Sam Keller's TEC Blog

Friday, December 27, 2013

Do you know your company's core values?

In his pioneering and most recent book, "The Advantage", Patrick Lencioni explores "Organizational Health" as the most unexploited opportunity to make your company excel in today's business environment and give you true competitive advantage.  A key to understanding organizational health lies in clearly describing your organization's values as these are critical to defining how a company's employees must behave and what behaviors are not to be tolerated.  Once established and communicated, these values make recruiting the right employees much, much easier.  Additionally, these values can serve to attract the right customers, that is, customers that want to do business with your organization (and repel the wrong ones).  Companies that are serious about their values find that the right customers start to seek them out.

All company decisions, policies, tactics and strategies must be congruent with these values.  Yet many companies in determining their values end up with a long list of generic and uninspiring words and plaster them in their lobby for all to see - words like honesty, integrity, quality, innovation, customer service, work-life balance, environmental responsibility.  The list goes on.

Lencioni points out that there a four different kinds of values.  The most important of these are core values, those few - just two or three - behaviors that are inherent to the organization.  These few values are the ones that "should guide every aspect of the organization, from hiring and firing, to strategy and performance management."  And they do not and should not change over time.

Other values include:
  • Aspirational values - These are values that a company wishes or wants to have and management feels are needed for the success of the organization.  Confusing aspirational with core values is a common mistake that leaders make.
  • Permission-to-play values - These are the minimal behavioral standards required for an organization to compete.  While they may be critically important, they do not distinguish the company from its competitors.  Values like honesty, integrity and customer service fall into this catagory.
  • Accidental values - These are traits that are evident in an organization, but have come about unintentionally over time, and do not necessarily serve the best interests of the organization. Accidental values "can prevent new ideas and people from flourishing in an organization...sometimes shutting out new perspectives and even potential customers."  Often these "values" are manifested in hiring practices where every new hire resembles all these others through a common demographic profile.  This may work for Hooters, but be very cautious about letting such practices creep into your company.

To help distinguish a company's core values from these other types of values, Lencioni suggests asking these questions.
  • To identify aspirational values ask "Is this trait inherent and natural for us, and has it been apparent for a long time?" or "Is it something that we have to work hard to cultivate?"
  • To identify permission-to-play values ask "Would our organization be able to credibly claim that we are more committed to this value than 99 percent of the companies in our industry?" If the answer is no, it still may be important to be used as a filter for hiring, but it is not core in that it does not set the organization apart or uniquely define it.
Once identified, your core values become the real building blocks of your company's culture and operations.  Every activity you undertake, every policy you make, every employee you hire, every tactic you employ and every strategy you develop must pass through the prism of your core values.

And finally, these few values must be clearly and repeatedly communicated throughout the organization so they become ingrained in your processes and your people.  Do these things and you are on your way to organizational health and all the benefits and advantages that Lencioni ascribes to it!

Thursday, August 1, 2013

Stop the war on Capitalism

As a follower of current events, politics, government policy and the economy, I have concluded that there is a war on capitalism in America.  While the Administration talks of job creation, the tax code, business regulations and the desire to redistribute wealth tell a different story.

In a recent article from the Harvard Business School titled "A Manager's Moral Obligation to Preserve Capitalism" published in the July 29, 2013 edition of Working Knowledge, authors Rebecca M. Henderson and Karthik Ramanna make several interesting points as they argue that company managers have a moral obligation to preserve capitalism.

From Professor Ramanna we learn that "capitalism earns its legitimacy through the idea that the pursuit of self-interest explicitly delivers on certain moral goods for society. Individuals could criticize that moral framework—a Marxist, for instance, might argue that capitalism ignores issues of fairness in outcomes—but they can't say that it doesn't exist."

It is this idea of  "fairness in outcomes" that the current Administration espouses.  Those who oppose this idea believe that the way to equalize outcomes to to improve the low end of the economic ladder not bring down the top.

As the article states, "Capitalism's moral logic was perhaps most famously articulated by free market champion Milton Friedman when he said that 'the social responsibility of business…is to increase its profits.' That sentiment puts faith in the market to distribute wealth in the freest, fairest and most efficient way possible—indeed, Friedman went further to say that any attempt to curb the free market was harmful to the good of society."

And by the way, to distribute wealth, wealth must first be created.  Without private sector profit, there is no wealth to distribute.  It takes private sector business people to create wealth through capitalism.  As Margaret put it so well, "The problem with socialism is that you eventually run out of other peoples' money".

In a new working paper, "Managers and Market Capitalism", co-written by Henderson and Ramanna, they agree with Friedman's moral framework—but only when certain conditions are met. In their view, capitalism has two powerful things going for it. First, it has been shown to be incredibly effective in leading to economic growth. Ramanna observes, "If you look around the world, capitalism has lifted hundreds of millions of people out of poverty where previously deployed systems did not."

Second, capitalism tends to be self-correcting. When the free market does fail, the market itself steps in to correct the problem. For example, where a certain company dominates a market to create a near monopoly, entrepreneurs can find competitive advantages to create new opportunities. "Markets make markets work," says Ramanna. "That is the good news about capitalism."

But that doesn't mean markets always work to self-correct structural problems. As Adam Smith first identified in The Wealth of Nations (first published in 1776), free markets require certain conditions in order to function—among them, well-defined property rights, enforceable contracts, non-collusion between parties, and knowledge that puts everyone on a level playing field. And while some of these conditions are self-fulfilling in markets, some are not.

So some public or government intervention is viewed as necessary—and that intervention manifests itself as institutions that operate not through a competitive market process, but through a democratic political process.

Once the market is open to politics, then that market can be corrupted. Some have referred to this new problem as "crony capitalism".   Ramanna asks "if the knowledge is so esoteric that it only resides in a few individuals and those individuals engage in a political process that structures institutions that underlie capitalism, what are (their) obligations?"

The traditional free-market answer to that question is that their obligation is to increase profits for your shareholders, period. But what if that means, for example, undermining accounting standards in order to achieve short-term gains (remember Enron)?

Henderson and Ramanna argue that managers have another interest, not just to serve as agents for their shareholders, but also to serve as agents for the system as a whole. It is not in the long-term interest of a society that deploys capitalism to allow its corporate managers to set up systems that distort the market—potentially leading to corporate scandals or an economic crash—and the undermining of capitalism itself.

 Rather, in these political processes where self-interest can undermine the integrity of capitalism, a manager's moral obligation is put aside his or her own self-interest in order to preserve the interests of the system as a whole.

Of course, that's not an easy sell to someone in a highly competitive market trained to exploit every advantage. This is where norm-setting becomes important, the authors say. Ramanna points to norms that have shifted in the history of capitalism that were not necessarily in a company's self-interest. "We have been able to shift the moral boundary of self-interested corporate behavior when it comes to employing child labor and indentured labor," he says. "Part of this norm-shifting was done by carefully laying out the evidence and then building a strong logical case for what is consistent with the ethical imperatives that legitimize capitalism."

CEOs are usually not immoral people. So the next step in that goal, says Ramanna, is to determine what institutions might be necessary to shift the ethical consensus. He and Henderson have begun to look at increased disclosure on corporate accountability—particularly as it relates to lobbying—as one possible way to fill the information gap. Further, some industry groups have begun to push a concept called "ethical lobbying," in which they take on only clients that agree to broaden their focus to consider systemic interests beyond self-interest, a trend that Ramanna and Henderson think has potential to help change the prevailing mindset.

"Ethical norms don't shift in an instant; these are the kinds of shifts that take place over a generation," says Ramanna. "But if enough CEOs and lobbyists get together and say there is something not quite right about what we are doing, then we may be able to start changing norms."

This seems a far better way to approach the issue of achieving a narrowing of economic disparity  instead of more Government intervention and regulation.  I have observed that when such intervention and regulation don't have the desired results (an all to frequent occurrence), and too often create unintended consequences, the answer is more intervention and regulation, exacerbating the problem. The result - the current Administration's war on capitalism.

For the full text of the article click here

Wednesday, June 19, 2013

How to Rejuvenate American Manufacturing

The Obama Administration has created a National Network of Manufacturing Innovation (NNMI) to help rejuvenate American manufacturing by advancing diffuse novel manufacturing technologies.

In a recent article titled “Making America an Industrial Powerhouse Again” published in Working Knowledge from the Harvard Business School, Professor Gary Pisano gives his thoughts on how this initiative should be undertaken.

Historically, federal dollars flowed through various agencies to invest in basic and applied research resulted in enormous economic pay-offs in industries such as semiconductors, computer hardware and software, aerospace, telecommunications industries, the internet, advanced computer graphics and biomedical innovations.

There is no reason why the same logic should not apply to manufacturing in areas like biotechnology, nanotechnology, advanced materials, computer science, optics, and various engineering disciplines.

History provides some guidelines for making sure the NNMI lives up to its potential: 
  • Government-funded research is most productive when it lays broad foundations rather than targets specific technologies for use in particular industries, and not specific companies - the failed attempt to subsidize "green energy" companies like Solyndra is an example of what not to do. Placing commercial bets requires a depth of understanding of markets and customers that only the private sector possesses, not the Federal Government.
  •  Keep a balance between exploratory research and commercial need and resist the temptation to develop technologies that the private sector has no interest in.
  •  Don't focus on regional economic interests, but engage academic and industrial partners from around the country.
  •  Do focus on leveraging talent: Better machines, better software, or even better intellectual property are all highly mobile factors in today’s world. Talent, on the other hand, is much less mobile. And the only way to get that talent is for companies-both domestic and foreign-to do their R&D here. If the NNMI can build a first-rate talent pool of scientists, engineers, and workers with deep expertise in manufacturing disciplines, it will go a long way toward making the United States an industrial powerhouse again.
Click here to see the full article.

Monday, April 29, 2013

Are You a Strategist?

Historically, strategic planning has been considered the single most important function of the CEO.  In her book “The Strategist: Be the Leader Your Business Needs”, Cynthia Montgomery, argues that through the years, many CEOs have outsourced strategy development to consultants and business analysts, armed with frameworks and techniques to help the CEO analyze their industry and position their firm for competitive advantage.  They are hired to create the strategy for the CEO and the company. So much so that strategy is no longer a top-of-mind responsibility for many senior executives, but simply an annual exercise. After the consultants finish their work the CEO can say, “Well we did our job, and that’s finished for another year.  Now we can get back to work”.

Montgomery maintains that, “Although a company may change what it makes, the services it provides, the markets it serves, and even its core competencies, its continued existence depends on finding and continuing to find a compelling reason for it to exist. Shepherding this never-ending process, being the steward of a living strategy, is the defining responsibility of a leader.”

Montgomery maintains that “strategy has been narrowed to a competitive game plan, separate from a firm's larger sense of purpose. This has led to the eclipse of the leader's unique role as arbiter and steward of strategy." 

Professor Montgomery says it's time for CEOs to again become strategists.”  

Leading strategy

Montgomery explains that leading strategy requires confronting four questions: 
  • What does my organization bring to the world?
  •  Does that difference matter? 
  • Is something about it scarce and difficult to imitate? 
  • Are we doing today what we need to do in order to matter tomorrow? 
Being a strategist means living these questions.

For the leader, "becoming a strategist starts with getting clear on why, whether, and to whom your company matters."  While that may sound obvious at face value, ask yourself, “Do I have that clarity in my company?”
Montgomery goes on to say that a compelling purpose is just the beginning of a strategy. "It gives you the right to play, and puts you in the game." 

Strategists also must lead the charge in creating organizations that can deliver/implement their intentions. That means building a business culture with mutually reinforcing parts. "Strategy must be the animating force in a company.  There must be a clear solid link between strategic ideas and action."

Who is a strategist?

Professor Montgomery also stresses the importance of recognizing how a strategist lives and leads. Incorporating the role of the strategist into one's identity is important because leading strategy is not an annual task but a never-ending quest. Shepherding this never-ending process, being the steward of a living strategy, is the defining responsibility of a leader.

A question for you as a leader

You're at the podium addressing a group of new employees. One of them asks about the strategy of the business. You have two minutes to explain. Could you do it? 

For more on this subject click here to view Carmen Nobel's review in Working Knowledge published by the Harvard Business School, and click here for an excerpt from Cynthia Montgomery’s book “The Strategist: Be the Leader Your Business Needs”.