Creating "Business Champions":? The Vital "1 % Difference"

Author’s Note to Readers:

This newsletter focuses upon various aspects of the development of “Sustainably Successful Organizations.”? Although my original plan for this month’s Newsletter, was to continue the saga of the development of Starbucks. Specifically, this issue (September 2023) examines the notion that a "1%? difference" in performance, which can be difficult to achieve, can make a very significant? difference in the sustainable success of organizations.

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Abstract

This Newsletter is addressed to understanding how to build “Sustainably Successful business Organizations.”?

INTRODUCTION AND PURPOSE

Important insights and lessons can be found in many places--in sports contests, military ventures and business history. However, there is one overriding principle: “It’s what you learn after you know it all that matters the most”! This was stated by John Wooden, Legendary UCLA Basketball Coach, winner of ten NCAA Basketball Championships. Accordingly, I have long been open to new ideas and thoughts.

I have been an advisor and organizational development consultant for almost 50 years. Initially, my work began as an outgrowth of my role as a Professor of Management at the Anderson School of management, UCLA.? In that role I began doing research and applications work with actual organizations which were not only my clients but my “laboratory” to test and identify new ideas. In addition, as a sports fan I also attend UCLA athletic events and saw the maestro himself,?Coach John Wooden, with his masterpiece, the UCLA Bruin basketball team, winners of ten NCAA basketball championships including seven in a row. Later I had the opportunity and privilege of meeting, talking with and ultimately interviewing Wooden about his practices and philosophy.

One of Wooden’s lessons was : It’s what you learn after you know it all that matters the most”! I have come to understand and appreciate the wisdom of that saying. Specifically, although in my organizational development work I was expected to make a contribution, I always looked for situations which could enhance my learning and professional development as well. One of those situations was the opportunity to work with Brian Maxwell, co-founder of PowerBar (both the product and the business).

UNDERSTANDING THE IMPORTANCE OF “THE ?1 % DIFFERENCE.”

Brian Maxwell was a Canadian Marathon athlete and entrepreneur, who along with his wife Jennifer, and a third person founded PowerBar.? Brian and Jennifer met at Berkeley, where he was training and she was a student and runner as well.

I was referred to Brian and he reached out to me. I began working with Brian as his organizational development advisor and facilitator. We talked about many things, including how he started PowerBar, the company. ?

THE MOTIVATION AND INSPIRATION FOR POWERBAR

I asked how he got the idea for PowerBar. Brian told me that he would train an entire year to get a 1% improvement in his performance. Finally, that was no longer possible so he explored nutrition to see if he could get the 1%!

Accordingly, Brian, Jennifer and a nutritionist developed the stuff that became PowerBar. Brian used it and found it made?a difference. Later?others found out about it and so he had a business!

THE? 1%? DIFFERENCE IN ORGANIZATIONAL PERFORMANCE?

Intrigued by the notion that a 1%?difference in performance could be so difficult to achieve and also made a significant?difference in outcomes, I began researching whether it was also true of organizational performance. I had previously developed and empirically validated two organizational assessment and development survey instruments: The Organizational Growing Pains Survey? and The Survey of Organizational Development?.[1] ? In brief,? The Organizational Growing Pains Survey? assesses a set of ten classic growing pains and is a measure of organizational health and or distress. The Survey of Organizational Development??assesses the strength of an organization in terms of seven key drivers of organizational success known as The Pyramid of Organizational Development? model/framework. The Pyramid Organizational Development? model/framework will be familiar to regular readers of this newsletter and? is described and explained in Appendix A.

These frameworks have been used in thousands of organizations as part of our organizational assessment and development work since 1980. As a result, we have developed a data base that enables is to classify organizations according to their degree of organizational development. We also “color code” the organizations with different colors indicating the degree of the strength and or limitations/problems:

·??????? Green = World Class Business Champions

·??????? Yellow = Potential Champions

·??????? Orange = Successful

·??????? Red = Marginally successful with significant problems

·??????? Purple = Unsuccessful/Failures

Examples include:

·??????? Green = Business Champions: Apple, Microsoft, Starbucks,

·??????? Yellow = Potential (Near) Champions[2] : IBM, , Nike, Amazon

·??????? Orange = Successful: Pfizer, PepsiCo, Simon Properties

·??????? Red = Marginally successful with problems: Ford, Nokia, GE

·??????? Purple = Unsuccessful /Failures: Sears, Kmart, Webvan

WHAT OUR RESEARCH DATA SHOWS

Our data indicate that only about 1% of the companies are true World Class Business Champions!

THE BOTTOM LINE

The bottom line is that only a very small number of companies? (1 %) seem to have created the capabilities to be or become World Class Business Champions!

ABOUT THE AUTHOR

About the Author_________________________

Eric Flamholtz is Professor Emeritus, Anderson School of Management, UCLA. He is the founder and President of Management Systems Consulting Corporation, 10940 Wilshire Boulevard, Suite 600, Los Angeles California, 90024. He has served on the faculties at Columbia University, The University of Michigan, and UCLA, and has lectured at Columbia University Executive Development Program, Cornell University School of Hotel Management, Cheung Kong Graduate School of Business (China), Fudan University (China), Shanghai Advanced Institute of Finance (China),?? HEC (France), Almaty University (Kazakhstan), CETYS (Mexico), Orestano University (Sardinia),? Stockholm University (Sweden), and? Moscow School of Management Skolkovo (Russia).?? His latest book (co-authored with Yvonne Randle, is The Crisis Leadership Playbook, Vandeplas Publishing. 2020.?

FURTHER INFORMATION

For further information about developing integrated management systems,? see Eric G. Flamholtz and Yvonne Randle, Growing Pains: Building Sustainably Successful Organizations, Wiley 2016. See also: www.Mgtsystems.com .

APPENDIX A:

THE PYRAMID OF ORGANIZATIONAL DEVELOPMENT FRAMEWORK

Extensive empirical research since 1980 summarized below has indicated that organizations must perform certain tasks to be successful at each stage of their growth. Specifically, the six key tasks or dimensions, all of which have been supported by previous research, are:

·??????? Identification and definition of a viable market niche (Aldrich, 1979; Brittain and Freeman, 1980; Freeman and Hannan, 1983),

·??????? Development of products or services for the chosen market niche (Burns & Stalker, 1961; Midgley, 1981),

·??????? Acquisition and development of resources required to operate the firm (Pfeffer & Salancik, 1978; Brittain & Freeman, 1980; Carroll & Yangchung, 1986),

·??????? Development of day-to-day operational systems (Starbuck, 1965),

·??????? Development of the management systems necessary for the long-term functioning of the organization (Child & Keiser, 1981; Tushman et.al ., 1985),

·??????? Development of the organizational culture that management feels necessary to guide the firm (Peters & Waterman, 1982; Walton, 1986).

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Each of these key tasks or strategic building blocks is described below.

Identification of Market Segment and Niche.

The first challenge or task for a new venture in organizational survival or success is to identify a market need for a marketable service or product. The chances of organizational success are enhanced to the extent that the firm is successful in this step (Flamholtz, 1995).

The challenge is not merely in identifying the market but also, if possible, to capture a “market niche,” a relatively protected place that would give the company sustainable competitive advantages. Failing to define a niche or mistakenly abandoning the historical niche can cause an organization to experience difficulties and even failure. The process of identifying the market involves the development of a strategic market plan to identify potential customers and their needs and the creation of a competitive strategy (Flamholtz, 1995).

Development of Products and Services

The second challenge, task or strategic building block involves the development of products and/or services. This process can also be called “productization,” which refers to the process of analyzing the needs of customers in the target market, designing the product and developing the ability to produce it (Flamholtz & Randle, 2016). For a production firm this stage involves the design and manufacturing phases, whereas for a service firm, this stage involves forming a system for providing services to the customers (Flamholtz & Randle, 2016).

The success at this stage is highly related to the previous critical task, proper definition of the market niche (Flamholtz, 1995). Unless a firm fully understands the needs of the market, it cannot satisfy those needs in “productization".

Acquiring? & Managing Resources

Success in identifying a market niche and productization will create increased demand for a firm’s products or services. Consequently, the resources of the firm will be spread very thin (Flamholtz, 1995). The organization will require additional physical, financial and human resources. This is the point at which the entrepreneurs should start thinking about the long-term vitality of the firm and procure all the necessary resources to survive the pressure of current and future increase in demands (Flamholtz & Randle, 2016).

?Development of Operational Systems. ?

The fourth critical task is the development of basic day-to-day operational systems, which include accounting, billing, collection, advertising, personnel recruiting and training, sales, production, delivery and related systems (Flamholtz, 1995). Entrepreneurial companies tend to quickly outgrow the administrative systems available to operate them. Therefore, it is necessary to develop sufficient operational systems, on time, to build a successful organization. In contrast, large established companies might have developed overly complicated operational systems. In this case, the success of the organization depends on the reengineering of operational systems (Flamholtz, 1995).

Development of Management Systems

The fifth step is to develop the management systems, which is essential for the long-term viability of the firm (Flamholtz & Randle, 2016). Management systems include systems for planning, organization, performance management, leadership and management development and culture management. Each aspect or process of management systems is explained below, in turn.

Planning systems involve planning for the overall development of the organization and the development of scheduling and budgeting operations. It includes strategic planning, operational planning and contingency planning (Flamholtz, 1995). The mere existence of planning activities does not indicate that the firm has a planning system. A planning system ensures that planning activities are strategic and ongoing.

?????????? Organizational Structure Design involves the ways in which people are organized and activities are coordinated. As with the planning activities, success depends not on the mere existence of a structure but on the match between the structure and business strategy (Flamholtz, 1995).

Performance management systems are the set of processes (budgeting, goal setting) and mechanisms (performance appraisal) that would encourage behavior that would help achieving organizational objectives (Flamholtz, 1995).

Leadership and management development involves the? process of planned development of the current and future managers.

??? Culture management? is the process of defining the organization’s core values, beliefs and norms and managing the process of? motivating people to embrace and practicing them on a day-to-day basis. This notion will be examined further below.

Developing & Managing Corporate Culture

The sixth and final strategic building block of sustainably successful organizations is corporate culture.? Just as people have personalities, organizations have cultures, which are composed of shared values, beliefs and norms. Shared values refer to the importance the organization attaches to the aspects of product quality, customer service, and treatment of employees. Beliefs are the ideas that the people in the organization hold about themselves and the firm. Lastly, the norms are the unwritten rules that guide interactions and behavior (Flamholtz, 1995).

The process of managing corporate culture is a component of the overall management system, as noted above.

The Model as a Whole

Taken together, these six tasks or strategic building blocks lead to a hierarchical model of organizational development. All six tasks are vital for the health of the firm, and must occur simultaneously. However, the relative emphasis on each task or level will vary according to the organization’s stage of growth (Flamholtz, 1995; Flamholtz and Randle, 2016), as explained in the next section.

The top four levels or building blocks of the form the “infrastructure” of the firm. Generally, however, although competition between firms takes place at all levels, long-term sustainable advantage is primarily found at the top three levels, because there are the least susceptible to are less susceptible to imitation (Flamholtz, 1995), and, accordingly, provide the basis for long term sustainable competitive advantage.

One of these three components is management systems, which we have determined comprises the secret weapon of leading companies.?

DEVELOPMENTAL EMPHASIS AT DIFFERENT STAGES OF GROWTH

The emphasis that should be given to each task differs depending on the size of the firm. Organizations experience developmental problems if their infrastructure is not consistent with their size. The parallel relationship with size and organizational structure leads to an organizational life cycle model that complements the Organizational Development task model (Flamholtz, 1995).

Accordingly, each stage of growth is viewed as having a set of critical developmental tasks. For example, the critical tasks at Stage I (the start-up of an entrepreneurial new venture) are markets and products, while at Stage III the critical task is the development of management processes.

THE MANAGEMENT PROCESSES AS AN INTEGRATED SYSTEM

As noted at the outset of this article, the secret weapon or superpower of leading companies is their management system comprises a fully integrated set of management processes. The key aspect of the secret of the super power of management systems is that it is necessary to design them as a true system (or set of integrated processes) and not just as a collection of individual management processes.

It is one thing to have a set of individual process of management such as a planning process, a performance management process, and a culture management process, etc. It is entirely qualitatively different to have these processed integrated as a true system!

Accordingly, it is not sufficient to have a collection of the individual management processes of? planning, organization, performance management, leadership and management development and culture management. Instead, they must be designed into an integrated whole comprising a true system or set if integrated parts—that is, a true management system!?

The Developmental? Task Least Likely to Be Done Effectively

Additional research supported by practical experience in observation in approximately 1,000 companies over the paste almost half century has indicated that the organizational development task or building block that is least likely to be done and or done effectively is the development of management systems. We have been collecting data on the relative strengths (and weaknesses) of each of the six key tasks of organizational development since 1990. We have also been assessing their strength quantitatively using a proprietary validated survey of Organizational Development both from research and also as a byproduct of our consulting work with companies globally.??

Based upon this research, we have found that the strategic building block that is the least likely to be developed (or stated differently; it is the most underdeveloped) of the six key components required for developing “Sustainably Successful Organizations!

REFERENCES

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?Notes:

[1] See ?Eric Flamholtz & Yvonne ?Randle, Y. (2016). Growing Pains: Building Sustainably Successful Organizations: John Wiley & Sons. Also: www.Mgtsystems.com .

[2] Some like Amazon and IBM have formerly been world class champions.