Building a Foundation for Success: Performance. Excellence Journey

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1 Building a Foundation for Success: Performance Excellence Journey ROBERT PENCE, P.E., BCEE; AND CINDY MILRANY, CPA ABSTRACT: The civil engineering profession has long recognized the need for engineers at all levels to enhance their technical expertise with business, leadership, and management capabilities. During its 17-year journey to strengthen the organization, Freese and Nichols found the Baldrige Performance Excellence Criteria to be the most effective guide for building leadership and management skills that deliver planned, sustainable business success. To help educate other engineering firms about the benefits of adopting performance excellence strategies, this article describes the impact of strategic planning and leadership development in building a foundation for organizational success. In 1996 Freese and Nichols Inc., a Fort Worth, Texas based engineering firm, embarked on a journey to improve all facets of its operations using the Malcolm Baldrige National Quality Criteria as a road map. Our efforts were recognized in November 2010, when we received the Malcolm Baldrige National Quality Award. To date, Freese and Nichols is honored to be the only engineering/architectural firm to receive this recognition. Our goal is to interest other organizations in our industry in starting on their own journeys to performance excellence and to join us as recipients of this prestigious award. LEVERAGING THE BALDRIGE MODEL Baldrige practitioners use the program s criteria to direct continuous-improvement initiatives. The criteria apply to any organization, from government agencies, municipalities, and health-care organizations to large and small businesses, and are focused on the following areas: leadership; strategic planning; customer focus; measurement, analysis, and knowledge management; workforce focus; operations focus; and results. Every Baldrige applicant and certainly every winner has its own version of success. Freese and Nichols s is about sustainability our ability to successfully address current business needs while retaining the agility and capability to strategically prepare for the future. Our model of sustainability has five components: 1. Plan for both today and tomorrow, 2. Develop tomorrow s leaders, 3. Maintain long-term client relationships, 4. Maintain long-term employee relationships, and 5. Continuously improve services and systems. Many companies new to Baldrige (or similar performance excellence programs) are concerned about having to follow a rigid formula. To the contrary, the Baldrige criteria allow great flexibility; strict adherence to a formula is not necessary as long as you address the key factors that determine your success. There is tremendous opportunity for engineering firms to embrace the Baldrige model and achieve sustained success. Adopting performance excellence standards across a number of areas or even starting with one or two key target areas helps drive positive OCTOBER Leadership and Management in Engineering

2 results that are important to stakeholders, promotes accountability and transparency, and assists in resource allocation and budgeting decisions. RETHINKING STRATEGIC PLANNING One of the key drivers of continuous-improvement and performance excellence initiatives is a systematic approach to doing business. Through much of the twentieth century, strategic planning at Freese and Nichols was not a top priority. During the 1970s and 1980s, the company s world was straightforward: market conditions changed little from year to year; the company had exclusive, longterm relationships with many of its clients; and Texas was not a prime target for large national competitors. The strategic plan was developed by the board of directors and approved by the shareholders. The company experienced steady but conservative growth in this era. All of that changed in the 1990s. Population growth accelerated across the state, attracting national competitors to Texas. Clients began posting requests for proposals on the Web and awarding contracts to multiple providers. The firm experienced its first profit loss ever in 1995 it was a loud wake-up call: we needed a more effective way to plan. Our experience during the 1990s reflects that of many companies that fail to respond to changes in their markets. Consider Kodak, Hewlett-Packard, Blockbuster even Facebook struggles to maintain its position in the social-media landscape. So if we can communicate one thing about strategic planning, let it be this: a company s success depends on its ability to anticipate and respond to changing conditions in the marketplace. EVOLUTION OF STRATEGIC PLANNING PROCESS: GETTING STARTED Strategic planning has played a big part in the firm s success. During the 16 years from 1995 to 2011, the firm s annual bookings increased 460%, with a subsequent average increase in annual profits of 24%. We maintained this record-level performance throughout the recent recession. From 2008 to 2011, while other civil engineering firms were reducing staff, we increased our workforce by 22%. Our firm started with a basic planning process in 1997 and refined it over several years, using the Baldrige criteria as a guide (see Fig. 1). For Freese and Nichols, strategic planning runs on an annual Figure 1. Improvements to our strategic planning process cycle, starting in February with refinement of the process itself and ending in December with approval of each department s annual operating plan and budget. Any changes in strategic intent or overarching goals are addressed in March and April, and analysis of organizational performance begins in May and continues through July. Draft strategic plans are completed by August, in time for an annual retreat in September. Group planning retreats are held in the fall, at which time annual operating plans and budgets are developed before final review and approval at year-end (see Fig. 2). Our planning team consists of the C-suite executives (CEO, COO, CFO, CIO, CMO), five division managers, the marketing manager, the human resources manager, and the organizational development manager. Others are included as needed at each step of the process. IMPROVING THE PLANNING PROCESS Futures Committee: Casting Wide Net into the Future The Baldrige criteria encourage organizations to examine their strategic direction for both the short term and the longer term. Our basic planning process addresses a 3 5 year time frame, which is typical for our industry. Recognizing that the planning team needed to anticipate longer-term trends, we formed the Futures Committee in 2006 to address big-picture issues. Looking out 15 to 20 years, the committee addresses such questions as how clients will obtain funding in the future, what new services they will demand, and how we can differentiate our firm in the marketplace. Industry experts, futurists, and client panels provide information and insights to help the committee Leadership and Management in Engineering 255 OCTOBER 2013

3 identify trends the company should address over the next few years. Results of the committee s work may be directed to the next year s planning cycle or assigned to an ad hoc committee for further research. The work of this committee has dramatically affected our firm s growth, setting us up for continued success. Some of the initiatives that have come from our Futures Committee s work include A process for acquisitions, A sustainability strategy, Entry into the energy market, A system to manage the firm s advocacy in regulatory and legislative processes, and Identification of a new key differentiator in the marketplace being a connector to a full range of resources for meeting client needs. Organizational Focus: Establishing Strategic Foundation Companies need to understand what they are best at the core competencies that give them a strategic advantage in the marketplace. Many organizations have established a mission and vision to codify this concept. In 2003, wanting to better communicate our competitive position, our senior leaders worked with shareholders from across the company to develop a hedgehog concept. In his book Good to Great, Collins (2001) told a story about a fox and a hedgehog. Despite the fox s attacks, the hedgehog consistently survived, even thrived, by doing one thing rolling into a ball of spikes. We needed to understand our one thing. Technical excellence was the easy answer, but we wanted the concept to apply to all employees in the Figure 2. Strategic planning process company. So, for our firm, the answer became client service. We have decades-long relationships with many of our clients; Freese and Nichols is the firm they turn to when they need advice about a serious problem or a complex technical issue. We realized that not only does the firm pride itself on client service, but it is an important competitive differentiator in the marketplace. The resulting hedgehog concept Be the very best at client service, resulting in long-term, mutually beneficial relationships has proven to be an important focal point in market positioning and in maintaining a strong client-focused culture. Our mission statement at the time Innovative Approaches, Practical Results was modified to include a third component Outstanding Service. Our vision To Be the Firm of Choice for Clients and Employees aligned well with our hedgehog concept. Now our hedgehog concept, mission, and vision provide the strategic foundation upon which we build our plan and leverage our core competencies. Organizational Performance: Using Data to Understand Our Capabilities Another imperative of the Baldrige criteria is to know your organizational capabilities. But, like many organizations, Freese and Nichols initially looked only at financial information to understand its performance and capabilities. As the firm implemented systems to manage additional stakeholder data, the planning team began to look beyond financial performance. The client satisfaction system yielded information about trends in client preferences; the employee opinion system provided information about drivers of employee satisfaction (and dissatisfaction); the integrated OCTOBER Leadership and Management in Engineering

4 sales system gave us information about activity with key clients. As these systems evolved, the planning team asked for not only more information, but also better analysis to help them understand the data and make decisions. Data segmentation (looking at the information by market, service, and division) has helped us identify opportunities for growth across the client s value chain. Data correlations (looking for cause and effect relationships) explained a major cause of negative variance, allowing us to reduce this drag on profits by 7% in one year. Grid analysis (comparing the data for all groups or all services) helps us compare utilization and multipliers across all our disciplines at a glance to better understand the impact of various growth strategies. Market Performance: Market Scans While a look at the external market gives us important data, we also must understand what it takes to keep pace with our clients. Just as we must respond to a changing world, so must our clients. For most of the twentieth century, Freese and Nichols had only two markets: water districts/river authorities and municipalities with services fairly well segmented between the two. As the company expanded, we naturally looked for markets that needed the services the firm already offered and entered higher education, military and government, county, and energy markets. As a result, the service lines have blurred a service now might be offered to three or four markets, each with its own client demands and growth potential. We developed the market scan to help the planning team understand this service/market mix. Market scans are conducted annually in May and reported to the planning team in June. As input to the market scan, technical groups provide information about trends in services, technologies, regulations, and legislation for their respective disciplines. Account directors take this information, along with their own knowledge of each market, and create market scans to highlight the most important trends for each of the firm s markets. These market scans help us understand the potential for each market which services are growing, which are declining, what new technologies the company needs to address, and what new services clients are demanding. Strategies, Goals, and Actions: Crafting the Plan While the market scans show what is possible, we still must decide what is practical. The planning team takes the results of the market scans, along with additional analysis of firm performance and decides on service and growth strategies: which existing services to grow, which new services to develop, and in which markets and geographic areas to expand. All these decisions are made in the context of achieving the company s goals and leveraging our core competencies. The resulting service and growth strategies are only half of the strategic picture. The other half comprises strategies to improve our organizational capabilities. What changes does the firm need to make to achieve its service and growth strategies; how can we improve employee retention or productivity; and what new technology capabilities do we need. The planning team looks at the capabilities of each of the firm s key functions in light of our service and growth strategies, past performance, and opportunities for improvement from the Baldrige feedback reports. The team determines what functions need to be strengthened or expanded and what new capabilities added. Once the planning team has their strategies in mind, they define the actions to put those strategies in place. More than half of companies with strategic plans never implement them, so a big part of the Baldrige model is executing the plan. Initially, the planning team took responsibility for implementing all strategic actions, assigning tasks to others as necessary. However, the team soon realized that employees were not engaged in the company s strategies, that is, they often did not understand how they personally contributed to moving the company forward. To get employees more involved, the planning team developed a simple deployment grid, assigning strategic actions to the groups or individuals most capable of executing the actions. Over time, the deployment grid became the main strategic planning document with specific team leaders assigned for each strategic action at the corporate and group level. An accompanying strategic action sheet explains the planning team s thinking about the problem or opportunity involved and provides directions about how to proceed and the expected outcomes. Each action is assigned a measure from the balanced scorecard to help the senior management track results. For example, we measure Client Satisfaction with Keeping Client Informed to track the success of our actions related to status reports. Deployment: Putting Plan into Action The strategic actions and goals are first communicated to all managers in September at the annual planning Leadership and Management in Engineering 257 OCTOBER 2013

5 Figure 3. Deployment of strategic actions and goals retreat and then deployed to each group in the fall as part of the annual operating plan process. The division managers develop a grid showing which strategic actions are to be deployed to each technical or corporate group; all groups meet to develop the next year s growth plans, along with staffing and support requirements. Each group also conducts a self-assessment and identifies improvements to be implemented in the next year, along with deployed strategic actions. The balanced scorecard has proven to be an important mechanism in both deploying strategies to all levels of employees and ensuring alignment with the strategic plan. Originally designed to track the success of the firm s strategies and actions, the planning team recognized the importance of aligning employees goals with the firm s overall performance expectations. The human resources team modified the performance planning system, which helps to reflect the firm s balanced scorecard goals. Goals are now deployed based on the employee s job classification and the performance expectations for that employee s group. For example, project managers have actual labor multiplier as a performance goal so that they work to achieve the target labor multiplier for the firm. (See Fig. 3.) Deployment of strategic actions and goals has validated for senior management the powerful connection between employees efforts and the success of the strategic plan. Senior managers monitor the effectiveness of this connection through the results of the balanced scorecard and the annual employee opinion survey. In the last 5 years, employees understanding of how they contribute to achieving the firm s strategies has steadily improved from 4.19 to 4.53 (on a scale of 1 to 5, 5 being highest). But, ultimately, the proof of the effectiveness of a planning process is the company s sustained success. (Fig. 4 shows key performance results for Freese and Nichols since 1995.) DEVELOPING FUTURE LEADERS Leadership is another critical component of sustaining an organization. Successful leaders have dual responsibilities in that they must fulfill the organization s mission for today and, at the same time, prepare the organization for a different tomorrow. According to PSMJ Resources Inc., a global consulting firm focusing on architecture, construction, and project management best practices, only one in 75 engineers and architects naturally possesses the wide range of skills necessary to accomplish both responsibilities. Fortunately, we have found that, with or without natural leadership abilities, strong leaders can be developed. Figure 4. Key performance results OCTOBER Leadership and Management in Engineering

6 Before Freese and Nichols started the continuousimprovement journey, we promoted employees to leadership positions as the opportunity arose. Leadership training was strictly an on-the-job proposition, with informal coaching as needed. The results were what most companies experience with such an informal approach: some great leaders and some not-so-great. Freese and Nichols University (FNU) was established in 2000 to provide more systematic career development and training for our employees. As the company grew, we realized that we needed that same approach for developing our future leaders. We started with a project-management certification course and then added leadership development in 2006 and senior leadership development in Leadership Ladder Today, we have an integrated approach for developing future leaders based on our leadership ladder (see Table 1). Each step has associated job positions, expected competencies for those positions, and the training and experience needed to move into those positions. The ladder supports integration of all aspects of employee development. The competencies are addressed in our behavior-based interview process for potential employees. The competencies, training, and experience form the basis for employee individual Table 1. Leadership Ladder development plans (IDPs), and every FNU course is designated for one or more steps of the ladder. Identifying Leadership Potential While our recruiting efforts attract more employees with leadership potential, it is still difficult to identify those most likely to complete the program and effectively lead the organization. We use several assessment tools at each step of the leadership ladder to help identify those individuals with the greatest potential, and desire, to become future leaders. First, employees complete a business career interest assessment to help determine their interest in applying their expertise, working with people, or achieving control or influence over time. Employees can also use the career ladder for their discipline to identify potential career paths in technical, marketing, or management areas. Managers assess employees leadership potential, looking for those individuals who could become leaders with the right experience and training. Moving up the Ladder As employees progress up the leadership ladder, their managers continue the assessment process, always looking for those individuals with the greatest potential to achieve the next level of leadership. The highest level, Lead the Business, is available only to those Step Competencies Leadership training Lead self Good attendance and punctuality, good relationship with New employee orientation peers, positive attitude/enthusiasm, safety Lead others Financial management skills, impact and influence, planning/organization skills, ability to set priorities, time management skills, sales and marketing skills, ability to meet deadlines, presentation skills Project management certification, Assistant project manager training, New manager training Lead group Lead business Financial management skills, impact and influence, ability to energize and empower others, decision-making skills, negotiation skills, organizational knowledge, presentation skills, sales and marketing skills, ability to meet deadlines Level 5 leadership, approachability, business acumen, ability to energize and empower others, financial management skills, human capital management skills, negotiation skills, impact and influence, partnering skills, ability to set priorities, time management skills, risk management skills, organizational communication skills, sales and marketing skills, decision-making skills Leadership development, Client representative training Senior leadership development Leadership and Management in Engineering 259 OCTOBER 2013

7 employees who have proven their ability to successfully lead themselves, lead others, and lead groups in the company. Candidates for senior leadership development are selected by the Senior Leader Development Planning (SLDP) Committee comprising the board chair, chief executive officer, chief operating officer, and human resources manager. A typical senior leadership class includes only a dozen employees. Participants in the leadership program are guided through exercises specifically designed to develop the core competencies necessary to achieve success in the organization, including the following: Leading change The ability to bring about strategic change, both within and outside the organization, and to meet organizational goals. This also includes the ability to establish an organizational vision and to implement it in a continuously changing environment. Leading people The ability to lead people toward meeting the organization s vision, mission, and goals. This includes the ability to provide an inclusive workplace that fosters the development of others, facilitates cooperation and teamwork, and supports constructive conflict resolution. Results driven The ability to meet organizational goals and customer expectations and to make decisions that produce high-quality results by applying technical knowledge, analyzing problems, and calculating risks. Business acumen The ability to manage human, financial, and information resources strategically. Building coalitions The ability to build coalitions internally and with other organizations to achieve a common goal. Senior Leadership Development Program The SLDP Committee works with the FNU staff on program development, program delivery, and program results. The program offers a blend of classroom learning and personal development activities intended to strengthen the competencies we believe senior leaders must have. The program, which includes six all-day workshops delivered over an 8 month period, consists of the following: IDPs IDPs based on 360 assessments and a leadership profile comparison for each participant. Mentors/executive coaches Meetings with a mentor to gain insight, coaching, and networking opportunities. Mentors review and discuss progress on participants development plans. Executive coaching is also available as appropriate. External development opportunities Participants and senior leaders select external opportunities to ensure exposure to high-level executives in other organizations. Quarterly group meetings Quarterly team-based, highly interactive sessions with subject matter experts in targeted areas of leadership competency. Interaction with clients Client leader visits to develop a deeper understanding of client needs. Community board service Service on a professional or civic board to gain an external perspective. Communication skills development Opportunities for communication skills development through public speaking and writing. Peer coaching Accountability groups for participants to hold each other accountable to their IDPs. Assigned reading Reading material assigned as preparation for each session and for ongoing book study discussions. Measuring Program Effectiveness As with any successful program, it is important to establish measurements to assess the program s effectiveness. The SLDP Committee also uses the measurements to help adjust the course materials to meet the changing needs of the participants and the organization. The measurements include Percentage improvement in postprogram assessment scores, Percentage of participants the organization retains for more than 5 years, and Program satisfaction scores and comments. If you are a leader concerned with the future success of your organization, now is the time to identify and develop your greatest assets your employees into future leaders. The ability to place these leaders, who fully understand your culture, vision, values, and mission, in key positions throughout the organization will provide strength and continuity for your organization that will reap benefits for decades. SETTING COURSE FOR CONTINUED SUCCESS The continuous-improvement journey we initiated in the mid-1990s still guides us today; we will remain on this path because it has laid the foundation for our sustained success. The importance of embracing a different way of doing business using the Baldrige or other performance excellence criteria cannot be overstated. Rigor in strategic planning and cultivating the next generation of leaders can help companies weather OCTOBER Leadership and Management in Engineering

8 economic storms and uncertainty and, in many cases, thrive. Appendix. Information About Freese and Nichols and Baldrige About Freese and Nichols Inc. Established in 1894, Freese and Nichols is a fullservice consulting firm serving municipal and county governments, water districts and river authorities, transportation entities, higher education, the energy industry, and the federal government. The firm, headquartered in Fort Worth, Texas, has more than 500 employees in Texas and North Carolina and provides engineering, architecture, environmental science, planning and construction services, and program management. Freese and Nichols received the prestigious Malcolm Baldrige National Quality Award in November 2010 and was formally recognized for the achievement at a ceremony in Washington, D.C., in April The firm remains the first and only engineering/architectural firm to receive this honor. About Malcolm Baldrige National Quality Award In the mid-1980s U.S. leaders realized that American companies needed to focus on quality in order to compete in an ever-expanding, demanding global market. Then-secretary of commerce Malcolm Baldrige was an advocate of quality management as a key to U.S. prosperity and sustainability. After he died in July 1987, Congress named the award in recognition of his contributions. The goal of the Malcolm Baldrige National Quality Improvement Act of 1987 was to enhance the competitiveness and performance of U.S. businesses by identifying and recognizing role-model businesses, establishing criteria for evaluating improvement efforts, and disseminating and sharing best practices. The National Institute of Standards and Technology (NIST) manages the award. Its scope has since been expanded to include health care (in 1999) and nonprofit/government organizations (in 2005). More than 1,500 organizations have submitted Baldrige applications to date, and 93 of those organizations have received the award. For More Information about Baldrige If your company or organization wants to take the next step in using the Baldrige criteria to drive improvement, here are a few resources: Baldrige criteria for business, education, health care, manufacturing, and small business, Statewide Baldrige programs, Baldrige national conferences, held annually in April, Baldrige regional conferences, held annually in September, REFERENCES Collins, J. (2001). Good to great: Why some companies make the leap and others don t, HarperBusiness, New York. Robert Pence is president and chief executive officer of Freese and Nichols Inc., Office of the President, 4055 International Plaza, Suite 200, Fort Worth, TX He can be reached at rfp@freese.com Cindy Milrany is chief financial officer/chief administrative officer of Freese and Nichols Inc., Office of the President, 4055 International Plaza, Suite 200, Fort Worth, TX She can be reached at cpm@freese.com. LME Leadership and Management in Engineering 261 OCTOBER 2013