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production system does not start with the engineering department. Step 1 starts with the marketing department answering the question “How does the customer define value?”
For that matter, your mission statement development exercise should not begin until you can answer that question for all of the stakeholders, not just the customer. This point is critically important. A big mistake organizations routinely make is to be customer centric. This is simply not good enough. You must be stakeholder centric. Every stakeholder is equally important.
To understand how you can beat your competitors by 20%, you need to understand the customer value equation as well as the value equation for all of your stakeholders. You want to be the provider of choice to your customers, the employer of choice to your team members, the investment of choice for your shareholders, the strategic partner or choice for your suppliers and value chain, and the resident of choice for your communities.
The value equation:
Value = Benefits/Costs
So, value equals the benefits received divided by the costs incurred. Therefore, you can increase value through increasing the benefits you provide without increasing the cost; decreasing the cost without decreasing the benefits; or some combination of the above.
For example, keeping the equation simple at a conceptual level, a 10% cost reduction and a 10% increase in benefits provided together will create a 20% spread vs. the competition. Lastly, you could increase or decrease both of the variables at the same time as long and the net benefit increase exceeds the net cost increase by 20% or the net cost decrease exceeds then net benefit decrease by 20%.
Keep in mind that benefits are a combination of tangible and intangible components. Removing key frustrations as discussed previously is a great way to increase the intangible benefits your stakeholders receive. Many times removing these key frustrations can be accomplished with a minimal cost factor. At the very least you can usually achieve excellent return on benefit received for the stakeholder in relation to the increased cost invested.
You and the Value Equation
The degree to which you embrace the value equation will determine your personal professional success in any organizational setting. The value equation is a law, no different than the law of gravity. It can not be escaped, so the only way to excel is to exploit it.
As a general rule, most of us desire more net worth. However, not everyone makes the connection that to have more net worth, you must be worth more. The question is worth more to whom? The answer of course, is we must be worth more to the stakeholder group.
Therefore, you must individually plug yourself into the concept that you have to be a part of the solution in the process of defining and executing on a compelling value proposition for your organization. If your not part of the solution, you are by definition part of the problem. In addition, this is not a static process; you then have to focus on improving your value proposition to the stakeholder group over time to stay ahead of the competition.
Your Mission is Not to Make $
Your mission must be more than making money. Of course, your vision will generally contain some type of monetary goals. However, your mission should not be profit focused.
A lack of profit focus in your mission must be balanced with the earlier comments that it is essential for your business to have a good economic model. If you fail the economic model test you will not be around in business long enough to accomplish you vision, so your mission will ultimately not be sustainable.
If the core commercial purpose of your organization can not be to make money than what is it then? You need a higher noble purpose for your cause. In the Mann Properties 5 Purposes model, you note that purpose number 1 is to create value in real estate for all of the stakeholders.
You could argue that creating value in real estate for our shareholders is a monetary driven mission. However, the Mann Properties goal is to create value for all of our stakeholders, not just the shareholders. The value creation process must include the customers, team members, vendors and the community at large in addition to the shareholders.
At Somerset our Mission was to be passionate about the success of our stakeholders. Again, certainly the shareholders were stakeholders as well, but they only represent 20% of the stakeholder group we were working to help succeed.
The ironic result of having a mission statement that is not profit focused is that you will make more profit than organizations that have as their stated goal to make money.
Flawless Execution
The final piece of the mission statement equation is that you must flawlessly deliver on your compelling value proposition. This means you must consistently execute your mission.
Operational excellence is necessary to successfully deliver on your mission. Your mission statement can not be an empty promise, it must be a guarantee.
Consistency, predictability and reliability are mission critical. You can not bounce around over-delivering and then under-delivering on your value promise under the theory that it all averages out to the promised value.
For example, if one delivery to your customer is five days lat and the next one is five days early, this does not average out to on-time delivery. Being five days late created a serious problem to your customer but being five days early usually does not create any or certainly much of any value. They were planning their production process around your promised delivery date and will generally not be able to move the production run up because your raw materials were delivered early.
The bottom line is that your customers will generally not reward you for exceeding your promised value equation. However, they will absolutely relentlessly punish you for falling short of your promised value.
No matter how good you are, you will occasionally fall short of your stated mission and value proposition to one or more of your stakeholders. You must take this gap in value creation seriously and over compensate the stakeholder for the inconvenience and cost in order to regain the necessary level of trust for success.
If you have a value creation failure and promptly and adequately remediate the problem, you can actually gain an even more loyal stakeholder and build on your brand and trust with the stakeholder. This will of course only hold true if your value deliver gaps are rare.
Values
You cannot achieve happiness unless everyone understands the rules of the game and there is a crime and punishment system for rules violations. You simply will not achieve a civilized culture without this element.
So what is the purpose of value statements; it is twofold:
1. To define what you stand for &
2. To define what you won’t stand for
These should be two different lists and should have punishments that fit the crime for violators.
The rules contained in the “what you won’t stand for” group would be the table stakes of being part of the organization or value chain for the end customer. These are things like honesty, integrity, ethics, etc.
If employees or downstream vendors violate these rules, the consequence must be immediate termination. The termination should be compassionate and directed at the rules violation and not at the person involved. Severance etc needs to be determined by the exact facts and circumstances.
Violations of the “what you want to stand” for rules again need to be handled on a facts and circumstances basis. However, as a general rule, this should be more of a “three strikes and your out” type of scenario with plenty of training, coaching and mentoring during the process of remediation.
Examples of these “what you want to stand for “values are: determination, persistence, competitive greatness, teamwork, etc.
The following is a list of key words and values from Buddha’s teaching:
• Goodwill
• Compassion
• Sympathy
• Kindness
• Confidence
• Diligence
• Sincerity
• Wisdom
• Respect
• Reverence
• Meditation
• Thrifty
• Frugal
• Endurance
• Enlightenment
• Fellowship
• Cause & Effect
• Mind Control
• Grasping & Attachments
• Endeavor
• Faith
• Modesty
• Humbleness
• Offering
The Last Word on Vision, Mission & Values
At the risk of over-emphasizing vision, mission and values statements, I am going to say that they can not be over-emphasized. The ultimate objective of the combination of these three thought tools is the create something worth taking about. If you can’t pass this test, you need to circle back around and try again until you get it right.
When you finally succeed in creating “something worth talking about” the result will be exponentially worth the effort. Organizations that are “worth talking about” create buzz, viral marketing and the holy grail of marketplace momentum. Organizations without this factor are doomed to mediocrity which is actually a worse result than an honest attempt at greatness that fails.
Failure should simply lead to another go at it with the benefit of all the hard learned lessons that failure yields. There is absolutely no shame in failure as long as your response is to evaluate and try again. The tragedy is in leading a safe life of mediocrity in all you do.
Thought Tools for Continuous Improvement
At this point, we have covered the basic thought tools that you need to get an organization off the ground or refocused. However, this is an ongoing process. These are complementary tools for continuous improvement:
1. Eliyahu M. Goldratt’s “Theory of Constraints”
2. Peter Senge’s “5th Discipline” work on learning organizations
3. The Buddhist “Law of Cause and Effect”
If we believe in Buddha’s second noble truth, there is a cause for our suffering; we are acknowledging the existing of the law of cause and effect. This is a belief that everything in the world, both good and bad, is brought about by causes and conditions. Therefore, if in spite of our best efforts, suffering or unhappiness creeps into your organizations that effects one or more of our stakeholders, we must search for the underlying chronic cause for this ultimate end result.
An understanding of Goldratt’s thesis will make the process of finding the chronic cause for the acute symptom of unhappiness more efficient. He correctly reminds us that in order to effectively engage in continuous improvement, we must seek out our weakest link. First of all, of course, we truly are only as strong as our weakest link. Secondly, making improvements anywhere else in the system other than to the weakest link will not yield any better net result in our organizational throughput of happiness.
Senge’s work is an essential ingredient as he has completed the most exhaustive research into how systems work in an organization and the process by which you can institutionalize effective change and evolution at a systemic level.
A metaphor for successfully institutionalizing continuous learning is to remember NASA’s experience with its lunar missions. Their spacecraft was only on course about 3% of the time. They were successful because they engaged in ongoing measurement and correction of their course; we need to do the same.
We need to resist the temptation to get frustrated when we drift away from our intended vision, mission and values. This is natural and unavoidable. The key is a good measurement system
For that matter, your mission statement development exercise should not begin until you can answer that question for all of the stakeholders, not just the customer. This point is critically important. A big mistake organizations routinely make is to be customer centric. This is simply not good enough. You must be stakeholder centric. Every stakeholder is equally important.
To understand how you can beat your competitors by 20%, you need to understand the customer value equation as well as the value equation for all of your stakeholders. You want to be the provider of choice to your customers, the employer of choice to your team members, the investment of choice for your shareholders, the strategic partner or choice for your suppliers and value chain, and the resident of choice for your communities.
The value equation:
Value = Benefits/Costs
So, value equals the benefits received divided by the costs incurred. Therefore, you can increase value through increasing the benefits you provide without increasing the cost; decreasing the cost without decreasing the benefits; or some combination of the above.
For example, keeping the equation simple at a conceptual level, a 10% cost reduction and a 10% increase in benefits provided together will create a 20% spread vs. the competition. Lastly, you could increase or decrease both of the variables at the same time as long and the net benefit increase exceeds the net cost increase by 20% or the net cost decrease exceeds then net benefit decrease by 20%.
Keep in mind that benefits are a combination of tangible and intangible components. Removing key frustrations as discussed previously is a great way to increase the intangible benefits your stakeholders receive. Many times removing these key frustrations can be accomplished with a minimal cost factor. At the very least you can usually achieve excellent return on benefit received for the stakeholder in relation to the increased cost invested.
You and the Value Equation
The degree to which you embrace the value equation will determine your personal professional success in any organizational setting. The value equation is a law, no different than the law of gravity. It can not be escaped, so the only way to excel is to exploit it.
As a general rule, most of us desire more net worth. However, not everyone makes the connection that to have more net worth, you must be worth more. The question is worth more to whom? The answer of course, is we must be worth more to the stakeholder group.
Therefore, you must individually plug yourself into the concept that you have to be a part of the solution in the process of defining and executing on a compelling value proposition for your organization. If your not part of the solution, you are by definition part of the problem. In addition, this is not a static process; you then have to focus on improving your value proposition to the stakeholder group over time to stay ahead of the competition.
Your Mission is Not to Make $
Your mission must be more than making money. Of course, your vision will generally contain some type of monetary goals. However, your mission should not be profit focused.
A lack of profit focus in your mission must be balanced with the earlier comments that it is essential for your business to have a good economic model. If you fail the economic model test you will not be around in business long enough to accomplish you vision, so your mission will ultimately not be sustainable.
If the core commercial purpose of your organization can not be to make money than what is it then? You need a higher noble purpose for your cause. In the Mann Properties 5 Purposes model, you note that purpose number 1 is to create value in real estate for all of the stakeholders.
You could argue that creating value in real estate for our shareholders is a monetary driven mission. However, the Mann Properties goal is to create value for all of our stakeholders, not just the shareholders. The value creation process must include the customers, team members, vendors and the community at large in addition to the shareholders.
At Somerset our Mission was to be passionate about the success of our stakeholders. Again, certainly the shareholders were stakeholders as well, but they only represent 20% of the stakeholder group we were working to help succeed.
The ironic result of having a mission statement that is not profit focused is that you will make more profit than organizations that have as their stated goal to make money.
Flawless Execution
The final piece of the mission statement equation is that you must flawlessly deliver on your compelling value proposition. This means you must consistently execute your mission.
Operational excellence is necessary to successfully deliver on your mission. Your mission statement can not be an empty promise, it must be a guarantee.
Consistency, predictability and reliability are mission critical. You can not bounce around over-delivering and then under-delivering on your value promise under the theory that it all averages out to the promised value.
For example, if one delivery to your customer is five days lat and the next one is five days early, this does not average out to on-time delivery. Being five days late created a serious problem to your customer but being five days early usually does not create any or certainly much of any value. They were planning their production process around your promised delivery date and will generally not be able to move the production run up because your raw materials were delivered early.
The bottom line is that your customers will generally not reward you for exceeding your promised value equation. However, they will absolutely relentlessly punish you for falling short of your promised value.
No matter how good you are, you will occasionally fall short of your stated mission and value proposition to one or more of your stakeholders. You must take this gap in value creation seriously and over compensate the stakeholder for the inconvenience and cost in order to regain the necessary level of trust for success.
If you have a value creation failure and promptly and adequately remediate the problem, you can actually gain an even more loyal stakeholder and build on your brand and trust with the stakeholder. This will of course only hold true if your value deliver gaps are rare.
Values
You cannot achieve happiness unless everyone understands the rules of the game and there is a crime and punishment system for rules violations. You simply will not achieve a civilized culture without this element.
So what is the purpose of value statements; it is twofold:
1. To define what you stand for &
2. To define what you won’t stand for
These should be two different lists and should have punishments that fit the crime for violators.
The rules contained in the “what you won’t stand for” group would be the table stakes of being part of the organization or value chain for the end customer. These are things like honesty, integrity, ethics, etc.
If employees or downstream vendors violate these rules, the consequence must be immediate termination. The termination should be compassionate and directed at the rules violation and not at the person involved. Severance etc needs to be determined by the exact facts and circumstances.
Violations of the “what you want to stand” for rules again need to be handled on a facts and circumstances basis. However, as a general rule, this should be more of a “three strikes and your out” type of scenario with plenty of training, coaching and mentoring during the process of remediation.
Examples of these “what you want to stand for “values are: determination, persistence, competitive greatness, teamwork, etc.
The following is a list of key words and values from Buddha’s teaching:
• Goodwill
• Compassion
• Sympathy
• Kindness
• Confidence
• Diligence
• Sincerity
• Wisdom
• Respect
• Reverence
• Meditation
• Thrifty
• Frugal
• Endurance
• Enlightenment
• Fellowship
• Cause & Effect
• Mind Control
• Grasping & Attachments
• Endeavor
• Faith
• Modesty
• Humbleness
• Offering
The Last Word on Vision, Mission & Values
At the risk of over-emphasizing vision, mission and values statements, I am going to say that they can not be over-emphasized. The ultimate objective of the combination of these three thought tools is the create something worth taking about. If you can’t pass this test, you need to circle back around and try again until you get it right.
When you finally succeed in creating “something worth talking about” the result will be exponentially worth the effort. Organizations that are “worth talking about” create buzz, viral marketing and the holy grail of marketplace momentum. Organizations without this factor are doomed to mediocrity which is actually a worse result than an honest attempt at greatness that fails.
Failure should simply lead to another go at it with the benefit of all the hard learned lessons that failure yields. There is absolutely no shame in failure as long as your response is to evaluate and try again. The tragedy is in leading a safe life of mediocrity in all you do.
Thought Tools for Continuous Improvement
At this point, we have covered the basic thought tools that you need to get an organization off the ground or refocused. However, this is an ongoing process. These are complementary tools for continuous improvement:
1. Eliyahu M. Goldratt’s “Theory of Constraints”
2. Peter Senge’s “5th Discipline” work on learning organizations
3. The Buddhist “Law of Cause and Effect”
If we believe in Buddha’s second noble truth, there is a cause for our suffering; we are acknowledging the existing of the law of cause and effect. This is a belief that everything in the world, both good and bad, is brought about by causes and conditions. Therefore, if in spite of our best efforts, suffering or unhappiness creeps into your organizations that effects one or more of our stakeholders, we must search for the underlying chronic cause for this ultimate end result.
An understanding of Goldratt’s thesis will make the process of finding the chronic cause for the acute symptom of unhappiness more efficient. He correctly reminds us that in order to effectively engage in continuous improvement, we must seek out our weakest link. First of all, of course, we truly are only as strong as our weakest link. Secondly, making improvements anywhere else in the system other than to the weakest link will not yield any better net result in our organizational throughput of happiness.
Senge’s work is an essential ingredient as he has completed the most exhaustive research into how systems work in an organization and the process by which you can institutionalize effective change and evolution at a systemic level.
A metaphor for successfully institutionalizing continuous learning is to remember NASA’s experience with its lunar missions. Their spacecraft was only on course about 3% of the time. They were successful because they engaged in ongoing measurement and correction of their course; we need to do the same.
We need to resist the temptation to get frustrated when we drift away from our intended vision, mission and values. This is natural and unavoidable. The key is a good measurement system
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