A Dynamic Organization Principle #5

Link Transformation to Shareholder Value Creation

Shareholder value has long been the single measure of company value. However, as organizations are exposed to continuous uncertainty, they need to behave more like living systems to survive. The survival of living systems “is measured according to strict criteria of adaptability and fit with the sustainable environment.”[i] However, there are some challenges when managing shareholder value in a complex and unstable competitive environment:

  • In a highly volatile economy, the accuracy of measures such as discounted cash flow and expected losses is diminished. It is team_building_change1difficult for highly adaptive companies to predict how much their core business might change in a few years.
  • It is difficult to capture the value added from a company’s management style or decision-making capabilities. “During rapid transformation, change processes become more influential in determining financial performance than either structure or traditional processes.”[ii]
  • Companies are beginning to see the impact on cash flow from connecting with other groups, such as their communities, partners, and the environment. Quantifying this value continues to be challenging.

In summary, the method of calculating economic value added must be “modified to integrate perpetual transformation rather than one-time (or periodic) shareholder value initiatives in managing a business portfolio.”[iii]
The next actions are designed to assist companies in determining shareholder value in a complex and volatile environment.

  • Develop different cash flow scenarios. Organizations will be in a stronger position if they develop different cash flow scenarios for multiple futures based on the best estimates of what will change and how the market will behave in the next few years. The actual exercise of scenario building and the resulting discussion are more important than getting the estimates exactly right. The flow and exchange of ideas is valuable in generating the preparedness for the next phase.
  • Link shareholder value at every phase. When new business lines or other opportunities emerge through the adaptive process, it is essential to link shareholder value at every phase and ensure “sufficient coherence among strategy, finance, organization, and implementation.”[iv]
  • Focus on growth strategies. Such a focus is essential, even if it requires actions such as downsizing, restructuring, and reengineering, when an adaptive company is experiencing a major transformation.

Come back for the next 5 Principles on Leading a Dynamic Organization! Feel free to comment with questions, insights, or additions to this post. To receive alerts when the next blog is published, click on the RSS feed at the top left of the page to subscribe.

[i] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 79.
[ii] Ibid., 80-81.
[iii] Ibid., 81.
[iv] Ibid., 84.

A Dynamic Organization Principle #4

Use Strategic Infection Points

A strategic inflection point, a term coined by Andrew Grove, former CEO of Intel Corporation, “occurs when a company is confronted by an innovation of revolutionary significance (force 10x) that affects the entire industry in which it operates.”[i] Minor shifts, such as price drops and changes in purchase behavior, challenge companies every day. Strategic inflection points, however, force companies into seismic shifts or extinction. As our economy becomes more unpredictable, strategic inflection points are increasing in frequency. By developing adaptability and resilience, organizations can leverage the opportunities these strategic inflection points present.
Chaos dynamics says that strategic inflection points represent decision points or bifurcations for leadership_techniques_many organizations. At this point, companies must adapt in order to survive. The status quo is no longer viable.
The long-term success of an organization in times of volatility depends on its ability to take advantage of each strategic inflection point better than its competitors. There are several ways to leverage this opportunity.
Organizations are better able to perceive key shifts in advance of competitors by tapping into their front-line employees. The “sales staff, warehouse managers, customer service representatives, product developers, scientists, or purchasing agents are often the first to sense”[ii] these changes.
When top leaders see continuation of the status quo as unviable, they may decide to generate a period of transitional chaos. Clear, frequent, and comprehensive communication is essential during these times. If employees are kept in the dark about what is happening, fear increases and positive energies that support innovation and cooperation shut down. At a time when it is often the most difficult, people need to be heard. Communication about the status and expected outcome must flow freely in all directions.
Disorder is a strange or chaotic attractor that can unleash powerful forces for change within an organization. However, when faced with an unforeseen strategic inflection point, top leaders are challenged with maintaining a delicate balance. By dispersing control and supporting the organization as it self-organizes within the new paradigm, the company survives and grows in resilience.
Look for the next 6 Principles on Leading a Dynamic Organization! Feel free to comment with questions, insights, or additions to this post. To receive alerts when the next blog is published, click on the RSS feed at the top left of the page to subscribe.

[i] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 70.
[ii] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 72.

A Dynamic Organization: Principle #3

Compete for Industry Sustainability

The longevity of any company is dependent on the sustainability of the industry. Measures to increase the sustainability of suppliers, distributors, subcontractors, and even direct and indirect competitors promote the long-term viability of the industry. While there is still competition between businesses on certain levels, the overall win-at-all-costs model is giving way to a more win-win philosophy. For example, companies have been known to request legislation that limits all players from certain practices that put the industry at risk.

A win-win approach to business will ultimately enhance industry sustainability. The pursuitleadership_development_systems_ of profit that ignores the health of the community or the environment ultimately destroys the entire system

Companies can take several steps to improve industry sustainability. Forming partnerships to enhance collaboration among competitors can be very effective for tasks such as technology development, financing, and setting standards. In addition to adding benefit, partnerships can increase flexibility, free resources, inspire innovation, and disperse risk.

As industry sustainability degrades, companies may be subjected to increased regulation and possible negative publicity. By projecting these costs and incorporating them into their planning, companies are in a position to set the standards for their industry. This can lead to a positive company and industry image while improving long-term industry sustainability.
Companies can create their own standards that look to the future needs of their industry. In an age of instant communication and corporate scrutiny, companies that establish policies for the long-term benefit of the industry get the immediate benefit of positive press. With the recent awareness of corporate malfeasance, consumers often reward companies that “do the right thing.” As other companies adopt the behavior, the market increases and everyone wins.

Come back for the next 7 Principles on Leading a Dynamic Organization! Please comment with questions, additions and ways where you have been successful competing for sustainability within your Industry. To receive alerts when the next blog is published, click on the RSS feed at the top left of the page to subscribe.

Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000)

A Dynamic Organization: Principle #2

Maintain Long-term Identity while Repositioning

Advances in technology and global connectivity have combined to unleash a host of new opportunities for companies of all sizes. As organizations become adept at morphing their strategies to take advantage of these opportunities, they gain strategic benefit by business_change_model_ establishing and maintaining a long-term identity that speaks to their core strength. This ability to change also protects companies from failure if their existing business is marginalized or deemed untenable by government legislation, new technological innovation, or other unforeseen events. By building and communicating an identity vision, organizations are able to leverage their ability to “differentiate themselves from competitors, motivate their employees, and build lasting relationships with customers.”[i]

Several approaches can help leaders reposition their business while maintaining their overall identity. Defining a transcendent vision allows a company to redefine aspects of its business while maintaining its overall identity. SAS, for example, is a global Business Intelligence Solutions company that started out creating software for statistical analysis. A SAS user was someone who knew how to write SAS code. Today, SAS has broadened its scope and evolved into a leader in Business Intelligence solutions with an emphasis on business analytics. With SAS, anyone within the organization can access information to gain knowledge about their business through simple graphical user interfaces (GUIs). But the vision of the company as one that helps businesses turn data into knowledge still rings true for SAS.

To ensure success when adapting strategies, organizations should keep an eye on customer value while taking advantage of all the internal knowledge as well as market indicators to determine which new activity or group of activities will serve future needs of customers.

Another consideration is to reduce reliance on forecasting tools and statistical methodologies. In a volatile economy, these tools are only marginally useful. Companies that are thriving today are leveraging the concepts of chaos theory and complexity science. These concepts include “better monitoring of trends in the external environment, regular reevaluation of the broader industry configuration to see where margins are highest (to see which players are making the most money), scenario planning, pattern recognition, improved ability to pick up weak signals in the environment, and rapid and coordinated decision making.”[ii] By focusing on the future rather than on past patterns and accomplishments, the application succeeds by tapping into the innovative spirit of the organization.

Look for the next 8 Principles on Leading a Dynamic Organization! Feel free to comment with questions, additions and ways in which you have had to morph your strategies in order to take advantage of new opportunities!

Feel free to comment with questions, insights, or additions to this post. To receive alerts when the next blog is published, click on the RSS feed at the top left of the page to subscribe.

[i] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 57.
[ii] Ibid., 62.

A Dynamic Organization: Principle #1

Create Adaptive Strategies

A primary role of management is to define the vision or the overall goals for the company. Generally, the next step is to define the strategy. Traditionally, strategy also is set by management and delegated throughout the rest of the organization. However, in a highly volatile global economy, this approach can prove limiting if not devastating when unforeseen circumstances occur.

dynamic_organization

In a highly adaptive company, management shares the vision and allows the strategy to emerge. A diverse employee base is a real benefit in this case because it allows for a wider range of strategies. The best approach is to have several strategies that can be implemented quickly, given different economic stimuli. “They [management] must do this by visualizing alternative futures on the basis of probability-weighted trends.”[i] Doing so may require abandoning past trends, a difficult task for many established businesses.

Companies can take several approaches to prepare for and leverage unforeseen events that demand a change in strategy. One tactic is to design “what-if” scenarios to serve as alternate long-term strategies that ensure adaptability in the face of unpredictable economic forces.
Another tactic is to define business units around a group of skills that provide the flexibility and resources to pursue new opportunities in a volatile economy. Doing so unleashes a creative energy that leads to adaptability and innovation.

A strong Business Intelligence infrastructure is critical to adaptability. Networks designed to effectively transfer information about inventories, staffing, and trends help to eliminate time lag and reduce errors across supply chains and between partners. Dashboards that track daily trends are able to reveal weak signals. The role of revealing weak signals is defined in chaos theory as one that can magnify and transform entire systems during times of instability. Direct interaction between top managers and the rank-and-file is also important. Companies in which leaders connect with employees on a regular basis are much better at noticing weak signals as signs of shifting markets or other changes.

Organizations that access the innate wisdom of their organization to tap into future trends encourage and reward innovation and simultaneous access and create future market trends.
In traditional organizations, strategic planning usually consists of analyzing and applying past trends to the future.

“The statistical quantification of past trends, the rigor of mathematical models, and the fact of including hard historical evidence in a structured framework remain important to the strategy-formulation process. But they also can stifle creativity and block insights about future trends.”[ii]

While this method works well in a stable economy, it can suppress creativity and inhibit adaptability in economically volatile times. If structures are solidly built on past trends, many organizations are not resilient enough to survive a quick change in market trends.

Stay tuned for the next 9 Principles on Leading a Dynamic Organization! Feel free to comment with questions, additions and situations in which you have implemented these creative adaptive strategies.

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[i] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 43.
[ii] Ibid., 51.

Principles Of Leading A Dynamic Organization

At the executive level, the rules of the game have changed. Just ten years ago there  was no Sarbanes-Oxley, the Internet was in its infancy and corporations were coming  to grips with globalization. Managing in a global, technologically driven, and fast- changing economic environment requires a more complex set of skills than those needed by managers in the past. My clients are looking for innovative leaders who can  adapt and manage through continuous change. —Jerry Bernhart, Bernhart Associates

principles_of_leading_a_dynamic_organization

In Large-Scale Organizational Change, Christopher Laszlo and Jean-François Laugel define the 10 Principles as guidelines to action that “offer an integrated approach to the main managerial processes of a company: strategy formulation, annual budgeting, investment appropriation requests, controlling, and project management.”[i] To support the implementation of the principles in a dynamic organization, they offer some tactics that are designed to work in complex and chaotic environments.

The 10 Principles tackle the central issues of corporate management in the areas of strategy, organization, and execution. However, the focus is on the dynamics involved. Since they are designed to guide dynamic companies that thrive on complexity and instability, they cannot be applied separately. They must be seen as a comprehensive approach. “As a part of a mind-set, the 10 Principles are an effective basis for action that lead

s to corporate renewal and development of the capability to survive frequent and radical discontinuities in the operating environment.”[ii]

Over the coming months I will deliver the 10 principles of Leading A Dynamic Organization to you through my blog. These principles can also be found in my book Business Intelligence Success Factors, Tools for aligning your business in the global economy. Take these tips and tools to add to your arsenal of leadership skills.

[i] Christopher Laszlo and Jean-François Laugel, Large-Scale Organizational Change (Boston: Butterworth Heinemann, 2000), 36.
[ii] Ibid., 38-39.

 

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