Organisational Change Management Volume 1

Six Key Criteria for an Enduring and Successful Organisation

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In the late 1990s, it was found that the average life expectancy of a firm in Japan and Europe was around 11.5 years. On the other hand, a study of 30 high-profile, long-established (100 - 700 years old), international firms, such as Dupont, WR Grace, Mitsui, Sumitomo and Siemens, found the following common characteristics of these firms were:

1. A consistent set of values based on an awareness of the organisation's own identity and the community it belongs to and works with, ie a sense of community, mutual trust and stewardship (it is more than just money)

2. A willingness to change, ie very good at managing change and being sensitive to changes in the world around them. They are good at learning and adapting, and are receptive to new ideas and activities, especially those from the edge of the organisation. Once an organisation has adapted to a new environment, it is no longer the same organisation - it has evolved.

3. A passionate concern for developing the capacity and self-confidence of their core inhabitants as a community of human beings, and demonstrate that the organisation values these more than its physical assets (land, capital and equipment). Thus, a manager places commitment to people before assets (assets are necessary for life but not the purpose of life), respects innovation before devotion to policy, accepts the disorder of learning before orderly procedures, places the perpetuation of community before all other concerns.

4. Conservatism in financing, ie do not risk the capital gratuitously; they understand the usefulness of spare cash in the kitty so that it allows them to take up options at the "right" price and be independent of outside financiers.

5. An actively fostered learning environment (especially innovation)- this requires mobile individuals and groups within the organisation; innovative staff who interact; social and organisational systems that encourage innovation.

6. Succession planning with a high priority given to organising for continuity from one generation of management to the next, ie survive and thrive

(sources: Arie de Gues, 1997; Aust. Financial Review, 2001)

Some More Thoughts on Successful Firms and CEOs

A blueprint for successful organisations is based around ensuring
- a disciplined approach to capital expenditure by using key indicators like EBITDA (earnings before interest, tax, depreciation & amortisation) & IRR (internal rate of return), discounted cash flow, etc
- as capital allocation is senior management's most important task, it is centralised, ie investment with involvement
- management is decentralised so that entrepreneurial energy is released; this, also, keeps both costs and "rancour" down
- maximising share value is more important than growth or size
- cash flow is a better determinant of long-term value than reported earnings
- independent thinking (including contrarian) is essential for long-term success
- interaction with outsiders, like media, analysts, etc is kept at a minimum as it can be distracting and time-consuming
- sometimes the best investment opportunity is in your own organisation, ie buy-backs
- with acquisitions, occasional boldness and patience are virtues, eg willing to wait for the right deal
- opportunistic, flexible and diversified to handle business cycle swings, eg booms and busts
- performance-based, eg compensation
- effective tax plan, ie minimising tax liabilities (individual and corporate)
- focus on long term, eg revenue generation rather than cost cutting
- minimal overheads, eg small corporate headquarters/office, small but talented Boards (usually under 10 members) who have major investments in the organisation
Some of the personal characteristics of the most successful American senior managers include
- frugal, eg eschewed perks like corporate planes, upmarket offices, etc
- low key, ie more humble than charismatic, not high-profile, avoid the spotlight, etc
- analytical & rational with a disciplined approach, eg capital expenditure
- understated, eg using conservative assumptions
- independent, ie don't follow the herd (institutional imperative - see elsewhere) and a mindset willing to challenge everything, like assumptions, etc
- innovative, ie the ability to make connections across different fields, disciplines, industries, organisations, etc
- a combination of conservatism and boldness, ie know when to be bold
- devoted to their families, eg happily married
- limited managerial experience, ie most CEOs from outside the industry
- opportunistic & flexible, eg focus on what is in the best interest of the organisation, buy and sell at the right price
- encourage staff to act like owners, eg focus on long-term like culture, capital investment, organisational structure, etc
- have a mindset more like investors than business people, ie capital allocation
- "hire well, manage little", eg decentralised management
- many are outsiders to the industry they succeed in, ie willing to challenge conventions, norms; refer unorthodox approaches; contrarian in their approaches to aspects such as financial metrics
(NB Their genius was recognising enormously powerful ideas that they would proceed to execute with maniacal focus and determination. They approached things with fresh eyes and a deep-seated commitment to rationality.)
"...at their core, they are rational and pragmatic, agnostic and clear eyed. They do not have ideology..."
William Thorndike, 2012
"...it is impossible to produce superior performance unless you do something different..."
John Templeton as quoted by William Thorndike, 2012
Also, these top performing managers like to work with highly talented but small Boards whose members have significant interest like shareholding in the organisation
This is based on the performance of 8 outstanding US CEOs eg
i) Tom Murphy (Capital Cities)
ii) Henry Singleton (Teledyne)
iii) Bill Anders (General Dynamics)
iv) John Malone (TCI)
v) Katharine Graham (The Washington Post)
vi) Bill Stiritz (Ralston Purina)
vii) Dick Smith (General Cinema)
viii) Warren Buffett (Berkshire Hathaway)
These CEOs outperformed S&P 500 by over 20 times and their peers by over 7 times. They performed considerably better than the legendary Jack Welch with GE (1981 - 2001). He delivered a compound annual return of 20.9%; while the S&P averaged 14%, ie only 3.3 times S&P (not 20 times).

 

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