Tuesday, May 29, 2007
The news that a private equity firm, Cerberus Capital Management LP, is taking Chrysler off of DaimlerChrysler’s hands is intriguing me more and more, particularly after I read Orit Gadiesh and Hugh MacArthur’s article (“Growing the ‘Private’ Club”) in the May 25 issue of the Wall Street Journal. In it they explain why private equity “is becoming a benchmark of performance for CEOs and boards of directors.”
Despite the little I know about the private equity world, I still suspect that we organization development (OD) types could learn a thing or two from their investment and management models as we go about helping our companies and clients reach their potential.
Here’s my limited understanding of the private equity model. They go after public companies that they consider to be under-valued, take them private by buying all the outstanding shares (and taking on a significant amount of debt), clean up the business by focusing on the key business or businesses that will drive value, thereby transforming the company into one with a clear value and growth strategy. Then they take the company public again to reap the financial rewards of a sought-after stock in the public investment market. I would assume one of the reasons why there is so much money in the private equity world is that the model usually generates big returns on investment. As Gadiesh and MacArthur point out, “from 1969 to 2006, the top quartile U.S. private-equity funds had annual rates of return ranging from an average of 39% to well over 200% through good times and bad.” I don’t know about you, but that pretty much beats my CD.
Here’s what I think we can learn (or be reminded of) by the success of most private equity transformations:
1. Focus on value – I can’t imagine how a management team could deliver such legitimate returns without a laser sharp focus on what is the value proposition for this business and proceed to cut, trim, re-deploy and invest resources in such a combination as to maximize value.
2. Discipline – Plenty of public companies have assets on the books that have little to do with its core business. Too many companies fall for business opportunities that have little to do with their espoused value proposition. Others get tangled in the “build it and they will come” mentality. My guess is that these private equity management teams have the discipline to avoid temptation and fantasy.
3. Transform to the market, not utopia – if we’re not careful as OD professionals, we can lose sight of what’s really important and spend too much time and money on employee satisfaction surveys and 360 feedback and other types of “temperature checks”. Our main focus with our clients should be “what changes need to occur to ensure we can execute our business model that is designed to deliver value to our shareholders and customers.”
Keep an eye on these folks. If they pull off a Chrysler miracle, it’s a whole new ballgame.
Taking Transformations Private
Sprechen Sie "Engineer?"
Tuesday, May 22, 2007
The Wall Street Journal ran an interesting article ("SAP's Plan to Globalize Hits Cultural Barriers") back on May 11 by Phred Dvorak and Leila Abboud about the efforts going on at SAP (the German software engineering company) to globalize its technical workforce.
A number of things caught my attention as I read the story.
In my March 9 posting, I talked about how one can describe and understand corporate cultures through the lens of behavioral styles. In the SAP Story, the clash between Shia Agassi (we'll assume he represents the Driver culture - started four companies by age 24) and the German programmers (we'll assume they represent the Analytical culture -- took a year or more to hone programs) is a classic struggle between speed and quality, which are not natural allies. But the important thing to consider is that if either side "wins," SAP loses. Here's why.
If the Driver side wins, a SAP product will get into the market faster but may experience quality glitches that undermine its credibility and drive its customers to its competitors who have comparable products with better quality. If the Analytical side wins, the products will be technically sound but will most likely be late to market or outdated from an innovation or customer requirements standpoint. The trick for SAP, or any other technology company, whether they are in software or pharmaceuticals, is to find the right balance between responding to market pressures for faster release of products and ensuring quality. It can take a company and individual members a long time to realize that both, speed and quality, are needed in most markets today.
Adding to this dynamic is the fact that five German IBM engineers founded SAP. I don’t know about you, but when I hear the words “German, “IBM,” and “engineer” spoken in the same breath, words like “precision,” “methodology,” and “quality” take on a whole new dimension. I think it’s safe to say this history has embedded an engineering mentality deep within SAP’s DNA. What implications does this have for SAP’s business? Well, for one thing, engineers tend to view suspiciously any argument for speeding up a process. They understand making a process more efficient but they don’t “get” doing it faster because quality is bound to suffer. An engineering mindset also tends to want to build a complete and thorough version of whatever product they are working on, often because they are capable of including additional features and of course there is the “cool” factor to consider. This can lead to really cool products that the customer finds too complicated or irrelevant.
Another piece to this puzzle is what work SAP leaders assigned to which global center. Palo Alto handled the products’ look and feel (sounds glamorous and high visibility); India specialized in analytical tools (sounds like this could be cool); Walldorf (Germany) managed hard-core coding. The little I know about the assembly line culture of software development tells me that hard-core coding responsibilities aren’t glamorous or career-advancing roles, particularly when compared to project management roles. So on top of all this change, the German programmers got the grunt work (somebody tell me if I’m off base here). Keep in mind as well, these are programmers who take a great deal of pride in their national and personal reputation as engineers. As one German developer commented about the Hercules project, “it’s not ‘good, old German engineering.’”
So what’s my pithy advice to SAP?
1. Educate everyone in SAP on the external environment – rapid advances in technology demand innovation and adaptability if SAP is to compete effectively.
2. Focus on the customer and their needs. Just because you can build it doesn’t mean customers will spend money to get it.
3. Experiment with finding the right balance between speed and quality. Learn where speed will compromise quality and where it won’t. Understand as a Driver or Analytical style person that one’s predisposition to a particular way of doing things doesn’t make it right in every situation.
Most of all, viel glück!
Splitting Hairs Over Culture
Tuesday, May 15, 2007
Two articles I read recently have gotten me thinking more about this idea of a “strong” culture and whether such a moniker is as desirable as it sounds.
David Cho’s May 7 article in the Washington Post on New Century Financial’s culture (“Firm’s Culture Led to Approval of Bad Loans”) and a white paper (“Demystifying Corporate Culture”) on HermanMiller’s website either refer or allude to strong cultures.
Here are the opening paragraphs from Mr. Cho’s article:
Maggie Hardiman cringed as she heard the salesmen knocking sides of desks with a baseball bat as they walked through her office. Bang! Bang! “’You cut my [expletive] deal!’” she recalls one man yelling at her. “’You can’t do that.’” Bang! The bat whacked the top of her desk. As an appraiser for a company called New Century Financial, Hardiman was supposed to weed out bad mortgage applications. Most of the mortgage applications Hardiman reviewed had problems, she said. But “you didn’t want to turn away a loan because all hell would break loose,” she recounted in interviews. When she did, her bosses often overruled her and found another appraiser to sign off on it.
In the HermanMiller paper, one of its opening paragraphs reads as follows:
The idea that an organization could be intentional about building a culture and that the culture can, in turn, affect an organization’s performance, has been around since 1939, but it didn’t fully enter the business consciousness until the late ‘70s. Since then, a strong corporate culture has become a holy grail of sorts for companies looking for an edge in today’s environment of constant change and increasingly stiff competition.
So what makes for a strong culture? I think an argument can be made that New Century Financial had (the company has declared bankruptcy) a strong culture. There seemed no doubt about what it expected of its employees, what was necessary to succeed in its marketplace, and the values it emphasized: approve as many loans, however questionable the credit history of the applicants, as fast as possible. Yet I doubt if most people would hold New Century Financial as a culture worth emulating.
All of this reminds me that I have been uncomfortable for some time with the concept of a strong culture as the desired state because it is open to interpretation and it implies a certain set of values that isn’t always reflective of health or strength. For example, is a culture strong because there are clear expectations and mission and are consistent in reinforcing certain behaviors? If so, New Century Financial meets these criteria, however dysfunctional and demeaning some people experienced it. Or is a culture strong simply because it has endured? Then a hide-and-cover culture like Ford Motor can end up relying more on living on its past glories than facing its current and future challenges. And to what degree does a charismatic leader boost this endurance through his or her sheer will and when they are no longer on the scene, the culture struggles to survive? In addition, it doesn’t take much for conventional wisdom to think of a culture as “strong” one day and “rigid” the next when it fails to adapt to its external environment.
Therefore, I think we need to further evolve our perception and understanding of what makes for a desirable culture and I think the adjective “strong” falls short and is outdated. I would replace it with “sustainable,” which I recognize is somewhat of a buzz word. But what is probably not a passing fad is that organizations in the future will experience rapid and unpredictable change. The ability to adapt and find new ways of accomplishing its mission or the flexibility to re-think its purpose convey to me a strength that is uncommon but critical if we are to preserve the best of what collective effort in an organized entity can accrue to its members, our economy, and our society.
What’s My Metaphor?
Tuesday, May 8, 2007
I recently attended a colleague’s PhD dissertation defense in the field of organizational behavior. It occurred to me during his discussion that one’s take on the nature of organizational culture is influenced by the metaphor one uses to define and conceptualize something as intangible as culture.
As I listened to his presentation and the questions his academic committee members asked of him, the picture of an organization as a machine emerged. The talk had a certain mechanistic quality to it, along the lines of “this isolated intervention had this type of response.” Very “cause and effect.” The more I reflected on this metaphor, the more I thought about how viewing an organization in these terms would influence how you approach “fixing” an organization’s culture. Because if someone views an organization as a machine, that would imply that someone or something has built this culture, has constructed it. Something constructed has inter-connecting pieces so if an organization’s culture is in need of fixing, some pieces or their connections must be broken and in need of repair.
With this type of metaphor, the change agent takes on the role of social engineer – tinkering until the right interventions cause the desired effects. And because we know humans are not machines, we can subconsciously separate ourselves from the machinations of an organization’s culture. We end up having an externalized relationship with the culture and the nature of any relationship can be captured on a scale that has “what we do to it” on one end and “what it does to us” on the other. And once something is external to us, it is that much easier to blame, judge, or question the other.
But if one’s metaphor for an organization’s culture is an organism, then one looks at an organization’s culture through different lens. An organism implies an intricacy and inter-dependency that challenges the notion of isolating particular cause-and-effects. An organism is in intimate contact with its external and internal environments and its dynamic is more ebb-and-flow than action-reaction. It operates on many different levels – chemical, emotional, psychological, biological. With this metaphor, an undesirable state of affairs is less about something being broken and more about something being out of balance. Since we as individuals are organisms, the culture-as-organism metaphor would imply that an organization’s culture is an extension of us, a reflection or perhaps even a magnification of the collective individuals, warts and all.
In this case, the change agent’s role is one of physician, and specifically, general practitioner -- someone who takes a holistic approach to understanding and addressing the issues that have caused an imbalance in the “body corporate.” It involves listening to where the ailments are located and exploring until they surface the imbalances. A change agent who sees through this frame of reference would most likely be aware of the existence and significance of iatrogenic ailments -- those induced in a patient by a physician’s words or actions. Such a change agent would appreciate how any intervention by them would have repercussions in the organization, sometimes far beyond their sight or reach. There is no divide between the change agent and the culture – at most it is a step back to gain perspective.
I’ll leave you with some simple questions to ponder: machine or organism, engineer or physician, broken or imbalanced? How do you “see” an organization?
Mapping the Dynamics of Change: Is Time on Your Side?
Tuesday, May 01, 2007
I am going to pick up on an earlier posting of mine about mapping out all the many dynamics of organizational change. This posting will look at how time orientation is part of the dynamics of change. As with the earlier posting, I welcome your additions to this list.
Past
- The myths and stories that surround the founding of the company.
- The degree to which these myths/stories compare to the real story of the company’s founding.
- Who are considered the heroes of the founding story.
- The degree to which the company’s founding is characterized as the result of one person’s effort vs. a team effort.
- The common understanding of why the company was successful in the past.
- The degree to which the past is considered the “good old days” or “the golden age.”
- How failure in the past is characterized.
- The degree to which failure in the past was attributed to external vs. internal circumstances.
- The degree to which the Board of Directors is seen as contributing to events in the past.
- The degree to which employees still hold a grudge over decisions made in the past.
- The degree to which middle managers still hold a grudge over decisions made in the past.
- The degree to which senior leadership still hold a grudge over decisions made in the past.
- The degree to which the unspoken opinion is “our best days are in the past.”
- The degree to which previous change was managed well.
- The degree to which employees believe “the past is prologue.”
- The degree to which middle managers believe “the past is prologue.”
- The degree to which senior leadership believe “the past is prologue.”
- What are considered “skeletons,” where are they “buried,” and who knows the answers to both?
Present
- The degree to which employees see themselves as victims of the changing external environment.
- The degree to which middle managers see themselves as victims of the changing external environment.
- The degree to which senior leadership see themselves as victims of the changing external environment.
- The degree to which employees acknowledge the current change.
- The degree to which middle managers acknowledge the current change.
- The degree to which senior leadership acknowledge the current change.
Future
- The timeframe in which employees expect the current change to slow down or go away.
- The timeframe in which employees want the current change to slow down or go away.
- The degree to which employees believe more change is in the foreseeable future.
- The timeframe in which middle managers expect the current change to slow down or go away.
- The timeframe in which middle managers want the current change to slow down or go away.
- The degree to which middle managers believe more change is in the foreseeable future.
- The timeframe in which senior leadership expect the current change to slow down or go away.
- The timeframe in which senior leadership want the current change to slow down or go away.
- The degree to which senior leadership believe more change is in the foreseeable future.
There are too many variables to think about. I need to take a break.
