4.3. The Performance Variables at the Organization Level
Organization Goals. At the Organization Level, goals are strategic. A good strategy identifies the organization's:
Products and services
Customer groups (markets)
Competitive advantage(s)
Product and market priorities (emphasis areas)
Organization Goals, therefore, are stated in terms of how well products and services are expected to do in the various markets to which they are offered. An effective set of Organization Goals includes:
The values of the organization
Customers' requirements
Financial and nonfinancial expectations
Targets for each product family and market
Expectations for each competitive advantage to be established or enhanced
Procedurally, Organization Goals should be:
Based on the Critical Success Factors for the company's industry
Derived from competitive and environmental scanning information
Derived from benchmarking information (intelligence on the performance of systems and functions in exemplary organizations)
Quantifiable whenever possible
Clear to all who have to understand and be guided by them
Organization Goals for Computec, Inc., the organization we introduced in Chapter Two, might include:
Never sacrifice quality for short-term net income.
Increase the company's customer satisfaction rating to 98 percent by the end of the year.
Introduce three new software products and two new systems integration services within two years.
Capture 60 percent of the aerospace project management market within three years.
By the end of the year, introduce two new customer services that differentiate Computec from its competitors.
Reduce software package order cycle time to an average of seventy-two hours by the end of next year.
By the end of next year, fill orders with 100 percent accuracy.
Generate $300 million of revenue, $35 million of profit, and $16 million of economic value added (EVA) next year and grow each of these financial measures by 12 percent in each of the following two years.
These Organization Goals are quantitative, customer oriented, competitive advantage-driven, and easily understood. With these and other goals as a context, Computec can embark on performance improvement efforts in the areas of quality, productivity, total cycle time, and cost control. These Organization Goals will serve as the high-level measures of the success of these efforts.
Most important, the Computec Organization Goals are clearly derived from its strategy. They reflect the executives' tough choices regarding products, markets, competitive advantages, and priorities. (To help identity those tough choices, we have developed a detailed set of questions that need to be answered in applying the systems view and the Three Levels of Performance to strategy development and implementation; those questions are included in Chapter Seven.)
In summary, these are the questions for the Organization Goals:
Has the organization's strategy/direction been articulated and communicated?
Does this strategy make sense in terms of external threats and opportunities and internal strengths and weaknesses?
Given this strategy, have the required outputs of the organization and the level of performance expected from each output been determined and communicated?
Since this is our first discussion of goals, it is probably a good place to take a stand. Some of the followers of the late quality-and-productivity guru W. Edwards Deming are avidly against goal setting. They believe that goal achievement leads to complacency, which serves as a barrier to continuous improvement. That can happen. However, we believe that goals should be continually evaluated and reset to fit changing requirements and capabilities. If goals are adapted in this way, they can support rather than hinder the noble pursuit of continuous improvement. (Please note that reestablishment of goals is one of the key steps in Performance Management, which is discussed later in this chapter.)
Organization Design. Unfortunately, establishing clear Organization Goals is only the first step. Managers and analysts need to design an organization that enables the Goals to be met. To find out if the existing organization supports the achievement of the Organization Goals, we develop a Relationship Map. As the name indicates, the purpose of this picture of the business is to depict the customer-supplier relationships among the line and staff functions that make up the business. Because the Relationship Map makes visible the inputs and outputs that flow among functions, it shows what is going on in the "white space" between the boxes on the organization chart. Figure 4.2 contains a traditional organization chart for Computec. Figure 4.3 displays a Computec Relationship Map.
We use the Relationship Map to:
Figure 4.2. Computec, Inc., Organization Chart.
Understand how work currently gets done (how the organization behaves as a system)
Identify "disconnects in the organization wiring" (missing, unneeded, confusing, or misdirected inputs or outputs)
Develop functional relationships that eliminate the disconnects
Evaluate alternative ways to group people and establish reporting hierarchies
Our initial approach to Organization Design, therefore, is to examine and improve the input-output relationships among functions. To us, the structure depicted by the Relationship Map is most important because that's the structure through which work gets done. When the focus is placed on the internal and external customer-supplier relationships, the standard organization chart becomes less important. However, the reporting hierarchy can facilitate or impede the flow of work. (We have devoted Chapter Fourteen to a discussion of organization structure. In that chapter, we address the need for the vertical and horizontal systems to peacefully coexist.)
In summary, these are the questions that underlie the variable of Organization Design:
Are all relevant functions in place?
Are all functions necessary?
Is the current flow of inputs and outputs between functions appropriate?
Does the formal organization structure support the strategy and enhance the efficiency of the system?
Figure 4.3. Relationship Map for Computec, Inc.
An examination of Computec's Relationship Map reveals a number of Organization Design disconnects that could hamper the company's ability to achieve its Organization Goals. These disconnects include:
Marketing does not participate in sales forecasting.
Marketing is not linked to field operations.
Marketing does not identify needs through market research.
No function provides customer service.
Diskette orders have to go through both sales and finance before they go to production to be filled.
Production forecasts are done by finance.
Unfortunately, identifying disconnects doesn't make them disappear. Computec needs to design an organization that will eliminate the disconnects that are hampering its ability to achieve Organization Goals. (Chapter Twelve discusses the use of the systems view and the Relationship Map to structure an organization. In addition to providing examples of structuring an organization to remove disconnects, Chapter Twelve shows how mapping and derivative tools can be used to support a new strategy, to create a new enterprise or function, and to implement systemic improvements, such as automation and staff reduction. Chapter Thirteen addresses the need to manage the structure that has been created.)
Organization Management. Once the Organization Goals and Organization Design have been established, the organization needs to be managed. Managing the organization—the horizontal organization—as a system includes four dimensions:
GoalManagement: Each function needs to have subgoals, which support the achievement of the Organization Goals. As we discussed in Chapter Two, an effective set of subgoals does not permit the optimization of the functional silos and the suboptimization of the system as a whole. If each Computec function is to make its maximum contribution to the company as a whole, it will need to be measured against goals that are derived from its strategy (Organization Goals) and that help other functions achieve their goals. For example, Computec's product development department should have goals that:
Reflect the Organization Goal of ambitious and speedy new product and service development
Ensure that its new products and services are driven by the needs of the marketplace, not by technical wizardry
Require it to design products and services that marketing can sell
Require it to design products and services that field operations and production can sell, make, and deliver with the quality and timeliness required by customers and the profit required by Computec
Performance Management: To achieve the goals, performance needs to be managed at the Organization Level. To continue the Computec product development example, Computec senior management needs to:
Obtain regular feedback on product effectiveness from Computec's customers
Measure the product development, marketing, and field operations departments on their contributions to the Organization Goal of product development and introduction
Provide feedback to product development, marketing, and field operations on their product development and product introduction performance
Ensure that cross-functional problem-solving teams address product development and product introduction problems
Reestablish product development and product introduction goals if there is a change in the market
Peeling back one layer of the organizational onion, the management of product development needs to:
Regularly obtain feedback on product effectiveness from Computec's customers and from product development's internal customers—marketing and field operations
Measure performance in terms of the goals it has established (product development will get performance in the areas in which it measures performance)
Feed back performance information to the subunits within product development
Solve problems that impede its progress toward the function's goals
Reestablish goals to fit the current reality of its internal and external markets
Resource Management: Computec product development has two resource needs: sufficient people and dollars to meet its goals, and allocation of its resources to those areas of product development that will enable the goals to be met. As with Performance Management, this places responsibility on both the senior management of Computec and the management of product development. If the executive committee members want to reduce costs, they would be foolish to mandate a 10 percent personnel reduction in all departments. They should realize that cutting 10 percent of the product development staff may very well compromise one of Computec's key Organization Goals; perhaps headcounts should not be reduced at all in product development and should be reduced by 20 percent in another department. Since Organization Goals will be achieved only through the horizontal organization, top management must allocate resources across the entire horizontal organization. Peeling back one layer of the onion, the vice president of product development is responsible for allocating resources across the horizontal organization that exists within his or her department.
Interface Management: If the senior managers of Computec take the systems view of performance, they will realize that key barriers to and opportunities for Organization Goal achievement reside in the "white space" between functions. They will realize that the product introduction goal will be achieved only if the product development and product introduction system (which includes the functions of marketing, product development, and field operations) works well. The top team (ideally, aided by a Relationship Map) should be clear on the inputs and outputs that flow among these three functions and should spend a significant amount of time ensuring that this flow—this set of interfaces—is smooth.
The vice president of product development has the same responsibility: to ensure that the various subcomponents within that department are effectively and efficiently working together.
In summary, these are the questions for Organization Management:
Have appropriate functional goals been set?
Is relevant performance measured?
Are resources appropriately allocated?
Are the interfaces between functions being managed?