Creating a culture that measures productivity objectively is a sensitive matter. Key Performance Indicators (KPIs) are being employed extensively by organizations across the globe to monitor and track performance. KPIs provide valuable metadata to improve top-down and bottom-up vertical efficiency.
Analytics-driven firms are aware that KPIs are much more than a tool to evaluate performance. Utilizing KPIs, they gather valuable insights, create enterprise-wide accountability, and develop a goal-oriented culture.
However, most executives typically fall short of utilizing KPIs to their full potential. They have to realize that the effectiveness of KPIs depends on two distinct yet important elements: KPI transparency for the entire workforce—making the core metrics available across the board at all levels—and alignment of KPIs—determining the KPIs most relevant to the people and organizational purpose, and taking action based on the results of performance monitoring. Leading organizations share KPIs with all stakeholders and use algorithms to gauge the contribution of KPIs to critical functions, e.g., Marketing and Customer Experience.
To create an objective-driven culture, the senior leadership should work on developing capabilities to outline key performance and putting in place accurate metrics to measure it. The selection and prioritization of most relevant indicators is something that the leadership needs to carefully think about.
When defining KPIs, there are 5 KPI focus areas. Each focus area is unique and critical, but collectively they have a profound impact on each other and on the organizations that are aiming to undergo Digital Transformation. Leading Data and Analytics-driven organizations devise KPIs that cover all 5 of these focus areas:
- Enterprise KPIs
- Customer KPIs
- Workplace Analytics
- Partner and Supplier KPIs
- Quantified-self KPIs
Let’s discuss the first 3 focus areas in detail, for now.
The Enterprise KPIs benchmark the effectiveness of core functions of an organization. These indicators are important to determine the accountability of the leadership and workforce, and are vital for strategic as well as routine decision-making and investment. Examples of these indicators include Risk-Adjusted Return On Capital (RAROC) and Net Promoter Score (NPS).
The Customer KPIs facilitate in measuring the knowledge and impact of all leads, prospects, and customers. These metrics are used to calculate the actual and likely financial contributions of business prospects and clients. The Customer KPIs assist in analyzing and ranking the relationships that organizations aspire to develop with the customers and better understanding each segment and sales funnel the customers belong. Customer lifetime value is an example of these indicators.
The Workplace Analytics pertain to quantifying the efficiency and commitment level of organizational people. These analytics are used to isolate leadership tools and methodologies helpful in enhancing customer focus, and capture and quantify process outcomes and outputs feeding organizational KPIs. These metrics are valuable in measuring collaboration across the organization, gauging the proficiency of managers in motivating their teams, and highlighting the elements that demoralize people.
Interested in learning more about the 5 KPI areas of focus? You can download an editable PowerPoint on Key Performance Indicators (KPIs): 5 Areas of Focus here on the Flevy documents marketplace.
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In the age of rapid technological progress, where Digital Transformation has become pervasive, business applications are getting increasingly complex and interconnected. The advancement in technology has also helped attackers get more aggressive and inflict more damage to IT systems and applications. Application security tools and techniques are evolving too, yet most organizations still fall prey to vulnerabilities. Cybersecurity has become a bigger threat than ever before.
The current application security methodologies mainly count on detecting weaknesses and correcting them. Most organizations, primarily, rely on utilizing penetration testing or automated tools, at the most. They ignore to concentrate on establishing strong defenses against threats, merely do patch work, and leave the weaknesses unguarded. A small fraction implement threat modeling, security architecture, secure coding techniques, and security testing—but even they are typically unsure of how these approaches link with their strategic business objectives.
A few weaknesses constitute majority of break-ins–e.g., SQL injections and buffer overflows. Major security threats and application vulnerabilities include compromised credentials, failure to patch promptly, SQL injections, and cross-site scripting. A large number of security threats can be neutralized just by taking care of security hygiene.
Secure Software Development
State-of-the-art technology and best practices available today offer effective yet economical methods to prevent security breaches and threats. These tools and practices work well without affecting the pace of delivery or straining the users unnecessarily.
Secure software development not only warrants analyzing the technology but also looking at the entire organization that creates the software—people, processes, tools, and culture. Secure software development culture inspires security by promoting and improving communication, collaboration, and competition on security topics and rapidly evolving the competence to create available, survivable, defensible, secure, and resilient software.
Rugged Software and a Culture of Security
Rugged software, or Rugged DevOps, promotes developing secure and resilient software by embedding this practice into the culture of an organization. A Rugged culture of security is more than just secure—secure is a state of affairs at a specific time whereas Rugged means staying ahead of threats over time. The rugged code aligns with the organizational objectives and can cope with any challenges. Rugged enterprises constantly tweak their code and their internal organization—including governance, architecture, infrastructure, and operations—to stay ahead of attacks. All applications developed by “Rugged” organizations are well-secured against threats, are able to self-evaluate and distinguish ongoing attacks, report security statuses, and take action aptly.
Rugged software is a consequence of the efforts to rationalize and fortify security. This is achieved by communicating the lessons learnt from experimentation, setting up stringent lines of defense, and adopting and sharing rigid safety procedures across the board. Adopting Rugged software development practices across the enterprise help execute more applications promptly, improve security, and achieve cost savings across the software development life-cycle. Rugged software development is cost efficient because of fewer labor and time requisites during the requirements, design, execution, testing, iteration, and training phases of the development life-cycle.
The following 10 guiding principles apply to all organizations aiming to develop a Rugged culture of security:
- Perpetual Attacks Anticipation
- Staying Informed
- Security Hygiene
- Continuous Improvement
- Zero-defect Approach
- Reusable Tools
- One Team
- Comprehensive Testing
- Threat Modeling
- Peer Reviews
Let’s discuss the first 5 principles for now.
Perpetual Attacks Anticipation
A Rugged software development organization anticipates nonstop vulnerabilities and attacks—deliberate or accidental.
Rugged organizations appreciate staying informed about security issues and potential threats, seek recommendations from security specialists, and identify and update security policies and rules.
Rugged organizations take good care of their security hygiene by limiting the sharing of user accounts, carefully guarding the passwords and sensitive personal information. They employ secure software practices.
Continuous Improvement is the management principle foundational to Lean Management that should be embraced by all areas of an organization. In case sensitive information is left lying on somebody’s desk at night, Rugged organizations ensure that this does not recur in future and gather feedback from the people who happen to notice it.
Rugged organizations leave no room to tolerate any known weaknesses. An issue is resolved as soon as it is detected.
Interested in learning more about the guiding principles to develop a Rugged culture of security? You can download an editable PowerPoint on the Culture of Security here on the Flevy documents marketplace.
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With startups ready to disrupt traditional players, established firms need to form an even stronger bond with their customers instead of waiting for customers to reach out to them.
The traditional Customer Experience model—referred to as the “acquire what we make” model—is characterized by occasional interaction between the companies and the customers, once a customer ascertains her/his needs and looks for products or services to fulfill them. In this model, companies do all they can to offer quality products or services at a competitive price, while their marketing and operations are based only on brief engagement with the customers. Because of the occasional connection with the customer in this approach, the vendor has little knowledge of the difficulties a customer faces to procure a product or service.
With each passing day the tactics that organizations use to connect with their customers are undergoing rapid transformation. Technology and customized digital interactions provide companies the means to build deeper relationships with customers. Organizations pursuing Customer-centric Design, today, are addressing customers’ needs the moment they occur—or even before that by virtue of “Connected Customer Strategies.”
Connected Customer Strategies call for the companies to maintain customer relationships round the clock (24×7). These strategies demand from the organizations to develop an assortment of new capabilities (e.g., invest in Big data and Analytics), connect with the customers on a regular basis, track their activities, and offer customized experiences and offerings. These strategies are not about using modern technology, rather the methods companies should adopt by using technology in creating delightful experiences and long-standing associations with the customers.
There are 4 distinct Connected Customer Strategies that are instrumental in developing exceptional Customer Journeys:
- Fast Response
- Personalized Recommendations
- Proactive Recommendations
- Automatic Execution
Let’s discuss the first 2 strategies in detail now.
Organizational Leadership needs to carefully consider adopting the most suitable connected customer strategy. The Fast Response strategy, as the name suggests, is about prompt and flawless delivery of required services and products to the customers. To adopt Fast Response strategy, organizations need to ascertain the customer requirements carefully and simplify their purchasing process.
The core capabilities needed to implement this strategy include prompt delivery, minimal friction, flexibility, and precise execution. This strategy is appropriate for knowledgeable yet authoritative customers who dislike disclosing their personal information. Using this strategy, a prompt response to a customer needing replacement of a product should be a simple yet accurate, couple-of-click online ordering process and the order should be delivered a few hours later. The aim of the Fast Response strategy is to reduce the amount of time and energy the customers spend on procurement as much as possible.
Organizations using Personalized Recommendations strategy help customers identify their needs by presenting various options to them. The strategy involves active involvement of firms in assisting their customers by offering a menu of customized offerings—as soon as the customers have finalized their requirement but before their decision on how to fulfill it.
This strategy is suitable for customers who are willing to share their data with the company and value advice but still hold the final say. With the Personalized Recommendations strategy at work, the journey for a customer needing a product replacement could simply involve the customer’s visiting a company’s website, automatic suggestions to customer about the correct product based on her/his prior shopping history, the customer ordering the suggested product, and receiving the delivery a few hours later.
Interested in learning more about the other Connected Customer Strategies? You can download an editable PowerPoint on Customer Experience: Connected Customer Strategies here on the Flevy documents marketplace.
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Businesses are getting increasingly complex and so are customers’ expectations. Digital organizations are digitizing their critical Customer Journeys at scale to outperform competition. These organizations are using Digitization to create streamlined journeys, which result in more agile IT units, quick delivery of new products, and improved Customer Experiences and Engagement.
But before embarking on digitization and streamlining Customer Journeys, organizations need to transform their products, processes, legacy systems and technology, and culture to become truly digital businesses.
Streamlining multiple Customer Journeys concurrently requires integration of existing systems, building new capabilities, and deploying existing competences in a different way. Specifically, it entails embracing the following 5-phase Omni-channel Customer Journey Design approach that is critical for improving Customer Experiences and accomplishing higher Customer Engagement:
- Develop Enterprise Customer Experience Story
- Prioritize Technology Transformation Projects
- Develop a Flexible Ecosystem of Technologies and Platforms
- Adapt Principles of Strong, Agile, and Lean
- Be Adaptive in Performance Management
Now, let’s talk about the first 3 phases of the Omni-channel Customer Journey Design approach.
Phase 1 – Develop Enterprise Customer Experience Story
Creating a Customer Experience Story calls for setting up a Customer Experience team. The Customer Experience team begins by identifying the critical factors and main concerns in their customer relationships. Around these themes, they, then, carefully outline the experiences customers may come across during each and every interaction they have with the company in the form of a story. The Enterprise Customer Experience Story is unique to every company and provides a summary of the strategy, brand, and positioning in workable terms.
Next, the team identifies the journeys that are able to effectively deliver the factors and features critical for the customers utilizing digitization. Each journey should be critically analyzed to assess its significance, cost advantages associated with scaling it, the governance and technical impediments, and the availability of adequate financial and leadership resources to manage it. Thorough analysis of Customer Journeys yields a plan of action that aids in creating prioritized journeys.
Phase 2 – Prioritize Technology Transformation Projects
IT Transformation is typically the most challenging and resource hungry among other change initiatives. For instance, designing a mobile app is simple, however, it’s the linkage of the app to all the channels customers use and its integration with the back-end systems that is complicated.
To undertake Digitization, companies should avoid digitizing each journey separately—as it fosters internal silos—and investing heavily in Internet or mobile-channel IT. A better approach for the organizations is to rather prioritize the IT initiatives to enable smooth transformation of IT architecture with the addition of more customer journeys. Standard IT components are reusable across different journeys.
Phase 3 – Develop a Flexible Ecosystem of Technologies and Platforms
An important consideration for digitizing core journeys and scaling digitization is to link your IT systems with the technologies and platforms working outside the firm. These external systems provide the organization several advantages, including quick access to new customers, data pools, and capabilities.
Next-generation integration architecture should be designed in such a way that it should support open standards, dynamic interaction models, and curtail security threats. Progress in cloud computing and technology infrastructure has made quick and easy access, management, and operations of infrastructure resources possible—including networks, servers, databases, programs, and services. The skills needed to manage these technology ecosystems include DevOps experts to supervise integration of development and operations, enterprise architects, cloud engineers to manage software and cloud-computing, data scientists, and automation engineers.
Interested in learning more about the other key phases of the Customer Journey Design approach? You can download an editable PowerPoint on Omni-channel Customer Journey here on the Flevy documents marketplace.
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Disruptive technologies are helping companies automate work. Robotic Process Automation and Artificial Intelligence are taking up jobs which were in the past earmarked only for smart humans. Driver-less cars, automated check-in kiosks at airports, and autopilots steering the aircrafts are just few instances of how automation is transforming our world.
However, automation presents unique challenges that organizations need to identify and mitigate appropriately. These include costs associated with job losses; confidentiality of data; quality and safety risks stemming from automated processes; and regulatory implications.
Other critical factors to consider before investing in automation are adoption, pace of development of automation, and readiness of organizational leadership in redefining processes and roles to support automation.
The key question is how automation will impact our work in future. Should we anticipate benefits — e.g., efficiency gains and quality of life improvements — or dread further disruption of established business and job cuts?
Research by McKinsey suggests that Robotic Process Automation will impact 4 workplace areas the most:
- Workplace Activities
- (Re)definition of Work
- High-wage Jobs
- Creativity and Meaning
Now, let’s discuss the first two key areas in further detail.
Research findings (based on the US labor market data) reveal that the future does not likely hold complete automation of individual jobs, but rather automation of certain activities within specific occupations. The assumption that only routine, codifiable activities can be easily automated — and those that necessitate implicit knowledge will be unaffected — is misleading. Automation has already reached (or surpassed) the median level of human performance in some cases.
Capital or hardware-intensive industries — under stringent regulatory control — are slow and expensive to automate and need more time to reap return on investments. Whereas, the sectors where automation is mostly software based (e.g., financial services) may create value at a far lower cost and within rather shorter span of time.
(Re)definition of Work
The current level of automation can potentially transform a number of occupations to a certain level, but it requires redefinition of job roles and activities. Research reveals that only about 5% of occupations can be completely automated with the current level of technology.
In spite of this, automation can boost human productivity even in the highest paid occupations by taking care of repetitive daily tasks — e.g., analyzing paperwork, reports, data and evaluating applications based on criteria — and freeing up time for people to focus more on high value work that involves human emotions and creativity.
For instance, Automation and Machine Learning can automate diagnosis of common ailments, thereby enabling the doctors to concentrate more on acute or complicated problems. Likewise, lawyers can employ data mining tools to sift through piles of documentation to isolate the most relevant cases for their review.
Interested in learning more about the other key areas most impacted by Robotic Process Automation? You can download an editable PowerPoint on Impact of Robotic Process Automation here on the Flevy documents marketplace.
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The constant advancement in technology has raised the expectations of customers in terms of their interaction with companies. This digital disruption is also forcing businesses to develop new capabilities and explore innovative ways and means to deliver improved Customer Experiences.
Organizations can overhaul their Customer Journeys by embracing latest digital insights and practices. To develop a truly exceptional, breakthrough Customer Experience, organizations should work towards adopting 7 key imperatives:
- Develop Customer Empathy
- Design the Complete Customer Experience
- Reinvent the Customer Experience
- Lead the Way with Industry Rules
- Become an Agile Organization
- Continuously Improve and Iterate
- Foster a Culture of Collaboration
An organization does not need to execute all 7 of these imperatives—it varies from case to case depending on the circumstances, market, and customer requirements.
Let’s, now, discuss the first 4 imperatives in further detail.
Develop Customer Empathy
Many firms use surveys and face-to-face interviews to gather firsthand customer insights to enhance their Customer Experiences.
However, when designing Customer Journeys, in addition to customer data, companies need to understand their customers’ behaviors deeply and put themselves in their customers’ shoes. This entails knowing the complexities the customers face during various journeys and developing new ways to understand Customer Journeys—for instance, by making researchers accompany customers while shopping, by asking customers to report their activities and provide feedback as they interact with various offerings, and involving customers to provide their input on early versions of proposed offerings.
Design the Complete Customer Experience
Most people consider that design pertains only to good artwork, outlook, and appearance of products. However, it involves not just the look and feel of a product but also the way it operates. To render breakthrough Customer Experience, companies need to fundamentally shift the way design is perceived—not just the user interface design rather designing the overall Customer Experience.
Great Customer Experience design encompasses crafting every interface the customers have with the provider from the minute they consider a purchase. It warrants enrolling all people that can make a difference to the customer (especially from the operations and IT units), mapping out customer touchpoints, and transforming fundamental systems and processes.
Reinvent the Customer Experience
Improving current Customer Journeys enables achieving incremental cost reductions and quality enhancements. However, to improve Customer Journeys there is a need to shift the way Customer Journeys are perceived—from merely addressing the issues in a Customer Journey and streamlining a process to completely transforming the entire Customer Experience.
This should be done by carefully deliberating on and thoroughly analyzing all journeys from a customer’s perspective, drawing inspirations and studying benchmarks from other industries, and addressing customers’ needs.
Lead the Way with Industry Rules
Financial institutions are, to this day, quite cautious of utilizing technology to verify customers’ identification documents for deposit account opening. Compliance teams at these institutions often resist the efforts to transform customer account opening journeys, as they exercise extreme care to ensure regulatory compliance. Some banks make the customers fill their applications online but ask them to visit a branch with the completed paperwork, resulting in a cumbersome Customer Experience that is no longer acceptable as we enter the Fourth Industrial Revolution.
Leading organizations strictly adhere to laws but demonstrate to the regulatory authorities how technology has helped them break the status quo surrounding regulatory compliance and develop innovative solutions to manage risks and compliance better.
Interested in learning more about the other imperatives key to developing a breakthrough Customer Experience? You can download an editable PowerPoint on Breakthrough Customer Experience (CX) here on the Flevy documents marketplace.
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Digital-savvy startups are disrupting markets and threatening conventional businesses. They are doing this by utilizing technology to offer new products and services and providing tailored yet uncomplicated experiences for their customers.
Likewise, large traditionally-run firms will have to keep evolving their Customer Experience approaches to secure additional avenues of revenue and to stay competitive. To accomplish this, they will need to develop capabilities to effectively utilize insights on customer preferences and design offerings as per the customers’ preferences.
Many organizations, today, are undertaking Digital Transformation programs to improve their Customer Experiences. However, a majority of these Digital Transformation initiatives fall short of securing their maximum value potential due to focusing only on improving specific touchpoints instead of confronting the entire customer journeys—spanning across several departments and channels.
To make their Customer Experience sustainable and to become Customer-centric Organizations need to clearly transform their ways of doing business, operations, and employee behaviors. It is critical to improve these fundamental support processes before embarking on initiating any Customer Experience optimization initiatives.
Customer Experience optimization facilitates in gaining more satisfied/paying customers, additional value, and better retention rates. Research reveals that the companies that have higher Customer Satisfaction levels can achieve four times growth in value compare to those that rank lower in Customer Satisfaction.
Customer Experience (CX) Approach to Value Creation
The following pragmatic 5-phase approach to Customer Experience Management and Value Creation is of great benefit to organizations aspiring to enrich their Customer Experience, achieve clear-cut differentiation, and capture the most potential value:
- Understand What Customers Value
- Simplify and Streamline Offerings
- Link Customer Value to Operational Drivers
- Focus on Most Important Customer Journeys
- Adopt Continuous Improvement (CI) Thinking
Let’s now delve deeper into the first 3 phases of the approach.
Understand What Customers Value
Ascertaining the key drivers of Customer Satisfaction is the foremost step in improving Customer Experience. A flawed approach—that many companies still employ—at the onset of a Customer Experience optimization initiative is to reduce costs associated with internal processes and exploring customer pain points. This doesn’t assist in maximizing Value Creation.
Customer-centric organizations, on the other hand, devote their time in developing a clear understanding of what really matters to their customers. This helps in deciding where to focus, rationalizing their processes, and creating new experiences for the customers to generate additional value.
Great Customer Experience necessitates much more than just satisfactory interactions. Customer Satisfaction should be mapped along the entire customer journey—spanning multiple functions and channels—as customers use various channels to communicate with companies before making a transaction.
Simplify and Streamline Offerings
Alongside rationalizing the processes, it is equally important to carry out a detailed analysis of the brands, offerings, and price structures is essential to tap value from Customer Experience. After all, even the most pleasing Customer Experience cannot offset an unpredictable or exorbitantly expensive product.
Once these fundamentals are in order, organizations should investigate which interactions and Customer Journeys carry the most significance in a Customer Experience; evaluate how the organization is rated in each journey; identify and focus on the operations that need to be overhauled to improve the overall Customer Experience.
Link Customer Value to Operational Drivers
Technology and customer input provides the stimulus to streamline offerings and Customer Experience. However, the real value comes from linking the Customer Experience to core operational processes. Seeing journeys from the customer perspective aids in focusing on what they need and linking internal processes, structures, and KPIs to customer facilitation.
This necessitates deeper insights on elements that are of most value to the customer across a journey, pinpointing drivers of business costs and revenues, and—most importantly—inculcating the right mindsets across the organization. This detailed evaluation of customer journeys facilitates in determining operational improvements that bear the most positive effect on Customer Experience.
Interested in learning more about the other phases of the approach to managing Customer Experience? You can download an editable PowerPoint on the Customer Experience (CX) Approach to Create Value here on the Flevy documents marketplace.
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The typical approach to improving productivity focuses on assessing variance in quality, time, rate, service, or cost, around which management systems develop incrementally or revolutionary.
Organizational Health Index, on the contrary, focuses on improving performance through improved alignment of organizational systems. For example, by improving competence of key components such as mindset, work design, technical expertise, or relationships; or through improving the interface between work processes, or the interaction between work practices.
Simply put, the capability of an organization to achieve its strategic goals and their alignment defines an organization’s health. The Organizational Health Index (OHI) leverages logical consistency to manage the organizational health. OHI entails quantifiable evaluations, diagnostics and recipes for success that allow the leaders to calculate and accomplish the organizational health goals, required to sustain long-term performance.
Organizational health refers to the need to address soft (leadership, direction or culture) and hard factors (accountability, reporting lines, or controls) affecting performance. The organizational health index is an ongoing continuous improvement system applicable across an organization. The OHI measures not only the current health level, but also determines the next steps for an organization. There are numerous advantages to the organizations implementing it, including:
- Benchmarking organizational health against the rivals.
- Aligning the organizational systems, units, and people by communicating shared goals and priorities; and highlighting and plugging the disconnects.
- Improving organizational performance by pinpointing variances and opportunities to improve health and drive business success.
The OHI Diagnostic Framework provides a road map for leaders and managers to improve organizational health. It measures the organization against the 9 most critical health outcomes; these outcomes comprise both hard and soft organizational elements. Careful measurement of these 9 elements has a proven link with improved financial performance and earning above-average EBITDA margins:
- Coordination and control
- External orientation
- Innovation and Learning
- Work Environment
- Shared Vision
- Strategic Clarity
- Employee Involvement
- Role clarity
- Performance contracts
- Consequence Management
- Personal Ownership
Coordination and Control
- People Performance Review
- Operational Management
- Financial Management
- Professional Standards
- Risk Management
- Customer Focus
- Competitor Insights
- Business Partnerships
- Government and Community Relations
- Authoritative Leadership
- Consultative Leadership
- Supportive Leadership
- Challenging Leadership
Innovation and Learning
- Top-down Innovation
- Bottom-up Innovation
- Knowledge Sharing
- Capturing External Ideas
- Talent Acquisition
- Talent Development
- Process based Capabilities
- Outsourced Expertise
- Meaningful Values
- Inspirational Leaders
- Career Opportunities
- Financial Incentives
- Rewards and Recognition
- Open and Trusting
- Internally Competitive
- Operationally Disciplined
- Creative and Entrepreneurial
Years of research have shown the healthiest companies to align with 1 of the 4 recipes for organizational health. These recipes constitute concrete management practices and activities for the organization to implement. Leaders need to acknowledge and align to the recipe that is appropriate for them. They can use these success recipes to plan and implement a change program that results in sustainable outcomes. The 4 recipes for organizational health are:
- Market Maker
- Continuous Improvement
Interested in learning more about the other recipes for Organizational Health and the OHI Diagnostic Framework? You can download an editable PowerPoint on Organizational Health Index here on the Flevy documents marketplace.
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Organizations need to persistently improve the way they do business to stay ahead of the curve. New ideas trigger organizational improvement and build the foundation of a Learning Organization.
Scholars have defined a Learning Organization in many different ways. Some suggest it as an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights. Marlene Fiol and Marjorie A. Lyles describe organizational learning as “the process of improving actions through better knowledge and understanding.” Barbara Levitt and James G. March define organizations as “Learning Organizations when they encode inferences from history into routines that guide behavior. Chris Argyris categorizes organizational learning as “a process of detecting and correcting error.” According to Peter Senge, “a Learning Organization is a group of people working together collectively to enhance their capacities to create results they care about.”
Being a Learning Organization offers several advantages. A perpetual influx of insights and new experience keeps the organization dynamic and ready for transformation; assists in better management of investments, improves efficiency; and helps in developing cost leadership and differentiation strategies. Learning Organizations tend to be more innovative by encouraging people to learn, develop, and by generating a more innovative environment. Shared learning builds the corporate image of the organization and increases the pace of change within the organization. Learning Organizations provide their people the ability to think insightfully about complex problems, take coordinated action, improve decision making, and instill a sense of community in them.
Despite efforts to improve continuously and creating new knowledge, organizations cannot simply become Learning Organizations. They employ various approaches but what they actually need is to become proficient in translating new knowledge into new ways of doing things, and actively managing the learning process so that it gets ingrained into the organizational culture.
Becoming a Learning Organization necessitates mastering 5 key activities. These 5 activities form the building blocks of a Learning Organization and should be integrated into the organizational core to transform your company into a Learning Organization.
- Systematic Problem Solving
- Learning from Experience
- Learning from Others
- Knowledge Transfer
Applying these practices to some degree or in isolated cases isn’t enough. To ensure continued success, these practices should be complemented by distinct mindsets, support systems, and processes.
Let’s now discuss the first 3 building blocks in detail.
1. Systematic Problem Solving
Systematic problem solving is based on scientific methods for diagnosing problems, e.g., the Plan, Do, Check, Act (PDCA) cycle or “hypothesis-generating, hypothesis-testing.” The technique employs fact-based management, relying on concrete data instead of assumptions for making decisions and utilizes statistical tools—such as Pareto charts, histograms, correlation, and cause and effect diagrams—to consolidate data and draw conclusions.
For a real Learning Organization, people need to become more disciplined, pay more attention to detail, assess underlying causes, and analyze data before reaching decisions.
Experimentation involves systematic exploration and testing of new knowledge. Experimentation has 2 fundamental configurations; both forms transfer knowledge and yield new insights, capabilities, tools, techniques, and processes:
- Ongoing programs
- Demonstration Projects
Ongoing programs entails a chain of small experiments aimed at yielding incremental gains in knowledge. These programs maintain a steady flow of new ideas by sending workforce on sabbaticals at different places to learn new work practices and tools from industry and academia, and applying that knowledge to their daily routines. Such programs foster risk taking and a feeling of “benefits of experimentation far outweigh the costs.”
Demonstration projects are one of a kind, large-scale initiatives that include holistic system-wide transformation targeted at a single site. These projects are executed with a goal of developing new organizational capabilities using a “clean slate” approach.
Self-managing, multi-departmental teams; high level of employee autonomy; considerable “learning by doing;” course corrections; implicit policy guidelines, precedents, and decision rules are the key characteristics of demonstration projects.
3. Learning from Experience
Learning Organizations gain valuable knowledge from their past experiences, by doing an exhaustive and systematic appraisal of past successes and failures. However, not too many managers pay attention to past experiences or reflect on those, eventually losing valuable insights. To inculcate a culture of learning, lessons learned should be recorded and made readily accessible to all employees.
A handful of companies have laid out processes for their managers to contemplate on their past actions and incorporate those in their learning. At the core of this approach lies the belief that distinguishes productive failure from unproductive success. Productive failure delivers knowledge and understanding whereas unproductive success goes unnoticed where nobody knows what went well and why. Learning from experience approach isn’t that expensive—case studies and project reviews can be compiled with little cost.
Interested in learning more about the building blocks of a Learning Organization? You can download an editable PowerPoint on Learning Organization: 5 Building Blocks here on the Flevy documents marketplace.