A way towards High PerformanceExemplar Organizations

1
A way towards High Performance/Exemplar
Organizations

• Munich, August 2007

2
Virtuous cycle of high performing organizations
(HPO)
Sustainable high performance
Growth / Innovation
Financial success
AttractiveImage
Stimulating Working Environment
The right people with the right skills
behaviors in the right place
3
Content

• Definition of a High Performance Organization
• External benchmarking Lessons learnt
• HPO Process Toolset

4
High performance organizations exhibit
outstanding characteristics in the following core
elements
Key elements of a HPO - Overview

• Customers
• Employees
• Wall Street

Stakeholderorientation
1
Vision Direction
2
Level 5 Leadership
3
Culture
4
Accountability Control
6
5
Structures, Processes Systems
Core capabilities
7
Source Linde, McKinsey, BCG, Interviews
5
Overview key elements/attributes of high
performance organizations (1/2)
Key elements of a HPO
Attributes1

• Customer focus
• Superb expectation management towards capital
  markets constant overachievement
• Being the Employer of choice2
• Professional stakeholder relationship management
  excellent corporate image

Stakeholder orientation
1

• Stimulating, plausible, clear and shared vision
• Compelling business model
• Winning and differentiating strategy
• Focused management agenda balancing short-term
  results and long-term sustainability
• Clear communication of direction throughout
  organization

Vision Direction
2

• Ability to attract retain right leadership
  talent at all levels / Employer of choice
• Top management focus on people development
• Exemplary leadership behavior (walk-the-talk)

Level 5 Leadership
3

• Values principles philosophies being lived
• Productive diverse working environment4
• People feel valued and rewarded
• Highly engaged employees / pride with the
  organization

Culture
4
1 Causes and effects 2 s. also Leadership
3 Global, strategic, change-orientated leaders
strong functional technical competence
strong people management coaching skills 4
Social fabric of the organization Interaction
quality, team work trustful, respectful
atmosphere integrity, diversity, etc.
Source Linde, McKinsey, BCG, Interviews
6
Overview key elements/attributes of high
performance organizations (2/2)
Key elements of a HPO
Attributes

• 3 - 5 capabilities
• Ability to execute / relentless focus on
  implementation of strategy
• Innovation 1
• Clear distinctive functional excellence 2
• Learning adaptation

Core capabilities
5

• Lean and efficient structure Clear roles
  responsibilities4
• Flat hierarchies, therefore fast responsive
• Focused and balanced set of KPIs aligned to
  organizational goals
• Ambitious performance contracts / stretch targets
• Performance management
• Recognition appreciation (financial and
  non-financial) linked to performance
• Poor performance managed

Accountability Control
6
Structures, Processes Systems

• Benchmarked, world class structures, processes
  continuous improvement 3
• High performing IT Management Information (MI)
  systems
• High quality management information enabling
  rapid accurate decision making
• Efficient IT-productivity systems supporting core
  capabilities
• State of the art organization structures

7
1 Entrepreneurial, risk-awarding culture
superior innovation management processes
steady flow of incremental as well as blue ocean
growth opportunities 3 Process ownership
clearly embedded in the organization High level
of process integration Processes aligned to
desired strategy and core values 4 incl.
accountabilities
Source Linde, McKinsey, BCG, Interviews
7
Contents

• Definition of a High Performance Organization
• External benchmarking Lessons learnt
• HPO Process Toolset

8
Selected benchmark companies have been analyzed
to understand the key success factors of a high
performance organization
Evaluation matrix for benchmark selection
Dow Jones
High performing organization/benchmark analyzed
(incl. interviews)
McKinsey
GE
3M
PG
High
Apple
Microsoft
FedEx
Cisco
Samsung Electronics
Corporate image (as HPO)3
Mid
Linde
Additional criteria considered in selection

• 1) Relevance for comparison
• Global footprint / local empowerment
• Significant corporate size
• Business type not too incomparable
• 2) Not disproportionally
• leveraging on legacy1

Low
lt8
8-12
gt12
Long-term financial performance(CAGR share
price, 1987-2007)1
1 Comparable financial performance measures
considered in case of private companies (CAGR
EBIT) 2 Uncatchable structural advantage, e.g.
natural monopoly, first mover advantage 3 HPO
High performance organization Avg. results of
various qualitative rankings, e.g. Fortune 500
most admired companies
Source Bloomberg, Fortune
9
External benchmarking Lessons learnt
Content

• Best practice high performance organizations show
  at least an average or above performance in all
  dimensions
• Best practice high performance organizations
  excel in most (not all!) dimensions according to
  an unique company specific HPO target profile
• Most high performance organizations excel in HPO
  attributes along the leadership element (people
  development, leadership behavior) and performance
  management

Process

• HPO target profile needs to be worked out by top
  management in a dedicated workshop as it should
  drive the future top management agenda
• Push for focus in definition of target profile
  (few key target attributes only!)1
• Analysis by organizational clusters (e.g.,
  corporate vs. regional) reveals interesting
  insights

1 Iterative assessments with intermediate
down-scaling of overall target attribute
assessment might be required
10
Best practice high performance organizations show
at least an average or above performance in all
and excel in selected dimensions
5
5
3
3
1
1
SELECTION
Assessment of importance of attribute for
specific HPO
5
Evaluation of attribute value at specific HPO
3
Threshold
1
Performance scale1 Low performing 3
Threshold 5 World class
Source Interviews
11
Quotes from best-practice candidates
I own these managers, you only rent them. Jack
Welch, to his people about top 600 managers whose
career progression he managed directly
Its not just a focus on people, its an
obsession.
High potential managers are constantly rotated
internationally and need to proof themselves in a
row of sink-or-swim tests.
Annual calendar of business reviews provides
best opportunities to evaluate young high
potentials.
HR professionals are regularly moved from HQ to
the field to help business leaders develop their
talent.
We achieve executional excellence and speed by
tightly clocked reporting cycles1 for every task
and project. We call them operating rhythms.
Though we are highly profitable, short-term
costs initiatives are prompted regularly to
overachieve targets.
For senior managers talent development is as
important as managing the business
1 e.g. a mandatory conference call every
week Source Interviews, Harvard Business Review
12
Quotes from best-practice candidates
We havent changed our value, principles and
beliefs in the last 10 years and are therefore
consistent in our communication
Our people are our core asset. The trick is to
make them clear what their individual role is,
how they can influence the system and make a
difference
We need to have a minimum fluctuation rate of
2,5 - to generate room for talents and high
potentials
We dont recruit from competitors. And people
have to rotate into new roles every 2-4 years,
depending on their function. We believe these two
concepts had a significant impact on our way
towards a HPO
To become a HPO you have to be consequent in
your actions. Manage people out, if they cannot
fulfill the expectations but always be fair
Communication is important. The business heads
periodically discuss objectives, goals, strategy
and measures with their people to ensure they are
running in the same direction. A follow-up is
done on a quarterly basis about status and what
still needs to be accomplished
13
Contents

• Definition of a High Performance Organization
• External benchmarking Lessons learnt
• HPO Process Toolset

14
Step 1 Run HPO survey with key decision makers

• HPO Survey (s. attachment)

15
Step 2 Plot assessment radar
Structures, Processes Systems
Stakeholder orientation
1
7
CONCEPTUALLY
5
Importance (aspiration)
Evaluation
3
2
Vision Direction
6
Accountability control
1
Leadership
3
Performance scale1 Low performing 3
Threshold 5 World class
Core capabilities
5
Culture
4
Source Internal Assessment, 20 key decision
makers (HQ, RBUs, BAs)
16
Check Is target profile sufficiently
differentiating?
Structures, Processes Systems
Stakeholder orientation
1
7
CONCEPTUALLY
5
Importance (aspiration)
3
2
Vision Direction
6
Accountability control
1
Leadership
3
Performance scale1 Low performing 3
Threshold 5 World class
Core capabilities
5
Culture
4
17
Step 3 Identify areas of improvementA) Status
quo below threshold
Structures, Processes Systems
Stakeholder orientation
1
7
CONCEPTUALLY
5
Importance (aspiration)
Evaluation
3
2
Vision Direction
6
Improvement towards threshold required
Accountability control
1
Leadership
3
Performance scale1 Low performing 3
Threshold 5 World class
Core capabilities
5
Culture
4
Source Internal Assessment, 20 key decision
makers (HQ, RBUs, BAs)
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Step 3 Identify areas of improvementB)
Achieving aspired target values of key attributes
Structures, Processes Systems
Stakeholder orientation
1
7
CONCEPTUALLY
5
Importance (aspiration)
Evaluation
3
2
Vision Direction
6
Improvement towards threshold
Accountability control
1
Improvement towards aspiration
Leadership
3
Performance scale1 Low performing 3
Threshold 5 World class
Core capabilities
5
Culture
4
Source Internal Assessment, 20 key decision
makers (HQ, RBUs, BAs)
19
Step 4 Install enablers and establish KPIs to
foster improvement -List by HPO element (1/3)
NOT EXHAUSTIVE
KPIs
HPO elements attributes
Enabler1

• Above average to exemplar on Customers, Employees
  and Wall Street Performance
• Clear customer focus
• Overachieving financial targets
• Stakeholder relationship management corporate
  image

• Key account management2
• Customer workshops
• IR / Analyst conferences
• Long-term expectation mgmt. towards financial
  markets
• Corporate communication
• Code of ethics / CSR reporting
• Alumni network (for the purpose of reputation
  building)

• Customer satisfaction (via surveys)
• Net promoter Score (GE)
• Churn rate
• Share price
• Position on image rankings
• CSR index, Listing in DJ Sustainability index

Stakeholder orientation
1

• Top-down formulation of vision
• Continuous refining of business model
• Rolling strategy process (top-down bottom-up)

• Shared vision
• Compelling business model
• Winning strategy
• Focused management agenda
• Communication of direction

• Growth / financial success (to measure impact of
  strategy)
• Alignment of the organization with strategy
• Delivery on time in cost of strategic
  initiatives / key projects
• Direction awareness (employee surveys)

Vision Direction
2
1 Tools, instruments, processes 2
Account plans, key account managers
20
Step 4 Install enablers and establish KPIs to
foster improvement -List by HPO element (2/3)
NOT EXHAUSTIVE
KPIs
HPO elements attributes
Enabler1

• Employer branding professional recruitment
• Targeting competitors talent
• High potential pool talent management
• Leadership development / Trainings
• Mentoring / Coaching (GE)
• Career management
• Succession planning
• Sink of swim tests / Job rotation
• Top management focus
• 360 feedback
• Leadership coaching
• Change agents

• Attract retain right leadership talent
• Top management focus on people development
• Exemplary leadership behavior

• Position on employer rankings (Employer of
  choice)
• Acceptance rate of recruiting offers
• Exit interviews (GE)
• Top mgmt. positions filled internally
• Talent availability internally per level
• Top talent retention rate
• Number of fast promotions
• Leadership evaluation by team members (employee
  surveys)
• Number of leaders with leadership appraisal
• Quality of appraisal results

Level 5 Leadership
3
Culture
4

• Ongoing communication
• Walk the talk
• Embedding in key HR processes2
• Team buildings
• Diversity Training
• Regular feedback

• Employee knowledge score of values and principles
• Employee score along key cultural attributes in
  the appraisal
• Diversity Index
• Employee satisfaction engagement index
• Retention rate

• Values principles being lived
• Productive social fabric
• Diversity Inclusion
• Feeling valued rewarded
• Highly engaged employees

• Project management trainings
• Operating rhythms
• Innovation awards
• Innovation management
• Core competence mapping strategy
• Ability to critically review own organization
  (despite current success)
• Bottom-up initiatives / work-out sessions

• Time-to-market of projects
• sales with products developed in last x months

• Ability to execute
• Innovation
• Distinctive functional excellence
• Learning adaptation

Core capabilities
5
1 Tools, instruments, processes 2 e.g.
performance review, training, etc.
21
Step 4 Install enablers and establish KPIs to
foster improvement -List by HPO element (3/3)
NOT EXHAUSTIVE
Enabler1
KPIs
HPO elements attributes

• Organization / Operating model
• Clear role descriptions
• Decision Rights Matrix
• Mgmt. cockpit, balanced scorecard2, war room
• Early warning system
• Performance contracts
• Rewards heavily linked to stock performance /
  high variable part
• Forced rankings
• Fast, rigorous, consistent fair consequences in
  case of undelivered promises
• Non-financial rewards

• Structure, roles responsibilities
• Empowerment
• KPIs
• Stretch targets
• Performance management

• Information on structure etc. centrally stored
  and known by managers
• Target fulfillment rate
• Number of people with performance contracts
  reviews
• variable compensation
• Degree of payment of LTI
• Spread of financial rewards between high- and
  low-performers
• Avg. time to separate from low performers

Accountability Control
6

• State of the art structures
• Process mapping
• Embedding of Six Sigma
• Continuous improvement
• Audit
• Integration of code of ethics into business
  processes
• Management information / decision support systems
• Efficient IT productivity tools
• State-of-the-art HR systems

Structures, Processes Systems

• Structures, Processes continuous improvement
• IT MI systems

• Quality rates
• Benchmarks for critical processes
• Number of six sigma / CIP and their benefits
  Productivity measures
• Number of black belts in the organization
• Number of violations of code of ethics
• Transactional headcount ratio
• Number of compliant processes

7
1 Tools, instruments, processes 2 financial,
people mgmt., process improvement, etc.