Transcend Strategy with Purpose
Structure follows strategy. And systems support structure. Few 'aphorisms' have penetrated Western business thinking as deeply as these two. Not only do they influence the architecture of today’s largest corporations, but they also define the role that top corporate managers play.
Yet these aphorisms and the management doctrine to which they have given rise are no longer adequate. The job they prescribe for senior management is no longer the job that needs to be done. Senior managers of today’s large enterprises must move beyond strategy, structure, and systems to a framework built on purpose, process, and people.
The concepts that still define most senior managements’ understanding of their roles have their roots in the 1920s, when Alfred Sloan at General Motors and a few of his contemporaries were engineering a new strategy: diversification. Those pioneers discovered that diversification benefited from a divisional structure and that tightly designed planning and control systems, in turn, supported that structure. From then on, the strategy-structure-systems link has been an article of faith reflected in the design of MBA programs, reinforced in consultants’ reports, and confirmed in the actions and mindsets of practicing managers worldwide. Top-level managers view themselves as the designers of the strategy, the architects of the structure, and the managers of the systems that direct and drive their companies.
For decades, this philosophy served companies well. It supported successive waves of growth as companies integrated horizontally in the 1950s, diversified in the 1960s, and expanded into global markets in the 1970s and early 1980s. But over the last decade, technological, competitive, and market changes have eroded its effectiveness. The problems of companies as diverse as GM and IBM in the United States, Philips, and the Daimler Group in Europe, and Matsushita and Hitachi in Japan can be traced, at least in part, to top management’s cleaving to this philosophy too tightly and for too long.
The great power—and fatal flaw—of the strategy-structure-systems framework lay in its objective: to create a management system that could minimise the idiosyncrasies of human behaviour. Indeed, the doctrine held that if the three elements were properly designed and effectively implemented, large, complex organisations could be run with people as replaceable parts. Over time, as corporate size and diversity expanded, strategies, structures, and reporting and planning systems became more and more complex. Employees’ daily activities became increasingly fragmented and systematised.
In the benevolent, high-growth environment that followed World War II, strategy, structure, and systems offered much-needed discipline, focus, and control. Today’s economic environment is different. Overcapacity and intense competition are the norms in most global businesses. The lines separating businesses have blurred as technologies and markets converge, creating new growth opportunities where traditional businesses intersect. And, most notably, the scarcest corporate resources are less often the financial funds that top management controls than the knowledge and expertise of the people on the front lines.
Analysts have many prescriptions for these challenges, and executives have rushed to adopt them: from focusing on strategic intent to inverting the organisational pyramid; from corporate reengineering to employee empowerment. Yet after five years of research in which we studied 20 large, vigorous European, U.S., and Japanese companies, we believe that these prescriptions address the artifacts of the problems and not their causes. They focus on partial, operational solutions. What managers need, however, is a fundamental change in doctrine.
Transformation can start only with top management. Before senior managers can realign behaviour and beliefs throughout the corporation, they need to change their own priorities and ways of thinking.
From Setting Strategy to Defining Purpose
Formulating strategy has long been the domain of top management. From Alfred Sloan to Lee Iacocca, the powerful, even heroic image of the CEO as an omniscient strategist is ingrained in business history.
When companies were smaller and less diversified, setting business strategy was a straightforward task. As companies grew larger and more complex, however, senior executives needed elaborate systems and specialised staff to ensure that headquarters could review, influence, and approve the strategic plans of specific business units. Over time, the workings of increasingly formalized planning processes eclipsed the utility of the plans they produced: sterile generalities to which frontline managers felt little affinity or commitment.
Ironically, disaffection only increased as senior managers ceded responsibility for the unit-level strategy to the divisional managers and shifted their own attention to crafting an overall corporate framework and logic. That shift led senior managers to explore the elusive concept of business synergies, to work on balancing cross-funded strategic portfolios, and, in recent years, to articulate notions of broad strategic vision or highly focused strategic intent. Meanwhile, the people actually running business units grew increasingly confused about their roles. The elaborate contortions required to fit their strategies into the corporate rationale frustrated them. Classification of their complex businesses into simplistic, portfolio-funding roles demotivated them. And strategic visions that seemed vague or definitions of strategic intent that were overly constraining made them cynical. All in all, top management’s efforts to provide strategic leadership often had the opposite effect.
The problem is not the CEO but rather the assumption that the CEO should be the corporation’s chief strategist, assuming full control of setting the company’s objectives and determining its priorities.
In an environment where the fast-changing knowledge and expertise required to make such decisions are usually found on the front lines, this assumption is untenable. Strategic information cannot be relayed to the top without becoming diluted, distorted, and delayed.
During Andy Grove’s Tenure of CEO, for example, he acknowledges that for a long time neither he nor other top Intel executives were willing or able to see how the competitive environment had undermined the company’s strategy of being a major player in both memory chips and microprocessors. Yet for two full years before top management woke up to this reality, various project leaders, marketing managers, and plant supervisors were busy refocusing Intel’s strategy by shifting resources from memories to microprocessors. Management, Grove confessed, might have been “fooled by our strategic rhetoric, but those on the front lines could see that we had to retreat from memory chips . . .. People formulate strategy with their fingertips. Our most significant strategic decision was made not in response to some clear-sighted corporate vision but by the marketing and investment decisions of frontline managers who really knew what was going on.”
Yet at the very time that top-level managers are acknowledging their own limits, many are also learning that the people who can “formulate strategy with their fingertips” are deeply disaffected. Neither the valueless quantitative terms of most planning and control processes nor the mechanical formulas of leveraged incentive systems nurture employees’ commitment or motivation. In fact, even this fragile relationship is eroding as successive waves of restructuring, delayering, and retrenching weaken any reserve of corporate loyalty.
In most corporations today, people no longer know—or even care—what or why their companies are. In such an environment, leaders have an urgent role to play. Obviously, they must retain control over the processes that frame the company’s strategic priorities. But strategies can engender strong, enduring emotional attachments only when they are embedded in a broader organisational purpose.
This means creating an organisation with which members can identify, in which they share a sense of pride, and to which they are willing to commit. In short, senior managers must convert the contractual employees of an economic entity into committed members of a purposeful organisation.
Embedding Corporate Ambition
Traditionally, top-level managers have tried to engage employees intellectually through the persuasive logic of strategic analyses. But clinically framed and contractually based relationships do not inspire the extraordinary effort and sustained commitment required to deliver consistently superior performance. For that, companies need employees who care, who have a strong emotional link with the organisation.
Prescriptions for forging such links surface regularly. One that is currently fashionable calls for building a Zen-like focus on strategic intent to challenge and eventually overcome less focused rivals. To create an obsession with winning, top management identifies a specific stretch target (typically defined in competitive terms) and drives the organisation toward that goal through a series of operating challenges.
The flip side of this technique, however, is strategic myopia and inflexibility, because a laser like focus risks constraining rather than liberating the organisation.
Obviously, strategic visions can be so broad that they convey little meaning or guidance to people deep in the organisation. Andy Grove is characteristically blunt in labelling most strategic vision statements “pap.” Yet some of the elements of both strategic intent and strategic vision are evident in the efforts that Grove and other top-level managers are making to shed their uncomfortable and increasingly inappropriate role as strategic gurus. Their objective is neither to impose a tight strategic agenda on their line managers nor to inspire them toward some ineffable goal. Rather, they are working to embed a clearly articulated, well-defined ambition in the thinking of every individual while giving each person the freedom to interpret the company’s broad objectives creatively.
Three characteristics distinguish this approach from previous practices. The executives we observed articulated the corporate ambition in terms designed to capture employees’ attention and interest rather than in terms related to strategic or financial goals. They engaged the organisation in developing, refining, and renewing the ambition. And they ensured that it was translated into measurable activities to provide a benchmark for achievement and a sense of momentum.
Capture Employees’ Attention and Interest
Defining a company’s objectives so that they have personal meaning for employees is hard. Most such statements are too vague to be useful to line managers, and often they are too out of touch with reality even to be credible. At AT&T, at the time of Bob Allen’s tenure, he found himself atop a company that had to change from thinking and acting like a regulated utility and do so amidst industry turbulence. The formal planning process defined the key strategic task as loading more traffic onto the existing telecommunications network and developing products to meet the needs of an emerging infocom business. But Allen decided not to talk about AT&T’s objectives in such rational and analytic terms. Nor did he choose a competitively focused strategic intent—countering Northern Telecom’s invasion of AT&T’s home market, for example—or a broad vision of futuristic information highways and virtual worlds. Instead, Allen chose very human terms, stating that the company was “dedicated to becoming the world’s best at bringing people together—giving them easy access to each other and to the information and services they want and need—anytime, anywhere.”
This simple statement captured AT&T’s objective of providing network linkages as well as the attendant access to information and services—but in simple, personal language that anyone could understand. Equally important, employees could relate to and take pride in such a mission.
Other companies achieved a similar impact by focusing on the development of core capabilities. At Corning, for example, CEO Jamie Houghton challenged his organisation to overlay its exceptional technological capability with a commitment to quality that would make the company truly world-class. To an organisation that was feeling demotivated and even defeated, this commitment to quality provided a focus for rebuilding organisational pride and self-confidence while simultaneously boosting a crucial strategic competence.
Get the Organisation Involved
A statement of corporate ambition is only a touchstone for the larger process of gaining organisational commitment. The statement must be broad enough to invite—and indeed require—the organisation’s involvement in interpreting, refining, and making it operational. In practice, this means tapping into the reservoir of knowledge and expertise that is widely distributed throughout the company. As Andy Grove observed about Intel’s shift out of the memory business and the importance of inviting organisational discussion and debate, “The more successful we are as a microprocessor company, the more difficult it will be to become something else . . .. We need to soften the strategic focus at the top so we can generate new possibilities from within the organisation.”
For many top-level managers, softening the strategic focus isn’t easy. They worry that the organisation will interpret such an approach as strategic fuzziness, or worse, indecision. But these concerns evaporate when senior managers realise that they are not abandoning their responsibility for the strategic direction but rather improving the quality of its formulation and the odds of its implementation.
Top management’s third challenge is to build and sustain commitment to the objectives the organisation has helped to develop. Everyone needs to believe that the articulated ambition is legitimate and viable; that it is more than public relations rhetoric or motivational hype. By making tangible commitments to the defined objectives, senior managers substantiate such belief. They also provide people deep in the organisation with the motivation that comes from making progress.
Instilling Organisational Values
There are few more powerful or public signals of what a company stands for than the ways it defines and measures performance. Most companies focus almost entirely on financial results: the strategic objective to become number one or number two in the industry justifies the pressure to meet the budgeted 15% increase in sales. That goal, in turn, is crucial for the company to achieve its overall aim of a 20% return on net assets by mid-decade.
If managers’ interest in such quantitative objective’s flags or signs of organisational exhaustion appears, top management often responds by presenting the objectives in a more compelling way—linked to a highly leveraged incentive program, for example, or motivated by a crisis—real or manufactured.
But often, corporate leaders simply continue to explain and justify the objectives in greater detail in the hope that acceptance will follow understanding.
If employees are to put out extraordinary efforts to realise company targets, they must be able to identify with them. It’s fine to stress what to aim for, but people also need to know what the company stands for.
Identifying, communicating, and shaping organisational values is more difficult than articulating a strategic vision because it relies less on analysis and logic and more on emotion and intuition. Moreover, although every well-established company operates on a set of beliefs and philosophies, they usually remain implicit. Some companies even repress them so as not to distract employees from the business agenda or offend people who have other views. Financial objectives are popular performance measures in part because they are “safe”; people won’t dispute them.
Companies that assert more boldly what they stand for typically attract and retain employees who identify with their values and become more deeply committed to the organisation that embodies them.
Managers are loyal not to a particular boss or even to a company but to a set of values they believe in and find satisfying.
Build on Core Values
Today it is a truism that a company’s culture—the values it embodies—influences the decisions and choices of its managers. As a result, some CEOs are using the same didactic methods to change their companies’ values that they once reserved for driving down profit objectives. Moreover, they try to impose these new value sets almost as often as they used to revise budget targets. The result is an organisational cynicism that brushes off any new initiative as the “culture of the month.”
New values cannot be instilled through a crash program, nor should existing belief systems be chucked or subverted without careful consideration of the effect on the relationship between the organisation and its members. In fact, the goal for most companies should be to build on the strengths and modify the limitations of the existing set of values, not to make radical changes in values. And where value confrontation is essential, it requires careful attention, not a broadside attack.
Sow the Message
Planting new values takes more than inspiring speeches. At best, the speeches can only confirm the message sent by senior executives’ daily actions. Management is the message; speeches only call attention to it.
For example -
- Set tasks of visiting different corporate facilities each quarter to “talk, listen, and feel the atmosphere.” During these visits, reiterate new values and tell stories that reflect their impact.
- Translate abstract statements into action to make them real and relevant to all members of the organisation.
- Look at incorporating broad idealistic values into action programs.
- Finally, make sure that the company’s business strategies are consistent with its core values.
Despite their best efforts, many companies find that strategic and operating imperatives block or erode the values they strive to build. The reason is that such goals and objectives are inevitably quantified, whereas value statements usually offer neither clearly defined goals nor satisfactory methods for gauging their accomplishment. Unavoidably, the hard drives out the soft, and commitment to the desired values dissipates.
Many companies had long allowed financial targets to dominate their objectives and thus had calibrated their performance in terms of growth, profitability, and ROI. One needs an equally compelling way of tracking progress toward attaining its new culture.
Encompass superior performance on dimensions such as quality, innovation, and corporate responsibility, and not just outstanding financial performance. Equally important, employees can identify with the standard and take pride in achieving them.
Give Meaning to Employees’ Work
In the end, every individual extracts the most basic sense of purpose from the personal fulfilment he or she derives from being part of an organisation. Creating that sense of fulfilment is the third challenge senior managers face as they strive to develop an energising corporate purpose. Institutions like churches, communities, even families, which once provided individuals with identity, affiliation, meaning, and support, are eroding. The workplace is becoming a primary means for personal fulfillment. Managers need to recognise and respond to the reality that their employees don’t just want to work for a company; they want to belong to an organisation. More than just providing work, companies can help give meaning to people’s lives.
Employees don’t just want to work for a company. They want to belong to an organisation.
To realise the value of a committed employee, an organisation must bring its big ideas and bold initiatives down to a personal level. Senior managers must establish and maintain a link between the company and each of its employees. This is not to say that companies must shift from their characteristic impersonal contracts to the Japanese model of lifetime employment. But a link does imply a mutual commitment, in which:
The employer treats the employee not as a cost to be controlled but as an asset to be developed.
Employees for their part commit not only their time but also their emotional energy to making their company as effective and competitive as they can. In short, the objective is to change the relationship from one in which employees feel they work for a company to one in which they recognize they belong to an organisation. It is the difference between hiring out as a mercenary and becoming a Marine.
The best companies at achieving this new kind of relationship, top-level managers focused on three activities. They recognised employees’ contributions and treated them as valuable assets. They committed to maximising opportunities for personal growth and development. And they ensured that everyone not only understood how his or her role fits into the company’s overall organisational purpose but also how he or she might contribute personally to achieving it.
Recognise Individual Accomplishments
As companies grow larger and more complex, employees can come to feel more like cogs in a machine than members of a team. To retain some sense of humanity, companies may publish in-house newsletters, sponsor social functions, or implement a casual dress code. But the impact of such exercises is seldom significant or enduring. Indeed, their very existence emphasises the awkwardness and impersonality of organisations that can respond to human needs only in mechanistic ways.
Further, while most senior managers understand the need to recognise and celebrate the major contributions of star performers, few realise the importance of acknowledging the ongoing efforts of those who sustain the organisation. IKEA, the world’s largest home furnishings manufacturer and retailer, is an exception. Even after the company had grown to almost 50,000 employees in 20 countries, founder Ingvar Kamprad still tried to visit each of the chain’s 75 outlets and meet every employee. He would often invite a store’s employees to stay after closing for dinner at the in-house restaurant. It was a ritual that frontline associates would go to the buffet first, then managers, and last Kamprad. He would circulate and offer praise, encouragement, and advice to the people who worked for him.
Personal recognition must reflect genuine respect.
People on the front lines are quick to recognise empty public relations gestures or attempts at manipulation.
Through actions such as these, born of genuine respect and concern for individual employees, senior managers develop the basis for mutual commitment. They can then build on this foundation by demonstrating equal concern for the growth and development of all the organisation’s members.
Commit to Developing Employees
As companies have delayered, restructured, and downsized, employees who were already feeling distanced and detached have become more disillusioned and even cynical.
Too often, retrenchments have been the aftermath of grand corporate visions that promised personal opportunities.
Companies tout the “partnerships” they have with their organisation’s members, then shower them with pink slips. It’s not surprising that employees are unlikely to commit to new goals or values until they’re convinced that the future holds new opportunities for them.
Top-level managers must take a broader view of employee training and development and make a much stronger commitment to it than they traditionally have. Instead of simply training employees for job skills, companies must develop their capacity for personal growth.
Foster Individual Initiative
In a few companies, individual effort and personal contribution still constitute the bedrock of organisational process. 3M is one. Since the 1920s, when the company’s fortunes were turned around by the development of waterproof sandpaper and adhesive tape, 3M management has valued the enormous potential of the entrepreneurs in its midst.
Management developed a culture that recognises individual initiative as the source of the company’s growth, and it confirmed and institutionalised that strongly held belief through its policies and procedures. For example, the “15% rule” allows employees to spend up to 15% of their time on bootleg projects that they believe have the potential for the company. As bootlegged innovations developed into major businesses, company folklore became filled with stories of entrepreneurial heroes whose impact was direct and tangible. Through the stories and its organisational infrastructure, 3M keeps alive the highly motivating belief that individual effort is important and has a real impact on the company’s performance.
From Economic Entity to Social Institution
A fundamental philosophical difference separates senior executives who see themselves as designers of corporate strategy from those who define their task more broadly as shaping institutional purpose. Strategy makers view the companies they head as profit-maximising entities with a narrowly defined role in a large and complex social environment. In their view, companies are simply agents of economic exchange in a broader marketplace. They are dependents of their shareholders, customers, employees, and larger communities, and the purpose of strategy is to manage these often-conflicting dependencies for the maximum benefit of the company they serve.
This minimalist, passive, and self-serving definition grossly understates reality. Corporations are one of the most, if not the most, important institutions of modern society. A company today is more than just a business. As important repositories of resources and knowledge, companies shoulder a huge responsibility for generating wealth by continuously improving their productivity and competitiveness. Furthermore, their responsibility for defining, creating, and distributing value makes corporations one of society’s principal agents of social change. At the micro-level, companies are important forums for social interaction and personal fulfillment.
Purpose is the embodiment of an organisation’s recognition that its relationships with its diverse stakeholders are interdependent. In short -
Purpose is the statement of a company’s moral response to its broadly defined responsibilities, not an amoral plan for exploiting a commercial opportunity.
The three aspects of top management’s task in building a sense of purpose are mutually interdependent and collectively reinforcing.
- If corporate ambition begins to focus on the company’s narrow self-interest, it eventually loses the excitement, support, and commitment that emerge when objectives are linked to broader human aspirations.
- When organisational values become merely self-serving, companies quickly lose the sense of identification and pride that makes them attractive not only to employees but also to customers and others.
- When management’s respect for and attention to its employees’ ideas and inputs are diluted. Then motivation and commitment fade.
Purpose—not strategy—is the reason an organisation exists. Its definition and articulation must be top management’s first responsibility!