In biology, the term ‘insides’ refers to the inner parts of the body, especially the stomach and intestines. Effective leaders at bionically-balanced and smart organizations are gurus in the functioning and dynamics of the ‘insides’ of the organizations they lead.
In the Effectiveness lab’s speak, we refer to the above phenomenon as ‘mastering the ‘internals’’ at an organization. Suffice it said that you cannot succeed at leadership in a bionically-balanced entity, given its interconnectedness, without understanding the functioning of the insides of the organization. The insides are the four organizational vitals (OV): Leadership – Strategy – Design (architecture) – and People
Effective leaders at bionically-balanced entities comprehend how Leadership, Strategy, Design (or architecture) and People interlink to create value. Understanding the four OV’s goes beyond mere definitional aspects – it extends to understanding the dynamics as well as cause and effect outcomes of the intertwined OV’s.
Why do leaders need to pay attention to the workings of organizational ‘insides’?
Below are real life examples of companies, global and blue-chip within the East Africa Great Lakes region, that have fallen short of bionic management of their OV’s – and the consequences are dire
Uber’s top leadership is in trouble, not because the leadership is bad per se, but for failing to give equal attention to all its insides (OV’s). The staff at Uber have accused the company of encouraging a culture of sexual harassment at the firm; the firm has been ‘charged’ with running a recruitment machine for its HR function as opposed to a proper and sustainable people and culture approach. Even in Nairobi, which must be one of Uber’s smaller markets, Uber is in trouble with its key stakeholders – drivers.
While at the outset Uber’s troubles can be categorized as a leadership matter, and Uber’s CEO and board have moved swiftly to appoint a COO, the problem is more complex. The appointment of a COO may not address Uber’s woes unless the Uber board and management oversee the development of a more bionically-balanced company eco-system that integrates all the four OV’s – i.e. Leadership, Strategy, Design (architecture), and People.
Uber is not bionically-balanced enough; only two organizational vitals interconnect seamlessly – i.e. leadership and strategy. Uber’s leadership and strategy have caused so much disruption and havoc to the taxi industry across mega cities in the world – surely, it’s leadership and strategy OV’s must be right. However, it’s clear that the firm can do more to integrate the people and design OV’s in its OD. configuration.
Our renowned Pride of Africa, sobriquet KQ that carries us to all destinations on the globe has in recent times lived with a lot of turbulence in its house. It is not far fetched to write on this blog that until late last year, the brand was on a downward spiral. Business analysts predicted KQ’s death. KQ’s decline has been attributed to five issues:
- Poor investment decisions by management – i.e. buying and leasing aircraft, and fuel hedging, under arrangements that are not profitable to the company, thereby leading to deep indebtedness
- Expensive ticketing which is non-competitive in the market leading to loss of passengers and revenue
- Routing arrangements and partnerships pointing to massive loss of income, particularly due to lack of expansion of KQ flights on the African routes
- Problematic human resources policy and practices causing long drawn industrial unrest detrimental to establishing a healthy business environment in the company
- Frequent cancellation of flights causing inconvenience and poor relationship with passengers, who consequently abandon using the airline
Poor investment decisions and unaffordable tickets at KQ points to bad strategy and the KQ head honchos not paying attention to trouble spots in the organisation’s business value chain; the routing and partnerships dysfunction, frequent flight cancellations are a pure design/architecture challenge – it’s the wrong structure or configuration for KQ; problematic HR practices and the resulting bad climate, like at Uber, is a people OV matter
Apparently, all four OV’s aren’t working well at our favorite KQ. Imagine a situation where KQ fixes one or two OV’s but not the others – the simple answer is, the brand will still remain in the doldrums. Indeed KQ tried adjusting the design aspect via restructuring and other cost-cutting initiatives – but that wasn’t enough to deliver a complete turnaround
The primacy of the leadership OV is a key driver of a successful turnaround at firms. Therefore, it’s not surprising that the KQ board has appointed airline turn-around expert Sebastian Mikosz to change KQ’s fortunes. He gets it, and we are hopeful that he will build on the good work his predecessors have done in the last one year
We wish our KQ the best in its turnaround effort!
Nakumatt’s own Atul Shah admitted, in a swirl of rumors, that the family owned retail giant was facing financial difficulty
According to Atul, “these challenges range from a depressed economy, higher operating costs and extraneous factors including enhanced risk management due to prevailing security threats…”
Like a smart business owner would do, Atul is taking measures to stem the rot. The firm has detailed a four-pronged turnaround strategy:
- Renegotiating supplier contracts and terms
- Management enhancement program attracting and retaining staff with specialized skills relevant to Nakumatt’s turn-around roadmap
- Investment in a high-end warehouse management system that facilitates just-in-time supply chain management practices. Nakumatt will only keep minimal stocks informed by current demand trends
- Nakumat is also looking for investors to inject much-needed cash into the firm’s operations – apparently a whopping Kshs. 5bn is needed for the East African retail giant to regain its stability
Like in the case of KQ, the fact that Nakumatt is pointing to the above as the source of its troubles, confirms that it is not a bionically-balanced entity
Nakumatt experiencing cash flow problems, to the extent that it can’t meet its financial obligations, is symptomatic of a botched retail strategy – there are some possible explanations. An obvious one is that Nakumatt’s fast growth in the region may have stretched its coffers – this is a strategy OV issue. Nakumatt hiring specialized skills is symptomatic of a problematic HR strategy. Because it’s a family-owned firm, we suspect that Nakumatt’s executive-suite lacks the requisite skills to oversee its ambitious expansion plans – this is a people OV issue
Finally, Nakumatt’s proposed investment in a high-end warehouse system, as well as the review of its supplier contracts, is movement in the right direction. However, peer retail firms supply chains thrive on time-based aggressive approaches like demand-driven just-in-time stocking, short production cycles, a guarantee of variety, etc. Successful retailers can’t survive the cut-throat competition by keeping much-needed cash in idle stock or lose clients due to stock shortages as a result of inefficient supply chains – in the circumstances, customers will vote with their feet – this is a design/architecture issue for Nakumatt
We should give Namukatt credit for coming out and accepting they have a problem – this is a decisive leadership OV aspect and lays the foundation for the firm’s turnaround
Our final example is the recently fallen Crane Bank in Uganda – regarding assets, in 2014, it was the largest bank in Uganda with a net profit of Shillings 50.6 billion. Today, down and under, Crane Bank has collapsed, taken over by a much smaller brand, DFCU.
By 2015, the bank’s accounts showed a shillings 13 billion+ loss and non-performing loans (NPL’s) increased from Shillings 19.3 billion a year earlier to 142.2 billion in 2015. By 2016, the bank’s NPL’s stood at 14.5% almost double the Uganda market average of 8.3%. Something had gone very wrong at the bank.
Like KQ, Crane Bank returns no good scores across all four OV’s. The bank’s leadership and governance structure has been questioned; its strategy of fast growth and attempting to get ahead of giant banks like Stanbic Bank has instead led to its death; its architecture has resulted in more questions than answers, including questions about the role of the family in the bank’s day to day operational decision making; and finally on Crane banks people OV – the bank recruited most of its senior staff from India. While we know India is a leader in banking and no one can fault the bank for such a strategy, sustainable people strategies balance dependence on expat vs. native human resources.
The bionic-imbalance was so bad that today, Crane bank is no more
Organizations that fail to adapt an integrationist approach in the management of their ‘insides’ (OV’s) are vulnerable to collapse.
See below an OV bionic-balance pictorial for Uber, KQ, Nakumatt, and Crane Bank.
All four entities are not bionically-balanced. The four organizations have one thing in common: certain OV’s are working okay, while others are not. The result is a sub-optimal organization that doesn’t sustainably create value.
Points to ponder:
- Leadership is a primary organizational vital – and the two organizations that have it (Uber and Nakumatt), are struggling but surviving. Those without proper leadership (KQ and Crane Bank) are on their knees
- Organizations without the strategy OV have dug deep into their coffers and are on their way to bankruptcy – they have committed resources without assurance on returns. The lack of an effective strategy is like a painter doing their work in the dark
- Turn-around is swift when one or two of the OV’s, especially leadership are in place; this, as opposed to implementing turn-around with all four OV’s absent – i.e. KQ and Crane Bank. Uber’s fortunes will change for the better with the arrival of a new COO who will fix the design and people OV’s at the firm. The same goes for Nakumatt – it’s leadership will fix the strategy, design and hopefully people OV’s. KQ will take a little longer as it has to do work on all four vitals; the good news is that they have started by addressing the primary OV – leadership. Crane bank didn’t even have the chance to live another day – it died
Disregard the insides of an organization (OV’s) and the need to attain bionic-balance at your own peril
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