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Value-based management: learning to create high performing organizations by putting man before money

Options:     Print Version - Value-based management: learning to create high performing organizations by putting man before money , part 6 Print view

Teaching methodology 3 – issues that arose during the course

During the course a number of controversial points were covered and debated. Here follows a selection of a few of these major issues:

Proactive and selective recruitment

It is well-known that value-based companies practise a proactive and highly selective recruitment policy that is centred around attitudes and human values. To illustrate, consider Tandberg, a value-driven Norwegian business that is a global market leader in the video-conferencing industry. Its core values are: "Tandberg is about integrity, enthusiasm, speed, precision, fun, profit, and Tandberg first".

That Tandberg places high priority on the values and attitudes of its employees is illustrated by the company’s recruitment principle: "Hire for attitude, train for skills." It is of course an advantage if a person has the needed skills, but basically only if he or she also has productive attitudes. Perhaps this emphasis on sound human values explains why Tandberg has less than 1 per cent absenteeism due to illness (the average for Norway is about 8.5) and an exceptional EBIT margin of 29% (Tandberg ASA, Annual report, 2002).

This raised the following issue amongst the students: "Is value-driven business only for the select few?" Collins and Porras imply that virtually everybody can develop a visionary company. In contrast to this, based on his own research on individual world-class performers, the author claims that at present there are too few individuals with a sufficiently mature psychology or high enough degree of self-actualisation to develop such higher-order organizations on a widespread basis. Fortunately, the author also argues that there are several factors which point to many such organizations arising in the future:

  • Increasing focus on the proven advantages – including high performance and humane features – of such corporations
  • The availability of scientifically validated techniques that develop individual and collective consciousness
  • The level of consciousness in the world is now rising

The class concluded that it was an advantage to have as many value-based businesses as possible, and that the students upon graduation wanted to work to introduce and spread this form of management.

Doing well by doing good

The students reflected the growing concern today over ethics and environmental issues. The core values of the visionary companies are humane and life-supporting, and as such, encompass ethical and environmentally friendly considerations. In fact, frequently there are core values that specifically address ethical and environmental concerns (see later about G. C. Rieber & Co.). Value-based management includes these considerations, but also many other factors.

Putting "people before money" is the very basis of ethics, i.e., one should not pursue money when the activity can be harmful to people. One issue discussed in the classroom was arms. There are many businesses today that make money from producing weapons. The reality is that these businesses thrive on aggression and fear – the more destruction in the world, the more business they do. Fortunately, there are also many examples from corporate life of leaders who are doing much good, e.g., the former CEO of Sony, itself a visionary company. Mr. Noruio Ohga donated his whole retirement pension to the construction of a concert hall in his hometown!

How, then, can one in society raise the concern for sound morals and the environment? Ample experience shows that it is not sufficient to point out that "you ought to be a nice boy or girl"! The objective of the course was therefore to show that doing business in accordance with sound human values – that includes ethical and environmentally friendly behaviour – in fact leads to improved profit. This is the only way!

Equality between executive and worker

Students are often quite idealistic about life – a feature that some of them unfortunately seem to lose when they later on encounter the sometimes harsh nature of working life. A major issue that arose several times during the course was the huge gap that is often found between top-level management and workers on the floor.

True, value-driven organizations tend to have a substantially smaller gap between executive and worker than that which is prevalent today. Leadership is always by example, but today the example set by leaders is often far from satisfactory. One student related his experience of a troubled company where he had been working. This company was undergoing severe cuts in staff and expenses. The CEO preached that economical soberness was essential for the company to survive – at the same time he bought himself a very expensive car!

When we study the financial reward systems in contemporary organizations, we find that there often is something fundamentally wrong. To be a leader is to serve. A leader is only significant to the extent that he or she has followers that are helping him or her. In other words, there is interdependence – a leader without followers is valueless. However, instead of creating a win-win situation, the prevailing examples set by leaders spread greed, envy, and social stress – the huge compensation gap, common between leader and follower, has a highly detrimental signal effect on the rest of the organization and the society at large:

  • In Sweden, a CEO earns (salary, bonuses, options, and fringe benefits) on average 32 times more than an industrial worker. The situation in Sweden is on a level with the rest of Europe, but the gap is smaller in Norway.
  • Unfortunately, the situation becomes much more unfortunate when we consider the USA, where the average CEO for large corporations earns 430 times more than his or her workers. This high level of executive compensation is completely out of tune with reality since no person is that much more important than his fellow men! Furthermore, no person needs that much income to live a happy and meaningful life. Clearly, such a corporate reality is destructive to trust, value-based management, and higher-order meaning.

The focus of the leaders of visionary businesses is shifted away from themselves – their own power and privileges – to all associates and the whole organization. The point is not to put on show their own power and infallibility, but to build a productive organization that will do well for many, many years – long after they are gone. This is a subtler and far greater form of leadership than that which is often common today.

To illustrate this elevated leadership style, consider the SAS Institute, which develops business intelligence systems. The SAS Institute, with its headquarters in North Carolina, operates worldwide. In order to stimulate efficiency and creativity, employees are given free – or at greatly reduced prices – access to a kindergarten, a health centre, recreation in beautiful natural grounds, a massive sports centre, gourmet restaurants, auto repair, a tailor, a hairdresser, and so on. The associates work 35 hours a week with flexitime.

The company has been growing steadily – in 2002 the sales revenue was 1.2 billion dollars – and is earning money every year. Says Jim Goodnight: "If you treat employees as important, then they become important for the company. 95 per cent of the values in the company disappear out of the gate each afternoon. It is my job to make sure that they return." Whereas the average turnover of employees in the industry is about 20 per cent, the corresponding figure for the SAS Institute is as low as 3 per cent. Goodnight reckons that his company saves huge amounts of money on recruitment and training, and because employees don’t have to travel long distances to carry out necessary errands.

Conclusion on issues that came up in class

In their research on value-based organizations, several of the students picked up that there are many companies who have written down nice values, readily evident on the home page, but that in fact these companies are not value-driven. This discrepancy exists because " values" have become a new fad. The many companies that did not 'walk the talk', were discouraging to several of the students.

In general, the students were in favour of more equality and they certainly cherished the humane values behind the SAS Institute. However, they also realized that it might be difficult to always be able to live up to the high expectations and standards of value-driven companies once they entered real business life.