Leaders have always grappled with organization. But during a downturn the challenges become tougher. How should leaders restructure their business to reduce costs rapidly without damaging their longer-term value creation? How should they ensure that they are retaining and attracting the best talent, even when there are head count reductions? How do they inspire people to higher performance? And how do they themselves deal with the very real problems of being an effective leader in such a difficult environment?
Executives who get organization right can create tremendous value. A successful merger, for example, can change an institution's history. An integrated transformation program can exponentially boost a company's performance. And a leader who nurtures his or her organization's longer term health - its knowledge, capabilities, growth portfolio, and the like - can build enduring competitive advantage. Our research has shown that companies in the top quartile of organizational health are 2.2 times likelier to have an above-average EBITDA margin than companies in the bottom quartile. However, especially during a financial crisis, organizational health can be overlooked, leading to materially negative effects that can last long after the economy has begun to recover.
Really effective leaders take a bifocal approach to the downturn, working on opportunities as well as problems. For example, a bank achieve personnel cost savings of more than 20 percent through head count reductions. While simultaneously achieving improvements in employee satisfaction from 45 percent to 80 percent. A major retailer ran a dramatic turnaround moving from loss to profit and lifting EBIT by nearly three percentage points. This gave them the strength to make a major acquisition and consolidate their position in the market. An oil refiner decided to drive a performance transformation by building a cadre of leaders; by doing this they not only achieved the results that they needed from the transformation but also created a stronger talent pool for future initiatives.
First, we help leaders base their organizational decisions on the facts. We typically conduct a detailed diagnosis of the organization and help executives translate the huge volumes of data that are available to them into actionable insight. This provides a sound starting point for organizational change. Second, we work with executives to design the program of change needed, such as a new design of structures, systems, and processes; a new approach to capability building; or an integrated transformation program. In doing so, we draw on our deep understanding of business issues and industry dynamics, and we involve experts from other relevant disciplines, such as operations, strategy, or marketing. Third, we often work alongside clients in the final phase of work - implementation - to help ensure that the organizational change yields sustainable impact for the business.
Our work, then, is to help our clients grow as leaders, build the capabilities of their organizations, and grow the performance of their business. This creates lasting value for the firms we serve.
Most companies' approach to strategy involves the mistaken assumption that a predictable path to the future can be paved from the experience of the past. In the turbulent business environment we face today, companies must let go of the notion that strategic outcomes can be predetermined and that enduring competitive advantage can be defined and achieved.
Instead, we define strategy as a coherent and evolving portfolio of initiatives to drive shareholder value and long-term performance. This change in thinking requires management to develop a "you are what you do" perspective as opposed to "you are what you say." In other words, companies are defined by the initiatives they prioritize and drive, not merely by mission and vision statement. Adapting to unknowns.
Strategy approached in this way is by its very nature more adaptive and less dependent upon "big bets." A carefully managed portfolio of initiatives is balanced across activities of adapting the core businesses to meet future challenges, shaping the portfolio in an ongoing way to respond to a changing environment, and building the next generation of businesses. By creating a portfolio of initiatives around a unifying theme, reinforced by brands, value proposition to customers, and solid operational skills, a company can successfully set the stage to drive shareholder value.
Of course, the successful portfolio of initiatives must be actively managed as a top priority of senior management, with the individual initiatives carefully guided and driven long the way. This approach to strategic planning is ongoing, as opposed to a yearly exercise, and represents an integrated efforts across the top executive team, as well as business unit and functional leader.
As initiatives are implemented, the executive team must ensure the organization is ready for the change. The strategy must be communicated to various stakeholders, and the pace of implementation must be determined.
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