An interview with William J. Schwarz,
CEO of The CEO Alliance
and The Center for Inspired Performance
I recently attended a CEO gathering entitled “How to Build the Company that—if it Existed—Would Put Yours Out of Business,” sponsored by the Brain Trust at the Ravinia Club. Afterwards, I sat down with the speaker, Bill Schwarz, and talked about the challenges CEOs face in a turn-around situation.
What are the challenges of developing a turn-around strategy?
The challenges of turning around an organization are significantly different from those running the day-to-day operations. Knowing how to assess, design, and align an organization in a state of crisis requires a special kind of focus and a thorough review of the current forces driving the reactive behavior in the organization. While the management team may view the current paradigm as a crisis, it is imperative these forces be treated as points within the larger patterns created by the organization’s structure. The forces exist (even the external ones) because of the way the organization is structured. To understand this idea requires a very different way of viewing an organization. This is where my team and I usually come in.
How would you go about achieving this new way of seeing?
First, we would assess the organization to understand the past and present dynamics that are causing the undesired results. It’s essential to reveal and understand the poor decision-making in the organization. Once we see the recurring patterns, we map the structure of the organization and highlight the actual cause of the patterns. A key point is that most employees we interview believe these “events” caused the upset conditions. The events; however, are never the cause—they are symptoms. Most turnaround efforts [and experts] fail because they treat these symptoms, and by doing so, further exacerbate the problem and place the organization in greater jeopardy.
After you’ve completed the assessment, what is the next step?
We invite all key players (executives, managers, thought leaders, etc.) to an Executive Leadership conference. There, we chart these patterns and map the feedback systems that make up the structure of the organization. Just like water flows according to the shape of the land, an organization behaves according to the shape of its structure (the feedback control systems). This process is transformational in nature and reveals all.
What are feedback control systems?
A very simple example of feedback control and leverage points is the home thermostat. If you set the thermostat to 72 degrees, once the temperature rises to 74 degrees, the compressor turns on, cooling the room to 70 degrees. The compressor then turns off until the temperature rises to 74 degrees, which causes the compressor to turn on again. This continuous activity of the compressor maintains the desired temperature to keep the home comfortable and the system working efficiently. Of course, leaks in the system and a poorly insulated room will prevent the thermostat from maintaining an ideal temperature. These problems must be prevented to keep the system operating efficiently.
So, when you spoke about structure, you did not mean a reporting structure similar to an organizational chart?
No; not at all. I’m talking about a basic principle: structure causes behavior. If you do not know the organizational structure, you are literally flying blindfolded. Any CEO, whether orchestrating a turn-around or operating the organization day to day, will end up being the tragic victim of not knowing the structure that causes how it (and the people) behaves. Not knowing this simple principle led to the condition that got the organization into the shape it’s in— and there is no way to lead it out of its current condition without working with the actual underlying structure that caused it. Without this knowledge all you can do is employ emergency techniques; stop the bleeding, keep the organization alive, and raise more money—all of which are just a perpetuation of bad decisions at higher and higher costs and greater consequences.
So then what?
Once we have mapped the organization’s structure, we establish a strategy to remove the source of the “reactive behavior.” In order to effectively eliminate the reactive behavior, we align all employees around a set of “leverage points.”
What are leverage points?
Leverage points are the critical points that can remove the source of reactive behavior. Until reactive behavior is removed, an organization cannot enter a balanced state. As in a home, an organization has a thermostat. When all employees know the settings and align around leverage points, reactive behavior is removed. One very simple leverage point can put out 100 fires. Putting out fires instead of solving problems (or firefighting as I like to call it) will only cause more intense and damaging fires. And, more fires cost more money. When an organization sets the thermostat to the right setting, it will enter a balanced and generative state.
How do you create a balanced state?
We develop a strategic plan to achieve an optimum rate of growth while establishing and maintaining a balanced state. This is often accomplished even within a hostile, dynamic, and changing environment. CEOs in a turnaround situation are accountable not only to the board of directors, but also to suppliers, customers, employees, and competitors. Anyone who fails to perform according to expectations could throw the organization into a devastating death spiral. Excessive growth, even in the best organizations, may eventually become counterproductive and destructive. It is critical to have everyone aligned and committed to the strategy. A consultant or outside firm cannot do this work by simply delivering recommendations to the board. Reports and recommendations seldom work and are rarely implemented, even if they are valid. This consulting model of delivering recommendations is a failed (and very expensive) model. Avoid it at all costs.
What happens to an organization when it is out of balance?
Organizations that are out of balance are vulnerable to viruses and diseases. In this state, cures may be worse than the cause. Unlike humans, organizations do not have immune systems and are vulnerable to reactive behavior or short cuts, including: decision-making, hiring practices, analysis, communications, unplanned changes, and anyone or anything not performing precisely as promised.
So should you give up trying to get things under control and simply align around these leverage points?
Yes. Once people are aligned around leverage points, reactive behavior shifts into a balanced state. In a balanced state, an organization can focus on true developmental strategies and efforts. Balance is the key to everything and will maximize the organization’s performance. To accomplish this, we develop and train a design team to monitor the leverage points and constantly refine them—driving greater and greater benefits. The design team works with a set of principles and laws that guides the team’s decisions. These are the same laws and principles that determine the organization’s optimum rate of growth. This is critical because violating these principles causes organizational dysfunction. To follow them requires a constant state of pressure and discipline. Violating these principals results in failure.
What would be an example of violating these principles?
Yesterday’s solutions become today’s problems. Whenever yesterday’s problems, such as poor financials or undiscovered/ repetitive mistakes drive actions, they produce a reactive, fear based state.
What must happen to make this system or process work?
An organization must operate in a state of trust. When trust is violated, distrust takes over. In a state of distrust, employees look out for themselves, fear takes over, and the organization spins out of control. Controls are then imposed, causing fear and distrust to grow, leading to more counterproductive behavior. This fear and distrust impacts everything—most importantly the bottom line, which is what the controls were put in place to protect. Almost every effort to get back into control results in counterproductive results, losses, and more dysfunction. Firefighting takes over and operational control is lost. Real control is attained and maintained by keeping a state of balance and alignment.
How do you get buy-in to this?
The process itself results in ownership, not necessarily buy-in. No one, least of all me, is telling people what to do and hoping they will go along. The process of overcoming organizational blindness, charting the processes, and mapping the structure (identifying and aligning the organization around leverage points) is accomplished by those who will be charged with its execution. They have total ownership because they did it—it is theirs; not mine.
How does this bring results to the bottom line?
Even in a healthy organization, we have discovered that about 80 to 85 percent of all organizational activity is reactive behavior. In a turnaround, it is much higher. The nature of the reactive behavior is also more damaging. When the source of reactive behavior is removed and a balanced state is created, resources are freed up, and the organization can focus on optimum growth, process improvement, going lean, quality initiatives, building customer loyalty, sales effectiveness, achieving competitive advantage, innovation, and productivity. Strategic direction and action cannot be done over the top of reactive behavior. I call this process “moving into a generative state that leads to inspired performance.”
Can you talk about a specific example?
Just last month, a client in the IT services business eliminated $500,000 in annual expenses. During the off-site leadership conference, we identified three leverage points that removed the reactive behavior. The team found they were returning to customers to conduct repairs an average of three times per customer. These repetitive repairs caused stress and additional costs for overnight shipping, premiums for parts, and overtime wages. To reduce repetitive repairs, they created a total parts kit system to handle all the breakdowns in one call.
Would leadership or sales effectiveness be one of the first strategies?
Yes, especially since most CEOs believe additional sales will resolve any problem. This; however, is not true. Our data shows that sales effectiveness is the result of building a focus-driven organization. When CEOs focus on leadership effectiveness and on creating a focus-driven organization, sales effectiveness naturally emerges.
Can you recap the principles we’ve covered for our readers?
1) All living organisms (and organizations) follow the laws of nature. To grow an organization, organizations must make certain there are no shortcuts being taken or steps eliminated.
2) Structure causes all behavior. Water flows according to the shape of the land; corporate behavior acts according to the structure of the organization. To change behavior, the underlying structure must be changed.
3) The future is the only thing that can be controlled. Present actions determine an organization’s destiny.
4) What an organization focuses on determines what gets produced. When an organization focuses on preventing what it doesn’t want, it gets more of it. If an organization focuses on living according to the laws of nature and the principle that structure determines behavior, it will be capable of creating the future and controlling its destiny.
5) Growth requires a natural design. An organization must be structured for growth if it is going to serve its customers.
6) Growth cannot occur in upset conditions or in a reactive environment. Change the organizational structure to remove the source of reactive behavior.
Where can readers go to learn more about structuring their organization?
If any of your readers are interested in taking an organizational assessment to determine where their organization currently stands on each of these six strategies, they can visit www.inspiredperformance. org to learn more. Bill Schwarz is a sought-after speaker, consultant, and author. His recently published book, The Generative Organization— Going from Reactive Behavior to Inspired Performance, takes a CEO through the steps of building a focus-driven organization. His next book, The Generative Way—the Revolutionary Way to Achieve Sales Effectiveness, will transform your way of thinking about leadership and sales. For more information, contact Bill at This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or call 404.875.4180.
Add this page to your favorite Social Bookmarking websites
Hits : 750
