Transformation? Not Without Purpose

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Create constancy of purpose toward improvement of product and service, with the aim to become competitive, stay in business and to provide jobs. W. Edwards Deming

One of the most common roadblocks companies face when attempting a lean deployment is a lack of clarity around the organization’s fundamental purpose.  Without a clear and consistent understanding of why the business exists and what it is expected to accomplish, any attempt to transform the culture will lead to frustration, disappointment, and eventual abandonment of the effort.

Identifying Waste?

Waste exists in virtually every process, and can be identified and reduced without a significant amount of effort.  When the organization does not have a clear purpose, however, improvements tend to be superficial and transformation does not occur.

When leaders consistently drive focus around the company’s core business, it becomes easier to identify the systems and policies that interfere with serving customers.  It is unfortunately fairly common to see systems related to performance evaluation, IT, recruiting and hiring, and other areas that are overly complex or do little to help the organization meet the needs of its customers.  Without constancy of purpose, however, there is no lens with which to evaluate whether a system truly adds value or not.

Begin With Purpose

The Cambridge Dictionary of American English defines an organization as, “a group whose members work together for a shared purpose in a continuing way.”  Without a shared purpose, there is no organization.  There is only a group of people who come to work each day, spend time on what they feel is important, and go home.

The purpose does not need to be sophisticated, creative or witty.  It just needs to be clear and unchanging.  Although not necessarily an easy thing to do, clarifying and living in accordance with the purpose helps people understand the value the organization provides and, when this happens, transformation truly begins to occur.

Back to Basics: The Key to Improving Performance

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After many years of working with organizations in different industries on a variety of issues, I have discovered that the most common reason for performance falling short of expectations is a lack of attention to the basics.  I have seen numerous initiatives fail because of misalignment between, or inconstancy within, a company's purpose, values, objectives, and reward systems.

Consider the following objectives:

• Improve EBITDA by 20% over the next two years;
• Achieve compounded double-digit revenue growth each year for the next five years;
• Introduce 5 new products to the market next year.

In each of the above examples, the organizations failed to achieve the stated objectives.  This was not because of a lack of talent or desire to meet the goals.  In each case, managers responsible for the objectives felt extreme pressure to succeed but were handcuffed by the problems related to trust, teamwork, reward systems, and overall company focus.

An organization cannot perform at a level beyond its capabilities for a sustained period of time - and its capabilities are determined by the basics.  Setting objectives that are beyond capabilities will do little more than create frustration or apathy among those assigned the responsibility to meet them.  You can challenge, pressure, or cheer as much as you want but unless you deal with the fundamental roadblocks to success, you will end up sorely disappointed.

In sports, it's common for individuals and teams to address a slump by getting back to the basics.  In tennis for example, correcting poor performance requires thinking about footwork, watching the ball, and focusing on each point.  Attempts to ascend to a new level of performance will be fruitless without mastering these basic aspects of the game.

Getting Back to the Basics

Addressing the fundamental issues in an organization can take several different paths depending on the company's situation, but generally involves the five areas listed below.

• Reaffirm & Recommit to the Purpose:  Assure that the organization's purpose - including mission and vision - is absolutely clear.  Obtain commitment to the purpose at all levels and develop objectives that support its achievement;
   
• Clarify & Commit to the Values:  Define the company's DNA and assure that the hiring process includes some type of assessment to assure candidates possess the desired values.  It is important to understand that, regardless of how successful an individual appears to be performing - if he or she does not follow the same values as the rest of the organization, damage will occur;
   
• Align Focus on the Customer:  In relation to the purpose, assure that everything the organization does is focused on the customer.  As Gene Perkins, retired Group Vice President-Flow Products at Emerson Electric Company once said to his management team, "if we're not thinking about the customer first in everything we do, we might as well fold up our tents and go home;"
   
• Increase Understanding of the System:  Especially at the management level, people must understand the company's overall system (i.e., how the company serves the customer) and work to continually improve how materials and information flow through the system.  Managers must be company-focused rather than functionally-focused;"
   
• Align Measures & Rewards with Direction:  Once the direction and focus has been established, make absolutely sure that there is close alignment between them and the reward systems in the organization.  Be continually on the lookout for rewards that may encourage undesirable behavior.

It is very easy for an organization to stray from the above areas.  There is often so much going on and everyone is so busy that it is easy to be distracted with internal issues that do not tend to be as glamorous as improving EBITDA by 20% or achieving double-digit revenue growth.  Without a strong foundation on which to build the business, however, achieving and sustaining any type of significant improvement will not happen.

The Smarter Company

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When discussing the most innovative and successful companies over the last decade, people will most likely mention names like Apple, Facebook, Google, or RIM.  These companies are known for utilizing innovation in products, processes, services, and technology to give them a distinct advantage over their competitors.

But how do these companies maintain their edge?  Are the people who work at Apple or Google really any smarter than those who work at other organizations?  It's no secret that these companies have their pick when it comes to recruiting, but is that what keeps them more innovative and profitable than other companies around the world?  In my opinion, yes . . . and no.

It Takes More Than Talent

I will never downplay the importance the talents of people to a company's success.  Companies like Google and RIM are staffed with very smart and talented people which has undoubtedly helped them to introduce highly successful products year after year.  But without the leadership, culture, and systems that encourage and support innovation, there would be no way to consistently turn the ideas of these people into commercially viable products.

I have worked with a number of companies throughout my career and met many highly talented people who, for a variety of reasons, were unable to utilize their talents effectively.  In contrast to companies like Apple, the cultures and systems in many of the companies for which these people worked interfered with their ability to use their creativity.  The really sad part of the story is, the longer this went on, the less the people were willing and able to be innovative.  It's as if the ability to innovate atrophies when not used or developed over time.

It's the Company that's Smarter

The difference between the average company and a company like Apple, for instance, is that the leaders at Apple understand that innovation is a key to their success and they've created an environment that encourages creativity.  They have remained focused on creating a culture that fosters the use and continual development of team member creativity, and aligned systems to quickly turn their ideas into products.  In my opinion, this makes Apple a smarter company than most.

It is strange to think that a company would hire someone because of their talents and allow barriers to exist that prevent the person from utilizing these talents, but it happens fairly often.  It's not intentional, but for a variety of reasons, the environment in many companies encourages behaviors that interferes with success.  Mismatches in purpose, strategies, and values lead to confusion, frustration, and de-motivation of employees, interfering with sustained levels of success for the company.

Becoming Smarter

So how do leaders make their companies smarter?  How do they create the type of environment that enables people to utilize and develop their talents in a way that leads to success?  It obviously depends on a company's particular circumstances, but involves addressing one or more of the following areas:

• Purpose:  Be clear and consistent on the company's fundamental purpose.  Why it exists, what need it fulfills for its customers, and why it is different than other companies that serve the same markets;
   
• Strategies:  Determine, clearly communicate, and implement the best way for the company to compete in order to be successful (i.e., achieve its purpose).  Will it compete on the basis of innovative products and services?  Low costs?  High quality?  Assure that the company's culture and systems are aligned with the chosen strategies;
   
• Values:  Identify the company's personality.  Be very clear on the DNA of the type of employee who will make the company successful in the achievement of its purpose;
   
• Hiring:  Take time to hire the right people with heavy emphasis on a person's fit within the organization's culture.  Make sure that, once hired, they are able to utilize their talents effectively;
   
• Train/Develop People:  Continually develop the collective skills of the company's team in support of its business strategies;
   
• Foster Teamwork:  Identify and remove the barriers to teamwork on a continual basis in order to get the organization acting as one and focusing on common objectives;
   
• Value & Respect People:  Assure that people feel respected and valued for their contributions to the company's success.  Create systems and develop leaders that will encourage participation in the achievement of objectives:
   
• Continually Refine Environment:  Develop and refine the company's culture to assure it is aligned with business strategies.  Assure that the environment encourages, rather than hinders, implementation of the strategies.

I don't believe that a company needs to be innovative in order to succeed.  It is much more important for a company's offering to be "right" than "fast."  With that said, however, the faster a company can offer a new product or service that is right, the more successful it will be.  Determining the strategies and assuring that all internal systems and values support the implementation of the strategies will make the company smarter.

So to answer to the question:  I don't believe that the people at Apple or Facebook are any smarter than those at other companies, but I do believe that Apple and Facebook are smarter than other companies.

Taking Your Eye Off the Ball

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Nothing can get you back to your roots faster than a significant and unexpected drop in profits. As the worst economic year in recent history starts to wind down and companies begin to think about budgets and plans for next year, it is a perfect time to reflect on several items, including how to be ready for growth when the economy rebounds, and how to strengthen the organization to avoid significant damage when the next downturn occurs. The best way to begin assessing these issues is to return to the fundamentals and assess whether or not the organization has strayed from its stated purpose.

Many companies are finding that the success they experienced in the years preceding the recession actually led them to unintentionally deviate from their intended purpose. Some of these organizations are now refocusing on their missions as a way to emerge from the current downturn and return to long-term profitability.

TOYOTA

When people lose - or are afraid of losing - their jobs, one would fully expect a drop in automobile sales. Because of this, it is not surprising to see Toyota's revenues and profits to fall during the current recession. What is surprising, however, is the extent of the losses incurred. For a company recognized as one of the best run over the last 50 years, the large loss Toyota incurred over the last year or so has been staggering.

So what really led to Toyota's decline? How can the company that invented lean, treats its suppliers as partners, and has been so successful for so long go from earning almost $22 billion in operating income to losing more than $5 billion within one year?

I believe that the problems at Toyota resulted from the company's leaders taking their eyes off the ball over the last 1-2 years. Overtaking General Motors as the world's largest automaker seemed to become their main objective. In the race to be number one, they forgot what got them to that point in the first place: making high quality cars that people want to buy (or, as their mission states, to enrich society through car making).

I regularly read about CEO Akio Toyoda and other Toyota executives working to get the company back on track. Back on track means that they were off track - and off track means that they strayed from the path that made them successful.

For years recognized as the producer of the highest quality cars in the industry, Toyota has experienced a fairly large number of quality problems over the last few years, which may be a result of the enormous growth the company has experienced recently. In the past, managers would rise up through the ranks and be well-versed in the Toyota way, which meant they understood the systems and process for assuring (and continually improving) quality and productivity. As they battled GM for the top spot in the auto industry, however, their growth exceeded their ability to develop leaders and their quality suffered.

Recent comments made by the company's senior leaders means that they recognize the need to refocus before things got out of control. It is very common in business for companies to lose their way and not realize that anything is wrong until the organization is in severe trouble - which can take several years. Understanding the need to refocus now means that Toyota can fix things before significant damage occurs.

WHOLE FOODS MARKET

Whole Foods started as a modest grocery store in Austin, Texas and, within 25 years, grew into a major chain with more than 250 stores in the U.S. and U.K. Throughout the last few decades, the company became synonymous with healthy, organic and unaltered whole foods. Customers paid more to shop at Whole Foods, but were usually guaranteed to find a wide variety of healthy items in return.

Just like many businesses offering premium priced products over the last year two years, however, Whole Foods experienced a drop in revenues and profits. Rather than cut costs, close stores, and lay off workers, however, company CEO John Mackey decided to revisit the company's roots to return to profitability. As with Toyota, it appears that Whole Foods got caught up in its own success and strayed from its purpose during a period of high growth.

In an August 5, 2009 article in the Wall Street Journal, Mackey admitted that the company sells, "a bunch of junk." He went on to say, "we've decided if Whole Foods doesn't take a leadership role in educating people about a healthy diet, who the heck is going to do it?"

As Whole Foods grew into more of a mainstream supermarket, it replaced much of its healthier fare with gourmet foods. When the recession hit and people became less willing to pay more for gourmet foods, however, the company suffered. This, along with a few other factors, led Mackey to look closely at the reasons for the company's problems and come to the conclusion that Whole Foods had strayed from its purpose.

By definition, whole foods are foods that are unrefined, unprocessed, and resemble what they were in nature. What Mackey found when he recently walked through one of the company's stores was a large selection of white bread, gourmet desserts, and refined oils - in other words, foods that are not even close to being whole - the company's roots.

I'm betting that Whole Foods will succeed in returning to its purpose - and profitability - because Mackey realized that the company lost its focus before too much damage was done. The company has not strayed for very long and, like Toyota, can fix itself by reminding its team members why the company was created in the first place and what made it successful.

IT'S NOT ROCKET SCIENCE

The point of all this is that companies must regularly take time to reflect on their purpose to keep from taking their eyes off the ball. Consumer tastes change, technology changes, economic conditions change, but a company's fundamental purpose - it's raison d'etre - should not.

Cars will continually change in terms of technology and design, but Toyota's commitment to enriching society through car making cannot change or its employees will become confused and its customers will cease to see a difference between a Toyota and any other brand of automobile. If Whole Foods strays from its purpose of providing healthy, organic, and unrefined foods, it will lose the customers who will begin to question why they are paying more for the same products offered at Kroger or Safeway.

Do you run the risk of straying? If it can happen at companies like Toyota or Whole Foods, it can pretty much happen anywhere.

The Importance of Purpose

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Of all the reasons that an organization can fall into a death spiral, the most common and destructive is losing sight of its fundamental purpose. The Cambridge Dictionary of American English defines an organization as a group whose members work together for a shared purpose in a continuing way. Following this definition, without a shared purpose, there is no organization; there is nothing more than a group of people who come to work, put in their hours, and go home.

Whenever I bring up the subject of purpose, I get comments that it is passé for a company to develop mission and vision statements. It is true that this subject was addressed many years ago by W. Edwards Deming, Peter Drucker, and others, but it is also true that many organizations have not done it well and many leaders still don’t understand why it’s important.

Every organization was created for a reason – and it most likely was not to make a profit. The founders of many companies had a passion for fulfilling a need that they felt could be served better than what was offered at the time. Back in 1927, William Boeing founded The Boeing Company to, “so develop airplane design and construction that today’s spectacular feat of bravery will become tomorrow’s accepted mode of speedy transportation – inexpensive, dependable, safe!” More recently, Google was founded to, “organize the world’s information and make it universally accessible and useful.” What would happen if these companies forgot why they exist? What chance would they have to remain successful . . . or even survive?

It’s Not About the Money

A situation that is just as destructive as having no clear purpose is to define it in terms of maximizing financial gain – e.g., profits, shareholder value, stock price, etc. Although it is important for a company to earn profits over the long run, it is not a reason for its existence. Focusing on financial success above all else results in actions and decisions that drive short-term results at the expense of long-term health. Those aspects of the company that do not directly deliver profits today become seen as non-value-added and, therefore easier to eliminate. Research, new product or service development, training, and even workers become seen as interfering with success and pressure mounts on leaders to make cut.

In an interview in Quality Progress magazine many years ago, Peter Drucker was asked what he thought about the relationship between profit and purpose. His reply was, “[the statement that] the purpose of an organization is to make a profit is not only false, but is total irrelevant.” This is because the purpose is external to the business – it is in society. It is directly related to the value the organization provides to its customers. When an organization successfully accomplishes its purpose, it makes a profit. In this way, sustainable profit becomes the indicator of how well the company meets its purpose

The economic crisis we’re in today has exacerbated this problem. Companies have gotten so focused on cutting costs that many have act as if their purpose was to cut costs. In my experience, implementing across-the-board cuts is a sure sign that a company has lost its purpose. During a recession, it is critical to get back to the basics and focus on the organization’s fundamental purpose. As a result, some areas of the organization will become more critical than others and may actually need an increase in spending while others are cut back or even eliminated.


It’s About Value – Not Products

It is critically important to define the purpose in terms of the value provided to customers instead of a specific product offering. Manufacturers of typewriters, slide-rules, and carburetors demonstrated the importance of this concept. An organization that ties its purpose to a specific product offering can run into serious trouble when technology changes and their product no longer satisfies needs as well as it once did. Think about how many typewriter, slide-rule, or carburetor manufacturers are still around today. Each of these products was replaced by something that, although more expensive to purchase, met needs much more effectively than what they replaced.

Understanding the fundamental needs of customers and how a specific product or service currently meets that need can help a company change along with technology and the tastes of consumers.

I recently spoke at a call center conference in Portugal and had the chance to listen to other presentations and talk to many of the attendees. There was real concern from those in attendance about the effect low cost call centers in Asia will have on the industry in Portugal. Labor costs are much higher in Portugal than in India, China and the Philippines, and Portuguese companies do not feel they can compete with companies in these areas. If they define their companies in terms of providing low cost call center services for their customers, they are correct – they cannot compete. If they dig deeper to understand the real value they provide, however, and define their purpose in terms of helping companies serve their customers better and more efficiently than they can themselves, they have a much better chance of competing successfully. Defining their purpose in this manner can help them focus on high quality, as well as cost effective service. It can also help encourage innovation of new technology and services that can redefine what call centers provide to customers.

Practicing What You Preach

Defining your purpose is not about creating slick or catchy mission statements. It is about clarifying why the company exists and guiding team member behaviors and actions. It is critical that leaders believe enough in the purpose to stick to it – in good times and bad – and allow team members to question decisions that appear counter to the organization’s purpose.

Technology and consumer tastes will change but, when defined clearly and correctly, a company’s purpose will never change. It is the one thing that must remain constant within an organization.