4 Constraints Stopping Organisations From Being World-Class

Almost two decades ago, I was thrown into the fire in a massive turnaround effort. The organisation I worked in was in bad shape, and when I came into the situation, I was totally lost.

I didn’t have a clue as to what needed to be fixed. There were issues everywhere. Low productivity, low morale, revenue decline, high inventory, no cash and poor employee performances. There were so many issues, I didn’t know where to start. 

After more than six months there, I started to observe, through my diagnostics process, four key organisational constraints that were suffocating our employees from high performance.

I started experimenting on fixing these four areas and not getting too concerned about other areas. It worked. Within a few years, we were not only one of the best in the world, but our performance had also skyrocketed. Revenue grew more than eight-fold and we became profitable.

I started exploring the usage of these four constraints on other organisations I worked for or consulted at. It worked. It even worked at small to medium-sized enterprises that could not scale.

I got really excited and started doing significant research to see if these four constraints could be applied to all organisations. From our research so far, it has proven to be a versatile model. The first step is awareness of these four constraints.

So what are the four constraints and what do they mean?
  
The four constraints are:

• Business model and strategy
• Processes and organisational structure
• Alignment
• Culture

Pictured: The Leaderonomics Four Constraints Model

When we started Leaderonomics a few years ago, I decided to see if these four constraints worked even in a start-up. Surprisingly, it does. Today, I will share with you how these four constraints work amid some of the struggles we had at Leaderonomics. 

1. Business model

This is simple. If you have a wrong business model, you will fail. If you have a wrong strategy in place, you will ultimately be doomed.

For years, despite the advent of the smartphones and with Apple and Samsung ripping up their mobile phone market dominance, Nokia refused to relook at its business model. By the time it did, it was too late.

The same happened to Eastman Kodak who refused to budge from their 'film' business model. Likewise Polaroid and many others that refused to pivot their business model when they needed to change or scale. Your business model and strategy is the cornerstone of your success.

If you are having issues scaling your business, the first place to start examining is your business model as an organisational constraint.

 The Leaderonomics struggle

Our organisation, Leaderonomics, started operations in 2008 when 'social enterprise' was not yet a buzzword. We faced challenges both internally and externally in communicating our business model and had many discussions and debates about what it means for us to be a social enterprise.

Many expected us to provide services for free or for a very minimal fee. Some people confused us for a non-governmental organisation. Others felt that being profitable and sustainable somehow meant that we weren’t really being socially-driven but rather profit-driven.

But for Leaderonomics, being a social enterprise meant that we had to have a very different business model and that was just the start of our business model issue.

By 2012, we had grown significantly, but for us to scale further required us to relook our entire business model while maintaining our goal to remain true to our social mission of democratising leadership development for nation transformation. And we had to make a huge decision.

It required us to 'destroy' our training business model and create a new 'diagnostics'-based business model. This required moving away from being a 'pharmaceutical' company to being a 'hospital'. Let me explain.

If you look at the healthcare business, there are different players from hospitals to doctors to pharmaceutical or drug companies. The drug companies produce different medicines and drugs and market them to the doctors and hospitals that use or dispense them.

Most big training companies are analogous to these pharmaceutical companies in that they spend lots of money and time building a specific 'drug' and then try to find as many uses for it as possible.

These companies build training 'programmes' around Seven Habits or Six Thinking Hats, and then approach companies to sell them these programmes.

We foresaw that if we continued to go down the path we were on, we would end up very similar to these training providers. But we at Leaderonomics wanted to be a hospital, not a pharmaceutical company.

We wanted to help organisations and people diagnose the issues that were crippling and constraining them, rather than providing a series of solutions that may be appropriate and useful – or maybe not. There were very few organisations in the world that were diagnostic in nature and not product-centric.

Daring to start anew

And so to build this new business model, we had to delete and destroy all product-centric capabilities in Leaderonomics, totally!

This was a hard change to make and has taken us years to do, but slowly we are reaping the benefit for not allowing ourselves to become another Kodak and becoming obsolete as the training industry grapples with disruption and change.
 
Also, if your business model is not allowing you to scale, no matter how many talented resources you deploy to sell your product or drive your business, they will have minimum impact. The business model is the first constraint on your employees.

If your business model is not working, hiring better people or pushing them hard will be useless.

If you were a Kodak employee during the peak of digital camera market growth, regardless of how many people you hired to drive sales, you were going to see minimal success.

It would not have been the laziness of your employees or their shortcomings in talent but, instead, the business model that was constraining them.

Is your business like Kodak? Beware of your business model organisational constraint

 2. Processes and organisational structure

One of the biggest mistakes organisations make is to focus on people. Yes, you read that right! The problem with solely focusing on people is that we end up pampering our people.

The key to successfully getting your employees to achieve high performance is to focus on process. You can still care and love them, but your emphasis must be on building institutional processes.

One of the biggest mistakes Enron and its leadership made was to rely on their top talent. They hired really smart people and focused entirely on these special people making the organisation great.

Initially, Enron had stellar performance. But ultimately, it blew up. Structures and processes dictate behaviour.

If we do not spend time intentionally creating structures and processes that drive the behaviours and performance that we want, we will continually lament the actions of our employees.

At Leaderonomics, this was a huge struggle. Part of the perils of a fast-growing organisation, where we were doubling our revenue annually in the early years, was that we often took action first and then figured out processes later. The challenges came when we kept driving action and left little time to establish firm processes and solid structure.

After a few years of growth, we decided to relook our structure and processes. We knew we had to destroy all our 'old' processes and completely create new structures and process. This was painful as everyone had gotten used to them.
But if we do not destroy the old and bring in the new, the old will remain as the default. Only after we have completely destroyed the old will we succeed with the new.

We ended up creating new processes that were aligned to our new business model, but more importantly, were driving the behaviours we needed to ensure our business model worked.

Jack Welch powerless against structure and processes

In the mid-90s, I worked at NBC, a TV network in New York. NBC used to be owned by General Electric (GE).
Back then, I remember Jack Welch yelling and commanding everyone to drive Six Sigma into every part of GE. At NBC, Six Sigma, a manufacturing process, had no relevance to these media folks, who looked down on it.

But to calm Welch down, the NBC team launched a grand all-employee Six Sigma party with Jay Leno and other stars cracking jokes, where T-shirts and caps were given out.

After the party though, there was limited mention of Six Sigma. Six Sigma initially failed to take off at NBC, even with an enraged Welch championing it.

Welch quickly learnt from this and announced a new process change in GE where no one could be promoted unless they had Green Belt certification. Immediately, lots of people signed up for Six Sigma, including me. Welch cleverly leveraged the new 'structure' to support Six Sigma.

When driving any change, revising processes and structures to be consistently aligned with our goals is key to success.
Even for talent management, you need to build systems to assess, develop, grow and retain talent. Everything must be a process. And remember, the performance of your employees are constrained by the structures and processes governing them. Change these and you will see them change too!

 3. Alignment

When we talk about alignment being a constraint, it not only means having alignment in the leadership at the top of the organisation but also across all the different levels.

It’s said that people don’t leave companies, they leave bosses, and we have had employees who made the decision to leave due to dissatisfaction with their leaders.

This shows that it is not only the senior leadership team who are important, but also the middle managers who play an equally important part in talent retention and growth.

If you look at all the top organisations in the world, a key part of their success is leadership. In fact, many problems of the world and even in our country are related to the lack of leadership.

It is very hard work to develop and grow leaders at each level. Yet, if you do, and even if one of the leaders you develop decides to jump ship, you must never lose faith. It is much better to have developed countless leaders and lose some of them than to have no leaders. Organisations with great leadership DNA always bounce back.

This applies not only to leadership at the upper echelons of power, but across the organisation. We see so many organisations fail to grow and fulfil their potential because the middle management fail to be great managers. Great leaders and managers are needed at every level.

Your work culture can determine your employees behaviour and actions

Vantage point for teachability

Another key aspect of leadership is teaching. Great leaders teach and they teach constantly. Recently, I interviewed Noel Tichy, a famous author who inspired me with his numerous books when I was younger.

Watch the full interview here:

There, Tichy reinforced this notion that every leader has to develop a teachable point of view. This refers to a leader’s opinion on how to make the organisation successful and win, and what it takes to lead other people.
Every leader must have a teachable point of view (TVP). According to Tichy,

...acquiring a teachable point of view involved in-depth preparation by the leaders. Once they had a teachable point of view, they thought of creative ways to find teaching and learning opportunities. They tried to turn every interaction with their people into a learning and teaching event and often set aside time to teach leadership outside of scheduled activities.

Once leaders have clarity on their teachable point of view, they start to create stories around them. Tichy adds that “these stories create a case for change, a vision of where the organisation is going, and an understanding of how to get there. Once leaders have a story, they take bold actions that bring about massive and lasting change.”

A teachable point of view evidenced by the stories leaders create to define themselves, their values, their vision for tomorrow and their expectations.

As a leader, do you have a teachable point of view? In another book written by Tichy, The Cycle of Leadership, he writes that “the very act of creating a Teachable Point of View makes people better leaders… as they come to understand their underlying assumptions about themselves, their organisations and business in general.”

So, leadership is about ensuring you have strong, aligned leadership at all levels of the organisation.

It is also that each leader is teaching their own and the organisation’s TPV at every opportunity possible.

 4. Culture

Culture is the cumulative beliefs or mindsets of an organisation, manifested in actions. These actions ultimately drive a result. But the 'mindset' each of us has is deep-seated. So are organisational beliefs. Martin Seligman at the University of Pennsylvania believes that our mindset dictates our actions.

For example, if you believe that your failures are produced by personal deficits beyond your control, you will make no effort to try to change.

However, if you believe that you can fix your mistakes with hard work and effort, you will act accordingly. A culture change eradicates 'bad' beliefs we have accumulated across the organisation, replacing them with new, empowering ones.

The hardest part of any change or growth initiative is to ensure it does not become a fad or a 'flavour of the month' but to ensure that it becomes part of the organisational DNA.

It requires cultural alignment. According to Howard Schwartz and Stanley Davis: “Organisational culture is capable of blunting or significantly altering the intended impact of even well thought-out initiatives in an organisation.”

People and organisations are creatures of habit, and changing habits is harder than changing structures or systems. Organisations, like people, have personalities, and to ignore this will be fatal to your efforts. You need to be aware of your cultural impediments and address them. 

Intentional cultural shifts

Recently, at Leaderonomics, we launched one of the best Learning Management Systems (LMS) in the world. We coupled it with world-class content and we decided (in line with our mantra to 'democratise' leadership) that we would price it ridiculously so that every organisation would become a learning organisation.

Since it is priced at less than US$250 per organisation (yes, you read that right, and it is all-inclusive for every employee), there were a few organisations that jumped to implement it. (BTW – if you want more info on it for your organisation, email info@leaderonomics.com) However, even when leaders championed the new learning culture, the general take-up rate of e-learning was abysmal.

We knew this was a cultural issue as, for many small organisations, e-learning was not the accepted norm. People still preferred to attend actual training classes where they could get away from their offices, have coffee breaks and lunches provided, and even get a certificate that they could showcase on their desks.

When doing e-learning programmes, participants were often disturbed mid-session by operational issues and never got around to completing the learning.

To counter and address these cultural issues, we issued Starbuck’s coffee vouchers for e-learning classes (in lieu of coffee breaks), we built big signboards to be hung up at participants’ desks, reading 'Student on e-learning – do not disturb me', and we even started issuing special certificates and gifts for those with high e-learning usage.

Today, we see our LMS usage has soared in a number of organisations. A corporation’s culture can be its greatest strength or its greatest enemy. 

Preparation is essential

Culture is something that has a life of its own and can be very difficult to tame. Even at Leaderonomics, we had the same issue. As we scaled, we knew we had to implement a Customer Management System to manage our growing client base. We installed SalesForce, a world-class system.

However, as we were not culturally prepared for this change, no one ever used these systems, despite us spending a tonne of money and training on it. After almost a year of minimal usage, it was eventually scrapped.

While the solution was, in theory, a good solution and people agreed it was beneficial, but in practice, culture got in the way. We were too used to working in a certain way and the pain of change seemed much higher than what was to be gained.

Fast forward to today, and we have successfully implemented another system, Hubspot, because we learned our culture lesson and spent a considerable amount of time on the cultural transformation before we worked on the systems implementation.

Culture is a powerful constraint that can jeopardise or accelerate any initiative or plan you may have. 

Concluding thoughts

So, if you truly want to be world-class, you may want to look at these four areas in your organisation. Are they constraining you and your employees from potentially being best in the world? If so, take action and fix these organisational constraints.