nature of effectiveness. The single criterion is usually profit maximisation, but can also be overall performance, productivity, employee satisfaction, withdrawal (based on historical staff turnover and absenteeism), rate of return and economic value added, which measures return on the cost of capital. Scarlett argues that none of these has proved satisfactory as a sole measure. Rather, he argues that the answer lies in a balance of multi-criteria measures. In addition, each organisation needs to develop an approach that reflects the stage it is in its life cycle, its size and the nature of its business.
Scarlett's call for multi-criteria measures has other supporters. The prestigious US Malcolm Balridge award has seven perspectives: customer satisfaction, employee satisfaction, financial performance, operational performance, product and service quality, supplier performance, and safety, environmental and public responsibility. Robert Kaplan of the Harvard Business School and David Norton from the international consulting company Renaissance Solutions, have devised a "balanced scorecard" which goes beyond traditional financial measurements of organisational performance. As well as financial indicators, they look at customer satisfaction, internal operational processes, and learning and growth.
"The balanced scorecard approach helps to overcome a weakness common to many companies: over-emphasis on short-term financial measures that can disenfranchise some interest groups and place the implementation of longer-term strategic objectives at risk," Scarlett says.
In Scarlett's approach, the first step is for organisations to ask themselves which resources and activities are critical to them. The answers to this question will probably include skilled labour, capital, raw materials, supply chains, distribution networks and the wider community. These resources and activities can be affected by various individuals or groups, which form a second list. The organisation can most successfully identify the members of this list by developing "what if" scenarios.
"'What if' scenarios consider potential business-related events and the interdependent expectations of each stakeholder group," Scarlett explains. "For example: what if a major supplier experiences a prolonged work stoppage? What if we experience a product recall? Thorough 'what if' planning allows the organisation to understand the relative power of the various groups."Scarlett sees the key to enterprise effectiveness in the answer to two questions. The first is "who wants what and how important is it to satisfy the demand?" The second is "how will satisfying one demand affect other demands?".
"By analysing various scenarios, considering any interdependence between stakeholder demands, and by recognising the relative importance of each interest group, organisations can develop the answers to these questions," Scarlett says. Benefits of effective "what if" scenario development include faster times to market and the preparation of contingency plans. Contingency planning can range from the impact of the loss of a major customer or supplier, to crisis management.
With greater attention to stakeholders comes the risk of being captured by a particular set of stakeholders. "It is reasonably common for organisations to be captured by the financial markets," Scarlett notes. "I think that is a problem. If they are not reasonably profitable, they get crunched. Large organisations would be a bit wary of employees at times, but I hope that it is going to move more towards recognition of the individual and the organisation."Organisations neglect the issue of interdependency and dominance of stakeholders, he believes. To be effective, an organisation needs to make sure it is not too closely linked to any of its stakeholders, nor too loosely linked. They should avoid providing a stakeholder group with unnecessary influence or developing an interdependence which should have been avoided. The correct balance among the interests of stakeholders will vary over time and from business to business. For example, if innovation is considered a key objective, Scarlett believes efficiency measures should look at technological leadership and time-to- market.
Scarlett believes there should be minimal acceptable levels of various factors across an organisation. There should be maximum levels as well. "You don't really want oversatisfied employees or customers," Scarlett comments. If an organisation doesn't balance the interests of its various stakeholders, it can find itself in trouble. In his paper, Scarlett cites the example a US rail company which focused on the needs of executives, managers and employees and forgot shareholders' demands. He portrays America Online's service problems as deriving from managers' and financiers' drive for cashflow, which ignored users' need for easy access. Apple focused on its loyal customers and managers and disregarded potential customers, he says.
In the process of analysing organisational effectiveness, typically, an organisation will start by developing a series of coordinated objectives and measures for the enterprise as a whole, then examine each business unit and operational process in greater detail and specificity. Performance should also measured fairly continuously based on targets set annually.
"If it is to be meaningful, it needs to have a feedback loop in the organisation and there needs to be commitment," Scarlett says. The adoption of organisational effectiveness brings together people from across the organisation. "By involving employees in the analysis of future business scenarios, organisations encourage their managers and employees to be more flexible, better able to shape the future," Scarlett argues.
"People want to be part of great organisations that make decisions and take action based on their medium- and long-term benefits - not only on the basis of short-term financial targets," Scarlett adds. "These decisions and actions should also lead to better outcomes for all stakeholders. This is the hallmark of an effective organisation, and while the pursuit of enterprise effectiveness demands commitment and perseverance, the rewards can be great."Value JudgementsThe response from many CIOs - and management in general - to Scarlett's views has been mixed. They have generally accepted his statements and seen them "almost like common sense" but when it comes to implementation, "it is a little bit challenging", Scarlett says. The challenge lies principally in the absence of a single focus.
Scarlett wants especially to raise awareness of organisational effectiveness among chief executives, CIOs and strategic planners. While strategic planners will probably have key facilitating roles, a CIO can take a leadership position in encouraging organisational effectiveness, depending on his or her characteristics and role in the organisation.
"The CIO could be taking a lead in providing reporting to the organisation as to how things are travelling and could initiate projects to investigate and apply appropriate tools or techniques and to make changes," Scarlett says.
A CIO could also direct attention within organisations to important areas. In scenario development, CIOs and IS specialists can especially contribute by looking at processes and the impact of various options.
From In Search of Organisational Effectiveness: Why Excellence Isn't Enough: "An organisation needs to be careful when selecting and analysing measurements to ensure: that all objectives are aligned with and support the overall business strategythe objectives recognise the needs of all key stakeholders in accordance with the relative potency of their impact upon the organisationthat a small number of vital variables can be monitored to quickly assess the performance of the organisationthe objectives remain consistent throughout the organisation and with all levels of employeesthere is a mix of measures representing the past, present, and future."Values AddedWhile at first glance, economic value added (EVA) and shareholder value management appear to be examples of the single criteria of which Scarlett is critical, David McLaughlan says that underlying these measures are a wide range of issues. Formerly financial controller in a large, diversified multinational which applied shareholder value management, today McLaughlan is a consultant in financial management, concentrating on shareholder value management and EVA.
Among the broad issues that McLaughlan considers is ethics. A company which adopts an ethical stance that rules out the payment of gifts, commissions or fees in countries where these are commonplace forms of bribes, may miss out on lucrative contracts which would enhance shareholder values. Other issues include customer satisfaction, rates of return of products, and how products are being marketed and sold.
"That is what Brett [Scarlett] is talking about," McLaughlan says. "A business needs to have many measures. It is a balance you need to work with."Assessing the factors which drive values can take more than a year, in McLaughlan's experience. In the diversified company with which he previously worked, managers with related functions first met in groups to discuss what factors were value drivers. They then were consulted individually. For each business area, there were 10Ð12 meetings, each of which lasted between an hour and a half-day.
Early meetings had a strong educational focus, to bring all managers up to speed with the terminologies being used and the change in focus. "Terms such as 'cost of capital' and 'cash' were new to people, as was why they were important," McLaughlan says.
The process began some three years ago. The business areas have reviewed their value drivers every year since. Information systems management played an important role in ensuring that businesses could measure proposed value drivers and could achieve their designated levels of value drivers. They had as much a role to play as sales or production management, McLaughlan says. Because they were involved from the earliest meetings, they could give early warning if current information systems could not provide all the necessary information.
"Often a strategic plan is delivered and there is little or no attention given to what information systems are needed," McLaughlan comments. "We had to change some of our data collection." The process of developing value drivers changed the perspectives of people across the organisation. It changed individuals' understandings of their own roles, and of their department's role in the business. Someone who in the past who may have focused on the production of a number of units each day, now looked beyond that to issues such as customer satisfaction and return rates.
IS management's horizons were broadened. Managers were confronted with issues such as shareholder value, environmental concerns and public responsibility.
Not only did they become aware of those, but they also recognised their importance to the business. "Some MIS people became quite good at that but others did not change," McLaughlan notes.
McLaughlan's view of the ideal CIO has evolved. He believes they should have a broader focus than on technical issues. "You need them to be business people as well as technical people," he says. "Good MIS people are that way."Brett Scarlett, senior manager at Unisys Information Systems
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