Kendall Consulting Group - Principle Driven Operations Innovation Article

Article Introduction

Organizational conflicts, unclear roles and responsibilities, inconsistency in operations across the business, and inability to implement needed changes are problems plaguing many organizations today. Many of these problems could be avoided, however, by creating and gaining commitment to a set of operating principles that would guide decision making in problem areas.

This article discusses principles and presents several case studies from Kendall Consulting Group's work in this area. In each case discussed here as in our consulting work, the creation and adoption of a set of principles helps move a company through an organizational impasse.

Principles help make the implicit rules of the business visible, and thus easier for the organization to operate with. The formulation of a set of operating principles stimulates communications (both debate and alignment) in areas of the business and on subjects in which there are no established policies and thus often disagreement and impasse.

If your organization is facing issues and problems such as those described here, please discuss with us how you might apply the concept of principles described here to your own organization.

We have observed and listened to the problems and issues of over 100 companies that we have worked with and consulted to. Companies that articulate their basic values or philosophies about work, people, technology and other operations conduct their business more effectively. Around each critical area of their business, these organizations have a set of Principles that guide how the resources or operations should contribute to the company's goals and strategies. Thus, if a Principle is applied to a particular decision, that decision should support the company strategy.

What are Principles?

Principles are the rules of the road which help managers steer corporate operations. They are simple statements (usually ten to twenty in each business area) that together describe the company's fundamental beliefs and how it wants to conduct its business. Principles are rules, guidelines, or methods for action, and thereby form the basis for decision making and conduct. Principles are the articulation of business strategy in a part of the business, such as technology or human resource management.

Principles are not generalizations or statements of the obvious; they provide direction where equally viable alternatives exist. Principles seldom describe routine or non-mission critical procedures. Rather, they describe an organization's unique approach to "front burner" issues such as technology deployment, staffing, investment and financial management. Principles are best stated in the positive, present tense, and can be prefaced by "We believe..." They supplement the formal methods and policies stated in a corporation's manuals by making the implicit explicit. A good set of principles generates energy, discussion and group focus and alignment, and resolves many of the issues and problems facing a particular part of a business.

Every business or organization operates according to some set of core beliefs or values, even if they are not stated. In many businesses there are no formal, written principles, but there is a close working relationship among the managers and the business functions smoothly. In others, there are neither written principles nor good working relations among managers, and inconsistent behavior and employee distrust and frustration are more the norm. The difference is that in the first business, the managers have discussed and agreed upon what is a priority, how the business should operate, how employees and managers should behave, and what employees should do in certain situations. Although the Principles have not been written, all the managers know what they are, and make decisions and operate accordingly.

Life Without Principles - Four Case Studies

Information Systems Example

The Sales Vice President was shocked by the limitations of her new and costly customer data base. It couldn't track customer orders or shipments because the system did not connect to key manufacturing systems, and revenue and profitability figures had to be manually loaded each month from several other financial systems. Business would continue to be impaired in dealing with its customers. The head of Information Systems (IS) responded to her complaints, "Our job is to support the technology needs of the divisions. Each division has very different needs. We can't dictate how one division should run their business in order to get efficiencies in another. Also, we can't support every request we get. We're spread very thin and face a three-year backlog of projects."

Human Resources Example

The Vice President of Human Resources (HR) faced many problems and ambiguities. Senior management wanted the company to be managed more consistently, yet the divisions each managed employees in their own way and with very different styles. Performance evaluations were routine in one, random in another, and missing in several others. Compensation and commission plans were considered the province of the division managers, yet Corporate frequently overrode those plans with special bonuses. Staff mobility was driven by the salary and location offered by each division rather than company needs. Managers recruited and fired staff in completely different ways, and more than once, the company faced legal action for the improper actions of a division manager. Several divisions offered no training or career development; others offered formal development programs. Executives voiced concern over these inconsistencies, but there had never been a basis for aligning or reconciling the differences.

Project Management Example

The CEO asked Dana Williams, a top performer, to lead Project 2000, the renovation of the distribution channels. Project 2000 was launched with a great deal of anticipation and fanfare. Six months later a comprehensive plan had been prepared, however, management was disappointed with the lack of operational results. The CEO sponsor was putting increasing pressure on Williams to deliver results. The original project team, hand-picked by Williams, had left the project after the initial study and planning phase. New team members challenged Williams leadership position; others suggested that more senior managers needed to be on the team. Proposed impacts of Project 2000 on various divisions were criticized by the divisions' management, and some executives stated that they would resist the planned changes. Most executives asked when they would be asked to ratify the plan and cost estimates. Cost/benefit estimates had not been prepared in the initial stage, and there was no project budget for systems software or consultants. Williams felt that doing a cost justification and project budget would slow down Project 2000 just when it needed to begin implementation.

Financial Processes Example

The financial systems of a medium-sized service company needed to be replaced due to Year 2000 problems and the notification by their software vendor that they were going to stop supporting key applications. The leadership of the financial organization decided that they would use the change as an opportunity to update the financial management processes of the enterprise. Not everyone agreed, however. Several key managers wanted to duplicate the old functionality in the new systems and leave operations unchanged, thereby, continuing the existing financial practices: the fragmented financial management approach across divisions, the inconsistencies in the financial responsibilities of line managers, the outdated approval levels that inhibited mission execution, and the compartmentalization of performance data in the organization. In addition, the proposed change also triggered various parts of the company to start jockeying for position and power as the systems' definition process started. Overall, the financial strategy of the group was not clearly defined or well understood.

Lessons From the Case Studies

The failure to articulate and align key managers around the basic operating rules of a business hurt each of these companies. The situations summarized in the four stories could have been avoided had the business managers agreed to a set of operating Principles in the areas under pressure. For instance, the lack of consensus and shared understanding of technology deployment guidelines can lead to problems similar to those in the information systems (IS) example. Principles would have given the IS organization a clear direction and strategy for the connectivity and integratability of their new systems, especially those involving customer data and support.

In the case of the company which wanted more consistent management, Principles would provide the HR organization a set of consistent operating practices that all the senior managers agreed to uphold and enforce. In the Project 2000 example, Dana Williams and his CEO would have clearly articulated the operating principles for Project 2000, including major milestones and how the business units were expected to participate. Further, they would have debated and honed these principles with the other executives until they had alignment and readiness to proceed with the project. Finally, the company in the last case would have had a set of Principles for the financial management of the company that supported a financial strategy. Principles around change and renovation of the organization's financial control environment would have been instrumental to directing the types of changes needed in the business.

When Do You Need Principles?

A written and agreed upon set of Principles is necessary wherever a key area has no formal or explicit rules, and thus, policy and direction are open to individual interpretation -- often resulting in conflict, disagreement or unsatisfied expectations around decisions that deal with the business' strategy. While each part of an organization may benefit from clearly articulated Principles, we believe that Principles are especially important for those areas under strategic pressure or central to a strategic change.

Centralized staff departments such as Information Systems, Human Resources, and Accounting especially benefit from Principles. These departments have many conflicting demands on them from their business unit "customers," as well as from outside the corporation. Yet these staff departments can have significant impact on the performance of the line organization. These departments wrestle continually with issues dealing with who receives immediate service and under what circumstances; how service is delivered; whether outsiders can be used; who is responsible for decisions and actions; who has the authority to act independently; and how priorities are set and implemented when conflicts or excessive demands emerge. These issue areas are critical areas for discussion and the creation of Principles.

Functional departments and process organizations also benefit from Principles. They are seldom isolated from each other; indeed, the interdependence of today's business organizations is very evident in most business processes. For instance, an order fulfillment process cuts across the traditional line organizations of Marketing and Sales, Manufacturing, Purchasing, Distribution and perhaps Service. Issues and questions for these organizations include who and how critical information will be managed and shared; how conflicts are escalated and resolved; and how work will flow and be managed when it extends across divisions, geographic locations, or processes. Principles in such areas may materially speed up operations, reduce costs, and smooth the conflicts often prevalent in business.

Change is a way of life in today's business. Changes in business operations raise questions about governance, resources, pace, treatment of people, risk assumption, scope of work, and information management. Projects face questions and issues in many areas as well, including how a project is managed, staffed and resourced; the length of time resources will be used; the approach to the work; funding and expense management; major milestones and deliverables and their timing; and communications with the rest of the organization. Principles can have a major benefit in guiding decisions and actions of functional departments, process organizations and projects that are under strategic pressure or central to a strategic change.

How Do You Define Principles?

Principles are driven by the values of a corporation. For example, how do we want to treat our customers, our employees, the company assets, capital expenditures, and technology? What degree of individual autonomy in decision making do we want? How do we want to see people treated? What management style do we want to see consistently used across the business? What are the values regarding control, trust, structure, hierarchy and empowerment? Values in these areas form the basis for a consistent and practicable Principle set that the business can use to guide its decision making.

The greatest value of Principles is often found in the dialogue and discussion that occurs as the Principles are defined. For this reason, we discourage one or two people drafting the needed Principles and announcing them to the rest of the company. In our experience, when this happens, the result is often passive acknowledgment of the Principles with no imperative or desire to follow them. Consensus and understanding can best be achieved when a number of people throughout the organization participate in the definition of Principles. One successful alternative to managers spending hours framing Principles is for a representative group to draft a Principle set and a set of business implications. These two items are then used to communicate to the management group the full spectrum of thinking around key Principles.

The best approach for defining Principles is when the management team or a cross-organizational team gathers on a routine basis to assess the current or future "front burner" issues and then to define Principles for how those situations will be handled. The meetings should encourage give-and-take discussion and negotiation to help the group align on a common set of Principles that all can abide by. Remember, because valid alternatives exist, disagreement is inevitable but consensus and sponsorship is critical.

During the process to define the Principles, the implications of the Principles on the business and operations must be openly discussed and assessed by the framers as well as the stakeholders that will be affected by the new Principles. How will the Principles impact both the determination of and implementation of the business strategy? Will special actions be required or costs incurred in order to implement this Principle? Identifying and understanding the implications of the Principles are important to framing a usable set that doesn't have hidden consequences or disappointments.

Living With Principles

The case studies presented earlier in this paper each had successful outcomes due the framing and use of Principles. Let's review each case and show a few of the Principles each organization defined that helped them work through their impasse.

Information Systems Example

The business unit heads, including Sales, and the IS organization worked for several months to define about 30 Principles that addressed technology infrastructure, applications, data and IS organization and management. Several key Principles included:

Because of the importance of the customer data base to this company, the application was changed and real-time links were created to the systems that contained customer order, service and financial information. The customer data base has become a model for future applications and the new steering committee ensures that resources are made available to continue the new strategy.

Human Resources Example

Based on interviews with most managers of the organization, a strawman set of about 35 HR Principles and implications were drafted, discussed at length, edited, and adopted by the senior executives. These included the following key Principles that materially changed the role of Human Resource management in the organization.

To help implement the principles, the company launched an aggressive management education program on HR practices, and created a new Executive Vice President of HR that sat, for the first time, on the Executive Committee. With the adoption of a "uniform approach" Principle, the organization started resolving in a consistent way many of the HR issues plaguing the company.

Project Management Example

Dana Williams and the CEO listed the problems and issues facing Project 2000. They then drafted 21 Principles and their implications on the project and business operations. The consultant to the project helped facilitate change, buy-in and alignment on the Principles. Eventually, the executives committed to use 26 Principles. The following Principles especially helped get the project back on track:

The executive committee reappointed several former team members and then completed full-time staffing of the project. Plans and resources for Project 2000 were approved in one of the meetings to specifically demonstrate committee commitment. Responsibility and authority surrounding William's job and roles were also clarified to the rest of the company, especially to some of his peers who were serving on the project team.

Financial Processes Example

The confusion about the financials strategy of the company was clarified by the creation of about 20 key Principles by senior executives. In a company-wide meeting, the Board endorsed the Principles to add momentum to their use in the organization. Some key Principles that helped pull the diverse parts of the business together included:

Summary

We have seen many organizations that "make it up as they go along." In talking with the managers of these companies, they state that they are always reacting to situations, have little time for strategic thinking or planning, and feel they deal with some issues over and over again as though they were unique each time. All organizations face problems, issues and competitive threats. However, those that are successful and nimble in the face of the competition, create mechanisms to successfully anticipate problems and decide in advance how they will be handled. They agree upon "rules of the road" and ensure that they are communicated to the rest of the organization. Finally, they keep their Principles alive and current by frequently revisiting, debating, improving and aligning around their Principle set.

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Innovations

Innovations is KCG's publication focused on organizational and technological change. Each issue of Innovations presents one or two case studies on a key topic as well as an approach or methodology relating to the situation. A recent issue is published here. Other articles can be found at our site by visiting the links at the bottom of the page.

Links to other articles at KCG's website

Innovations Articles

• Measures of Success for Internal Consulting Orgs (NEW!)
• Consultative Selling (New)
• Trends in Consulting
• Commentary on Trends in Consulting
• Marketing of Consulting Services
• Skills and Competencies of Successful Consultants
• Consulting Skills Development Experience
• Effective Uses of I.T. Staff as Internal Consultants
• Strategy Implementation
• Visit to an Operational Excellent Company
• Organizational Due Diligence (Mergers and Acquisitions)
• Principle Driven Operations
• Change Management
• Education's Role in Change Management
• Communications and Change Management
• Value Disciplines
• Role of IS Strategy in Making Market Leaders
• Strategic Planning and Change Mobilization
• Project Management
• Grow Your Own Consultants

Archive Articles (below)

• Designing Executive Information Systems
• Executive Information Systems: An Overview of Development
• Implications of Transition From an Industrial Era to One of Information
• Critical Success Factors Techniques can Apply to Team Management, Too
• Decision Scenarios Ensure Information System Meets Business Needs
• Critical Success Factors : Helping IS Managers Pinpoint Information Needs
• Combining Quality and Reengineering for Operational Superiority
• Steering IS Committees Straight
• Internal Consultants and a Consultative Approach
• EIS Plays Critical Role in Reengineering
• Rapid Software Selection

Kendall Consulting Group is an international general management consulting firm specializing in strategy execution, change management, and executive education. We invite you to contact us for how we might help you and your company grow and prosper.

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