ORGANISATIONS FOR THE 21ST CENTURY
ENTER YOUR DETAILS FOR TIPS ON BUILDING VALUE IN YOUR ORGANISATION
Ultimately all organisations have only one main aim: to grow value. 'Value' has become a word so overused that we can overlook its importance, yet it is central to every definition of organisational success.
- The worth of the organisation is measured by its market value
- Brands are also known as value propositions
- Shareholder value is the indicator of business performance
- Organisational beliefs and standards are expressed as core values
- Shared values are the basis of employee engagement
- Delivering customer value means meeting their expectations
In fact, value is the currency that builds relationships and trust, vital for achieving sustained organisational performance. Often undervalued as a resource, the organisation is the single greatest source of value generation. Marketing, human resources, strategy, research and development, and technology can generate knowledge - essential in the knowledge economy - but it is the organisation that converts knowledge into intangible assets.
Intangible assets (also called intellectual assets or intellectual capital) include both 'internal' assets, i.e. those that enable people to work more effectively such as systems, teamwork and a positive culture; and 'external' assets including goodwill, patents and brands. Last century, companies became adept at managing knowledge: learning organisations, continuous improvement, lean manufacturing, for example.
In the 21st century when there are little more available efficiency gains from physical assets, high performance depends on maximising intangible asset value. Companies need to build their value generation efforts layer by layer to reach all levels of the organisation. When these activities are aligned, consistent and pervasive the organisation can be said to be 'healthy'.
The single greatest advantage a company can achieve is organizational health. Yet it is ignored by most leaders even though it is simple, free, and available to anyone who wants it.
McKinsey Quarterly, The Advantage: Why organizational health trumps everything else in business, 2012
Because intangible assets are generated by people - people who care about being in the right place doing the right things at the right time - the management of intangible asset value and organisational health is inseparable. The organisational infrastructure provides a framework for managing the components of organisational performance:
- Structure and Strategy
- Culture and Competence
- People and Performance
Drawing on McKinsey's unique database covering more than 500 organizations, companies in the top quartile for organizational health are 2.2 times more likely than lower-quartile companies to have an above-median EBITDA margin, 2.0 times more likely to have above-median growth in enterprise value to book value, and 1.5 times more likely to have above-median growth in net income to sales. Across the board, roughly 50 percent of performance differences between companies can be attributed to differences in organizational health.
McKinsey & Company, Organizational health: The ultimate competitive advantage, 2011
How effectively is your organisation generating intangible asset value?
If your company is not achieving the full potential from its programs and systems, it may be underutilising organisational resources. Unlike most physical assets which depreciate with use, intangible assets appreciate. The more your organisation's total market value increases on the same physical asset base, the more effectively the organisation is converting knowledge into intangible asset value.
Does your company have Organisational Value Development specialists?
OD specialists are invaluable to building the organisation resource but many OD practitioners are really human resources management (HRM) specialists; they focus on developing organisation-wide programs which is not the same as working on the organisation itself. OD specialists need both the professional development opportunities and the ability to be involved in the design and management of the organisation at strategic level.
The key to future competitive advantage will be the organization's capacity to create the social architecture capable of generating intellectual capital. And leadership is the key to realising the full potential of intellectual capital.
Warren Bennis, The Leadership Advantage, 1999
What is an Organisational Infrastructure?
The organisational infrastructure is a framework that helps to facilitate the alignment of people with the organisation's desired culture and values, systems and practices. The 20th century infrastructure was designed to manage labour means of production. Its objective was to standardise work in order to maximise efficiency. Organisations of the 21st century however are dependent on knowledge such as know-how, loyalty, innovation and relationships, and need an infrastructure that creates an environment where workers are as engaged emotionally as they are physically.
HRM programs work to achieve objectives such as 'retention' and 'engagement', but for the organisation these are not its objectives; retention, engagement and so on are the means by which the organisation's ultimate outcomes including profits and shareholder value are achieved. The function of the organisational infrastructure is to connect the 'means' with the 'end'.
Meta Management's programs are designed to enhance the organisational infrastructure by addressing the areas that reduce the organisation's health, that drive value growth, and uncover the latent value that exists within.