Forster N. - Maximum performance (2005)(en)

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the 1990s. It is an approach to leading and managing organizations that seems to be particularly suited to the fast-changing and chaotic environments that many organizations now operate in. It was noted in Chapter 8 that the attrition rate of companies is accelerating decade by decade, and it is apparent that all organizations, particularly in the private sector, have to be able to do something more than reactively ‘manage change’. This is a phrase that is still used routinely in business circles, and by many academics and consultants, but is probably well past its sell-by date. What is certain is that the old model of organizations as static bureaucratic ‘machines’, which simply reproduce what has worked for them in the past, is no longer sufficient for most businesses or commercial enterprises.

For example, John Browne (CEO of BP) believes that all companies battling it out in a globalized information age face a common challenge; using knowledge and intellectual capital more effectively than their competitors. During the 1990s, Browne came to believe that the company needed to become a more innovative learning organization. This belief has seen the company slash its workforce from 129 000 in 1990 to around 50 000 in 2002. In the process, it became a faster thinking, nimbler organization characterized by a flat organizational structure, entrepreneurial business units, informal webs of alliances across the company and systematic knowledge sharing. Now it has been turned from a top-heavy, slow-moving, multilayered, classical industrial bureaucracy into an organic team-based system of independent businesses, informal networks and learning communities. BP has put learning organization principles at the centre of this transition. Browne describes the philosophy underpinning this transition as follows:

Learning is at the heart of a company’s ability to adapt to a rapidly changing environment. It is the key to being both able to identify opportunities that others might not see and to exploit those opportunities rapidly and fully. This means that in order to generate extraordinary value for shareholders, a company has to learn faster than its competitors and apply that knowledge throughout its businesses faster and more widely than they do. The way we see it, anyone who is not directly accountable for making a profit should be involved in creating and distributing knowledge that the company can use to make a profit.

(Cited by Prokesch, 1997: 148)

The idea of the learning organization is linked to, but distinct from, the principles of individual learning and unlearning described in Chapter 8. To describe a business as a ‘learning organization’ means that all the activities that its employees are engaged in are used reflectively as the basis for future learning (an ‘observe–reflect–think–decide–do’ mind-set, as opposed to an

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‘observe–decide–do’ approach). This is done in order to continually improve both individual and organizational performance, and to enhance the company’s ability to create its own future, rather than constantly playing ‘catch-up’ with the competition. This means that every day, every week and every month the organization as a whole has to be able to answer this question, ‘What have we learnt and how can we use this knowledge to improve what we do?’ This sounds deceptively simple, but putting it into practice can be a complicated and lengthy process.

The most comprehensive treatments of learning organization principles remain the work of Peter Senge, Head of the Center for Organizational Learning at the Massachusetts Institute of Technology, and more recently Arie de Geus, the former head of Shell’s Corporate Planning Department. A learning organization is defined here as an organization that facilitates the collective learning and unlearning of its employees, and is continually expanding its capacity to transform itself and create its own future (de Geus, 1996, 1997; Senge, 1990, 1994; Pedler et al., 1989). According to Senge, learning organizations have five characteristics.

A shared vision

As we saw in Chapters 1 and 8, without a clear vision or path to the future, employees and organizations cannot aspire to outstanding achievements, or embrace the need for perpetual change and evolution. This is because significant learning cannot take place unless there is a strong motivation to do this and meaningful targets towards which to strive, individually and collectively.

Personal mastery

As noted above, this component builds on the principles of individual learning and unlearning that we looked at in the last chapter, in particular the idea of double-loop, rather than single-loop learning. Within the context of the learning organization, this means a commitment to perpetual, lifelong individual and organizational learning. Individuals have to be shown the value of continuous learning and become proactive in developing their own learning and that of their colleagues. People are encouraged to learn from incidents and events at work. Mistakes are analysed to ensure that they do not happen again. Even if these lessons are painful, they are still used as an opportunity for future learning. People constantly question the way

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they do things and nothing is taken for granted. Information is never hoarded; it is always shared and widely available. Ideas and experiences are shared across teams and departments.

This philosophy implies that learning by experience (‘adaptive’ or ‘experiential’ learning) is not enough. This has to be supplemented by ‘generative learning’ – a proactive and interpretative style of learning. This means that the organization must constantly review how things went after the event, in order to make more effective plans and preparations before future events take place (known as ‘mental modelling’). When used effectively, generative learning can lead to short-term applications that are relatively simple to diagnose and correct, and long-term applications, which can include the formulation of new organizational strategies, products and services. For example, adaptive learning would consist of giving customers what they want, generative learning would consist of trying to imagine what the customers might want or giving them what they might never have thought of asking for. The best recent example of this process in action is the mobile phone: a new ‘need’ was created when it had not previously existed or been imagined by telephone users. It is no coincidence that the pioneer of this innovation was a learning organization we looked at in the previous section – Nokia.

Adopting learning organization principles also means that, if you want active learners, you need active educators who can show their people how to become self-learners and what the benefits of this will be. This has to become a key element of the leader/manager’s responsibilities in the learning organization, where the development of their followers is no longer regarded as some kind of abstract ‘HR issue’, but as an integral part of their jobs. They see themselves as the coaches, mentors and educators of others, not as the distant ‘charismatic heroes’ or the ‘command-and-control’ leaders identified in Chapter 1. Employees focus on the learning opportunities available in their jobs as much as any other rewards they may receive from these. Words like ‘learning’, ‘teaching’ and ‘education’ are used in a very conscious way, as part of the lexicon of the organization’s language and culture. The role of leaders and managers in this kind of environment becomes a more subtle one that involves getting their followers to build a shared vision, embracing perpetual learning, challenging existing mental models, fostering systemic thinking and imagining, ‘What if we . . .?’ Leaders and managers who are comfortable with the notions of the leader as servant, described in Chapter 1, and empowered leadership, described in Chapters 4 and 7, will have few problems in adapting to this new role.

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This is only the starting point, because this mind-set must then be embraced by the whole organization (meta-learning) and, as both de Geus and Senge have observed, institutional or collective learning is much harder to develop than individual learning. The rate of learning of the organization also has to be greater than the rate of external change, by learning to anticipate what is around the corner. This means that organizations too have to get outside the real worlds that they inhabit (and their comfort zones) and learn from the outside world through appropriate boundary scanning mechanisms (scenario mapping). This means not only doing the standard checks, such as benchmarking against best practice in similar industries, but also learning from very different industries, and from their customers and clients. John Browne describes this process in this way:

There are a variety of ways you can learn how to do something better. You can learn from your own experience. You can learn from your contractors, suppliers and customers. And, you can learn from companies totally outside your business. All are crucial. No matter where the knowledge comes from, the key to reaping a big return is to leverage that knowledge so that each unit is not learning in isolation and reinventing the wheel again and again [ ] For example, we’ve learned a lot from the automobile industry about procurement, which has helped us lower the cost of building service stations. And, we went to the US Army to learn about capturing and sharing knowledge. (Cited by Prokesch, 1997: 155, 157)

Another example of a learning organization that has taken the world by storm in recent years is Dyson. Initially renowned for its high-speed Marine Sea Truck and the Ball Barrow, the company achieved worldwide recognition for revolutionizing the humble vacuum cleaner. Dyson has also moved successfully into washing machine manufacturing, with an innovative drum mechanism that closely mimics the more efficient human hand washing technique. Martin McCourt, the chief operating officer of Dyson in the UK, attributes much of the company’s success to its ability to listen closely to what its customers want and learning from these dialogues. McCourt observed that ‘Dyson customers recognise that our research and development philosophy is to find new solutions to problems that consumers have had for a long time. We are seen as a company that does things differently. We are not a heavy advertiser, never having spent more than $US500 000 a year on mainstream advertising, we rely most heavily on word-of-mouth endorsements by satisfied customers. 70 percent of sales are generated this way’ (abridged from Lloyd, 2001: 46–7).

Team learning

Team learning is essential, because learning is a social activity and people learn more quickly in groups, and Senge has described teams as

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the fundamental learning unit of modern organizations. In Chapter 5, we saw that all successful companies now employ some kind of teambased management systems, but these must be genuine teams, not ad hoc groups of employees trying to work under the banner of a ‘team’. This emphasis on team-based learning, curiosity and creativity also requires a strong commitment to employee empowerment and involvement, a toleration of experimentation, curiosity and even eccentricity, investment in employee education and development, and reward systems that encourage learning and innovation. It also means delayering organizations, removing ‘bureaucratic baloney’ and traditional autocratic controls over employees. In practice, this is how it works in BP:

We have built a very flat team-based management structure that is designed to motivate and to help people learn. We’ve divided the company up into lots of business units, and there is nothing between them and the ninemember executive group to which they report, which consists of the three managing directors of our business groups and their six deputies. The organization is even flatter than my description makes it sound because each of the managing directors and their deputies work as a team in dealing with the business units. [The] virtue of this organizational structure is that there is a lot of transparency. Not only can the people within the business unit understand more clearly what they have to do; I and other senior executives can understand what they are doing. Then we can have an ongoing dialogue with them and with ourselves about how to improve performance and build the future.

The top management team must stimulate the organization, not control it. Its role is to provide strategic direction, to encourage learning and to make sure that there are mechanisms for transferring the lessons. The role of leaders at all levels is to demonstrate to people that they are capable of achieving more than they think they can achieve. To change behaviour and unleash new ways of thinking, a leader sometimes has to say, ‘Stop, you’re not allowed to do it the old way’ and issue a challenge.

(John Browne, cited by Prokesch, 1997: 158, 160, 164)

Mental modelling

This process involves learning how to bring commonly held beliefs and common-sense assumptions (mental models) to the surface; then to analyse and question their validity and create new models that can service the business better in the future. This method also stresses the importance of long-term learning cycles, which can only be managed in years, rather than constantly fixating on short-term financial results, as so many companies do. Many of the visionary companies referred to in earlier chapters have long-term strategic plans in place. In one famous interview, on the BBC’s Business Programme in 1990, Akio Morita was asked to estimate for how many years in the future Sony made strategic plans. Without batting an eyelid, he immediately replied, ‘Fifty years.’

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Systemic thinking and scenario mapping

This refers to the ability to think of organizations as complete entities, as well as their constituent parts, micro functions and micro processes. This means ‘reframing’ organizations as biological or organic systems that collectively rethink their purposes and methods, in order to grow and thrive (de Geus, 1996, 1997). We saw in Chapter 8 that any organization, of a reasonable size must understand the potential systemic consequences of change management initiatives, because it is often the unanticipated consequences of change that can do the most damage. Another important facet of systemic thinking is scenario mapping. Like many of the leadership and management techniques described in this book, scenario mapping has a long history. Military strategists have used this technique since at least the early 19th century and the commercial sector began to pick up on this after World War II. It is a technique that seems to be particularly suited to a world characterized by uncertainty and rapid, discontinuous change.

Peter Schwartz came across the idea in the late 1960s at Royal Dutch Shell, and developed it to the point where it became known as the ‘Shell Method’. The purpose of scenario mapping is to help to create greater certainty in an increasingly uncertain world. There are four forms of uncertainty in business. The first is the one you can measure, such as piloting a new product launch in one country and then extrapolating the results. Second are uncertainties that have known results, but which may be incalculable. An example of this might be a competitor who is building a new factory that will double their supplies in one of your markets. The exact outcomes of this cannot be calculated precisely, but the possible outcome scenarios can be defined and analysed. Third, there are risks that are difficult to calculate but fall within a predictable range, such as investing in research and development. Last, there are truly ambiguous and uncertain circumstances that make it near impossible to predict what will happen (Schwartz, 1996). For example, the crashing of an airliner into a Manhattan skyscraper was in fact a scenario that many of the world’s insurance companies had fed into their ‘catastrophe calculations’, prior to 11 September 2001. The Hart–Rudman Commission (2000), which had been reviewing national security options for the USA, also imagined a plausible scenario involving hijacked planes being crashed into the World Trade Center by terrorists. Although no one actually predicted when this would occur, the probability that this was going to happen, sooner or later, could (and some would say should) have been extrapolated from the rise of militant Islamic groups throughout the 1980s and 1990s, and the steady escalation of terrorist activities during these decades. The systemic consequences of these events will be felt for decades, and

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there is little doubt that more horrendous terrorist acts will be carried out during this decade.

How can scenario mapping help to deal with uncertainty and discontinuous change in business organizations? By carrying out experimental thinking at the margins, leaders can trace possible future paths from the systems and trends that are shaping the world at the moment (for example, globalization and new technologies). This allows the creation of ‘What if . . .?’ thinking and adaptation to change by anticipating rather than reacting to change. In turn this permits the creation of contingent strategic plans that can be implemented if, or when, one of these anticipated scenarios emerges. Scenario mapping cannot predict the future, but it can help organizations prepare for future possibilities. Companies that have tested their strategies against these scenarios, and things that could go wrong in worse-case scenarios, are in a much stronger position to deal with these when they arise. As Peter Schwartz puts it, ‘Using scenarios is rehearsing the future. You run through simulated events as if you are already living them. You train yourself to recognise which scenarios are unfolding. This helps you to avoid unpleasant surprises and to react quickly’ (Schwartz, 1996: 19). It also implies an ability to consider the most bizarre, radical and off-the-scale scenarios, because they are the ones that have the potential to do the most damage to your business.

One example, described by Arie de Geus, concerned a scenariomapping exercise in 1985 that asked Shell managers to envisage what would happen if the price of oil fell to $US15 a barrel. At the time oil was selling at $28 a barrel and on the rise. However, by February 1986 it had dropped to $17 dollars and by April to $10 a barrel. Because the company had contemplated some ‘What if’ scenarios, they were in a much stronger position to deal with a crisis that hit other oil companies hard during 1986–7 (de Geus, 1996: 96).

This example of a successful scenario-mapping exercise does not mean that this is an easy process. For an individual company, it might require as much as months’ preparatory work before a set of scenarios can be effectively played out. Predicting scenarios is one thing, but taking the required actions to adapt to new scenarios is an entirely different matter. Furthermore, scenario mapping is not the only way to investigate the future. Other techniques, such as environmental scanning, looking for new ideas from other industries and deep industry analysis can also generate many new ideas. Scenario mapping may not be useful for all companies, but it is certainly relevant for any company that operates in fast-changing markets that are characterized by rapid technological innovation, such as finance, the technology sector,

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communications, news media, book publishing and the entertainment industry.

In common with Collins and Porras’s visionary companies, learning organizations are also fiscally conservative and some, such as W. L. Gore (the creators of Goretex), even put limits on how fast they grow. But, at the same time, they do invest aggressively in the learning and development of their employees, and in appropriate new technologies that can enhance their core business activities. This learning organization paradigm also emphasizes what can broadly be described as ‘traveller’ as opposed to a ‘package holiday’ attitude to the future. This means that learning organizations know that they are on a journey to the future, but they may not be really sure where this will eventually take them. They do not have a fixed destination to get to because, before the company arrives there, the destination will almost certainly have been shifted by external events. Michael Chaney, the CEO of Wesfarmers, described this approach to the future in an interview in

Boss Magazine in July 1998:

I don’t think it’s any longer possible to have some fixed point on the horizon that you just aim for. In fact, this can actually be quite dangerous, because you can take your eye off what the competition is doing. One of the reasons why Wesfarmers has been successful is that we are convinced that we are hopeless at predicting the future. Therefore, we are constantly making plans that can change as the situation changes. We’ll take ideas from anyone at any level of the company or come to that from anyone outside the company.

To conclude this sub-section, here is a story of how learning organization principles helped one well-known company move from near extinction in the early 1980s, to regaining much of its old reputation for the quality of its products in the 1990s, through to the two most commercially successful years in the company’s history in 2001–2 (adapted from Zackowitz, 2003; Content, 2001; Teerlink and Ozley, 2000; Bloomberg Press, 2000; and ‘How to Live for a Hundred Years’,

BBC Business Programme video, 1991).

Boss Hog comes good

Harley-Davidson (HD) was established in 1903 by Bill Harley and Walter Davidson and grew rapidly in the 1920s and 1930s to become an icon of American industry. It was adopted as the bike of the American military during World War II and the Korean War. It was also featured in almost every US teen-movie of the 1950s and 1960s, including Rebel Without a Cause, The Wild Ones and Easy Rider. For more than 60 years it was a symbol of the American Dream; it could never die. However, by the mid-1970s, things had begun to go badly wrong, and the company had become a byword for shoddy workmanship,

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poor product reliability and abysmal quality. HD was also highly leveraged and rapidly losing market share, customers and money. The company had become complacent and inward-looking and, like many businesses in North America at that time, had failed to anticipate the threat from an economically and industrially ascendant Japan. Its employees were demoralized, demotivated and embarrassed to be associated with the company.

The first step taken by the company and its new CEO Richard Teerlink was to lay off 40 per cent of HD’s 4000 employees. As he observed in 1991, ‘This was the only way to save the company. We had to do this to save everyone else’s jobs.’ The company then proceeded to introduce Japanese quality methods, re-engineered its manufacturing processes and products, and revamped its work teams. It also changed its salaries and benefits schemes to tie rewards more closely to individual performance and completely restructured its old-style topdown communication systems. These initiatives worked to some extent, with improvements in both overall quality and profits. However, by the mid-1980s, Teerlink and his senior management team realized that more drastic action was required to complete the company’s turnaround. As a result, HD’s senior managers went back to school at the Center for Organizational Learning (COL) at MIT, under the guidance of Peter Senge. Here they played management games, learnt about systemic thinking and mental-modelling and, critically, learnt that they too had to change, by giving up formal positional power and becoming empowering coaches and educators within the HD workforce. It wasn’t until the company got involved with COL that it learned to think better, to think more creatively and to listen more actively to its employees’ ideas and contributions. By adopting the principles of systemic thinking they were able to think through a whole series of business decisions, whose consequences the company would not have foreseen in earlier times. The senior managers in the company also set about creating a new vision and a set of core company values that could encapsulate the changes they were trying to make and the new culture they were trying to create. The five values they settled on were:

Tell the Truth

Be Fair

Keep Your Promises

Respect the Individual

Encourage Intellectual Curiosity

Encourage intellectual curiosity? This is a company that makes motorbikes; it is not a university department or a school. Not surprisingly,

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after many years of mismanagement and inept leadership, there was considerable cynicism amongst the company’s workforce about the changes being proposed by senior management, as well as the new company values they were espousing. Nevertheless, the company’s senior managers were able to sell the vision and the message, and backed these up with concrete actions. Great efforts were put into shifting the company away from its old dictatorial style of management to a more participative and empowered leadership style, and self-manag- ing team-based production systems. The company also set up a dedicated education centre, The Learning Institute, to encourage staff development and learning. Employee participation was fully funded and actively encouraged, whether taken within or outside the company. Initially, staff development focused on basic literacy and mathematical skills, but this has since developed into a service that offers the full range of skill and learning packages required in a modern learning organization. The aim of this initiative, in the words of Ron Hutchinson, then Head of Customer Services, was to create ‘an intelligent workforce, where people want to come to work and want to contribute their ideas’.

Once the ball was rolling, the impetus for change became unstoppable. In part, this was assisted by the kind of employees who worked at HD. As Hutchinson remarked in 1991, ‘Fortunately for HD, many of our employees are also our customers. The result in HD is a culture that very much emphasises freedom and respect for the individual. Where, for example, would you find a company where many of the employees have the company’s logo tattooed on some portion of their anatomy!?’ From 1987 onwards, sales and profits have increased every year. As a result, many of those who were laid off in the late 1980s were subsequently rehired in the 1990s. HD has continued its collaboration with COL at MIT and this has continued to produce benefits. For example, HD was one of the first companies to become actively involved in a strategic programme of corporate licensing. HD’s adult collectables business now generates more than 50 million dollars a year for the company.

The company’s two most successful years on record were 2001 and 2002. HD’s net earnings rose by 21 per cent from 2001 to 2002 on the back of sales worth $US4.1 billion, and the company’s share price increased by 242 per cent between 1997 and 2002. The company celebrated its centenary by holding a series of anniversary celebrations, which ran from July 2002 to Labour Day 2003 in the USA, and in many other countries. At least 100 000 riders descended on Milwaukee, in Wisconsin, the birthplace of the company, for the July 2002 party, and double this number attended the 2003 celebrations. The company’s