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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