Do Corporate Dinosaurs understand the new rules?

Corporations only exists to create profit to shareholders. Their operations should be limited by the law only. 
These rules laid out by the economist, Milton Friedman are still the guidelines for most large corporations in our time.
Communications experts has changed the term profit to value and shareholders to stakeholders. Corporations has even added CSR departments prove they care about other things than money. Yet most corporate messages has a single eyed focus on delivering the quarterly profit results to shareholders. There is a distinct lack of inspirational goals and visions that could engage employees and customers. Reinvestment of the profits back into the equity of the firm and to acquire competitors does not reveal a belief into a wonderful future. 
These companies resemble like large corporate dinosaurs happily grassing on the fat fields of loyal or locked customers. The dino's are feeling secure in their sheer size and power. But something has been changing in the dinosaurs world. New agile creatures has appeared; creatures that does not have to wait for the meteor strike to challenge the status quo.
The Dino's are from an age where size has been an asset and used to crush or take over their competitors within a well defined set of rules. Surprisingly these new agile companies are not following the old rule book, they are changing the game. Agile companies like Netflix, Tesla, AirBnB, Uber and others are seriously disrupting existing industries that has been stable for decades. Size is not an asset anymore - it has become a liability.
Most of the Dinosaur corporations are behaving like nothing has happened. They do not accept that the rules have changed and assume that the disruptions are limited to niches of certain industries. Or they think it is about technology, internet or mobile and that they will be able to compete.
What they might fail to understand is these companies are founded on very different understandings of human behavior. Humans are not seen as resources predominantly motivated by monetary punishment and reward. They are not called “Our greatest strength” and then forced into confined boxes, grades and rankings. The agile companies have a different relationship with their employees, based on common emotional goals and social identity. They actively let employees explore the social network context of the company, irrespective if the network is internal or external to the company. They do not use the dinosaurs command and control structure and strict rules for crossing the corporate boundary. Their roles, responsibilities and teams change according to the task at hand and is based on self-organisation.

The behavior of their people is not dictated by HR policies, described in legal documents, designed to defend the corporation against the employee.  The agile companies Terms and Conditions are not designed to protect the corporation against customers.
But the most important difference between the dinosaurs and the agile organisations are in their purpose; why they exist. The agile organisations know why they exist, what they want to achieve and they are able to communicate it.
They know that profits is not a goal in itself - it is an outcome of reaching a goal. If this goal has noble and emotional elements it can engage customers, employees and other stakeholders above and beyond profits. 

Engagement is the meteor that will destroy the dinosaurs world by changing the rules. Stakeholder engagement creates true shareholder value. 

“There can be no strategy without noble cause” Clausewitz

A war is raging between two different corporate models.

The basic assumptions of the effective operation of most of today’s largest corporations are largely founded on the thinking of Milton Friedman back in the 1970. Corporations should only exist to create profit to shareholders though operation inside the frame of the law. Later years has modulated the goal from profit to value, from shareholders to stakeholders and increased the scope from within the law also to include ethical CSR related goals also. But the corporate communication does not reveal this change; most corporate communication is still focused on quarterly profits and not on long term potential goals that could provide benefits to a larger group of stakeholders. The profits made are mainly used to invest in own equity, return to shareholders and to acquire competitors in the industry with the aim to become larger and more cost efficient.

It is almost like large corporate dinosaurs happily grassing on the fat fields of loyal or locked customers feeling secure in their sheer size and power. But something is changing. New nimble companies with very different thinking based on different assumptions are not only challenging the dinosaur corporations – they are starting to kill them. Maybe the rules are changing, maybe the meteor has already struck and the grass is withering.

Companies like Netflix, Tesla, AirBnB, Uber and a lot others are seriously disrupting existing industries fast. The size of nimble companies like Google, Amazon and Ebay suggests it is not just about being small – you can be nimble and large at the same time.

The dinosaur corporations all behave like the nimble companies will not have an impact on their business as they operate completely different. Maybe they think it will only affect certain industries or it is about technology or the internet. Maybe they are wrong, maybe it is about different thinking.

The new nimble companies are based on very different assumptions and operation of the human network called the corporation. A lot of this is based on a different model of how humans are motivated, are thinking and are acting. Most of the nimble companies have a very different relationship with their employees. They don’t call them “Our greatest strength” and then treat them like resources force fitted into boxes, grades and rankings.

They are not managed in rigid organisational structures with a very well defined boundary and strict rules for cross border activity. In nimble companies the employees are not confined by organisational structure, their networks are both external and internal to the corporation. Their roles, responsibilities and teams change according to the task and are to a high degree self-organised.

Their behavior is not dictated by monumental HR policies, described in endless documents created by legal and designed to defend the corporation against the employee.  Their Terms and Conditions are not designed to protect the corporation against the customer.

But the largest difference between the dinosaurs and the nimble organisations are in their purpose; why do they exist. The nimble organisations all have a very good idea of why they exist, what they want to achieve.

Making money as Friedman suggested is not a purpose – it is an outcome of a purpose that can engage customers, employees and other stakeholders. Engagement does not create dissatisfied shareholders.

“There can be no strategy without noble cause” Clausewitz

Competitive advantage can only be created through people.

Since the financial crisis the focus of some corporations has turned from a desire to create value to a perceived need to extract value from their existing business. This has mainly been achieved by starving the existing business through headcount reductions and outsourcing of corporate support functions to cheaper jurisdictions.

 Included in the cost savings has been customer direct and indirect support functions – in reality revealing that these corporations has limited belief in these functions as assets able to deliver revenue and growth to the corporations. This also means less delivered to the customers for the same price; as a CEO of an insurance company put it: “A more disciplined offering to our customers” – a lyric formulation for less.

Reducing frontline employees is a dangerous game as automated response systems and web based support might not be able to create the emotionally connection with customers that most corporations marketing campaigns are based on. What customers expect and what they get will be quite different – automated and generic response does not create engaged customers.

These kinds of headcount reduction and reductions in funding to training programs, maintenance of equipment and R&D to improve the bottom line has not exactly been rare. There might not be anything legally wrong with doing this but ethically there can be issues.

From a governance issue, under-investing in people and under-investing in the revenue generating part of business is considered stealing from the future to benefit today. This is especially a problem when executives are paid based on P&L metrics and share compensated affected heavily by earnings per share. It could be seen as stealing from the future for own personal gain.

The increased cashflow from these activities has predominantly been reinvested in the company’s own equity as pointed out in the Harvard Business Review article: Profits without prosperity, with increases in share price as a result. The problem is that this is not an investment in the business future and based on assumption that the existing base of competitiveness is relatively safe. Companies might believe there is safety in size, like Kodak did or safety in technology as Nokia did. They might think that their brand is the strong enough – like Blockbuster or Motorola did.

Unfortunately for these companies there is a new breed of predator in the corporate jungle. Companies like Google, amazon, Netflix, Tesla and Apple are redefining the rules of the game in ways the more mature companies has no response to within their current way of thinking. 

The mature companies think that the new companies have created their competitiveness through people-less assets like computers, artificial intelligence, automation, robots and Internet based offerings and assume that reduction in headcount is the way forward.

What they have failed to understand is that all of these companies only create competitive advantage through their people and not at the expense of their people. If they wanted to take a closer look they would see companies highly focused on getting the right kind of people, making sure they are continuously developed and satisfied.

These companies know what is well established outside the economic and financial circles – probably also in these circles but not stated publicly – that human beings are not only rational people but more importantly emotional beings that are affected by the social context around them.

They make sure that their employee are not only rationally connected to the companies though satisfaction but more importantly connected emotionally through engagement. Connected to the purpose of the corporation – the “Why” of the corporation.

These companies also have a belief that employees are the only true source of competitiveness, even if it manifests itself through products, systems, knowledge or other employee made artifacts.

Employees make a difference. Employee engagement matters.

Employee engagement is not something you do to people – it is something you do with people.

For many years the logic behind the service profit chain has dominated the way corporations treat their employees. The theory behind service profit chain suggests that satisfied employees create satisfied customers that in return stay loyal and affect corporate results. 

This has changed with recent Gallup research that was unable to verify the link between employee satisfaction and results. It could have been that satisfaction used to give corporations an advantage, but failed to do so today. It could be that satisfaction has turned into a qualifying rather than a winning attribute of the organisation. 

Gallup did however identify a clear link between corporate results and employee engagement. The “Employee satisfaction” concept has its roots in fulfilling of employee’s needs, wants and aspirations and is seen as something the corporation does for its employees. As such it is, for the employee a passive arrangement, where the corporation can decide what rewards it is willing to offer in return for the employee staying with the corporation. 

The psychological contract between employer and employees is not limited to tangibles, but has been seen mainly as a rational agreement and as such something corporations impact though HR activities, predominantly compensation and benefits. Satisfaction can be improved by job safety, promotions, empowerment, appraisals, communication and similar activities focused on the employee and the job role.

The problem is that money and benefits above a certain existential minimum does not motivate people to do more as Gallup proved – the path to improved performance is not though increases in tangible benefits – but through an increase in engagement. So the bravest of HR departments has turned to measuring Employee engagement.

As in Gallup’s engagement surveys, most employee engagement survey show significantly lower results than satisfaction surveys, something that suggests a problem. No doubt a lot of management teams like the old satisfaction survey that could be done and ticked easily without rocking the boat. 

The new engagement survey could be seen as a threat and not as an opportunity to gain competitive advantage. The other problem for the HR departments are that where employee satisfaction can be improved through systems and programs focusing on the lower part of the organisations, improving employee engagement is a completely different game. 

Although in HR’s areas of influence - key elements in creating engagement, like personal growth and developments are a hard sell for HR in a rational skills focused world. Other areas of creating engagement are outside the reach of HR.

The newest neurological research of human behavior and decision making processes has firmly established the important roles that both emotions and social context plays as powerful modulators of what was once believed to be a predominantly rational process, which put us apart from the animals. 

The Merriam-Webster’s definition of engagement: “emotional involvement or commitment”, confirms this is true for creating engagement also. Research suggests that engagement is influenced by the level of which employees identifies themselves with the organisation. The purpose, vision and leadership of the organisation play a vital role in engaging employees and the connection is emotional.

Why the corporation exist and what its purpose is become a potential powerful source of employee engagement. Unfortunately the post crisis corporations have had so much focus on improving profits that they have forgotten that creating profits is not a strategy – it is an outcome of a successful strategy.

Organisations that want to survive and thrive will eventually need to focus on a higher purpose that improves the situation of customers, employees and other stakeholders than just shareholders.

So employee engagement is not just something that can be designed by a HR department and injected into the workforce, it is about changing the fabric of the department or the corporation itself.

Employee engagement is not just about improving, it is about transformation. To transform people you need to transform the organisation and its purpose and goals. Visionary companies know this.

7 Steps to make sure your strategy implements. "You cannot separate strategy and implementation"

For a very long time the process of strategy formation and the process of strategy implementation has been seen as two separate areas and part of a two-step process. This has its roots in the assumption that strategy is predominantly a financial process best left to senior management and financial consultants that delivers a fait accompli to the line businesses and HR to implement. Change process research has demonstrated that most change initiatives fail to bring the intended benefits to the corporation. That does not prevent managers from declaring victory even for implementations that destroyed shareholder value. Even a good strategy can fail as a result of a poor implementation and the other way around.

Nice landing – wrong airport!

By integrating the strategy and the implementation process it is possible to increase the probability of success significantly. Here are 7 steps to integrating Strategy formation and Implement the change process.

1.  Have a clear non-financial goal with the strategy.

It is fine to have a financial goal for the strategy but it is not a strategy; a financial goal is an outcome of a successful strategy. Strategies are in their core about creating future sustainable competitiveness as either a response to external events or as an attempt to create events. Too often the financial goal is communicated as a strategy bearing no meaning to most of the stakeholders.

2. Make sure your strategy makes the world a better place (it also ok to make a profit). This vital element of a strategy has been known for a long time but has been forgotten in recent years. Carl von Clausewitz put it: “There can be no strategy without noble purpose”. With a noble purpose it will be possible to move the organisation through a change process. Profit and revenue might be powerful motivators for management and executive staff but as Daniel Pink demonstrates it does not really motivate significantly.

3. Make the cost of doing nothing clear. It is often assumed that doing nothing is the lowest risk option. In this time of disruption it is never the case. When Stephen Elop, CEO of Nokia, declared: “Nokia is on a burning platform” he made it very clear that change was needed and even that would not guarantee success. People don’t change as a result of information. They change either to get away from a bad situation or to get to a better place or both. For the change process to succeed, the strategy has to create tension between these two states.

4. To secure implementation, it is important for the strategy to benefit all or most stakeholders. Most strategies have a short term aim to create monetary benefits for the shareholders often at the expense of other stakeholders. Profits can be increased by reducing headcount at the expense of the people that stay; they will have to work harder. Profits can also be increased by reducing service staff at the expense of the customer. These kinds of strategies are rarely implemented effectively and although short term profits can be demonstrated it also destructs shareholder value in loss of employee engagement and customer defection. For a strategy to be effective it has to benefit most or all stakeholders not just shareholders. If the strategy benefits employees, customers, external organisations and society, it should also benefit the shareholders. Even if this is not the most common way of operating it is quite obvious that there are a number of companies that have taken this path and are in a league of their own. Companies like Google, Tesla, Netflix and Virgin are willing to make their strategy work through their employees and not at their expense.

5. Convince your shareholders of the long term perspective or change them. It can be challenging or even scary to take a long term strategy to the shareholder community. Stories are countless of stocks being punished for initiatives that create long term shareholder value. When Paul Polman took over Unilever after 10 years of cost cutting he declared that his goal was to double the revenue and the days of cost cutting where over. If an investment made sense it would be implemented no matter what the quarter looked like. He decided to stop giving guidance to the stockmarket and was immediately punished with an 8% drop in shareprice when the quarter-rapers left the stock. As he put it “Like you select what customers you want to serve, you also need to select what shareholders you want to work with. You need to find shareholders that share your long term sustainable vision for creating shareholder value without exploiting other stakeholders. Since then, the Unilever stock price has doubled.

6. Involve stakeholders in the strategy creation. It is not common to involve stakeholders into the process of strategic formation. Senior management often believes that it is best to keep this process behind closed doors to limit damage. The assumption is that the speculation stakeholders has outside the door is less damaging that if they were on the inside of the process. This is a reminiscent of the ancient view of heroic leadership – senior management knows best and just do what you are told. Most implementations fail, not as a result of people being change resistant but as a result of people resisting being manipulated. By involving stakeholders into the process, the strategy might change in ways that benefits different groups and as advocates are involved the implementation has started before the strategy process has finished.

7. Communication of the Strategy has to involve Emotional Persuasion as well as rational arguments. New neurological research that has proven that human behaviour is modulated heavily by emotions and social context. Many years of study has failed to establish a strong link between employee and customer satisfaction and corporate results. More recent research by Gallup has shown that employee and customer engagement directly predicts corporate performance. Where satisfaction has it base in a rational exchange between the corporation and the stakeholders – engagement is a fully emotional connection.

Management theory has a lot of research on both strategy formation and change processes for successful transformation of organisations. However most of these models assume that people and organisations predominantly behave rationally. There has been a lot of new neurological research that has proven that human behaviour is not predominantly rational and does not change as a result of getting new information. But we already knew – if we were rational there would be no wars, stock market crashes, substance abuse, obesity, poverty or exploitation of resource.