Sunday, October 28, 2012

Should All Organisations Make their Employees Shareholders?

Shareholders invest in an organisations future, some for the short and others for the long term – but don’t employees also ‘invest’ in an organisation? They invest their time, talent and most importantly their future; though admittedly get paid for that commitment. Common sense would seem to suggest that if employees were also shareholders, there might be a greater commitment to ‘the future’ – something that should benefit the employees and the shareholders.
Nick Clegg, UK Deputy Prime Minister, said on 4th July 2012 that "more employees should be in the driving seat and own a share of the comapny they work for." This was after a new report by government adviser Graeme Nuttall found the main barriers to increasing employee owned companies were a lack of awareness, lack of resources and concerns about how complex it was to set up this kind of business. Businesses like the John Lewis Partnership, which is owned by its workers and distributes its profits between them, are seen by Nick Clegg as a key way to improve productivity and unlock economic growth.
Maybe more organisations should consider employee ownership?
There are numerous employee owned organisations in the UK and US, including companies like; Alliance Holdings (13,300 employees); Brookshire Brothers (6,000 employees); John Lewis Partnership (81,000 employees); Parsons (11,500 employees); Savant Limited (40 employees); Tullis Russell Group(800 employees); WinCo Foods (14,000 employees), for example.
David Brodwin recently wrote that “the words ‘employee-owned business’ once evoked an image of small shops with lofty ideals but sloppy business practices. But today, employee-owned businesses like the John Lewis Partnership deliver impressive results, raising the bar for the rest. They show greater resilience in a recession. They earn loyalty from customers and suppliers. They move nimbly in tough markets. Insights from today's leading employee-owned businesses can be applied broadly, pointing the way toward a more robust and sustainable economy.”
Marjorie Kelly writes in her book “that the John Lewis Partnership is part of a paradigm shift from ‘extractive ownership’ to ‘generative ownership.’ - where extractive ownership puts short-term financial gain above all else and generative ownership returns economies to their original purpose, which is to advance human well-being.” Marjorie highlights how the John Lewis Partnership certainly fits the generative model; where its stated purpose is the ‘happiness’ of its staff, which results from worthwhile and satisfying employment in a successful business.
There are three basic models of employee ownership:
1. All the shares are held permanently by the trustees of an employee benefit trust, as in the case of the John Lewis Partnership.
2. All the shares are owned by the employees individually.
3. A combination of the two.
In practice "the 100 per cent EBT shareholding is a popular option," says Graeme Nuttall, head of equity incentives at Field Fisher Waterhouse. "The structure is easier to administer and there is no need to keep buying and selling shares as and when staff join or leave the company."
So is it time for a radical change in business ownership with a significant shift towards employee owned organisations and might such a move help organisations minimise short-term risk and global fluctuations; as well as give greater support to long-term sustainable growth.
If, as is often stated, employees are the life-blood of an organisation, then surely it’s time to genuinely recognise that and ‘reward’ them accordingly – where reward isn’t just basic financial reward, but the ability to proactively contribute to the day-to-day organisational trade-offs between short and long term decisions; as well as risks and rewards.
There are dedicated centres that promote employee ownership; in the US you have the National Centre for Employee Ownership and in the UK the Employee Ownership Association.
When shareholders pressurise organisations to achieve short-term profits that aren’t in the interests of the other stakeholders, (especially the employees), pressures that can hinder sustainable future growth; you have to ask if the basic shareholder model isn’t partially responsible for the global economic mess the world has found itself in. Maybe it’s time for a more employee-centric approach to organisational ownership where the stewardship resides with those who ultimately decide the future of an organisation – the employee.
Brodwin, D. (2012). Why we need more employee-owned business. Economic Intelligence. [On-line].
Coleman, A. (2007). There’s no place like own. Director Magazine. [On-line].
Kelly, M. Owning Our Future: The Emerging Ownership Revolution.

Sunday, October 21, 2012

Leadership: Who’s Walking the Talk?

It seems that not a day goes by when someone isn’t starting a discussion about leadership in the academic press or on social networks like LinkedIn. It’s a hot topic of conversation as the world still struggles to find its way out of the global financial crisis caused by poor leadership and the apparent lack of effective corporate (and political) governance.
It seems that most people know what an effective leader should look like and how they should behave, even going to the micro detail of differing styles to ‘match’ differing corporate needs and business environments.
The academic research and theories seem to sit well with most people looking for direction and ideas to improve this vital link in corporate performance and sustainable growth, and many discuss differing styles like transformational and transactional leadership from a position of practical experience and individual passion.
Yet with all this good rhetoric who is actually walking the talk?
In the first twelve years of the 21st Century organisations with supposedly ‘great’ leadership have been found to be ‘rotten’ on the inside. In the famous example of Enron, it’s worth remembering that in January 2001 it had about 30,000 employees and was the 7th largest company in the US by revenue, where it was cited as a role model by analysts, reporters, consultants, and by business schools where this successful case was mandatory reading at Harvard‘s MBA and, somewhat amusingly, it’s CFO Andrew Fastow had received an award as the most creative CFO by CFO magazine. And we mustn’t forget that McKinsey, considered the most renowned consultancy in high level strategic advice, provided continuous services to Enron for 18 years, receiving about $10million per year.
Then there’s Parmalat, with 36,000 employees working in 30 countries who in 2003, ‘kindly’ reported that some assets on their balance sheet simply did not exist, leading to the biggest European corporate fraud in history (amounting to 1% of Italy’s GDP). Yet just a month before its collapse a Citigroup analyst changed the status on their shares from ‘hold’ to ‘buy’, citing “stable results and growth prospects for the next two years.”  When in fact in 2002, the company had inflated its revenue by 1.5 billion Euro’s and its Ebitda by 600 million Euros by means of fictitious sales. Leading to the new management of Parmalat (during May to December 2004) suing Citigroup, Bank of America and the auditing firms Grant Thornton and Deloitte & Touche, seeking to recover $14.3 billion in damages.
Further corporate scandals in these few years since the start of the 21st Century include Agrenco (Brazil), AIG (US), Allfirst (US), Bear Sterns (US), Fannie Mae/Freddie Mac (US), LIBOR (Global), Sadia/Aracruz (Brazil), Satyam (India), Siemens (Germany), Societe Generale (France), Stanford Bank (US), Swissair (Switzerland), Tyco (Switzerland/US), Worldcom (US) and not forgetting Bernie Madoff and his billion dollar Ponzi scam.
In some instances individuals have argued that some CEO’s were put under pressure by their Boards and/or Shareholders to act in the manner they did – but these actions, however instigated, are simply not the actions of effective and professional leaders – and could be an indication of how power and greed corrupt leadership in business.
Some people are always quick to point out that ‘corporate scandals’ are nothing new and have been going on since time began – but in making these statements they forget that in today’s world we supposedly have access to ‘excellent’ processes and procedures that should minimise corporate scandals, so that if they occur they should be identified and dealt with almost immediately.
In the 21st Century organisations have access to excellent research and programmes in leadership development; succession planning methodologies; high level ‘profiling’ techniques; advanced recruitment systems and procedures; ‘advanced’ boards with corporate governance procedures; professional auditing and consulting bodies; as well as institutes with moral and ethical codes of conduct, etc.
With the business world needing strong, effective and visible leadership to drive the business growth of the future, and with so many passionate advocates of ‘great’ leadership giving profound guidance and advice – I just wonder who out there is actively ‘walking the talk’ and why we don’t hear of that many ‘great’ leaders in today’s corporate world?

Sunday, October 14, 2012

What’s Changed about Managing Change?

There can be confusion with a simple term like change when applied to organisations. Whereas in the past change might have been considered the exception rather than the rule, our current global business environment requires change to be the rule rather than the exception.
Some of the theories put forward about change simply don’t make sense in many organisational contexts. Kurt Lewin, recognised as the "founder of social psychology", proposed a three stage theory of change commonly referred to as Unfreeze, Change, Freeze (or Refreeze) process. But this implies that the organisation and/or its people are ‘frozen’ in the first place – and I’ve found very few organisations in today’s world that are ‘operating’ and in a ‘frozen’ state – as it would be close to impossible to survive for long. Then having made the change he suggests ‘freezing’ it again – when we know that organisations are competing in a fully dynamic environment where the competition will respond to the changes and hence you can never afford to ‘freeze’ anything.
In fact Lewin’s approach would highlight why organisations are reactive rather than proactive – as freezing anything in business will eventually lead to a need to react to changing circumstances in your market.
I would suggest that most organisations are developing and at least trying to continually improve and hence are making ‘adjustments’ and ‘changing’ on a regular basis.
John Kotter, a professor at Harvard Business School, introduced his eight-step change process in his 1995 book, "Leading Change" where his eight steps were; create urgency; form a powerful coalition; create a vision for change; communicate the vision; remove obstacles; create short-term wins; build on change; anchor the changes in corporate culture.

But again this ‘theory’ has too many negative assumptions that aren’t practical in many organisations. It first seems to imply that the organisation doesn’t have a strategy and vision in the first place or that they have talented employees who are committed to implementing the strategy and hence the changes that are required. Kotter, like Lewin, then assumes that it is healthy to ‘anchor’ the change assuming that the current state won’t need further development as the organisations competitors respond to their ‘changes.’
There’s no doubt that change management has its place when an organisation needs to make a significant change in direction in a short space of time – where it is the pace of change that is the potential problem rather than the change itself. Otherwise any organisation that is seeking sustainable growth must have a culture of continuous improvement, where change and innovation are encouraged at an individual, departmental and corporate level, as long as the change and innovation either align with the strategy or leads to a review and potential re-design of the strategy.
The simple rules of change should include;
a) Change is a constant in todays business environment. You 'freeze' anything at your peril;
b) That you don't make change for change sake;
c) That change must align to the strategy; or you must re-align your strategy to the potential changes (i.e. don't waste time and money trying to be too clever - it's often the little things that make a real difference);
d) Make sure all your changes are aligned in the same direction (obvious, but sometimes overlooked);
e) Don't let people make change a scary topic - this goes to the foundation of the leadership and culture of the organisation;
f) Lead from the front and listen to the pulse of the organisation; be transparent and manage by walking around, answering questions and quelling fears if and when they arise;
g) Recognise that change is taking place on a regular basis - discuss it, highlight it and embrace it - that way it becomes the norm (rather than something to fear).
We need people to encourage organisations to recognise that change is happening all the time, as the organisation and their employees learn and develop on a continuous basis – and hence are continually evolving and changing.
There are times when ‘specialised change management’ can be required and that is when an organisation needs to make a substantive change in direction in a short space of time – where it is the time factor, rather than the change component that should alert you that you may require specialist help to manage the process.
Otherwise change and continuous improvement should be part of the corporate culture and a behavioural trait of your employee talent if you are going to be a successful organisation and enjoy sustainable growth.

Sunday, October 7, 2012

What Drives Your Competitive Landscape?

One of the key questions in competitive dynamics research is ‘how’ firms facing the same industry environment act and react differently with each other. What has been overlooked, however, is ‘why’ firms facing the same industry environment act and react differently. Identity domain theory begins to provide an answer: what is ‘objectively’ the same may not be the same to managers of all firms competing in the industry, since certain competitive arenas are more important than others, above and beyond purely economic considerations, (p.50).
Scott Livengood and Rhonda Reger highlight how, “within the competitive dynamics research stream, ‘the awareness-motivation-capabilities (AMC)’ perspective has been championed to explain the antecedents to competitor actions and reactions. Specifically, awareness, motivation, and capabilities have been posited to be three key drivers of inter-firm rivalry. And as Chen argued, as far back as 1996 competitive action is predicated on three conditions: the extent of awareness, the level of motivation, and, finally, the capability to respond,” (p.49).
Researchers taking a cognitive approach to strategic interactions have focused on management’s scanning and interpretation of the external environment to form conceptions of competitive interactions or competitive space, rather than on the actions and reactions themselves, (p.50).
Yet what continues to surprise me is how little organisations often actually know about their competition, even in respect of simple things like their products, their pricing, their target markets, their competitive advantage and many other key features that an organisation should want to know about those organisations competing in their markets.
Competition is healthy in the global business world as it gives customers choices and ensures that organisations are continually striving to improve their product and service offerings, or at least they should be.
Global monopolies do exist, but in many instances come with reasonably tarnished reputations of poor customer service, excessive pricing and very little product development. While these monopolies may feel secure, they should be aware, if not already, that many of their customers would leave in an instance if a competitor entered their market even, initially, if it meant paying more.
In the normal business world, competing organisations can be a threat, but only if you allow them to be. The advantage of competitive organisations is that they can help point you in the right direction and become a benchmark to assess and measure your own performance.
In seeking best practice solutions to their competitive environment organisations need to take the appropriate steps to;
·       Identify their direct competition;
·       Identify their indirect competition;
·       Identify areas of superior and inferior performance, in line with customer value propositions;
·       Identify why customers prefer to buy from their competition (by asking them);
·       Identify the barriers to entry and be alert for new entrants;
·       Benchmark themselves against their competition;
·       Develop proactive and dynamic competitive strategies as part of the strategic process.
Once an organisation has assessed their competitive environment and have a formal internal system for reviewing the competitive landscape, they should also review and discuss how their management team responds to this competitor information and whether they are making optimal strategic decisions that allow them to ‘shape’ their competitive landscape or simply responding in a reactive manner to changes in their competitive environment.
A new look at competition in light of the cognitions of managers and the powerful forces involved with creating and defending a firm’s identity domain can help us understand why managers behave the way they do when making strategic decisions to guide the firm, (Livengood, R.S. and Reger, R.K., 2010, p.59).
Brownbill, N. (2012). Be the Best in Business. Amazon.
Chen, M. J. (1996). Competitor analysis and interfirm rivalry: Toward a theoretical integration. Academy of Management Review, Vol. 21, p.100-134.
Livengood, R. S., and Reger, R. K. (2010). That’s Our Turf! Identity Domains and Competitive Dynamics. Academy of Management Review, Vol. 35 Issue 1, p.48-66.