This article is part of our 2014 compendium on lean, The Lean Management Enterprise: A system for daily progress, meaningful purpose, and lasting value
Think of a successful organization, regardless of industry. One of the measures of an organization’s success is its agility—whether it manages to stay at least one step ahead of its market. Achieving real alignment, where strategy, goals, and meaningful purpose reinforce one another, gives an organization a major advantage because it has a clearer sense of what to do at any given time, and it can trust people to move in the right direction. The result is an organization that can focus less on deciding what to do—and more on simply doing.
Recent research accentuates how important the connections between direction, strategy, goals, and purpose are to an organization’s sustained performance. One study found, for example, that when people understand and are excited about the direction their company is taking, the company’s earnings margin is twice as likely to be above the median. And it showed that high-achieving organizations are also better than others at turning their visions into viable strategies that guide operational planning— something many business leaders may believe they already do well, but which often proves difficult in practice.
The final connection is to the goals that motivate people as individuals. In their 2011 book The Progress Principle, Harvard Business School professor Teresa Amabile and independent researcher Steven Kramer found that the strongest organizations were those that nurtured their employees’ inner work lives by allowing them to make progress in meaningful work.
That is rare. More typically, the individual level is where the vision breaks down: employees see only the gap between the aspirational language and their daily work lives and may become cynical rather than motivated.
But some organizations make all of the links, so that vision, strategy, and goals come together to become meaningful work. In so doing they instill a sense of achievement that, in turn, enables their people to achieve more and more.
Vision to strategy to goals
Organizations that are starting their transformations typically find themselves in one of two categories when it comes to their visions. The larger category consists of organizations whose visions have weakened, as may happen out of neglect or inconsistent understanding. An organization whose vision focuses on quality and operational efficiency may discover, for example, that the decisions it made to increase efficiency have undermined quality. Or the organization that seeks to be credible across major market segments finds that internal competition reduces organizational focus, leading to declines in almost every segment.
The smaller category consists of organizations whose visions are still quite strong but where changing circumstances—technological developments, economic conditions, or perhaps new market openings—mean that they will no longer be able to achieve the vision in the same way. Massachusetts Mutual Financial Group (MassMutual), for example, started its transformation when it was outperforming its industry by many measures. Its leaders, however, sensed that demographic, economic, and other changes meant that it needed to reassess its long-term competitive position (see “Performance from problem solving: An interview with three leaders at MassMutual,” page 123).
Organizations in the first category must start by realigning according to what the vision should be. Organizations in the second category may omit this step, but if anything, they may face even larger challenges later on—in convincing their people that despite today’s success, the strategy and goals that implement the vision must change radically in light of external conditions.
Envisioning a future
In our work with organizations, we have found that a vision is effective only if it balances multiple dimensions at once. First, it must be broad enough to be recognized by everybody, even in a large and diversified environment, yet it must also be sufficiently specific to differentiate the organization clearly from its competitors. It must be enduring enough to serve the organization over the long term while also allowing its execution to change as the enterprise evolves. It must articulate ideals while describing how the organization wants to progress in ways that seem achievable. And, to be truly compelling, the story must appeal to the five sources of meaning that organizational research has identified, which stem from how the changes will affect the individuals themselves, their teams, their customers, the organization, and society. Each of the five sources is the primary motivator for about 20 percent of the population, so touching on all five is essential.
But within those broad guidelines, there is no particular content that appears to offer an advantage: organizations have been equally successful with visions focused on improving cost, growth, market share, sales, or even external constraints. What matters is that the organization finds the right vision for itself and then communicates and pursues it in a way that is concrete, relevant, and meaningful to individuals (see sidebar “A hospital’s vision”).
By 2008, the leaders of a specialized European financial-services firm had already recognized that its longtime vision, which focused on quality of service regardless of cost, was under threat from new competition. As the financial crisis took hold, the old vision began to show cracks: one of the company’s top clients threatened to end its relationship unless the company agreed to a 50 percent price reduction. Similar messages from other clients underscored that what had once seemed like an enduring vision simply wasn’t anymore. The company therefore took on the task of developing a new vision, one in which it maintained its commitment to quality but added a customer-service dimension that included sharper attention to cost and more customization options.
Creating a strategy
Nevertheless, a new vision is of little use on its own unless it becomes a strategy that supports a tangible set of organizational goals. Together, they outline where the organization’s competitive advantage will come from and how it will be sustained.
The European firm determined that while it could continue to rely to some degree on its long-standing top product, it needed to increase the pace of innovation. Both realizations would have major effects on the company’s strategy. For the top product to maintain its position, its price would need to fall, with ramifications across the entire cost base—cuts of 25 percent would be necessary. At the same time, improved innovation would require new investment, along with profound cultural change in order to tame bureaucracy and foster entrepreneurialism. These became the core elements of the company’s transformation, which the CEO tested (with board encouragement) at a small scale to build support. Encouraging preliminary results aligned the leadership behind a much more comprehensive plan, which the company successfully deployed over the next two years and has continually updated ever since.
MassMutual, by contrast, knew it needed to become more agile in response to rapidly changing external conditions and customer needs. The new strategy and goals it adopted sought to encourage new ways of working with customers while eliminating internal barriers that impeded the sharing of information.
Communicating change and setting targets
The third connection brings the vision and strategy into people’s daily work, raising the question of how the organization will communicate the transformation more broadly. If it communicates the changes too early, before people can see any evidence that they are important and actually work, the organization risks losing credibility; people may view the transformation as yet another corporate initiative destined to fall by the wayside. But if the organization communicates the changes too late—particularly if the changes will reduce the organization’s size—rumors may spread, with even greater damage to morale.
The better option, typically, is to wait until the organization has finished testing the transformation with a few teams. Those early successes help refine the organization’s transformation story (see sidebar “The transformation story”). As the story spreads through the organization, managers and their people adapt the vision to their groups’ work—a process that gives the vision the bottom-up credibility it needs. At MassMutual, for example, “stewards of financial strength” became the central idea for reassessing the function’s priorities and creating new goals that reinforced the point for each employee, from the CFO on down.
As people at all levels begin to understand the need for the transformation, they also begin to see the transformation’s effects. The greatest impact on employees will be that the targets they seek to meet each day will change—indeed, in some organizations, employees may be getting explicit targets for the first time. These targets will reflect the vision in highly practical terms.
The European financial-services firm began assessing employees based in part on their contributions to cost reduction and innovation. Within a year, every function, business process, and location in the company had identified improvement opportunities of between 30 and 50 percent. At MassMutual, a crucial portion of manager’s reviews now rests on how well they encourage problem identification and resolution, thus improving customer service. With falling turnaround times, placement rates— the percentage of insurance applications that customers commit to—have risen by 10 percent.
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Together, deeper meaning and tangible progress cement the trust that the transformed organization builds as it delivers more efficiently for customers, enables its people to lead, and (especially) discovers better ways of working. The organizations that earn and keep trust are those that can continue improving indefinitely.