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AndrÉ de WAAl© André de Waal 2012Apart from any fair dealing for the purpose of research or privatestudy, or criticism or review, as permitted under the Copyright,Designs and Patents Act 1988, this publication may only bereproduced, stored or transmitted, in any form or by any means,with the prior permission in writing of the publisher, or in thecase of reprographic reproduction in accordance with the termsand licences issued by the Copyright Licensing Agency. Enquiriesconcerning reproduction outside those terms should be addressedto the publisher. The address is below:Global Professional Publishing LtdRandom AcresSlip Mill LaneHawkhurstCranbrookKent TN18 5ADEmail: [email protected] Professional Publishing Ltd believes that the sources ofinformation upon which the book is based are reliable, and hasmade every effort to ensure the complete accuracy of the text.However, neither Global Professional Publishing Ltd, the authorsnor any contributors can accept any legal responsibility whatsoeverfor consequences that may arise from errors or omissions or anyopinion or advice given.ISBN 978-1-906403-82-9Printed in the United Kingdom by Bell & BainFor full details of Global Professional Publishing titles inManagement, Finance and Banking see our website at:www.gppbooks.com13.Introduction: Starting thejourney toward HPOA leader’s journey toward high performance“We felt we had stayed in our comfort zone for too long. Ourorganization had been doing quite well in recent years and wouldcontinue to do so – or, at least, that’s what we thought. However,various changes in the environment started to hurt us more andmore, making it painfully clear that we were losing our valueto clients. We, as management, realized that it was not us butthe employees who were the decisive factor for the results of theorganization. Our people at the counters took a decision every sixminutes, that is 80 decisions per day per person. And with 400counter clerks that meant 32,000 decisions any given day! Such anumber could never be regulated by protocols or instructions from‘above’ so clerks had to take these decisions autonomously. And ifthey would simply follow a checklist provided to them by us, theywould not be thinking about client needs while making decisionsand we would never create added value for our clients. We becameaware of the need to build an organization that would facilitateemployees making good decisions and turn the work floor into themost important layer of the organization. We needed to becomea high performance organization. But the sixty-four thousanddollar question was: how?Chapter 1What makes a high performance organization2First we had to get out of our comfort zone, which required usto abandon the old traditional idea of wanting to achieve higherturnover and profit growth. We had to broaden our horizon andget used to thinking about new ways to deliver ever increasingquality and made-to-measure services to our clients, which wouldeventually translate into growth and profitability. This meantwe had to work ‘smarter’, be more entrepreneurial, listen betterto our clients, and develop a true service-minded attitude. Asmanagement, we had to move from giving top-down instructionsand always wanting to be in control – creating uninspiredemployees and killing creativity – to being managers who couldfacilitate, coach and inspire people and by that increase our valueto employees. Speaking about myself, I had some tough questionsto answer: What did I need to do? How was I going to approachthe upside-down pyramid? What would it mean for me personally?I felt that I had to confront my fears: Did I really want this? Was Icapable of doing this? Where would we end up? At the same timeI knew it would be a lonely journey, certainly at the beginning, asthe organization wasn’t really welcoming change. In addition, Irealized that the course would be uncertain and that others couldand probably would react negatively. As a leader you just have toaccept these uncertainties and dare to tackle them. Only after Ihad faced up to this reality could I start my journey to make theorganization a high performance organization.”1the above was compiled from interviews with Jonard speijer, former chiefexecutive officer of Dactylo. With 120 branches nationwide, Dactylo was one ofthe largest temporary employment agencies in the netherlands. Dactylo specializedin deploying flex workers in administrative, industrial and technical positionsin different types of industries. Dactylo is now part of the randstad group, thesecond largest temping agency in the world. Before Jonard speijer decided to takeon the journey toward a high performance organization (hpo), he and his fellowmanagement team members had been endeavoring for quite some time to improvethe temping agency’s performance. and they had not been alone in this. at the hpocenter we frequently meet senior executives who feel the same pressure to make3introDuctiontheir organizations high performing, in the current business environment, whichcan be characterized by the following:2■■ The economic balance of power in the world is shifting. While Western economiesare still recovering from the recent financial and economic crises, upcomingeconomies are growing rapidly and gaining significance in the world economy.the Western business world changed in 2007-2008 when the credit crisis hit,eventually causing the most severe recession since the 1930s and creatingcontinuous low growth rates. at the same time emerging economies likechina, india and Brazil but also many countries in africa are steadily growingcausing them to become the economic motor of the world.■■ Economic globalization will continue. as competition nowadays can be expectedfrom every corner of the world, companies are forced to operate in manydifferent countries and cultures. to deal with this, mergers are created resultingin large global corporations that are often more powerful than countries.concurrently, regional economic blocs such as asean and nafta form strongeconomic bases around the world.■■ The gap between the affluent and the deprived is widening. national wealthcontinues to be distributed inequitably in both developing and developedcountries. this causes tension between communities and increases the riskof conflicts.■■ Changes in the environment and demographics create uncertainty. global warmingand environmental pollution are two of the major problems the world is facingtoday. they create economic and political tensions between countries overscarce resources such as water, yet a solution to these problems still doesn’tseem to be near. concurrently, the world population is increasing to anexpected population of 9 billion people. the population in developed countriesis rapidly ageing while birth rates are going down, causing a struggle for jobopenings to be filled adequately. in developing countries, on the other hand,the population is young and many jobs will need to be created for them inthe near future. it is still unclear whether the economic growth in developingnations will create enough jobs for young people in their own countries andwhether economic migration will decrease as a result of that.■■ The impact of technology on business and society continues. the rate at whichnew technology is invented and put to use is still accelerating, creating newopportunities and at the same time, new unforeseen threats. ultra modernWhat makes a high performance organization4materials and manufacturing techniques, such as nano-technology have thepotential to disrupt complete industries.■■ The demand for more transparency and information increases. analysts, banks,shareholders and society are monitoring more actively what an organizationis doing and not doing. at the same time, the possibilities to generate dataand the social media are causing increasing difficulties for governmentsworldwide to control the flows of information, and the same is valid for thetop management of a company.as managers are expected to realize the goals of the organization by achievingoutstanding performance in their organizational unit, they are constantly underpressure to deal effectively with the current business environment. at the sametime, they are always short on time because of the numerous demands on them andtherefore they need a strong focus on what really matters to improve the performanceof the organization. as a consequence, managers have become strongly interestedin knowing the characteristics of high performance as these will help them in theirquest for excellence.1.1 Introducing the High Performance OrganizationFrameworkto help managers find ways to improve their organizations, the hpo center starteda five-year research project into the factors of sustainable high performance. theresult of this research, the high performance organization (hpo) framework, is oneof the subjects discussed in this book as are many real-life examples illustratingthe workings of the hpo framework at organizations worldwide. as opposed tomany previous publications on organizational performance, this book describesnot just a theory on high performance but also a vast number of case studies inwhich this theory was put into practice. successively it goes into the search for thefactors of sustainable high performance, the construction of the hpo framework,and the positive effects of applying the hpo framework at all types of organizationsworldwide. also, in contrast to previous studies into hpos, longitudinal researchwas performed in which companies were followed and studied while they workedwith the hpo framework. this allowed establishing the benefits of applying the hpoframework in terms of better financial and non-financial results, and consequentlythe hpo framework currently is the only improvement methodology that has beenscientifically validated to help organizations achieve better performance. thereforemanagers can take the lessons learned by the case study organizations using the hpo5introDuctionframework and the best ideas of the hpo Leaders that are interviewed throughoutthe book, to heart in the knowledge that these can and will help them to turn theirorganizations into hpos.What is the HPO Framework?the hpo framework is a conceptual, scientifically validatedstructure which practitioners can use for deciding what to do toimprove organizational performance and make it sustainable. itisn’t a set of instructions or a recipe which can be followed blindly.rather it is a framework that has to be translated by managersto their specific organizational situation in their current time,by designing a specific variant of the framework fit for theirorganization. this is bad news for bad managers, as the hpoframework doesn’t provide a blueprint. it is however good newsfor good managers, as they can put in their own experience,expertise and creativity while transforming their organizationsinto hpos.1.2 Defining the high performance organizationthe hpo center defines an hpo as follows:A High Performance Organization is an organization that achievesfinancial and non-financial results that are exceedingly better thanthose of its peer group over a period of time of five years or more,by focusing in a disciplined way on that what really matters to theorganization.this definition consists of several interesting parts worth discussing:■■ high performance is relative. in other words, performance can only be denotedas ‘high’ when it is compared to a peer group. this peer group comprisescompetitors, in the case of profit companies, or comparable organizations, inthe case of non-profit organizations or governmental agencies.What makes a high performance organization6■■ organizations which have done well for a period of only one, two or threeyears are not considered to be hpos. high performance is characterized bysustainable good results over a prolonged period of time. so an hpo not justperforms well because it was lucky but because it has been doing the rightthings right.3 the limit of five years was chosen because the assumption wasthat most organizations have a strategic plan, with an average time horizonof three years, aimed at increasing performance and beating the peer group.after five years it can be evaluated in retrospect whether the organizationhas indeed achieved its aim of doing better than the peer group. anotherreason for choosing five years was that the average life span of an organizationis approximately 12 and a half years and is still going down. thus, if anorganization performs much better than its competitors for almost half of theexpected life span of a ‘normal’ organization, it can rightfully be said to be anhpo.4■■ recent research shows that it is very difficult for organizations to achieveconsistent growth, even at modest rates. the case studies in this book revealthat hpos know what makes them prolonged successful. they have thediscipline not to be distracted by the newest management fad but to stick totheir knitting. this means that they continue to do what made them successful(processes, systems, behavior) and that their improvement efforts will alwaysbe aimed at making these continuously better. the main reason for hpos tostart something different is if they see an opportunity to strengthen their corecapabilities and competences. hpos also know that deviating from this pathmay mean getting into trouble and declining performance, so management iskeen on keeping the discipline.51.3 Benefit of HPO and the HPO FrameworkWhat is the benefit of being an hpo? table 1.1 shows the financial returns of an hpocompared to its peer group. the figures are based on results of hpos provided inthe literature. the returns are given as ranges rather than single numbers becausethey differ per industry, as each industry has its own financial profile. for instance,a profitability margin of 4 percent in a supermarket would be very good, whilein the banking industry (at least, in the old days) it would be substandard. onlythose financial returns have been included in the range which have been reportedin more than one hpo study. the estimation of the range is conservative, thereforeoverly large outcomes have not been included in the listing. on the basis of the7introDuctioncomparison, an organization can theoretically expect the following improvementsversus its competitor when it becomes an hpo: revenue growth will be 4 to 16percent higher; profitability 14 to 44 percent better; roa, roe, roi and ros 1 to26 percent higher; and tsr 4 to 42 percent higher.Type of financial return Return of HPO versus peer group(in %)revenue growth + 4 to 16profitability + 14 to 44return on assets (roa) + 1 to 12return on equity (roe) + 9 to 25return on investment (roi) + 15 to 26return on sales (ros) + 2 to 18total shareholder return (tsr) + 4 to 42Table 1.1: The returns of an HPO versus its peer groupit is somewhat difficult to compare the non-financial performances of hposagainst its peer groups because non-financial indicators tend to differ per industry.however, several hpo studies give clear indications that hpos generally have highercustomer satisfaction, higher customer loyalty, and higher employee satisfaction,higher quality, less complaints, more innovative products and services, and a betterreputation than non-hpos.in chapter 9 the benefits of applying the hpo framework will be discussed,based on the numerous case studies. at this time it can already be said that thepractical experience at case organizations in many different countries shows thatapplying the hpo framework indeed helps an organization to achieve betterfinancial and non-financial results. not only does the framework help organizationspinpoint its current status and strong and weak points, but it also provides clearindications and suggestions for organizations which need to be addressed in orderto become an hpo. the hpo framework has been so extensively tested in sectorcomparative studies and in longitudinal research, that it can be safely stated that itpays to apply the framework to become an hpo!What makes a high performance organization8Toyota: an HPO in crisis‘On August 28th, 2009, Toyota, the world’s largest andmost profitable car manufacturer, stopped being an HPO’on that day the first accident happened with a toyota, whichtriggered a recall of more than 10 million vehicles in 2009 and2010 and a loss of more than us$4 billion for fiscal year 2009.in san Diego, usa, the gas pedal of a Lexus got stuck under thefloor mat causing the car to run out of control and of the road,killing its occupants. however, the accident did not set off awhole series of improvements at toyota, as it once would havedone in a manner which gained the company a reputation forits world-class processes.6 But toyota was no longer the robustcompany of the earlier days, the company which had risen fromthe brink of bankruptcy in the fifties and had achieved a stretchof 50 consecutive years of profitability – a record unheard of inmanufacturing industries – to become the biggest car manufacturerin the world. a company known for its excellence in manufacturingprocesses and its continuous improvement culture, collectivelyknown as the toyota Way.7 toyota was in 2010 rapidly losing itsreputation as hpo and everyone wondered: what happened?the answer was given by akio toyoda, president of toyota motorcorporation:8 “toyota has, for the past few years, been expandingits business rapidly. Quite frankly, i fear the pace at which we havegrown may have been too quick. i would like to point out herethat toyota’s priority had traditionally been the following: first,safety; second, quality; and third, volume. these priorities havebecome confused and we were not able to stop, think, and makeimprovements as much as we were able to before, and our basicstance to listen to customers’ voices to make better products hasweakened somewhat. We pursued growth over the speed at whichwe were able to develop our people and our organization, and we9introDuctionshould sincerely be mindful of that.” subsequent analysis by bothtoyota and outside researchers revealed weaknesses in the once sostrong company. Because of the rapid growth and the tendency thathad developed among toyota’s management to put quantity abovequality in order to achieve the top spot in car manufacturing, thecompany had lost its intense focus on understanding customersconcerns, taking these seriously and addressing them as quicklyand best as possible. in addition, the company had becomebureaucratic with outdated lines of communication, decision andaccountability, and a tendency towards smugness so it took toolong to respond to issues. and to make matters worse, severalbusiness practices which had served the company well for so manyyears were no longer applied, such as only building what was soldso no inventory would build up, and only expanding when therewas enough trained personnel to do so in a quality controlledmanner. in conclusion, the company no longer practiced what ithad preached and what had made it so successful: the relentlessfocus on quality. management no longer had the discipline towithstand the economic pressures of selling more at the expenseof quality.Will toyota become an hpo again? it lost its position to generalmotors as the world’s largest car manufacturer, it has not returnedto its former profitability yet, and severe damage was done to itsreputation and brand. however, it seems that the company hasseized the crisis to go back to its old ways and culture and thatit is doing now more of what it had been doing right in all thosedecades before the recall crisis began. this is a promising sign andhopefully the company will become ‘er boy’ of hpos onceagain.What makes a high performance organization101.4 Setup of this bookWhat Makes a High Performance Organization: Five Validated Factors That Apply Worldwideis meant for anyone interested in improving organizations, using a scientificallyvalidated framework instead of depending on the latest management fad. thebook consists of nine chapters. after introducing in chapter 1 the hpo and thehpo framework and their accompanying benefits, chapter 2 concentrates on theresearch done by the hpo center to develop the hpo framework for practitionersto improve organizational performance. five factors of high performance – the hpofactors – are introduced as well as several factors that during the research turnedout to be of lesser importance than always thought for becoming an hpo. in thischapter the question is also raised, and answered, whether the five hpo factorswill remain the same through time and thus whether they will still be relevant formanagers in the future. chapter 2 concludes with the practical application of theframework by introducing the hpo Diagnosis. the working of the diagnosis isillustrated by the experiences at two case companies. chapters 3 through 7 go inmore detail into the five hpo factors. they describe the underlying characteristics ofhigh performance, and ideas to get started – originating from the hpo research andother recent organizational studies – with improving the characteristics. chapter 8gives the steps which need to be taken to make the transition to an hpo. finally,in chapter 9 the added value of the hpo framework is discussed, based on theexperiences of organizations and researchers while working with the framework.Introducing the HPO leadersin the past years the hpo center undertook many case studies to study theworkings of an hpo, the experiences of organizations with the hpo Diagnosis, andhow organizations go about the transition to hpo. many of these case studies canbe found scattered in between the chapters. in preparation for this book the hpocenter also conducted interviews with 11 hpo Leaders, managers who were eitherworking at an hpo or who were turning their organizations into hpos. they werewilling to share their experiences and ideas with us. each chapter contains quotesfrom the interviewees to illustrate the subject matter treated in the chapter. Weinterviewed the following managers:■■ Air France – KLM Royal Dutch Airlines, France/the Netherlands: Arend de Jong, seniorvice president Internal Audit & Internal Control – kLm royal Dutch airlines isthe airline of the netherlands and is part of the air france-kLm group. kLm11introDuctionoperates worldwide scheduled passenger and cargo services to more than 90destinations. its hub and spoke system is based at amsterdam airport schipholand its core business is the transfer of passengers from origins to destinationsboth inside and outside of the netherlands. kLm is the oldest airline in theworld still operating under its original name and has approximately 30,000employees. in may 2004 the merger of kLm with air france created air francekLm. arend de Jong started as assistant controller and later became corporatecontroller of kLm. currently he is senior vice president internal audit andinternal control of the air france – kLm group.■■ HP, United Kingdom: Huw Owen, former CEO of HP Defense & Security – hp (formerlyhewlett-packard) is one of world’s largest technology services providers,delivering flexible technology, applied innovation, collaborative expertise andservice excellence to organizations. as part of hp, hp Defense & security hasprovided technology to uk forces which allows nato-compatible informationsharing at the frontline, ensuring that soldiers, sailors and airmen can dotheir jobs. hp Defense & security partners with the uk ministry of Defensethrough the atLas consortium to help transform business administrationprocesses within the British armed forces. hp Defense & security is leadingthis consortium charged with delivering the new Defense informationinfrastructure. hugh owen led the atLas consortium and at the time of theinterview was the chief executive officer of hp Defense & security. at bothorganizations he was working with the hpo framework.■■ Microsoft, USA: Rik van der Kooi, Corporate VP, Advertiser and Publisher Solutions– the story of microsoft is well-known. established in 1975 by Bill gates andpaul allen in albuquerque new mexico, the company has grown to the largestand one of the most profitable and well-known it providers in the world,now under the leadership of steve Ballmer. the company has succeeded inconsistently being at the forefront of developments in the industry whilebeing a first choice employer for graduates and being very profitable. rik vander kooi is based at microsoft’s headquarters in redmond, Washington, wherehe joined in 2005 as chief financial officer of the online services Division.currently he is corporate Vice president of advertiser and publisher solutions,in charge of microsoft’s digital advertising business.■■ Microsoft, the Netherlands: Theo Rinsema, general manager Microsoft the Netherlands– microsoft netherlands is the pioneer of the new Way of Working concept,What makes a high performance organization12which aims at achieving time and location independent working. this meansthat it does not matter when or where microsoft employees work, they havealmost complete freedom in this as long as they achieve the agreed upontargets. Because of the flexibility this provides it is easier for employees tocombine work and private life, which works as a big morale booster. thisnew Way of Working requires a new way of managing as people do not keepregular office hours and are not that often in the building anyway, so the factortrust has become increasingly important in the relation between manager andemployee. physically the new Way of Working takes shape in the buildingof microsoft netherlands which does no longer have offices or cubicles butconsists of open spaces, concentration rooms and a sophisticated coffee bar.theo rinsema is the person who introduced the new Way of Working conceptat microsoft.■■ SABMiller, Europe: Alan Clark, managing director – saBmiller plc is one of theworld’s largest brewers, with brewing interests and distribution agreementsacross six continents. the group’s wide portfolio of brands includes premiuminternational beers such as pilsner urquell, peroni nastro azzurro, millergenuine Draft and grolsch, as well as leading local brands such as aguila,castle, miller Lite, snow and tyskie. saBmiller is also one of the world’slargest bottlers of coca-cola products. saBmiller europe’s brewing operationscover 10 countries, and in the majority of these countries the company isthe number one or two brewer by market share. the company also exportssignificant volumes to a further eight european markets of which the largestare the united kingdom and germany.■■ Schuberg Philis, the Netherlands: Pim Berger, founder/managing director & IljaHeitlager, information officer – schuberg philis is an it outsourcing companywhich offers the highest service quality for mission critical applications oforganizations, fully committing to a 100 percent uptime. this means that thecustomer is guaranteed that its it systems which are critical for its operationswill function 24/7 365 days per year, without exception. after fully analyzingthe risks with customers, schuberg philis takes full responsibility for thesystems. in case of issues, schuberg philis will suffer financial penalties whichare taken without discussion. schuberg philis has the best reputation in theindustry, has the most active promoters among its customers, is seen by themost customers as a strategic partner, and thus achieves the best financialresults in the industry.13introDuction■■ Svenska Handelsbanken, Sweden: Mikael Sørensen, general manager the Netherlands– svenska handelsbanken is a swedish bank with branches in sweden, theunited kingdom, Western and eastern europe, russia, asia and usa, andapproximately 10,000 employees. the bank has for more than 40 yearsconsistently outperformed other european banks on performance indicatorssuch as return on equity, total shareholder return, earnings per share, costincome ratio and customer satisfaction. the bank is successfully obtaining itsgoal year after year, which is to have a higher profitability than the average forits competitors. in the process, svenska handelsbanken has been the first bankof choice for graduates for years and has the lowest turnover in the industry; ithas the highest customer satisfaction, the least complaints, the lowest creditlosses in the industry, and the best financial results in the industry.■■ Tata Steel, the Netherlands: Jan Maas, Director Change Supply Chain Transformation– in 1999 koninklijke hoogovens n.V., based in the netherlands, merged withBritish steel plc to form corus, which was subsequently taken over in 2007by tata steel. tata steel group manufactures, processes and distributes steelproducts and services to customers worldwide. the company is now europe’ssecond largest steel producer with annual revenues of around £12 billion anda crude steel production of over 20 million tons. Jan maas was, at the timeof the interview, director services at tata steel in iJmuiden, the netherlands,in charge of it, logistics, security, maintenance, buildings, and third partyvendors.■■ Umpqua Bank, USA: Lani Hayward, executive vice-president Creative Strategies –umpqua Bank is one of north america’s most successful banks. establishedin 1953 in oregon as the national Bank of oregon, it transformed froma small, solid but rather inconspicuous bank with five branches in oregoninto a company with us$7 billion of assets, 120 branches in several states,high profitability and large market share, extremely loyal employees who arehardly ever ill and almost never leave, and a product portfolio formula whichhas won several prices. the bank also did not suffer too much during thecredit crisis because it had been focusing not only on its shareholders but onits stakeholders as well, thus taking decisions which were in the long-terminterest of all parties involved. Lani hayward is executive vice-president incharge of developing and executing creative strategies.What makes a high performance organization14■■ Unilever, Europe Middle East Asia: Lennard Boogaard, vice president Human Resources,Unilever Turkey, Israel, Iran & Central Asia – one of the best-known companiesin the world is unilever, the British-Dutch organization that owns many ofthe world’s consumer product brands in foods, beverages, ice cream, cleaningagents and personal care products (for example: Ben & Jerry’s, Dove, colman’s,slim-fast, Lipton and Vaseline). unilever has operating companies in morethan 100 countries, owns more than 400 brands, achieves a turnover of us$40billion, and has some 200,000 employees. the company focuses its marketingefforts mainly on its billion-dollar brands, a limited number of brands thatachieve annual sales in excess of us$1 billion. Well-known brands includeBlue Band, Dove, flora/Becel, knorr, axe/Lynx and hellmann’s. from its originunilever always put much emphasis on creating a social working environment.Lennard Boogaard is in charge of the human resources of unilever’s operationsin turkey, israel, iran and central asia.■■ Ziggo, the Netherlands: Martine Ferment, former vice president Ziggo CustomerRelations – ziggo is a Dutch media and communications services provider,serving approximately 3.1 million households, 1.5 million broadband internetcustomers, 1.8 million digital television customers and 1.2 million telephonesubscribers. in addition, business-to-business clients use services as datacommunication, telephony, internet and television. the enterprise owns anext-generation-network through which it can supply bandwidth for all futureservices expected at present. martine ferment was interim vice president ofziggo customer relations, the unit that deals with servicing customers. shehas used the hpo framework to transform ziggo customer relations into anhpo.15introDuctionKEY POINTS CHAPTER 1■■ In the modern highly complex business world, managersfeel a great pressure to make their organizations highperforming. This is why there is a strong interest amongmanagers in knowing the characteristics of high performanceorganizations. These characteristics can serve as a guidelinefor improving the organization and achieving sustainedhigh performance.■■ A High Performance Organization (HPO) is defined as: anorganization that achieves financial and non-financial resultsthat are exceedingly better than those of its peer group over aperiod of time of five years or more, by focusing in a disciplinedway on that what really matters to the organization.■■ In 2003 the HPO Center started a research project toexamine the determinant factors of sustainable highperformance. In five years time, people from 1,470organizations in 50 different countries spread across fivecontinents participated in this project. It resulted in theHPO Framework, a conceptual, scientifically validatedstructure which practitioners can use for deciding whatto do to improve organizational performance and make itsustainable.■■ Since 2007, the HPO Framework has been applied in manydifferent industries in different countries. The case studiesdescribed in this book show that organizations which usethe framework actually start to perform better than theydid before.What makes a high performance organization16Umpqua Bank (USA): a passion forexcellenceKEY MESSAGEalthough many competing banks have visited umpqua Bankto see how they could copy what the bank was doing, noneof them has yet succeeded in reproducing its success. copyinga successful organization does not automatically create anhpo. an organization can learn from an hpo, but at the sametime it has to develop its own hpo vision and tailor it to theorganization’s specific requirements and circumstances.in the pacific north-West of the united states there is a mid-sizedbank which is extremely successful and which has hardly beenaffected by the financial crisis. umpqua Bank was established in1953 in oregon by six people who worked at that time in the loggingindustry. for decennia the bank, at the time called national Bank oforegon, was a little-known, small bank with moderate profitability.this changed when in the 1990s ray Davis was appointed as chiefexecutive officer. under his inspired leadership, umpqua Banktransformed into a company with almost us$12 billion of assets,186 branches in several states, high profitability and large marketshare, extremely loyal employees, and a product portfolio formulawhich has won several awards.how did Davis accomplish this turnaround? fortunately he hasnot kept his approach a secret as Davis has described it in hisstimulating book titled Leading to Growth.9 a striking fact in thestory of umpqua Bank is that the bank’s strategy is unique inthe sector: the bank considers itself a retail business rather thana financial services provider. that is why its branches are fittedout as if they are stores and its employees are send on ‘trainingmissions’ to large successful american retail trading companies17introDuctionand hotel chains like ritz-carlton to learn how to behave in acustomer friendly way with clients. everything within umpquaBank (processes, products, reward systems, training courses) isaimed at executing this unique strategy as best one can. initiallyDavis was laughed at by his peers because of his deviant approachbut later on the same people were queuing to visit umpqua Bank’sstores. another success factor at umpqua Bank is the quality of themanagement and more specific the fact that managers function asrole models for employees. umpqua Bank’s managers feel a truepassion for their clients, employees and society (that is, the areas inwhich the stores are situated) and have a firm discipline to alwayslook out for the interests of these stakeholders. they give theiremployees a lot of responsibility and at the same time address theresults they achieve, and swiftly deal with non-performers. thecore skills the company is looking for in an excellent manager canbe described as follows: (1) develop a broad view on the business;(2) have the discipline to stick to the plan; (3) have a clear visionon the future of the company; (4) lead the way in change; and (5)implement the strategy successfully. further, it is allowed to makemistakes as long as people learn from these.it is therefore no wonder that umpqua Bank likes to experimentwith ways to make itself more appealing to its clients. in the lastchapter, Davis states the essence of his book very succinctly: “in thisbook i have focused on leading for growth – not because gettingbigger is the goal, but because getting better is. growth meansmany different things. on a personal level, it means developingmaturity, self-insight, even wisdom. in an organization, it meansdeveloping a deeper understanding of your organization and themarkets you serve, increasing your bench strength, improving yourproducts and services, and much more. every organization hasto be committed to the relentless pursuit of progress if it wantsto stay vibrant and relevant. making progress is a never-endingjourney, one with no finish line.”10What makes a high performance organization18Does the above sound too good to be true? to investigate thiswe travelled to portland, to visit the umpqua Bank store in pearlstreet, downtown portland. this is our report on the visit. “Whenyou enter a store of umpqua Bank initially you don’t noticeanything remarkable. Yes, the store is spacious and decorated in anon-standard, local theme. there is free freshly brewed coffee andcomfortable seats to relax and even computer terminals with freeinternet access. ray Davis already wrote in his book that peopleof many competing banks visited umpqua Bank stores and thenquickly concluded that they could perform the same tricks asumpqua Bank. the comfortable seats have by now been copiedin every bank in the united states, there is free coffee and alsofree internet for customers. But still, these banks do not resembleumpqua Bank in the slightest. that is because it takes you a whilebefore you start to notice what ‘it’ is that makes umpqua Bankdifferent. for instance, when you enter the building there are nocounters with people who look at you with a gaze of ‘What areyou doing here?’ nobody notices you taking a second cup of freecoffee. We see a business man entering hastily to plug in his mobilephone to recharge it as he is expecting an important call and hisbattery is almost dead. he then grabs a cup of coffee and sits downto answer his call and … not one of the umpqua Bank associates(as store employees are called) bothers him. at a computer terminaltwo elderly gentlemen are printing stuff and occasionally speak toeach other. a moment later two business women enter. it turnsout they just met on the street and decided to enter the storeto sit down in a quiet corner to chat to each other and do somebusiness. We suddenly perceive it: all these people feel at home inthe umpqua Bank store, something we would never have dreamedto happen at a bank. these people use the umpqua Bank storeas a part of their daily life and routine, the store is part of theircommunity. it provides them with a place to meet people, drinkcoffee, and, oh yeah, do some banking business.19introDuctionfrom the sitting room only one umpqua Bank associate is visible.he stands next to a sort of counter, looks at everybody with afriendly gaze, nods at the people he knows, which is most of them.he talks to some of them, not so much about banking business butabout their daily life. this makes him part of the people’s lives, heknows when you go on holiday or when somebody is sick in yourfamily. he tells us how much he enjoys his job. he worked in therestaurant business for 15 years and the skill he has learned there,to make contact with people without being pushy, he uses at theumpqua Bank store every day. he mainly listens and knows howto put you and your affairs central in the conversation. throughfollowing training courses he has learned the banking business andit is no problem if sometimes he doesn’t know all the details, hecan ask any of his three colleagues in the store. he introduces usto his colleagues, who are positioned behind open counters at theback of the store. these associates all have different backgrounds:one originates from the hotel industry, the second used to workin supermarkets, and the third turns out to have experience inbanking. When we leave the store we know that we have reallyconnected with umpqua Bank, we now know what makes thiscompany so special.”
213.4.Foundations of the HPO:research that spans theworldThis chapter describes the research that resulted in the development of the HPOFramework, a conceptual structure which managers can use to improve organizationalperformance. The framework provides a definition of the concept of the HPO –which was discussed in Chapter 1 – and five factors of high performance – theHPO factors – with their 35 underlying HPO characteristics. The research indicatedthat some activities in organizations which most people consider important forachieving high performance, were not really distinguishing for becoming an HPO.After a brief list of those activities, one of these, the implementation of bonuses andreward systems, is discussed in more detail. The sections that follow discuss why theHPO factors are important both now and in the future, and how the HPO researchand the HPO Framework differ from previous research on high performance. Thechapter concludes with a description of the HPO Diagnosis, a practical tool to applythe HPO Framework, used to evaluate how far along the path to high performancean organization is.2.1 Global HPO researchThe HPO Framework was developed after a two-phased research project toexamine the determinant factors of sustainable high performance. It consisted ofa descriptive literature review (Phase 1) and an empirical study in the form of aworldwide implemented questionnaire (Phase 2).11 Phase 1 started with collectingthe studies on high performance and excellence that were to be included in theliterature review. The criteria used were:(1) The study was aimed specifically at identifying HPO factors or bestpractices.Chapter 2WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn22(2) The study consisted of either a survey with a sufficient large numberof respondents, allowing generalization of the results, or in-depth casestudies of several companies, which meant the results were valid formore than one organization.(3) The study employed triangulation by using more than one researchmethod.(4) The study included written documentation containing an account andjustification of the research method, research approach and selectionof the research population, a well-described analysis, and retraceableresults and conclusions allowing assessment of the quality of the researchmethod.The literature review covered 290 studies which satisfied one or more ofthe four criteria. These studies formed the basis for identifying the potentialHPO characteristics, which were required for developing the questionnaire inPhase 2. The studies were put in several study categories depending on the rigorwith which the study had been conducted (e.g. from purely scientific to ‘based onmy experience’). The identification process of the HPO characteristics consisted ofa succession of steps. First, elements were extracted from each of the publicationsthat the authors themselves regarded as essential for high performance. Theseelements were then entered in a matrix. Because different authors used differentterminologies in their publications, similar elements were placed in groups under afactor and each group – later to be named ‘characteristic’ – was given an appropriatedescription. subsequently, a matrix was constructed for each factor listing anumber of characteristics. A total of 189 characteristics were identified. Afterthat, the ‘weighted importance’, i.e. the number of times a characteristic occurredin the individual study categories, was calculated for each of the characteristics.Finally, the characteristics with a weighted importance of at least 9 percent weredesignated characteristics that potentially make up an HPO. A cut-off percentageof 9 percent was chosen as there was a natural gap around this percentage: severalcharacteristics scored considerably below 9 percent while the next closest scoringcharacteristics scored considerably higher than 9 percent. The cut-off resulted in alist of 53 potential HPO characteristics. The research in Phase 1 was partly replicatedby Cranfield University, which confirmed the conclusion.12In Phase 2 of the HPO research the 53 potential HPO characteristics wereincluded in a questionnaire which was presented to managers and employees duringlectures and workshops all over the world. The respondents of the questionnaire– originating from profit, non-profit and governmental organizations from23FOUnDATIOns OF THe HPOFigure 2.1: Graphic representation of the HPO Framework50 countries –were asked to grade how well their organization performed on thevarious HPO characteristics on a scale of 1 (very poor) to 10 (excellent) and alsohow their organizational results were, compared to those of peer groups. Thequestionnaire yielded 2,515 responses. With a statistical analysis, 35 characteristicswith both a significant and a strong correlation with organizational performancewere extracted and identified as the HPO characteristics. The statistical analysisalso revealed that these 35 characteristics could be categorized into five factors, theHPO factors. These are described in the section 2.2.The HPO research showed that there is a direct and positive relationshipbetween the five HPO factors and competitive performance: the higher the scoreson the HPO factors (HPO scores), the better the results of the organization, and thelower the HPO scores the lower the competitive performance. The research alsoWHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn24showed that all HPO factors need to have equal scores. If for instance four HPOfactors score an 8 (out of 10) and one factor a 5, the organization will not be ableto function as an HPO because it is out of balance. An easy way to visualize thisis to imagine a child’s propeller (Figure 2.1). When exposed to the wind, it spinsaround at a constant speed. However, if one of the strings breaks, the propeller willno longer turn around smoothly and will eventually break down. It illustrates thatan organization should distribute its attention evenly across the five HPO factors tomake sure none of these will be ‘broken’ and hold back the organization. Workingon just one HPO factor, or only a few characteristics, without paying attention to theother HPO factors or characteristics in due course, will not help the organization inthe long run.2.2 Five factors of high performanceThis section briefly describes the five factors of high performance – the HPO factors.A more in-depth explanation of each factor is provided in Chapters 3 to 7. Table 2.1,at the end of this section, lists the 35 HPO characteristics that underlie the HPOfactors, in order of importance within a factor.HPO factor 1: Management QualityIn an HPO, managers at all organizational levels maintain trust relationships withemployees by valuing their loyalty, treating smart people with respect, creating andmaintaining individual relationships with employees, encouraging belief and trustin others, and treating people fairly. managers in an HPO work with integrity andare a role model to others, because they are honest and sincere, show commitment,enthusiasm and respect, have a strong set of ethics and standards, are credible andconsistent, maintain a sense of vulnerability and are not self-complacent. They aredecisive, action-focused decision-makers, avoid over-analysis and propose decisionsand effective actions, while fostering action-taking by others. HPO managers coachand facilitate employees to achieve better results by being supportive, helpingthem, protecting them from outside interference, and by being available to them.management holds people responsible for results and is decisive about nonperformers by always focusing on the achievement of results, maintaining clearaccountability for performance, and making tough decisions. managers in an HPOdevelop an effective, confident and strong management style by communicatingthe values and by making sure the strategy is known to and embraced by allorganizational members.25FOUnDATIOns OF THe HPOHPO factor 2: Openness & Action OrientationIn addition to having an open culture, an HPO uses the organization’s opennessto achieve results. In an HPO, management values the opinion of employees byfrequently having dialogues with them and involving them in all important businessand organizational processes. HPO management allows experiments and mistakesby permitting employees to take risks, being prepared to take risks themselves, andseeing mistakes as an opportunity to learn. In this respect, management welcomesand stimulates change by continuously striving for renewal, developing dynamicmanagerial capabilities to enhance flexibility, and being personally involved inchange activities. People in an HPO spend a lot of time on dialogue, knowledgeexchange and learning in order to obtain new ideas to improve their work and makethe complete organization performance-driven.HPO factor 3: Long-Term OrientationIn an HPO, long-term gain is far more important than short-term profit. Thislong-term orientation is extended to all stakeholders of the organization, that is,shareholders as well as employees, suppliers, clients and society at large. An HPOcontinuously strives to enhance customer value creation by learning what customerswant, understanding their values, building excellent relationships and having directcontact with them, involving them in the organization’s affairs, being responsive tothem, and focusing on continuously enhancing customer value. An HPO maintainsgood long-term relationships with all stakeholders by networking broadly, taking aninterest in and giving back to society, and creating mutual, beneficial opportunitiesand win-win relationships. An HPO also grows through partnerships with suppliersand customers, thereby turning the organization into an international networkcorporation. management of an HPO is committed to the organization for the longhaul by balancing common purpose with self-interest, and teaching organizationalmembers to put the needs of the enterprise first. They grow new managementfrom their own ranks by encouraging staff to become leaders, filling positions withinternal talents, and promoting from within. An HPO creates a safe and secureworkplace by giving people a sense of safety (physical and mental) and job securityand by using dismissal as a last resort.WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn26HPO factor 4: Continuous Improvement & RenewalThe process of continuous improvement starts with an HPO adopting a uniquestrategy that will set the company apart by developing many new alternatives tocompensate for dying strategies. After that, an HPO will do everything in its powerto fulfill this unique strategy. It continuously simplifies, improves and aligns allits processes to improve its ability to respond to events efficiently and effectivelyand to eliminate unnecessary procedures, work, and information overload. Theorganization also measures and reports everything that matters, so it measuresprogress, monitors goal fulfillment and confronts the brutal facts. It reports thesefacts not only to management but to everyone in the organization, allowing allorganizational members to access financial and non-financial information needed todrive improvement. People in an HPO feel a moral obligation to continuously strivefor the best results. The organization continuously innovates products, processesand services, constantly creating new sources of competitive advantage by rapidlydeveloping new products and services to respond to market changes. It also mastersits core competencies and is an innovator in these core competencies by decidingon and sticking to what the company does best, keeping core competencies insidethe firm and outsourcing non-core competencies.HPO factor 5: Employee QualityAn HPO makes sure it assembles a diverse and complementary workforce and recruitspeople with maximum flexibility to help detect problems in business processes andto incite creativity in solving them. An HPO continuously works on the developmentof its workforce by training staff to be both resilient and flexible, letting them learnfrom others by going into partnerships with suppliers and customers, inspiring themto improve their skills so they can accomplish extraordinary results, and holdingthem responsible for their performances and with that encouraging them to becreative in looking for new productive ways to achieve the desired results.27FOUnDATIOns OF THe HPO
HPO factor 1: Management Quality
1.
management is trusted by organizational members.
2.
management has integrity.
3.
management is a role model for organizational members.
4.
management applies fast decision making.
5.
management applies fast action taking.
6.
management coaches organizational members to achieve betterresults.
7.
management focuses on achieving results.
8.
management is very effective.
9.
management applies strong leadership.
10.
management is confident.
11.
management always holds organizational members responsible fortheir results.
12.
management is decisive with regard to non-performers.
HPO factor 2: Openness & Action Orientation
13.
management frequently engages in a dialogue with employees.
14.
Organizational members spend much time on dialogue,knowledge exchange and learning.
15.
Organizational members are always involved in importantprocesses.
16.
management allows making mistakes.
17.
management welcomes change.
18.
The organization is performance driven.
HPO factor 3: Long-Term Orientation
19.
The organization maintains good and long-term relationships withall stakeholders.
20.
The organization is aimed at servicing the customers as best aspossible.
21.
management has been with the company for a long time.
22.
new management is promoted from within the organization.
23.
The organization is a secure workplace for organizationalmembers.
WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn28
HPO factor 4: Continuous Improvement & Renewal
24.
The organization has adopted a strategy that sets it clearly apartfrom other organizations.
25.
In the organization processes are continuously improved.
26.
In the organization processes are continuously simplified.
27.
In the organization processes are continuously aligned.
28.
In the organization everything that matters to performance isexplicitly reported.
29.
In the organization relevant financial and non-financial informationis reported to all organizational members.
30.
The organization continuously innovates its core competencies.
31.
The organization continuously innovates its products, processesand services.
HPO factor 5: Employee Quality
32.
management inspires organizational members to accomplishextraordinary results.
33.
The resilience and flexibility of organizational members iscontinuously strengthened.
34.
The organization has a diverse and complementary workforce.
35.
The organization grows through partnerships with suppliers and/or customers.
Table 2.1: The five HPO factors and their underlying35 HPO characteristics“ and more effective sailing. You will always have issues, however If your company is an HPO it will all be easier, more efficient,these will be issues that you will be capable of dealing with. Ifyou are not an HPO, if you are not well aligned, if you don’t havea common foundation, if everybody doesn’t know where they aregoing and don’t feel valued, people will not go the extra mile. Asan HPO, you have got the ability to do an awful lot more than anon-HPO. Because people will step up and they will do more whenrequired. so it means that you have got more agility, are moreresponsive, have got more fuel in your tank. If you have got an29FOUnDATIOns OF THe HPOunderperforming business where people are frustrated and bitter,they will do the bare minimum that they can get away with toget their pay check and go home. Which means that you are lessagile and less effective. As a high performing business you havegot a far greater chance of ploughing through the challenges witha minimal amount of disruption.”Huw Owen, HP D&S2.3 Non-distinguishing factorsBelow is a list of some of the techniques, methods and activities that organizationsoften apply to become high performing:■■ defining a clear vision, mission and strategy■■ enhancing trust in leadership■■ putting more focus on customers■■ creating better career development opportunities■■ improving processes with an improved information technology structure■■ selecting and putting in a different organizational structure (‘reorganize’)■■ implementing competence management■■ lowering work pressures■■ introducing servant leadership■■ appreciating employees more for their efforts■■ developing better listening skills in managers■■ creating more two-way communication with employees■■ laying off poor-performing employees.All these techniques, methods and activities seem reasonable things to do. Formost of them there is however little scientific proof that they actually improveperformance in the short term or the long term. It is therefore difficult to say whichWHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn30of them are important for achieving better performance. To find out more aboutthis, the results of the HPO research described in the beginning of this chapter werefurther examined. The 189 potential characteristics of high performance foundin the literature during Phase 1 were compared with the 35 HPO characteristicsidentified in Phase 2. The 154 characteristics which did not make it into the set of35 were considered as factors which were not distinguishing for becoming an HPO.In the following paragraphs some of these factors are briefly discussed.Organizational Design / Structurenone of the characteristics concerning organizational designs and structures wereHPO characteristics. All of them showed no correlation with high performance andcan therefore be considered non-distinguishing for achieving the HPO status. Itseems to make no difference (neither positive nor negative) whether managementchooses a functional design, a process design or a matrix design for its organizationalstructure. Consequently, launching a reorganization to boost performance is notadvisable. In fact, research keeps finding that most reorganizations fail to yield longterm performance improvement.13Employee AutonomyIt has been fashionable to empower employees but it does not necessarily contributeto high performance. The research results showed that a high level of autonomyhad a negative correlation with competitive performance. Too much freedom foremployees can lead to internal disorder and confusion if it is not backed up withsufficient means of coordination, and can thus seriously damage an organization.People want to have clarity about the goals, what is and what isn’t allowed and whatis expected of them. If they have that, they are happy to be empowered.StrategyWith regard to strategy, it turned out that it is not so much the chosen strategy that isimportant – as all characteristics concerning cost leadership, product differentiationand customer intimacy strategies showed no correlation with high performance –but the uniqueness of the strategy compared to competitors in the same industry.Adopting merely a ‘me-too’ strategy is thus not enough to become an HPO.31FOUnDATIOns OF THe HPOTechnology/ICTno correlation was found between technology/ICT and high performance. This maycome as a surprise as many organizations spend a lot of time and resources onimplementing new information and communication (ICT) systems with the intentionto improve organizational performance. This will however not necessarily make themHPOs. Although several of the HPO factors – especially Continuous Improvement &renewal – cannot be improved without ICT systems, the implementation of newsystems and technology in itself does not make the organization perform better forover a longer period of time; such implementations have to support at least one ofthe HPO factors.14BenchmarkingThe study results showed that benchmarking was less effective than expected forimproving an organization. When an organization embarks on a benchmarkingproject it usually aims to identify best practices, emulate these and attain – at best– the same level as the industry’s best. HPOs, however, have a completely differentview on best practices. They regard competitors’ best performance merely as thebaseline for performance, a starting point from which HPOs distance themselves asmuch as possible.15CommunicationWe often hear top managers saying “We have to communicate more … then they willunderstand.” However, employees are usually not interested in understanding, theywant to be heard. Thus it is not about communication – which can be defined asone–way traffic from manager to employee – but about dialogue. The HPO researchshowed that communication from managers to employees is not distinguishingfor becoming an HPO, but dialogue between managers and employees is. Ina dialogue there is two-way communication with listening and hearing on bothsides, exchanging ideas and working towards mutual understanding and commonunderstanding. In other words, less soap box speeches and town hall meetings andmore round tables.Bonuses and reward systemsThere is a continuous interest in the topic of bonuses and reward systems. The HPOresearch results show however that such systems are not distinguishing factors forWHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn32creating and sustaining HPOs but merely hygiene factors. The organization needsto have an appropriate reward system (whether or not including bonuses) which isconsidered by employees to be fair and equitable. If such a reward system is not inplace, the organization will run into trouble and opposition from employees, andbecoming an HPO will then be virtually impossible. If such a system is in place –and it does not seem to really matter what type of reward system as long as it isappropriate for the organization in question – employees will consider it normaland will be content, so the organization can start thinking of turning itself into anHPO.The bonus as hygiene factor: the role ofreward systems in the HPOever since the financial scandals that rocked the business worldand the worldwide financial crisis that followed, the debate on theeffects of bonuses on the performance of especially managers andthe role of reward systems in organizations has divided academicsand practitioners alike. On one side are the proponents of bonuses,who state that use of bonuses and emphasis on monetary rewardsincreases productivity and organizational performance. On theother side are the opponents of bonuses and monetary rewards,who state that bonuses create higher pay inequality with as resultgreater manager and employee turnover, and the long-term effectsof bonuses do not seem unequivocal positive. In the polemicbetween proponents and opponents a key question regardingbonuses is often overlooked: How important is handing outbonuses for an organization to become and stay successful for alonger period of time? A way to obtain an answer to this questionis by studying the results of research into the characteristics ofHPOs.16In Phase 1 of the HPO research, 12 potential HPO characteristicswith respect to bonuses and reward systems were identified:33FOUnDATIOns OF THe HPO(1) A fair reward and incentive structure: employees have to seethat reward systems pay out a fair compensation and that thereward system should value the employees.(2) Reward systems that reinforce core values and strategy: the bestorganizations devise and implement reward systems thatreinforce their core values and strategies.(3) Pay and incentives linked to long-term performance: linkingemployee pay and incentives to long-term performance of theorganization has a positive link with productivity.(4) Rewards based on relative performance: success should berewarded based on relative performance versus competitors.(5) Group compensation: reward systems should emphasize groupperformance over individual performance.(6) Creative and flexible rewards: reward systems should reflect theflexibility in the market.(7) Pay-for-performance: people should be rewarded on the basisof performance-based pay, that is, only for the results theyachieve.(8) Emphasis on intrinsic rewards: monetary rewards should berestrained in favor of more meaningful intrinsic rewardslike fun, personal development, teamwork, challenge,accomplishment.(9) Employee stock as incentive: employees should be rewardedwith stock in the company, increasing their commitment andfinancial interest in the company.(10) A minimum threshold for incentive pay and no cap on pay-outsof incentives: reward systems with a minimum threshold forincentive pay reduce costs whereas reward systems without acap on pay-outs increase motivation to achieve extraordinaryresults.WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn34(11) Skill-based pay: reward systems should support employees instrengthening their skills by rewarding employees when theydevelop their knowledge and skills.(12) Rewards for results, not efforts or seniority: employees shouldbe rewarded for their performance and not automatically forgetting a year older or for just doing their best.For the 12 characteristics the weighted importance was calculatedand it became apparent that only one characteristic surpassedthe threshold of a weighted importance of 9 percent: a fair rewardand incentive structure. During the empirical study (Phase 2) thisremaining characteristic did not show a significant correlation withcompetitive performance, which means that this characteristic inthe end also was not related to organizational performance. Thisleads to the conclusion that having bonuses and reward systems isnot a distinguishing factor for creating and sustaining HPOs. Thus,well-performing organizations are as likely to use bonuses orcertain types of reward systems as they are not. Using bonuses willtherefore not help nor hurt organizations in achieving sustainedhigh performance.“ profit-sharing system, which is completely different from a bonus At svenska Handelsbanken we do not have bonuses. We have asystem. If the bank reaches the corporate goal – which is to have ahigher profitability than our competitors – then part of the profit isset aside for the employees. It is a fixed amount for every employee,no matter if you are CeO or a first year assistant. It is put into afund where it stays until the employee retires, which gives youa long-term perspective instead of the short-term focus bonusescreate. You are interested in how the bank performs in five andten years because you will not get the money before you retire, in35FOUnDATIOns OF THe HPOtwenty or thirty years. The money is invested on the market withthe biggest investment being in Handelsbanken shares. This keepsthe interest of employees in the bank’s performance. And even ifyou leave Handelsbanken before you are 60, the money will remainin the fund for you until you are of that age.”Mikael Sørensen, Svenska HandelsbankenTo prevent any misunderstanding: the HPO research does not show that the abovementioned techniques, methods and activities are not important, some of themactually are. For instance, every organization needs a strategy, no doubt aboutit. Otherwise there is no course for people to follow. However, merely having astrategy does not make an organization an HPO because competitors also havestrategies. The HPO research shows that having a unique strategy is distinguishingfor becoming an HPO (see also section 6.1).2.4 HPO factors: evergreens?An important question is: will the HPO factors presented in this book stand thetest of time? 17 Or in other words: will the HPO factors remain basically the samein the years to come and will the HPO Framework be useful in the foreseeablefuture? especially the latter is important as managers want to be sure they are doingthe right things to ensure the continuation of their organizations. Because HPOresearch studies by definition look at past experiences of organizations, the resultsof these studies should not be adopted indiscriminately. Circumstances change andother factors may have come into play. To find out whether the HPO factors andunderlying HPO characteristics remain basically the same in the course of time, theHPO Center looked back on the period surrounding the rise of the ‘new economy’ inthe mid-1990s. The 290 studies on high performance, that were examined in Phase1 of the HPO research, were divided into two groups: studies performed in or before1995; and studies performed after 1995. The year 1995 was chosen as dividing linebecause according to general consensus the ‘new economy’ started around thatyear. globalization expanded significantly in the late-1990s, not in the least becauseof the rapid developments in ICT. At the same time, people became better educatedand more articulate. Consequently, the business environment changed: the speed ofWHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn36business increased, competition intensified landscape and employees became moredemanding, all of which placed higher demands on management. As an illustration:from 1972 to 1995 the average growth rate of output per hour (a measure of laborproductivity) in the UsA was around one-percent per year. However, in the early yearsof the ‘new economy’ (1995-1999) the average growth rate rose to 2.65 percent.18The HPO characteristics found in the pre-1995 studies were compared withthose found in -1995 studies. It turned out that almost 90 percent of thecharacteristics found in the first group were also present in the second group.19 Thusthe HPO characteristics had remained basically the same in a period in which theoverall business environment had changed considerably. This is a strong indicationthat the 35 characteristics of the HPO Framework are most likely ‘evergreens ofmanagement’ and can be regarded as characteristics that are always important forcreating and maintaining an excellent organization, and to which managers alwayshave to pay attention when devising the actions they need to undertake to leadtheir organizations to excellence and superior results. This outcome in itself is notsurprising as many researchers state that, even though business environments oforganizations change a lot, the competitiveness of the business environment andthe work that managers perform do not.20 The results of the comparison thus givea strong indication that the HPO Framework will be relevant for the future and canbe used by organizations with the confidence that it will support them in theirtransition to HPO.2.5 What makes the HPO Framework unique?since the 1960s practitioners and academics alike have become interested in whatmakes organizations perform better. This ‘quest for excellence’ received a majorboost by the work of researchers such as Tom Peters and Jim Collins, who wrote bestsellers on high performance.21 since their pioneering work many publications onexcellence and high performance have appeared. The literature review that was partof the HPO research described in this book encompassed already 290 publicationsover the period 1960s to 2007 and since that time an estimate of another hundredbooks and articles have appeared on this topic. so what makes the HPO Frameworkunique compared to previously developed high performance models?The main difference concerns the selection of research subjects. manyresearchers selected their research population based on financial analyses oforganizations that perform excellently in a certain sector and then comparedthese with competitors that did not perform so well. They then determined thecharacteristics of high performance on the basis of these comparisons. making37FOUnDATIOns OF THe HPOsuch a selection always brings with it an element of chance: was the correctinformation available and was the selection based on the right criteria? What if theorganizations that were not selected had interesting and maybe even distinguishingcharacteristics, were these ignored? How can we be sure we have includedall the relevant research subjects? In recent years this type of approach to highperformance research of comparing the ‘good’ and the ‘bad’ is in academic circlesconsidered inadequate.22 In addition, most of the previous studies concentrated onthe Western – predominantly north American – profit market while non-Westerncountries, including emerging markets and developing countries, and non-profitand governmental organizations were usually not taken into account. This limits aworldwide generalization of the results of these studies as well as the applicabilityin other than Western organizations.In the HPO research described in this book no selection was made prior toresearch. In Phase 1, the studies that were going to be included in the descriptiveliterature review were not selected beforehand on the basis of ‘good’ and ‘bad’.A broad set of studies from many different scientific disciplines and also theprofessional literature were studied. It was the most comprehensive literaturestudy ever conducted,23 which incorporated many different elements aboutorganizational structure, human, emotional, strategic, material, resources, Hrm,and the like. In Phase 2, the empirical part of the HPO research, the organizationsthat participated in the study were not selected in advance. Data were collectedthrough questionnaires and interviews with organizations in many profit, non-profitand government sectors, in Western and non-Western countries, and finally bothhigh, average and low performing organizations were included in the study. The factthat no selection was made in advance made it possible to generalize the outcomes,making them valid for different organizations and in different contexts.24Another way in which the HPO Framework differs from previously developedmodels of high performance concerns the transparency and completeness ofreporting. The reviewed studies often did not provide an exact account of how thedata were collected and processed (e.g. which statistical methods were used). Alsothere was in many of the studies no proof of peer review or expert validation (byother researchers or scientific institutions). In the HPO research, on the other hand,openness was observed during the entire process. It was meticulously documentedhow the study was conducted and how the data were analyzed and processed. Inaddition, the research results (both intermediate and final) were regularly presentedat scientific conferences and published in academic and practitioner journals. Thisway, the research was criticized and validated, as is common practice in science, yetnot always practiced by all.25WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn38A third reason why the HPO Framework and previous models are different hasto do with the claims of validity that are being made. many researchers claim thattheir findings, which are usually transferred into a model, are always valid in everycontext. Unfortunately, as many organizations have discovered to their detriment,such a claim cannot be fulfilled as it is impossible to have a magic formula forexcellence which will work anytime anywhere anyplace. many of those models havenot been tested over a longer period of time to see whether they actually helporganizations create sustainable higher performances. The HPO Center, on the otherhand, has included its findings in a framework, not a model. The difference betweena framework and a model is that a model is normative, in the sense that it statesa set of steps which an organization should follow to achieve better performance,whereas a framework indicates what is important, not how an organization shouldact. To many people, working with a model has a certain appeal because it looksvery practical and rather easy. One only has to follow the steps meticulously –almost without thinking – to improve performance. The question is however: willperformance really improve over the long run? Because models bring along a degreeof uncertainty as they do not take into account the specific context and characteristicsof the organization, such as company history, the features of the industry it operatesin, the skills and creativity of its workforce, the culture of the country it is based in.Working with a framework, such as the HPO Framework, has a higher probabilityfor creating high performance because the framework does take the circumstancesof the organization into consideration. After the ‘what’ provided by the framework(as in ‘we now know what is important’), the tailoring of the organization, the‘how’ (as in ‘how we should improve this depends on the organization’), is done bythe organization itself. This tailoring as well as the involvement of organizationalmembers increases the probability of high performance considerably. Workingwith a framework is therefore generally much more effective than working witha model. In addition, the workings of the HPO Framework have been tested inlongitudinal research to evaluate whether organizations that used the frameworkactually experienced an increase in performance over time. It turned out that thiswas indeed the case (see Chapter 9). The fact that the HPO Framework has beentested repeatedly in real-life situations makes it unique and a proven frameworkwith a high probability of transforming an organization into an HPO.It is sometimes stated that the HPO factors are nothing new under the sun. Theimplication being that organizations often have already implemented various qualityand improvement models such as the eFQm model, great Place to Work, six sigmaor the balanced scorecard in recent years, and with that already addressed several ofthe HPO characteristics. so what new has the HPO Framework to offer and why spend39FOUnDATIOns OF THe HPOtime, energy and money on it? The fact is however that a lot of these quality andimprovement models, as stated before, are not based on scientific findings and havean unproven chance of sustainable success. One could state that the HPO researchdescribed in this book identified with the initial 189 characteristics 189 opportunitiesto improve performance. The HPO research indicates which opportunities are less likelyand which are more likely to lead to success. The five HPO factors and the underlying35 characteristics are thus the opportunities with the highest probability of success.26“ makes an organization excellent. A validated framework means The HPO Framework to me is a validated analysis of whatthat we don’t have to research this ourselves. We can use it withgreat confidence to start our own transition to HPO, to try to movethe department as close as possible to the characteristics of theframework, with the idea that if you are able to do this, you willbecome an HPO. We also find the HPO Framework better validatedand certainly more elaborated than other models and frameworksthat we know, so we could use it directly and easily. Martine Ferment, ” Ziggo2.6 Practical application: the HPO DiagnosisAs it has always been the intention of the HPO Center to make the results of theHPO research tangible and practical for organizations, to allow them to use the HPOFramework for improving themselves, the HPO Center developed an HPO Diagnosis,shown in Figure 2.2.WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn40Figure 2.2: The steps of the HPO DiagnosisThe HPO Diagnosis consists of six consecutive steps, with steps 3, 4 and 5 beingoptional. step 1 of the HPO Diagnosis consists of a workshop with senior executivesin which a short HPO assessment is made of the organization, based on the views ofthe executives. As part of the assessment participants fill in the HPO Questionnaire,consisting of questions based on the 35 HPO characteristics with possible answerson an absolute scale of 1 (very poor) to 10 (excellent).27 After this, the HPO scores arecalculated and analyzed by the HPO Center. The scores for the five HPO factors (HPOscores) are visualized in a graph. This graph indicates whether the organization isan HPO or not; to be an HPO the average HPO score of each HPO factor has to beat least 8.5. The graph also shows which characteristics need to be improved toincrease the performance of the organization. The HPO Framework, the results ofthe analysis and the HPO graph are discussed with senior executives.step 2 of the HPO Diagnosis is a full HPO analysis in which as many people at alllevels of the organization fill in the HPO Questionnaire, to obtain a complete pictureof the organization. The HPO scores are calculated for the whole organization, its41FOUnDATIOns OF THe HPObusiness units and its organizational levels (senior managers, managers, employees).subsequently, interviews are held by the HPO Center with a selection of staff fromacross the organization to ‘get the stories behind the figures.’ The data and interviewsare analyzed, to identify the points which have to be improved and strengthenedin order for the organization to become an HPO. The analysis results are sharedthen with senior executives and management in an awareness workshop to increasethe understanding of those that will be working with the HPO Framework, as arethe current HPO status of the organization and the ‘HPO attention points’. This isfollowed by a call to action workshop in which senior executives, managers and theHPO Center discuss possible actions to address the HPO attention points and anaction plan is drawn up. The action plan consists of two parts: (1) What improvementactions are needed to increase the quality of senior executives and managers andmake them high performing individuals? (2) What improvement actions are neededto address the HPO attention points of the organization? Furthermore, the roll-outof the HPO Diagnosis in the organization is developed.During step 3, the HPO Diagnosis is taken a level deeper into the organization.A detailed analysis of the HPO scores is made per organizational unit (department,business unit, country) and additional interviews are held, to identify the HPOattention points for each organizational unit. The analysis results are shared withmanagement and unit heads in an awareness workshop and a call to action workshop.The action plan which is developed during the latter consists of three parts: (1)What improvement actions are needed to increase the quality of the managers andunit heads and make them high performing individuals? (2) What improvementactions are needed to address the HPO attention points of the organizational unit?(3) What improvement actions are needed to address the HPO attention pointswhich lay outside the sphere of influence of the unit and have to be addressed onsenior management level? Furthermore, the roll-out of the HPO Diagnosis to theemployees in the unit is developed.In step 4 of the HPO Diagnosis the employees get a full debrief of the HPOscores and attention points of their unit, conducted by the unit’s managers andteam leaders, coached by the HPO Center. This is again done in an awarenessworkshop and a call to action workshop. During the latter workshop an action planis developed consisting of three parts: 1) What improvement actions are needed toincrease the quality of the employees to make them high performing individuals?(2) What improvement actions are needed to address the HPO attention pointsof the organizational unit and what are employees going to contribute? (3) Whatimprovement actions are needed to address the HPO attention points which layWHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn42outside the sphere of influence of the unit and have to be addressed on seniormanagement level?In step 5 a network of HPO Coaches is set up, consisting of people from differentunits and organizational levels. The task of the HPO Coaches is to promote the HPOculture and support management in its endeavors to make the organization an HPO.The HPO Center trains these HPO Coaches in getting an excellent understandingof the HPO Framework, its application, the organization-specific diagnosis results,and possible ways to improve the HPO attention points. The presence of HPOCoaches promotes HPO leadership in the organization and also makes sure the HPOknowledge stays alive in the organization after the HPO Center has left.To evaluate which progress the organization has made, a second HPO Diagnosisis conducted in step 6 after 18 to 24 months. The activities of this step are the same asin steps 2, 3 and 4, with the difference that they are performed by the HPO Coaches,who are supported and coached by the HPO Center. The aim of the second diagnosisis not only to see in which units progress was made and in which not, but also toidentify additional HPO attention points so further improvements can be achieved.“ better in the organization came gradually. The first moment was The moments when we saw that things started to becomethe awareness workshops. During these workshops we talked,managers and employees together, about what was wrong in theorganization and what should improve. We used the results ofthe HPO Diagnosis for that. recognizing the improvements thatneeded to be made built a joint foundation. The second momentwas the call to action workshops in which we asked people to thinkabout what they could do to improve the situation and how wecould set to work with the improvement suggestions put forwardduring the HPO Diagnosis. In this step we created the feelingthat as individuals and as a group we would start to work towardHPO. And the third moment was conducting the so-called go HPOsessions in which we said: We have made the plans and now weare really going to do it, we are going to work on the improvementsuggestions and become HPO!”Martine Ferment, Ziggo43FOUnDATIOns OF THe HPOKEY POINTS CHAPTER 2■■ The HPO Framework includes five factors of highperformance: Management Quality, Openness & ActionOrientation, Long-Term Commitment, ContinuousImprovement & Renewal, and Employee Quality. Each HPOfactor has several underlying HPO characteristics.■■ By strengthening the HPO factors, an organization cansignificantly improve its performance and maintain asuperior edge for a long period of time.■■ The HPO factors can rightfully be called ‘evergreens ofmanagement’ as they will remain important through timefor creating and maintaining an excellent organization.Managers will always have to pay attention to these factorswhen they devise actions to lead their organizations toexcellence and superior results.■■ The HPO Framework is not a rigid set of instructions or ablueprint. It is a general framework which managers needto tailor to their own specific organizational situation.■■ An organization can identify which HPO factors need tobe improved to become an HPO by conducting an HPODiagnosis.WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn44International bank (the Netherlands):management makes the differenceKEY MESSAGEDespite the fact that the units of an organization use the sameprocedures, processes and systems and offer the same productsand services, and even may operate in the same marketcircumstances, they can still achieve different results. A closerlook reveals that management and employees of differentorganizational units focus on different things. The units thatare paying specific attention to the HPO characteristics performthe best.The HPO Center was invited to perform an HPO Diagnosis at aDutch division of one of the largest multinational banks.28 Oneof the bank’s divisions sold a broad array of financial productsto more than 1 million clients, with 2,500 employees distributedover 200 branches and headquarters. The division was divided into13 regions, each headed by a management team who managedthe sales teams which serviced clients. The sales process of thedivision consisted of several steps. First, the sales teams visited a(potential) client. After that, proposals were offered to a (potential)client. In the third step, proposals were accepted or declinedby the (potential) client. And finally, if a proposal was accepted,a calculation was made of the financial value of the proposal,measured in achieved capital, and it was recorded in the division’sICT system. For example, two loans of €1 million at an interestrate of 2 percent would give an achieved capital of €2 million (anda deal margin of €40,000). The financial result of a region wascalculated based on the total achieved capital and the total dealmargins.The HPO status of the division was assessed by distributing theHPO Questionnaire to managers and employees. For each of the45FOUnDATIOns OF THe HPO13 bank regions the average HPO score was calculated by the HPOCenter, and a ranking was made from the highest scoring regionto the lowest scoring region. Then, the financial results over thepast three years were collected for all 13 regions, and a rankingwas made from the regions with the best financial results overthose three years to the regions with the lowest financial results.Finally, the HPO Center matched both rankings. The result is givenin Table 2.2.
HPOranking
Region
Region
Financialresultsranking
highest
1
1
1
1
2
12
3
2
3
3
12
3
4
9
10
4
5
8
9
5
6
13
13
6
7
4
8
7
8
5
4
8
9
10
2
9
10
2
5
10
11
11
6
11
12
7
7
12
lowest
13
6
11
13
Table 2.2: HPO ranking versus the financial results ranking forthe 13 bank regionsThe matching yielded a clear group of ‘HPO leaders’ which showedboth the highest HPO scores and the highest results: regions 1, 3and 12. The comparison also gave a clear group of ‘HPO laggards’which showed both the lowest HPO scores and the lowest results:regions 6, 7 and 11. For many of the remaining regions the matchbetween the HPO scores and the financial results was quite close.The context was the same for all regions as they all used theWHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn46same management systems, products, processes and IT systems.All regions were therefore operating in the same manner anddifferences in HPO scores could only be explained by differences inmanagement and employee quality in the regions and differencesin the way they behaved and emphasized specific actions andissues. To evaluate whether this was really the case the HPO Centerconducted a series of interviews at one of the leading regions(region 1) and one of the lagging regions (region 7). These regionswere chosen as the HPO Center expected to find the strongestdifferences at the top and bottom of the ranking. The interviewsrevealed that the regions had different degrees of attention for theHPO characteristics. Below are a number of interview questionsand answers from the managers of regions 1 and 7, to illustrate thedifferences in attitude and behavior.How do you engage your employees in dialogue andimportant processes?region 1: “That is always difficult as you only have so many hoursin a day. But I visit every branch at least every twomonths and then I stay a whole day. not just talkingto the branch manager, I arrive an hour early and thenI walk around on the shop floor so I can easily speakwith the employees. In those conversations you as bosshave to take the first step by opening up about youraffairs and what is going on in the region. This will buildthe trust needed for a good dialogue. You also haveto be transparent about what you are doing with thesuggestions and complaints you get from employees,you have to show you take these seriously.”region 7: “management used to sit here in their ivory tower,people hardly ever saw them let alone that managementever asked employees for ideas or suggestions. Andeven when the previous director spoke to them, they47FOUnDATIOns OF THe HPOwould normally give socially acceptable answers. WhenI came here I had a hard time getting straight, honestanswers from employees. If people didn’t agree withme they wouldn’t talk to me but complain to each other,and I would hear about it indirectly.”How do you go about improving the region?region 1: “I have set up what I call an active moaning system. I puta lot of pressure on people to increase productivity andefficiency and I know that if something in the processesprevents them from achieving better results, they willstart to moan about it to me. Then I know in whichpart of the process to focus the improvement effortand I can do something about it, quickly. An addedadvantage is that people see that I take their complaintsseriously, so they are more motivated to help fix theproblems. sometimes you cannot implement certainimprovements when managers higher up the hierarchydecide there are other priorities. Then you have to behonest and say ‘Hey guys, this cannot be solved, so let’smove on.’ This way, you keep your credibility. Anotherthing we do when we are undertaking an improvementproject is to have daily heartbeat sessions. In thesesessions, we get management and employees togetherearly in the morning and discuss the state of affairs:What is going right? What wrong? Have we seenany benefits of the improvements yet? What are theproblems? Who is going to fix them? What happenedto yesterday’s problems? This way you keep on top ofthe improvement process.”WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn48region 7: “To be honest, we kind of have a zigzag policy in thisrespect. One day we are doing this and the next day weare doing that. This is because we have an attitude of‘let’s go!’, if we have a good idea we go for it, right away.We don’t really question the constant course changesas we are real go-getters. And if an improvement ideacomes from headquarters we tend to wait out the stormand then go back to our own ideas.”How do you make sure your region services its customersoptimally?region 1: “We have close relations with our customers. We makeit our business to know as much as possible aboutcustomers and we talk regularly to them to keep up-todate with their situation and possible needs, wants anddemands. In addition, every year we choose a theme onwhich the region will focus. These themes always have todo with customers. This year, for example, we have thetheme ‘surprise the customer’ where we look at waysto do something extra for the customers so they willbe pleasantly surprised. And we all participate in thistheme, not only the employees but also managementwho in fact start off the theme by surprising employees.At the last meeting, I had brought along a rose forevery employee to let them experience what it is to bepleasantly surprised.”region 7: “To be quite frank, we could be a bit more customeroriented. I will give you an example that happenedlast monday. some people had made a mess outside atthe cash machine during the weekend and no one hadbothered to clean it up so customers couldn’t use themachine. somebody in the office said they had called49FOUnDATIOns OF THe HPOthe cleaning company who would come over later thisafternoon but I said this was way too late. It concernsour customers and we have to treat them with allregards, and having a mess on the doorstep isn’t that. Itshould have been fixed right away!”Is your strategy different from that of your competitors?region 1: “One of the major differences with our competitors isthat we’re not looking for a quick buck but for longterm benefit. For example, despite the recession wehave hired many sales trainees and we have given thesea good education, while our competitors did exactly theopposite and send many trainees home. now businessis picking up and we have skilful and knowledgeablepeople in both our front and back offices while theother banks are struggling to hire new, qualified people.I also spend a lot of time explaining our strategy tothe branches because it is especially branch peoplewho have to know and understand the strategy. Afterall, they are the ones that make the difference to ourcustomers.”region 7: “Headquarters announces the strategy to us and webasically follow it. It frustrates me that people in thebranches here are not that concerned about the strategybut worry more about what the other branches in theregion are doing and how these are performing, andwhether people at the other branches will get higherbonuses.”WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn50How do you increase the speed of decision-making andaction-taking?region 1: “short communication lines and discipline. If I decidethis afternoon that we need a conference call the nextmorning at eight o’clock, I can contact my people directlyand everybody knows he or she has to participate in thecall, no exceptions. For this to be successful you needengaged people, people who are strongly committed tothe company and in addition to that willing to go theextra mile.”region 7: “We still have a culture of ‘saying yes, doing no.’ Thisis inefficient because it can take quite a while beforeyou discover that the things you thought would bedone have not been taken care of at all. Why make anyagreements when half of the people are not sticking toit anyway? It leads to a sliding scale where more andmore people think: why bother to do this when nobodyelse does?”not surprisingly, the general atmosphere at region 1, the leadingregion, was much better than at region 7, the lagging region;management was genuinely interested in employees and clients,and people focused more on improvement and integrity. On thebasis of the HPO Diagnosis the division was able to discover ‘bestideas’, for example activities of regions which proved to be verysuccessful and from which other regions could and should learn,not necessarily by copying these ideas but by thinking about theideas, tailoring these to the specific situation of the region andthen implementing the adapted idea.51FOUnDATIOns OF THe HPORetail International Group (Europe/Asia/SouthAmerica): learning from the ‘best countries’KEY MESSAGEBecause the HPO Diagnosis uses an absolute scale of 1 to 10,it is possible to compare the performances of multiple countrydivisions to identify which country divisions are ‘more HPO’than others. Thus, best ideas for improving the HPO factorscan be identified from ‘the best’ country divisions, from whichother divisions can learn. At the same time, because the HPOFramework shows what is important without dictating how theHPO factors should be improved, each country division shouldtailor these best ideas to their local circumstances.retail International group (rIg) is a retailer which operates in21 countries in europe, Asia and south America.29 The companysells fashion accessories in more than 850 shops with almost11,000 employees. The turnover of the group is over €1 billion.rIg’s headquarters are based in europe and consist of the boardof management and several staff departments such as CorporateControlling and Corporate Human resources. The company has ahighly decentralized structure in which responsibility for operationslays with the individual country divisions. These country divisionsconsist of regional headquarters, with management and supportstaff, and stores. each store is manned by a store manager andstore staff. each country division typically carries several formulas,from a cheap brand to high-end luxury goods. each formula has adifferent name but the information systems and logistical processesare the same for all formulas, while inventory is held in centralwarehouses in the different countries. The goods are designedboth at corporate headquarters and at the country division andare manufactured in the Far east, after which they are directlyshipped to the central warehouses in the different countries.WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn52each formula typically has some well-selling products which stayin the assortment for several years, and products which only lastone season. In contrast to the standardized logistical processes,the management systems (for reporting, evaluation and rewards)are tailored to each country due to local (legal) requirements. rIgmanagement characterizes the company with the words: customerfocused, professional, ambitious and decentralized; and demandsfrom its employees that they act with integrity, are open to eachother, and are result oriented. Integrity is seen by managementas a powerful replacement for expensive and elaborate controlsystems; if someone’s professional or personal integrity is inquestion, that person will have to leave the company. For rIg tobe a learning organization, openness is a precondition as peoplecan only learn from one another if they are willing to share notonly their experiences and successes but also their problems.result-orientation is important because retailing is a low-marginindustry with strong competition, which requires all people tofocus on achieving their targets in order to survive and thrive.rIg’s chief executive officer explained the reasons why the groupdecided to do an HPO Diagnosis as follows: “The HPO Frameworkprovides us with a comprehensive framework which allows usto: evaluate where we stand today and how we should progress,categorize the wide variety of improvement initiatives we have,structure the improvement opportunities, and highlights areason which we have to focus more going forward. We need this ascompetition is mounting and good is not good enough anymore.We have spent the past years getting our house in order, it is nowtime to take the next step forward and to fulfill our potential.getting rIg to the next level will not require bold changes butincremental improvements, and that’s where the HPO Frameworkcomes in. It is not a quick fix but promotes a steady and continuousimprovement effort. The framework also gives us the opportunity toevaluate current improvement initiatives and to ask ourselves: Arethese the right initiatives or should we be doing other things?”53FOUnDATIOns OF THe HPOFigure 2.3: HPO status of Retail International GroupThe HPO Diagnosis process was started by distributing the HPOQuestionnaire among managers and employees in nine countrydivisions, both at regional headquarters and in the stores.30Additionally, interviews were held by the HPO Center at fourcountry divisions. The data were analyzed by the HPO Center todetermine the HPO status. Figure 2.3 shows that rIg, with anaverage HPO score of 7, was a well-performing organization butnot yet an HPO.For each of the nine country divisions the average HPO score wascalculated by the HPO Center, and a ranking was made from thehighest scoring country division to the lowest scoring countrydivision. Then the financial results over the past five years werecollected for the nine country divisions, and a ranking was madefrom the country divisions with the best financial results overthose five years to the country divisions with the lowest financialresults. Finally, the HPO Center matched both rankings. The resultis given in Table 2.3WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn54
AverageHPOscores
Countrydivisions
Countrydivisions
Financialresultsranking
highest
7,9
A
A
1
7,8
F
F
2
7,4
D
C
3
7,3
C
D
4
7,3
I
H
5
6,4
g
I
6
5,9
H
g
7
5,8
B
B
8
lowest
4,9
e
e
9
Table 2.3: Average HPO scores versus financial results of ninecountry divisionsTable 2.3 shows that there was a direct link visible within rIgbetween the average HPO scores and the financial results: thecountry divisions that had the highest HPO scores (A, F) alsohad the highest financial results, and country divisions withthe lowest HPO scores (B, e) had the lowest financial results. Itshowed that the performance situation at rIg had been assessedquite well with the HPO Diagnosis, and implementing the HPOimprovements suggestions would mean the financial results of thecountry divisions were to improve substantially for a longer periodof time. The results of the HPO Diagnosis, including strengths andweaknesses and improvement suggestions for the overall groupand each of its country divisions and corporate headquarters,were presented by the HPO Center during a meeting with theentire management of the group. subsequently the improvementsuggestions were prioritized. The two most important ones aresummarized below.55FOUnDATIOns OF THe HPOHPO improvement suggestion 1: Create a stronger andmore visible managementDuring the interviews conducted by the HPO Center as part ofthe HPO Diagnosis, it emerged that employees were looking forstronger role models at all management levels of the organization.They also wanted better coaching from managers who should showmore interest in humans and less interest in financial figures. Thiswould increase employees’ trust in management. An employee putit as follows: “We have seen a lot of new management, each timea new strategy, as if to prove they were in charge. But we wouldlike to see that management sees what happens on the floor, visitsus in the stores, listens to what we need. management by walkingaround. Listen! And quick follow-up on the problems of employeesis vital to improve confidence and trust.” Thus, there seemed to bea real need for increased accountability and visibility of managerson the store floor. An employee commented: “I have an intensedialogue with regional management. However, I would like to seethat top management visits the stores more. If they do that, differentdecisions would be made. For instance, it is easy to make thedecision from a distance that some stores only need one employee.However, they don’t know the consequences, how it feels to workalone while four customers are waiting. since they don’t know thatfeeling, the wrong decisions are easily made.” A store manager hada nice idea: “When the regional manager comes in the store, he nowgives everybody a hand and then takes me to a corner of the storeand starts telling me all the things that have to be improved. WhatI would like him to do is to give me a hand when entering the storeand then talk with the employees to ask them how it is going andwhat suggestions they have for improvement.”evidently rIg’s managers had to concentrate on better coaching andbeing more decisive in order to become high performing managers.They also had to start visiting stores more often and during thesevisits listen attentively to employees’ questions and ideas and followup on these.WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn56HPO improvement suggestion 2: Make dialogue moresincere and ‘richer’Within rIg there seemed to be confusion about the meaning ofthe words ‘communication’ and ‘dialogue’. A lot of meetings werebeing held all over the group but the HPO scores and interviewsrevealed that people of all organizational levels wanted moredialogue and better information sharing. There existed a feelingamong people that they were not really listened to by higherlevels. The newly appointed corporate Hr manager commented:“When I started at rIg, I overheard store managers complainingabout regional managers not listening enough to them, regionalmanagers complaining about country managers not acknowledgingthem, country managers complaining about corporate managersonly imposing all kinds of initiatives on them without giving themroom for their own ideas, and corporate managers complainingabout the supervisory board not listening to them enough. Theneed for better dialogue was very clear to me.” A side effect of thelack of openness created by the lack of dialogue was that distruststarted to arise which resulted in people blaming each other fortheir misfortunes. As an interviewee said: “When performance ispoor the first reaction of people is to point fingers at each other.People insufficiently reflect on themselves and what the effect oftheir behavior is on others. We should give more constructive andpositive feedback.” As an almost logical consequence stores andalso departments in country headquarters hardly did any knowledgesharing, as a manager pointed out: “each unit tends to operate as asilo. This appears difficult to break through. Also employees wantto be more involved and require more performance informationabout their own results and that of the company.“It was thus evident that rIg had to improve the openness of theorganization, starting with a review of the reporting process, themeetings in which performance information was shared, and theperformance information sharing process from corporate andcountry division headquarters towards the regions and shops. In57FOUnDATIOns OF THe HPOthis respect rIg had to look for ways to enhance both the formaland informal information processes by proactively encouragingpeople to share performance information. Furthermore, managersneeded to concentrate on improving openness through sinceredialogues.Looking back at the HPO Diagnosis and the subsequent actionsthat were taken, the Corporate Human resources manager told us:“Because the HPO Framework caught on well within the company,we decided to make the HPO improvement suggestions part of ourstrategy and budget cycle for next year. This meant that countrydivision management explicitly had to develop initiatives for theimprovement suggestions, for which they were given budget. Wealso found that the HPO Framework worked as a managementdevelopment tool because it focused the attention of managementon the things that really matter which otherwise might have beenoverlooked or even ignored. The HPO Framework helped todevelop the competency within managers to focus, prioritize andstay on course. To give an example of how important focusing was:our process improvement efforts. We were constantly improvingand simplifying our processes but we had great difficulty managingthese improvement projects, partly because there were so many ofthem. The HPO Framework learned us to prioritize: all improvementprojects that did not support at least one of the HPO factorswe should skip, and we did. And since the HPO Diagnosis, rIgexperienced improved results. This might have been a coincidencebut I don’t think so.”WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn58Ministry of Local Governance and Social Affairs(Rwanda): working on HPO in governmentKEY MESSAGEThe HPO database contains a lot of data from the governmentalsector and the five HPO factors have also been validated for thissector. This means that the HPO Framework is, in addition toprofit companies, also useful for governmental institutions tofocus their improvement efforts. This is demonstrated by thecase study of mInALOC.The republic of rwanda is a small landlocked country of 26,338km2 with a population of more than 10 million people, in thegreat Lakes region of east-Central Africa and bordered by Uganda,Burundi, the Democratic republic of the Congo and Tanzania.31 Acountry of fertile and hilly terrain, the small republic bears the title‘Land of a Thousand Hills’. As part of the rwandan government,the main mission of the ministry of Local governance and socialAffairs (mInALOC) is ‘promoting the well-being of the population bygood governance, community development and social affairs’. Theministry has several main objectives: putting in place decentralizedadministrative units in order to implement government programslocally; ensuring synergy and collaboration between governmentinstitutions so they can support the local units; strengthening thelocal units so they can execute the programs effectively; putting inplace mechanisms for assistance of vulnerable groups, especiallygenocide survivors; and implementing coordination mechanismsto deal with disasters. The ministry itself is comparatively small(approximately 60 people) but has several semi-independent unitssuch as the national electoral Commission (neC), the rwandagovernance Advisory Council (rgAC) and the national AssistanceFund for needy survivors of genocide (FArg) to execute the59FOUnDATIOns OF THe HPOprograms. mInALOC is known in rwanda as being one of the mosteffective ministries and as such the Public secretary (the first civilservant after the minister) was very interested in applying the HPOFramework in order to evaluate whether the framework could helpmInALOC to improve its performance toward HPO.During an HPO workshop representatives of the ministry and itssemi-independent units filled in the HPO Questionnaire. Figure 2.4gives the scores of mInALOC on the five HPO factors. The averageHPO score is 7.5 which shows that mInALOC was a good performingorganization but not yet an HPO.32 mInALOC’s HPO curve was almostlevel which meant that it was a well-balanced organization. Thisconstituted a good starting-point for improvement at mInALOC.Figure 2.4: HPO status of MINALOCDuring the HPO workshop three main attention points werediscussed, which mInALOC needed to address in order to becomea high performance governmental organization. Attention point 1was that mInALOC had to improve its process improvement process.Although the ministry’s processes were continuously improved,WHAT mAkes A HIgH PerFOrmAnCe OrgAnIzATIOn60they were not simplified and aligned enough. The reason forthis was that mInALOC was a complex organization of a smallministry with many semi-independent units and cooperations withother governmental institutions. Thus mInALOC had to performa bundle of coordinating tasks on behalf of many parties, whichmade for many complicated processes which were difficult tosimplify. recommendations to deal with this attention point wereto strengthen local authorities as they were the ones that shouldimplement the programs; reinforce the decentralization processfor other ministerial processes so that these ministries could dealwith local units themselves and no longer needed mInALOC forthat; and from now on only finish a limited number of improvementprojects in time, within budget, with the required results beforestarting new process improvements.Attention point 2 was that mInALOC had to improve its appraisalprocess as it allowed non-performers to stay too long and didnot enough promote new management from within. One of thereasons for this was that poor performers were given too muchtime, often years, to improve themselves. Another reason was thatthere existed the possibility of performance appraisal bias so somelow-performing employees got a performance rating which wastoo high. By law there was a limit for government employees: ifthey got three times a performance appraisal score below 70 theywould be fired. It was therefore likely that management rated poorperformers higher to prevent them from getting fired. Firing wasgenerally not preferred because of its serious consequences tofamily well-being. Finally, labor laws limited promotion from within,vacancies had to be offered to people outside the organizationto prevent nepotism. Because of this, well-performing people feltthey had to leave the ministry for real promotion opportunities.recommendations to deal with this attention point were to makethe performance appraisal process more objective and realisticand to use standards for the interpretation of rating scales. In abroader context, the labor law should be changed to allow internal61FOUnDATIOns OF THe HPOpromotions and to develop an internal promotion process that istransparent in order to prevent nepotism.Attention point 3 was that mInALOC had to improve knowledgesharing. employees did not sufficiently share knowledge withcolleagues at other mInALOC units. The reason for this was that, inthe decentralized mInALOC organization, the units still operatedmainly independently and did not actively get together to shareknowledge, ideas and experiences. In addition, there was so muchwork to do that there was not enough time available or taken forknowledge sharing activities. Possible solutions were to activelydevelop a culture which encouraged knowledge sharing skills andreward people for sharing knowledge. The representatives agreedthat they were part of a bigger entity and that, even if individuals orunits performed well but mInALOC as a whole was not performingwell, no one at mInALOC was regarded successful by society.The case study of mInALOC showed that the HPO Framework couldbe used to assess the strengths and weaknesses of a governmentalorganization. mInALOC’s representatives stated that the HPOFramework provided them with the coordinating framework todirect and guide future improvement efforts.Where to buy WhatMakes a High PerformanceOrganizationIn the UK you can buy the books from all good bookshopsor on line from Amazon UKIn the Netherlands you can buy the books from all goodbookshops or on line from Management BoekIn the United States you can buy the books from all goodbookshops or on line from Amazon US

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