The Five Domains of High Performance. White Paper

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1 The Five Domains of High Performance White Paper

2 White Paper About i4cp i4cp enables high performance in the world s top companies. i4cp is the world's largest vendor-free network of corporations focused on building and sustaining a highly productive, high-performance organization. Through a combination of peer networking, human capital research, tools and technology, we enable high performance by: Revealing what high-performance organizations are doing differently Strategy Identifying best and next practices for all levels of management Providing the resources to show how workforce improvements have bottom-line impact Market Peers Research i4cp Network Leadership Over the last 40 years, i4cp research has revealed the five key human capital domains that companies leverage to drive performance. Our members - many of the largest and most respected companies in the world across a wide spectrum of industries - use this research, i4cp's expertise, tools, technology and vast network of peers to improve productivity and drive business results. Culture Tools Technology Talent Visit i4cp.com to learn more.

3 White Paper White Paper High-performance companies are the role models of the organizational world. They represent real-world versions of a modern managerial ideal: the organization that is so excellent in so many areas that it consistently outperforms most of its competitors for extended periods of time, despite industry or economic conditions. Along with an insatiable appetite to study successful leaders, we in the business world are fascinated with high-performance organizations. What are they like? What do they do differently? Is there a secret recipe that allows them to outperform their competition? Of course, many books have been dedicated to this subject. From Tom Peters and Bob Waterman s early 80 s best seller In Search of Excellence to Jim Collins Built to Last and Good to Great, there has been a succession of books that leaders and managers across the globe have devoured. Programs such as GE s Six Sigma have trained countless people in how to achieve top performance, while consultants have built entire practices around the elements of high-performing companies. While business professionals want to learn more about high-performance organizations in the hope that they can apply some of the secret sauce to their own firms, many of the companies profiled within the pages of the aforementioned books were unable to sustain high performance. In fact, the number that achieve this vaunted goal is about half. While much has been written on the subject, the truth is that the ingredients to high performance remain somewhat of a mystery. Part of the reason for this is the definition what do we mean exactly by high performance? Is there a difference between surviving (which has been the criticism of companies profiled in Built to Last, for example) and performing? Do we mean companies that outperform others in their own industry or across industries? How long of a time period constitutes high performance? And which measures, financial or otherwise, are the best ones to use? Over the last three decades, i4cp researchers have looked at various ways to both define high performance and to identify the traits that separate consistent high performers from the rest. Over time, we have come to recognize high-performing organizations as ones which consistently outperform most of their competitors in four primary areas: Revenue growth Market share Profitability Customer satisfaction Page 1 Proprietary

4 The Five Domains of High Performance Our research team has examined well over 100 different core human capital management issues to try and determine the differences between high-performing and low-performing organizations. The research has quite clearly shown that no single ingredient guarantees organizational success. Rather, high performance is like a delicate entrée that s based on a staple of core ingredients, any one of which, if left out or of inferior quality, will ruin the entire item. The Five Domains of High Performance Our research has shown that, no matter how many times we study top organizations, there are five core ingredients that separate higher-performers from their lower-performing counterparts: 1. Their strategies are more consistent, clearly communicated and well thought Strategy out. They are more likely than other companies to say that their philosophies are consistent with their strategies, and their performance measurements mirror Market Peers Research Leadership their strategies. i4cp Network 2. Leadership is clear, fair and talentoriented. Those leaders are more likely Tools Technology to promote the best people for the job, make sure performance expectations are well known and consistent with the Culture Talent strategy, and are committed to developing their people. 3. There is a commitment to the right talent within the organization. And while employees are treated as unique individuals, the organization takes a holistic approach to managing and making decisions based on data-driven information. This begins with a strategic approach to workforce planning. It entails looking at the organization from an outside-in perspective that identifies the business model components and areas that drive value, and then determines what the organization needs. 4. The culture is strong in all the right ways and employees are more likely to think the organization is a good place to work. Employees not only adapt well to change, they embrace it. High performers also emphasize a readiness to meet new challenges and are committed to innovation. 5. They are more likely to have a strong market focus and to go above and beyond for their customers. They are organized internally around what s best for the customer, Proprietary Page 2

5 White Paper White Paper they think hard about customers future and long-term needs, and their strategy is based on customer data. They are also more likely to see customer information as the most important factor for developing new products and services. While these five domains Strategy, Leadership, Talent, Culture and Market focus may seem a bit broad or even obvious, the degree of separation our research has shown between high and low performers within these five elements is startling. The following graph from a 2010 i4cp study on high performance depicts this separation: Average Score of Low Average Score of High It s important to note that while these five core domains are critical, there are sub-categories within each that are even more critical to explore. Let s look at each domain individually. Page 3 Proprietary

6 The Five Domains of High Performance 1. Strategy In the area of strategic approach, our research shows that consistency is quite important to high performance. Executives in high-performing organization tend to establish consistency by establishing clearly articulated philosophies that set standards for everyone s behavior. They also have leaders, managers, and employees who behave consistently with the strategic plan and the company s philosophy. The result is that, in high-performing organizations, people understand and buy into the strategy, the importance of the strategy, and what it means for their job. Top 5 Strategy Items Average score for High Average score for Low Gap between High and Low Correlation with Market Performance 1 The behavior of our organization s middle managers is consistent with the behaviors needed to execute the strategy The behavior of our organizations executives is consistent with the behaviors needed to successfully execute the strategy People in our organization understand how the strategy affects their individual roles Our organization s publicly stated philosophy is consistent with its strategy Our organizational structure is aligned with our strategic goals In our research, high-performance organizations scored higher than the lower performers in all attributes that measure consistency of strategic approach. In fact, our research shows that the two most widely cited characteristics among high-performance organizations was that the behaviors of executives and managers were consistent with the behaviors needed to successfully execute the strategy. Not surprisingly, leadership behavior that is consistent with the strategy also had the highest positive correlation with market performance. The common wisdom of walk the talk is an indispensable ingredient in high-performance organizations. If an executive says one thing and then does another, employees draw a variety of conclusions, most of them destructive to an organization, such as: Do not believe what he or she says. Proprietary Page 4

7 White Paper White Paper We are allowed to behave the way the executive does (or we can pick and choose which rules to follow). The rules do not apply to everyone (or anyone) and therefore we are allowed to do whatever we wish. It s interesting to note that in i4cp s recent study of Leadership Competencies, we found that one of the few competencies that had both a positive correlation with leadership success and market performance was role model for organizational values. Additionally, our research shows that leaders whose behavior is consist with the organization s strategy and values create an environment that allows high-performance organizations to outstrip low performers in another important area: people understand how the strategy affects their individual roles. Over the years, our research has found that when people within the organization understand how their day-to-day performance impacts the organization s strategy, the more capable they are of driving high performance and executing the strategy faster than low performers. However, high performance in this domain is not just related to consistency of leadership behaviors. Our research shows that two other important variables also have an extremely strong positive correlation with high performance: The organization s publicly stated philosophy is consistent with its strategy and the organization s structure is aligned with the strategic goals. Leaders come and go, but philosophy and structure tend to be more stable. Strategy s needs to be aligned with these philosophies and supported with a structure that is aligned throughout. Page 5 Proprietary

8 The Five Domains of High Performance 2. Leadership Leadership especially at the CEO level is frequently portrayed as the key ingredient in creating a successful organization. However, recent research suggests this can be overstated. Nitin Nohria and her colleagues at Harvard Business School found, for example, that on average only 14% of a firm s performance is dependent on its leaders. i4cp s research shows that Leadership is only one of five key components of organizational systems that must operate in harmony to be effective. However, in today s superstarfocused culture, executives and leaders are what most business writers tend to focus on first. People are acculturated to worship or blame the superstar for the successes and failures of an entire organization. Clearly leaders can t do their jobs alone. They must be able to convince others to focus their efforts on the success of the organization. Communication, and the idea that leaders are good at empowering employees, are critical to the success of high-performance organizations. Top 5 Leadership Items Average score for High Average score for Low Gap between High and Low Correlation with Market Performance 1 Our leaders clearly communicate the organization s goals Our leaders are excellent decision makers Our leaders are good at empowering employees Our leaders make sure programs support the desired culture Our leaders are continually adopting innovative approaches to increase employee effectiveness In multiple studies conducted by i4cp on leadership, one of the most widely agreed-on characteristics of high performance organizations is that leaders clearly communicate the organizations goal. When leaders do this well and often, it tends to create an environment where everyone is clear about the organization s performance expectations, and employees understand how their behavior affects the organization. Leadership behavior can also be analyzed from a broader perspective that is based on the high-performance paradigm set out above, and can be grouped into two major categories: Proprietary Page 6

9 White Paper White Paper Supervisory relationship: For over 50 years, organizational researchers have found that the most important relationship within any organization is the one between the employee and his or her immediate supervisor. A good relationship between employee and supervisor is highly correlated with high performance. Not surprisingly, the best-performing organizations in the survey scored higher in all of the questions related to this area, including those related to employee comfort with being able to express disagreement. Clarity of goals and consistency of rewards: As noted above, high-performance companies are clear and consistent in the area of performance expectations, and they also tend to be more consistent in the ways they reward workers. They set clear performance expectations, reward employees who have the most ability, and reward those employees who strive to meet customer needs. In short, clarity and consistency are important in terms of strategy and philosophy, customer focus, and leadership behaviors. These components mutually reinforce each other, creating a culture of performance by minimizing the destructive and nonproductive behaviors that are the result of mixed messages. Page 7 Proprietary

10 The Five Domains of High Performance 3. Talent Effectively managing talent is critical to building a high-performing organization. Organizations that excel at talent management usually move beyond a focus on HR practices, processes and systems, to a strategic view that is linked to business outcomes. This typically begins by stepping outside of HR and looking at the organization from an outside-in perspective, which entails identifying the business model components and areas that drive value and then determining what the organization needs from a human capital perspective. This enables organizations to take a holistic approach to people; still treating employees as individuals but managing and making workforce planning decisions based on data-driven information. The cost of ineffective talent management can be staggering. A few of the problems companies face when they don t manage their talent well are high turnover, a disengaged workforce, poor workforce planning (which leads to reactive rather than proactive management), compromised succession planning, and constantly having to hire from the outside because talent has not been developed internally. Top 5 Talent Items Average score for High Average score for Low Gap between High and Low Correlation with Market Performance 1 Our employees are highly engaged We are able to retain our most talented employees We identify and track high-potential employees well We hold manager accountable for effective talent management Our executive team takes responsibility for managing talent Much has been written about the importance of employee engagement, and our research shows that high-performance organizations typically have highly engaged workforces. However, most conversations about engagement can quickly turn into a debate about what comes first, a highly engaged workforce or a successful organization. While the answer to that question is elusive, our research into engagement finds that high-performing organizations with highly engaged employees do several things differently from low- Proprietary Page 8

11 White Paper White Paper performing organizations with low levels of employee engagement. These practices start with the kind of talent they search for: What Organization s Look for as Predictors of Engaged Employees Top Three Traits High-Performing Organization with Highly Engaged Employees Low-Performing Organizations with Disengaged Employees 1 Has a passion for work Intelligent 2 Has a positive attitude towards peers and customers Confident in work abilities 3 Has a desire to set and achieve goals Has excellent job skills The philosophy of many high-performance organizations can be summed up as hire for attitude (vs. aptitude) and train for skills. The hallmark of low-performing organizations is hiring smart people vs. hiring individuals for their passion, positive outlook and work ethic. Our research into engagement also finds that high-performing organizations work harder at creating and maintaining a highly engaged workforce in four significant areas: They make engagement a priority for leaders at all levels in the organization, especially for supervisors. They actively promote and communicate the importance of engagement. They recognize and reward engagement and build it into other practices. They build a learning and development culture while investing in their employees. Much of this behavior supports talent management, and when it comes to effective talent management, high-performance organizations excel in the following areas: They have a meaningful definition of talent management for their organization that supports the business strategy and is understood by all stakeholders. They have integrated the various components of talent management recruiting, onboarding, training and development, performance management, succession planning, rewards, etc. in both their processes and technologically. High-performance organizations have assigned clear accountability for talent management internally and they also make the business case for talent management clear in order to gain senior-level support. While an individual in HR is Page 9 Proprietary

12 The Five Domains of High Performance often responsible for developing and maintaining the tools and processes to enable successful talent management, in high-performance organizations these people have enabled individual managers through training and clear communication to carry out and execute talent management. High-performance organizations determine what metrics they want to capture to measure the success of their talent management initiatives. They have assigned clear ownership of those metrics, which are reported on frequently. The executive team has built organizational incentives into the talent management process. They monitor progress and reward behaviors that are in line with the talent management objectives. Talent management is growing increasingly integrated and valuable as organizations' respond to uncertain economic times. As the field matures, talent management's effectiveness as a strong component of overall business strategy is developing rapidly. Proprietary Page 10

13 White Paper White Paper 4. Culture Culture is the proverbial 800 pound gorilla in the room. Research shows that unless the organization s culture is aligned with the organization s vision, mission and strategy, culture will override all else. But how does a company know if the culture is aligned? How does a leadership team build and maintain a supportive culture? Any conversation about culture typically starts at the top. The leadership usually sets the tone for the culture, and once the tone is set it is difficult to shift. Culture, however, has layers like an onion. The culture at the top of the organization does not always reflect the culture at the bottom. In most companies, there are tribes throughout the organization that have unique and separate cultures. For example, sales is a tribe with their own language and secret handshakes. Typically, engineering, marketing, HR and finance are also tribes, with many more emerging in most organizations. What s important is that each tribe is aligned with the overall culture of the organization. But to many leaders, culture can seem a little like mist, constantly shifting and changing as the external world changes. Economic, demographic and competitive elements are all factors that affect the culture to varying degrees. Although it s difficult to make immediate changes to culture, our research finds that highperformance organizations have a number of distinct cultural characteristics that help them to adapt more readily. Primarily, high-performance organizations are aware of external factors such as customers, markets and competitors, and they are ready to take on new challenges. Top 5 Culture Items Average score for High Average score for Low Gap between High and Low Correlation with Market Performance 1 Our organization responds well to changes in the market or elsewhere Our culture adapts to changing market conditions Our organizational culture is externally focused on our customers, markets, and competitors Most employees think this is a good place to work Our organization emphasizes readiness to meet new challenges Page 11 Proprietary

14 The Five Domains of High Performance The ability to not only effectively manage change, but to embrace change, is a hallmark of high-performance organizations. In addition, being seen as a good place to work is a solid indicator that an organization is a high performer. Not only is this characteristic the most widely cited by high-performance organizations, it is also one of the areas in which those organizations furthest outstrip low performers. Culture is largely made up of values, actions, beliefs and ethics. Our research has grouped these areas into four categories that drive high performance: 1. Approach to work: In addition to some of the values noted above, employees in high-performance organizations tend to be loyal to their company and they tend to participate in their organization s social events. They also tend to be more involved and more comfortable with their co-workers. 2. How the organization treats its employees: High-performance organizations create an environment that fosters cohesiveness, loyalty and readiness to change. Such organizations tend to treat their employees well, and employees, in turn, treat the organization well. These organizations also tend to be more concerned about their employees than are low-performing organizations, and they tend to have employees who are able to find helpful, knowledgeable opinions among their coworkers. 3. Employees have the freedom to use their judgment: In high-performance organizations, employees have more freedom to use their own discretion than employees do in low-performance organizations. Employees in these organizations also have more liberty to change processes or procedures to improve outcomes. Their supervisors have the same type of freedom. All of these changes are made within a more cohesive group than in low-performance organizations. 4. Ethics: High-performance organizations tend to have a stronger set of ethicsrelated values than low-performance organizations. It makes sense to look harder at these issues today, because i4cp research indicates that the external factors influencing culture will have an even greater impact ten years from now. In the highly multicultural, technologically mediated organizations of tomorrow, it will be crucial for far-flung organizations to forge unique identities as part of their branding efforts, both for customers and employees. Corporate cultures will also need to be more adept at becoming talent magnets in the future, and they ll probably need to adopt stronger values related to sustainability, diversity, resiliency and agility. In addition, they ll often need to represent and express their cultures Proprietary Page 12

15 White Paper White Paper via virtual, online worlds where geographically dispersed employees can get a greater sense of belonging and understanding. None of these shifts will be easy. Even organizations that currently have effective corporate cultures will be challenged to maintain such cultures amid the changing and tumultuous environment of the coming decade. The good news is that positive cultures are linked to greater adaptability. Therefore, leaders should view the topic of corporate culture not only as important to high performance today, but also as potentially critical to their organization s ability to survive and thrive in the future. Page 13 Proprietary

16 The Five Domains of High Performance 5. Market Focus As we have seen in the other domains of high performance, having an external focus is extremely important. To paraphrase Peter Drucker, No great change comes from looking internally. Change only comes from having an external focus. Our research shows that great organizations intimately understand the market they operate within and their customers. In high-performance organizations, even those employees who do not have the opportunity to interact face-to-face with the customer understand their needs. Top 5 Market Items Average score for High Average score for Low Gap between High and Low Correlation with Market Performance 1 We do a good job at accessing our customers future needs Our functions and departments are organized in order to maximize customer value Our organization s strategy is based on customerrelated data We strive to be the best in the world in providing value for our best customers Our internal processes are designed to best meet the needs of the customers Understanding and acting on the future needs of customers is one critical element that separates high performers from the rest. High performance is also associated with a very strong emphasis on customer service, including vigorous efforts to serve customers better than anyone else in the industry. Our research has found that high performance is often linked with the use of customer-related data as part of product planning, as well as using that data to align functions and departments and developing future strategies. In short, high-performance companies regularly and proactively seek out and act on the insight they gain from their customers. High-performance firms also understand that different customers have different needs, and that some customers add more to the bottom line than others. Such organizations create different types of processes to manage different categories of customers. Proprietary Page 14

17 White Paper White Paper 1. External focus: In general, high-performance organizations are more willing than other organizations to hear what is best for the customer rather than what is best for the organization. 2. Philosophical approach: High-performance organizations tend to be the best in the world in providing value and exceeding customer expectations. These are not just lofty words or statements but actions that are put into practice. As with strategic approaches, high-performance companies are more likely than other organizations to walk their talk in terms of customer focus. 3. Internal design: High-performance organizations tend to be better at creating and maintaining internal processes that best meet the needs of the customer. Their customer-focused processes are also more flexible than those in low-performance organizations, and leave room for employees to use their judgment in meeting customer needs. Most corporations recognize the importance of customer focus. It s the full commitment to customers and the market that elevates the high performers. For those organizations, customers feature prominently in vision statements, scorecard measures, innovation efforts, employee performance standards, organizational design, reward programs and other important areas of business operations. Page 15 Proprietary

18 The Five Domains of High Performance The Importance of Alignment and Execution While i4cp research has identified five domains of high-performance organizations, improved performance won t happen without alignment and execution. It s important for a company s culture to align with its strategies which then must align with its focus on the market, as well as its talent programs and leadership approaches. These five domains must work together as an integrated system. Once alignment occurs, execution in these areas is paramount. Our research in this area also suggests that, while the five domains of high-performance organizations are likely to remain stable over the next 10 years, the focus for companies within those domains will evolve. There will most likely be innovations in leadership competencies, talent-management programs, technology usage, customer service, performance metrics and other areas affecting an organization s human capital. Achieving and maintaining high performance will require that companies adapt to a changing marketplace and shifting social attitudes. Organizational leaders will need to adapt to new theories and understandings of high performance by staying abreast of the research in the field. Today s favored strategies and best practices can easily become tomorrow s failures of imagination. Amid these changes in practices and environment, there will always be companies that stand out in terms of their ability to consistently perform at a high level for many years. These organizations will have much to teach us. Proprietary Page 16

19 White Paper White Paper About the Author Kevin Oakes - CEO The Institute for Corporate Productivity As CEO of i4cp, Kevin provides strategic direction and vision, and is responsible for the overall operations of the organization. Kevin has been a pioneer in the human capital field for the last 15 years, and is a frequent author and international keynote speaker on topics such as talent management, leadership, innovation, metrics and strategic learning in organizations. Prior to founding i4cp, Kevin created SumTotal Systems, (NASDAQ: SUMT), the world's largest learning management system company and the industry's leading provider of talent development solutions, when he merged Click2learn (NASDAQ: CLKS) with Docent (NASDAQ: DCNT) in The merger won Frost & Sullivan's Competitive Strategy Award in Kevin was also the 2006 Chair of the national American Society of Training & Development (ASTD) board, and served five years as an ASTD board member. Kevin was also the 2008 ASTD Board Selection Committee Chair. ASTD is the largest association in the world dedicated to workplace learning and performance, and its global membership reaches over 70,000 members. Kevin is also an advisory board member of Intrepid, a Seattle-based provider of outsourced workplace productivity solutions, and he serves on the board of Longworth Ventures, a Boston-area venture capital firm. kevin.oakes@i4cp.com Page 17 Proprietary

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21 i4cp enables high performance in the world s top organizations. Contact us at: i4cp (4427) or on the web at i4cp.com Peers. Research. Tools. Technology.