Competitive Advantage Through Organization Fitness Building Strong Leaders and Organizations Since 1979 Cedar Rapids, Iowa
Competitive Advantage Through Organization Fitness
Building Strong Leaders and Organizations Since 1979
Cedar Rapids, Iowa
Organization Fitness
A model for:
1. Furthering competitive advantage
2. Redesigning an organization;
3. Increasing organizational effectiveness;
4. Implementing change; and
5. Creating human resources strategy.
Competitive Advantage The Traditional or “Michael Porter” View
Very few new competitors exist
No substitutes for the product or service exist
Buyers/suppliers have little bargaining power
Very little rivalry exists between competitors
Competitive Advantage The Revised View
Patents are not that valuable
Monopolies and regulated industries are vanishing
IT and the internet allow rapid diffusion of ideas
Economies of scale are less important
The New Competitive Advantage
“The unique ways that an organization architects itself to
achieve organization
fitness”
Framework for Organization Fitness
Work
Culture
Structure
People
Systems
Strategy
Products
Organization Components
Dimension Components
Structure Organization structure Business processes Work Design
Systems Procedures and policies HR systems IT and technology Product/service systems
Culture Values and norms Management philosophy
People Technical competencies Behavioral competencies
Organization Fitness
Like Humans, organizations can
have varying degrees of fitness
What Do You Have?
Jaguar styling
Porsche engine
BMW suspension
Rolls Royce interior
Steps to Architecting Greater Fitness
1. Review strategy and operating environment
2. Describe current structure, systems, culture and people
3. Identify structure, systems, culture and people needed to support business strategy
4. Identify gaps
5. Develop action steps
6. Measurement and follow up
Fortune 1000 Diversified Utility and Energy Provider
Case Example
Strategic Imperatives
Prepare for energy de-regulation
Create competitive mindset
Create value-added products and services
Innovate
Assemble leadership capabilities to lead a competitive enterprise
Current Organization
Organization Element DescriptionStructure Hierarchical
Highly staffed corporate center Designed for regulated business
Systems IT based on legacy systems Little real-time reporting Limited use of technology
People Very little competitive experience Long service; little diversity
Culture Longevity and loyalty Paternalistic
Required Organization
Organization Element DescriptionStructure Stronger customer service
function Greater emphasis on marketing Leaner, but not anorexic; nimble
Systems Quicker, cheaper and better Wider access to real-time info. Strategic HR management
People Transformational change leaders Greater diversity and varied work experience
Culture Performance-based; change ready Outwardly focused
Key Action Items
Organization Element DescriptionStructure New call center and processes
Formal marketing function Business development function
Systems Enterprise information system Automated meter reading Total compensation overhaul
People Robust leadership development Early retirement program effort Increased use of “outsiders”
Culture Built new cultural assumptions into HR systems
Measured progress
Organization Fitness at Two Retail Giants
Strategy
• Sell a limited number of items
• Lower cost for higher quality
• Rely on high volume
• Target small business owners
• Aim for upscale shoppers
• Pay workers well
• Sell a limited number of items
• Low cost over value
• Sell memberships
• Target mass consumer
• Keep labor costs low
Structure/Systems
• Buy directly from manufacturers
• Use own warehouses or depots
• High degree of integration in logistics
• Costco more streamlined; fewer levels
• Walmart highly centralized
• Sam’s Club/Walmart – World-Class IT
Culture
• Emphasizes individual worker
• Rewards initiative
• Employees empowered
• Highly egalitarian
• Emphasizes uniformity
• Customer is king; daily cheer
• Employee behavior specified
HR Systems and Metrics
• $17/hr average pay
• 92% of insurance covered
• 13% of workforce unionized
• Turnover rate of 6%
• $11.50/hr average pay
• 65% of insurance covered
• No unionization
• Turnover rate of 21%
The Wall Street View
“From the perspective of investors, Costco’s benefits
are overly generous. At Costco it's better to be
an employee or a customer than
a shareholder.”
Bill Dreher, Retail Analyst, Deutsche Bank Securities
The Academic View
“It is absolutely not true that all those companies that are not being nice to
their employees are simply stupid.”
Peter Cappelli, Professor of Management, Wharton
The Costco Success Story
What’s Professor Cappelli’s Point?
Using Fitness to Develop HR Strategy
Structure:What business processes need to be reconfigured or improved to help achieve business strategy?
Systems:Will changes in structure or staffing place new demands on recruitment, staffing, leadership development or succession planning?
Exercise
Enhancing Innovation Through Organization Fitness
Roadblocks to Achieving Fitness
Politics
Lack of discipline
Seeking problems for solutions
Inadequate resources
Key Lessons Learned
Strategy drives fitness
Can’t achieve by decree
No design is perfect; there is no one best design
Don’t change culture by changing culture
People are not the final source of competitive advantage
Strengths
Fad-proof
Comprehensive
Comprehensible
Applies at enterprise or operations levels