The “SMART Organization” Defined

• Author: Eric Jackson
• Posted: March 29, 2007
• Category: Talent Management, Business Matters
• Tags: Center of Excellence, Leadership Training, Performance Management, Succession Planning
• Comments:

Following up from last week’s post Building Smart Leadership, today I want to outline the key factors that can help you determine whether or not you are building an organization with “SMART Leadership.”

We have all seen successful software organizations that have their day in the sun. Earnings are up, maybe there’s a hot new space that’s attracting a lot of VC money, or there’s a category-killer technology that is generating a lot of buzz. The CEOs in these organizations are typically splashed across the covers of major business magazines, and are given ample opportunities to outline in Inc., Red Herring, Fast Company, and CNET the reasons why they have been successful.

Alas, in many of these situations, the excitement does not endure. A couple of missed quarters. New competitors emerge with an even more interesting gizmo. Larry Ellison said famously that over two-thirds of software companies will be out of business or consolidated within the next 5 years. Where is the Second Act for these organizations?

For other one-time successful organizations, their Second Act is more of a slow bleed. They don’t immediately head into bankruptcy. Rather these one-time giants quietly fade into market irrelevance or cannot raise further venture money and, instead, pull in their horns while they try to outlast their competitors, ceding market share and often profitability.
 
Some of these firms are able to shake off the rust (look at Motorola’s comeback under Ed Zander’s leadership), while others must accept being acquired by competitors they used to rival in prestige and profits (think of Siebel’s acquisition by Oracle). We call these organizations that struggle to maintain their market pre-eminence “Not-so-Smart Organizations,” as their failures are almost always within their control. In the book, Why Smart Executives Fail, we outline these major causes of corporate failure.

However, in our research leading up to and since the publication of the book, we noticed that there appeared to be other successful organizations (in software and other industries) that were able to keep churning out steady and consistent growth, quarter after quarter and year after year. Why? As we began to look closer at what was going on in these two types of organizations at the board level, at the top management team level, and across the entire organization, we noticed some compelling differences.

For example, while the “Not-so-Smart Organizations” seemed almost consumed by their financial performance to the exclusion of other organizational factors (Founder and CEO An Wang of Wang Labs, used to carry a note card displaying Wang Labs’ stock performance versus IBM’s), other organizations not only paid close attention to their own financial indicators, they were also carefully attuned to several organizational factors as well. Because these organizations all maintained and grew their market dominance, we refer to them as “Smart Organizations.”

Again and again, the same kinds of organizational factors appeared across these firms. They cluster into three groups, so we call them the Three Pillars of a “Smart Organization:” Smart Leadership, Smart Strategy, and Smart Process. Examples of “Smart Organizations” in our study included Google under Eric Schmidt, Sergey Brin and Larry Page, Dell under Michael Dell and now Kevin Rollins, Four Seasons Hotels & Resorts under Isadore Sharp, Gucci Group under new head Robert Polet, and the world’s largest retailer Wal-Mart Stores under Lee Scott.

According to our research, it’s only through paying attention to each of these “Three Pillars” that an organization can help ensure that it will continue to execute the necessary high-performance financial indicators that all boards, top management team, investors, and analysts want to see. In the posts to follow in the next few weeks, we describe the role of the first of these pillars: Smart Leadership.