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 / Summer 2007 / Issue 47(originally published by Booz & Company)


Why Wait for Trouble?

No business can avoid the cycle, and you can’t leap directly from Stage One to Stage Four. But the amount of time spent in any one stage can vary. One could argue that some large automakers have been only in the arrogance and bleeding stages since the mid-1970s. Several big pharmaceutical companies find themselves in a similar conundrum: Are they in Stage Five after years of phenomenal success? Or in Stage One? Or…? Forming a clear common perspective is the starting point for driving improvement.

You would think that everyone in a senior leadership position would agree about precisely which stage their company is in. But that is rarely the case. I recently met with the 10 top executives of a struggling company. One person said the company was arrogant, three said that it was making rapid improvement, three said that it was bleeding, two said that it was stable, and one said that it was making gradual improvement. When the answers are all over the map like that, the odds are high that the company has a serious and unseen problem. It turned out that critical company performance information was often not shared, even at the senior levels. This contributed to the lack of a common view.

I asked the senior executives: “How can each of us work for the same company, see the same things every day, and yet perceive the company so differently?” It’s important to keep this kind of discussion constructive; this is not a time for recriminations. There is a battery of questions to follow up with, but usually it is easiest to start with numbers: What’s happening with revenues? What’s happening to profitability? What’s the voluntary attrition among employees? How is customer retention? How do we compare with our competitors?

The goal of a discussion like this is to align the management team: to develop a common, realistic view of the company’s current state and its future prospects. If the top team isn’t aligned, then the rest of the company never will be.

Performance and Satisfaction
I also check for alignment in two other areas — performance and what I call “satisfaction.” Strong corporate performance is a function of two elements: exceptional results, as shown in performance measures, and exemplary behaviors, demonstrated by the way people conduct their work and the values instilled in the organization.

Here again, the perceptions of the senior team are the most significant indicator. So I ask them: “How are we doing? Do we have both strong results and a strong culture?” Corporate leaders profess to want both. But very few companies can consistently demonstrate exemplary behaviors and results. Some companies have strong results with terrible, self-defeating cultural values. Enron fell into that category. Others, like Levi Strauss during its unprofitable years, have an exceptional corporate culture but weak results.

Companies in crisis, as one might expect, tend to have managers who disagree about the state of their performance and especially the state of their values. Some companies still dispute whether behaviors are important (witness the stock option dating scandals), but most companies have learned to recognize the importance of strong values in achieving superior performance. Businesses in emerging nations are just beginning to learn this. I recently led a seminar at Yale University about human resources and leadership with 20 CEOs from state-owned enterprises in China. The importance of behavior was a new concept for them. “What do you mean?” they asked. “Are you telling me I’ve got to worry about setting the tone for how my employees should behave if I’m going to have a great company?” Yet all they had to do was look at Western companies in trouble to see the answer.

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