This is an MIT Sloan Management Review article. In recent years, companies have developed much more sophisticated strategic measurement systems, based on such tools as the balanced scorecard, key performance indicators, computerized dashboards, and the like. Nonetheless, there seems to be a widespread consensus that they measure too much, too little, or the wrong things, and that in any event, they don't use their metrics effectively. Why? On the basis of discussions with hundreds of managers, noted management thinker, author, and professor Michael Hammer (Hammer and Co.) concludes that the operational metrics that companies commonly use make little or no sense. In the core article of this special report, "The 7 Deadly Sins of Performance Measurement and How to Avoid Them," Hammer identifies seven common mistakes--the deadly sins--that seriously impede the relevance and usefulness of operating measures. He also offers managers some means for redemption. In addition, four prominent managers--Carole J. Haney (Boeing Co.), Anders Wester (Tetra Pak Group), Rick Ciccone (Procter & Gamble Co.), and Paul Gaffney (Desktone Inc.)--comment on Hammer's thesis through the prism of their own experience in the field and offer insights from their own philosophy of performance measurement.
This is an MIT Sloan Management Review article. What is the optimum growth rate to maximize total return to shareholders? This is a critical question facing both managers and investors. An answer is found in the concept of a company's growth corridor, which is set by the upper bounds of a financially sustainable growth rate and the lower bounds of the competitive growth rate. Using data from Fortune Global 500 companies, the authors find that those companies that grow within their respective growth corridor create above average total shareholder returns. Drawing examples from companies such as AES, BMW, Marks & Spencer, Ao, and Wal-Mart, they show how managers can identify their growth corridors, and how they can restore healthy and smart growth.
This is an MIT Sloan Management Review article. Faster time to market and shorter product life cycles are pushing companies to introduce new products more frequently. While new products can offer tremendous value, product introductions and transitions pose enormous challenges to managers. In studying product introductions, the authors found that a common handicap was the lack of a formal process to guide managerial decisions. Drawing from research at Intel and examples from General Motors and Cisco Systems, the article develops a process to facilitate decision making during new product transitions. The proposed process analyzes the risks impacting a transition, identifies a set of factors across departments tracking those risks, monitors the evolution of these factors over time, and develops playbook mapping scenarios of risks and responses. The process helps level expectations across the organization, lessens the chance and impact of unanticipated outcomes, and helps synchronize responses among different departments. It assists managers in designing and implementing appropriate policies to ramp up sales for new products and ramp down sales for existing products, balancing the supply and the demand for both so that combined sales can grow smoothly.
This is an MIT Sloan Management Review article. Even the most seasoned executives may have strongly opposing views about the wisest course of action for an organization, particularly given their diverse personal backgrounds or previous immersion in other corporate cultures. But such differences in approach don't necessarily lead to conflicts that are unproductive and damaging to an organization. To investigate such issues, the authors conducted a study of the organizational values (objectives that an individual or group believes are important in running a business, such as industry leadership, employee welfare, and profit maximization) of the top management teams in 31 companies. The authors investigated two specific types of team conflict: task and relationship. Task conflict is characterized by substantive, issue-related differences in opinion. This type of disagreement can be beneficial when it ensures that a greater number of possible solutions are explored. In contrast, relationship conflict--characterized by disagreements over personalized, individually oriented matters--is generally detrimental. It corrodes trust, hinders communication, slows the acceptance of ideas, and leads to isolation and politicization among group members. The study results showed that behavior is driven by perception rather than reality. Specifically, the greater the perceived difference in organizational values among members of a top management team and their CEO the greater the conflict. Interestingly, any actual dissimilarity was not a factor. Thus, the bottom line is that many top management teams are unnecessarily encountering difficulties because of members' faulty assumptions. To lessen this tendency, the authors advise companies to consider the following: establish an appropriate atmosphere for the team; because perceptions become reality, understand and manage them; investigate the gaps between perceptions and reality; and act decisively to correct gross misperceptions.
Galvatrens, a consumer products company in Houston, has a whistle-blower's lawsuit on its hands. Mike Fields, a former divisional sales manager, claims that he was wrongfully terminated for trying to report an illegal scheme designed by a colleague to inflate numbers. He'd left the company's COO a confidential voice mail about it, but the COO referred the matter to Mike's boss rather than following up on it himself. Mike says his boss subsequently told him his performance wasn't up to snuff and he'd have to accept a demotion and a transfer if he wanted to stay with the company--knowing that Mike, a divorced father with joint custody of his kids, couldn't leave town. How could all of this have happened? Chip Brownlee, the CEO of Galvatrens, had taken steps a while back to upgrade the company's procedures for uncovering misconduct and solving conflicts. He and the general counsel had instituted a number of changes, including a new open-door policy for raising workplace concerns. Although the policy encouraged employees to go to their immediate supervisors, it emphasized that they could approach any manager at any level for assistance, and it included a ban on retaliation against whistle-blowers. Chip and the board need to figure out why, with all those channels in place, only one person came forward with information about the sales scheme--and why that person ended up suing the company. How should Galvatrens strengthen its system for uncovering misconduct, and what roles should the board and management play? Commenting on this fictional case study in R0704A and R0704Z are Stephen R. Hardis, the nonexecutive chairman of Marsh & McLennan; Hal Shear, the managing director of Board Assets; Mary Rowe, an ombudsperson for the Massachusetts Institute of Technology; and Jackson W. Robinson, the founder and president of Winslow Management.
Shortly after Jim Hackett became CEO of Steelcase in 1994, the office furniture manufacturer introduced two products. The Leap chair was a great success. But the Pathways office cubicle system ran into trouble from the start, plagued by R&D disputes, distribution misunderstandings, and product recalls. How could a company fail as well as succeed? Hackett traced the root of the matter to something many organizations would see as a virtue: the company's "can do" attitude. People at Steelcase were not spending enough time thinking things through before they jumped to execute. Hackett set out to transform Steelcase's "doing" culture into a "thinking before doing" culture. After much research, he developed a four-part process to give development teams at Steelcase the mental tools, intellectual resources, and time they needed to think a project through to completion. In the think phase, the team finds out as much about a potential project as possible. Team members ask questions, contact experts, do research, and come up with a range of options. In the point-of-view phase, they select the option they will pursue. Once the point of view is formed and cleared with the company, all second-guessing comes to an end and, in the plan-to-implement phase, the group determines the process by which the project will be completed. Only after full-scale practice runs with everyone involved does the project actually go forward in the implementation stage. It takes a great deal of courage and confidence for people anxious to storm the world to slow down and explore all their options first, Hackett acknowledges. But by bringing thinking and doing into the proper balance, everyone is much better prepared to meet the future.
The success of an executive team depends heavily on the relationships the boss has with his or her direct reports. Yet the leadership literature has had little to say about what is expected in those relationships--on either side. Larry Bossidy, formerly the chairman and CEO of Honeywell, and before that of AlliedSignal, shares what he calls "the CEO compact," detailing the behaviors a leader should look for in subordinates and what they should be able to expect in return. A CEO's best people, he says, know when a situation calls for them to get involved. They generate ideas--remembering that some of the best ones may sound crazy at first. They are willing to collaborate, putting the long-term good of the company above short-term goals of their divisions. They step up to lead initiatives, even if the outcome is uncertain. They develop leaders among their people, especially through direct involvement in performance appraisals. They stay current on world events and anticipate how those events may affect the company and its competition. They drive their own growth by exposing themselves to new people and ideas and by accepting demanding assignments. And they sustain these behaviors in bad times as well as good. On the other side of the compact, the boss should provide clarity of direction; set goals and objectives; give frequent, specific, and immediate feedback; be decisive and timely; demonstrate honesty and candor; and offer an equitable compensation plan. Executives who aren't lucky enough to have such a boss can create a compact with their own subordinates, Bossidy says, and demonstrate by example. The result will be to improve team and company performance and accelerate individual growth.
How do you know when your core needs to change? And how do you determine what should replace it? From an in-depth study of 25 companies, the author, a strategy consultant, has discovered that it's possible to measure the vitality of a business's core. If it needs reinvention, he says, the best course is to mine hidden assets. Some of the 25 companies were in deep crisis when they began the process of redefining themselves. But, says Zook, management teams can learn to recognize early signs of erosion. He offers five diagnostic questions with which to evaluate the customers, key sources of differentiation, profit pools, capabilities, and organizational culture of your core business. The next step is strategic regeneration. In four-fifths of the companies Zook examined, a hidden asset was the centerpiece of the new strategy. He provides a map for identifying the hidden assets in your midst, which tend to fall into three categories: undervalued business platforms, untapped insights into customers, and underexploited capabilities. The Swedish company Dometic, for example, was manufacturing small absorption refrigerators for boats and RVs when it discovered a hidden asset: its understanding of, and access to, customers in the RV market. The company took advantage of a boom in that market to refocus on complete systems for live-in vehicles. The Danish company Novozymes, which produced relatively low-tech commodity enzymes such as those used in detergents, realized that its underutilized biochemical capability in genetic and protein engineering was a hidden asset and successfully refocused on creating bioengineered specialty enzymes. Your next core business is not likely to announce itself with fanfare. Use the author's tools to conduct an internal audit of possibilities and pinpoint your new focus.
Critical initiatives stall for a variety of reasons--employee disengagement, a lack of coordination between functions, complex organizational structures that obscure accountability, and so on. To overcome such obstacles, managers must fundamentally rethink how work gets done. Most of the challenges stem from broken or poorly crafted commitments. That's because every company is, at its heart, a dynamic network of promises made between employees and colleagues, customers, outsourcing partners, or other stakeholders. Executives can overcome many problems in the short term and foster productive, reliable workforces for the long term by practicing what the authors call "promise-based management," which involves cultivating and coordinating commitments in a systematic way. Good promises share five qualities: They are public, active, voluntary, explicit, and mission based. To develop and execute an effective promise, the "provider" and the "customer" in the deal should go through three phases of conversation. The first, achieving a meeting of minds, entails exploring the fundamental questions of coordinated effort: What do you mean? Do you understand what I mean? What should I do? What will you do? Who else should we talk to? In the next phase, making it happen, the provider executes on the promise. In the final phase, closing the loop, the customer publicly declares that the provider has either delivered the goods or failed to do so. Leaders must weave and manage their webs of promises with great care--encouraging iterative conversation and making sure commitments are fulfilled reliably. If they do, they can enhance coordination and cooperation among colleagues, build the organizational agility required to seize new business opportunities, and tap employees' entrepreneurial energies.
Senior leadership teams whose members play complementary roles have been chronicled as far back as Homer's account of the Trojan War: Although King Agamemnon commanded the Greek army, Achilles, Odysseus, and Nestor each played a distinct role in defeating Troy. Today, complementary leadership structures are common and, in some cases, even institutionalized. Think of a CEO concerned mainly with external issues and a COO who focuses internally. The authors describe four kinds of complementarity: task, expertise, cognitive, and role. The two top executives at the software company Adobe Systems, for example, represent the second kind. As CEO, Bruce Chizen draws on his sales and marketing knowledge, while COO Shantanu Narayen adds his engineering and product development expertise. Roberto Goizueta, formerly the CEO of Coca-Cola, and Douglas Ivester, his COO (who later became CEO), were famous examples of the fourth type: Goizueta, the diplomat, maintained good relations with external stakeholders; Ivester, the warrior, drove the company to defeat the competition. Bringing together two or more people with complementary strengths can compensate for the natural limitations of each. But with the benefits comes the risk of confusion, disagreement about priorities, and turf battles. Leadership succession also presents substantial challenges, especially when a COO or president who has worked in a complementary fashion with the CEO moves into the top role. An organization's board of directors and CEO can manage the risks by fostering a shared vision, common incentives, communication, and trust. They can also ensure smooth succession processes in various ways, such as brokering a gradual transfer of responsibilities or allowing the CEO and the COO to share duties as long as they maintain the logic of complementarity.
How does a large multinational keep thousands of employees, operating in hundreds of countries, honest in a high-pressure business environment? As the chief legal officer at General Electric for nearly 20 years, Ben Heineman was part of the senior management group that sought to do just that--to make sure its executives and employees are moved to do the right thing as strongly as they are motivated to make their numbers. Heineman describes a set of systems that combine the communication of clear expectations with oversight, deterrence, and incentives. Nowhere are the expectations higher--and the sanctions more powerful--than for top executives. Heineman recounts example after example of senior leaders terminated for ethical lapses even when the business consequences of doing so were painful--and even when they had no direct knowledge of the violations occurring on their watch. To make expectations clear throughout the company, GE has systematically sought to set uniform standards that stay well ahead of current legal developments and stakeholders' changing attitudes about corporate accountability. Responsibility for implementing those standards, which are embedded in GE's operating practices, rests with the business leaders in the field. Oversight is both methodical and multifaceted. A host of auditing and assessment systems enables GE to compare the performance of its various business units against one another and against industry benchmarks. Perhaps the most powerful is the company's ombudsman system, which doesn't just allow but requires employees to lodge concerns. Failures to report into the system or up the line, or retaliation in any form, are firing offenses. The current intense focus on board-level governance has missed the point, Heineman argues. It is time to shift the debate from board oversight of the CEO to how top company leaders can most effectively infuse integrity at all levels of the corporation.
Few executives question the idea that by redesigning business processes--work that runs from end to end across an enterprise--they can achieve extraordinary improvements in cost, quality, speed, profitability, and other key areas. Yet in spite of their intentions and investments, many executives flounder, unsure about what exactly needs to be changed, by how much, and when. As a result, many organizations make little progress--if any at all--in their attempts to transform business processes. Michael Hammer has spent the past five years working with a group of leading companies to develop the Process and Enterprise Maturity Model (PEMM), a new framework that helps executives comprehend, formulate, and assess process-based transformation efforts. He has identified two distinct groups of characteristics that are needed for business processes to perform exceptionally well over a long period of time. Process enablers, which affect individual processes, determine how well a process is able to function. They are mutually interdependent--if any are missing, the others will be ineffective. However, enablers are not enough to develop high-performance processes; they only provide the potential to deliver high performance. A company must also possess or establish organizational capabilities that allow the business to offer a supportive environment. Together, the enablers and the capabilities provide an effective way for companies to plan and evaluate process-based transformations. PEMM is different from other frameworks, such as Capability Maturity Model Integration (CMMI), because it applies to all industries and all processes. The author describes how several companies--including Michelin, CSAA, Tetra Pak, Shell, Clorox, and Schneider National--have successfully used PEMM in various ways and at different stages to evaluate the progress of their process-based transformation efforts.
Most companies do a thorough job of financial due diligence when they acquire other companies. But all too often, deal makers simply ignore or underestimate the significance of people issues in mergers and acquisitions. The consequences are severe. Most obviously, there's a high degree of talent loss after a deal's announcement. To make matters worse, differences in decision-making styles lead to infighting; integration stalls; and productivity declines. The good news is that human due diligence can help companies avoid these problems. Done early enough, it helps acquirers decide whether to embrace or kill a deal and determine the price they are willing to pay. It also lays the groundwork for smooth integration. When acquirers have done their homework, they can uncover capability gaps, points of friction, and differences in decision making. Even more important, they can make the critical "people" decisions--who stays, who goes, who runs the combined business, what to do with the rank and file--at the time the deal is announced or shortly thereafter. Making such decisions within the first 30 days is critical to the success of a deal. Hostile situations clearly make things more difficult, but companies can and must still do a certain amount of human due diligence to reduce the inevitable fallout from the acquisition process and smooth the integration. This article details the steps involved in conducting human due diligence. The approach is structured around answering five basic questions: Who is the cultural acquirer? What kind of organization do you want? Will the two cultures mesh? Who are the people you most want to retain? And how will rank-and-file employees react to the deal? Unless an acquiring company has answered these questions to its satisfaction, the acquisition it is making will be very likely to end badly.
Galvatrens, a consumer products company in Houston, has a whistle-blower's lawsuit on its hands. Mike Fields, a former divisional sales manager, claims that he was wrongfully terminated for trying to report an illegal scheme designed by a colleague to inflate numbers. He'd left the company's COO a confidential voice mail about it, but the COO referred the matter to Mike's boss rather than following up on it himself. Mike says his boss subsequently told him his performance wasn't up to snuff and he'd have to accept a demotion and a transfer if he wanted to stay with the company--knowing that Mike, a divorced father with joint custody of his kids, couldn't leave town. How could all of this have happened? Chip Brownlee, the CEO of Galvatrens, had taken steps a while back to upgrade the company's procedures for uncovering misconduct and solving conflicts. He and the general counsel had instituted a number of changes, including a new open-door policy for raising workplace concerns. Although the policy encouraged employees to go to their immediate supervisors, it emphasized that they could approach any manager at any level for assistance, and it included a ban on retaliation against whistle-blowers. Chip and the board need to figure out why, with all those channels in place, only one person came forward with information about the sales scheme--and why that person ended up suing the company. How should Galvatrens strengthen its system for uncovering misconduct, and what roles should the board and management play?
Galvatrens, a consumer products company in Houston, has a whistle-blower's lawsuit on its hands. Mike Fields, a former divisional sales manager, claims that he was wrongfully terminated for trying to report an illegal scheme designed by a colleague to inflate numbers. He'd left the company's COO a confidential voice mail about it, but the COO referred the matter to Mike's boss rather than following up on it himself. Mike says his boss subsequently told him his performance wasn't up to snuff and he'd have to accept a demotion and a transfer if he wanted to stay with the company--knowing that Mike, a divorced father with joint custody of his kids, couldn't leave town. How could all of this have happened? Chip Brownlee, the CEO of Galvatrens, had taken steps a while back to upgrade the company's procedures for uncovering misconduct and solving conflicts. He and the general counsel had instituted a number of changes, including a new open-door policy for raising workplace concerns. Although the policy encouraged employees to go to their immediate supervisors, it emphasized that they could approach any manager at any level for assistance, and it included a ban on retaliation against whistle-blowers. Chip and the board need to figure out why, with all those channels in place, only one person came forward with information about the sales scheme--and why that person ended up suing the company. How should Galvatrens strengthen its system for uncovering misconduct, and what roles should the board and management play? Commenting on this fictional case study in R0704A and R0704Z are Stephen R. Hardis, the nonexecutive chairman of Marsh & McLennan; Hal Shear, the managing director of Board Assets; Mary Rowe, an ombudsperson for the Massachusetts Institute of Technology; and Jackson W. Robinson, the founder and president of Winslow Management.
Health insurer IFA and grocery chain ShopSense have formed an intriguing partnership, but it threatens to test customers' tolerance for sharing personal information. For years, IFA's regional manager for West Coast operations, Laura Brickman, had been championing the use of customer analytics--drawing conclusions about consumer behaviors based on patterns found in collected data. She came away from a meeting with the grocer's analytics chief, Steve Worthington, convinced that ShopSense's customer loyalty card data could be meaningful. In a pilot test, Laura bought ten years' worth of data from the grocer and found some compelling correlations between purchases of unhealthy products and medical claims. Now she has to sell her company's senior team on buying more information. Her bosses have some concerns, however. If IFA came up with proprietary health findings, would the company have to share what it learned? Meanwhile, Steve is busy trying to work out details of the sale with executives at ShopSense. Many have expressed support, but COO Alan Atkins isn't so sure: If customers found out that the store was selling their data, they might stop using their cards, and the company would lose access to vital information. Though CEO Donna Greer agrees, she knows that if things go well, it could mean easy money. How can the two companies use the customer data responsibly? Commenting on this fictional case study in R0705A and R0705Z are George L. Jones, the CEO of Borders Group; Katherine N. Lemon, an associate professor of marketing at Boston College; David Norton, the senior vice president of relationship marketing for Harrah's Entertainment; and Michael B. McCallister, the president and CEO of Humana.
The Sulzberger family owns 20% of the New York Times Co. (NYT) but controls 70% of the board through a dual-class share structure. At the company's April 2006 annual shareholder meeting, Morgan Stanley Investment Management (MSIM) and other investors, holding 28% of the company's stock altogether, withheld their votes for the 30% of directors that they could vote on as a sign of protest against the management of Arthur Sulzberger, Jr. and the dual-class structure that protects him. MSIM later submitted a proposal urging the NYT to subject the dual-class structure to a vote. In evaluating the proposal, Sulzberger feels torn by his responsibilities to three different constituencies: his readers, his family, and all other NYT shareholders.     
Faurecia is a world-class player in the automotive components sector, active in four main areas: automotive seating, vehicle interiors, exhaust systems and front-end module. With some 60,000 employees, 160 industrial sites and presence on four continents, Faurecia, is the third largest car seat supplier worldwide and among the twenty largest suppliers to the automotive industry. The ESMT case study focuses on the passenger car seating business unit (its largest in terms of revenues), analyzing the evolution of the supply chain for car seats, its market demand, the evolving business model imposed by carmakers and the impact it has on sourcing and manufacturing. The central issue of the case is how Faurecia should organize its new product development process in order to increase its performance and involve its customers and its suppliers earlier in the process. The case provides an opportunity to discuss how a large multinational company can leverage a changing market demand by tuning its business model and adapting its product offering while staying abreast of competition with increasingly innovative solutions.