Issue 22 (emailed version), Monday, May 14, 2001
Made in New Zealand - twice winners of the America's Cup

An email magazine dedicated to making you a better leader, by providing:
— provocative thinking about what it means to be a leader
— the tools, techniques and best-practices that drive leadership improvement


In this issue
ONE BIG IDEA


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ONE BIG IDEA!® HR – Relations or Resources?
Is it possible to identify the key elements of corporate management most likely to lead to success and longevity, asked the editorial writer in this week's Emerald Now (at www.emeraldinsight.com/now/editorial.htm)

Is there a link between co-ownership, creativity, collaboration and competitive advantage? Do values-based organizations stand a better chance of success? Is it possible to support, motivate and challenge employees?

Arie de Geus (author of The Living Company), this month's Emerald Now interviewee, notes that corporate life-spans are pretty short. The natural history of the corporation is not full of institutions that span human generations. In the time-frame of the industrial revolution, few of the early stars (any?) survive.
Why? Well, de Geus thinks it's due to an over-riding focus on maximizing profits. You can't say it's an 'organization' thing – big institutions can survive – Westminster Parliaments, great orchestras, the icon ballet companies. Some things do live on, through thick and thin. But not corporates, it seems.
De Geus says that because companies are communities of people they should be seen and managed as such, as 'living' companies, with a commitment to values, people, learning and innovation. Motivated people, common goals. And he's not the only one to say so - a study in the 1990s by US authors James Collins and Jerry Porras also pointed to the superior performance of values-based organizations, emphasizing 'community'.

So what does a 'living company' look like?
De Geus cites prize-winning London advertising agency St Luke's:
- promotes continuous change in its competitive environment
- fosters individual creativity
- encourages risk-taking
- ensures personal development through monthly 'public' assessment of employee's work
- staff roles change
- in all a challenging package.
But it also offers
- unusual levels of security
- all employees are shareholders
- turnover of people is minimal
- no-one has ever been fired for poor work
- rigorous recruitment process weed out unsuitable candidates
- supremely motivating work environment - a community of working human beings rather than an economic 'machine'.

Such examples pose intriguing questions:
- Given increasing recognition of the importance of employee contributions to corporate success, and the constant emphasis in business literature on the need to foster trust and loyalty in the workplace, how is it that so many companies still focus primarily, if not solely, on maximizing profits?
- Is this unrelenting focus on profits the cause of premature 'deaths' in companies unable to learn and adjust to an ever-changing business environment or to tap employees' creativity?
- If so, is this not an argument for a more enlightened and successful corporate model, such as that of the 'living company' which seems to offer a whole new meaning to working life?
A recent article on St Luke's was published in the Harvard Business Review, Sept-Oct 2000, Vol. 78, No. 5.

Arie de Geus was 38 years at Royal Dutch/Shell and is credited (by Peter Senge and others) with the concept of the learning organization. The central BIG IDEA of his book, The Living Company: Growth, Learning and Longevity in Business, (one of the top ten business books of 1997 - Business Week), is that corporations fail because managers focus too narrowly on producing goods and services, forget that they are living communities.

OK, said the EN interviewer, but running a 'living company' must be much more of a challenge than running a more traditional 'economic company'.
De Geus: Sure. It is easier to manage machines than people. Many of the problems we read about stem from the fact that we still have generations of managers who are trained in managing machines. And the emphasis of the financial world is on maximizing shareholder value and profit. Companies are machines to make money and their managers are machinists … “and I find it remarkable that there is little debate about these issues”.

Items:
... some newer companies have been motivated to adopt more modern organizational methods because they have recognized their total dependency on their people to produce results. Such firms are likely to be, for example, software companies, architectural practices, consultancies, media firms.
… Booz Allen was a (UK) company that was originally a partnership and then went public - a profitable exercise for some of the original founders. However, the remaining partners eventually bought back their shares and this company now works along community of work lines in a deliberate move away from the emphasis on profits and maximization of value for shareholders.
… but we continue to hear of companies with a community focus being converted into limited liability companies [reflecting] an underlying motivation that is entirely different to that underpinning the living company. The present generation is capitalizing on, and pocketing, the benefits accumulated by the previous generation … denying these benefits to the next generation. Such moves can only be motivated by personal greed.
… one of the most interesting 'living' companies is Visa International which has a very different legal structure from that of most organizations. The best description would be to say that it consists of an agglomeration of 'clubs' united by a common constitution. As such, it rather resembles the modern nation state. There are no shares and therefore no shareholders. Power flows from the members, from below, upwards so concentration of power is not possible. Banks can become members of one or several of these 'clubs' and 'clubs' can be both set up, and liquidated. But they are all integrated into Visa International and each has to sign a statement of purpose and principle - the 'Constitution'.
Visa International is undoubtedly one of the most successful commercial organizations of the past 20 years and it is another good example of a very modern, and very successful, work community that does not follow the traditional capitalist shareholding model.

How useful is an emphasis on formal learning from past experience ... through case studies, benchmarking and so on, when the need is to adapt to change, act with foresight, innovate or reinvent, asked the interviewer. Does this imply a different way of thinking about business and the business environment?
Good question. To think about companies as living systems, consider another living system – us. To be successful in our lives, whether economic, social or family life, we must learn constantly. One of the most powerful definitions of learning is that of the Swiss developmental psychologist Piaget. His theory is that we are constantly bombarded with signals from the outside world; either we are prepared for them and have structures in place to receive those signals; or we must rapidly make internal structural changes which involves developing new ideas and a new way of behaving.
Companies are also bombarded with signals from the outside world. The competition, technology, the political systems and social values are constantly changing and companies must gauge whether they are ready for these changes, whether they can act, or whether, first of all, they need to develop new ideas and new structures.
Do your learning from past experience, and you are always 'fighting the last war'. Companies must base their learning on the new signals coming in from the outside world … the priority is to develop a way to increase powers of perception; companies must 'hear' more; and in order to do so they must be receptive to, and be a part of, the outside world.

What about outsourcing and flexible working arrangements?
Does that reinforce economic company values given the absence of formal working relationships with suppliers and weakening of bonds of loyalty?
Outsourcing happens in both kinds of companies but for very different reasons. In economic companies it's to reduce costs, prune the workforce and maximize profits. In a living company outsourcing ensures that those who remain are the real members of the community and have 'signed up' to the company philosophy.

How should a living company train its management and other staff?
Competitive success totally depends on developing the potential of people. And not simply skills training but the development of each individual's human potential. The most powerful means of achieving this is through on-the-job training … action learning, ad hoc working or project groups, communities of learning.
At St Luke's, personal development also comes from role changing, development of multiple skills, experimentation, and performance evaluation. People develop when they are under pressure, doing things, sharing things, but they need to do this together, in groups, in teams.
In addition, people learn in a social context, through dialogue. Research by Xerox revealed the huge amount that was learned over a drink at the end of the day when maintenance workers shared their knowledge, their experiences, their stories about customers...

Nurturing a 'living company' ... substantial cultural change?.
Are there particular guidelines to introducing such change and how important are the people within an organization and their relationships with one another?
Arie de Geus ... more women at the top would help, because women have particular skills in creating communities and establishing a unity of purpose. In the USA this is beginning to happen and I don't think that this is a coincidence.
“While the acronym HR is 'shorthand' for human resources, to me it will always denote human relations. Human relations are the essence and certainly one of the essential characteristics of the management of people - which is all about relationships. The use of the word 'resources' dismisses the human element. You cannot run a business on a resource base or according to a mathematical formula - that is just not possible; companies are by their nature communities of humans.
“But this is something the financial community, the legal establishment, business educators and many consultants seem to have forgotten in the advice they give to their clients ... which they had better learn very quickly ...”
Resources
Access the full text of the following articles at www.emeraldinsight.com/now/articles.htm

Spirit and community at Southwest Airlines: An investigation of a spiritual values-based model John Milliman and Jeffery Ferguson, David Trickett, Bruce Condemi Journal of Organizational Change Management; 12: 3 1999; pp. 221-233 ISSN: 0953-4814
Black swans don't fly double loops: the limits of the learning organization? Steven Henderson The Learning Organization; 04: 3 1997; pp. 99-105 ISSN: 0969-6474
Principled leadership and business diplomacy. A practical, values-based direction for management development Manuel London Journal of Management Development; 18: 2 1999; pp. 170-192 ISSN: 0262-1711
Next issue Weekend of 26/27 May (ish), 2001
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