With progress in the economy looking patchy at best, author Vlatka Hlupic suggests we need a fundamental shift in organisational attitudes to improve it
It’s more than 40 years since the management guru Peter Drucker observed that the central purpose of a business is to create a customer. Since then, we’ve had the internet revolution, an explosion of social media, and tech firms finding new ways to create and delight their customers. We’ve also experienced the collapse of the Berlin Wall, causing the end of central economic planning by unelected elites in many countries. Globalized trade has intensified.
It might be reasonable to suppose that we’ve seen a lot of progress around Drucker’s timeless maxim. But while ideas around enlightened business leadership practices have flourished, progress in the real economy remains patchy.
There are some alarming statistics. Corporate performance has declined, whether measured through Return on Assets or Return on Invested Capital. US firms’ Return on Assets has progressively dropped 75% since 1965, despite rising labour productivity. The average life expectancy of Fortune 500 companies has plummeted from 75 to 15 years in the last 50 years.
Surveys show that only around 25% of the workforce is passionate about their work. Global figures for engagement show that 80% of employees are less than fully engaged. As regards the UK economy, a survey by the Government-sponsored Engage for Success organization placed the UK economy ninth out of the 12 largest economies for engagement, with a correspondingly low score for productivity.
Central planning ended in east European economies, but it has continued at too many corporations. A stifling ‘command and control’ approach, based on a concept of people as mere economic units – reflected in the jargon ‘human resources’ – mean that dictatorial Soviet practices have persisted in the West. Many companies create plenty of customers, but then proceed to annoy them with impersonal telephone answering services, de-motivated and under-trained staff and colossal misjudgements in mergers and acquisitions strategies.
There is much evidence that a highly empowered, engaged workforce is best for business. For example, Raj Sisodia, David Wolfe and Jac Sheth in their book Firms of Endearment, report a study of the financial performance of 30 companies defined as those that focus on passion and purpose. They returned 1,184% for investors over the ten-year period of the study, to end June 2006, compared with 122% for the S&P 500.
Despite this, enlightened practices that create the empowered workforce remain the exception, not the norm.
Change mindsets, change organisations
Why is this? My conclusion, based on years of research and experience, is that negative attitudes and philosophies have held us back, and that we need a fundamental shift. Improving strategies and technology isn’t enough; we have to transform mindsets, too many of which are still stuck in a Cold War mentality.
The approach of treating employees – who ultimately have the task of serving the customers and generating the financial returns – as mere ‘resources’ is one problem. There is also a tendency to compartmentalize. So strategy gets separated from people; operations from engagement; finance from behaviour. Financial targets are often set arbitrarily, with insufficient attention to the skills, service, motivation and leadership necessary to get there.
In the real world, everything is interconnected. That is why in the approach that I have developed based on my research, I seek to bring everything together. I’ve identified six broad categories that simultaneously need strong leadership to maximize the chances of success. They are: Strategy, Systems, Resources, Culture, Relationships and Individuals. The first three relate to the processes that a high-performing organisation ideally requires; and the latter three relate to people. It’s not an ‘à la carte’ list – the most effective employers attend to all disciplines, and understand the links between them.
I call this the ‘6 Box Leadership Model’ for organizational transformation.
My new book The Management Shift: How to Harness the Power of People and Transform Your Organization for Sustainable Success describes this model and its successful application in more than 20 organisations worldwide. It also shows how, to support this transformation, the most effective leaders create engagement across the board. This is often helpfully envisaged as different ‘levels’ of performance within a company – from Level 1, which is actively disengaged, through to Level 5, featuring unbounded, dynamic performance. These levels are captured and explained in the 5-level Emergent Leadership Model.
Empowering your people matters
This is a complementary concept to the ‘6 Box Leadership Model’, because you can best understand the importance of leadership by understanding the connections – and how empowering your people matters in all aspects of management; in efficient logistics and financial management as well as innovation.
I’m a natural optimist, and I think there’s a good chance that this empowering style of leadership can become ‘the new normal’; and hopefully it won’t take another 40 years. The proven and tested "How to" tool is now available!
For more information on how your company can benefit from The Management Shift, contact me at firstname.lastname@example.org, visit the website to download free Chapter 1 of "The Management Shift" book, read my blogs and find further information about implementing the latest management thinking into practice.
Professor Vlatka Hlupic is a Professor of Business and Management at Westminster Business School.