Leaders today face increasing demands from a variety of stakeholders. The challenge is to figure out a way to create value for all the key stakeholders without taking from one to serve another.
Pressures from stakeholders combined with increasing competition and advances in technology provide many dilemmas but many opportunities for the organization designer. We must get beyond the attitude of a zero-sum game and self-serving silos and create 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 is continually being raised, and the definition of success for all types of organizations (profit-seeking, non-profit, government, etc.) is continuously changing and increasingly 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 the successful modern organization architect is living on the leading edge of knowledge and creativity. We now have new technologies that enable a variety of designs for the organization of the 21st century. It is an exciting time to be an organization designer.
A leader’s work is never done: organization 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 sometime around 1980 when Xerox woke up to a situation where the Japanese 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 market and financial success.
In the beginning, many proposed that high quality was too expensive. However, we eventually discovered that high quality resulted in reduced cost 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 a 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 once 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 related to increasing pressure from multiple stakeholders are common and widespread. These issues are compounded by increased competition and advances in digital technology.
Leaders are feeling increasing pressure from a variety of stakeholders (workforce, customers, investors, etc.), all of whom seem to have an opinion on how leaders should run their organizations. You may sometimes feel like everyone wants a piece of you. Many leaders express frustration with the seemingly insatiable needs and desires of their stakeholders. Some days it seems like nothing is ever enough. Many leaders find themselves with more and more to do, but with less time and 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 (Figure L0-1-1) 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 is serving 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 are asking for more and more impact for their donor dollar, and taxpayers are asking for more and more services for less tax burden.
Figure L0-1-1 Six Stakeholder Groups
There is an old saying regarding suppliers and partners: “Garbage in, garbage out.” Squeezing suppliers on price results in fewer resources for supplier improvement: a downward spiral that is counterproductive to both parties. Society also puts pressure on 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. While still a minority, many customers are choosing products that are environmentally friendly and produced by socially responsible companies. This tendency is likely to increase over time. Also, investors have recognized the risks associated with environmental and social issues. Many employees are choosing 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.
Organizations today are feeling pressure to change from one or more of the six stakeholder groups. This is both a crisis and an opportunity. The crisis is there is an endless supply of competitors willing to address the needs of the stakeholders 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 is a useful impetus to help 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 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 the compelling vision must be greater than the resistance to change or inertia. The good news is this pressure is useful. These stakeholder pressures and other sources of dissatisfaction are pushing you to change and change for the better.
At the same time that leaders face increasing pressure to create value for multiple stakeholders, we also are 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 of organizations.
“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, 2013c).
Like the other pressures, this transformation offers both crisis and opportunity. The crisis is we might be left behind and lose market share if our competitors beat us to the new models and systems. The opportunity is 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. All too often, we add technology on top of existing processes, creating a surface layer of digital capability on a poor design. To adequately address the challenges we face, we need to rethink the design of our organizations, systems, and processes to ensure they are aligned with an effective strategy. That is going to require a new attitude.
When you add up all these demands, it can feel a bit overwhelming. You might be thinking, “No matter what I do, it is never enough!” It is frustrating and can feel like you are failing. To move forward, we need to consciously shift our self-image from victim to servant.
The first step is to recognize that you have the same ultimate goals as the stakeholders in that they need you to be successful. This is what Dr. Joe Alexander did 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 working toward the same goals and objectives.
According to Dr. Alexander, the key benefit in changing those stakeholder relationships was freeing the stakeholders up from having to “police” the college into meeting a minimum standard, since the standard that college had already set for itself far exceeded anything the stakeholders would have ever expected of them. 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.
A new attitude is essential but not sufficient when transforming an organization. Even with the new attitude, many of our organizations are still chaotic, complicated, confusing, and characterized by a collection of “self-serving silos.” One problem with this ad hoc situation is it is not consistent and repeatable, and thus there is low performance, little learning, and limited improvement. If the internal culture consists of islands of activity, each out for themselves, it is challenging to develop a partnership with external stakeholders. The self-serving silos must be integrated into a team of coordinated efforts; all focused on serving the customer or someone in the organization who is serving the customer.
Given that many change efforts fail to achieve the desired results, you may be doubting that it is possible to fix the silos that sub-optimize (in other words, harm) the organization for their 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 be thinking, “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. There are many approaches to improvement to choose from including Six Sigma, Lean, Lean-Six Sigma, Appreciative Inquiry, and more recently, Design Thinking, so on and so forth.
While the results from these approaches are mixed, they all work, sometimes. One issue that limits the success of these approaches is they are often applied piecemeal in an attempt to improve the bits and pieces of the organization without sufficient consideration of the broader context, systems, and strategy. Another issue is the changes are often incremental when more substantial changes are needed to get the desired results. 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 design approach to improvement facilitates a new design that creates value for multiple stakeholders — or win-win.
The creation of value for ALL key stakeholders is a requirement for sustainable excellence and a core leadership responsibility. In other words, designing an organization that creates a “win-win” for all stakeholders vs. taking from one to serve another.
The good news is a zero-sum game of trade-offs is not needed to create value for multiple stakeholders. High-performing organizations take a systems approach to design that focuses 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 the investors happy. Also, systems thinking enables organization 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 working to include 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 organization architects is to figure out ways to design the organization to say “yes” to the needs, wants, and desires of the multiple stakeholders. 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 so that they create ever-improving value for multiple stakeholders, including the workforce, customers, investors, suppliers and partners, society, and the natural environment. If we are to meet the organization design challenge, we first need to understand the critical components of organization design.