1. Leadership practices of Stellar Solutions

    April 22, 2018 by ahmed

    stellar_rocket_fixed

    Originally posted on Blogrige by Dawn Bailey

    Five-Part Leadership Blog Series
    In this five-part blog series on the 2017 Baldrige Award recipients’ leadership presentations at the 30th Anniversary Quest for Excellence® Conference (April 8–11, 2018), senior leaders of the five new national role models share best practices and stories of how they achieved excellence.

    “Scientists Do Some Really Cool Stuff”
    Stellar Solutions, a woman-owned, aerospace engineering services business, has a noble vision: to align its employees’ dream jobs with critical customer needs, and among those customers are NASA, U.S. troops, the FAA, and even those of us who watch cable TV.

    According to Celeste Ford, founder and CEO, satellites in the sky send invisible signals to ground stations that turn them into meaningful data that allow us to receive cable signals and intelligence analysts and troops in the field to be informed. Stellar Solutions’ customers are those government and commercial entities that receive the needed data. “We pull [the data] together from end to end because there are different people building all of those things [from satellites to ground stations], and they have to work together. So, we’re systems engineers and systems integrators. . . . From SpaceX to the war in Syria, we work on the projects that give intelligence and information to our troops so that our government can do the right thing. Mission to Mars, we’re working on that, too,” she added.

    Ford said one way that Stellar Solutions has differentiated itself is to cross boundaries. “In aerospace, there are companies that handle civil and commercial, but . . . we do it all and take the nuggets of information from one sector to another as needed. And that is really a differentiator to getting things done quickly and innovatively,” she said.

    A Focus on Sustainability, Continuity
    A few years after founding the company in 1995, Ford said, they were getting good results, but “I always had this paranoia that I didn’t want to be the single point of failure as a founder. Now we had employees who were having babies and depending on us for putting food on their tables, so sustainability and continuity really became important to me.”

    In 2004, the company chose the Baldrige Excellence Framework. Why? Said Ford, “Because Baldrige is a framework that holds you accountable to what you think is important. It’s not a prescriptive checklist that makes you like everybody else, a fill-in-the-squares kind of thing.”

    Ford said the leadership staff viewed the Baldrige “Steps Toward Mature Processes” graphic. “I thought we were perfect because we were already doing everything that I could think of. . . . Then we sat down and said, besides financial results, what are our [forward-looking] metrics? How do we hold ourselves accountable for the most important thing [our vision: to satisfy our customers’ critical needs while realizing our dream jobs]? Our whole company is about that alignment. But how do you put a metric around that besides your gut?”

    When they started with the Baldrige framework, Ford said, we knew we had processes “because we got stuff done,” but there was no consensus. Today, the company has 16 defined processes supported by metrics. A monthly leadership meeting called Convergence, in addition to quarterly meetings, is used to focus and review the metrics and processes. In addition, templates are used to depict the processes; each template has a box for “what we care about the most” and the Baldrige evaluation factors.

    “We built Baldrige into the DNA of our company,” said Ford. “There isn’t a separate Baldrige thing. It’s just who we are.”

    100% Customer Satisfaction
    Stellar Solutions’ focus on its employees can be seen in its Fortune magazine’s distinction as “A Great Place to Work.” This distinction is super important, said Ford, “because we’re a services business. Our people are our products. You need to keep them, and you need to attract really good ones to do this hard work.”

    Of the nearly 200 Stellar employees, each employee can recite the vision. “It’s not something on a wall. It’s something that drives us every day,” she said.

    Ford said the company compares itself with the top 50 best companies because “we don’t want to compare ourselves to the average.” Recent results show that 97% of employees say that the Stellar Solutions Leadership Team “shows sincere interest in me as a person, not just an employee”; 97% say the Leadership Team “genuinely seeks and responds to my suggestions and ideas”; 97% say the Leadership Team’s “actions match its words”; 98% say the Leadership Team “is honest and ethical in its business practices”; and 100% say “I feel good about the ways we contribute to the community.”

    No Such Thing as a Plan on the Shelf
    Every single employee is involved in the annual strategic planning process. The focus is on “identifying what our current customers need, what new programs are out there that we should be working on, and what is happening and what should we do about it. . . . There’s no such thing at Stellar as a corporate plan that sits on an ivory shelf that no one looks at,” said Ford. “Every goal came from somebody for a good reason, from our customers’ critical needs and employee alignment with their dream jobs. Everyone owns a piece of our strategic plan. That’s important.”

    Stellar Solutions is organized by customer, with six goals or strategic perspectives:

    Goal 1: Current Customers
    (who are asked what’s the right size, right scope for Stellar Solutions’ involvement)

    Goal 2: Future Customers
    (focus is on innovation, new high-impact programs)

    Goal 3: Situational Awareness
    (to inform the way ahead, the question is asked, what customers and things should we be focusing on three years out?)

    Goal 4: Stellar Workforce
    (attracting and retaining key players)

    Goal 5: Business Operations
    (scaling smartly and working at “the speed of customers’ needs”)

    Goal 6: Community Support
    (Stellar Solutions includes Stellar Foundation to support community engagement and QuakeFinder, a project to build and qualify algorithms to detect earthquake precursor signals)


  2. Leadership practices of the City of Fort Collins

    April 16, 2018 by ahmed

    fort-collins-quest18-leadership

    Originally posted on Blogrige by Christine Schaefer

    Five-Part Leadership Blog Series
    In this five-part blog series on the 2017 Baldrige Award recipients’ leadership presentations at the 30th Anniversary Quest for Excellence® Conference (April 8–11, 2018), senior leaders of the five new national role models share best practices and stories of how they achieved excellence.

    A City Rich in Relationships
    According to Fort Collins City Manager Darin Atteberry, his city is the fourth largest in the state of Colorado, with a current population of about 170,000 and expected growth to 250,000 in the years ahead. About an hour north of Denver, in the foothills of the Rocky Mountains, Fort Collins is “definitely a college town,” Atteberry added. “Colorado State houses about 30,000 students … 6,000 faculty and staff on campus, … , and we take very seriously our relationship with … Colorado State.”The city itself employs 2,400, with approximately $3 billion in assets (e.g., roads, buses, parks, government facilities). Considered a “full-service city,” Fort Collins provides typical municipal services such as parks and recreation, roads, transit, and police services, while also providing all four major utilities (water, wastewater, storm water, and electric power) to its community. It will soon add a fifth utility for the community: household and business Internet access through broadband service.Atteberry stressed that Fort Collins is not only in a “great location” but, also, that it has a legacy of great relationships. “We’ve inherited greatness. In the 130-plus years of this city, there’s really not a history of bad ethics or lack of integrity … we’ve inherited amazing leadership … we’ve inherited amazing relationships between our residents and our local government,” he said, mentioning the community’s repeated support for the city when enhancing facilities or enduring economic downturns.

    “Local Government Can Be Great”
    In sharing the story of his city’s journey to excellence, Atteberry again stressed the belief he said he and his colleagues in the Fort Collins government share that “local government can be great”—an energizing conviction he also highlighted in his remarks at the ceremony where he accepted the city’s 2017 Baldrige Award. Atteberry realized the importance of this belief to his leadership of Fort Collins years ago while reading a Fast Company article that prompted him to ask himself, “What’s the one thing you believe that no one else believes?” A determination to demonstrate great government has evidently helped propel Fort Collins’ quest for excellence.

    Moving from “Trust Us” to Data-Driven
    During its pursuit of excellence, the city leadership moved from practices that reflected what Atteberry referred to as a “’trust us’ kind of government” to one that is “data-driven.” Therefore, today the city systematically measures its performance and publicly shares results. For this transition to fact-based management and fuller transparency, Atteberry credits the city’s use of the Baldrige Criteria for Performance Excellence, which he said helped city leaders “be more intentional in our alignment of planning [for] budgeting and putting systems in place.”

    Focus on Culture + Strategy = Results
    Atteberry’s leadership presentation also emphasized the importance of his organization’s culture and its focus on strategy in achieving desired results. Atteberry recited the city’s mission (“to provide world-class municipal services through operational excellence and a culture of innovation”) and vision (“exceptional service for an exceptional community”) as he affirmed that the city’s culture is built around its mission, mission, and values.

    Part of the city’s strategy, said Atteberry, “is to be crystal clear about what we plan to accomplish and how we plan to budget accordingly.” The city’s strategic planning (short- and long-term), budgeting, measurement and reviews, and work system planning are all organized around the following seven major outcome areas (which were developed collaboratively by citizens, business representatives, and city staff members):

    • Neighborhood Livability and Social Health;
    • Culture and Recreation;
    • Economic Health;
    • Environmental Health;
    • Safe Community;
    • Transportation; and
    • High-Performing Government.

    Leadership System Model
    As shown in the graphic above, the city’s leadership system incorporates its strategy, culture, and results. (This model was created in 2012 as an improvement based on feedback the city received when participating in Colorado’s state-wide Baldrige-based award program, Rocky Mountain Performance Excellence [RMPEx]).

    “This structure allows us to really focus our business and see some amazing results,” said Atteberry.

    Results
    At the outset of his presentation, Atteberry pointed out that Fort Collins was named “America’s Most Satisfied City” by Time magazine in 2014 based on Gallup survey results. At the end, he highlighted the favorable trend over the past decade in residents’ ratings of city government services. As he reported, the percentage of residents who ranked the overall quality of city services as being good or very good increased from 77 percent in 2008 to 90 percent during the most recent survey.

    “To me, the Baldrige framework really demonstrates the value of culture and strategy, and we’re really here [as a Baldrige Award recipient] … because of the amazing, amazing framework,” said Atteberry.


  3. Baldrige program again ranked among best for leadership training

    March 8, 2018 by ahmed

    leadership

    Originally posted on NIST

    The Baldrige Performance Excellence Program will be honored once again in 2018 for providing top-ranked leadership development programs. The Baldrige Program’s training offerings—annual Baldrige examiner training and the Baldrige Executive Fellows Program—were recently selected for 2018 Leadership Excellence and Development (LEAD) Awards for being among the best in the world.“While we are honored and thrilled to once again be recognized as among the top leadership development programs in the United States and across the globe, such recognition would not be possible without the support and engaged commitment of the Baldrige Award recipients and our amazing cadre of volunteers. We believe that the innovation and collaboration of our unique public-private partnership is at the root of such achievements,” said Baldrige Director Robert Fangmeyer.

    Within the LEAD Awards’ education category—with subcategories for “custom content programming with emphasis on human resources” and “custom content programming with emphasis on leadership/organizational development”—the Baldrige Program ranks first and fourth, respectively, for 2018.

    Presented by HR.com, the LEAD Awards recognize outstanding achievements in leadership development and programs in the areas of education, corporate, and individuals on a local to global scale. They have been given out for 35 years and cover more than 30 education-based categories, including master’s and PhD programs, custom content continuing education programs, and mentoring and manager programs. The LEAD judges used websites and customer rankings to make their determinations.

    This year’s award winners are highlighted in the February edition of Leadership Excellence Essentials. The Baldrige Program is the only state or federal government program to be recognized within its LEAD Award categories.

    A press release by HR.com states, “Prestigious leadership awards salute the world’s top leadership practitioners and programs and highlight their roles in developing their most important asset – their people.”

    Since 2011, the Baldrige Program has been recognized numerous times for the quality of its leadership development programs. For example, in 2016 and 2017, Baldrige examiner training was ranked first in its award category, above numerous universities, and the Baldrige Program itself earned recognition for its combined leadership development offerings (including its executive fellows program) by ranking in the top two or top three in all the award categories in which it was eligible. In 2015, before the categories changed to be wholly education-based, the Baldrige Program was ranked first in the government and military category.

    The Baldrige Program is a public-private partnership that raises awareness about the importance of performance excellence and cybersecurity in driving the U.S. and global economy; provides organizational assessment tools and criteria; educates leaders in businesses, schools, health care organizations, and government and nonprofit organizations about the practices of national role models; and recognizes those role models with the Baldrige Award.


  4. Finally, evidence that managing for the long term pays off

    February 26, 2017 by ahmed

     

    Originally posted on HBR by Dominic Barton, James Manyika, and Sarah Keohane Williamson

    Companies deliver superior results when executives manage for long-term value creation and resist pressure from analysts and investors to focus excessively on meeting Wall Street’s quarterly earnings expectations. This has long seemed intuitively true to us. We’ve seen companies such as Unilever, AT&T, and Amazon succeed by sticking resolutely to a long-term view. And yet we have not had the comprehensive data needed to quantify the payoff from managing for the long term – until now.New research, led by a team from McKinsey Global Institute in cooperation with FCLT Global, found that companies that operate with a true long-term mindset have consistently outperformed their industry peers since 2001 across almost every financial measure that matters.

    HBR02

    The differences were dramatic. Among the firms we identified as focused on the long term, average revenue and earnings growth were 47% and 36% higher, respectively, by 2014, and market capitalization grew faster as well. The returns to society and the overall economy were equally impressive. By our measures, companies that were managed for the long term added nearly 12,000 more jobs on average than their peers from 2001 to 2015. We calculate that U.S. GDP over the past decade might well have grown by an additional $1 trillion if the whole economy had performed at the level our long-term stalwarts delivered — and generated more than five million additional jobs over this period.

    Who are these overachievers and how did we identify them? We’ll dive into those answers shortly. But first, it’s worth pausing to consider why finding conclusive data that establishes the rewards from long-term management has been so hard — and just how tangled the debate over this issue has been as a result.

    In recent years we have learned a lot about the causes of short-termism and its intensifying power. We know from FCLT surveys, for example, that 61% of executives and directors say that they would cut discretionary spending to avoid risking an earnings miss, and a further 47% would delay starting a new project in such a situation, even if doing so led to a potential sacrifice in value. We also know that most executives feel the balance between short-term accountability and long-term success has fallen out of whack; 65% say the short-term pressure they face has increased in the past five years. We can all see what appear to be the results of excessive short-termism in the form of record levels of stock buybacks in the U.S. and historic lows in new capital investment.

    But while measuring the increase in short-term pressures and identifying perverse incentives is fairly straightforward, assessing the ultimate impact of corporate short-termism on company performance and macroeconomic growth is highly complex. After all, “short-termism” does not correspond to any single quantifiable metric. It is a confluence of so many complex factors it can be nearly impossible to pin down. As a result, despite persistent calls for more long-term behavior from us and from CEOs who share our views, such as Larry Fink of BlackRock and Mark Wiseman, the former head of the Canada Pension Plan Investment Board, a genuine debate has continued to rage among economists and analysts over whether short-termism really destroys value.

    Academic studies have linked the possible effects of short-termism to lower investment rates among publicly traded firms and decreased returns over a multiyear time horizon. Ambitious work has even attempted to quantify economic growth foregone due to cuts in R&D expenditure driven by short-termism, putting it in the range of about 0.1% per year. Other researchers, however, remain skeptical. How, they ask, could corporate profits in the U.S. remain so high for so long if short-termism were such a drag on performance? And isn’t the focus on quarterly results a natural outgrowth of the rigorous corporate governance that keeps executives accountable?

    What We Actually Measured — and the Limits of Our Knowledge

    To help provide a better factual base for this debate, MGI, working with McKinsey colleagues from our Strategy & Corporate Finance practice as well as the team at FCLT Global, began last fall to devise a way to systemically measure short-termism and long-termism at the company level. It started with developing a proprietary Corporate Horizon Index. The data for this index was drawn from 615 nonfinance companies that had reported continuous results from 2001 to 2015 and whose market capitalization in that period had exceeded $5 billion in at least one year. (We wanted to focus on companies large enough to feel the potential short-term pressures exerted by shareholders, boards, activists, and others.) Collectively, our sample accounts for about 60%–65% of total U.S. public market capitalization over this period. To further ensure valid results and to avoid bias in our sample, we evaluated all companies in our index only relative to their industry peers with similar opportunity sets and market conditions and tracked them over several years. We also looked at the proportional composition of the long-term and short-term groups to ensure they are approximately equivalent, so that the differential performance of individual industries cannot bias the overall results, and conducted other tests and controls to ensure statistical robustness. (For more on our methodology download the full report.)

    One final caveat: While we firmly believe our index enables us to classify companies as “long-term” in an unbiased manner, our findings are descriptive only. We aren’t saying that a long-term orientation causes better performance, nor have we controlled for every factor that could impact the relationship between those two. All we can say is that companies with a long-term orientation tend to perform better than similar but short-term-focused firms. Even so, the correlation we uncovered between behaviors that typify a longer-term approach and superior historical performance deliver a message that’s hard to ignore.

    To construct our Corporate Horizon Index, we identified five financial indicators, selected because they matched up with five hypotheses we had developed about the ways in which long- and short-term companies might differ. These indicators and hypotheses were:

    • Investment. The ratio of capex to depreciation. We assume long-term companies will invest more and more-consistently than other companies.
    • Earnings quality. Accruals as a share of revenue. Our belief is that the earnings of long-term companies will rely less on accounting decisions and more on underlying cash flow than other companies.
    • Margin growth. Difference between earnings growth and revenue growth. We assume that long-term companies are less likely to grow their margins unsustainably in order to hit near-term targets.
    • Earnings growth. Difference between earnings-per-share (EPS) growth and true earnings growth. We hypothesize that long-term companies will focus less on things like Wall Street’s obsession with earnings-per-share, which can be influenced by actions such as share repurchases, and more on the absolute rise or fall of reported earnings.
    • Quarterly targeting. Incidence of beating or missing EPS targets by less than two cents. We assume long-term companies are more likely to miss earnings targets by small amounts (when they easily could have taken action to hit them) and less likely to hit earnings targets by small amounts (where doing so would divert resources from other business needs).

    After running the numbers on these indicators, two broad groups emerged among those 615 large and midcap U.S. publicly listed companies: a “long-term” group of 164 companies (about 27% of the sample), which were either long-term relative to their industry peers over the entire sample or clearly became more long-term between the first half of the sample period and the second half, and a baseline group of the 451 remaining companies (about 73% of the sample). The performance gap that subsequently opened between these two groups of companies offers the most compelling evidence to date of the relative cost of short-termism — and the real payoff that arises from managing for the long term.

    Trillions of Dollars of Value Creation at Stake

    To recap, from 2001 to 2014, the long-term companies identified by our Corporate Horizons Index increased their revenue by 47% more than others in their industry groups and their earnings by 36% more, on average. Their revenue growth was less volatile over this period, with a standard deviation of growth of 5.6%, versus 7.6% for all other companies. Our long-term firms also appeared more willing to maintain their strategies during times of economic stress. During the 2008–2009 global financial crisis, they not only saw smaller declines in revenue and earnings but also continued to increase investments in research and development while others cut back. From 2007 to 2014, their R&D spending grew at an annualized rate of 8.5%, greater than the 3.7% rate for other companies.

    Another way to measure the value creation of long-term companies is to look through the lens of what is known as “economic profit.” Economic profit represents a company’s profit after subtracting a charge for the capital that the firm has invested (working capital, fixed assets, goodwill). The capital charge equals the amount of invested capital times the opportunity cost of capital — that is, the return that shareholders expect to earn from investing in companies with similar risk. Consider, for example, Company A, which earns $100 of after-tax operating profit, has an 8% cost of capital and $800 of invested capital. In this case its capital charge is $800 times 8%, or $64. Subtracting the capital charge from profits gives $36 of economic profit. A company is creating value when its economic profit is positive, and destroying value if its economic profit is negative.

    With this metric, the gap between long-term companies and the rest is even bigger. From 2001 to 2014 those managing for the long term cumulatively increased their economic profit by 63% more than the other companies. By 2014 their annual economic profit was 81% larger than their peers, a tribute to superior capital allocation that led to fundamental value creation.

    No path goes straight up, of course, and the long-term companies in our sample still faced plenty of character-testing times. During the last financial crisis, for example, they saw their share prices take greater hits than their short-term counterparts. Afterward, however, the long-term firms significantly outperformed, adding an average of $7 billion more to their companies’ market capitalization from 2009 and 2014 than their short-term peers did.

    While we can’t directly measure the cost of short-termism, our analysis gives an indication of just how large the value of what’s being left on the table might be. As noted earlier, if all public U.S. companies had created jobs at the scale of the long-term-focused organizations in our sample, the country would have generated at least five million more jobs from 2001 and 2015 — and an additional $1 trillion in GDP growth (equivalent to an average of 0.8 percentage points of GDP growth per year). Projecting forward, if nothing changes to close the gap between the long-term group and the others, then the U.S. economy could be giving up another $3 trillion in foregone GDP and job growth by 2025. Clearly, addressing persistent short-termism should be an urgent issue not just for investors and boards but also for policy makers.

    Where Do We Go from Here?

    Our research is just a first step toward understanding the scope and magnitude of corporate short-termism. For instance, our initial dataset was limited to the U.S., but we know the problem is a global one. How do the costs and drivers differ by regions? Our sample set consists only of publicly listed companies. How do the effects we discovered differ among private companies or among public companies with varying types of ownership structures? Are there metrics that can help predict when a company is becoming too short-term — and how do they differ among industries? Most important, what are the interventions that will prove most effective in shifting organizations onto a more productive long-term path?

    On this last point, we and many others have identified steps that executives, boards, and institutional investors can take to achieve a better balance between hitting targets in the short term and operating with a persistent long-term vision and strategy. These range from creating investment mandates that reward long-term value creation, to techniques for “de-biasing” corporate capital allocation, to rethinking traditional approaches to investor relations and board composition. We will return to HBR in coming months with more data and insights into how companies can strengthen their long-term muscles.

    The key message from this research is not only that the rewards from managing for the long term are enormous; it’s also that, despite strong countervailing pressures, real change is possible. The proof lies in a small but significant subset of our long-term outperformers — 14%, to be precise — that didn’t start out in that category. Initially, these companies scored on the short-term end of our index. But over the course of the 15-year period we measured, leaders at the companies in this cohort managed to shift their corporations’ behavior sufficiently to move into the long-term category. What were the practical actions these companies took? Exploring that question will be a major focus for our research in the coming year. For now, the simple fact of their success is an inspiration.


  5. A systems perspective to leadership and strategy

    November 25, 2016 by ahmed

    Originally posted on Blogrige by Harry Hertz

    I recently read a summary of an interview with Wharton Professors Harbir Singh and Mike Useem. The interview relates to their new book, The strategic leaders roadmap. In the book they contend that successful senior executives must be capable of integrating strategic thinking with strong leadership skills.Leaders who adopt the Baldrige excellence framework have already successfully addressed this integrative need because of the questions in the Leadership and Strategy categories of the Baldrige criteria. Indeed, the key considerations that Singh and Useem outline are contained in item 1.1 on Senior Leadership and item 2.1 on Strategy Development and are systemically interrelated in the criteria.

    Here are the key points I gleaned from the interview and how they relate to the relevant Baldrige criteria:

    • Leaders must inspire the workforce, and must also deliver strategic inspiration and discipline: The Baldrige criteria (item 1.1) ask how senior leaders create a focus on action that will achieve innovation and intelligent risk taking, and attain the organization’s vision. Item 2.1 asks how the organization seeks out potential blind spots in its strategy to avoid a senior leader’s bias or potential lack of realization that there is a changing external or competitive environment. Such bias may cause a disciplined approach to a poor strategy.
    • Leaders may be good at strategic thinking, but thin on making things happen, driving strategy and change through the organization: This is the very reason that starting with the Baldrige excellence builder, the criteria ask (item 1.1) how senior leaders set an overall focus on action and, in specific, in item 2.1 ask about the ability to execute the strategic plan and to achieve transformational change.
    • Leaders must realize that execution is not just about the workforce following orders, but that it is about creating and enhancing the value proposition to the client and getting ideas from the entire workforce: In item 1.1, customers and the workforce receive significant attention. At the Excellence builder level the criteria ask: “How do senior leaders communicate with and engage the entire workforce and key customers?” In the more detailed Baldrige criteria there are questions about senior leaders’ two-way communication with the workforce, and their actions to reinforce a customer focus, foster customer engagement, and create customer value.
    • Leaders must balance quarterly results with setting the tone of an ethical climate and a policy of integrity first: Here too, item 1.1 of the Baldrige criteria sends a clear message by asking how senior leaders’ actions demonstrate their commitment to ethical behavior and how they promote an organizational environment that requires it.
    • Leaders must create agility and adaptability in the organization: Item 2.1 specifically asks how the strategic planning process addresses the potential need for organizational agility and operational flexibility.

    While I have given some very specific examples from the Baldrige criteria, these are just examples. The systems perspective of Baldrige means these topics are addressed at appropriate places throughout all seven categories of the criteria to cause linkages wherever valuable.

    Professors Singh and Useem summarize their treatise by saying that senior leaders must be strategic in thought and lead well. I would assert that you can simply operationalize this unified concept (and more) by following the advice given in items 1.1 and 2.1 of the Baldrige criteria. And in the process, gain a systems perspective of all that is important in leadership and strategy.