Published on March 21, 2014
New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto The OUTSTANDING Organization Generate Business Results by Eliminating Chaos and Building the Foundation for Everyday Excellence Karen Martin i-xxii-001-218_Martin4.indd 3 5/10/12 10:09 PM
vii Contents Acknowledgments ix Introduction xiii 1 Cracks in the Foundation 1 2 Clarity 27 3 Focus 67 4 Discipline 105 5 Engagement 149 6 Adopting Habits that Pay 189 Appendix 195 Notes 199 Index 203 i-xxii-001-218_Martin4.indd 7 5/10/12 10:09 PM
xiii Introduction You’ve tried them all: Total Quality Management, Reen- gineering, Theory of Constraints, Just-in-Time, Lean, Six Sigma, Lean Six Sigma, Scrum, Agile, and Design Thinking. You’ve formed quality circles and improvement teams, and trained belts of every color. You’ve tried 5S, 8D, A3, and 3P. You’ve become tools-dependent and then tools-averse. You’ve gone round and round on whether the “problem” is people, processes, or products. You’ve outsourced, you’ve in-sourced. You’ve searched for best practices, attempted to copy them, and then rejected them—because they, too, didn’t generate the business results you had hoped for. You’re not alone. In 2000, The Economist revealed that only 20 percent of companies reported success with the change-management pro- grams they had attempted.1 A whopping 63 percent experi- enced only temporary improvement. And 17 percent achieved no improvement at all. This is an astonishing failure rate given the capital and time businesses invest in such programs. A decade later, the numbers hadn’t changed. A 2010 study by Accenture surveyed executives from 113 U.S. companies i-xxii-001-218_Martin4.indd 13 5/10/12 10:09 PM
xiv I n t r o d u c t i o n with annual revenues of $1 billion.2 Over half those companies with formal continuous improvement programs in place said that their programs produced minimal financial impact. More than two-thirds felt that their continuous improvement pro- grams needed reevaluation, a restart, or a complete makeover. Even when the circumstances demand urgent attention, improvement efforts fall shockingly short. In 1999, the Insti- tute of Medicine (IOM) released its landmark report, To Err is Human, which found that as many as 98,000 people die annu- ally as a result of preventable medical errors while hospital- ized in the United States.3 That’s equivalent to 715 Boeing 737s crashing with full passenger loads. The IOM set an aggressive goal of reducing harm from medical errors by 50 percent in five years, which created a nationwide call to action. Did hospitals achieve this imperative? Not even close. Five years later, The Journal of the American Medical Association proclaimed, “progress [sine the IOM report release] has been slow.”4 The conversation had changed, but the results hadn’t. Over ten years later, the news is no better, even though most hospitals in the country have programs of some sort to improve patient outcomes. In 2009, a Hearst Newspapers investigative report, “Dead by Mistake,” concluded that the annual death toll from preventable medical injuries is closer to 200,000.5 In 2010, Department of Health and Human Service’s Office of the Inspector General reported that 180,000 Medicare patients die annually from medical errors.6 In 2011, Health Affairs reported that one out of three of hospitalized patients are harmed and seven percent result in permanent injury or death. Whatever the number, something is terribly wrong when diligent efforts are not making a dent in such urgent problems. i-xxii-001-218_Martin4.indd 14 5/10/12 10:09 PM
I n t r o d u c t i o n xv I’ve Seen This Before—And Keep Seeing It So how’s your organization faring? Are you delivering sig- nificantly higher quality goods or service with better safety than you were 10 years ago? How much improvement have you seen in margins, market share, and morale as a result of your improvement efforts? If you’re a government agency or nonprofit organization, are you retaining increasingly higher percentages of your funding to reinvest in your organization? Granted, the Great Recession that began in 2008 has generated significant business challenges, but how were you performing before the recession? Were you making significant progress in delivering higher-quality goods or services, faster, at lower cost, and with better safety and a fully engaged workforce? Probably not. Research shows that very few organizations make significant progress in their overall business performance. In the 20-plus years I’ve been building, managing, and improv- ing operations, I’ve observed organizational behavior that slows or prevents businesses from experiencing the levels of performance they desire. I’ve seen this in companies of all sizes in every industry, and in all stages of maturity. These patterns have been consistent regardless of size, industry, or maturity. My early years as a scientist and passionate interest in root- cause analysis (or cause and effect) compelled me to study my employers, my clients, business management literature, and my own father’s struggle and repeated failure to build outstanding organizations. Four years ago, I had an epiphany—a hypothesis that I began testing. I didn’t undertake rigorous academic-style research; rather, I tested my hypothesis in the trenches every day with real-world clients, all of whom had good intentions i-xxii-001-218_Martin4.indd 15 5/10/12 10:09 PM
xvi I n t r o d u c t i o n but were not achieving the results they desired. This book con- tains my findings: the reason why businesses—indeed, organi- zations of all types—have not made greater strides with the improvement methods they’ve adopted and are ultimately fail- ing to become outstanding organizations. My Diagnosis—In Brief So why is exceptional performance so rare? With all the man- agement books that have been written, all the money companies have spent on consultants and training, and all the improve- ment approaches that have come and gone, why are companies still not performing to the degrees they could—and need to be? I’ve observed repeated patterns of behavior that undermine organizational performance, making sustained improvements impossible. These behaviors both cause and are a direct result from an insidious disease we’ve unwittingly invited into mod- ern organizations—chaos. I’m talking about the type of self- inflicted chaos that robs your business of the energy it needs to innovate and respond to the marketplace’s ever-increasing demands for faster, better, cheaper. This book addresses this avoidable and undesirable self-inflicted chaos—the disorder and confusion that your organization creates on its own and, by extension, has the power to reduce or eliminate completely. Chaos sabotages your ability to provide value to your custom- ers, satisfy shareholders, and offer a work environment that doesn’t break employees’ spirits. Left unchecked, chaos destroys everything that’s good about an organization, its products, and the people who make it happen. I’m not suggesting that your organization is so chaotic that nothing gets done, customers are unhappy, and profits are dis- i-xxii-001-218_Martin4.indd 16 5/10/12 10:09 PM
I n t r o d u c t i o n xvii mal. From a 10,000-foot view, you hire people, they perform activities, and your goods or services reach the marketplace. You may even generate significant sales or attract unparalleled funding. But if you look more closely, you’ll likely see that the organization “succeeds” in spite of significant chaos and at great expense, both financially and emotionally. Nor am I suggesting that you can create a utopic business environment where you are able to avoid all chaos. On the contrary, externally-inflicted chaos is a reality every organiza- tion contends with, and can even serve as a positive catalyst for innovation. But fighting fires that your company itself has set reduces the energy and resources you need to cope with unfore- seen external circumstances and changing market conditions. Chaos undermines the very foundations of excellence. One of the fundamental truths about achieving excellence is that it requires consistency. When a company sets its sights on being outstanding, it isn’t aiming to be truly great sometimes in some parts of the organization and abysmal in others. It’s attempting to be great all the time across the entire enterprise. Consistency has no greater enemy than chaos. No matter how hard you work, if you are building on an unstable foundation because of chaos, you cannot achieve the consistency required to be outstanding. As a result of all this chaos, the results generated from daily operations and attempts at improvement tend to be no better than random. This should not be surprising when you think about it. Chaos is another name for random and unpredict- able variation. By allowing chaos to reign inside organizations, we have essentially decided that it’s okay that everything that we do is affected by random and unpredictable variation. Of course, we get random and unpredictable results. If you want to break this cycle and start getting consistently excellent results—to be an outstanding organization—you have i-xxii-001-218_Martin4.indd 17 5/10/12 10:09 PM
xviii I n t r o d u c t i o n to start not with methodologies or tools, but by creating the conditions that allow for consistency and excellence. You can’t start by attempting to build a skyscaper on a cracked founda- tion. You have to start by fixing the foundation. This is what this book will help you do. What’s Coming By reducing the organizational chaos that is completely within your control, you not only establish a solid foundation on which excellence can be built, but you also free up the psychic energy and resources you need to cope with the truly unfore- seen circumstances that businesses must navigate from time to time. Building a strong foundation enables you to evolve from expecting results to actually achieving them. Chapter 1 will go into more detail about the fundamental qualities of organizations that have managed to become out- standing. In Chapter 2, you’ll come to understand the surprising degree to which the lack of clarity drains your organization’s financial resources—and the psychological toll the resulting ambiguity takes on your customers, suppliers, workforce, and leadership team. You’ll learn how truth seeking and truth tell- ing are defining characteristics of outstanding organizations. Chapter 3 addresses the myriad problems associated with the lack of focus and provides the specific actions required to tame “organizational attention-deficit disorder.” In Chapter 4, you’ll learn how the lack of discipline affects organizational performance, and you’ll be introduced to practical ways to adopt consistent habits that strengthen the bottom line, improve the customer experience, and create a work environment that properly supports the people who make it all happen. i-xxii-001-218_Martin4.indd 18 5/10/12 10:09 PM
I n t r o d u c t i o n xix Chapter 5 addresses long-standing misconceptions about what employee engagement is and what it is not. It shows why, at the end of the day, employee engagement is the single largest contributor to an organization’s success. And in the Conclu- sion, I’ll help you to see how these conditions all come together to form the foundation of an outstanding organization. I invite you to roll up your sleeves and dig in. If you want to be an outstanding organization, there’s much to be done. The good news is that you can control much of the chaos that you have come to think of as “normal.” You can build a solid foundation and become an outstanding organization that consistently delivers outstanding customer value, achieves outstanding financial performance, and provides a work envi- ronment within which your workforce can thrive. The payoff to shoring up your foundation is large and likely faster than you might think—especially if you’ve spent too much time try- ing to build on a cracked foundation. i-xxii-001-218_Martin4.indd 19 5/10/12 10:09 PM
128 The Outstanding Organization The History of PDSA* The two most influential voices for fact-based man- agement in business have been Walter Shewhart, who is often referred to as the “father of statistical qual- ity control,” and W. Edwards Deming, the “father of the Total Quality Management movement.” In the late 1930s, Shewhart converted the traditional view of mass production as a linear, three-part model involving specification, production, and inspection into a contin- uous-feedback quality-control loop that relied on the scientific method of forming a hypothesis, carrying out an experiment, and proving or disproving the hypoth- esis.10 As Shewhart’s editor, Deming helped Shewhart simplify his concepts for publication. Deming continued to modify Shewhart’s cycle and in 1950 presented the concept at a lecture to the Japanese Union of Scientists and Engineers (JUSE). The cycle became known as the Deming wheel: design, production (make), sales (sell), research (redesign through market research). Testing was implicit in all four steps of the cycle. According to Masaaki Imai, who is often referred to as the “father of kaizen,” an unnamed group of Japanese executives recast the Deming wheel into the PDCA cycle—plan, do, check, act—a four-step cycle for improvement.13 *While there are many accounts about who developed what, in what sequence, and when, the most complete and well-documented account I’ve found is a white paper, Evolution of the PDCA Cycle, by Ronald Moen and Clifford Norman. In it, the authors present a view about Dr. Deming’s role in the development of the PDCA cycle that varies from popular folklore. i-xxii-001-218_Martin4.indd 128 5/10/12 10:10 PM
Di s c i p l i n e 129 Kaoru Ishikawa contributed several key subcom- ponents to the PDCA cycle, notably, that the plan phase includes setting clear goals and targets, the do phase includes significant training and education dur- ing the implementation of any improvement, and the check phase includes continuous revision of standards in response to the voice of the customer and changing requirements of the next step in the process. Through Ishikawa’s influence, PDCA began being viewed as a significant management tool and the standard for mak- ing continuous improvements to processes and systems. In the 1980s, Deming expressed his view that owing to translation difficulties from Japanese to English, the PDCA cycle had been corrupted. Deming recommended replacing PDCA with PDSA—plan, do, study, adjust— which he felt was linguistically closer to Shewhart’s original intent. Deming continued to refer to the cycle as PDSA through the 1990s and dubbed it the Shewhart cycle for learning and improvement.14 I’m with Deming. Over the more than 20 years that I’ve been involved in quality improvement, operations design, and problem solving, I’ve found that the words check and act in PDCA mask the intent of those steps, which are to study the results of one’s experiment and then make adjustments based on the results from the countermeasure(s) put in place to test the hypothesis. People often mistake check for making sure that every- one is following the new process rather than checking the results of the experiment and adjusting the coun- termeasures accordingly. In addition, people often act without adequate reflection and adjustment. i-xxii-001-218_Martin4.indd 129 5/10/12 10:10 PM
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