A problem for most Organizational Effectiveness initiatives is determining what should be measured and how. In the world of “metrics”, there is almost an unlimited number and range available. So the quandary for effective Organizational Effectiveness is – which to use!
Many metrics used in organisations conflict with one another. For instance, measuring production teams on “throughput” while measuring maintenance teams on cost. From a measurement point of view, both teams are incentivised to minimise maintenance. Until the equipment breaks down and production grinds to a halt, leaving customers and users in the lurch, sometimes to disastrous effect for the organisation as a whole.
A recent article in Harvard Business Review entitled “A Winning Culture Keeps Score” gave a different insight into this quandary. In this article John Case and Bill Fotsch suggest that there should be one “key number” that links to the desired culture of the organisation and that focuses every employee’s attention to a single “winning” metric.
They further suggest that this sits more easily with companies that use “open book” management. Open-Book Management (OBM) is a management phrase coined by John Case which advocates that the information shared with employees should not only help them do their jobs effectively, but help them understand how the company is doing as a whole. According to Case, “a company performs best when its people see themselves as partners in the business rather than as hired hands”. The technique is to give employees all relevant financial information about the company so they can make better decisions as workers. This information includes, but is not limited to, revenue, profit, cost of goods, cash flow and expenses. The criteria for open-book management are:
- Know and teach the rules: every employee should be given the measures of business success and taught to understand them
- Follow the Action and Keep Score: Every employee should be expected and enabled to use their knowledge to improve performance
- Provide a Stake in the Outcome: Every employee should have a direct stake in the company’s success-and in the risk of failure
Instead of a plethora of metrics to keep score, the “One Key Number” is used with the following criteria:
- It’s directly connected to the financials. When the key number is improves, so are the financial results.
- It’s not imposed from on high. Open-book companies consult with managers, employee teams, and other stakeholders to develop their key numbers. They ask: “What are the biggest challenges we’re facing this year?” “The biggest opportunities?” “How can your unit best measure its contribution?”
- It’s for now—not forever. Companies’ situations change. Sometimes revenue growth is the top priority, other times profitability or cash flow. When a company makes progress on one objective, it may want to set its sights on another the following year.
This brought to mind the “Hedgehog Concept” introduced by Jim Collins in his book “Good to Great” – a “must read” in my opinion. Based on Isiaiah Berlin’s “The fox knows many things, but the hedgehog knows one big thing”, the Hedgehog Concept is defined by its simplicity. As Jim Collins states in this book “Hedgehogs are not stupid. Quite the contrary. They understand that the essence of profound insight is simplicity”. (My italics).
The Hedgehog Concept is a simple concept that flows from a deep understanding about the intersection of the three circles that make up the concept.
The three questions are:
- What are we deeply passionate about? This focuses organisational activities in a direction that keeps the passion flowing.
- What can we be the best at in the world? The “in the world” is a very important aspect to bear in mind. It frightens some, but you need to “think out of the box” on this.
- What is the “one key number” that drives profitability and sustainability? The called it the “Economic Engine Driver” in the book – but is essentially the same as the “one key number”.
The Hedgehog Concept is the intersection of these three circles and is not a “goal” or a “strategy”, but rather an understanding of what you can be best at.
The “one key number” and the Hedgehog Concept have “just one big thing” – they focus the entire company and every decision made on Organizational Effectiveness. They help employees to understand their own connection to the organisation’s financial results and employees start to think and behave like business people, with a vested interest in the success of the organisation. It is proven and it works.
Do you have a “One Key Number”? Do you have a “Hedgehog Concept”? If not, it is time to start thinking about these right now. Call us now if you would like to start now.