This whitepaper discusses using organizational performance diagnostics to improve organizational performance. It involves a 4-step process: 1) Studying the management system; 2) Interviewing employees; 3) Coding interviews to identify patterns; 4) Analyzing statements to determine performance drivers. The method provides a fact-based understanding of issues rather than relying on intuition. It was applied to a company struggling after changes, and identified operational and cultural challenges forming a vicious circle. Recommendations addressed both challenges through a new communication campaign, shifting performance monitoring, and improving communication.

1. WINNING THROUGH
BETTER ORGANIZATIONAL
PERFORMANCE
August Whitepaper

2. JANUARY 2017 WHITE PAPER BY AUGUST 2/14
“Developing organizational
performance has been one
of August’s key areas of
expertise since its founding.
We have helped a variety of
companies to design and
implement processes and
tools to manage their busi-
ness better. To enhance our
capacities in this area, we
recently initiated a research
partnership with a leading
strategy expert, Aalto Univer-
sity professor Timo Vuori.”

3. JANUARY 2017 WHITE PAPER BY AUGUST 3/14
TO IMPROVE PERFORMANCE,
START WITH THE FACTS
One of management’s key tasks is to keep improving the per-
formance of their organization. This is particularly important,
as markets expect continuous improvement in profitability and
growth, but delivering such results is difficult in today’s stagnant
economy. No wonder so many Finnish companies have told us
that building a high-performing organization is at the top of their
list of strategic priorities.
But how should you go about it? Many
people have a theory, but we think
it’s better to start with the facts. Just
as the biggest advances in medicine
took place after physicians started
to take a closer look at the patient’s
symptoms and then prescribe a treat-
ment, in our experience, corporate
strategists are much more likely to cure what ails their company
after a thorough examination.
This takes more discipline than you would think. Often, past
experience and familiarity with the company make it easy for
managers to think they know the source of the problems when
in fact the root causes may be something else entirely. Just
as no doctor would recommend treating only the pain without
also identifying and treating the underlying illness, we believe
that remedies prescribed to organizational problems should
be based on careful diagnostics, a fact-based holistic under-
standing of the organization, and clearly identified cause and
effect relationships.
“Often, managers may
think they know the
source of the problem
when in fact the root
cause may be some-
thing else entirely.”

4. JANUARY 2017 WHITE PAPER BY AUGUST 4/14
WHEN
CONVENTIONAL
APPROACH JUST
ISN’T ENOUGH
Intuition and experience are valuable tools when the situation is
familiar and available information is reliable. But this is seldom
the case. People’s behavior is driven by multiple factors, many of
which are impossible to identify from the outside. For example,
a person who is having trouble changing his diet to a healthier
one might be easy to dismiss as unmotivated or ignorant. In fact,
the real reason may simply be the person’s belief that making
healthy food is too time-consuming. Once the drivers behind
his or her behavior are clear, the suitable and effective means to
improve the situation are much easier to find.
Past experiences may also lead to confirmation bias, the human
tendency to interpret information in a way (or even search for
such information) that supports our previous understanding and
preexisting beliefs – which may guide management in the wrong
direction. In addition, gathering correct and sufficient information
about organizational problems can be challenging because of
internal obstruction: senior managers may censor communica-
tion or make sure the perspectives of important stakeholders are
overlooked. Seeing and understanding non-obvious patterns of
dysfunction within the organization requires access to all these
facts, deeper analysis – and, as with a medical diagnosis, the
view of a trained, dispassionate observer.
In a business context, normative problem-solving could, for
example, conclude that the best way to improve the performance

5. JANUARY 2017 WHITE PAPER BY AUGUST 5/14
of a local business unit would be to
increase the local unit’s accountability
by redefining its performance metrics
or changing organizational structure.
Both suggestions may be apt, but
they tend to view the situation from a
narrow angle. They don’t necessarily
identify or address the root cause of
the problem and as a result, may not
utilize all the levers that the top man-
agement has at its disposal.
In fact, the real problem might be that the local business unit just
does not see or understand the big picture from the perspective
of the whole organization. For the unit, local customers’ issues
are much more concrete than group policies or functions, which
may feel very abstract and even irrational. Thus, the solution
may be much more about improving internal communications
and creating incentives to work towards the whole organiza-
tion’s common good, rather than optimizing local performance.
If that is the underlying problem, simply aiming for a stronger
sense of accountability on a local level would probably not lead
to any better results – in fact, such actions may actually turn out
to be counterproductive.
“Once the drivers
behind employees’
behavior are clear,
the effective means
to improve the
situation are much
easier to find.”

6. JANUARY 2017 WHITE PAPER BY AUGUST 6/14
“By using a disciplined framework
of structured analysis and in-depth
interviews, managers can make a
decision based on the facts rather
than models that are either fashion-
able or just happen to be favored by
someone in the executive suite.”

7. JANUARY 2017 WHITE PAPER BY AUGUST 7/14
ORGANIZATIONAL
PERFORMANCE DIAGNOSTICS
TO THE RESCUE
One of the best analytical tools we know for getting at the root
causes of operational inefficiency is to apply the grounded
theory approach used in organizational research and the social
sciences, an applied approach to fact-gathering we call Organi-
zational Performance Diagnostics. By using a disciplined frame-
work of structured analysis and in-depth interviews, managers
can make a decision based on the facts rather than models that
are either fashionable or just happen to be favored by someone in
the executive suite. In academia, many prominent scholars use
this research approach to explain the organizational successes
and failures of companies,1
and we have further developed the
methodology into a form suitable to the needs of clients who
are looking to improve their organization’s’ performance.
Organizational Performance Diagnostics, as we apply it in
our client engagements, is a four-step process:
1
Study the management system. First, we review the
formal and documented parts of the management system,
such as the communicated vision and strategy, the organ-
ization’s structure, KPIs, and reward systems. We then look at
other elements that are not explicit but still taken for granted,
such as routines (e.g. ways of celebrating success) and the way
leaders direct assignments.
1 The Grounded Theory method was used by Professors Timo Vuori (Aalto University)
and Quy Huy (INSEAD) in their recent well-publicized study of Nokia’s decline. The re-
search found that a significant reason for Nokia’s failure was a culture of fear among top
and middle management. Read the full article here and one interpretation by Professor
Herminia Ibarra in the Financial Times here.

8. JANUARY 2017 WHITE PAPER BY AUGUST 8/14
2
Interview the employees. Next, we conduct in-depth
interviews with company employees. The informants are
selected to reflect all relevant groups across functions,
geographies, and organizational levels. The interviews are
conducted anonymously, stressing the importance of speaking
freely without fear of consequences (and the rarity of opportu-
nities to do so). The goal is to build trust with the interviewees
to enable an uncensored conversation in order to understand
why individuals in the organization do what they do. We ask
each interviewee open-ended questions and then probe for fur-
ther details and concrete examples to build the best possible
picture of what drives the organization’s behavior. We ask such
questions as: What were the key things you did yesterday?
What went well? What things were difficult for you? Why? Can
you give an example?
Such open-ended questions help us to understand employees’
daily work and interactions, which makes it easier for us to see
the situation from the employee’s point of view and better iden-
tify the deepest drivers of behavior.
3
Code interviews line by line. Next we analyze tran-
scribed interviews line by line. Our structured coding
process identifies patterns and relationships between
the management system, challenges and strengths, and the
behavior of individuals and teams. Such preliminary codes are
then grouped into categories that describe what the informant is

9. JANUARY 2017 WHITE PAPER BY AUGUST 9/14
speaking about and how they speak about it. This enables us to
note relevant nuances that would easily be missed with a more
straightforward approach and makes it possible to trace later
conclusions to their source in the data. This iterative approach
makes it possible to validate findings and form a detailed pic-
ture of the different issues influencing the organization’s perfor-
mance. While we developed our coding model in past cases and
through hundreds of published academic articles, we always
take care to treat the informant’s statement as unique rather
than forcing it into a predetermined framework.
4
Analyze statements and determine the performance
drivers. Now we compare similarities and discrepancies
between the employees’ statements. This enables us to
pinpoint relevant differences and their antecedents between
people’s viewpoints and behaviors and management’s expec-
tations. This information helps us categorize and organize their
statements into relevant themes. By taking this analytically
driven approach to understanding
the underlying dynamics of the
organization, we form a deeper and
more nuanced view of what is hap-
pening in the company, what drives
performance on individual and team
levels and what should be changed
to “make the organization tick”.
Once the overall picture is validated, we usually see important
causal links – which aspects of the environment, history, and
management system have been driving problematic behavior
and which actions will nudge that behavior in the right direction.
Next, we visualize the overall model of performance drivers so
that the key issues and causal relationships between them are
easy to interpret.
“Once the overall
picture is validated,
we usually see
important causal links.”

10. JANUARY 2017 WHITE PAPER BY AUGUST 10/14
WITH RIGOR
TOWARDS THE TOP
It can be tempting to address an organization’s performance
issues simply by looking through the lens of one of the many
popular normative management theories or by benchmarking a
similarcompany.Webelieve,however,thatthisisseldomenough
to make a meaningful and lasting impact on performance. True
impact requires developing an understanding of the unique
situation, history and ways of working in each organization and
tailor our response accordingly. Intuition and gut feelings may
make sense for smaller decisions, but in a case that may well
determine a company’s future, applying a rigorous, fact-based
approach is crucially important.

11. CASE
11/14
JANUARY 2017 WHITE PAPER BY AUGUST
Setting the scene
A new managing director faced a challenge: in recent years, his
company had lost market share to competitors. Profits were
modest, and customer satisfaction and employee engagement
were declining. This was particularly worrisome as the company
had a successful history and a strong tradition of customer ori-
entation.
The company had been implementing its new “One Company”
strategy at this time and the organization had undergone several
changes. The biggest changes included the implementation
of a new ERP system and the establishment of a centralized
supply chain function. The intent was to create an integrated
operating model which would have led to increased synergy
and thus, increased cost efficiency of the whole organization.
But a plan that made sense on paper was turning out to be a
disappointment when it began to be implemented.
Analysis phase
Using Organizational Performance Diagnostics we were able to
form a holistic picture of the true pain points and the distinct
root causes of the problems and understand what remedies
would actually correct the situation.
We found that the new operating model was not yet embedded in
the organization. Local units still focused on optimizing their own
CASE: Tackling operational
challenges through changing
organization’s culture

12. CASE
12/14
JANUARY 2017 WHITE PAPER BY AUGUST
performance by directly violating the new
integrated way of working. As the evidence
accumulated, our team was able to identify a
set of operational challenges and an interlinked
set of cultural challenges.
On the operational side, we found that while employees were
motivated to serve their customers well, they indicated that
internal processes felt bureaucratic and were taking time and
energy away from customer-facing work. These challenges were
causing sales and delivery process hiccups, such as unreliable
customer deliveries.
On the cultural side, the challenges
stemmed from the company’s his-
tory of acquiring local players. Many
interviewees described the compa-
ny’s situation in a way that helped
us conclude that the company had
no group-level cultural identity but
rather several local cultures. This
was natural, as people identified
themselves mainly with their local unit, and not with the whole
company. Thus, our diagnosis was that the new centralized
operating model would have met resistance regardless of how
well it actually functioned.
Digging deeper, we were able to figure out the vicious circle
between operational and cultural challenges. Problems in oper-
ations were pushing the local units to focus even more on their
own business at the expense of cooperation, which in turn ampli-
fied the cultural challenges, further worsening the operational
problems as people began to resist the new ways of working
“The diagnosis
was that the new
centralized operating
model would have met
resistance regardless
of how well it actually
functioned.”

13. CASE
13/14
JANUARY 2017 WHITE PAPER BY AUGUST
even more strongly. It was clear that the managing director
would not be able to break this pattern without addressing both
the operational and cultural challenges at the same time.
Recommendations based on the analysis
After our research, we recommended three major actions:
1
Launch a fresh “One Company” campaign. We
believed the managing director needed to make
the case for change in a more positive way and to
ensure that the new way of working was understood at
all levels of the company. The campaign also included
a simulation game to let people get an experience of
how the new operating model actually works. We also
suggested increasing cross-unit job rotation.
Vicious
circle
Overly heavy
sales process
Feeling of
bureaucracy
Unreliable delivery
for customer
Problems in managing
centralized functions
OPERATIONAL CHALLENGES CULTURAL CHALLENGES
Difficulties to match supply
with the market demand
Local (rather
than company)
identification
Limited understanding
of the big picture
No single culture
Lack of commitment
to the company

14. CASE
14/14
JANUARY 2017 WHITE PAPER BY AUGUST
2
Shift the focus of performance monitoring
towards larger units. As the new integrated
operating model required business units to
optimize the whole entity and increase collaboration,
the executive team needed to focus on managing
performance of larger entities that would encompass
all key functions. Local optimization needed to be dis-
couraged.
3
Communicate more. Insufficient communica-
tion and change management had contributed
to the pain the organization had experienced
when ramping up the new operating model. Our anal-
ysis revealed the precise bottlenecks in communica-
tion, which enabled us to design specific remedies.
For example, we thought the company needed more
communication on the results and progress of the new
operating model implementation. We also proposed
to introduce regular management Q&A sessions, bot-
tom-up feedback loops, as well as new types of digital
and visual tools (such as webcams) to facilitate rich
communication across the units.
Tackling the operational problems alone would not have been
sufficient to change behavior. However, by taking a long, thor-
ough look at the operational and the cultural challenges the
company faced, we were able to help the new managing director
achieve a meaningful impact on organizational performance.