Creating a Thinking Organization

Why isn’t the development of a clear, rational thinking process a key part of every company’s employee development investment? In over fifty years of offering this type of capability development, we’ve seen three barriers to companies making this investment in their people.

First, there is a lack of understanding of the need for learning how to think. Daniel Kahneman, in his terrific book titled Thinking, Fast and Slow, describes our two modes of thinking; what he calls System 1 which is automatic, instant, intuitive and involuntary, relying on our perceptions of our knowledge and experience; and System 2 which is more structured, controlled analytical and effortful. Because System 1 is automatic and requires little or no effort, we have a natural bias towards its use. Yet Kahneman is able to demonstrate through the results of experiment after experiment, that System 1 thinking often leads us to erroneous conclusions of which we can see ample evidence every day in the business news. We are often unaware of the powerful influence of System 1 thinking and its potential for leading an individual or an organization astray.

Most C-Suite executives have developed strong decision-making and problem solving skills based on years of experience. They often believe others within the organization can do the same or “we can get more talented people to replace them”. They don’t recognize System 1 thinking and its limitations in themselves or their executive team and they see poor decisions by others as a lack of inherent judgment, not as a lack of teachable skills. I believe Thinking, Fast and Slow should be required reading for any executive leader. An excellent summary can be found in the white paper, Developing a Thinking Organization by Sam Bodley-Scott.

Second, even when executives understand and accept the need for System 2 thinking skill development, they often think training alone is THE ANSWER. They don’t understand that training does not develop skills in individuals. Repeatedly, we hear, “We need to make better decisions in this organization. Give us a three-day training program”. No matter how effective a training course is, with training alone, after six months most participants retain less than 20% of any skill development training and very few will actually use what they learn in the workplace.

This should not be a surprise. We have all learned to drive a car. Many of us started with classroom instruction. But of course, after the class, no one would have let us get behind the wheel of a car and drive off alone. We went through several months with a parent or instructor in the car with us, demonstrating good driving skills and giving us continuous feedback and coaching while we drove. Only after our coach saw we had mastered the skills of driving were we given the keys and allowed to drive off on our own. The mastery of any but the simplest skills requires the same level of support.

Third, executive teams are not up for the effort. For those who know training alone is ineffective, they see the path to embedding rational thinking process skills throughout their organization as long and hard. They might see automation or software investments as easier paths to improving their performance. But in our experience, without rational thinking to guide the decision making and problem resolution, complex automation or software implementation projects never deliver the promised benefits.

These barriers have kept many executives from embarking on the journey of creating a critical thinking culture throughout their organization. But a few have made this journey and with spectacular results.

Case Study: Embedding Clear, Rational Thinking at Interbake Foods

Let me tell you my story. From 1987 until 2009, I was CEO of Interbake Foods, a food processing company headquartered in Richmond, Virginia. We competed in four business segments: Girl Scout cookies, contract manufacturing for branded companies, private label cookies sold to retailers, and baked ingredients for ice cream processors (primarily ice cream sandwich cookies and cones). Interbake had no brands of its own and competed on the basis of operational excellence alone. To be successful without the power of a brand we had to be a low cost, high quality manufacturing company with superior customer service. If we performed well in those three competitive parameters, we could profitably grow our business. If we failed to achieve operational excellence in any one of those elements, we were doomed to mediocrity or even failure.

In 1989, we determined we wanted to be the best in our industry on cost, quality and customer service. We chose three core initiatives to get there: automating our top 25 products, which were 70% of our total volume; implementing enterprise resource planning (ERP) and getting to a world class level; and implementing statistical process control (SPC) on all of our production lines, while driving process control to the operator level with line leaders focused on process improvement.

We strongly felt carrying these three initiatives to a world-class performance level would deliver world-class results on cost, quality and customer service – our key competitive parameters.

We quickly discovered that we had to add a fourth strategic initiative. We were generating a lot of data from our ERP and SPC initiatives, but there was considerable variation in the quality of the decision-making and problem solving being done with that data. We also found that installation and startup of our significant capital investments were taking far longer and were more costly than anticipated. So, our fourth strategic initiative was to adopt Kepner-Tregoe’s clear, rational thinking and project management skills as foundational capabilities for every salaried employee and key operator in the business. We believed if we mastered rational thinking throughout the organization we would not only improve our results, but would also profoundly affect our culture, improving the capability of teams to work more collaboratively and effectively. We were right.

Since we had none of these capabilities in January, 1989, we clearly had a lot on our plate. The key drivers that made these changes a permanent, sustainable reality were training, leadership, and an infrastructure of support.

Training

We had to train a lot of people in ERP processes, SPC techniques, and rational thinking tools. We decided to “own” the training. These core skills would be taught by our internal resources, specifically our senior staff and line managers. We wanted everyone to know our decision to invest in developing rational process thinking was a strategic objective for the company, not a flavor-of-the-month fad.

Leadership

We trained our leaders first and made sure every executive was as knowledgeable about these core capabilities as any operator. Several executives became trainers. As CEO, I attended the Kepner-Tregoe two-week, train-the-trainer program and became a certified instructor, along with three other senior executives. We committed to training every salaried employee in a four-day program and every hourly machine operator and maintenance employee in a two-day program within three years, ultimately training over 1000 employees. We also committed to creating the support infrastructure within the business to provide feedback, coaching and incentives to use what was learned in the training. We consciously used our core decision-making and problem solving tools in every conversation with our people.

Support Infrastructure

To build and sustain mastery of our new tools required a support structure. With this in place, skills could be permanently embedded into the way things are done and the culture of our organization.

Ongoing Skill Development Support: The best participants from training events were given additional training and opportunities to become process facilitators and coaches. From that group, the best of the best were given even more training to become trainers themselves.

Performance Management System: Knowledge and use of our core capabilities were built into our performance management system (key emphasis areas, 360 feedback, promotion criteria).

Process Integration: The requirement to use our skills was built into every applicable process in the business. For example, a clear, rational process was required for: capital requests above $50,000 and all project startups. The ERP process became the way we managed inputs and outputs to the business. SPC became universal on our plant floors.

Audits: The key driver for change was our use of executive audits. We did ERP audits, ISO audits and operational excellence (OE) audits. As an example, for the OE audits, a senior executive team (usually led by me), visited each of our manufacturing plants every six months. We had unique audit forms for each position in the plant: key operator, line supervisor, department manager, and plant manager. The audit questions defined in detail what someone in the position would be doing if they were performing up to our objectives. As auditors, question-by-question, we would look for demonstrated performance or documented evidence that the person being audited was working that way. Over a three-day period we would interview every key operator, every line supervisor, department manager and the plant manager on all three shifts. Each deficiency we found was treated as an on-the-spot coaching opportunity. The fact the senior team was there, digging deep into that level of detail, demonstrated we were serious and each employee was vital to the future of the business.

We also found that after the first audit we really knew what was happening in each plant. This was a very different experience from sitting in a conference room and listening to the management team tell us what was going on and very different from a typical plant walk-through.

We would score the plant at the end of the audit, note the gaps, advise on priorities for allocating resources to close the gaps, and promise to return in six months. This put continuous pressure on the plant management team to focus on identified deficiencies and drive improvements before the next audit. Since they had copies of all the audit sheets for everyone interviewed, they could target where additional skill development was needed.

Interestingly, we found key operators grew to love being audited. The audits strongly communicated that their jobs were important enough for the CEO, VP of Operations, or VP of Sales to be there on every shift to talk to them one-on-one. They were eager to demonstrate their growing skill level.

Results

I’m proud to say we achieved and sustained Class A ERP status. We became the first baking company in North America to be ISO certified as a company at all locations. We reached a world-class level of performance in our use of SPC.

How was that reflected in the bottom line? We more than doubled our pounds produced per employee while cutting our plant overhead cost per pound produced in half. Our order fill rate was consistently at around 99.8%, with low raw materials and finished goods inventories and production schedules that were 80% stable during a week. In our consumer products business units we averaged less than two complaints from consumers per million packages sold. We achieved high market shares in the four niche markets where we chose to compete. All of this was accomplished while moving towards an employee to supervisor ratio of about 60 to one. Two of our smaller plants with 90 to 100 employees, ran 24 hours a day with only one manager on site. This was only possible because of the investment made in developing our team, beginning with the foundation of rational process thinking skills.

Where to Begin: A Strategic Approach to Organization-Wide change

First, know this. There is no quick fix. It takes a long-term perspective and a strong senior leadership commitment to make a meaningful difference in how an organization performs.

The core skill requirements of an organization should flow out of strategy. As part of the strategic planning process, the executive leadership team should be asking: What core skills does the organization require to realize its strategy? Constant flawless new product launches (project management skills), superior consultative selling capability (selling skills), lowest cost manufacturing (lean/six sigma skills), exceptional product quality (SPC skills), superior customer issue resolution (troubleshooting skills), superior order fill rates (ERP skills). We have to choose the capabilities that matter most to create differentiation and competitive advantage. And then, we must invest to create and sustain those capabilities. What do our people have to be great at to achieve the competitive advantage we’ve targeted? No enterprise can be great at everything. We have seen so many executive teams frustrated because they have communicated their strategy to their people and then were disappointed in the execution. But without consciously and deliberately giving people the knowledge, tools, skills and support to be able to execute the strategy, they have set everyone up for failure.

Strategic, core skills demand not just C-Suite support, but direct involvement in developing and modeling those core skills. Support is never enough to drive change. People hear what leaders say, but they pay close attention to what leaders do. If the leaders say we will use a structured decision-making process for all significant decisions and they always use that process, everyone else will quickly get on board. If, on the other hand, the leaders continue to make decisions by intuition and personal preference but expect everyone else to use the structured process, people will hunker down and wait until this fad is replaced by the next one.

The C-Suite must invest in the infrastructure necessary to get from training to mastery. This means moving from classroom instruction to using the strategic skills with a high level of proficiency every day in every applicable situation.

Leadership: The Key to Creating a Thinking Organization

Imagine an organization where everyone from the C-Suite to the shop floor has mastered a clear, rational thinking process for setting priorities, solving problems, making decisions and protecting and executing plans; where everyone is using the same thinking processes, using the same approach and the same common thinking language. How much more effective would each individual be in contributing to the goals of the organization? How much more effective would work and project teams be in improving the performance of the organization? How much more effective would the executive leadership team be in making major strategic decisions for the organization and ensuring the execution of key strategic initiatives?

By embedding rational thinking throughout the organization, a business can create sustainable competitive advantage, routinely find better solutions, always work on the most vital issues, get to root cause and fix problems permanently, make the best-balanced decisions, and execute those decisions and the plans to support them on time, on budget and error free.

If you wanted to create the thinking organization described above, what would it take? Obviously, it would take real leadership. That can seem quite daunting when leadership seems to be in such short supply. Where are we going to find the leaders to drive such significant change? The answer is that we can find them amongst ourselves. Leadership is work. All work is process. All processes can be described. Anything that can be described can be learned and mastered, including leadership. All it takes is the commitment and the will to take the risk and do the work.

Leadership Process Model

What does the leadership process look like? There are eight steps and each should be followed. Leave out any one step of the process, and successful change becomes unlikely. Every step benefits from the use of rational thinking.

1. Understand the current state of the organization by answering these questions: What about the current state of our organization is keeping us from realizing our full potential? Given our strategic focus, what do we have to be great at to differentiate ourselves and deliver a unique value proposition? What are the gaps between where we need to be and where we are today?
2. Develop a vision of what the organization would look like if we were already great at these key differentiators. By vision, I don’t mean the usual two- or three-sentence vision statement which may inspire but does not inform. A meaningful vision is a detailed description of what capabilities people will have mastered, what they will be doing, what tools they will be using, and what systems will be in place. For Interbake, the audit forms were a documented, detailed description of what behaviors in our desired future state looked like for every key position in the business. These audit forms communicated a clear destination for everyone. Audits clearly answered the question for each individual, “What do you expect of me?” Only then could leadership start to build plans to get from here to there; and only then could they clearly communicate to everyone what “there” looks like.
3. Check alignment of the vision with the current culture. How aligned is the current culture with where you want to take the organization? This assessment will give you some idea of how difficult making changes will be. For example, if you have an informal culture and you are trying to introduce defined formal processes you need everyone to adhere to, you are going to have a much steeper mountain to climb than if you already have a formal, process-centered culture. Understanding how the culture will affect the changes you want to make should inform your planning.
4. Communicate in the most effective ways about where we are going and why it matters. Often we hear, “Everyone knows the change strategy but for some reason they are just not getting on board. We have published the key elements of our changes in our company newsletter, on posters and in at least a couple of speeches from the CEO”. We know that people rarely buy into change from these types of communications. The communications plan must be built into everything the organization does, including the next four leadership process steps.
5. Put the resources behind the changes that have to happen. Because in Step 2 we developed a very clear definition of what people would have to be doing differently, we are able to develop concrete plans on the knowledge, skills, tools, and systems people will need and we can prioritize, plan and provide the resources for the journey from here to there. Without adequate planning and resources, change will not happen. It is also a clear message to the organization that this change is important and we are committed to it.
6. Demonstrate how leadership is going to model the change. This is perhaps the most important form of communication. Unless leadership shows direct involvement and visibly demonstrates what the changes look like, people will not be motivated to change. It will seem easier to wait it out until, like all past initiatives, this too passes away. At Interbake, leadership attended the core trainings and not only mastered the capabilities, but also taught them. In addition, the audit process gave leadership an opportunity to demonstrate their commitment and the importance of specific changes to the organization. We found opportunities to ask questions and to use the language of the core capabilities everyday to reinforce and model how we do it in this organization. This can’t be by accident or left to individual choice. It must be planned and executed by the entire leadership team.
7. Establish clear metrics to measure progress. For many people within an organization, the journey towards significant change may seem too far and too hard. Leaders must establish not only measures for the final destination, but also milestones to break the journey up into digestible bites and give people a sense of progress. As has been said many times, what gets measured gets worked on. All of the audits at Interbake were scored and gaps were identified to be worked on before the next audit
8. Recognize and reward. And finally, as progress is made, we must recognize and reward early adopters to encourage people to come on board. In the Interbake audit process, we celebrated progress on audit scores, recognized individual contributors, and awarded financial incentives based on meeting specific change goals.

Of course, throughout this leadership journey, decisions have to be made, priorities set, problems resolved and plans made and successfully executed. Adoption of clear, rational thinking by the executive leadership team is the solid foundation upon which the thinking organization will be built. A company can find success within the first 4-6 months with high performers achieving real business results. These results will build on one another and spread throughout the organization. When it is successful it just becomes “the way you do business”.

About Kepner-Tregoe

Kepner-Tregoe has empowered thousands of companies to solve millions of problems. KT provides a data-driven, consistent, scalable approach to clients in Operations, Manufacturing, IT Service Management, Technical Support, and Learning & Development. We empower you to solve problems. KT provides a unique combination of skill development and consulting services, designed specifically to reveal the root cause of problems and permanently address organizational challenges. Our approach to problem solving will deliver measurable results to any company looking to improve quality and effectiveness while reducing overall costs.