Is your Company Leading or Firefighting?

Some companies never seem to have their act together. Others run like well-oiled machines. How does yours operate?  

Organizational behaviors exist on a continuum. From most chaotic at the base to most disciplined at the apex, the maturity pyramid shows where companies tend to fall. It was conceived by quality guru Philip Crosby¹ and later used in various forms by Hewlett-Packard,² the Baldrige Performance Excellence Program,³ and others. Where does your organization fit? 

1. Firefighting. The organization is highly reactive, relying on heroics to get things done. Success depends on circumstances, individual strengths, and plenty of luck. Getting sales is the primary focus, and any customer who buys is considered valuable. While the environment may be very creative, there’s typically a lot of stress and finger-pointing, customers are often disappointed, and mistakes are frequently repeated. The company does little to no planning, except possibly annual budgeting, and has limited employee training. 
2. Control. The organization becomes more aware of processes and takes steps to ensure consistency and repeatability. Checklists, inspection points, and reviews begin to appear, and more often groups coordinate their work. Sales qualification gets better as the company understands some customers are more valuable than others. Some metrics are in place, and annual planning begins to include goals and key initiatives. Execution is spotty, but improving. The company considers employee training important and screens new hires. 
3. Continuous Improvement. The organization uses formal techniques to systematically improve products, services, and the processes that produce them. Managers and staff are mostly proactive, with the exception of dealing with the occasional hiccup. Metrics are aligned and used extensively, and planning includes a clear vision with short-term and long-term goals. The company successfully executes about half of its planned initiatives. Market segmentation begins to drive development, marketing and sales strategy, and offerings get consistently better. Training is structured and delivered enterprise-wide. Executives carefully construct and manage supply and distribution chains. 
4. Optimization. The organization’s plans and processes are well aligned and integrated, and potential risks are often identified and resolved in advance. Through a history of continuous improvement and targeted innovation, the company has developed “core competencies” that create competitive advantages and open up entirely new markets. Despite its size, the organization is customer-focused, agile, and routinely introduces successful products and services. Enterprise-wide change initiatives are executed effectively. The company plans and manages human capacity and capability over a multi-year horizon. Cross-functional teamwork is high and organizational learning is methodical and widespread. 
5. Leadership. A market-maker, the organization uniquely balances the "yin and yang" of creativity and discipline. The company experiments incessantly with breakthrough ideas, carefully evaluating the ones that work, and only then scales up and introduces them. Competitors struggle to keep up. The press lionizes the company’s methods as “best practices." Despite perennial successes, the company remains on guard against complacency. It quickly detects disruptive shifts in technology, world events, and competitive innovations and mounts strategic responses. 

It’s probably no surprise that firefighting produces erratic outcomes. These companies tend to be new, small, or niche players, and they must fight to survive. Organizations with control orientations experience better success rates. Their customers are more often satisfied and buying again, and results are stable and predictable. These companies are “up-and-comers.” Firms doing a good job of continuous improvement are gaining ground, responding to market changes and becoming top competitors in their industries. Studies have shown that over a five-year period, these firms grow revenues and operating incomes twice as fast as those with control or firefighting behaviors.⁴ Companies optimizing performance are highly regarded and generally maintain top market positions. Examples include Boeing, IBM, Fed-Ex, and Toyota. Finally, a very small number of leading firms dominate their markets for fifteen years or more, producing at least ten times the return on shareholder equity than anyone else in the sector.⁵ They include Southwest Airlines, Intel, and Progressive Insurance. 

Where do you see your organization? Be honest! Chances are you rank your company towards the lower end of the pyramid. That’s where the majority operate. 

So what does it take to move up? As it is with individuals, healthy organizational behaviors are the result of good habits, born of discipline. When the right disciplines are combined into an effective strategic management system, excellence soon becomes a matter of habit. Along the way, greater discipline does not suppress creativity, but gives it necessary direction and boundaries. Senior leaders who progressively implement just enough structure at the right time, in the right place, and for the right reasons create beneficial habits and relentless progress.



Sources:

1. Crosby, P., 1979. Quality is Free. New York: McGraw-Hill. ISBN 0-07-014512-1. 
2. Hewlett-Packard Process Consulting services, 1999. 
3. Baldrige Performance Excellence Program, 2013, 2013–2014 Criteria for Performance Excellence (Gaithersburg, MD: U.S. Department of Commerce, National Institute of Standards and Technology, http://www.nist.gov/baldrige/publications/business_nonprofit_criteria.cfm).
4. Hendricks, K. and Singhal, V. March, 2000 “The Impact of Total Quality Management (TQM) on Financial Performance: Evidence from Quality Award Winners” DuPree College of Management, Georgia Institute of Technology
5. Collins, J. and Hansen, M. T., 2011. Great by Choice: Uncertainty, Chaos and Luck—Why Some Thrive Despite Them All. Cumulative stock returns, dividends reinvested. Invest $10K on 12/31/1972 and hold until 12/31/2002. © CRSP, Center for Research in Security Prices, Booth School of Business, the University of Chicago.

Remembering HP: Habitual Performance

“It’s just how we do things around here.”

I still recall the conversation between the Hewlett-Packard worker and the Tellabs manufacturing VP.  It was 1993, and we were on trip to HP’s Loveland Manufacturing Center, a key production facility in northern Colorado. Back then I sold HP test equipment in Illinois, and we were hosting a group of Tellabs executives on a benchmarking visit. My sales colleagues and I were building relationships and sharing manufacturing “best practices” with the hopes it would motivate them to buy more HP gear.

We were touring the production area and one of my customers pulled aside a passing worker, asking him about some charts hanging on the wall. The guy stopped for a few minutes and pointed to the diagrams, describing what each meant. “This one shows the count of defects by type. It looks like they were having a problem with the solder application. And over here, it looks like the adjustment dropped the defect rate by about 30%.”

A bulletin board labeled “PDCA Storyboard” prompted the interaction. A management presentation earlier in the day talked about the division’s Total Quality Management journey. HP used “Plan-Do-Check-Act” as its corporate improvement method, and the PDCA Storyboard showed the step-by-step progression. The presenter had made the bold statement that the quality practice was everywhere. It had become entrenched in the division’s operating system.

The Tellabs VP smiled and said, “So you’re saying you don’t work here but you can tell what this operation is doing?”

“Yeah. I’m on one of these quality teams in my area. We use PDCA to increase our yields, too.”

 “Come on. You’re not just a ‘plant’ walking by, an expert trying to impress us?” the executive chided him.

His response was working-man authentic. “No,” he said, shrugging. “It’s just how we do things around here.”

I could tell my customer was satisfied. He shook hands with the worker and thanked him. Without saying a word, I knew what he was thinking: It’s true. HP really is this good.

As a company HP was well respected, but it wasn’t because it was the most inventive. It didn’t come up with SPC or kanban or anything else the Tellabs executive hadn’t heard of. It wasn’t because HP only used the most advanced technology. The tour showcased some shiny, new equipment, but most was conventional and well used. It wasn’t because the company didn’t make mistakes. Over the years, the exec had dealt with the occasional HP hiccup. But where Tellabs and others would talk about fundamental change, HP would do it. And do it well.

HP had great people and great discipline. The company had a knack for studying something interesting, trying it on a small scale, refining it, rolling it out consistently, and making it all natural. Author Jim Collins calls this empirical creativity matched with fanatic discipline; direct engagement and practical experimentation followed up with utterly relentless execution in accordance with consistent aims, performance standards, and methods.¹ HP’s behavior, like other dynasty companies Collins studied, allowed it to dominate the test equipment industry for nearly seventy years.

Things have changed since 1993. The HP division became part of the Agilent Technologies spin-off, the manufacturing unit was offshored, and the HP brand has lost some of its luster since the time of “Bill and Dave.” Tellabs also changed. After heady growth, the company suffered from the telecom bubble burst; painful cutbacks, management changes, and eventual renewal as a networking products company.

I’ve changed, too. A career in sales led to marketing and operations, eventually leaving HP to start three companies and work for two more. Sparked by my time at HP, I spent many years exploring why some organizations performed consistently better than others. I learned and applied lessons in my own companies and others through the Baldrige program and the occasional consulting gig.

I’m convinced high performance boils down to simple, disciplined management systems that make people, planning, execution, and learning all more effective. It's true for organizations large and small, no matter the sector. But success always depends on great leadership and the tenacity to see it through. When excellence becomes a matter of organizational habit, long-term success is assured. 

And that’s what reminded me lately of the wisdom and discipline of a great company. Years ago they made it all happen, captured in one simple remark:

“It’s just how we do things around here.”

Footnote:

1. Collins, J. and Hansen, M. Great by Choice: Uncertainty, Chaos, and Luck--Why Some Thrive Despite Them All. Harper Business, 2011. ISBN 0062120999.