Half a century ago an S&P 500 company would stay there for more than half a century – that has fallen to under 20 years, according to analysis by Credit Suisse in 2017. Huge companies that failed to adapt have collapsed: Thomas Cook, Kodak, Woolworths.
Much can be learned from the ways those that survive are managed and led. They are characterised by high levels of co-operation and engagement, as well as smart strategy.
Examples include Johnson & Johnson and WL Gore. In my research work over the past 20 years I have come to define their approach as Level 4 or Level 5 leadership (see previous article).
Moving from Level 3, an ordered ‘command and control’ style, is a particular challenge in the case of an established corporation because it may appear that Level 3 is the safe option. It is aimed at maximising efficient operations and cost control, avoiding fun or creativity.
But without creativity and imagination organisations can fail to adapt, and without harnessing the natural energy of their employees they may not even be efficient.
Nick Yates, chair of the Asia-Pacific region for Johnson & Johnson, described in an interview for my recent book Humane Capital how the firm deepened its approach to team-based working and less hierarchy in the late-1990s and early-2000s.
"When we were first starting this process I was asked by a young brand manager in Thailand how things would change. I said 'well today, if you have a problem, you will talk to your boss and if your boss can solve the problem for you then fair enough.
"But if not then your boss will talk to their boss, the boss will talk to their boss and eventually it will get to the country manager. If they can’t solve the problem they will talk to our vice presidents, and if they can’t solve the problem it will end up on my desk... In the new world what will happen is this.
"You might have a problem. You will know somebody in Australia [who] might be able to point you in the direction of getting a solution, together you’ll come up with a couple of options…You’ll go to your boss and say ‘here’s my problem, here are my options, what do you think?’”
Kalyan Madabhushi, then a global general manager at Royal Dutch Shell, whom I also interviewed, described the Level 4 approach as "results through inspiration rather than desperation. Inspiring people to deliver results rather than people working harder because they lose something if they fail to achieve".
Another challenge in large corporations arises from the dominance of financial indicators. This can come with a belief that hitting financial targets is always at odds with creating an inspiring workplace for employees.
If the focus is towards empowerment, pleasing the customer and long-term goals this does not necessarily mean that financial performance is compromised, at least over the longer term. Level 4 organisations typically display high levels of efficiency because engaged staff concentrate better and co-operate effectively.
Common to many of my interviewees for Humane Capital was a criticism of short-term financial targets. They may be met in ways that annoy customers, or in some other way undermine the reputation of the brand. US bank Wells Fargo, which had targets for the numbers of products sold per customer, ended up with a mis-selling scandal costing it billions of dollars.
In the cases in Humane Capital managers describe how objectives are defined in terms of improving quality of life for the customer, and how teams are empowered to meet these objectives in the best way that they think is suitable without micro-management. Discipline and focus are maintained through values and accountability rather than a rigid hierarchy.
From my research effective strategies for Level 4/5 leadership in corporations include:
- Giving up the illusion/delusion of control.
- Unlock innovation – Doug Kirkpatrick of US tomato-processing company Morningstar said in his interview for Humane Capital: "You can unlock innovation throughout an entire enterprise by giving people a voice and a stake in results".
- Making it fun – this is deeply counter-intuitive to those schooled in Level 3 thinking, but without fun there is no creativity or genuine innovation.
- Remove absolute goals; strive to do better than peers – arbitrary financial targets create distortions.
- Create a clear and compelling vision – this should be based on tangible objectives for improving customers' quality of life.
Often in my interviews people referred to the importance of mindset. Key to transforming both culture and performance was to switch from a Level 3 mindset of seeing employees as mere resources to a Level 4/5 mindset of seeing people as the key asset capable of passion and ingenuity.
Vlatka Hlupic is a professor of leadership and organisational transformation at Hult Ashridge Executive Education and CEO of The Management Shift Consulting
The next article looks at how the principles of humane capital apply for small and medium-sized enterprises (SMEs).