Business Ethics: Are they Important?

Business Ethics Are they Important

Business Ethics: Are they Important?

Leading business schools and management experts have stressed the importance of business ethics in the management.  They have stressed the risks associated with blatant ethical failures such as large legal judgments, prison terms, anti-trust litigation, fines, lost sales, lost good will, etc.  They have also stressed the moral need for organizations to do what is right for moral purposes alone.  While these reasons are all legitimate they miss the biggest reason why business ethics are important:  organizational performance.

Business ethics as a field of management has been stuck in “neutral”  or “external failure mode” for decades.  In this mode business ethics seeks to address only the blatant issues at hand, especially those which are associated with high external failure costs.  The reality is this is only the tip of the failure cost iceberg.  The  largest failure cost component in business ethics is actually the internal failure costs, or the failures that go on routinely within the organization every day, which go largely unnoticed and unmanaged.

The leading causes of many organizational problems -customer dissatisfaction, employee turnover, ineffective quality improvement and training efforts, failed mergers and technology projects, weak innovation, and failed product development – all have been linked as much to failures in the operating culture as all other factors combined.

Operating culture can be attributable to over half of all documented Quality Costs (Costs of Poor Quality).  If Quality Costs for world class organizations run between 10 and 15% of total sales revenue, the associated operating culture/ethics component in the best world class companies is costing companies billions annually.  If the average organization is running Quality Costs of 20-25%, the associated operating culture/ethics component is so significant it may pose an extraordinary opportunity for improvement or an imperative for mere survival.

Most quality improvement projects deal with visible processes such as discrete operations.  It is entirely possible to address the processes but still have major unresolved issues, especially people issues.  If people do not want to cooperate and work together, or if tensions are high, process improvement becomes increasingly difficult.  These people issues often are the result of  recurring “mini ethics failures” that need to be prevented.

There is a human tendency in management to seek single (special) causes for failure when multiple, systematic (common) causes are at work.  In such instances blaming failure on “poor leadership,” “poor employee execution,” or  “market externalities,”  may be convenient politically and identify scapegoats but in reality they rarely fix, change, or improve anything.  A major (common) root cause of sub optimum performance in organizations can consistently be traced to patterns of business ethics failures within the operating cultures.  The ability of organizations to manage ethics at this micro level is a process capability that yields significant economic returns.  This is what Ethics Quality is all about.

 

Culture Management Essentials 

Culture Management Essentials

Culture Management Essentials

Technology organizations rarely fail because of their technology.  Marketing organizations rarely fail because of their marketing. Manufacturing organizations rarely fail because of their manufacturing.  Failure typically occurs because people could not think, plan, adapt and execute effectively, as a team, to meet business objectives.  This kind of capability is not as talent derived as many think.  Instead much evidence suggests this capability is culturally derived and can be advanced or regressed through cultural practices.

All the technical expertise in the world is of little consequence if your organization’s culture lacks the ability to support and achieve business objectives.  This paper presents theory and methods which should be useful in helping technology organizations improve their culture’s supportive capability.

Culture Defined:

Culture’s textbook definitions range from the rules of conduct, to how things are done, to the prevailing climate, to corporate values. When we look for more concrete definitions in business literature it can be difficult to find definitions that are any better than these.  The problem with these definitions, and indeed with most available business text definitions on this subject, is they are at best risky oversimplifications, they are often categorically incorrect, and most importantly they are irrelevant to the task of managing operating culture.

Quality gurus Crosby and Juran offer much more substantial definitions.  Crosby defines culture as patterns of behaviors, which suggests some sort of naturally occurring patterns with the possibility of structure and repeatability.  Juran defines culture as the creation of values, beliefs, and behaviors necessary for success, which suggests culture is an entity man creates to meet the needs of the group at the time.  So is culture a natural pattern of behaviors (Crosby) or a man made entity born out of reasoning and necessity (Juran)?  According to a large body of knowledge, and my own research, both themes are true at the same time.

Metrics for Culture:

Beginning with Crosby’s and Juran’s definitions for culture, and borrowing a metric discovery tool from the software engineering profession called goal-question-metric, a body of effective metrics for culture management can be constructed.

Goal:  The goal of culture is to cultivate values, beliefs and patterns of behavior  that can best support organizational success.

Question:  How should managers cultivate values, beliefs and patterns of behavior behavior  to better support organizational success?

There are essentially two questions here:  one is how to cultivate values and beliefs, and the other is how to cultivate patterns of behavior.  The former depends strictly on ethics, which is the philosophy and science for determining what values to hold and when to hold them.  The latter depends on the social science paradigm of diagnostics, control and change management within complex systems.

Metrics:  Therefore the best metrics for managing culture will be those metrics found in ethics and social sciences.  In ethics we have principles, applied forms, and tests.  In social science we have statistics, factors, and performance measures to identify constraints, symptoms  and causes.  Both ethics and social science seek to promote advancement and  control regression through diagnostics and prevention.

A Strong Culture Model:

The Orgculture model was developed using combinations of ethics and social science factors widely reported by texts and leading gurus to be important to organizational health.  We surveyed hundreds of employed professionals on 40 factors and formed a database.

Using statistical tools we boiled down 40 factors to 29 based strictly on statistical significance.  The remaining 29 were grouped into five dominant subgroups in order of their statistical significance.  These groups are: ethics, situational leadership, process capability, risk-reward, and satisfaction.  These 29 factors within their 5 subgroups consistently account for over 90% of the variation in the regression r-squared  values, regardless of the size or type of groups surveyed.

Of special interest to me was the weighting of the factors in model significance.  Ethics generally is the most dominant factor and often accounts for half of the model variation alone.  Second is situational leadership alignment, which generally is a distant 2nd.  Combined, ethics and situational leadership generally account for over 70% of the variation, with the other remaining 3 factors accounting for the remaining 30%.  I find these statistics particularly meaningful because they are consistent with the goal-question-metric line of thinking where ethics and social science were identified as dominant issues.

Since this model was derived from leading texts and studies, some established principles need to be retained.

  1. Any of the 5 main factors can be either a cause or an affect of any of the other factors.
  2. All of the factors are always present even though a few appear dominant. Hence, any planned change or improvement in one factor should be made with respect to all the factors.
  3. Each group diagnostic should be viewed independently as factor combinations are unique for each group.

Ethics Primer:

Ethics is a branch of philosophy that is concerned with the principles and standards of human conduct.  Ethics arise not from man’s law but from human nature itself making it a body of natural laws from which man’s laws follow.

Ethics is a normative science that is concerned with the norms of human conduct.  As a science ethics must follow the same rigors of logic as other sciences.   When scientific ethical reasoning is properly applied ethics becomes a useful tool for sorting out the good and bad components of complex human interactions.  At this level ethics is about determining what values to hold and when to hold them.  Because ethics is a science it  creates new knowledge and applies this knowledge to support decisions.

Ethics is a rational process for exploring all the possible behavior alternatives and selecting the best possible choice for all involved. This rational process builds from established foundations and principles to construct repeatable forms of  ethical reasoning.  Ethical flaws can be found at the foundation level, the principle level, or at the application level.  When ethics are applied to advance organizations this branch of ethics is considered organizational ethics.

Foundations:  Ethics is a critical link between technical applications and four foundations of organizational advancement:  human nature, logic, utility, and transactional success.  All technical and business decisions can be analyzed and tested against these foundations using ethics tests.

Principles:  Ethical reasoning builds from a body of foundations and principles into logical applications.  Here are a small collection of principles that apply to organizational ethics.

  1. Natural Law: Laws that arise from human nature itself, and from which man’s law is derived.  It is generally believed that the closer man’s law approaches natural law the more efficient the social system will be.
  2. Values: Ethics is a rational process for determining what values to hold and when to hold them.  Therefore, fixed adherence to values ignores ethics and promotes unethical behavior.
  3. Change: Ethics demands a willingness to change, and change demands the application of ethics.  In order for values to remain principled they must be subject to change.
  4. Ethical process quality: The principle that ethics is at its best when intents, means, and ends, individually and collectively pursue a greater good.
  5. Greater good: The desired state where each decision seeks to improve on the previous decision in its pursuit of alignment with Natural Law (the foundations of human nature, logic, utility, and successful transactions). Ethics seeks to order the complexities of human conduct in the most useful manner for all involved.
  6. Linkage of Logic and Utility: Doing good is more rational and useful than doing bad, to know good is to do good, and those who do bad do so largely out of ignorance (Plato). Ethics is a logical outcome of human nature and it is useful because it is logical (Aristotle).
  7. Forms: Principles and applications can be constructed into forms that can be applied consistently.  Lower forms include Egoism (selfishness), Darwinism (might makes right), and Machiavellian (double standards).  Higher forms include the law, Proportionality (Garrett), Pleasure Calculus (Bentham), Social Objectivity (Rawls), System Quality (Deming), and Transactional Efficiency (Pareto).  Prima Facie Duties by Ross include keeping promises, gratitude, justice, helping others, not harming others, and self improvement.  Socrates and his knowledge duty says one can never know anything absolutely and we must do ones best to know as much as possible before making decisions that affect others.  Kant’s categorical imperative says one should do only what they would encourage others to do (lead by example).
  8. Situational vs Constant Application: Some forms are universal regardless of time and place, while other forms are completely situational and vary. For example, lower forms generally are bad, higher forms generally are  good, and duty forms generally are situational.
  9. Forms Algorithm: Forms are best applied when ordered in a sequence that minimizes process flaws and maximizes success.  For organizational ethics a superior algorithm is to reduce lower forms first, as these corrupt the other duty and higher forms.

Applications:  When forms are organized into an ordered sequence, or a process, it becomes a branch of applied ethics.  One effective and repeatable application for organizational ethics is the following three step process.  First, detect and prevent all lower forms.  Second, consider the most applicable duty, resolve any dilemma, and make a selection as this establishes the general decision direction. Finally, refine the duty-decision using higher forms in proportions with respect to the needs of the organization.

The order of this three step process is supported by both ethical principles and social science evidence.  Ironically, many attempts in organizational ethics begin with the opposite order, with higher forms being focused upon first.  This is simply a Non-Secquitur fallacy of reasoning.  The Orgculture Model’s approach of addressing lower forms first has not only proven itself to be an effective and repeatable application in many field tests, but it serves as robust evidence that both ethics and social science are at their best when considered together.

Ethics Math:  I developed a math model for this application. (See appendix 2).  For every possible decision there are nearly 50 billion ways a decision could be made, of which only about 360,000 are theoretically good. By eliminating the lower forms first over 99.986% of all the possible bad decisions are eliminated, leaving only 7.2 million possible bad decisions. Conclusion:  The removal of Lower Forms first effectively takes any decision to the six-sigma ethics quality level.

One of the greatest contributions of the OrgCulture Model is the discovery of the importance of ethics in operating culture.  Because of this, we know that one of the surest ways to improve cultural capability is to provide training and coaching in organizational ethics.

Situational Leadership:

According to Dr. Paul Hersey in his book The Situational Leader there are four distinct leader styles and four follower styles.  From this 4 x 4 matrix there exist 16 possible alignments, of which only 4 are good.  Situational leadership seeks to assure that proper alignments occur for each task with each follower.

In accordance with the table in Appendix 3, S4 leader behavior needs to be matched with R4 follower, the S3 with the R3, and so on.  When leaders do not match their styles to the appropriate readiness level of the follower gaps occur that have been proven to hurt performance.  Our studies have shown that high gaps in situational leadership correlate highly with deficiencies in each of the other 5 culture factors.

Situational Leadership is the ultimate social science metric.  It follows a sound algorithm, is repeatable, and provides immediate feedback regarding the level of advancement or regression in readiness by an individual for any given task.  Situational Leadership is also an excellent tool for personal and leadership development.  Gaps between leader style and readiness level can cause instability and failure in the other 4 main culture factors, ethics, process capability, risk-reward, and satisfaction.

Organizations can promote improvements in their cultures by providing training and coaching in situational leadership. 

Social Science:

Social sciences study the performance of people systems and how they can be predicted, controlled, or improved. Examples of social sciences are economics, psychology, sociology, political science, quality control, marketing, and all fields of management.  Social sciences use statistics to isolate, control, and improve key performance factors.

One aspect of social science that drives the need for diagnostics and control is the phenomena of advancement and regression.  In all social sciences there are things that advance and regress performance. Unless both conditions are known in real time there is little that can be done to proactively improve performance.  Fortunately much is known about the causes of social system advancement and regression.

Advancement:  Causes of social system advancement are capability or readiness, willingness or buy-in, and confidence or security.  Organizations that maintain strong process capabilities, have high levels of consensus, and have tasks performed by individuals who are confident and secure, have a strategic advantage over other organizations that do not have these internal strengths.

Regression:  Causes of social system regression are the inverses of those causing advancement.  Reductions in capability or readiness, reductions in willingness, and reductions in confidence or security, all can cause performance regression.  Regression can be triggered by pressure, stress, or by a regression of another factor.  Regression, if not reversed, can develop into severe forms of culture failure such as Groupthink or Abilene, where catastrophic failures to individuals and to the organization become more probable. Causes can be diagnosed and expressed in terms of the five culture factors: ethics, situational leadership, process capability, risk-reward, and satisfaction.

Two common symptoms of regression are resistance and frustration.  It is an unfortunate fact that many managers consider these causes and expend a significant amount of resources trying to fix or punish- resistance and frustration.

Resistance is nothing more than a natural response to problems encountered with an idea or a decision.  Resistance is information first, and behavior second.  Resistance reveals one of two things: either there is an ethical flaw causing natural resistance, or there is a transactional loser who is attempting to minimize their losses.  In either case, both conditions are preventable and correctable in most instances.

When resistance is viewed as bad behavior first the potential value of the information it represents can easily be lost.  When managing culture, resistance needs to be viewed as information, and the information must be put to fruitful use.  Treating resistance as a threat that needs to be overcome with force is a distraction at best, as the force can be viewed as abusive hence promoting more frustration and regression, which ironically can lead to even more resistance.  Force can suppress resistance but it can never cure it.  The best way to deal with resistance is to prevent it through ethical reasoning. Situational leadership is ideal for generating feedback, like a control metric, so resistance can be detected and the decisions refined before they can do damage to the culture.

There are four common symptoms of frustration:

  1. Aggression: When someone acts aggressively towards a source of frustration, or towards a non-source (deflection).
  2. Regression: When a process, individual or group deviates from expected behavioral or when performance declines.
  3. Fixation: When individuals form into cliques or social groups to escape or to seek protection from the unpleasant aspects of a social system.
  4. Resignation: When individuals give up trying to win within a difficult social system.  Resignation can range from an emotional distancing to physical removal from the system.

The key to all social system management, ethics management, and culture management in general, is to look past the symptoms of failure and to focus on the root causes.  By focusing on the 5 culture factors of ethics, situational leadership, process capability, risk-reward, and satisfaction managers are automatically guided towards causes and away from symptoms.

The key to social science management is detection and prevention through timely diagnostics.  The more an organization invests in timely diagnostics, the more capable the organization will be at managing regression and advancement.  Formal metrics from SPC, six-sigma, or enterprise information systems can be very effective at detecting and preventing technical problems, however their ability to detect and prevent cultural problems are more limited.  Ethics and situational leadership, though less formal, are especially effective at detecting and preventing culture failure.

Transactions:

Cultures are driven by transactions.  All internal and external transactions either meet the basic needs of the participants, or they fail to do so in varying degrees.  The degree of cultural nonconformance can be measured through the 5 culture factors.

The Italian economist Alfredo Pareto defined the perfect economic state for any transaction (today referred to as Pareto Efficiency) as the state where at least one party is clearly better off, most parties are as well off, while no party is clearly worse off.  This definition of the win-win transaction is the cornerstone of all culture management.  It is the intent, means, and ends of an organizations transactions that ultimately determine the cultural capability within the organization.

How transactions are conducted can be just as influential to a culture as the transaction itself.  For example, transactions that are constructively proposed with a positive sandwich technique ( say something good, offer the proposed transaction, then close on another constructive thought) has been proven to produce better results than other variants.  If you insult the prospect, propose the transaction, then threaten them if they do not agree, damage to both the transaction and to the transactional process (culture) can be predicted.  Our studies throughout many organizations reveal that many cultural disorders are caused precisely by such misapplications of transactional power.

All changes in cultural health, whether they are advancements or regressions, are precipitated by transactions.  Therefore, the shortest path to a stronger (or weaker) culture is through the kinds of transactions that are occurring.  Make them win-win, and pursue them constructively, and the culture will benefit.

 Summary:  The Role of the Manager in Culture Management

Culture management begins and ends with the basic idea of how each manager perceives their role.  If this role is perceived to be void of culture management responsibilities the culture will be weak.  If culture management responsibilities are ingrained into all management positions, and if upper managers lead accordingly by example, the supportive capability of the culture will be strong.  The following summarizes some of these necessary managerial responsibilities:

  1. Accept culture management responsibilities: The managerial role is not just to meet the boss’s requirements, but to help subordinates and coworkers cope and succeed.  The manager is not only responsible for getting work done, but for developing and maintaining the work environment by maintaining the 5 factors, especially ethics and situational leadership.
  2. Manage the ethical components: Detect and eliminate lower forms. Use the ethical reasoning tools to determine what values to hold and when to hold them, while avoiding strict adherence to any set of fixed values. Support duty selection through improved information flow and open dialog.  Refine decisions using higher forms.
  3. Manage the social science components: Promote advancement and prevent and control regression through the simultaneous focus on the 5 culture factors of ethics, situational leadership, process capability, risk-reward, and satisfaction.  Use statistics to diagnose, control, prevent, and advance where practical.  Use situational leadership to detect and prevent culture failures.
  4. Focus on causes, not symptoms: Avoid over reactions to resistance and frustration.  Shift your focus to the 5 factors which are most likely where your true causes are.
  5. Improve transactions and transactional processes: Seek Pareto Efficient content and outcomes, as well as constructive approaches using positive sandwiches.

 

What is Operating Culture

What is Operating Culture

What is Operating Culture?

Operating Culture has been cited by numerous quality and change management experts as the leading constraint in organizational performance.  Operating Culture has been broadly defined as “how things are done”, “the prevailing climate”, and “the organization’s values and beliefs.”  Such definitions are part of the problem as they are too vague to support any serious management of operating culture.

Management is not only part of the problem, but the ultimate cause of poor operating culture. Often the very actions managers undertake to achieve managerial control and effectiveness are the same actions that harm the operating culture and cause the eventual loss of managerial control and effectiveness. Managing any operating culture requires an understanding of change management theory.

The first rule of managing operating culture is “not to make it worse.”  This requires a change in the very role of management itself – a change away from organizations working to meet management’s requirements – and towards a paradigm where management works to meet the organization’s requirements.

The second rule is diagnosis: to know what the organization’s requirements are before changing anything.

The third rule is to verify that the change enacted actually resulted in the desired change or outcome.

The fourth rule is to correct bad decisions quickly before they cause a permanent and  unwanted shift in the operating culture behavior pattern.

Quality and social science experts have offered definitions with significantly more substance which managers should focus on.  Consider the following:

  •     Patterns of behavior. Crosby
  •     A certain system of values, beliefs, and behaviors, individual and team, created within the organization, that is necessary for organizational success.  Juran
  •     The gap between knowing and doing. Pfeffer, Sutton

Operating cultures are social forces that flow with respect to the operating environment and their internal needs to support organizational success.  This “flow” eventually finds its balance (equilibrium) which is almost always sub optimum to the organizations pure needs.  Operating cultures are always a balancing act between the operating environment, internal needs, and the organization’s needs.  Any attempt to force an organization to merely better meet organizational needs is insufficient as the social forces will always gravitate into a new state of equilibrium.  The only way to truly improve on the meeting of organizational requirements is to alter the entire system, to address the environment and meet internal needs simultaneously with respect to the organization’s requirements.  To do this properly one first must have an accurate appraisal of what the environmental factors and internal needs actually are.

When internal needs appear to siphon energy away from the organization’s requirements this is symptomatic of constraints existing deep within the operating environment.  The leading root causes of these constraints often are tiny recurring ethics failures. Therefore shortest path to removing the constraints is to identify, target, and remove the patterns of micro ethics failures throughout the operating environment.

The key is to identify the ethics component within the complex operating culture social scheme.  But how does one identify these things in an unbiased manner?  If management is the ultimate cause, and if the organization itself is in a conspiracy to meet their unmet needs, and if everybody else is controlling everybody else’s environment, who can objectively investigate the matter?  Ethics Quality, Inc. is an objective source to turn to.  Our proprietary diagnostics are capable of pinpointing your needs, and our expertise in training and corrective action will help your organization “unravel” and facilitate productive change in your operating culture.

Total Quality Management

Total Quality Management

Total Quality Management

The Right Stuff: What it takes to champion quality improvement initiatives.

All organizational improvement programs have one thing in common: their success depends on the effectiveness of many collective efforts, rather than any single or individual heroic effort. Contrary to what many managers think, this collective effectiveness cannot be dictated, facilitated, delegated, or otherwise achieved in any instance through direct managerial action alone. This collective effectiveness can only be inspired, balanced and sustained – indirectly – through the operating environment’s ethics and culture, with management as its champion. When managers are champions of projects, some things get done.  When managers are champions of improvement programs, some more things get done. But when managers champion the culture, a much bigger thing happens. The projects, the programs, the quality journey over time, and the organization, all flourish, and the firm truly transforms itself into a higher quality organization.

Total Quality Management Defined

TQM is an approach to organizational performance improvement that is distinguished from other approaches by its key word “total,” which emphasizes a holistic or “total” approach to the firm’s improvement program. TQM’s holistic focus is unique in that it truly focuses on the well being and excellence of the entire enterprise as well as the larger system which the enterprise operates in. TQM is also unique among improvement philosophies because of its ethic of inclusiveness,  as TQM truly includes everything and everybody in its mission including: all employees, all stakeholders, all suppliers and especially all customers (both internal and external). Here are three definitions with some key principles underlined that capture the essence of TQM:

  1. TQM is an economic philosophy, or a strategic intent, to improve the value of the firm by improving the satisfaction of internal and external customers, suppliers, and stakeholders.
  2. TQM is a 360 degree continuous improvement program of metrics, information, training, analysis, discretionary investments, process improvements, change, and controls, that involve the entire organization.
  3. TQM is an organization wide management system that applies tools, technologies, and standardized procedures to integrate efforts, to prevent failure costs, to improve process execution, to assure the existence of a capable and supportive organizational culture, and to sustain the organization’s quality journey over time.

From the above definitions, TQM is not just about boosting the bottom line by improving or streamlining a few economic processes.  Instead TQM is about boosting the bottom line by doing the right things right, everywhere, for everyone involved, the first time every time. Described in this way, TQM is also an ethic for achieving organizational excellence.

However noble TQM’s philosophies and ethics are, it still must face and overcome the same implementation rigors any improvement program must face.  Below are four stages that organizations have typically experienced when implementing TQM.

TQM’s Four Critical Stages

Stage One: The Leadership Stage.

  • Leadership must live the philosophy and ethics of TQM. There is no room for selfishness, moral exclusion, exorbitant compensation for a few, scapegoating, abusive management styles or policies, or inconsistent or selective ethics. The philosophy (like any worthwhile ethic) must be universally applicable to all. This may seem easy enough, yet this ethic has proven to be one of the weakest links in many TQM initiatives. TQM truly begins with, and succeeds or fails because of, the strength of this ethic in the practicing organization.
  • Without a deep commitment from the top to develop a healthy culture based on win-win fairness, open communication, shared information and teamwork, most organizations will not get very far in TQM. One of the greatest lessons of TQM is not how the lack of good culture kills TQM, but how these deficiencies will constrain or kill any improvement program regardless of their name (including Six-Sigma, Balanced Scorecard, Baldrige, etc).
  • This stage generally begins with training the upper and middle management on the general concepts of TQM, and the formation of basic structures to support TQM such as executive steering committee, metrics to aid project targeting (such as Cost of Quality) and a project management system to approve and administer projects.

Stage Two: The Initiation Stage.

  • This is always an exciting stage in TQM, as it awakens the organization to all kinds of amazing discoveries about how it can improve itself.  Initial projects hit pay dirt with the harvesting of “easy fruit” resulting in reduced waste, lower failure costs, fewer hassles and negative experiences, and happier internal and external customers.
  • The culture is energized into new forms of teamwork.  Ethics advance dramatically as individuals and departments become more aware and empathetic to the effects they have on others around them. People are not concerned about rewards, as the improvements themselves are delivering intrinsic and non-monetary rewards to all involved.
  • Economically, project successes and clear economic dividends makes management’s continued investment in the program justified. Monetary rewards are provided to both individuals and groups, which are perceived as “icing on the cake.”
  • There is an abundance of praise for everybody, as everybody kicks their efforts up a notch in a atmosphere of exuberance and mutual sacrifice. .

Stage Three: The Decline Stage

  • Unfortunately TQM often goes downhill from here.  The reason: burnout.  As “easy fruit” projects dry up, increasingly more difficult targets are attempted that often tax and degrade TQM’s delicate system of ethics, rewards and efforts.
  • As project difficulty increases it becomes more difficult to do the ethics stuff, such as inclusion, dialog, consensus, win-win, etc as each of these take effort. Narrower objectives start getting priority over the cultural requirements, and these objectives generally benefit progressively narrower stakeholder groups. These efforts may offer greater economic potential than the earlier projects, and require the efforts of many stakeholders to implement, but upon successful completion these projects tend to distribute rewards to fewer participants and beneficiaries, reinforcing fewer efforts for the next project. This contributes to an ethics and rewards deficit in the culture, increasing resistance to change, and fermenting and a form of mental or spiritual burnout where many hearts simply “are not in it” any more, making some key players not as willing as they once were.
  • Another form of “burnout” is a physiological form that actually makes many past supporters progressively less capable of supporting new initiatives. It takes a lot of human energy to initiate a  quality journey (improvement trend) in an organization, and it takes even more to sustain it. This is a common problem with all improvement programs.  It simply is humanly impossible to sustain the required energy level indefinitely without learning how to work smarter, not just harder. Also, rewards must be commensurate to the effort, not just the results, or a declining state of reduced effort will set in all the faster. This understandably runs counter to the “reward the results” mentality popular in management today. If people are physiologically burned out all rewards become less relevant and some become completely irrelevant. Research in the construction industry indicates that workers can lose up to 50% of their productivity or more when they are overworked for prolonged periods time. In just a few weeks of excessive stress and exertion, workers can quickly become less productive than what normal efforts in the first place would have produced.  This effort constraint is widely recognized today in many fields as a physiological fact, and it’s rate of decline seems to accelerate when people’s hearts are no longer engaged in the objective at hand. It is a common managerial error to demand too much effort (from themselves and/or others) while relying too much on higher rewards for ever fewer participants. This error rate is magnified by the tendency of management to increasingly focus on technical process improvements as project difficulty increases. This effort mismanagement is something every manager needs to be aware of as it is a leading common cause of quality program failure and journey  decline. When it comes to sustaining a quality journey, our own OrgCulture Study as well as other studies robustly suggest that human factors such as ethics, culture, risks and rewards, management style and satisfaction, once considered to be the “soft side” of quality, collectively are statistically more relevant to program and journey success over time than technical process improvements. The logic involved is not a choice between one or the other, but that the latter requires the former.
  • Stage three is about the organization’s powerful and often inevitable transition from euphoria toward withdrawal as effort mismanagement takes its toll.  Without advancements in the quality system infrastructure to help participants cope, and without maintaining cultural balance, people not only become less able but less willing to sustain the journey. This decline in support can also be referred to as a decline in the cultural maturity level of the organization, which can be measured using our Online Survey. If cultural maturity declines, the quality journey will decline in lock-step. Fortunately both conditions are correctable with a little ethics and culture management.

Stage Four: The Journey Perpetuation Stage

  • This stage is about slowing down or reversing the natural forces of decline described in stage three. Here, the focus is on helping the organization cope and advance by working smarter (not just harder), and by managing a balancing act between efforts, ethics, rewards and satisfaction with respect to process improvements (not just pushing for technical success in narrower and more complex projects).  This results in achieving higher levels of teamwork and integration, which, ironically, make the more complex projects more likely to succeed.
  • This stage adopts technologies, advances technical tools, and emphasizes the championing of higher culture practices so appropriate levels of “rational cooperation” are comfortably developed and maintained. Information sharing and ethics and culture practices are integrated so people can get the same information and make the same quality decisions with less physical and psychological effort, and know what they can expect from the system in return. In this stage the focus is on reducing frustration, firefighting, gutter fighting, and negative competition, and maximizing satisfaction and trust for all participants so the organization can fundamentally advance its journey with a maximum of internal cooperation.
  • This stage emphasizes ethics and culture as much as its technical quality, and there is a shared intuitive awareness at all levels that cultural excellence and technical process capability are dependent on each other. Quality management is integrated into each process so it can be performed in normal time with normal effort. Employee satisfaction is healthy, and the culture is capable of ramping up and supporting initiatives that matter the most to the organization, its participants and stakeholders. Most importantly, the organization is able to sustain its  improvement trend and accomplish its strategic objectives.

Three Leading Causes of Quality Journey Stagnation:

  1. Lack of continuous effort and focus. Benchmark statistics of the highest quality organizations show the greatest distinguishing factor in achievement was not the brand of programming they chose, but rather how long (in years or decades) they have sustained their continuous effort and focus on quality improvement. Therefore, just “not stopping” and assuring journey continuity may be the single most significant aspect of any quality improvement program. (Has your group’s journey been continuous?  If so, for how long)?
  2. Lack of methodical journey progression. One well documented model, the Capability Maturity Model by SEI (CMM), has statistically correlated the concept of journey progression by organizations. Using the CMM (or Trillium) Models as guides, we can visualize the “logic” of normal progression and generalize that sustainable journey progression could be risked if  normal progression patterns common in advancing organizations are not followed or if key maturity level steps are ignored.

The Trillium scale spans levels 1 through 5. The levels can be characterized in the following way:

    1. Unstructured: The development process is ad-hoc. Projects frequently cannot meet quality or schedule targets. Success, while possible, is based on individuals rather than on organizational infrastructure. (Risk – High)
    2. Repeatable and Project Oriented: Individual project success is achieved through strong project management planning and control, with emphasis on requirements management, estimation techniques, and configuration management. (Risk – Medium)
    3. Defined and Process Oriented: Processes are defined and utilized at the organizational level, although project customization is still permitted. Processes are controlled and improved. ISO 9001 requirements such as training and internal process auditing are incorporated. (Risk – Low)
    4. Managed and Integrated: Process measurements and analysis is used as a key mechanism for process improvement. Process change management and defect prevention programs are integrated into processes. (Risk – Lower)
    5. Fully Integrated: Formal methodologies are extensively used. Organizational repositories for development history and process are utilized and effective. (Risk – Lowest)

For example, if an organization is operating at the Trillium Level #1, it is highly unlikely they will benefit much from an aggressive investment in six-sigma, which tends to succeed best when organizations are already operating at Trillium levels 3 or higher. The key to journey progression is knowing where you are and pursuing the next logical maturity level. (What level is your group at)?

  1. Lack of Ethics and Culture Management. When organizations attempt to advance quality without advancing ethics and culture they often are spinning their wheels only to wonder later why quality initiatives did not work as well as expected. Trying to improve technical quality issues, such as yield or Cpk without considering possible ethics or cultural causes can quickly limit the available human energy an organization can give to its improvement journey.

The Role of Ethics and Culture in Quality Management: Ethics and Culture are closely related to Quality Improvement and the organization’s Quality Maturity Level.  When processes improve, ethics and culture generally improve also, and visa versa. Often ethics are the constraint factor holding back process capability improvement, and sometimes poor process capability encourages poor ethical behavior. Also, managers do not cause improvement projects to succeed as much as they may think they do, at least not directly. It is the operating culture, or the collective effort, that decides which projects succeed or fail in varying degrees. This is where TQM has provide a valuable lesson to all improvement professionals. TQM showed us the importance of people and integrated efforts, the importance of getting the culture behind the improvement initiatives, and the importance of getting management to champion an ethical culture.

Quality and process improvement are not entirely synonymous. The former requires ethics, the latter does not, as the following points demonstrate:

  • TQM slipped in popularity in the mid and late 1990’s not because it was inadequate, but because executives, shareholder boards, and in some cases even employees and their unions forced philosophical, ethical and cultural compromises that took a heavy toll on TQM programs. Ethically, the late 1990’s were the “anything goes” years for management,  giving rise to alternative quality initiatives that focused more on techno-economic quality gains without constraining management with ethical or cultural standards. The fact that six-sigma and other best practices programs carried no ethics baggage made them popular among executives and trainers. Ironically,  many of these now maturing programs are increasingly incorporating the TQM doctrines of the past, such as notions of common courtesy, trust, inclusion, participation, open dialog, consensus, team based rewards, and basic governance standards.
  • Process capability improvement alone does not reduce the risk of ethics failure, and ethics failures definitely constrain improvements in process capability.  The same kinds of failures that bludgeoned Enron and Arthur Andersen could still occur in any organization regardless of their apparent successes in process improvement. Unless ethical and cultural excellence are incorporated by design into process improvement initiatives (which TQM incorporates), the risks of journey failure (and business failure) remain.

Whether you are doing TQM, or some other quality improvement program, any program stands to benefit by incorporating the ethics of TQM.  These ethics are essential for sustaining quality journeys over time because every improvement program depends on collective efforts, and effective collective efforts invariably depend on management’s dedication to ethical and cultural excellence.

 

Six-Sigma Management

Six-Sigma Management

Six-Sigma Management

TQ (Technical Quality) x C (Cultural Acceptance) = A (Achievement)

If you are going to do Six-Sigma, do not forget to champion the culture too.

Here are six facts you should know that can improve your  success in six-sigma:

  1. Without a functionally supportive culture six sigma flounders. This is true not only for six-sigma but for every change management program ever invented.  If you want to avoid embarking on another “flavor of the month” do not ignore this fact!
  2. Culture cannot be improved by technical quality alone. Six Sigma programs typically pursue technical quality (process capability) gains until they hit a cultural constraint, then they try to use either more technical quality or brute managerial force to overcome the constraint (metrics-data driven culture).  This may overcome normal politics, but it will not overcome culture failure or its causes.  It is a myth that six-sigma single-handedly creates a better culture! Six-sigma is great at discovering culture problems, but unfortunately is rather incapable of solving them.
  3. Technical quality and an effective culture depend on each other, yet are different things. The more one works in Six-Sigma, the more one comes to understand that process improvement and culture indeed go hand in hand. Ironically, while these are so closely related, they are also entirely different problems utilizing separate bodies of knowledge, causes, and problem solving methodologies. Attempting to use process improvement exclusively to improve culture, or culture exclusively to improve processes, is a non-sequitur error. Both need to be understood and practiced separately, and combined and balanced, to achieve either. Many organizational failures can be traced to management’s failure to properly separate and integrate “TQ” and “C”.
  4. Culture cannot be imposed, it must be nurtured across the participating social systems. Management cannot plan, direct, and control a culture in the same way that it manages other tasks and resources.  Cultures are complex and powerful social systems that operate according to their own codes, aims, and checks and balances.  Cultures are like software programming in many regards.  To permanently change them one must first change their “codes” of conduct.  In software this is LOC (lines of code).  In operating culture this is ethics.
  5. Prevention is cheaper than failure and rework. It is cheaper to prevent culture failure, and program failure, than it is to fail first and then try to fix it.  No matter how much hype a new management program professes, an ounce of prevention is still worth a pound of cure.  You can improve your chances of success in any change management program by diagnosing and addressing potential causes of culture failure at the beginning of the program.
  6. Culture mechanics are measurable and predictable. The supportive capability of an organization’s culture can be diagnosed using the survey method.  See our Online Group Survey.  By the way, our survey uses six-sigma metrics, making culture management a meaningful six-sigma project.  We can show you how.

 

Culture Management

Culture Management

Personal ethics and group ethics follow the same ethical principles, however they differ in their processes and effects. These differences represent the cultural effects which must be managed if organizational ethics are to improve. 

Influence

Ethics in organizations are influenced more by the group ethics system (culture) than by the sum of the individual personal ethics systems. These “group effects” can have a profound effect on the ethical behavior and overall culture of an organization (see illustration below). Therefore, to improve group ethics, more emphasis is generally needed on group dynamics, or culture management,  than on personal ethics systems alone. (The illustration below has been included in Wiley’s Organizational Behavior, 8th Edition, 2003, pg 265).

Culture Management ethics

Ethical Reasoning Processes.

Understanding why group ethics systems tend to function at lower levels than individual ethics systems can be explained by noting the differences in the comparative reasoning processes.  Individual ethics systems tend to follow the bottom up process (see illustration below) where ideas are refined in a logical progression by eliminating logical fallacies and lower forms first, followed by resolving dilemma, optimizing higher forms of ethics using moral creativity, and policy considerations. In contrast, organizational ethics systems tend to follow the top down process beginning with policies (not reasoning) and consider logical fallacies last, if at all. Organizational ethics processes tend to lack sufficient logical rigor at the beginning of the reasoning process. All decision sciences give the greatest weight to the beginning of the reasoning process, because if this step is not soundly based all subsequent steps will either be irrelevant or dead wrong. Ethical reasoning is a decision science which must obey this same principle.

Ethics Culture Management

Change Management Processes.

When actual behavior does not meet required or expected behavior, this deviation constitutes a “culture gap.” Whereas changes in personal ethics and behavior can often be driven by training, reasoning and awareness alone (as espoused by the classical philosophers Socrates, Plato, Aristotle), often groups create their own ethics which can differ greatly from the sum of the individual ethics systems. In order to change the behavior caused by the “group effect” commensurate changes must be “engineered” into the underlying system of causes. Studies in organizational behavior – including our ongoing OrgCulture Study – indicate that emergent behavior in groups can be heavily influenced by three forces: the Required System, Leadership Style and the Background Factors (see flow diagram below). Adding more policies (required systems), a typical knee jerk management reaction to nonconforming behavior, cannot solve a culture gap problem if the true causes are manifested in the four Background Factors, Management Styles, or combinations thereof. This kind of misdiagnosis and mismanagement not only fail to achieve their intended objective, but often make the culture gap worse than if nothing had been done at all. Culture management therefore is not only an acquired skill, but according to many management scholars, it is an essential skill that organizations need if they are to perform to their potential. Doing culture management requires that managers be trained in the tools of diagnosis and response so they may become proficient at reducing unfavorable culture gaps and improving their group’s performance.

Culture Management Flow Chart

 

 

Merger Integration

Merger Integration

If you are in the business of acquiring and merging firms, you  are also in the culture management business. 

Merger success is not the norm.

Several studies in the early 1990’s on acquisitions by leading consulting organizations and universities revealed more or less the same findings:

  • less than 40% paid for their cost of capital, less than 25% created any appreciable value, and nearly 50% were later divested at significant losses to shareholders.
  • the inability to integrate cultures and management styles was cited as a leading cause of merger failure.
  • the more successful acquiring firms generally placed a higher priority on culture management and integration and were more capable in this managerial skill.
  • the less successful acquiring firms generally placed a lower priority on culture integration and management and were less capable in this managerial skill.

We can help you diagnose, estimate, plan, and manage the culture factors involved in your acquisitions using our online survey. A relatively small investment in information can significantly help your chances of success!

Get the culture management skills mergers require. We can show you how to identify and prevent culture failure so they will not spoil your merger plans.