Organizational Excellence in a Changing World

1. B2∆ Organizational Excellence in a Changing World Built to Change Edward E. Lawler III Center for Effective Organizations Marshall School of Business University of Southern California BPI Webinar September 13, 2007

2. Signs of Change Of Fortune 1000 Companies: • From 1973 to 1983 35% new • From 1983 to 1993 45% new • From 1993 to 2003 60% new • From 2003 to 2004 10% new In 2006, merger and acquisition activity was up 38% to $3.79 trillion EL13Q

3. Signs of Change • AT&T has gone from over 1 million employees in the 1960’s to being acquired • Over 50% of IBM employees have less than 5 years of seniority • Over 40% of IBM and Sun Microsystems employees don’t report to a company worksite EL11Q

4. Signs of Change Of the 400 richest Americans, In 1985 • Were worth an average of $600 million • 165 were self made • 103 were in manufacturing In 2005 • Were worth an average of $2.8 billion • 255 were self made • 22 were in manufacturing In 2007 • California collected $380 million in taxes from 16 executives at Google EL12Q

5. Signs of Change But look at 2006 through a different lens and you'll see another story, one that isn't about conflict or great men. It's a story about community and collaboration on a scale never seen before. It's about… Wikipedia…YouTube and …MySpace. It's about the many wresting power from the few and helping one another for nothing and how that will not only change the world, but also change the way the world changes.

6. Resource Allocation OLD:Competitive advantage is in obtaining and allocating low cost financial capital and physical assets. NEW:Competitive advantage is in obtaining, developing, allocating, organizing and managing human capital and knowledge assets EL51N

7. c14

8. The Rhetoric is Well Known… As the pace of change quickens… …the premium on innovation and the ability to change increases …and globalization continues unabated…

9. …the premium on innovation and change increases.

10. Innovation isn’t so risky in the long run. Mediocrity is risky. Complacency is risky. Standing still is the riskiest move you can make. --Tom Kelley, IDEO EL35Q

11. The B2∆ Model • Why does planned change have such a mediocre record? • Avoiding the “In Search of Excellence” and “Execution” traps • Challenge conventional wisdom and the language of stability

12. Identity Strategy Competencies Capabilities People Structure Rewards Process EL2Q

13. EL3Q

14. Write your strategy in pencil. • --Mark Goldston • CEO, United Online EL20Q

15. Starbucks’ Evolution Robust Strategic Intent A Series of Momentary Advantages Music experiences Create Great Experiences Technical experiences Revenue / Store Social experiences Coffee experiences Time

16. Identity Strategy Competencies Capabilities People Structure Rewards Process EL2Q

17. Core Competencies • Focus: technical and production skills needed to develop and make the firm’s products • Example: miniaturization, precision manufacturing, imaging, digital signal processing • Organizational Capabilities • Focus: organizational designs and management practices that enable strategic performance • Example: customer focus, speed to market, quality EL14H

18. Building a Change Capability • Create a critical mass of change- related skills and knowledge • Design a change process infrastructure • Commit to a common language, model, and “toolkit” of materials • Integrate strategic planning with organization development processes • Engage in and learn from change • Create a Center of Excellence

19. How Orchestration is Affecting Capital One’s Performance Desired level of performance Orchestration also shortened the time required to meet desired performance levels Orchestration has leveled out the performance declines Performance Status Quo: Without an orchestration capability, and with great will, an organization can achieve improved performance but at a substantial cost Current Performance Time

20. Identity Strategy Competencies Capabilities People Structure Rewards Process EL2Q

21. EL5Q

22. Structuring Organizations • Structures focus attention and resources on the competencies and capabilities required to create and deliver value • B2change structures have a strong external focus • Structures should have the “maximum surface area” • How “far away” is an employee from direct contact with the environment? • To what extent is the organization structured around the customer (even internal customers)? • B2change structures eliminate jobs and hierarchical boss-subordinate relationships • Networks, front-back, and process-based structures • Non-core processes are outsourced

23. W.L. Gore’s Maximum Surface Area Structure • How we work sets us apart. We encourage hands-on innovation, involving those closest to a project in decision making. Teams organize around opportunities and leaders emerge. • Our founder, Bill Gore, created a flat lattice organization. There are no chains of command nor pre-determined channels of communication. Instead, we communicate directly with each other and are accountable to fellow members of our multi-disciplined teams. • How does all this happen? Associates (not employees) are hired for general work areas. With the guidance of their sponsors (not bosses) and a growing understanding of opportunities and team objectives, associates commit to projects that match their skills. All of this takes place in an environment that combines freedom with cooperation and autonomy with synergy.

24. Identity Strategy Competencies Capabilities People Structure Rewards Process EL2Q

25. EL6Q

27. Shared Leadership • Act Like Owners • Take Initiative • Influence Others • Accept Accountability • Coordinate Work of Others • State Objectives, Outcomes EL23M

28. c2

29. Performance Management Model Strategic Planning & Objective Setting Defining Development Systems Reward Systems Developing Performance Motivating Reviewing Appraisal Systems MM1B

30. Defining Rewarding Developing Individual Reviewing Group Unit Performance Organization EL81O

31. Managerial Behavior EL44O

32. Communication EL40O

33. Identity Strategy Competencies Capabilities People Structure Rewards Process EL2Q

34. EL7Q

35. When Does Variable Pay Fit? Performance Demands Wage Competition Low Inflation No Annuity Significant Amounts of Incentive Rapid Change Strategic Focus Individual and/or Group Focus Variable Pay SM123P

36. Reward Design Base Variable Job Size Traditional New Skills/Competencies New ? Traditional Individual Performance New Team Performance New Unit Performance New Company Performance EL3D

37. Identity Strategy Competencies Capabilities People Structure Rewards Process EL2Q

38. EL5R

39. People Key is the right talent at the right time in the right place

40. “Nobody likes change. You can put me in the front of the line.” He bites into a turkey sandwich. “I’ve had the same lunch for the last 32 years.” EL30Q

41. Do You Know • Who your key talent is? • What it is doing? • How well it is performing? • What condition it is in? • How it feels about working for you? • How its value is changing? • How its knowledge and skills are changing? • How you can replace it? EL32Q

42. Identity Strategy Competencies Capabilities People Structure Rewards Process EL2Q

43. Culture eats strategy for breakfast “Way forward” war room Ford Motor Company EL1Q

44. Identity expresses cultural understandings Identity mirrors the images of others IMAGE CULTURE IDENTITY Expressed identity leaves impressions on others Reflecting embeds identity in culture Identity Dynamics Hatch and Schultz, 2002

45. “Same damn thing over and over” • Unhealthy: leads to bureaucracy, inflexibility, routine, stasis “One damn thing after another” • Healthy: Leads to adaptive, anticipatory, responsive learning and self-renewal Ergo: Change is not a one-time process, but a way of life! EL32R

46. Relative Stability in B2∆ Concepts Identity occupies a central role in theB2∆ model. More than culture, it represents the one thing that doesn’t change and yet enables change in everything else.