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BOOK REVIEW: Five ways to turn businesses around for good

Sep 27 2018 05:45
Ian Mann

Turning goals into results: The power of catalytic mechanisms by Jim Collins

Recently, I was asked by a colleague to look at a newly released book that (also) attempts to get leaders to execute strategy, despite the inevitable obstacles.

Traditionally, businesses have used management control to ensure the execution of strategy and plans. This approach requires the ever-tighter management of people and process, with evermore reports and evermore time required to do the monitoring and controlling.   

The results of bureaucratic processes such as the balanced scorecard, 360° feedback and the like, has not been a startling improvement in execution, despite the great effort it involves. Automation of these processes hasn't helped greatly either. The tight link between goals and results remains largely unattained.  

Coincidentally, I came across this slim book - a republication of a notion that first appeared in the Harvard Business Review in 1999 by Jim Collins, and then reappeared in the bestselling book by the same author, called Good to Great, in 2001.

Goals to results

"Over the past six years, I have observed and studied a simple yet extremely powerful managerial tool that helps organisations turn goals into results," he explained. The managerial tool is the ‘catalytic mechanism’. At the time Collins noted that given the effectiveness of this management tool, it must be the most underutilised but most promising method that executives can use to achieve their strategic goals.

19 years later, I am sure he would hold the same opinion.

Consider this example. Granite Rock, a 100-year old family owned business, implemented a radical new policy called "short pay". The policy appeared on every Granite Rock invoice: "If you are not satisfied for any reason, don’t pay us for it. Simply scratch out the line item, write a brief note about the problem, and return a copy of this invoice along with your check for the balance."

This "catalytic mechanism" had a profound and positive impact on the company. It served as a warning system that gave hard-to-ignore feedback about the quality of the company’s service and products. It impelled managers to relentlessly track down the root causes of problems in order to prevent repeated short payments.

It sent a message to employees and customers that Granite Rock is deadly serious about ‘customer satisfaction’, and that this was no mere slogan. This led to the company winning the prestigious Malcolm Baldrige National Quality Award, while it gained market share - despite charging a 6% price premium.

So how do you institute this catalytic mechanism in your company to create a tight link between execution and goals? Collins describes the five characteristics of a catalytic mechanism.

1.    Unpredictability

A catalytic mechanism produces the desired results in ways that are essentially unpredictable.  

The 3M company needed a constant flow of relevant new products to keep growing. In 1956 it instituted a catalytic mechanism that urged its scientists to spend 15% of their time experimenting and inventing in the area of their own choice - no one was told what products to work on. By 2000, 3M’s sales and earnings had increased more than 40-fold. It generated cumulative returns of 36% and has been frequently ranked in the top ten of Fortune’s most-admired list.

The results the 15% rule produced could not be predicted by 3M. However, once committed to the catalytic mechanism, it stimulated new knowledge, a virtuous circle of variation, learning, improvement, and enhanced results. By decreasing predictability, they increased the probability of attaining the extraordinary.

This is very different from the conventional approach where executives identify an organizational goal, and then design a plethora of systems, controls, procedures, and practices likely to make it happen.

2.    Overall benefits

A catalytic mechanism distributes power for the benefit of the overall system, often disempowering those who traditionally hold power. Catalytic mechanisms force the right things to happen throughout the organisation not only at the lower levels.

The US Government instituted a catalytic mechanism for "waiver-of-regulations" requests. Those who have the authority to change regulations can approve a waiver, but only an agency head can deny a request. In certain units of the US army if a request is not answered in 30 days, the answer is taken as "yes". These catalytic mechanisms subverted the default tendency of bureaucracies to choose the status quo over change, and inaction over action.

3.    It has teeth

Nucor Steel’s vision is to be an organisation where all share the goal of being the most efficient, high-quality steel operation in the world, and so create job security and corporate prosperity.

In Nucor five people do the work that ten do at other steel companies, and get paid like eight. Base pay is 25% to 33% below the industry average, but a bonus of 80% to 200% of base pay, is paid weekly to all teams that meet or exceed productivity goals.

If you are five minutes late, you lose your bonus for the day. If you are 30 minutes late, you lose your bonus for the week.

4.    Eject viruses

The right people are your most important asset. At Nucor, management usually doesn’t fire unproductive workers; workers do.

At W.L. Gore, a $2 billion fabric company, you are a leader if and only if people choose to follow you. Employees have the authority to fire their bosses.

5.    Ongoing effects

‘Catalytic events’ differ fundamentally from catalytic mechanisms because even great events do not produce the persistent change that great catalytic mechanism can - and that can last for decades.

Darwin Smith, the former CEO of Kimberly-Clark, transformed the company from a mediocre one to a world-class one through catalytic mechanisms.

First, he sold a big chunk of the company’s traditional paper-production mills, so there was no easy escape route. Then he forced the company into competing with the best consumer-products company in the world: Procter & Gamble. Kimberly-Clark would either become excellent or get crushed. It became a world-class producer of consumer products.

Creating mechanisms is a creative act. You can, of course, get good ideas by looking at what other organisations do, but the best catalytic mechanisms are idiosyncratic adaptations to your unique situation. They are best created by engaging everyone, not only top management.

Don’t expect your catalytic mechanism to be correct first time. 3M’s 15% rule started by allowing only scientists to use the labs during their lunch break to work on anything they wanted. By the 1980s it was made available to 3M staff other than scientists, and in the 1990s it was bolstering it with special recognition rewards to create profitable innovations.

The challenge is not setting big goals but achieving them. Therein lies the power of catalytic mechanisms. It is a method too valuable to be overlooked.

*Ian Mann of Gateways consults internationally on strategy and implementation and is the author of ‘Strategy that Works’ and ‘The Executive Update.’ Views expressed are his own.

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ian mann  |  business strategy  |  book review
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