THE FULL POTENTIAL MODEL FOR THE ORGANIZATION

1. THE FULL POTENTIAL MODEL FOR THE ORGANIZATION

Overview

Full potential organizations are made up of full potential individuals. We will address individual full potential briefly at the end of the chapter. Our discussion of organizational full potential will be more extensive, including specific examples of full potential for organizations, discussed in the context of the enterprise or business excellence model. We will also explore the implications of the expanded role of the ISE on our profession.

Examples of Full Potential

Two seminal books come to mind when we think about full-potential organizations: Built to Last (Collins and Porras 1994) and The Living Company (DeGeus 1997). Collins and Porras portrayed eighteen ‘‘visionary’’ companies, companies that are more than successful, more than enduring. They are best of best in their industries and have been that way for decades; in fact, they performed well over some 70 years. The visionary companies were matched with 18 comparison firms* for the analysis. The DeGeus study, commissioned by Dutch Royal Shell, looked at 27 firms that were larger and older than Shell. These ‘‘living companies’’ had thrived for 100–200 years. We will review these studies to provide you with a glimpse of the ‘‘full potential’’ model (see Figure 4) and to highlight the ‘‘causal variables’’ identified by the studies. We will then explore the implications of these studies for the ISE profession.

Collins and Porras’s visionary companies attained extraordinary long-term performance. Consider three $1 investments on January 1, 1926: one in a general market stock fund, one in a visionary company, and one in a comparison company. By 1996, $1 in the general market investment would have grown to $415; in the comparison firms, to $955; and in the visionary firms, to $6356 (see Figure 4).

What was full potential? What was possible? The point to be made from these numbers is that there are orders-of-magnitude differences in market performance between the visionary companies and the comparison organizations. One might even contend that ‘‘full potential’’ was in fact $10,000 or more! Surviving for 70+ years is an accomplishment in and of itself; we believe that thriving over that period begins to describe full potential. Collins and Porras concluded that ‘‘visionary com- panies display a powerful drive for progress that enables them to change and adapt without compro- mising their cherished core ideals (1994, 9).

* E.g., 3M the visionary company, Norton the comparison firm; Boeing the visionary company, McDonnell Douglas the comparison firm; Citicorp the visionary company, Chase Manhattan the comparison firm.

What are the attributes of full potential organizations? In living companies, DeGeus found four significant factors:

1. Sensitivity to the environment: the ability to learn and adapt (we might add, in a timely fashion)

2. Cohesion and identity: the ability to build community and a distinct cultural identity (we might add, that supports full potential performance)

3. Tolerance and decentralization: the ability to build constructive relationships with other enti- ties, within and without the primary organization

4. Conservative financing: the ability to manage growth and evolution effectively DeGeus states, ‘‘Like all organisms, the living company exists primarily for its own survival and improvement: to fulfill its potential and to become as great as it can be’’ (1997, 11).

Collins and Porras went beyond DeGeus, identifying one distinguishing variable and six ‘‘ex- planatory’’ variables they attributed to performance differences between visionary companies and comparison firms. The distinguishing variable for the visionary firms was ‘‘Leadership during the formative stages.’’ The six explanatory variables that they identified were:

1. Evidence of core ideology: statements of ideology, historical continuity of ideology, balance in ideology (beyond profits), and consistency between ideology and actions (walk the talk)

2. Evidence of the use of stretch goals, visioning, defining full potential for a given period of time: ‘‘bold hairy audacious goals’’ (BHAGs); use of BHAGs, audacity of BHAGs, historical pattern of BHAGs.

3. Evidence of ‘‘cultism’’: building and sustaining a strong culture, seeing culture as an indepen- dent variable, not a context variable; indoctrination process, tightness of fit (alignment and attunement)

4. Evidence of purposeful evolution: conscious use of evolutionary progress, operational auton- omy, and other mechanisms to stimulate and enable variation and innovation

5. Evidence of management continuity: internal vs. external CEOs, no ‘‘post-heroic-leader vac- uum,’’ formal management development programs and mechanisms, careful succession plan- ning and CEO selection mechanisms

6. Evidence of self-improvement: long-term investments, investments in human capabilities (re- cruiting, training and development), early adoption of new technologies and methods and processes, mechanisms to stimulate improvement; effective improvement cycles established and a way of doing business.

We will highlight this last finding particularly as we explore the expanding role for the ISE in the future.

Enterprise Excellence Models

We find enterprise models or business excellence models to be increasingly relevant to the central message of this chapter. They are a way to portray the lessons from the work of DeGeus and Collins and Porras. For example, the Lean Enterprise Institute is working with MIT to develop a Lean Enterprise Model (LEM) (Womack and Jones 1996). The Malcolm Baldrige Award has created a Performance Excellence Framework (National Institute of Standards and Technology 1999). We be- lieve that the Baldrige model provides valuable insight into the variables and relationships, consistent with the lessons from Collins and Porras.

Figure 5 depicts the Baldrige Criteria for Performance Excellence: (1) leadership; (2) strategic planning; (3) customer and market focus; (4) information and analysis; (5) human resource focus;

(6) process management; and (7) business results (overarching—customer- and market-focused strat- egy and action plans). Compare and contrast these variables to the seven identified in Collins and Porras.

Each of these models prescribes strategies for achieving full potential. Our contention is that this striving for full potential is the context within which ISE will be practiced. ISE will be challenged to present a value proposition in the context of large-scale organizational transformation. Enterprise models of excellence provide insights into how to position our profession and the work of ISE in organizations. With this base, each and every ISE has the potential to be a visionary representative of our profession. This is an excellent way to think about both personal and collective value prop- ositions.

Implications for ISE

The context shift we describe above for ISE has several specific implications. First, each and every initiative undertaken by an ISE must be causally linked to business results. Let’s use a large retail

organization as an example. One of the major business outcomes for this type of business is to fill what we call the ‘‘treasure chest.’’ As depicted in Figure 6, the treasure chest’s three dimensions are

(1) market share, (2) percent spend, and (3) length of relationship or customer loyalty.

Retail businesses want to optimize market share, get their customers to spend more of their disposable income (percent spend) in their stores, and keep their customers (optimize the value stream from customers). How can ISEs help fill the treasure chest?

Consider a profit ratio. Typically, ISEs have worked to reduce the inputs (the denominator) of the profit ratio by driving costs down and increasing efficiency. Focusing ISEs on outcomes (the nu-

merator) shifts the paradigm about our value contribution. Our contention is that ISEs will be chal- lenged to work on both the numerator and the denominator of the profit equation.

ISEs and the ISE function will be required to explain our contribution in terms of the profit ratio. It won’t be enough to say that we improved the efficiency of a process or work cell. We will have to demonstrate how our actions lead to filling the treasure chest.

The seventh variable that Collins and Porras (1994) identified was ‘‘evidence of self- improvement.’’ Time is the most critical resource in the knowledge-based organization. People at all levels spend their time doing four things: they Administer the business, that is, do jobs (‘‘A’’ work); they Build the business, that is, improve performance and fix systems or processes (‘‘B’’ work); they Cater to crises, that is, fight fires, fix problems (‘‘C’’ work); and they Do the dumb, that is, non- value-adding things (‘‘D’’ work). Figure 7 depicts how we spend our time.

Organizations that intend to achieve full potential will spend more time on B work. They will establish improvement cycles such as the Deming and Shewhart Plan-Do-Study-Act model. Rather than addressing ‘‘targets of opportunity,’’ ISEs will deploy improvement cycles that are thought through strategically, comprehensive in scope, and well integrated. Enterprise excellence models clearly indicate this. Systems thinking will be applied at the enterprise level. This has been the clear migratory path for the past 30 years, and it will continue to be. Our profession’s value proposition will focus on the special knowledge and skills the ISE brings to the quest for full potential.

In the more traditional model, ISE work is often detached from the work of transformation. ISE improvement efforts tend to be done outside the context of the enterprise improvement cycle, so they lack a clear causal connection to organizational business results (e.g., filling the treasure chest).

So the big implication for ISEs in the next several decades is that they must think enterprise, think total systems, and be connected to the enterprise improvement cycle. ISEs cannot afford to (sub)optimize targeted subsystems at the expense of the larger system, and they cannot afford to be isolated from the large-scale transformation work that characterizes the full potential organization. We might go a bit further and suggest that increasingly ISEs are going to be challenged to prescribe migration paths that move an organizational system toward full potential at a faster rate.