additional content
these individuals must follow a script and
check off that they’ve said everything on
the list — even at the risk of irritating
potential customers. Better instead to
get employees to fully internalize the
company’s strategy and grade them
on their prowess at solving customer
problems.
Danaher, a conglomerate of more than 25
companies specializing in environmental
science, life sciences, dental technologies,
and industrial manufacturing technologies,
is intensely focused on creating value
through operational excellence. Critical to
this approach are metrics built into the
Danaher Business System, the company’s
intensive continuous improvement
program. Only eight key metrics, called
“core value drivers” to underline their
strategic relevance, are tracked constantly
in all Danaher enterprises. The financial
metrics (core growth, operating margin
expansion, working capital returns, and
return on invested capital) are used not
just by investors but also by managers to
evaluate the value of their own activities.
Danaher also tracks two customer-facing
metrics (on-time delivery and quality as
perceived by customers), and two metrics
related to employees (retention rates and
the percentage of managerial positions
filled by internal candidates). Lengthy
in-person operating reviews, conducted
monthly, are very data driven, focusing on
solving problems and improving current
practices. The metrics are posted on the
shop floor, where anyone can see the
progress that’s being made — or not
being made — toward clear targets. The
meetings are constructive: People feel
accountable and challenged, but also
encouraged to rise to the challenges.
Data analytics is evolving to the point
where it can help revitalize metrics and
incentives. A spreadsheet is no longer
enough to capture and analyze this body
of material; you can use large information
management systems programmed to
deliver carefully crafted performance
108
world monitor
data. No matter how complex the input,
the final incentives and metrics need
to be simple enough to drive clear,
consistent behavior. More generally,
every structure in your organization
should make your capabilities stronger,
and focus them on delivering your
strategic goals.
6. Transcend
Functional Barriers
Great capabilities always transcend
functional barriers. Consider Starbucks’
understanding of how to create the
right ambience, Haier’s ability to rapidly
manufacture home appliances to order,
and Amazon’s aptitude for launching
products and services enabled by new
technologies. These companies all bring
people from different functions to work
together informally and creatively. Most
companies have some experience with
this. For example, any effective TPE
capability brings together marketing,
sales, design, finance, and analytics
professionals, all working closely together
and learning from one another.
The stronger the cross-functional
interplay and the more it is supported by
the company’s culture, the more effective
the promotion.
Unfortunately, many companies
unintentionally diminish their capabilities
by allowing functions to operate
independently. It’s often easier for
the functional leaders to focus on
specialized excellence, on “doing my job
better” rather than on “what we can
accomplish together.” Pressed for time,
executives delegate execution to IT,
HR, or operational specialists, who are
attuned to their areas of expertise but
not necessarily to the company’s overall
direction. Collaborative efforts bring
together people who don’t understand
each other or, worse, who pursue
competing objectives and agendas.
When their narrow priorities conflict, the
teams end up stuck in cycles of internal
competition. The bigger a company gets,
the harder it becomes to resolve these
problems.
You can break this cycle by putting
together cross-functional teams to
blueprint, build, and roll out capabilities.
Appoint a single executive for each
capability team, accountable for fully
developing the capability. Ensure this
person has credibility at all levels of the
organization. Tap high-quality people from
each function for this team, and give the
leader the authority to set incentives for
performance.
There’s always the risk that these
cross-functional teams will be seen as
skunkworks, separate from the rest of
the enterprise. To guard against this
risk, you need a strong dotted line from
each team member back to the original
function. Sooner or later, the capabilities
orientation will probably become habitual,
affecting the way people (including
functional leaders) see their roles: not
as gatekeepers of their expertise, but as
contributors to a larger whole.
7. Become a Fully
Digital Enterprise