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High Performance Organizations - The Holy Grail of Management

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Professor Andre de Waal MBA - Expert Author

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Under the pressure of ever increasing demands of the external environment and stakeholders, organizations are more and more searching for the elements that make up high performance. As it is the task of managers to realize the goals of the organization by achieving outstanding performance in the unit they are responsible for, these managers are under great pressure to deal effectively with current and future trends and developments.

They are forced to adapt faster to growing international competition and to compete simultaneously on the basis of price, quality, flexibility, delivery times, and after-sales support.1 There is growing consensus that effective approaches to management offers organizations competitive advantage2. As a result and in the wake of the landmark book ‘In Search Of Excellence’, ’Built To Last’ and ‘Good to Great’ there has been a strong interest among managers in identifying the characteristics of high performance to help them in their quest for excellence.3 As consumers we know that finding these characteristics is of paramount importance. After all, every day we deal with organizations and their interactions more often than not leave a bitter aftertaste. In this day and age of increased importance of tailoring to consumers’ needs, organizations cannot afford these bad interactions. Let me tell you about two experiences my family recently had and what these did to us.

Bad organization, good organization

My mother-in-law is 82 and hearing impaired. Recently she was called by a telephone provider who had a special offer for the hard-of-hearing. Mother did not understand much of the conversation but she recognized one important word, cheaper, and being a frugal person she said yes to the offer. A week later my wife tried to call her mother but she got the engaged tone. This went on all day until she became worried something had happened to mother. She decided to pay her a visit. There she heard the story about the offer and gathered her mother should have probably followed some instructions (of which she had no clue, the woman is in her eighties) so that now the telephone had been cut off. My wife immediately called the provider, explained the situation and asked whether mother could be reconnected. She was told to call another number where she could record her request. She was also told it would take ten days before reconnection was possible, and no, no exceptions were made, not even for the elderly. Ten days later my wife called her mother first thing in the morning. Still she got the engaged tone and after a few hours she directly called the provider, demanding to know why her mother had not been connected again. Midway thought her story the employee of the provider asked her: “When did you record your request mam?” “Ten days ago,” the answer was. The employee chuckled and said: “Oh
yeah, that was the day the recorder broke. You have to call the same number and rerecord your request. Yes, it will take ten days for your mother to be reconnected. No, no exceptions, we are sorry, if we do that there’ll be no end to what people want from us.”

This experience alone would make many people give up the will to live, especially because we could fill up a journal with many similar stories. However, there are organizations who do things differently. A week after the experience with the telephone provider, my wife and I made a city trip. Arriving at the hotel we were greeted courteously and the desk clerk efficiently took care of us. Now I had made a reservation through the internet, stating explicitly a non-smoking anti-allergic room (my wife has respiratory problems) with two beds (my wife and I are quite dissimilar of stature). The clerk cheerfully offered us a nonsmoking and specially prepared anti-allergic room with a king size bed. When I objected to the single bed, referring to my reservation, he immediately transferred us to a non-smoking room with two beds and promised us that they would make it anti-allergic as soon as possible. Within five minutes after arriving in the room, three housekeeping staff entered and converted the room just the way we liked. Then we received a fruit basket because of the inconvenience and half an hour later I was called by reception to check whether everything was to our satisfaction. Once again it was proven that it does not matter so much if a mistake is made, it is the way the organization deals with it. In this case, I from now on am a loyal customer of this hotel chain.

The high performance organization

Wouldn’t it be nice if all organizations behave as the hotel in the second example? Life would become so much more easy for us consumers and definitely more profitable for companies. In reality however it is become increasingly difficult for organizations to achieve sustainable good performance. As every sportsperson can tell you: “It ain’t that difficult to get to the top, staying there is the hard part.” Therefore my High Performance Organization (HPO) search for the characteristics which make good results a reality focuses on factors that do not cause a one-time good experience but stress sustainable high performance. For this we have to look at the so-called high performance organizations (HPOs), organizations that achieve results (both financial and non-financial) that are better than those of its peer group over a period of time of at least five to ten years.4

To find out how these organizations become and stay excellent, I undertook a five year study to find the ‘holy grail of management’: the characteristics that are part of all excellent organizations worldwide and which can be influenced by managers so they are able to take targeted actions to enable their organizations to achieve superior results. More than 280 studies done in the last 30 years in the area of high performance were meticulously researched and the common themes found were tested in a survey executed worldwide with over 2500 profit, non-profit and governmental organizations.5 The first finding I did was how much better an HPO performs compared to non-HPOs. Figure 1 gives the differences in financial performance for both types of organizations when comparing the data given in the 280+ studies.

Performance HPOs versus non-HPOs (in %)

Revenue growth: + 4 to 16
Profitability: +1 4to 44
Return On Assets (ROA): +1 to 12
Return On Equity (ROE): + 9 to 25
Return On Investment (ROI): + 15 to 26
Return On Sales (ROS): + 2 to 18
Total Shareholder Return: + 4 to 42

Figure 1: Financial results of HPOs compared with those of non-HPOs.

Figure 1 gives performance ranges as every study had its own research approach with different outcomes, however every outcome gave the same direction: HPOs achieve better to much better financial results than non-HPOs, year in year out. In the area of non-financial performance HPOs repeat this feat, they achieve much higher customer satisfaction, customer loyalty, employee loyalty, and quality of products and services than their less able counterparts. In short, it pays to be a HPO! The second finding I did was based on the statistical work I performed on the survey data. I identified five factors which make the difference whether an organizations becomes and stays a HPO or not. These factors are described in the next sections.

First HPO factor: Management Quality

The first and foremost factor is the quality of management of the company. In a HPO management maintains trust relationships with people on all levels by valuing their loyalty, treating smart people smart, showing people respect, creating and maintaining individual relationships with employees, encouraging belief and trust in others, and treating people fairly. Leaders of a HPO live with integrity and are a role model by being honest and sincere, showing commitment, enthusiasm and respect, having a strong set of ethics and standards, being credible and consistent, maintaining a sense of vulnerability and by not being arrogant. They apply decisive, action-focused decision-making by avoiding over analysis but instead coming up with decisions and effective actions, while at the same time fostering action-taking by others. HPO management coaches and facilitates employees to achieve better results by being supportive, helping them, protecting them from outside interference, and by being available. Management holds people responsible for results and is decisive about non-performers by always keeping the focus on the achievement of results, maintaining clear accountability for performance, and making tough decisions. Leaders of a HPO develop an effective, confident and strong management style by communicating the values and by making sure the strategy has been received and embraced by organizational members.

Second HPO factor: Openness and action orientation

The second factor has to do with characteristics that not only create an open culture in the organization but also focuses on using this openness to take dedicated action to achieve results. Management values the opinion of employees by frequently engaging in a dialogue with them and by involving them in all important business and organizational processes. HPO management allows experiments and mistakes by permitting employees to take risks, being willing to take risks themselves, and seeing mistakes as an opportunity to learn. In this respect, management welcomes and stimulates change by continuously striving for renewal, developing dynamic managerial capabilities to enhance flexibility, and being personally involved in change activities. People in a HPO spend much time on communication, knowledge exchange and learning in order to obtain new ideas to do their work better and make the complete organization performance-driven.

Third HPO factor: Long Term Commitment

The third factor flies in the face of the overriding sentiment of the last two decades: long term commitment is far more important than short term gain. And this long term commitment is extended to all stakeholders of the organization. A HPO continuously strives to enhance customer value creation by learning what customers want, understanding their values, building excellent relationships with them, having direct contact with them, engaging them, being responsive to them, and focusing on continuously enhancing customer value. A HPO maintains good and long-term relationships with all stakeholders by networking broadly, being generous to society, and creating mutual, beneficial opportunities and win-win relationships. A HPO also grows through partnerships with suppliers and customers, thereby turn the organization into an international network corporation. Management of the HPO is committed to the organization for the long haul by balancing common purpose with self-interest, and teaching organizational members to put the needs of the enterprise as a whole first. They grow leaders from within by encouraging people to become leaders, filling positions with internal talent, and promoting from within. A HPO creates a safe and secure workplace by giving people a sense of safety (physical and
psychological) and job security and by not laying-off people (until it cannot be avoided).

Fourth HPO factor: Continuous Improvement

The fourth factor is very much in line with a trend which has been keeping organizations busy for the past two decades: continuous improvement. This starts with a HPO adopting a strategy that will set the company apart by developing many new options and alternatives to compensate for dying strategies. Then, the organization will do everything in its power to fulfill this unique strategy. It continuously simplifies, improves and aligns all its processes to improve its ability to respond to events efficiently and effectively and to eliminate unnecessary procedures, work, and information overload. The company also measures and reports everything that matters so it rigorously measures progress, consequently monitors goal fulfillment and confronts the brutal facts. It reports these facts not only to management but to everyone in the organization so that all organizational members have the financial and non-financial information needed to drive improvement at their disposal. People in a HPO feel a moral obligation to continuously strive for the best results. The organization continuously innovates products, processes and services thus constantly creating new sources of competitive advantage by rapidly develop new products and services to respond to market changes. It also masters its core competencies and is an innovator in them by deciding and sticking to what the company does best, keeping core competencies inside the firm and outsourcing non-core competencies.

Fifth HPO factor: Workforce Quality

As the counterpart of management quality, the fifth factor addresses workforce quality. A HPO makes sure it assembles a p and complementary management team and workforce and recruits a workforce with maximum flexibility, to help spot the complexities in operations and to incite creativity in solving them. A HPO continuously works on the development of its workforce by training them to be resilient and flexible, letting them learn from others by going into partnerships with suppliers and customers, inspiring them to work on their skills so they can accomplish extraordinary results, and holding them responsible for their performance so they will be creative in looking for new productive ways to achieve the desired results.

Differences between HPOs and non-HPOs

There is a direct relation between the HPO factors and competitive performance. Organizations that pay more attention to the factors and therefore score high on these. consistently achieve better results than their peers, in every industry, sector and country in the world. The flipside is also true, organizations that score low on the factors rank at the bottom of their industry. The difference between HPOs and non-HPOs is particularly noticeable in the HPO factor Long Term Commitment, meaning that HPOs pay considerably more attention to the aspects belonging to this factor than non-HPO organizations. The good news is that the five HPO factors are interrelated. This means that when an organization starts working on improving one of the factors, the other factors are also improved. However, the five HPO factors do not constitute a generic recipe, there are differences of importance to individual organizations. In every industry and sector the five factors hold true but for instance organizations in the profit sector need to focus on all five HPO factors to become and stay an HPO. Non-profit organizations on the other hand need to work first specifically on Openness and Action Orientation, Long Term Commitment, and Continuous Improvement, and governmental agencies need to focus especially on Management Quality. There are also differences between the industries. For instance the Financial Services industry need to pay first attention to improving Management Quality, then Long Term Commitment, then Continuous Improvement and finally on Workforce Quality, while Healthcare should first work on Continuous Improvement and then on Management Quality. It is therefore important that management makes sure it knows which factors are most important in their industry and sector before the organization starts on its journey to become a HPO.

What isn’t of importance?

It is interesting to see what techniques and methods do not help an organization to achieve the HPO-status. There are many things here that people traditionally considered to be important but which turn out to be not necessarily unimportant but certainly not distinguishing factors to become a HPO. For instance, there is not one organizational design and structure which stands out and which an organization needs to have in place before it can become a HPO. Whether a functional, process or matrix design is chosen does not really matter. By definition this finding renders one ‘solution’ useless: starting a reorganization to remedy performance problems. Also the trend for empowerment has to be handled carefully because it can backfire. I found that drastic autonomy has a negative relation with competitive performance which means that too much autonomy is not good for an organization, it can create a mess when there is not enough coordination and everybody can do what he wants.

Another interesting finding is the relative unimportance of organizational strategies. It does not seem to matter for a HPO whether the chosen strategy focuses on cost leadership, product differentiation, customer intimacy or a combination of these, the only thing of importance is that the strategy is unique compared to competitors in the industry. A ‘me-too’ strategy will therefore by definition not be good enough to become an HPO. It becomes clear, when comparing this one strategy characteristic to the large number of characteristics dealing with management quality, that it is of vital importance for an organization to foremost have good management and that strategy plays a secondary role. A team of good people can achieve anything it wants, while an organization with a clear and well-defined strategy but not the people to execute it will go nowhere.

A perhaps surprising research outcome is the minor role of technology and in particular information and communication (ICT). A lot of time and resources has gone into implementing new ICT-systems but these will not make a HPO of the organization. Granted, many of the characteristics (especially those for the factor Continuous Improvement) cannot or only with great difficulty be improved without ICT, but implementing new systems and technology for its own sake will not help the organization at all. Finally, benchmarking turns out to be less effective than expected. When an organization embarks on a benchmarking project it want to identify best practices, to emulate these and to come on par with the industry best. However, HPOs look completely different at best practices. These are the minimum level of performance, a base-line, from which HPOs want to positively distance themselves as much as possible.

Conclusion

It is now clear what makes a HPO. Because the research on which the HPO factors are based is so wide-ranging and thorough, it encompasses not only structural but also the behavioral aspects of management and external and environmental circumstances. It provides a unique insight into what makes a truly great organization tick. In addition, the research results not only make it possible for an organization to evaluate and analyze its HPO status but they are the foundation for an action agenda listing the improvement efforts for the next period. In this respect, managers can immediately start ‘upgrading’ their organization. It should be remembered however that, because the business and its environment are continually evolving, improvement ideas and practices have to be adapted to the times. What matters is the right managerial practice, exploiting the right business drivers to adapt to and shape the conditions facing a business over time.6 If this is not done, organizations run the risk to meet the same fate that many organizations characterized as excellent in the past experienced. Their performance foundered in the years following their being studied and written up as examples such as the companies originally described in the book In Search Of Excellence and organizations like Enron in the USA, Parmalat in Italy, and Ahold in The Netherlands.7 HPO managers are flexible enough to not let this happen to them so that they can make and keep their organization world-class.


1 Kasarda, X. and X. Rondinelli, “Innovative infrastructure for agile manufacturers”, Sloan
Management Review 39, no. 2 (Winter 1998): 73-82
2 E.E. Lawler III, “Treat people right! How organizations and individuals can propel each
other into a virtuous spiral of success” (San Francisco: Jossey-Bass, 2003)
3 Peters, T. and R. Waterman, “In Search Of Excellence” (Warner Books, 1982); J.C. Collins
and J.I. Porras, “Built to last. Successful habits of visionary companies” (New York:
Harper Business, 1994); J. Collins, “Good to great. Why some companies make the leap …
and others don’t” (London: Random House, 2001)
4 A.A. de Waal, “The Characteristics of High Performance Organizations,” in “Performance
Measurement and Management: Public and Private,” ed. A. Neely, M. Kennerley and A.
Walters (Cranfield: Cranfield School of Management, 2006), 203-210; A.A. de Waal, “The
Characteristics of a High Performance Organization,” Handbook of Business Strategy,
October (2006)
5 Detailed information on the studies and the statistical work can be obtained from the
author.
6 P. Strebel, “Trajectory management. Leading a business over time”(Chichester: John
Wiley & Sons, 2003)
7 J.F. Manzoni, “From high performance organizations to an organizational excellence
framework” in “Performance measurement and management control: superior
organizational performance. Studies in managerial and financial accounting, volume 14”,
ed. M.J. Epstein, and J.F. Manzoni (Amsterdam: Elsevier, 2004)

About the Author

Professor André de Waal MBA is an associate professor of strategic management at the Maastricht School of Management (The Netherlands) and Academic Director and owner of the HPO Center , as well as a renowned global Performance Management expert. He has been selected as one of the ten Dutch Masters in Management, thinkers and writers that have influenced management thinking in the Netherlands the most in the past decade. He is also a former partner at Arthur Andersen.



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Article Published/Sorted/Amended on Scopulus 2011-03-28 12:48:21 in Business Articles

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