At no time in history has there been a more evident need to optimize every competitive advantage that a company’s employees’ productivity, ingenuity and tenacity can provide. At no other time has the need for employee development, enhanced capability and focused leadership been more important.
Thus, the organization’s CLO must take on the clearly defined role of educator and role model, along with a personal responsibility and accountability to lead the organization to a robust, high-performance, cost-conscious culture.
When envisioning a culture, the words “normal” or “natural behavior” immediately come to mind. Simply put, a culture is how people do their jobs. While a culture may or may not be supported by process discipline, systems and leadership behavior, it is always steeped in and supported by the organization’s basic values and informal performance system. The culture is what the company truly believes, as evidenced by how its leaders behave and what they reward. It is how they:
- Treat their employees.
- Treat their customers.
- Conduct their day-to-day business.
- Deal with other external constituents (suppliers and investors).
- Behave and demonstrate what is most important to the leadership.
- Lay the groundwork for the organization’s legacy.
It is not difficult to accurately describe an organization’s culture, for the obvious is difficult to deny. It is what one sees. Every organization’s culture is immediately visible and clearly reflected in the essence of its leaders’ behavior. It starts and finishes with how they convey what is most important to them and to the organization.
If a learning culture is important, an organization will ensure a high degree of predictable technical training. If data integrity is important, executive management will personally review and verify the accuracy of their standard costing system before using it in critical decision-making. If year-over-year internal cost reduction is a priority, they will ensure that there are full-time resources dedicated to achieving that objective. If collaboration is a key value, they will seek out others’ points of view as part of their normal decision-making process.
I was once told that an organization’s culture is most accurately seen by observing how the leadership team gets along, respects and interacts. It is a daunting thought.
In reality, when organizations attempt to describe their cultures, they often are describing a combination of what is and how they wish things were. They often wish their personal values and beliefs could somehow be more a part of the business, especially the essence of an “if it were my money” decision-making mentality. Many managers see this single value characteristic, “if it were my money,” as the most important of all survival behaviors.
To many, the words “cost-conscious,” “Six Sigma,” “lean” and “lowest-cost producer” have become synonymous. Quality, function and safety are all assumed. Defining a cost-conscious culture really boils down to living the hard reality that year-over-year actual product and service cost reduction is a necessity, not an optional objective. Like it or not, year-over-year cost reductions are the reality of all successful cost-conscious organizational cultures.
What needs to happen is not in doubt. The consumer is making absolutely sure of that. The only question we as leaders have to answer is: How do we most effectively establish a highly involved, year-over-year, cost-conscious culture? Stated in a slightly different way, the question might be: How does an organization create a culture of pride, technical competence and an “it’s my money” ethos?
The challenge is real and presents all CLOs with the opportunity to play a compelling and direct role in the success of their organizations. CLOs are well positioned to take the lead in establishing and sustaining a truly cost-conscious culture. Their central role is to ensure that there is a repetitive and predictable process of learning, coaching, mentoring and-role modeling the desired behavior.
The most important opportunities available to the organization’s CLO are to model, teach, coach and instill the importance of the six basics steps of ensuring a cost-conscious involvement culture:
- Ensure a clear and aligned performance system.
- Ensure a clear focus on employee capability.
- Champion the value of individual and organizational technical competence.
- Ensure the required leadership skills of coaching, mentoring and role-model development throughout the organization.
- Ensure that behavior expectations are clearly aligned with the organization’s core values and basic beliefs.
Importance of an Aligned Performance System
Ensuring a clear and aligned performance system sounds so simple. All one has to do is:
- Ensure that the organization’s leadership provides clear and mutually supportive expectations.
- Ensure that individual and business expectations are aligned and will lead to the desired results.
- Ensure that each individual is experienced and capable of doing what is required to meet and exceed expectations.
A CLO has much to offer in these areas. First, the CLO can directly teach the organization the basic elements of an effective performance system. The most important task is to reinforce the basic truths of the three performance system elements listed.
Second, the CLO can ensure that the organization’s leaders accept the importance of employee capability as the most critical element in achieving performance objectives. In fact, capability is the single most important element of performance. Unless employees are trained, experienced and have proven capability, there is little chance they will meet performance expectations.
If the goal is to create a cost-conscious culture, another fundamental element is to ensure that employees know what things cost and how their jobs and their decisions affect cost. In far too many cases, organizations strive to create a cost-conscious culture without ensuring there is accurate standard costing. That is, without providing employees with knowledge of what things cost, and in many cases, even operating with an explicit directive not to share costs, margins and performance data with the very employees they want most to think and breathe cost control.
There are only two things most employees bring to the workplace: their knowledge and their cognitive or thinking capability. Both can be expanded through training, and this training is clearly a leadership responsibility. Both types of training must be championed by the full organization, thus carving out the possibility of a unique and important role for the CLO.
Unfortunately, how people learn and retain knowledge is more often thought of as an issue for academic study, rather than one of the most important tools of culture change and daily capability enhancement. Understanding and using the proven steps in learning can truly provide a competitive edge. Basically, what we know is that a person learns and retains knowledge and new skills only after they have seen, practiced and been coached and mentored to a point that they have successfully completed a task several times. One cannot assume capability without clear performance evidence.
Teaching, sensitizing and ensuring leadership’s knowledge and skill in capability development is a clear opportunity to make a significant and positive impact on an organization.
In fact, the CLO’s ability to teach and model the coaching and mentoring process may well be the single most important long-term contribution they can make to the organization. Where else do managers learn how to effectively develop their employees?
I was once asked what the single most important learning experience I have had in business was. The answer was simple and straightforward. Long ago I learned that when it comes to behavior change, “words are nothing.”
True learning takes ongoing assessment—checking for understanding through observation, daily coaching and mentoring, and most importantly, a need to walk the talk, which means if you want a cost-conscious culture, leadership must model the behavior. You cannot have the management team spending freely or appearing to have little concern for cost and think you have any chance at all of establishing and sustaining a culture of cost prudence. The value alignment is called “cultural integrity.”
Aligning Culture With Core Values
The consistent thread throughout this discussion is a basic belief in one’s employees and in their ability to excel. The level of organizational focus and leadership commitment to regular, ongoing technical and cognitive skill enhancement is the first test of an organization’s belief in the importance of their employees.
In today’s world the concepts of variation reduction and lean production are minimum levels’ of performance expectations. “True lean,” true variation reduction and involvement through cognitive excellence are the basic skills of a cost-conscious culture—all having very specific and proven implementation and support technologies that can be learned.
It is a reality that there is only one right way to run a machine. It is a fact that performance variation can be measured, analyzed and maintained in an in-control state of variation. It is true that there is a process of cognitive excellence. These truths apply to manufacturing processes and service delivery, systems of all kinds, as well as thinking.
A fully qualified CLO has the responsibility, skills and knowledge required to lead. For those organizations that have the insight and foresight to have an effective CLO, the clear and unambiguous test of their impact is the level of consistent, high-value technical upskilling that is being conducted throughout the organization.
A cost-conscious culture is all about imparting “hard” knowledge through formal presentation, practice, coaching and mentoring, and establishing a long-term supportive performance system. Try this simple test. Does your training better equip the employee to be more highly valued by a competitor? Will the increased knowledge make the employee objectively more marketable? If not, chances are that the training has done little to improve your own capability.
It is interesting to listen to managers use and abuse leadership examples from the athletic world, missing the essence of excellence in athletic performance—constant practice, conditioning, coaching, mentoring, leaning and stretching to new levels of performance, and more practice, and more practice. The objective is to be the best one can be, not to get a little better each year. Like sports, this is exactly what is required if one truly wants to establish a cultural behavioral pattern.
The Realities of Cost
The reality is that everything an organization does impacts cost. In facing the tough realities of establishing a cost-conscious culture, we would be remiss if we did not point out that the vast majority of organizational cost is what one might call structural cost—those built-in costs that result from past and current management decisions. Every organization’s cost structure is made up of two distinct cost classifications: performance cost and structural cost. Performance cost is productivity, or how well we do the job. Structural cost is how the business is run.
It is the sum total of those costs that is directly related to how many customers, how many products, the organization’s supply chain, manufacturing locations, type of equipment and the complexity of the systems. The organization’s production planning, maintenance management, product and process design, quality, accounting, budgeting and performance appraisal systems are only a few of the most important and most costly of business support systems.
The implementation and support of a cost-conscious culture must embrace a commitment to employee performance while always challenging the value of all organizational structural costs.
The fundamentals of a high-performance, cost-conscious culture are:
- Transparent costs.
- A commitment to data accuracy and knowledge integrity.
- An acknowledgement of management’s effect on structural cost.
- A primary emphasis and commitment to employee capability.
- A perceived equity between leadership and employee behavior.
- Extensive, knowledge-based involvement.
- Consistent and predictable “hard” technical upskilling.
- A holistic outlook on cost.
- A willingness to challenge all sources of organizational cost.
- Role-model leadership.
These are the required actions against which one must measure the contribution of the organization’s learning function and, ultimately, the role of the CLO. Like the test for hard technical knowledge, there is little wiggle room. We either are or are not doing the critical things required to create a true cost-conscious culture.
George Elliott is a partner with Elliott-Luepker & Associates Inc., a Ponte Vedra Beach, Fla.-based consulting firm specializing in reducing organizational structural cost and creating a high-performance involvement culture. George’s career includes positions as vice president and group general manager of TRW’s Aircraft Components Group, senior vice president of sales and marketing, and vice president of worldwide purchasing at International Harvester, as well as works manager and a wide array of line and staff positions during a 13-year career at Deere & Company. He can be reached at firstname.lastname@example.org.