Friday, July 17, 2009

Strong From The Start

The Six Elements of a Healthy Organization

In my book, Avoiding the Corporate Death Spiral, I outlined the six warning signs that an organization’s leaders must continually identify and address in order to avoid a crisis. Since writing the book, I have been approached on several occasions by entrepreneurs asking what they can do during the startup phase of a company to prevent a future death spiral. In other words, can the signs of decline be reversed to become the elements of a healthy and strong organization?

It is actually much easier to do things correctly from the start than to fix problems within an existing organization. Knowing the elements of a healthy company can help many problems be avoided, which is critical during the organization’s fragile startup phase.

Along these lines, I have put a positive spin on the warning signs and revised them to become the elements of a strong organization. These elements are:

1. Clear & Consistent Purpose
2. People/Process/Customer First - Numbers Second
3. Strong Supplier Relationships
4. Valued Employees
5. Clean and Well-Organized Workplace
6. Holistic Management

Keeping these elements in mind during the startup of a business can help to embed them into the culture early on, helping to assure they last many years into the future. Although there is always a certain level of cultural drift within an organization that requires the attention and action of leaders to keep the company on-track, it is much easier to address problems before they become engrained into the culture. The key for leaders is to understand that they need to continually be on the lookout for problems – during the good times as well as the bad. Strangely enough, it is actually when the organization becomes highly successful that it becomes the most susceptible to bad habits. It is very easy to take your eye off the ball when business is good.

Focusing on the Elements

1. Clear & Consistent Purpose

The most important aspect of starting and operating a business is having a clear and unchanging purpose. This means creating a simple and clear, but detailed description of why the business was created. It describes the value provided to customers – not necessarily in terms of a product, but the specific value that the product provides (see simple examples below).

Automobile Manufacturer:
YES: Provide safe, comfortable, reliable, and efficient transportation

NO: Build and sell cars

Call Center
YES: Helping companies provide high quality service to their customers better

and more efficiently than they can themselves
NO: Provide low cost call center services

Pressure Relief Valves
YES: Provide effective protection for people, equipment and the environment
NO: Provide pressure relief valves

Focusing on the value enables the company to keep up with changes and advances in technology instead of getting stuck with an obsolete product or service (e.g., typewriter manufacturers).

Having clarity on the purpose will enable you and the others in your organization to stay focused on the market(s) you serve and products/services you offer. Without this level of clarity, you run the risk of getting into areas where you do not belong, or attempting to take on more than you are able.

2. People/Process/Customers First; Numbers Second

As the leader of a startup, it is easy to get wrapped up in spreadsheets analyzing the financial aspects of the company. Although it is important to understand the numbers, it is even more important to understand that the numbers are merely the effect of taking care of your people, processes and customers. In meetings with the people on your team, it is a good idea to start with people, process, and customer issues first and close with financial discussions.

Also, do not get caught up in the idea that everything can be measured. In fact, the most important aspects of leading an organization cannot be accurately measured, but will require a great deal of your attention. This includes the costs associated with employee satisfaction, poor planning, lack of teamwork, etc. As an example, you may be able to put some type of measure on the level of employee satisfaction, but estimating the cost of a one point increase or decrease is impossible.

3. Strong Supplier Relationships

Your suppliers are a part of your system and as such, have just as much of an effect on your success as does your own team. The key is to find suppliers who have the same philosophy on business as you do and evaluate them based on the total cost of doing business (which includes price, payment terms, leadtimes, defects/reject rate, cost of inspection/appraisal, variation in materials, level of technical support, etc.).

4. Valued Employees

Without enthusiastic and happy employees, you have no chance of having happy customers. It is the workers who provide the products and services to satisfy customers and if they are not actively engaged in the business, it will show up in the quality of the work they do. This may seem like an obvious point, but it is so often forgotten that it bears repeating. Getting the correct people on your team is a critical first step, but keeping them enthusiastic and proud of what they do is just as important.

5. Clean & Well-Organized Workplace

This element includes setting up the workplace so needed equipment and information is readily available to people. This involves regular 5S efforts (Sort, Set in order, Scrub, Standardize, and Sustain) to assure that workplace setup continues to help, rather than hinder the work being performed.

Also included in this element is putting processes in place to effectively maintain the company’s assets (i.e., preventive maintenance), so they continue to perform as intended well into the future.

6. Holistic Management

An organization is an interdependent system that works to serve customers. Every person either serves the customer directly or serves someone in the organization who eventually serves customers. Because of this, it is important to understand how the entire system operates, including how materials and information flow from concept to customer and especially how they are handed off between processes.

It is very risky to set goals for individuals or functions because it is pretty much guaranteed that people will meet virtually any goal set for them (especially when money is involved) - whether it helps or hurts the company is secondary. As an example, if you set a goal for the procurement team to keep purchased costs down and another for the production people to meet the shipping forecast, chances are that both will meet their goals. The procurement team will bring in sub-standard materials with little regard to quality, and the production team will be forced to use poor quality materials and produce sub-standard products (at a higher cost) in order to meet the schedule. Both teams have met their goals while the company and its customers suffer.

These six elements will help assure that the company starts off with a strong foundation that will help it succeed, even when faced with negative external events. This assumes, of course, that there is a market for the products and/or services offered by the company, and that the company has solid financial strength. Given these two assumptions, the organization has a much greater chance of growing and succeeding well into the future if the leader assures the six elements are present from the start.