Good is no longer good enough. To survive in today's competitive environment, you need to excel. To excel, a company needs to focus on all parts of the organization, optimizing the use and effectiveness of all of its resources. After years of working with many types of organizations using various approaches to improve performance, we have come to realize that there are only five elements that need to be managed for an organization to excel. We call these key elements the five pillars of organizational excellence. All five must be managed simultaneously. Top management's job is to keep all of them moving forward at the same time. To concentrate on one or two of them and let the others slide is a sure-fire formula for failure.
Organizational excellence is designed for permanent change by focusing on managing the five key pillars, seen in the figure on page 64. Each of these five organizational pillars is not new by itself. The key to organizational excellence is combining and managing them together. The five pillars are:
• Pillar 1: process management
• Pillar 2: project management
• Pillar 3: change management
• Pillar 4: knowledge management
• Pillar 5: resource management
By effectively managing these five key pillars and leveraging their interdependencies and reactions, an organization can bring about a marvelous transformation within itself. An organization will come out of its cocoon, which had been restricting its potential, and become a butterfly that will float on the winds of success.
The process management concept certainly isn't new to management professionals; it's the basis of most improvement methodologies.
To manage a process, the following must be defined and agreed upon:
• An output requirement statement between process owners and customers
• An input requirement statement between process owners and suppliers
• A process that is capable of transforming the suppliers' input into output that meets the customers' performance and quality requirements
• Feedback measurement systems between process and customers, and between process and suppliers
• A measurement system within the process
These key factors should be addressed when designing a process. However, the problem facing most organizations is that many of their support processes were never designed in the first place. They were created in response to a need without really understanding what a process is.
There are two basic approaches to managing processes:
• The micro-level approach. Directed at managing processes within a natural work team or an individual department
• The macro-level approach . Directed at managing processes that flow across departments and/or functions within the organization
Most of the work that quality professionals do is related to continuously improving our processes. Some of the tools that we use include design of experiments, process capability studies, root cause analyses, document control, quality circles, suggestions, Six Sigma, Walter A. Shewhart's cycles, ISO 9001, just-in-time manufacturing and supplier qualification, among many others.
Management in excellent organizations requires each natural work team (or department) to continuously improve (refine) the processes that it uses. Refining the process is an ongoing activity. If the refinement process is working as it should, the total process efficiency and effectiveness should be improving at a rate of up to 15 percent a year. In most cases the project team focuses on the broad problems that reflect across departments and reaps this harvest within three to 12 months. At that time the project team can be disbanded and the process refinement activities turned over to the natural work teams that are involved in the process.
• Only 26 percent of all projects are successful.
• 40 percent of all information technology (IT) projects fail or are canceled.
Processes define how organizations function, and projects are the means by which organizations improve those processes.
There are endless examples of poor project management. Two recent examples that come to mind are:
• NASA's Space Station Freedom was originally budgeted for $8 billion; it is now up to $32 billion and climbing.
• The 2004 Olympic Games were 300 percent over budget one year prior to their opening.
Projects in most organizations are mission-critical activities, and delivering quality products on time is non-negotiable. For IT projects, benchmark organizations are completing 90 percent of their projects within 10 percent of budget and schedule. Information system organizations that establish standards for project management, including a project office, cut their major project cost overruns, delays and cancellations by 50 percent.
Process redesign and process reengineering are two of the most important projects that organizations undertake. These types of projects have a failure rate estimated to run as high as 60 percent. There are two main causes for these high-cost failures: poor project management and poor change management. IBM launched eleven reengineering projects, starting from the way that it manages internal information systems and continuing to the way that it develops products and serves customers.
Let's look at why projects fail.
• Failure to adhere to a committed schedule
- Poor planning
- Scope creep
• Poor resource utilization caused by:
- A lack of proper skills
- Poor time utilization
- Misalignment of skills and assignments
• Poor management due to:
- Incorrect project selection
- Misidentifying high-risk projects
- Poor control over interdependencies between projects
• Loss of intellectual capital and/or knowledge capital caused by:
- Lack of the means for knowledge transfer
- People leaving the organization
- Not preparing the people who will use the output from the project (change management)
I liken project management to quality management; everyone thinks that they know what quality is so anyone can manage quality. This same thought pattern applies to project management, but just as a quality manager is a special type of professional with very special skills and training, so is a project manager. Project managers require skill, training and effective leadership specifically related to their fields.
According to the Project Management Institute ( www.pmi.org ), the project management body of knowledge defines 69 different tools that a project manager needs to master. Few of the project managers I have come in contact with during the past 50 years have mastered all of these tools. In today's complex world, most organizations have numerous projects going on at the same time. Many of these projects are interlinked and interdependent. Their requirements and schedules are continuously changing, causing a chain reaction through the organization. As a result, the organization can't afford to manage each project individually. It has to manage its portfolio of projects, making the proper trade-off of personnel and priorities.
We all like to think of ourselves as change masters, but in truth, we are change bigots. Everyone in the management team is all for change. They want to see others change, but when it comes to the managers themselves changing, they are reluctant to move away from past habits that have proven to be successful. If the organization is going to change, top management has to be the first to do so.
Change is inevitable, and we must embrace it if we are going to be successful in our challenging world. The change management system is made up of three distinct elements:
• Defining what will be changed
• Defining how to change
• Making change happen
Most of the books written about change management have been theoretical in nature. They talk about black holes, cascading sponsorships and burning platforms, but that is only the last phase of the change process. Most organizations don't understand or follow a comprehensive change management system. An effective change management system requires that the organization step back and define what will be changed. We are not talking about reducing stock levels, increasing customer satisfaction or training people; we are talking about the very fundamentals. Which of the key business drivers need to be changed, and how do they need to be changed? That means that you must develop very crisp vision statements that define how the key business drivers will be changed over time. This requires that the organization have an excellent understanding of what its business drivers are and how they operate. Then the organization must define exactly how it wants to change these drivers over a set period of time. Once the organization has defined what it wants to change, then it can define how to change. During this stage the organization looks at all available improvement tools, determines which will bring about the required changes to these key business drivers, and schedules the implementation of these tools and methodologies. This schedule makes up a key part of the organization's strategic business plan.
The last phase in the change management process is making the change happen. This is the area where the behavioral scientists have developed a number of excellent approaches to break down resistance and build up resiliency throughout the organization. It is this phase that most change management books have concentrated on, but it is the last phase in the total change management system.
Today more than ever, knowledge is the key to organizational success. To fulfill this need, the Internet and other information technologies have provided all of us with more information than we can ever consume. Instead of having one or two sources of information, the Internet provides us with hundreds if not thousands of inputs, all of which need to be researched to be sure that you have not missed a key nugget of information. We are overwhelmed with so much information that we don't have time to absorb it all.
To make matters worse, most of the organization's knowledge is still not documented; it rests in the minds and experiences of the people doing the job. This knowledge disappears from the organization's knowledge base whenever an individual leaves an assignment.
Given the almost endless amount of information that clogs up our computers, desks and minds, a knowledge management system (KMS) needs to be designed around the organization's key capabilities and competencies.
There are two types of knowledge: explicit and tacit. Explicit knowledge is defined as knowledge that is stored as semi-structured content such as documents, e-mail, voicemail or video media. I like to call this hard or tangible knowledge. It is conveyed from one person to another in a systematic way.
Tacit knowledge is defined as knowledge that is formed around intangible factors embedded in an individual's experience. It is personal, content-specific knowledge that resides in an individual. It is knowledge that an individual gains from experience or skills that he or she develops. It guides the individual's actions. I like to call this soft knowledge. It is embedded in the individual's ideas, insights, values and judgment. It is only accessible through direct corroboration and communication with the individual that has the knowledge.
Knowledge management is defined as a proactive, systematic process by which value is generated from intellectual or knowledge-based assets and disseminated to the stakeholders. The six phases necessary to implement an effective KMS are:
•Phase 1: requirements definition
•Phase 2: infrastructure evaluation
•Phase 3: KMS design and development
•Phase 4: pilot
•Phase 5: deployment
•Phase 6: continuous improvement
One of the biggest challenges related to implementing a KMS is transferring knowledge held by individuals, including processes and behavioral knowledge, into a consistent format that can be easily shared within the organization.
The true standard of success for knowledge management is the number of people who access and implement ideas from the knowledge networks. These networks bring state-of-the-art ideas and/or best practices into the workplace. This allows the organization to develop areas of critical mass that implement standards and also provides access to everyone so that they can make comments to improve them. Even the newest member of the organization can look at the materials and make recommendations based upon his or her personal insight, creativity and experience.
A big challenge related to implementing a KMS is in transforming knowledge held by individuals, including process and behavioral knowledge, into a consistent technology format that can be easily shared with the organization's stakeholders. But the biggest challenge is changing the organization's culture from a knowledge-hoarding one to a knowledge-sharing one.
Nothing can be accomplished without resources. Resources are at the heart of everything that we do. Too little and we fail, too much and there is waste--making our organization noncompetitive. Too many organizations limit their thinking about resources to people and money. These two are important, but they' re only a small part of the resources that an organization needs to manage.
When we talk about resource management, we're talking about it in its broadest sense. It is all the resources and assets that are available to the organization. This includes stockholders, management, employees, money, suppliers, inventory, boards of directors, alliance partnerships, real estate, knowledge, customers, patents, investors, good will, and brick and mortar. It is easy to see that when you consider all of the resources that are available to the organization, effective resource management is one of the organization's most critical and complex activities.
To become an excellent organization, each of these resources needs to be managed in its own special way. The big question is, "How do you pull all these different activities and improvement approaches together and prioritize them?" To solve this question, you must have a very thorough, total-involvement approach to strategic planning--one that involves everyone, from the chairman of the board to the janitor, from sales to personnel, from development engineering to maintenance. This is a total-involvement approach to strategic planning; it is both bottom up and top down. A total strategic planning process (i.e., a business plan) includes directions, expectations and actions.
Resource management can't be an afterthought; all executive decisions must be based upon it. It requires a lot of planning, coordination, reporting and continuous refining to do an excellent job at resource management. Too many organizations manage operations by throwing more resources into the pot. They may be very successful with this approach as long as they have very little competition, but even the giants fall if they don't do an outstanding job of resource management.
When we look at the five pillars that must be managed to achieve excellence, we see common threads that run across all of them:
All of the key factors are built into the word "management." This term represents everything that turns an employee into an individual who owns his or her job, thereby bringing satisfaction and dignity to the individual for a job well done.
In today's worldwide marketplace, customers don' t have to settle for second best. Overnight mail brings the best to everyone's doorstep. The Internet lets your customers shop internationally so it' s easy for them to get the best quality, reliability and price, no matter who is offering it. Customers are concerned about the products that they purchase, but they are equally or more concerned about dealing with organizations that care, are quick to respond, and will listen and react to their unique needs. To succeed in the 21st century, organizations need to excel in all parts of their business. You must have an organization that excels at what it is doing but also is recognized by the stakeholders for its excellence to win today's savvy customers.
Note: This article was adapted from the author's five-part book series, The Five Pillars of Organizational Excellence , being published by Paton Press throughout 2006.
H. James Harrington is CEO of the Harrington Institute Inc. and chairman of the board of Harrington Group. He has more than 55 years of experience as a quality professional and is the author of 26 books. Visit his Web site at www.harrington-institute.com.