The Challenge

Leaders today face increasing demands from a variety of stakeholders. The challenge is to create value for all key stakeholders without taking from one to serve another. Stakeholder pressures, combined with increasing competition and advances in technology, create many dilemmas but also many opportunities for the organization designer. We must move beyond a zero-sum attitude and self-serving silos and build organizations with systems and cultures of service. In other words, we need leaders who can design organizations that create value for multiple stakeholders.

Raising the Bar

The bar keeps rising, and the definition of success for all types of organizations (profit-seeking, non-profit, government, etc.) keeps changing and growing more complex. Truth be told, organizational performance has never been all that good — at least not compared to its potential. It seems that about the time we figure out a good way to run the organization, the world changes on us. It is a bit of a cliché to say we live in times of great change, but the speed and scale of change do seem to be increasing. Our organizational models and theories are not keeping pace, and successful modern organization architects live on the leading edge of knowledge and creativity. New technologies now enable a range of designs for 21st-century organizations. It is an exciting time to be an organization designer.

Brief History

A leader’s work is never done: Organizational design is a never-ending process of creation, refinement, and recreation. From the mid-1940s to the 1970s, the pent-up demand and limited global competition allowed many business leaders to focus mainly on financial results. The party ended around 1980, when Xerox realized Japanese companies were selling copiers in the U.S. for what it cost Xerox to make them (Kotter and Heskett, 1992). During the 1980s, product quality became a critical success factor and was directly linked to the market and financial success. At first, many argued that high quality was too expensive. However, we eventually discovered that high quality reduced costs and increased market share. Or, as Phillip Crosby wrote in a book of the same title: Quality is Free. As the service and knowledge worker industries increased in size and importance, they discovered that talented, passionate people are also key to high quality, customer satisfaction, and financial performance. During the 1990s, successful organizations became quite good at connecting these dots or, as Federal Express called it, “people, service, profit” (AMA 1991). The bar has been raised again to include sustainable results in three key areas—financial, environmental, and societal. Or, as Elkington, Emerson, and Beloe (2006) call it, the “triple bottom line.” Similar sequences play out in other parts of the world where industries and sometimes entire economies are disrupted. Today there is a growing backlash against globalization, including a recent vote for the United Kingdom (U.K.) to leave the European Union (E.U.). The underlying issues, driven by increasing pressure from multiple stakeholders, are widespread. These issues are compounded by increased competition and advances in digital technology.

Stakeholder Pressure

Leaders feel increasing pressure from various stakeholders (workforce, customers, investors, etc.), who seem to have opinions on how leaders should run their organizations. You may sometimes feel like everyone wants a piece of you. Many leaders feel frustrated by their stakeholders’ seemingly insatiable needs and desires. Some days it seems like nothing is ever enough. Many leaders find themselves with more and more to do, but less time and fewer resources to do it. This more-for-less situation is a consistent theme across the multiple groups that have a stake in the organization. The future belongs to organizations that can figure out how to create ever-improving value for all six groups: the workforce, customers, investors, suppliers and partners, the community, and the natural environment. In other words, successful leaders are making money in a way that is consistent with a sustainable society and a sustainable planet.

Six Stakeholder Groups

Each of the six stakeholder groups has its perspective and needs. According to Gallup, the majority of the workforce is looking for other opportunities, and few are engaged in their current work. The dissatisfied workforce serves customers who always want more for less, and competitors help raise the bar. To make matters worse, investors are nervous, and many are cautiously holding back reserves vs. investing in the improvements needed to succeed in the next decade and beyond. This pressure isn’t limited to for-profit investors. Non-profit donors want more impact for their donor dollar, and taxpayers want more services for less tax burden.

An old saying about suppliers and partners goes, “Garbage in, garbage out.” Squeezing suppliers on price leaves less for supplier improvement: a downward spiral that is counterproductive for both parties. Society also pressures us to perform in ways that do not detract from the community. They find their voice through an increasing menu of media and government policies. Finally, the natural environment and future generations find a voice in the other five stakeholder groups. Although still a minority, many customers are choosing environmentally friendly products from socially responsible companies. This tendency is likely to increase over time. Investors have also recognized the risks associated with environmental and social issues. Many employees choose where they spend their careers based on social responsibility values and performance. Unfortunately, most of our organizations are not designed to create value for all these stakeholders.

Increasing Competition

Organizations today feel pressure to change from one or more of the six stakeholder groups. This is both a crisis and an opportunity. The crisis is an endless supply of competitors willing to address stakeholder needs and take market share. Unfortunately, many “organizations are like VCRs blinking 12:00. They are poorly designed, out of date and ill-prepared to survive, let alone thrive, in the modern environment” (Latham, 2013c). However, if the competitors can do it, so can you. That is the challenge AND the opportunity. You can [re]create your organization or parts of your organization to produce better products and services for less money, manpower, and impact on the environment. This dissatisfaction can be a useful impetus to overcome the inertia of the status quo. The crisis is the “burning platform” described in the leading change literature. You know you need to jump, but in which direction do you go? While dissatisfaction is an important forcing function, overcoming inertia requires the combined tension of dissatisfaction and a compelling directive or vision of the desired reality. In other words, the combined pressure from dissatisfaction with the status quo and a compelling vision must outweigh the resistance to change or inertia. The good news is this pressure is useful. These stakeholder pressures and other sources of dissatisfaction push you to change for the better.

Technology Changes

At the same time leaders face increasing pressure to create value for multiple stakeholders, we are also experiencing a shift in how we do business. Advances in digital technology are enabling new business models, systems, and processes. We now find ourselves in the middle of a significant digital transformation. “Organizations today face increasing pressure from multiple stakeholders and relentless global competition, forcing them to become more innovative in everything they do and produce” (Latham, 2013). Like the other pressures, this transformation offers both crisis and opportunity. The crisis is that we might be left behind and lose market share if our competitors beat us to the new models and systems. The opportunity is that we now have organization design options that were not possible even a few years ago. Form follows function, and many of our organizations and their systems are designed for another century. We often add technology on top of existing processes, creating a surface layer of digital capability on a poor design. To address the challenges we face, we need to rethink the design of our organizations, systems, and processes to ensure they align with an effective strategy. That will require a new attitude.

New Attitude

When you add up all these demands, it can feel a bit overwhelming. You might think, “No matter what I do, it is never enough!” It is frustrating and can feel like you are failing. To move forward, we must consciously shift our self-image from victim to servant. The first step is to recognize that you share the same ultimate goals as the stakeholders: they need you to succeed. Dr. Joe Alexander did this at Monfort College of Business, a 2004 Malcolm Baldrige Award Recipient at the University of Northern Colorado. Dr. Alexander’s team was feeling pressure from a wide variety of stakeholders, including students, parents, business owners (eventual employers), accrediting bodies, and even state and federal regulatory agencies. So the college transformed adversarial relationships into partnerships focused on shared goals. According to Dr. Alexander, the key benefit of changing those stakeholder relationships was freeing stakeholders from having to “police” the college into meeting a minimum standard, since the standard the college had already set for itself far exceeded anything the stakeholders would have expected. That was the key to building a more collegial partnership. Many organizations find themselves at odds with their stakeholders, especially regulatory agencies. The challenge is to reframe and transform these combative relationships into partnerships. A similar internal issue often holds organizations back.

Self-Serving Silos

A new attitude is essential but not enough to transform an organization. Even with a new attitude, many organizations remain chaotic, complicated, confusing, and defined by a collection of “self-serving silos.” One problem with this ad hoc situation is that it is inconsistent and not repeatable, so performance is low, learning is limited, and improvement is slow. If the internal culture consists of islands of activity, each out for itself, building partnerships with external stakeholders is challenging. These self-serving silos must be integrated into a team of coordinated efforts, all focused on serving the customer or someone in the organization who serves the customer. Because many change efforts fail to achieve the desired results, you may doubt that you can fix silos that sub-optimize (in other words, harm) the organization for its benefit. A few CEOs in our study doubted that they could pull it off, but they never doubted that it was the right thing to do, and eventually, they succeeded.

Approaches to Improvement

You may think, “This is just another improvement initiative in the long line of initiatives, so what makes this one different?” Most organizations have tried many different approaches (fads) to improve performance. Many improvement approaches are available, including Six Sigma, Lean, Lean-Six Sigma, Appreciative Inquiry, and, more recently, Design Thinking. While results from these approaches are mixed, they all work when used correctly. One issue limiting their success is that they are often applied piecemeal to improve parts of the organization without sufficient consideration of the broader context, systems, and strategy. Another issue is that the changes are often incremental when the desired results require more substantial change. The design approach to organization improvement presented here integrates key aspects of previous methods and adds additional considerations that enable a leap in performance. Also, the organization’s design approach to improvement supports a new design that creates value for multiple stakeholders or a win-win.

Win-Win

Creating value for ALL key stakeholders is required for sustainable excellence and is a core leadership responsibility. In other words, design an organization that creates a “win-win” for all stakeholders rather than taking from one to serve another. The good news is that you don't need a zero-sum game of trade-offs to create value for multiple stakeholders. High-performing organizations take a systems approach to design, focusing on developing a workforce that creates and delivers excellent products and services that result in satisfied customers who buy more and tell their friends, improving the top line and making investors happy. Systems thinking also enables organizational designs that create value for other key stakeholders, such as suppliers and partners, society, and the environment. Creating value for all stakeholders requires a design philosophy where “Yes is more.” Bjarke Ingels is a “starchitect” who has built a successful career by including multiple stakeholders in his building designs. His philosophy of “Yes is more” is a practical approach to creating what you might call “utopian architecture.” The challenge for organizational designers is to find ways to say “yes” to multiple stakeholders’ needs, wants, and desires. If we can design and build buildings that meet the needs of numerous stakeholders, we should be able to do the same with organizations. And many organizations, with the help of performance excellence criteria, have done just that. So the challenge is to [re]create our organizations to create ever-improving value for multiple stakeholders, including the workforce, customers, investors, suppliers and partners, society, and the natural environment. To meet the organization design challenge, we first need to understand its critical components. 

References

AMA. (1991). Blueprints for Service Quality: The Federal Express Approach. New York: American Management Association.

Elkington, J., Emerson, J., & Beloe, S. (2006). The Value Palette: A Tool for Full Spectrum Strategy. California Management Review, 48 (2), 6-28.

Kotter, J. P., & Heskett, J. L. (1992). Corporate Culture and Performance. New York: The Free Press.

Latham, J. R. (2013). How much does your organization weigh? In Innovation (Vol. 32, Issue 2, p. 4).