January 11, 2019

Good To Great Divided by Execution ='Sustainable Competitive Advantage

William Lybarger
Expert Management /Expert Management Services

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      Over the past two years I paid particular attention to books written by CEO’s in my search for management strategies that increase the probability of making a profit while creating sustainable competitive advantage.  The one exception to the CEO requirement was Good To Great by Jim Collins.  I have paid particular attention to the information shared by Michael Dell, Larry Bossidy, Jack Welch, Ken Iverson, Quint Studer and Gordon Bethune.  Since I spent most of my career managing and being managed in health and human services, many of the examples I offer come from that management arena. However, this written effort is applicable, I believe, to all managers in all industries. So, I offer the following collage of managerial observations to all managers who have an interest in success.

     My goal is not to connect dots.  On the contrary, I am more interested in creating the dots.  Additionally, there are exceptions to most rules.  What I hope to do is illuminate what appear to be constants based on observations of the authors I mentioned earlier.  Finally, most of what you will read is not original to me.  The original authors deserve credit for their work.  Excerpts from “Good To Great” will receive the most attention. From time to time, I will insert my biased opinions.      

MACRO CONCEPTS:

[1] Larger than life “celebrity” type CEO’s fail more often than they succeed.

[2] The CEO you are compensating is more important than the structure of the compensation.

[3] GTG companies focus on what not to do and what to stop doing.  I must add, Gordon Bethune told us (From Worst to First) “The fastest way to make a profit is to stop doing things that don’t make a profit.” (The dilemma is that many managers don’t have metrics in place that differentiate between the two)

[4] Technology can accelerate transformation, but does not cause the transformation.

[5] Mergers and acquisitions do not cause the transformation from GTG.  Uniting two

mediocre companies most often does not create a GTG company.  HELLO CARLY!

[6] “GTG companies pay little attention to managing change, motivating people or

creating alignment.  When you have the right people on the bus, in the right seat

and the wrong people off the bus, those issues tend to evaporate.”  This correlates with two of my success templates related to employee selection; [1] as managers we should create a selection process that ensures that 90 percent of the time we select the 90/90 employee --- this employee completes 90 percent of his work correctly 90 percent  of the time with little or no supervision and [2] he self motivates, self directs and self corrects. 

[7] Greatness is most often not a matter of circumstances but a matter of choices.

[8] Strategy did not separate the GTG companies from the comparison companies.  Both sets had well-defined strategies and spent about the same amount of time developing those strategies.

[9] GTG companies created a “Culture of Discipline.” “When you have a culture of

discipline, you don’t need hierarchy.  When you have disciplined thought, you

don’t need bureaucracy.  When you have disciplined action, you don’t need

excessive controls.  When you combine a culture of discipline with an ethic of

entrepreneurship, you get great performance.”  Managers increase the probability of organizational success when they create a culture of Compliance, Discipline and Execution.

[10] GTG companies confront reality and deal with it head on.

MACRO MANAGEMENT:   

     For managers there are, I believe, five books that provide the necessary guidance to achieve sustainable competitive advantage; Good To Great by Jim Collins, Straight From the Gut by Jack Welch, Execution by Larry Bossidy and Ram Charan, Plain Talk by Ken Iverson and Hardwiring Excellence by Quint Studer.  The information provided by Jack Welch (GE), Ken Iverson (Nucor --- A GTG company) and Larry Bossidy (GE, AlliedSignal & Honeywell) match the concepts illuminated by Jim Collins.  The main difference is that Jack, Larry, Ken and Quint tell us how to execute

     It has been my experience, as a manager of health and human service organizations, that managing at the macro level is much more effective than managing at the micro level.  It is my position that 20 percent of a healthcare manager’s time should go toward manipulating strategy and 80 percent should be dedicated to the people process and execution.  Jack Welch suggests that managers ponder less and do more. There are two types of organizational behavior modification, environmental (culture) and individual (one-on-one).  Since we have little success with personality transplants, stay away from the one-on-one.  To add some meat to this bone, I offer the Lybarger 70 – 15 – 15 Rule.  My rule is totally subjective and has no empirical basis.  Here we go; I think 70 percent of the people that show up for work each day will give you a day’s work for a days pay if you remove the demotivating factors from the work environment --- they are vocationally normal.  I believe 15 percent of the people showing up for work each day are genetically happy.  If you remove the demotivating factors from the work environment, they will join the vocationally normal’s in productive behavior.  The vocationally normal’s and the genetically happy’s combined give a manager the percentage of employees required to move the organization.  Finally, I believe 15 percent of the people who show up for work each day are genetically pissed-off.  They come in angry, stay angry, eat lunch angry and go home angry.  They have no redeeming vocational value.  Our job is to make them as miserable as they make everyone else.  Don’t try to motivate them, fire them it you can --- screw them.  If you can’t fire them, put them in the “Penalty Box” permanently.  So, spend your time selecting and rewarding high-performers, disposing of non-performers and removing demotivating factors (this includes the genetically pissed-off) from the work environment.  The end result will be an approximation of my 90/90 Work Culture.

     I do not believe Level 5 Leadership is required to achieve organizational greatness.  After reading Straight From the Gut, Winning, Execution and Plain Talk I think Jack was a 4.25 leader and Larry and Ken were Level 4.75 leaders.  Jack was the most assertive and brutal, Larry and Ken were more compassionate.  However, it is important to note that being less compassionate than Jack by 20 percent doesn’t make you a soft touch.  Ken and Larry executed tenaciously but did not implement a true “Vitality Curve.”  I should point out, at Nucor, the production teams (not management) disposed of non-productive employees in a manner that would make Jack blush.  Additionally, in Winning, Jack’s most recent book, he exposed an increased sensitivity to coaching “B” players and support for employees leaving GE.

 Characteristics of Level 5 Leaders (Collins)

 [1] They exhibit a mix of personal humility and professional will.

[2] They seem more ambitious for the company than themselves.

[3] They set up their successors for success.

[4] They are modest, self-effacing and understated.

[5] They are driven to be successful and produce sustainable results.

[6] They are more plow horse than show horse.

[7] They give credit for success to others but take personal responsibility for failure.

 Characteristics of Level 4.25 – 4.75 Leaders (Lybarger):

[1] They retain the capacity to make Mega Change.

[2] They spend 40 percent of their time involved in the People Process, 40 percent in Operations and 20 percent in Strategy Development.

[3] Although they do not micro manage (on second thought, maybe they do), they are actively engaged in the execution process.

[4] They implement a modified “Vitality Curve.”

[5] They put in place a reward system that differentiates (significantly) between performers and non-performers.

[6] They understand and act upon the fact that while bringing the right people in the front door of the bus you better be pushing the wrong people out the back door of the bus.  Good hiring without good firing has little value.

[7] They build a culture based on candor, robust dialogue, differentiation, accountability, informality and execution.

[8] They understand that leadership without the discipline of execution is incomplete and ineffective.

FiRST WHO --- THEN WHAT:  

    Jim Collins found that executives involved in the GTG transformation process did not focus on strategic planning.  Rather they first got the right people on the bus in the right seat, the wrong people off the bus and then figured out where to drive it.  The CEO’s of GTG companies acknowledged that they were not exactly sure where to drive the bus.  However, they understood that if they got the right people on the bus, the right people in the right seat and the wrong people off the bus, there was an increased probability they would drive the bus to someplace great.

     Even more powerful, to me, was that those leaders understood:

[1] If you begin with who rather than what you can adapt more quickly to a rapidly changing competitive environment.

[2] If you have the right people on the bus the managerial challenges related to motivating and directing people largely goes away.

[3] If you have the wrong people on the bus the direction you drive doesn’t matter.  You will not have a great company without great people.  A great strategy without great people is irrelevant.

     Collins offers the example of a decision made by Dick Cooley, CEO of Wells Fargo, at the beginning of that company’s transformation from GTG.  Cooley understood that the banking business was entering a time of wrenching change, but he wasn’t sure what form the change would take.  Therefore, rather than attempt to determine the end result of that change process, he focused on “injecting an endless stream of talent directly into the veins of the company.”  He hired the best people without specific job assignments in mind.  He determined that that the best and brightest would decipher the change and be flexible enough to deal with it.

     Larry Bossidy’s hypothesis was that the quality of the employee was the best competitive differentiator.  Over time, he thought, choosing the right people created sustainable competitive advantage.  Ken Iverson thought employees not managers were the true engines of progress.  It was his opinion that managers should not focus on telling people what to do; their time would be better spent creating an environment that freed employees to determine what they could and should do.  At Nucor, he determined that the answers found by employees drove the progress of the business faster than those found by managers.  Jack Welch said, “We build great people who then build great products and services.”

     As managers we manipulate four resources in search of sustainable competitive advantage; human, financial, information and physical.  It seems to me that the human resource is the most important.  Additionally, it is more effective and efficient to manipulate that resource indirectly rather than directly --- reinforce work behaviors you prefer through the culture and structure of the organization rather than creating change one employee at a time.

TECHNIQUES FOR GETTING THE RIGHT PEOPLE ON THE BUS:

[1] Change the focus of HR from enforcing rules to supporting execution.

[2] Make the Director of HR equal to the CFO on the organizational chart.

[3] Include people with whom the applicant will work in the selection process.

[4] When possible, use a 360-degree interview process.

[5] When selecting give attitude more weight than technical skills.

[6] Hire slow and fire fast.  A high turnover rate during the probationary period is a good thing.

[7] The CEO should participate (randomly) in the selection process.

[8] I say --- [a] select people with an IQ between 100 and 115, [b] make sure the applicant has the capacity to exhibit behaviors and attitudes preferred by the organization (this criteria suggest that leaders in the organization know what behaviors they prefer), [c] measure emotional intelligence, [d] the best predictor of future behavior is past behavior, [e] people skills and [f] use case studies and scenario analysis rather than the traditional question and answer process.

TECHNIQUES FOR RETAINING THE RIGHT PEOPLE ON THE BUS:

[1] Lybarger say’s --- Hire the least number of employees possible and pay them the most possible.

[2] Identify and eliminate non-performers.

[3] Create a reward system that differentiates significantly between employees that perform and those that don’t.

[4] Gordon Bethune, at Continental, put in place a powerful salary and bonus system, created a success environment, left people alone to do their jobs where, if they needed help, they could ask for it and if they made a mistake the organization learned from it.

[5] Do not place a cap on earning potential.

[6] Eliminate de-motivating factors (including people) from the work environment.  

Leaders of great companies don’t practice the “genius with a thousand helpers” model.

COMPENSATION AT GTG COMPANIES:

     Collins found no significant correlation between the structure of executive compensation and the transition from GTG.  Rather, data showed the important factor was who was being compensated.  In keeping with my 70 – 15 – 15 rule --- the right people will consistently do the right thing no matter the compensation scheme.

[1] Compensation, at all levels of the business should be used to get the right people on the bus and keep them. 

[2] At Nucor:

[a] Production workers were paid more than at any other steel producing business.

[b] Built its compensation system on a team-bonus mechanism where over 50 percent of the employees pay was tied to the productivity of a 40-person team.

[c] Designed the bonus system such that teams could achieve realistic production quotas.  They wanted the employees to get a taste for the bonus.  Once they did, they always stretched for more.

[d] Rather than focus of how much money employees made, they focused on how much labor cost (primary economic indicator) went into the product.  Their philosophy was, if they paid their employees twice what a competitor paid, but their compensation system motivated the employees to produce three times as much, the product cost less.

[e] Every employee (production, administrative and support) was eligible for an incentive bonus.

[f] Work groups set their own goals for exceeding the quota and developed their own execution strategy guided by one certainty --- The more they produced the more they earned.  They had a stake in the business. 

 [3] Used pay to increase the probability that employee’s will consistently and correctly exhibit preferred work behaviors.

 [4] What ever the approach to allocating rewards, the outcome must be the same: There must be an increase in the number of A & B players while reducing the number of C players.  This differentiation related to rewards will result in a stronger group of employees and (eventually) better financial results for the business.

      Finally, at Nucor, Iverson said “We had the hardest working steel workers in the world --- We hired five, worked them like ten and paid them like eight.”

CONFRONT THE BRUTAL FACTS:

     In my opinion, the emphasis placed on candor and reality by Collins, Welch, Bossidy and Studer is significant.  In “Winning” Jack dedicates a full chapter to this topic.  He suggests that a “lack of candor blocks smart ideas, fast action and good people contributing all the stuff they’ve got.  It’s a killer.”  He also described the effect of candor as [1] Candor gets more people in the conversation --- every organization, business unit or team that brings more people and their minds into the decision-making process gains an immediate advantage.  [2] Candor generates speed.  When concepts are in the open, they can be debated, expanded, enhanced and acted upon rapidly.  [3] Candor cuts cost.  It eliminates unnecessary meetings, reports, mind numbing power point presentations and boring off-site conclaves.  He suggests that, organizationally, we get candor, by rewarding it, praising it, talking about it and, most of all, demonstrating it in our daily activities.

Taking a company from GTG requires leadership that is decisive, demands reality, supports robust dialogue and pursues differentiation.  For example, Jim Collins reports:

Darwin Smith, CEO of Kimberly-Clark and his team concluded that their core business, coated paper, was doomed to mediocrity.  They reasoned that by entering the consumer paper-products industry, world class competition would make them achieve greatness or fail.  Darwin Smith sold all of the mills and threw all the proceeds into the consumer business --- Huggies and Kleenex.   The media called the move stupid and Wall Street lost faith in the stock.  Smith never wavered.  Twenty-five years later, Kimberly-Clark owned Scott Paper and beat Procter & Gamble in five of eight product categories.

David Maxwell, then CEO of Fannie Mae, focused on getting the right people on the bus even though he was under tremendous pressure to take strong action (the company was losing $1 million dollars a day).  He personally interviewed all 26 officers explaining to them that the seats on his bus were reserved for “A” players.  Fourteen of the 26 officers left the company and were replaced by the best, brightest and hardest working executives in the world of finance.

In 1986, Well Fargo acquired Crocker Bank.  Quickly, the Wells Fargo team concluded that the vast majority of Crocker people had no seat on the bus.  Wells Fargo managers made it clear to Crocker managers that there had not been a merger of equals.

The managers were told that Wells Fargo had bought their branches and customers but had not acquired them individually.  Wells Fargo terminated most of the Crocker management team --- 1600 Crocker managers gone on day one --- including most of the top executives.   The Wells Fargo management team believed “the only way to deliver to the people who are achieving is to not burden them with the people who are not achieving.”

RIGOROUS, NOT RUTHLESS: (YOU’VE GOT TO BE KIDDING)

    Leaders at GTG companies and great companies (GE and AlliedSignal) have a unique perspective on the difference between ruthless and rigorous.  They see allowing employees to languish in uncertainty as stealing months and years from their life as ruthless.  As you might guess, they see telling the truth (as they see it) to an employee as rigorous.

FACTOID --- Layoffs were used five times more frequently in comparison companies.

HOW TO BE RIGOROUS IN THE PEOPLE PROCESS:

[1] When in doubt keep looking. 

“Those who build great companies understand that the ultimate throttle on growth for

any company is not markets, or technology, or competition, or products.  It is one

thing above all others: the ability to get and keep enough of the right people.”

[2] When you know you need to make a people change, act.

The moment you feel the need to tightly manage someone, you’ve made a hiring

mistake.  (Hire slow and fire fast) Letting the wrong people hang around is unfair

to the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people.

(Another way to look at this is --- behavior talks and BS walks)

The Vitality Curve, as created and practiced, during the tenure of Jack Welch paid little attention to coaching the bottom 10 percent.  However, it is apparent that Jack spent an inordinate amount of time on the People Process.  In “Winning”, “Straight From the Gut” and “Execution” the rigorous People Process at GE is described in detail.  At GE, the Social Operating Mechanisms included the Corporate Executive Council --- the top 35 business leaders, Session C ---the annual leadership and organizational reviews (people), S1 and S2 --- the strategy and operating reviews and Boca --- the annual meeting in Boca Raton, Florida where operating managers met to plan the coming year’s initiatives and current initiatives.  Session C is at the heart of the People Process at GE.   It is the “Live Ammo” of Robust Dialogue where business leaders make decisions about careers, promotions and specific strengths and weaknesses of individuals.  (Read about Duke Energy on page 172 of Execution)

In “Winning” Jack Welch provided a list of suggestions for managing people effectively.  That list included the following:

[1] Elevate HR to a position of power in the organization (equal to the CFO)

[2] Use a rigorous, non-bureaucratic evaluation system.

[3] Create effective mechanisms --- money, recognition and training --- to motivate and retain the best and brightest.

[4] Face straight into charged relationships --- with unions, stars, sliders and disrupters.

[a] Unions are unnecessary, stick by your principles, don’t start your relationship at the bargaining table and all you have with unions is your integrity.

[b] Stars can become monsters, you can never be afraid of them and ideally,

you should be able to replace a star within eight hours.

[c] You must get sliders back in the game or out of the game.

[d] You must take disrupters head-on.  Give them tough evaluations and demand

change.  Most often they want.  Disrupter’s are a personality type.  Get them out

of the way of people trying to do their job. (My Genetically Pissed-Off group)

[5] Fight gravity and instead of taking the middle 70 percent for granted, treat them like the heart and soul of the organization.

[6] Design the organization chart to be as flat as possible, with blindingly clear reporting relationships and responsibilities.

[3] Put your best people on your biggest opportunity, not your biggest problem.

According to me and Jim Collins there is no correlation between an 80-hour work week and GTG.  More than likely, if it takes 80 hours a week to get your work done, you are inefficient and ineffective in managing your work life and delegation.  Most people, who work that many hours, do it for themselves --- not the business.  Family is more important than work. 

Factoid --- Based on my personal experience, you are not irreplaceable.  It only takes 30 seconds to go from the Whitehouse to the Outhouse (I have made that trip).

CONFRONT THE BRUTAL FACTS:

   As I read GTG and other books written by CEO’s it appears that for many organizations there was a tipping point that set-in motion a change process not seen in comparison companies.  For example;

Continental Airline – Gordon Bethune offered all employees a $65 bonus if Continental was in the top three national airlines for on-time-arrivals.  It seems to me that this decision changed the culture of Continental and was the foundation for future success.

Baptist Health Systems – Secure competitive advantage through employee satisfaction.

Dell – Michael Dell’s decision to sell direct was, to a large degree, the foundation for future business success.

GE – The decision by Jack Welch that GE would be number one or two in the industry or “fix, sell or close” forced a reality on the GE conglomerate that affected most business decisions.

Kimberly –Clark – Darwin Smith’s decision to “sell the mills” sent that business in a new direction and became the foundation on which GTG principles were established.

Nucor – Ken Iverson’s decision to compete based on “mini mills” set in motion the GTG transition.

Kroger – Lyle Everingham and his executive team concluded that [1] the old model grocery store would become extinct, replaced by the new super-combination store and [2] you had to be number one or two in each market or you had to exit.  Kroger decided to eliminate, change or replace every single store and depart every region that did not fit the new reality.

     For me, this reinforces the point that it is not the leader’s job to make lots of decisions, rather to make “mega decisions” that guide all other decisions made throughout the organization.  Immature leaders and managers get a “warm fuzzy” feeling from dominating the decision-making process, when in reality --- this practice could be the organizational, kiss of death.   As a leader/manager I reached the conclusion that it was better for the organization if I made one decision that affected one hundred outcomes rather than one hundred decisions that affected one outcome.

A CLIMATE WHERE THE TRUTH IS HEARD:

Jim Collins reports that you create a culture where the truth is heard by:

[1] Leading with questions, not answers.

[2] Engaging in dialogue and debate, not coercion.

[3] Conducting autopsies, without blame.

[4] Building “Red Flag” mechanisms.

    In reality, GTG companies built a “Culture of Execution.”  Execution is best described by Larry Bossidy and Ram Charan --- “Execution is a systemic process of rigorously discussing how’s and what’s, questioning, tenaciously following through and ensuring accountability.  It includes making assumptions about the business environment, assessing the organization’s capabilities, linking strategy to operations and the people who are going to implement the strategy, synchronizing those people and their various disciplines, and linking rewards to outcomes.  It also includes mechanisms for changing assumptions as the environment changes and upgrading the company’s capabilities to meet the challenges of an ambitious strategy.  In its most fundamental sense, execution is a systematic way of exposing reality and acting on it.

     The leader who executes assembles an architecture of execution.  She puts in place a culture and processes for executing, promoting people who get things done more quickly and giving them greater rewards.  Her personal involvement is to assign tasks and then follow up.  This means making sure people understand the priorities and asking incisive questions.  The intellectual challenge of execution is in getting to the heart of the issue through persistent and constructive probing.”

     While reading “Execution” I was struck by the fact that leader’s in execution cultures will not tolerate “weasel language.”  Those leaders, as a result of their knowledge of the business, insisted on reality and used every interaction as an opportunity to reinforce candor, differentiate between productive and non-productive behaviors, educate employees through robust dialogue and coached through continuous feedback.  Leaders receiving positive acknowledgement for their insistence on the preceding management practices were Dick Brown at EDS, Bob Nardelli at Home Depot (I know he is now enjoying a $212,000,000 separation package and a new job at Chrysler), Rick Priory at Duke Energy and Jack Welch.

  THE HEDGEHOG CONCEPT:

      In some situations, “Jim Collins” told the story so good that the best way to make the point is to repeat what he said.  “In classic hedgehog style, Walgreens took this simple concept --- create the best, most convenient drugstores, with high profit per customer visit --- and implemented it with fanatical consistency.  It embarked on a systematic program to replace all inconvenient locations with more convenient ones, preferably on corner lots.  If a great location would open up just half a block away from a profitable Walgreens store in a good location, the company would close the good store (even at a cost of a $1 million dollars) to open a great store on the corner.  In urban areas, the company clustered stores tightly together, on the precept that no one should have to walk more than a few blocks to reach a Walgreens.  In downtown San Francisco, for example, Walgreens clustered nine stores within a one-mile radius.

     Walgreens then linked its convenience concept to a simple economic indicator, profit per customer visit.  Tight clustering of stores led to economies of scale, which provided the cash for more clustering, which in turn draws more customers.  By adding high-margin services, like one-hour photo developing, Walgreens increased its profit per customer visit.  More convenience led to more customers visits, which, when multiplied times increased profit per customer visit, threw cash back into the system to build even more convenient stores.  Store by store, block by block, city by city, region by region, Walgreens became more and more of a hedgehog with this incredibly simple idea.

     Becoming the best in the world at convenient drugstores, steadily increasing profit per customer visit --- what could be more obvious and straight forward?  If it was so simple why didn’t Eckerd do it?”    

     In 1981, Walgreens and Eckerd had virtually identical revenues ($1.7 billion).  Ten years later Walgreens had grown to over twice the revenues of Eckerd, accumulating net profits $1 billion greater over the decade.  Twenty years later, Walgreens was going strong --- meanwhile Eckerd’s ceased to exist as an independent company.

HOW DO YOU GET YOUR MOJO (HEDGEHOG CONCEPT) WORKING?

THE ECONOMIC DENOMINATOR:        (THIS IS SO GOOD)

     Jim Collins and his research team noticed a provocative form of economic insight that every GTG company attained --- a single economic indicator.  You need to think about this in terms of the following question:  If you could pick one and only one ratio --- profit per x --- to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?

     I have a significant infatuation (possibly a fetish) with this concept.  However, my extrapolation of single economic indicator is “macro success.”   In my opinion leaders cannot lead efficiently and effectively if they don’t know their Macro Success! The idea of “macro success” became a factor in my management tool kit while I was Director of a large public residential facility for persons with mental retardation.  Most people don’t think of this type organization as a business.  However, I was responsible for a $35 million budget, 1500 employees and 500 residents with differing levels of mental retardation.  (It is important that you understand that this is a very compressed version of a seven-year management journey) This type facility is surveyed, at least, annually for compliance with 440 regulations.  If the survey team deemed the operation of the facility to be in substantial compliance, you were good to go.  If not, the state was at risk for loosing federal financial support (in my situation that amounted to $20 million).  When I arrived, the facility had been found substantially out-of-compliance (not good) and the threat of loosing those federal dollars was real.  (Another interesting variable was that the Director I replaced had been terminated the day before I arrived).  The first survey (all ready in progress) completed during my tenure found the facility in compliance with 42 percent of the regulations.  Seven years later, the last survey completed during my tenure found the facility to be in compliance with 100 percent of the regulations.  I will list several macro/micro management concepts I stumbled into during those seven years that, I believe, continue to be relevant.

[1] Substantial compliance was not numerically quantified in the regulations.  This lack of clarity put the surveyors in a position of strength.  To equalize that relationship, which was adversarial, we defined substantial compliance for our facility and took the position it was up to them to prove us wrong.  More importantly, I was and continue to be a Behaviorist, selecting a number (most often 90%) allowed us to make numerical comparison and reduced the upward flow of “weasel language” from mid-level managers.

[2] As a part of our deliberations it became apparent that we needed to define “success” in a way that allowed numerical comparisons.  The conversations went something like this (as I word- processed this sentence I am having a major flashback --- I just realized we were having “Robust Dialogue” as described in “Execution”, “Winning” and Straight From the Gut --- WOW).  Anyway, we thought the most important thing we did was to provide the residents an appropriate quality of life.  That made sense however, being a behaviorist, I wanted something we could measure, that produced a number and could be used for comparison purposes.  So, I ask --- How do we know when we are providing an appropriate quality of life?  The members of the Team gave me several examples of data we collected as measurements of life quality.  I asked --- Is there a way to collapse all that information into one number?  The answer was, no.  I asked what other set of information is there that gives a global measurement that represents quality of life?   Then, someone said --- our level of compliance tells us and others the quality of our work related to creating quality of life --- we had it!   The quantification was the number of deficiencies --- total number of potential deficiencies (440) – total number of actual deficiencies (40) = 400 divided by 440 = 90% (I think).

[3] Next, we had to decide how we would create an environment and staff-to-resident interactions that surveyors would find compliant with the regulations.   The survey team reached their decisions about compliance by direct observation of staff behavior or record review.  One option was to train all staff (a micro approach) on the 440 regulations and which behaviors represented compliance.  Considering the amount of political pressure, we were under to increase compliance rapidly, this option seemed too slow.  As we debated how to proceed, we asked each other “what are these regulations intended to do?”  We concluded that the “spirit” of the regulations was to provide persons with mental retardation an appropriate quality of life.  We next broke quality of life down into behavioral and environmental chunks --- the resident needed to be clean, the resident needed to be physically well, the resident needed to be protected from harm, staff needed to treat the resident with dignity, the staff-to-resident interactions had to match the Individual Program Plan and the number of staff on duty had to meet the regulatory staff-to-client ratio.  What came out of this Robust Dialogue was what we called the “twelve Commandments.”  Our hypothesis (macro) was that if surveyors observed our staff exhibiting those behaviors consistently and correctly, they would (micro) conclude that we were in substantial compliance.  It worked!

[4] The next step was to create a control process that would give us a reality-based quantification of our level of compliance.  We decided (Resource Allocation) to employ our own survey team.  We hired five people (trained them in the survey process) and had them to observe staff-to-resident interactions all shifts, all days.  The result of their observations was a count of compliant behaviors and non-compliant behaviors for the smallest organizational unit --- we called a group of six residents a family --- resulting in a percentage level of compliance (number of observations divided by the number of compliant behaviors) that could be analyzed quantitatively, easily understood by the people doing the work and compatible with graphic representation.

[5] Next, we had to decide how the data would be compiled, analyzed and used to increase compliance (change employee behavior).   At this facility the resident treatment side of the operation was divided into three distinct Program Sections.  In each Program Section there were two Units, each with a Unit Director.  In each Unit there were 10 to 15 families (six residents per family).  We developed a reporting process that allowed us to quantify level of compliance (by commandment) by Family, Unit and Program Section by day and shift.  This allowed us to create a Matrix Document that showed the level of compliance by Unit as we had established arbitrarily a numerical success criterion for each commandment.  Scores meeting success criterion were printed in black and scores not meeting success criterion were printed in red.  The red numbers told me what needed to be managed first.

     The data was gathered Saturday – Wednesday, reported to me on Thursday morning --- shared with all employees on Friday morning --- I met with the non-compliant administrative staff Friday afternoon where they described their plan (one week) for correcting the deficient behavior or behaviors.  We did this process redundantly.   The facility compliance level moved from 42 percent to 92 percent in two years.  During the next five years the level of compliance moved from 92 percent to 100 percent.  I didn’t realize at that time that we were implementing a Sigma Six Process as we were driving out variance from employee behaviors.

MANAGEMENT CONCEPTS EXTRAPOLATED FROM THAT EXPERIENCE:

[1] The people creating most of the change I have discussed were high school graduates working in a state system.  The rewards we could offer were mostly intangible.  My 75 – 15 – 15 Rule came from this experience.  Seventy-five percent of your employees will do a good job, if de-motivating factors are removed.

[2] Less is more when talking about supervisors.  I have concluded that most mid-level supervisors create organizational confusion and cost money.  If you are hiring the right people --- they self-motivate, self-direct and self-correct --- who needs supervision?

[3] Sophistication is best achieved through simplification.  We created a simple process resulting in sophisticated results.

[4] Most managers don’t know what needs to be managed next.  If the manager doesn’t know where to start, how can you expect efficient and effective operations?

[5] The 90 / 90 employee does 90% of her work correctly 90% of the time with little or no supervision.

[6] Employees should not be required to follow the chain of command.

[7] A timely firing (non-discriminatory), done correctly, requires celebration.

[8] Do not allow mid-level managers to hold employee’s hostage. 

[9] Create a process --- not a suggestion box --- that allows employees to tell you face-to-face what the organization is doing worst.   I have used a “What we Are Doing Worst” meeting with a group (12) of non-supervisory employees (a stratified random sample --- let HR do this; this is a chore they can do well) where they told me what they thought we (administration) were doing worst.  My commitment to them was to correct those flaws within 72 hours.

[10] Every manager should know the organizations most important success.  This “macro success” is the one you would choose if forced to identify the one event that would increase the probability of survival, profit or sustainable competitive advantage.

[11] Organizations should identify 10 or 12 preferred behaviors (PWB’s) which if exhibited correctly and consistently by employees significantly increases the probability of organizational success.

[12] Right-to-left management --- the organization first identifies it’s “macro success” (right side) and then moves to the left side (beginning of the operations process), identifies employees, activities and programs that increase the probability of achieving that success.  Those employees, activities and programs found to be in alignment with success or strengthened --- those found to be out of alignment are eliminated.  (Value Based Alignment Analysis)      

[13] You must have a set of metrics that identifies success and failure activities at least weekly and preferable daily.

[14] You should create “Red-Flag-Mechanisms” internally and externally.  I have failed several times because I didn’t react early enough to an internal organizational flaw.   One of those failures related to accounts receivable (AR).  I was managing a small community hospital where cash flow was a big deal.  Through a benchmarking process I chose 54 days of revenue in AR as success.  We had been successful in reducing the number of days in AR form 90 to 54.  However, I became involved in several “macro” activities that made me feel good and ignored a rapidly increasing AR.  By the time I became engaged we were having trouble making payroll and paying bills.  I should have had a Red-Flag-Mechanism (programmed decision) that forced me and others to focus on AR when days of revenue reached 60.  Because, if we focused on days of revenue at 60, by the time our intervention took hold --- we would have been at 65 or 70. Another name for Red-Flag-Mechanism could be a Slap-in-the-Face-Mechanism.  As leaders we are, most often, drawn to macro issues while leaving the management of micro issues to others.  Customer satisfaction, a micro issue, could be an example where mid-level managers monitor and intervene as necessary.  Bruce Woolpert at Graniterock created “short pay.”  Short pay gave the customer complete discretion on whether or not they would or how much they would pay for a service or product based on their satisfaction.  The customer, without permission from Graniterock, simply circled the item on the invoice not to be paid and sent a check for the balance.  This external Red-Flag-Mechanism forced the system to react rather than explain away the problem.

THE COUNCIL:

     Jim Collins found the creation of a Council to be an effective mechanism for moving “find your hedgehog concept” along.  The Council most often consists of a group of the right people who participated redundantly in robust dialogue guided by the three circles (page 114 of GTG) about issues and decisions facing the organization.  When asked how to accelerate the “find your hedgehog concept” process, he suggested going through the Council / Robust Dialogue experience redundantly.

Before we start --- I should tell you I am not sold on the Council concept.

CHARACTERISTICS OF THE COUNCIL:        

[1] The Council provides a forum in which understanding of important issues facing the organization is increased.

[2] The Council is assembled and used by the leading executive and is most often comprised of five to fifteen people.

[3] Each Council member has the ability to participate in Robust Dialogue intended to increase understanding of the opportunities and threats facing the organization in a non-egotistical / non-parochial manner.

[4] Each Council member retains the respect of every other Council member.

[5] Council members come from a range of perspectives, but each person has a deep knowledge about some component of the organization and/or environment in which it operates.

[6] The Council includes key members of the management team but is not limited to members of the management team, nor is every executive automatically a member.

[7] The Council is a standing body.

[8] The Council meets periodically.

[9] The Council does not seek consensus --- consensus can mean everyone agrees about a bad decision.  The final decision is within the prerogative of the leading executive.

[10] The Council is an informal body, not listed on the organizational chart or on any formal document.

[11] The Council can be called many names and probably will be (editorial prerogative).

     My interest in this process is limited to the following thoughts: [1] I like the idea of redundantly discussing opportunities and threats and [2] expanding participants beyond the executive management team --- reduces the probability of a terminal disease of certainty “intellectual incest.”

A CULTURE OF DISCIPLINE:

     Jim Collin starts his chapter on culture talking about “the cancer of mediocrity.”  He is referring to the process of organizations moving from entrepreneurial (new) to structured (mature).  I think those are powerful words.   Next, he talks about how George Rathmann avoided the “entrepreneurial death spiral.”  Wonderful use of words!  It seems to me that Collins has illuminated two enemies of organizational success;as bureaucracy and lack of discipline.   

     Many companies build their bureaucratic rules in reaction to the non-compliant behavior of a small group of employees who should not be on the bus, which drives away the right people on the bus, which gives strength to wrong people on the bus, which increases the need for more rules to exert even stronger control of folks who should have never been there in the first place --- WOW!  The moral of this story is --- avoid bureaucracy and hierarchy by creating a culture of discipline.  In other words --- by creating a culture of discipline in tandem with an entrepreneurial spirit you can create superior performance and sustained results.

     GTG companies are not “think tanks” where people create great results by thinking about them.  On the contrary, GTG companies are structured organizations with very specific expectation and lots of structure.  However, that structure is not supported by rules or policy and procedure manuals.  Although Continental was not a GTG company, Gordon Bethune did several “great” things --- one was to create structure while demolishing rules.  One symbolic administrative act that had significant systemic implications was to “burn the rule books” and replace them with a set of behavioral guidelines that provided parameters within which employees had significant latitude for making decisions contingent on the situation. 

RULE VS STRUCTURE --- You cannot create enough rules to make employees productive!

NUCOR DESTROYS THE HIERARCHY:

    Ken Iverson disliked “hierarchical inequality” as it legitimized “We” vs. “They” in corporate America.   That inequality was represented by ivory tower office suites, executive parking spaces, employment contracts with separation agreements (Bob

Nardelli & Carly Fiorina), corporate jets, limousines, hunting lodges, first-class travel, meetings at posh resorts, company cars and executive dining rooms.  The people at the top granted themselves privilege, flaunted those privileges before the people who did the real work.  Those leaders then wondered why employees showed little interest in management’s pleadings for cost cutting to boost profitability.

     Ken Iverson saw corporate culture as all things that shape interactions among the people in your company, its customers and suppliers.  At Nucor, he created a culture best described as “egalitarian.”  He opined that the best case for promoting

equality was practical --- a lack of hierarchy resulted in increased productivity, efficiency, profitability and growth.  A company needs motivated employees to compete over the long term and an egalitarian organizational culture is an extraordinarily practical way to sustain employee motivation.  

At Nucor --- Quotes form Plain Talk:

When a bearing products plant was acquired the first thing we did was sell the limousine and the second was to get rid of executive parking spaces.

Executives get the same group insurance, same holidays and same vacations as everybody else.  They fly economy class on regular commercial flights.  We have no executive suites and no executive cars.  Our corporate dining room is the deli across the street.

We operated a $3.6 billion-dollar corporation with four layers of management:

Chairman/president

General Managers

Department Managers

Supervisors/Professionals

It was not unusual at Nucor for a manager to have forty to fifty direct reports --- this strategy reduced the number of managers needed which saved money while improving moral and vertical communication. 

We created an appeal process for employees which allowed them to contact me or the CEO directly.  We were committed to hearing every employee’s point of view, to be impartial as possible and to provide a prompt response.  Most often the contact came in the form of a phone call.  Calls to us were not screened.  If we were in the office, we answered the phone.  On average, we each received four calls a month. At Nucor, equality, freedom and mutual respect promote motivation, initiative and continuous improvement.  Without a doubt, Nucor’s culture is its most important source of competitive advantage.

CREATING A CULTURE OF EXECUTION: (Hardwiring Excellence)

    After reading GTG several times, it was my conclusion that someone needed to write a guide for implementing the GTG concepts.  This is my attempt at satisfying that need.  Also, I wanted the guide to include the opinions of people who had actually managed as opposed to those who only talked about managing.  Therefore, I picked Larry Bossidy because he is a GE graduate.  I picked Jack Welch because he was GE.  I picked GE because they were and are a great company.  I chose Quint Studer because I want to be like him and threw in some of my thoughts because, I am the author.  I took the following excerpts from “Execution” written by Larry Bossidy and Ram Charan.

“To understand execution, you must keep three things in mind --- [1] Execution is a discipline, [2] Execution is the major job of the business leader, [3] Execution must be a core element of an organization’s culture.”

“Execution is a systematic process of rigorously discussing the how and what’s, tenaciously following through, and ensuring accountability.  It includes making assumptions about the business environment, assessing the organization’s capabilities, linking strategy to operations and the people who are going to implement the strategy, synchronizing those people and their various disciplines and linking rewards to outcomes.   It also includes mechanisms for changing assumptions as the environment changes and upgrading the company’s capabilities to meet the challenges of an ambitious strategy.  In its most fundamental sense, execution is a systematic way of exposing reality and acting on it.”

“The heart of execution lies in three core processes:  the people process, the strategy process and the operations process.”

“Execution requires a comprehensive understanding of a business, its people and its environment.  The leader is the only person in a position to achieve that understanding.”    

“The leader must be in charge of getting things done by running three core processes -- picking other leader, setting the strategic direction and conducting operations.”

“Only the leader can set the tone of the dialogue in the organization.  Dialogue is the core and the basic unit of work.  How people talk to each other absolutely determines how well the organization will function.”

“The leader who executes assembles an architecture of execution.  He puts in place a culture and processes for execution, promoting people who get things done more quickly and giving them greater rewards.  His personal involvement in that architecture is to assign tasks and then follow up.  This means making sure people understand the priorities, which are based on his comprehensive understanding of the business and asking incisive questions.”

“Execution has to be embedded in the reward systems and in the norms of behavior that everyone practices.”

“Leaders who execute look for deviations from the desired managerial tolerances --- the gap between desired and actual outcomes in everything from profit margins to the selection of people and then move to close them.”

“The intellectual challenge of execution is in getting to the heart of an issue through persistent and constructive probing.”

“Realism is the heart of execution.”

“Leaders who execute focus on a few clear priorities that everyone can grasp.  Focusing on three or four priorities will produce the best results from the resources at hand.  Also, leaders who execute set clear goals and speak simply and directly.”

“If you want people to produce specific results, reward them accordingly.  Companies that don’t execute, usually don’t measure, don’t reward and don’t promote people who get things done.  Leaders, who execute, differentiate between doers and non-doers.  She makes it clear to everybody that rewards and respect are based on performance.”

“The basic premise is simple: cultural change gets real when your aim is execution.  You don’t need a lot of complex theories or employee surveys to use this framework.  You need to change people’s behavior so that they produce results.  First you tell the people clearly what results you’re looking for.  Then you discuss how to get those results, as a key element of the coaching process.  Then you reward people for producing those results.  If they come up short, you provide additional coaching, withdraw rewards, give them other jobs, or let them go.  When you do these things, you create a culture of getting things done.”

Operationalizing Culture --- “We don’t think ourselves into a new way of acting; we act ourselves into a new way of thinking!”

Linking Rewards to Performance --- “The foundation of changing behavior is linking rewards to performance and making those linkages transparent.  A business’s culture defines what gets appreciated and respected and, ultimately, rewarded.  It tells the people in the organization what’s valued and recognized, and in the interest of trying to make their own career more successful, that’s what they will concentrate on.  If a company rewards and promotes people for execution, its culture will change.”

“Your compensation system should increase the number of “A” players, defined as those who are tops in both behavior and performance and remove the non-performers.  Over time, your people will get stronger and you’ll get better financial performance.”

“You cannot have an execution culture without robust dialogue --- one that brings reality to the surface through openness, candor and informality.”

“If you look at any business that’s consistently successful, you’ll find that its leaders focus intensely and relentlessly on people selection.”

“Leaders need to commit as much as 40 percent of their time and emotional energy, in one form or another, to selecting, appraising and developing people.”

“Follow-through is the cornerstone of execution, and every leader who’s good at execution, follows through religiously.”

HR is more important than ever, but its role has to change radically --- HR must be integrated into the business process.   The Director of HR should be equal to the CFO on the organizational chart.

 A STOP DOING LIST:

What a wonderful way for leaders to start their workweek --- What can we stop doing?

I take considerable comfort from the fact that Jim Collins agrees with me.  For the first 23 years of my career as a leader / manager --- (I realize I am a small-time guy doing small things in small places) I worked under the misguided assumption that “more was always more.”  In years 24 – 30, shortly after loosing my vocational virginity, I realized ‘less is quite often more.”  What is that about?

I offer the following observations:

[1] There is little correlation between working more hours and getting more done.

[2] The goal of a leader should be to work the least number of hours possible.

[3] The goal of a leader should be to make fewer decisions rather than more decisions.

[4] The “40-hour workweek concept” is DOA.

[5] Ask employees to identify irrelevant work and work activities and give them the authority to discontinue those activities without supervisory approval.

[6] The “stop doing” idea is the foundation for the following managerial strategies I have developed [a] Increase Profits by Doing Less, [2] Less is More, [3] Right-to-Left Management, [4] Value-Based Alignment Analysis and [5] Lybarger Business Model.

LYBARGER BUSINESS MODEL:

Business environments change but good management practice does not.  In fact, good business practice is redundant.  I have concluded that, in business, there are success and failure templates.  These constants guide us to added value.  For example, I believe the quickest was to add value is to discontinue irrelevant work and work activities, dispose of irrelevant employees, establish vertical and horizontal alignment between strategy and operations while creating a 90/90 work culture.  In the 90/90 work culture 90% of employees complete their work correctly with little or no supervision.  Also, I suggest following the ‘less is more” policy in every part of business operation except four.  The first relates to employees; I propose hiring the fewest possible and paying them as much as possible.  The second has to do with service.  You should give customers too much service.  The third has to do with revenue.  You cannot get too much revenue.  Finally, employee satisfaction should be maximized.

     The “less is more” concept is best implemented through a macro business perspective supported by a right-to-left decision-making process.  The first step is to define the organization’s “most important success.”  The second step is to determine ten critical events that must occur if that “macro success” is to be achieved.  The third step is to circle back to the beginning of the production / work process and define nine preferred work behaviors and attitudes (five behavioral and four technical).  As you move from left-to-right through the work process these preferences set the parameters for most decision.  You strengthen every process (hardwire), activity and person that increases the probability of success and discard all others.

    I hope the preceding material is helpful to you.  To provide further assistance, I will provide, upon request, “Execution for Department Managers” A Power Point Text. If you have questions or need assistance, let me know.

 

William A. Lybarger, Ph.D.

[email protected]

316-260-0439

 

                                        

 

 

 

 

 

REFERENCES

 

Bossidy, L. & Charan R.    Execution – The Discipline of Getting Things Done – Crown Business, 2002

 

Bethune, G. From Worst to First – Wiley & Sons. 1998

 

Collins, J.  Good To Great – Harper Business 2001

 

Studer, Q.  Hardwiring Excellence – Fire Starter Publishing, 2003

 

Welch, J.    Straight From the Gut – Warner Business Books, 2001

 

Welch, J. & Welch S. – Winning – Harper Business, 2005

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