One of the major drivers of business valuations is the assessment of the growth potential of the firm. The effectiveness of the management team, and therefore the dysfunctional issues of the management team has a significant impact on the business valuation.
Much of the business press has traditionally talked to the issue of looking beyond downsizing, TQM, reengineering, and other tactics to new growth strategies to deliver globally competitive organizations. As the earlier referenced Wall Street Journal article pointed out, “companies are focusing on growth strategies because past efforts to slash costs failed to deliver the lean, flat, focused companies that executives ‑ and shareholders ‑ expected.” A refocusing on growth strategies, however, is a paradigm shift from the cost cutting, downsized, reengineered organizations that have survived to this point.
One of our clients, a Senior Vice President of a Fortune 500 told us, “The leadership of the management team is the critical ingredient to growth”. In fact, the major efforts of this firm to become more globally competitive in the last several years has centered precisely here – in determining what steps are necessary to refocus on growth. For this firm and many others as pointed out in the IBM vignette, however, organizations are discovering that as the competition becomes more intense, the price for management missteps has risen dramatically – to the point of threatening corporate viability in some cases. For management teams, leading organizations through this paradigm shift, from downsizing to growth, in the face of heightened competition and the development of these new growth strategies requires some fundamental changes.
Typically, when new strategies and goals are developed and set, the focus by management is on the tasks inherent in accomplishing those goals. In our discussions with hundreds of CEO’s in the last several years, what is usually missed is the issue of determining what changed or new behaviors, individually, first, and then as a team are needed. The question, “What behaviors have to change to implement these new goals?” is seldom asked. This occurs while everyone is at least implicitly aware of the definition of organizational insanity: Doing the same thing you’ve always done the same way you’ve always done them and expecting different results!!!
Table 1
The obvious but overlooked point is, that new goals require new behaviors. But, as these companies have discovered, many of the major obstacles to implementation of these new growth strategies are not the market place, the competition, technology, or even financial concerns. Often they’re the internal obstacles typified by what is called “corporate dysfunctions” such as the ones our clients have identified (Table 1). These “dysfunctions” that inhibit innovation, flexibility, creativity, management of change and high performance ‑ in short the essential ingredients of growth. These are the issues chief executives say keep them “awake at night”.
The question is, how to address the problem? One approach some executives have tried has been to sit still and avoid dealing with these “soft” issues. Unfortunately, the result of this tactic in an increasingly competitive environment is the dysfunctions become cancerous. According to Tom Peters, author of “In Search of Excellence”, a whopping 46% of the companies on the Fortune 500 list in 1980 did not exist 15 years later. So much for sitting still.
Our conversations with CEO’s corroborate the earlier Wall Street Journal article: the majority of them deemed TQM a disappointment – it did not deliver promised results. If addressing issues with downsizing, TQM and reengineering is not delivering the desired outcome, then what? Bob Galvin, CEO of Motorola, says that what they came discover about quality is that it was not a corporate or organizational issue ‑ quality is a personal issue, lived out in the person’s daily behaviors. (Roberts and Sergesketter) The problem with such a realization is exactly what the Fortune 500 executive pointed out earlier: dealing with those issues requires the management team to model changed and often new behaviors.