The most significant breakthrough in strategy management - ever!
CEOs now have the opportunity to see what they have never been able to see before, and few have the innate ability to do. That is see their enterprises DNA and adjust it for optimal performance. A company no longer needs to be born great, to become great.
by Douglas Swallow on January 12, 2020
Two and a half decades ago, the first two strategy mapping systems emerged. The first was Dr. Robert Kaplan and Dr. David Norton’s The Balanced Scorecard. Over the years, their system has become the leading strategic planning and strategy communication tool in corporate America.
The second, the one you are about to learn about, has led to the secrets to optimizing CEO performance, increasing company valuation, and lowering the risk of underperformance and premature establishment death. But most importantly, it has led to a new CEO dashboard instrument –The Organizational DNA Profiler.
This post is an introduction to this instrument. It requires approximately 20 minutes to read.
In 1994, I had the good fortune to discover all organizational strategic platforms are identical in form and function to human DNA. This discovery led to the sequencing of the standard corporate genome and the development of a methodology that equips companies with the ability to profile their DNA. After 15 years of developing this system, it would lead to identifying the primary enablers and inhibitors of optimal CEO performance and the organizational design of the future called Unlocked.
The path to discovery
In 1980, I was in my senior year in college and an intern at Shapell Industries. I was hired to assist the VP of Sales and Marketing, Garth Chambers, to assist him in developing an advanced suite of market analytics. The purpose was to enhance his and the company’s understanding of the market and create more effective residential development strategies. This assignment would lead to the development of SweetSpot and the first successful new urban planning system in the US in over 100 years, called The Edge.
The two systems would be used in the turnaround of the largest underperforming master-planned community and public homebuilding division in the US. The formulation of the development strategies for 11 of the last 15 major master-planned community development strategies in the capitol of master-planned community development, Las Vegas, Nevada. And Utah’s and Nevada’s most significant civil lawsuits and be recognized by the US Department of the Treasury.
The discovery that organizational strategic platforms were identical in form and function to human DNA
I didn’t know it at the time, as the phrase strategy mapping had not been coined yet, but what I had developed in SweetSpot and The Edge were two strategy mapping systems. After years of profiling, one thing became clear; strategies are market competitiveness oriented. If a market was strong, and there was little to no competition, any strategy would work, and the project would be successful. However, if the market was highly competitive, the strategy was the difference between success and failure.
SweetSpot audits revealed there were degrees or levels of market competitiveness. Some areas in the greater Las Vegas market area were non-competitive, strong demand, very few builders. Others were low to moderately competitive, and some were highly competitive. For those in non-competitive market areas, their strategy didn’t matter. But for those in highly competitive market areas, it was critical.
Unfortunately, at the time, there were no academic or other definitions of non-, low, moderate, or highly competitive, which led to the following descriptions. Four variables define each. The first is the number of distribution points relative to the demand or population to support them to the level that all points could achieve usual and customary financial measures without cutting corners. The second is the level to which competitors are restricted from entering the market. The third is the degree to which market segments are well defined, and customer value orientations, i.e. lowest total cost solution, best total cost solution, or highest quality cost solution, have emerged. And the fourth is the degree to which customers are experientially sensitive.
In addition to the four degrees of market competitiveness, the research led to a fifth–trauma. The following are the descriptions of the five degrees of market competitiveness.
The Non-Competitive Environment
This is an environment in which demand for a company’s products and or services exceeds its ability to deliver them. Or the number of businesses, organizations, and or points of distribution is insufficient to meet demand. There are no competitors. Entry by competitors is legislatively, financially, or otherwise restricted. Product or service segmentation is limited. Customer experience and satisfaction are essential only to the degree they threaten a company’s license or cause the entrant of one or more competitors. An example of a non-competitive industry today is the public service providers, i.e., electric, water, sewer, waste collection, and until relatively recently, cable television. One of the most noted non-competitive industries in history was the telecommunications industry, which the AT&T Corporation held a monopoly until January 8, 1982.
The Low Competitive Environment
This is one in which demand exceeds production capacity, and the number of businesses, organizations, and or points of distribution is insufficient to meet demand. There are multiple competitors. Entry is not restricted but difficult. Market segments are not well defined, and consumers have not separated by value orientations and are not experientially sensitive, but are satisfaction sensitive. Three of the last major low-competitive industries in the US are insurance, health care, and social media.
The Moderately Competitive Environment
This is primarily characterized by multiple competitors close to each other. The number of business or points of distribution are in balance. As defined by revenue, there is sufficient demand to support all the companies in the market without cutting corners or crossing standard business ethics lines. Entry into the environment is unrestricted. Market conditions change slowly. Market segments are well defined. Consumers have separated into their value orientations and are experientially and customer satisfaction sensitive. Today’s most visible moderately competitive industries include auto, financial services, transportation, and food and beverage.
The Highly Competitive Environment
This is defined as any environment wherein there is insufficient demand to support the number of businesses in that environment at sustainable financial levels, without cutting corners. Entry into this environment is not restricted. Environmental conditions change frequently and rapidly. Market segments are well defined. Consumers have separated into their value orientations, are experientially sensitive, and customer service is critical to sustainability. Highly competitive industries include technology, construction, telecommunications, professional services, and hospitality.
The Trauma Environment
This is one in which total demand for a product or service in a market, segment, or industry declines by 40% or more in less than 12 months. Or in which there has been an event, which will or has resulted in the merger or establishment death of 50% or more of the businesses or organizations in an industry, sector, segment, niche, value orientation, or market. Few companies will survive in trauma environments, and many will close their doors forever.
It would be easy to conclude the economic environment we live in today has always been highly competitive. But it was not too long ago, in the 1950s when all industries and markets in the US were technically non- to low-competitive. In the 1960s, many industries became moderately competitive. Then in the 1970s, several significant industries became highly competitive. Today, most businesses are technically operating in highly competitive environments.
I had never paid much attention to what was going on in Corporate America, but it was in trouble in the spring of 1994. The highly competitive environment had arrived in earnest and was spreading rapidly across the economic landscape. The number of Fortune 500 companies having to sell, merge, or close their doors had reached historic numbers. It was an epidemic.
Never before had the foundation of corporate America been shaking so hard. It was a direr time in the ivory towers that housed America’s greatest companies. CEOs and boards of directors of public and private companies, along with the world’s leading business schools and consultancies, we’re searching for the solution. Despite corporate America, academia, and the management consulting community spending hundreds of millions of dollars searching for the answers, they were nowhere to be found.
While many corporations sought to identify the solution, others started exiting underperforming sectors, segments, and markets, eliminating all non-essential positions and expenses, buying back stock, and strengthening their balance sheets. If a business unit wasn’t in the top three to five in their market, the company pulled the plug.
Across the corporate landscape, ideas and technologies to solve the plethora of issues emerged. They included market segmentation, disciplines of market leaders, consumer analytics, customer satisfaction indexing, and yield optimization technologies, to name a few. No stone was unturned, and unfortunately, while they all made incremental improvements, companies’ premature deaths continued.
One of the most promising ideas emerged in the late 1980s. It was called Six Sigma, a business initiative developed by Bill Smith, a quality control engineer at motorola.
Six Sigma was a process mapping system that revolutionized the business world and, in particular, manufacturing. It significantly reduced defects and mistakes, increased production, lowered headcounts, and increased top lines. For many, particularly in manufacturing, it substantially increased revenues and reduced costs. It was said, by the then CEO of G.E. Jack Welch, “it increased the company’s annual revenues by over three-quarters of a billion dollars. Making it the single most revenue increasing management initiative in our history.”
The magic of what Bill Smith discovered was that when you multiply the number of errors in manufacturing processes by one million, you see a much clearer picture of the errors occurring. From this, they developed the Six Sigma performance table.
Sigma Level Errors Per Execution
1 691,462
2 308,538
3 66,807
4 6,210
5 233
6 3.4
Kristen Terry put this into perspective in her article: Sigma Performance Levels – One to Six Sigma (www.isixsigma.com/new-to-six-sigma), where she translates these levels into real-life examples. One such example is an electricity outage (assuming 30 days a month and 720 hours). The power would be out 500 hours per year at sigma level one. At six Sigma, it would be out for only 9 minutes.
From this was developed a process improvement process called DMAIC. The acronym stands for define, measure, analyze, improve, and control. Through the application of this process, companies were able to dramatically reduced errors per execution, but there was one problem, sustaining the process error reduction levels.
This issue was solved through the development of the five-level six sigma process management system that included Green Belts, Black Belts, Master Black Belts, Champions, and Executive Leadership. Through the DMAIC and this management platform companies were able to achieve and sustain Six Sigma.
Six Sigma systematically took all the slack out of the rope. However, despite enabling companies to achieve substantial cost savings, it had little to no effect on the virus that was killing companies. This observation led to the thesis that the real answer was not in executing things well but in choosing the right things to do, i.e., selecting the right strategies to execute.
By the mid-1990s, despite the success of process mapping and its principal methodology, Six Sigma, it became clear that process optimization was not the answer. Although, while many hoped it would be, it turned out to be just another clue and one of the key elements in finding what would.
At the time, as I mentioned, the term strategy mapping did not exist, and no tool existed that would allow a CEO to see their strategic platform. The outcomes, yes, the platform and the degree to which the strategies of which it was made up were in internal and external alignment with the market and production of superior results in highly competitive environments, no. The only tools that existed were mostly financial, driven by many factors, of which strategy was just one factor. Enter strategy mapping.
In 1995 the first two strategy mapping theories emerged The Balanced Scorecard and another. The first was put forth by Dr. Robert S. Kaplan and Dr. David P. Norton. Dr. Kaplan is a senior professor at Harvard University’s School of Business, and Dr. Norton is a Director and Founder of the Palladium Group. In 1996, they published their theory in the book The Balanced Scorecard. The late Jack Welch and former CEO of the General Electric Corporation inspired the second. At the time, Mr. Welch was the #2 rated CEO behind Steve Jobs of Apple by Business Insider for the past two decades.
Sequencing the human genome
In the mid-90s, the media’s buzz was about sequencing the human genome and the genetic code of life. The biotechnology and genetic engineering stocks were the rage of Wall Street. The cures for the world’s deadliest diseases were believed to be just around the corner. The consensus of the day was the most valuable answers known to man were in the DNA of man’s genetic structure.
In a Fox television interview Jack Welch, said something very unusual. He said of GE’s new process management system, Six Sigma, that “Six Sigma is an integral part of GE’s DNA.”
The metaphor was odd, for Mr. Welch was typically cautious and thoughtful in the words he used in television interviews and was not known to use metaphors that could be misinterpreted. Which begged the question, was he using the term metaphorically, or did he really believe the strategic platform on which GE operated was genetically oriented?
The comment was both puzzling and fascinating. It was undoubtedly a straightforward postulate to test. All one had to do was place the base genetic structure of a living organism next to an organization’s strategic platform. If there was no similarity between the two, then Mr. Welch’s reference was purely metaphorical. However, if it did match, it was a whole new ballgame.
Following his comment, I pulled out an old biology textbook. I compared the genetic structure of all living organisms to a prototype business strategy-mapping platform I had been working on at the time. If it were going to be more than a metaphor, then the standard strategic platform on which all companies operated would have to be identical to a genome. That genome would have to be made up of a collection of genes or building blocks similar across all types of companies within an industry. Also,
- Each building block or gene would have to be made up of a set of chromosomes or categories of strategies, which defined a specific trait or function.
- Each set of chromosomes would have to be unique to a type within a species or individual to an industry, sector, segment, and niche, and value orientation, size of company, market, and degree of market competitiveness.
- Those categories of strategies would have to look and operate together as DNA.
- Each chromosome or strategy would have to be made up of nucleotide or sub-strategies, which define the gene or building block’s function. That nucleotide would have to make-up and dictate the performance capability and the genetic code of the gene.
In other words, all enterprises would have to operate on a strategic platform made up of a collection of very similar building blocks or categories of strategies. Each of those categories would have to be made up of a set of strategies that were unique to their industry, sector, segment, niche, and value orientation, size of company, market, and degree of market competitiveness. Those categories of strategies would have to have complementary strategies, which defined a particular way of executing the strategy. Each of those relevant strategies would have to be made up of a subset of strategies, which defined a function within a strategy and dictated its performance capability.
The following is that comparison.
Genome: A collective bundle of genes that define a species
Organizational Genome: A collective bundle of strategic building blocks that define an organization as such
Genes: A collection of chromosomes that expresses a specific trait or function within a species
Organizational Genes: A collection of strategies within a building block or category of strategies that define a specific function
Chromosomes: A set of nucleotides, which define a function within a gene
Organizational Chromosomes: A set of strategies that define a function within a building block
Nucleotides: The base components of which chromosomes are made up
Organizational Nucleotides: The base strategies and processes within a building block
DNA: Two strands of tightly coiled strands of chromosomes
Organizational DNA: The core strategies and processes within each building block
Genetic Code: The pattern of DNA within a gene that defines what it does and the level to which it will perform
Organizational Genetic Code: The collection of building blocks and strategies that define what it does and how well it will perform
To my amazement, they were identical. The structure of human DNA and organizational strategic platforms were similar in every way.
As I reflected on the finding, I realized companies, like human beings, are born and go through the same life stages. In the beginning, they are flexible and adaptable, and as they get old, they tend to become inflexible and rigid in their ways. They have good days and bad. They consume resources and produce waste. They collectively express emotions such as fear, joy, and sadness. They have dreams, hopes, and aspirations. They have a physical quality of life. They get sick, heal themselves, and can become very healthy and robust. They have parents in their Founders. They operate on some level of integrity, and as with all human beings, they have a uniqueness all to their own. As with all living organisms, their performance capability is a combination of the quality of their genetic structure, fit with the environment, and compatibility with the culture in which they are operating. A significant flaw in any one of these would severely limit performance and lead to premature establishment death.
Shortly after the formulation of the theory, I was able to sequence the first organizational genome by applying the principles of biotechnology and genetic engineering. The organizational genome was made up of 13 building blocks. They are:
- Founder(s) / owner / majority shareholder
- Core principles
- Products or services
- Customer satisfaction
- Tactical and operational strategies
- Staffing platform
- Leadership team
- Organizational culture
- Manager, employee, and departmental performance capability
- External relations
- Information technology and process management
- CEO dashboard and business navigation
- Financial structure
Each building block was found to be made up of a set of elements or chromosomes unique to its particular building block. Many of the building blocks were the same from company to company and varied by industry, sector, segment, niche, value orientation, size of the company, and market. Each set of elements within a building block was found to have a corresponding set of strategies or nucleotides, which collectively defined how it would perform. This collection of strategies within a building block became collectively known as organizational DNA. The total number of strategies in enterprises profiled has varied by industry, sector, segment, and niche. The total number of strategies ranges is surprisingly small, ranging between 150 and 200.
The organizational DNA profiler
The Organizational DNA Profiler is a strategy mapping tool that produces a qualitative color-coded, and indexed diagram of an organization’s strategy map or strategic platform. This diagram reveals the degree to which the organization’s strategic platform is in alignment with the production of superior results in non-, low, moderate and highly competitive environments.
Over the past two and half decades, I have profiled the DNA of businesses of all sizes from small to large, privately held companies to those in the Fortune 500. By profiling hundreds of companies’ DNA, strategy mapping has revealed the primary inhibitors to achieving industry-leading financial and operational key performance measures. It has revealed optimal organizational performance in highly competitive environments lies in four factors:
1. The performance capability of the CEO
2. Level of CEO toolbox
3. Level of internal and external strategy map alignment with the degree of market competitiveness
4. Generation of staffing platform
Five beliefs
The organizational DNA profiler is based on five beliefs:
1. Organizational strategic platforms are identical in form and function to human DNA.
2. There are five degrees of market competitiveness: non-, low, moderate, high, and trauma.
3. All strategies within an organization’s DNA have a degree of market competitiveness to which they are oriented.
4. Optimal performing strategies within a gene or building block that produce superior results in non-, low, and moderately competitive environments will not provide the same results in highly competitive ones.
5. Companies can go from good to great through internally and externally aligning their DNA for optimal performance in highly competitive industries.
Strategy performance capability indexing
At the center of the organizational DNA-profiler is a highly competitive market qualitative index. The index’s objective is to quantify the performance capability of a strategy and collection of strategies within a major building block. All strategies have a performance capability level. That level of performance capability is dictated by the degree of market competitiveness to which it is oriented.
The deliverables of the organizational DNA profiler include:
- A quantitative index, which reflects the performance capability of the company’s strategic platform in non-, low, moderate, and highly competitive environments
- The degree of market competitiveness to which the company’s overall DNA is oriented
- The degree of market competitiveness to which each of the thirteen major building blocks of its DNA is oriented
- Quantitative indexes on the degree of market competitiveness to which each strategy of the organization’s DNA is oriented
The index is a ten-point index with half-point increments. It is divided into four categories and seven levels. Each category of indexes represents a degree of market competitiveness.
- Category one encompasses levels one and two, and the indexes of less than 1.0 to 3.9. It is for non-competitive market-oriented strategies.
- Category two includes levels three and four, and the indexes ranging from 4.0 to 5.9. This category is for strategies designed to produce market-leading results in low-competitive environments.
- Category three, which includes levels five and six and the indexes from 6.0 to 7.9, denotes a moderately competitive market-oriented strategy and is for strategies that produce market-leading results in this market competitiveness level.
- Category four incorporates the levels and indexes of 8.0 to 10.0 and is for highly competitive market-oriented strategies.
Determining the degree of market competitiveness of a strategy is done by either identifying the results a strategy is achieving relative to the market or industry average or by identifying the degree of market competitiveness in which it is designed to produce market-leading results.
Color-Code
The strategy performance capability index employs a color code. Each color signifies the level of results a strategy typically achieves in highly competitive environments.
RED: =/< 1.4 – Will produce results greater than 20% below the industry average
YELLOW: 1.5 to 2.4 – Will produce results 10% to 30% below the industry average
GREEN: 2.5 to 3.9 – Will produce industry average results + / – 10%
BLUE: 4.0 to 5.9 – Will produce results 10% to 20% above the industry average
PURPLE: 6.0 to 7.4 – Will produce results 20% to 30% above the industry average
SILVER: 7.5 to 8.9 – Will produce results 30% to 50% above the industry average
GOLD: 9.0 to 10.0 – Will produce results 50% above the industry average
Degree of market competitiveness orientation
All strategies have a degree of market competitiveness to which they are oriented.
- Non-competitive market-oriented strategies are cost minimization and production capacity oriented. They are generated by the question, “Which strategy costs the least and delivers the highest production capacity?”
- A low-competitive market-oriented strategy is any strategy that is competitor oriented. These strategies start with the question, “what does (competitor) do?”
- Moderately competitive market-oriented strategies are those that have a customer or value-added orientation. In this context, there are four customer groups: shareholders, customers, vendors, and employees. Any strategy, which improves a key performance measure for one customer group without lowering the key performance measures of another, is a moderately competitive market-oriented strategy.
- A highly competitive market-oriented strategy is any strategy that empowers employees to produce or deliver results equal to or greater than 20% above the market average. Any strategy, which inhibits the company, a department, an employee, or any aspect of the organization’s DNA from producing results at this level is not a highly competitive market-oriented strategy.
Conclusion
In 1994, I accidentally discovered that organizational strategic platforms are identical in form and function to human DNA. This discovery led to the theory of organizational genetics, sequencing the organizational genome, and developing the organizational DNA profiler.
Over the next twenty-six years, organizational DNA profiling revealed many things. The most significant of which was it is mathematically impossible for any company operating on a non- to moderately competitive market-oriented DNA in a highly competitive environment to produce a net income percentage over 30% above its industry and size of company average. Let alone protect shareholder value and equity and consistently bring innovative products to the market that wow their target customer groups.
Over the past two decades, the number of non- to moderately competitive markets have declined precipitously, and innovation cycles have accelerated beyond the capacity of non- to moderately competitive market-oriented DNA’s ability to be highly effective. Before the covid-19 pandemic, the US Department of Labor Statistics estimated that over 3 million businesses would experience premature establishment death, i.e., have to sell, merge, or close their doors. The primary reason would have been operating on a non-highly competitive, market-oriented DNA in a highly competitive environment. All of which means, at some point, boards of directors will have to upgrade their company’s DNA to the highly competitive market level or have to sell, merge, or close its doors.
The life expectancy of a company operating on a non-highly competitive, market-oriented strategic platform in a highly competitive environment can be extended through various adjustments. These adjustments include but are not limited to:
- Operating only in non- to moderately competitive markets
- Moving to a low to debate free financial structure
- Closing underperforming points of distribution
- Exiting sustained and emerging highly competitive environments
- Eliminating all non-essentially expenditures and personnel
- Moving to a minimal cost staffing platform
But at some point, it will have to upgrade to a highly competitive organizational DNA or have to sell, merge, or close the doors.
The organizational DNA profiler
The organizational DNA profiler is a qualitative comparative strategy-mapping instrument in academic terminology. The time to sequence and quantify most organizational genomes’ performance capability is typically less than a week.
The deliverable is a qualitative, color-coded, and indexed diagram of an organization’s strategy map or strategic platform. The diagram reveals the vital 150± strategies on which a company is operating and the degree to which they are in internal and external aligned with the production of superior results in the degree of market competitiveness in which the company is operating.
Organizational DNA profiling has revealed many insights into optimizing organizational performance in highly competitive environments. The top seven include:
1. The understanding that every company’s strategic platform and each core strategy is either non-, low, moderate, or highly competitive market-oriented.
2. Every company performs precisely as it is designed, led, tooled, staffed, and resourced.
3. The use of an unaligned or non- to moderately competitive market-oriented strategic platform in a sustained, highly competitive environment is the leading cause of underperformance and premature establishment death.
4. Over 80% of all businesses operate on a non- to moderately competitive market-oriented DNA in highly competitive environments.
5. In highly competitive environments, optimal strategic platform alignment is the CEO’s most critical job.
6. The level to which a company performs in highly competitive environments is directly proportionate to its human elements’ performance capability index.
7. That the Industrial Age ended on or around 1980.
The theory of organizational genetics
The theory of organizational genetics holds all organizational strategic platforms are identical in form and function to human DNA. That all organizational strategic platforms and the strategies they are made up of are either non-, low, moderate, or highly competitive market-oriented. And the degree to which those strategies are aligned with the degree of market competitiveness will dictate the enterprise’s success.
The theory of organizational genetics and the organizational DNA profiler has revealed that companies don’t have to be born with great DNA to become great. Through the organizational DNA profiler, CEOs can now profile their enterprises DNA, identify unaligned and performance inhibiting strategies, and upgrade them for superior performance.
For more information about profiling your company’s or organization’s DNA, please reach out to me at doug@orggenetics.com.
ABOUT THE AUTHOR
Douglas Swallow is an innovator, intellectual property developer, author, and speaker on CEO and enterprise performance optimization. For 40 years, he has been unraveling the mystery of what enables top-performing CEOs, managers, and employees to deliver results 1.3 to over five times their equally profiled colleagues. His work has led to the solution to this mystery. But more importantly, to the development of a body of knowledge and collection of technologies that equip enterprises with the ability to increase their net income percentages to 30% above their industry and size of company average. Cut their employee problems in half. Increase their percentage of top-performing managers and employees to over 60%, shattering today’s 16% ceiling. And maybe, most importantly, ensure they have a top-performing CEO today and tomorrow.