Do You Let Bias Effect Your Decisions?

Decision making and leadership are not mutually exclusive. Make effective decisions and your team will be motivated and more productive; and the implementation of the decision is more likely to be a success. Yet if you keep making ineffective decisions, eventually you’ll demotivate your team (probably quite quickly), productivity will fall and implementation is less likely to succeed.

 

For decades, behavioural decision researchers and psychologists have suggested that human beings have two modes of processing information and making decisions. The first, System 1 thinking, is automatic, instinctive, and emotional. It relies on mental shortcuts that generate intuitive answers to problems as they arise. The second, Systems 2 thinking, is slow, logical, and deliberate.

 

To find out how much you rely on each mode of thinking – intuitive System 1 or more deliberate System 2 – try this cognitive reflection test, below, before reading on (answers at the end of this article).

 

1 A bat and ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?

 

2 If it takes five machines five minutes to make five widgets, how long would it take 100 machines to make 100 widgets?

 

3 In a pond is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire pond, how long would it take for the patch to cover half the pond?

 

See the answers at the end of the article to see if you were right?

 

It’s worth noting that each of the two models of thinking has distinctive advantages and disadvantages. In many cases, System 1 takes in information and reaches the correct conclusions nearly effortlessly using intuition and rules of thumb. Of course these shortcuts can lead us astray. So we rely on our methodical System 2 thinking to tell us when our intuition is wrong or our emotions have clouded our judgement, and to correct poor snap judgements. All too often, though, we allow our intuitions or emotions to go unchecked by analysis and deliberation, resulting in poor decisions.

 

But of course it’s not quite that simple. Psychologists and behavioural economists have identified many cognitive biases that impair our ability to objectively evaluate information, form sound judgements, and make effective decisions. Where an effective leader is aware of their biases and when they may affect their judgement for the worse; and of course where the ineffective leader is often in complete denial of their own biases, refusing to look at themselves in the mirror, instead insisting it’s those around them who need to look in the mirror (as they couldn’t possibly be at fault).

 

These ineffective leaders, who are in denial about how biases effect their judgement, can be in positions of power for years before they are identified as the problem. This is because they are naturally manipulative and divert the problems on to other people; and where their bosses are also blind to the problems they are causing in their organization.

 

Below are several biases that can have a negative impact on both our decisions and our employees.

 

Action-orientated biases include excessive optimism and overconfidence. Where with excessive optimism we are overly optimistic about the outcome of planned actions. We overestimate the likelihood of positive events and underestimate that of negative ones. And with overconfidence we overestimate our skill level relative to others’ and consequently our ability to affect future outcomes. We take credit for past positive outcomes without acknowledging the role of chance.

 

Biases relating to perceiving and judging alternatives. Where firstly with confirmation bias we place extra value on evidence consistent with a favoured belief and not enough evidence that contradicts it. We fail to search impartially for evidence. Secondly with anchoring and insufficient adjustment we root our decisions in an initial value and fail to sufficiently adjust our thinking away from that value. Thirdly with groupthink we strive for consensus at the cost of a realistic appraisal of alternative courses of action. Finally with egocentrism we focus too narrowly on our own perspective to the point that we can’t imagine how others will be affected by a policy or strategy. We assume that everyone has access to the same information.

 

Biases related to the framing of alternatives. Where firstly with loss aversion we feel losses more acutely than gains of the same amount, which makes us more risk-averse than a rational calculation would recommend. Secondly with sunk-cost fallacy we pay attention to historical costs that are not recoverable when considering future courses of action. Thirdly escalation of commitment where we invest additional resources in an apparently losing proposition because of the effort, money, and time already invested. Finally controllability bias where we believe we can control outcomes more than is actually the case, causing us to misjudge the riskiness of a course of action.

 

Stability biases, where with status quo bias we prefer the status quo in the absence of pressure to change it; and present bias where we value immediate rewards very highly and undervalue long-term gains.

 

Beshears and Gino found that “holding individuals accountable for their judgements and actions increase the likelihood that they will be vigilant about eliminating bias from their decision making. For example, a study of federal government data in the USA on 708 private-sector companies by Alexander Kalev and colleagues found that efforts to reduce bias through diversity training and evaluations were the least effective ways to increase the proportion of women in management. Establishing clear responsibility for diversity (by creating diversity committees and staff positons, for example) was more effective and led to increases in the number of women in management positons.”

 

Answers to Cognitive Reflection Test:

 

1 Correct Answer: Five Cents

 

The intuitive response is to assume that the bat costs $1.00 and the ball costs 10 cents. But if you engaged System 2 and did the math, you’d see that this couldn’t be true. There’s a dollar difference between the two, so the only set of prices that meets all the requirements in the problem is $1.05 for the bat and $0.05 for the ball.

 

2 Correct Answer: Five Minutes

 

It’s easy to get this one wrong, because our minds spontaneously pick up a pattern that is misleading. We assume that if five machines make five widgets in five minutes (5-5-5), by analogy 100 machines would make a 100 widgets in 100 minutes (100-100-100). But if you’re using System 2, you see that each machine takes five minutes to make one widget. Think of it this way: if it takes nine women nine months to give birth to nine babies, how long would it take 100 women to birth 100 babies?

 

3 Correct Answer: 47 Days

 

If you jumped to the conclusion that half the pond would be covered in half the time (48/2 = 24 days), you neglected to account for exponential growth, a type of reasoning that requires cognitive effort (and, thus, System 2 thinking). The correct answer is 47 days, because if the pond is half covered by then, a doubling over the next (48th) day will result in the pond being entirely covered with lily pads. By the way, ‘one day’ is also a correct, albeit uncommon, response. It takes one day for the lily pads to cover the second half of the pond. If that was your answer, you deserve extra credit for creativity.

 

References:

 

Beshears, J. and Gino, F. (2015). Leaders as Decision Architects. Harvard Business Review, May, p.52 – 62.  

Are Leaders Failing Organizations?

Martin Reeves, Simon Levin and Daichi Ueda investigated the longevity of more than 30,000 public firms in the United States over a period 50 year span and the results were stark: businesses are disappearing faster than ever before. Where they found that “public companies have a one in three chance of being delisted in the next five years, whether because of bankruptcy, liquidation, M&A, or other causes. That’s six times the delisting rate of companies 40 years ago. Although we may perceive corporations as enduring institutions, they now die, on average, at a younger age than their employees. And the rise in mortality applies regardless of size, age, or sector. Neither scale nor experience guards against an early demise,” (HBR, 2016, p.48).

 

Reeves, Levin and Ueda “believe that companies are dying younger because they are failing to adapt to the growing complexity of their business environment. Many misread the environment, select the wrong approach to strategy, or fail to support a viable approach with the right behaviors and capabilities,” (p.48).

 

But this is a simple failure in modern day leadership. The business environment hasn’t suddenly become changeable in the 21st century, business environments have always been changing – less we forget the industrial revolution, for example.

 

The problem is that leadership has become ‘lazy’ and reactive in too many instances. Developing dynamic strategies is nothing new – good leaders know that they need an agile, flexible organization to respond to changes in their market place or even outside their market place, when there’s an option to diversify and expand. This is leadership 101.

 

Sadly the basic rules of corporate governance are just being ignored. Look at the UK construction company ‘Carillion’ – who have recently been placed under administration. Fingers are being pointed in all different directions in the blame game – but if we put our feet firmly on the ground, it’s the leadership of Carillion who failed their company, not the UK government, and not anyone else.

 

Too many leaders today want to earn ‘fat’ salaries but don’t want to take the accountability that comes with the ‘job’. This just makes life way too easy and means, without accountability, these mostly ‘white middle aged men’ simply don’t care enough and leave their organizations vulnerable to failure, while living the high life.

 

Reeves, Levin and Ueda do give some tips for organizations to be more aware and agile – but this isn’t rocket science – and the boards of organizations just need to ‘care’ more about their organizations future.

 

Tip One: Organizations need to be realistic about what they can predict and control, what they can shape collaboratively, and what is beyond the reach of managerial influence. A clear example is the financial crisis of 2007-2008, during which risk created by subprime lending in the U.S. real estate market spread catastrophically throughout the global financial system.

 

Tip two: Organizations need to look beyond what their firms own or control, monitoring and addressing complexity outside their firms. CEOs must ensure that their companies contribute positively to the system while receiving benefits sufficient to justify participation. Consider Sony, which brought out the first e-reader three years before Amazon’s but lost decisively to the Kindle and withdrew from the market in 2014. Because it failed to provide a compelling value proposition that would mobilize key components of the publishing ecosystem – authors and publishers – it could offer only 800 titles when its e-reader launched. In contrast, Amazon initially sacrificed profits, selling e-books for less than what it paid publishers. It also invested in digital rights management to spur the growth of the ecosystem. With the support of other stakeholders, it launched with 88,000 e-books ready for download.

 

Tip Three: Leaders must embrace the inconvenient truth that attempts to directly control agents at lower levels of the system often create counterintuitive outcomes at higher levels, such as the stagnation of a strategy or the collapse of an ecosystem. They must avoid relying on simplistic casual models and trying only to directly manage individual behavior, and instead seek to shape the context for behavior.

 

Good tips by Reeves, Levin and Ueda though slightly full of ‘MBA speak’ rather than simple understandable language. Leadership is not rocket science and using fancy language doesn’t change that fact. For me it still goes to the concept suggested by Jim Collins of “having the right people on the bus, getting the wrong people off the bus, and ensuring everyone is in the right seat” – and this is especially true for leadership.

 

Sadly I think too many organizations are in a cycle of bad leaders developing bad leaders – with their employees simply fed up and just doing what they have to do to survive day-to-day. If organizations can’t shake themselves up then shareholders need to start taking some accountability and demanding change.

 

Until organizations get back to a cycle of great leaders developing great leaders, organizations will continue to fail on a regular basis – and the bad, unaccountable leadership will blame anything else but themselves – and we must stop being naïve and believing them.

 

There’s a great quote that states “never push a loyal person to the point where they no longer care” and organizations have been doing this to their employee base for far too long – and suffering from the consequences.

 

Reeves, Levin and Ueda do highlight how “in society, complex adaptive systems require cooperation in order to be robust; where direct control of system participants is rarely possible. Individual interests often conflict, and when individuals pursue their own selfish interests, the system overall becomes weaker, and everyone suffers. Trust and the enforcement of reciprocity combine to provide a mechanism for organizations to overcome this quandary. To leverage the power of trust, leaders should consider how their firms contribute to other stakeholders in their ecosystem. They must ensure that they are adding value to the system even as they seek to maximize profits,” (p.55).

 

For those that can influence the future of organizations – owners, shareholders and corporate boards – let’s pause to assess our leadership and not settle for anything but ‘excellence in leadership’.

 

References:

 

Reeves, M., Levin, S. and Ueda, D. (2016). The Biology of Corporate Survival. Harvard Business Review, Jan-Feb, p.46-55.

Do You Still Use SWOT?

Some of the old business principles are still the best. Over the last 30 years many business theories have changed – but sadly, in many cases, not for the better and mostly for personal and/or commercial gain. Where academics and consultancies have re-packaged great business principles that should have been left alone and worse still repacked them as mediocre replicas just either to get their name associated with something supposedly new or for consultancies to try to make a quick buck with weakened solutions for business, or both.

 

One outstanding business tool for assessing an organizations; departments or even individuals current business environment, and at the same time helping develop a solid short/medium term strategy is the good ol’ SWOT analysis. This business tool, when used properly, has stood the test of time and when used correctly, as originally developed, adds real value to any organization.

 

SWOT stands for Strengths, Weaknesses, Opportunities and Threats and if done properly gives a solid insight into your organization and offers immediate detailed focus for solving current issues and for developing genuine workable strategies – where the operative words are ‘if done properly’.

 

Sadly most people who use SWOT no longer use it correctly and hence don’t get the benefit from this great business tool.

 

There are certain ‘criteria’ that must either exist or be applied for SWOT to work properly; and if any one of them are missing, then you will either get a sub-optimal or manipulated outcome, both of which are totally worthless.

 

Two of the criteria that must exist for SWOT to be meaningful are;

 

A Transparent Culture: Whether the SWOT is being completed by an organization, a department or an individual it will be worthless if the analysis is not completely honest. Often individuals and organizations find it hard to be honest about their weaknesses and threats; and can embellish their true strengths and weaknesses just because it makes them feel good – but of course this is meaningless for the genuine future of the business and gives a false picture and worse still a false sense of security.

 

Honest analysis of weaknesses, however hard these may be to hear at the top need to be welcomed; and teams and employees should be recognised and thanked for honest input – as these strong leaders know, anything else but raw honesty will have a detrimental impact on their future growth.

 

It is in your interests to ensure the SWOT is brutally honest and if it is the results will be ‘gold dust’ for the future of the organization. Employees are not fools and will give their full support to an honest SWOT analysis. Even more an ‘honest’ SWOT will build morale, trust and a cohesive working environment, regardless of how ‘bad’ the current business environment may be. Employees are ‘attracted’ to organizations and leaders that genuinely want to know what they can do to solve their employees problems; and who show an interest in what employees think the future could hold. This small step alone has a huge impact on building a positive culture and encouraging innovative thought. What employees genuinely dislike are organizations and/or leaders that embellish their strengths and refuse to admit their weaknesses – and this will ultimately lead to a dysfunctional relationship throughout the organization.

 

 

 

Completing SWOT Company Wide: A SWOT must not just be conducted at the top of an organization – but should be done bottom-up, involving the whole company, for it to have any genuine meaning. In fact some organizations that use SWOT well, even include other stakeholders in their SWOT in order to get a full picture from all perspectives. This takes strong and confident leadership and when applied develops even stronger stakeholder links; as they all feel part of the organization and genuinely appreciate being asked ‘what they think’.

 

Too many organisations still think SWOT is only a high-level exercise and often take themselves off to some luxury hotel for ‘Strat Sessions’ thinking they are the best people to decide the future of the organization. But without input from the grass roots these short-sighted organizations will never really understand their own organization and it’s real environment; strategies will be weak and won’t be owned by the employees and leadership will be command and control driven, as the employees haven’t had a voice, so they need to be told what to do, often without the ‘why’. And if they survive, these organizations will survive more by luck than good business or effective leadership, if they survive at all. What these organizations never realise is that they never reach their true potential.

 

Some really large corporates take this high-level approach and though their stakeholders may think they are operating well – they will never really be operating at their optimal level. I smile when I realize just how blind these leaders are to their mediocre success; even organizations that are revered in the press, often have dysfunctional management/employee relationships because they don’t involve their employees in the future of the organization.

 

So there’s no time like the present to start performing a SWOT correctly and if and when you do, you will and your organization will never look back. Done correctly and it will immediately have a positive impact on your organizational culture and all your future strategies and sustainable growth.

 

Some further quick tips and tricks would include;

 

A. Build the SWOT bottom-up;

B. Capture the results by department and form a matrix in the shape of your organizational pyramid;

C. Look for common themes with respect to the SWOT across the horizontal and vertical structure;

D. Where there are unique differences – find out why and where possible do a quick fix; maybe seconding employees from other areas to help;

E. Your short term is viewed by your current strengths and weaknesses; along with short term threats; but your medium and long term can look at removing/minimizing weaknesses and using your strengths to the maximum or developing new strengths to ‘capture’ an opportunity;

F. Keep the whole organization informed every step of the way; and remember

G. This is a dynamic tool – not a static one – once you’ve completed a fully comprehensive SWOT you should be able to review this on an annual basis or by exception as your environment changes.

Are Western Organisations Prepared for Global Economic Change?

We instinctively create our expectations around our past experiences – but what if our past experiences are no longer a predictor of future behaviour – how easy is it for us to re-position our future expectations to a state we’ve actually never experienced before? This is the state of the global economy – which is predicted to change in the next ten years to a state we’ve not experienced for over 30 years, i.e. to a state many people simply have no experience of, other than through economic history books.

 

In October 2015’s Harvard Business Review, Richard Dobbs, Tim Koller and Sree Ramaswamy highlight how “North American and Western European companies now capture more than half of global profits, and measured as a share of national income, are at their highest level since 1929. It has been a remarkable era, but it’s coming to a close. Although corporate revenues and profits will continue to rise, the overall economic environment is becoming less favourable, and new rivals are putting the Western incumbents on notice. Many of the new players are from emerging markets, but some are surprise intruders from next door, either tech companies or smaller-technology-enabled enterprises. These competitors often play by different rules and bring an agility and an aggressiveness that many larger Western companies struggle to match. In this new world, corporate performance will no longer outpace the global economy. We forecast that in the decade ahead, although operating profits will continue to grow in absolute terms, they will fall to 7.9% of global GDP – around what they were when the boom began,” (p.50).

 

The impact this has on the world, especially the Western world, cannot be underestimated as the upcoming changes will, for example, require organisations to be visionary and innovative enough to see the errors of many current business ‘philosophies’ and ‘consulting’ interventions and will require organisations to be open enough to develop and implement ‘business principles’ that are ‘new’ – in that they will actually shape organisations for a future state, that many organisations and their respective boards may not believe is coming.

 

Just this ‘small’ strategic re-alignment will create significant opportunities for SME organisations to take significant leaps forward against established larger organisations who, like a large tanker, are often much slower at responding to a future state, significantly different to what they are expecting and planning looking for.

 

But it’s not just organisations that are going to need to re-adjust, employees are going to have to re-adjust as well to the changes to come as they will have to re-align their own career and salary expectations. Some will rightly argue that employees in many countries are already battling with having had to except lower salary levels and lower salary increases, less than the annual increase in the consumer price index, leaving them with less consumable income year-on-year – where the counter argument to this hypothesis is that employee expectations were that the global financial crisis was just a ‘phase’ that they would have to work through and that the good ‘old’ times would return again – and the fact that salary levels may never go back to what they were, may be something many employees find hard to swallow.

 

On a global scale, we’re already seeing large Western corporates laying off thousands of people in 2015 – and these events, though reported as single events, have not yet been reported at the cumulative level and when they are many employees in Western organisations will start to sit-up and be more concerned for their own future stability and welfare.

 

Dobbs, Koller and Ramaswamy suggest that “the challenge facing big North American and European companies is to maintain and even extend their lead in the face of much tougher and more varied competition and a less favourable environment. Half of the worlds GDP growth over the next decade, and many of the new competitors will come from smaller cities in the emerging world – places such as Kochi and Kumasi – places that most Western executives would be hard-pressed to locate on a map. Even the most global firms retain a strong local bias in their operations, making close to half their revenue at home. The local market also influences how firms choose to innovate; the products they create, their supply chains, and their investment strategies. For Western executives, an ‘emerging market’ view or even a view of the ‘Chinese’ or ‘Indian’ market is not enough,” (p.60).

 

Accepting a complete change to how Western organisations approach business in the not too distant future will definitely sort out the exceptional leaders from the mediocre. But the fact that many Western jobs in the large corporates will be in the hands of their leaders, should make both employees and stakeholders stand up and start, maybe genuinely for the first time – to truly question the capabilities and vision of their organisations executive leadership.

 

Though tough times are ahead – as always there is a great opportunity to put right one of the greatest errors of the first decade and a bit of the 21^st century – and that is to not only make leaders truly accountable for their actions – but to identify who the best leaders are, not just for the ‘now’, but for the sustainable future of your organisation – as they could hold your future in their hands. 

 

So in conclusion Dobbs, Koller and Ramaswamy suggest that “North American and European multinationals have enjoyed an exceptional three-decade ride, and they have plenty of reasons to remain upbeat as they look ahead. But to maintain or increase profits, they’re going to have to shake things up. The competition will be relentless and less predictable, and the operating environment not nearly as supportive. Vigilance, agility, and optimism have always been prized characteristics of successful companies; but over the next decade they will have to be doubly so…..” (p.62).

 

References:

 

Dobbs, R., Koller, T. and Ramaswamy, S. (2015). The Future and How to Survive It. Harvard Business Review, October, p.48-62.   

How Creative Should You Allow Employees to Be?

Xiaomeng Zhang and Kathryn Bartol wrote in a 2010 article that “given increasingly turbulent environments, heightened competition, and unpredictable technological change, more and more managers are coming to realize that they should encourage their employees to be creative. Considerable evidence indicates that employee creativity can fundamentally contribute to organizational innovation, effectiveness, and survival.”

 

Creativity doesn’t mean employees relaxing in their chairs, staring at the ceiling and coming up with ‘head-in-the-clouds’ creations that are of absolutely no use to them or the organisation – but they look good on paper. For creativity to take place, employees must take a mature approach to finding effective solutions. There are responsibilities and behaviours that must exist at the leadership level and the employee level for this to be a win-win for everyone.

 

Zang and Bartol define creativity as “the production of novel and useful ideas by an individual or by a group of individuals working together. For creativity to occur in organizations, managers need to support and promote it, as they are the individuals who are most knowledgeable about which employee work outcomes should be creative and they have considerable influence over the context within which creativity can occur.”

 

Some of the key behaviours that must be embedded within the organisational culture are; the ability for the leaders and employees to have meaningful and transparent people conversations; employees must be involved in the decision making processes and employees must be empowered to be creative in the first place. These three behaviours alone will have a significant impact on developing a truly creative culture in the organisation.

 

Studies also have provided evidence for a positive relationship between supportive leadership and creativity, and a negative relationship between controlling leadership and employee creativity (e.g., Amabile et al., 2004; Madjar et al., 2002; Oldham & Cummings, 1996; Tierney & Farmer, 2002, 2004). In considering broader leadership approaches, some studies have shown support for a positive impact of transformational leadership on employee creativity (e.g., Howell & Avolio, 1993; Jung, Chow, & Wu, 2003; Keller, 1992; Shin & Zhou, 2003; Sosik, Kahai, & Avolio, 1998), but others have produced contrary results (e.g., Basu & Green, 1997; Jaussi & Dionne, 2003; Kahai, Sosik, & Avolio, 2003).

 

Creativity should be taking place in all organisations; at all levels and all of the time – there should be an embedded mind-set that encourages and recognises creativity. There will be some industry sectors where creativity will be the norm, advertising been one, but creativity goes beyond the ‘product’ and looks at all aspects of the business.

 

According to Ahearne, Mathieu, and Rapp’s (2005) conceptualization, empowering leadership involves highlighting the significance of the work, providing participation in decision making, conveying confidence that performance will be high, and removing bureaucratic constraints. These behaviours are conceptually highly relevant to creativity. For instance, it is clear from the creativity literature that participation in decision making and perceptions of autonomy are vital preconditions for creative outcomes (Amabile, 1988; Amabile et al., 2004). Inherent in the combination of empowering leadership behaviours is delegating authority to an employee, so as to enable the employee to make decisions and implement actions without direct supervision or intervention (Bass, 1985; Jung et al., 2003). Given the nature of creativity, such delegation helps establish a work context wherein an employee is encouraged and empowered to explore diverse creative alternatives before (perhaps) settling on a viable creative solution (Amabile et al., 1996). Zang and Bartol define empowering leadership as the process of implementing conditions that enable sharing power with an employee by delineating the significance of the employee’s job, providing greater decision-making autonomy, expressing confidence in the employee’s capabilities, and removing hindrances to performance.

 

In an ‘ideal’ organisation, creativity is not something that has to get any special attention – employees are recruited not just for their skills and experiences, but for their instinctive desire to be creative and they then work in departments that have embedded behaviours that support a creative culture and better still have leaders who, not just implement but, recognise creative excellence.

 

References:

 

Zhang, X. and Bartol, K.M. (2010). Linking Empowering Leadership and Employee Creativity: The Influence of Psychological Empowerment, Intrinsic Motivation, and Creative Process Engagement. Academy of Management Journal; Vol. 53, Issue 1, p.107-128.

How Effective Has Your Corporate Social Responsibility Been This Year?

Marc Epstein, Adriana Buhovac and Kristi Yuthas highlight in a 2010 article how “executives recognize the importance of social and environmental responsibility, corporate sustainability, but they seldom implement it successfully. The challenge lies in how to actually integrate sustainability into operational and capital investment decision making and implement it successfully in large, complex, for-profit organizations.”

 

The global financial crisis has put the brakes on Corporate Social Responsibility (CSR) in many organisations, and even many of the ‘big boys’ have struggled to focus on effective CSR – where the success of CSR can be measured in the local community. 

 

Epstein argues that, to improve the sustainability strategy implementation process, managers should carefully identify and measure key performance drivers included among the various inputs and processes. The drivers of the model include:

 

• External context (regulatory and geographical),
• Internal context (mission, corporate strategy, corporate organizational structure, organizational culture, and systems),
• Business context (industry sector, customers, and products), and
• Human and financial resources.

 

Before you can ‘give back’ you have to be secure yourself – that’s regardless of whether you are an organisation or an individual, that’s why it’s often ‘mature’ organisations and individuals who are in a real position to give back socially. SME businesses must be sure that their CSR initiatives, however well-meaning, add to their sustainable growth; otherwise both they and the community they are trying to help may suffer in the medium to long-term.

 

Recently, the Foundation for Applied Research (FAR) of the Institute of Management Accountants (IMA®) sponsored a research study to examine how leading corporations integrate economic, social, and environmental impacts into day-to-day management decision making. The research focused on four companies:

 

1. Nike, the world’s leading designer, marketer, and distributor of athletic products and clothing;
2. Procter & Gamble (P&G), one of the world’s leading branded consumer products companies;
3. The Home Depot, the world’s largest home improvement specialty retailer; and
4. Nissan North America, a unit of Nissan Motor Co., a leading global auto manufacturer.

 

Epstein et al highlight how “in all four companies, there are fewer conflicts for senior and middle managers in balancing social, environmental, and financial performance because these conflicts are resolved higher up in the organization and are well integrated into the informal systems. Upper management has bought in to the benefits relating to sustainability. Thus people are able to make certain trade-offs because they know their leaders will be supportive. Corporate responsibility is one of Nike’s nine strategic priorities. The CEO and other company leaders support CR intensively and consider it an enhancing element in reaching strategic goals. In fact, leadership engagement is number one. ‘Making a sustainable decision that negatively impacts margins is not so wrong, but they have to inform me because we can offset this somewhere else,’ one vice president explained.”

 

All four of these organisations are seasoned, mature businesses where corporate social responsibility adds to their ‘business value’ by allowing them to be seen actively supporting the communities where they work, hence this is a win-win for everyone involved. But don’t forget that these are profit driven organisations and everything they do ultimately links back to their corporate strategy and meeting their stakeholder requirements and expectations, many of which are financially driven

 

Epstein et al highlight how “companies sometimes consider social impacts more difficult to measure than financial results because they’re often intangible, hard to quantify, and difficult to attribute to a specific organization, and they have a long time horizon. This difficulty often presents obstacles to producing compelling evidence of impact and mission achievement.”

 

Both common sense and years of research tell us what we already know – that supporting local communities where you do business can do nothing but help your businesses sustainable growth. It’s the identification of effective corporate socially responsible projects and then the effective implantation of these projects so that they really make a difference on the ground that distinguishes ‘good’ CSR from the rest. Hopefully next year organisations around the globe can put a little more strategic thought into CSR and identify the win-wins that many businesses and communities need.

 

As Epstein, Buhovac and Yuthas conclude “an organizational culture supporting sustainability decisions can inspire and motivate employees to take sustainability obligations seriously. In addition, in their recruitment and development practices, companies may seek to create in their employees a passion and commitment to sustainability. This leads to contributions that are good for society, the environment, and the company’s bottom line.”

 

References:

 

Epstein, M.J., Buhovac, A.R. and Yuthas, K. (2010). Implementing Sustainability: The Role of Leadership and Organisational Culture. Strategic Finance, Vol. 91, Issue 10, p. 41-47.

Is the Concept of Retirement Changing for Good?

In an article by Richard Ford in The Times he highlights how “baby boomers are spearheading a social revolution that will force companies to recognise the benefits of a gradual withdrawal from the world of work, rather than a sudden cut-off retirement date.”

 

Ros Altmann, a former director-general of Saga ( a firm that focuses on the over 50’s), said that the change was being driven by people living longer and healthier lives, along with poor pension prospects for those heading towards retirement age.

 

Also many of us will have witnessed the sad decline and even death of individuals who appeared healthy on the outside, who just couldn’t cope with retirement and who within a short-time of retiring suffered health problems or worse.

 

An article over ten years ago that looked at the lives of people over 100 years old found that all of those they interviewed still did some kind of work – admittedly not full time, but all of them were ‘active’ to some degree.

 

“There is a social revolution under way, which is being led by the baby boomers, who have redefined everything in their lives, particularly around the world of work. They are now going to redefine retirement,” Ms Altmann said.

 

Her comments come as a report published on 4th August 2014 highlights how age no longer defines the hobbies and lifestyle of the over 50 ‘super-boomers’. It says that with their fitter bodies, more active minds, higher levels of entrepreneurship and fewer worries about what people think of them than previous generations of over 50’s, they are increasingly the face of fashion, design and beauty.

 

One third of the British population is now over 50 – the ‘super-boomers’ who are the wealthiest, healthiest and most active people in that age group in history. By 2030 the number of people aged 60 will reach 20 million, according to official figures.

 

A report by The Future Laboratory, commissioned by the Huawei technology company, highlighted how a ‘second life’ awaits the over-50’s, during which they will start second or even third careers, including setting up craft-based businesses. Tom Savigar, chief strategy officer of The Future Laboratory, said of the over-50’s; “retirement offers them the chance to rev up rather than slow down, to start a new business or career, to invest and seek adventure – all with confidence, experience and attitude.”

 

Yet we mustn’t forget that as the divide between the wealthy and the poor seems to increase in every country around the world – this divide will exist within the over 50 age group too. There will be those 50 year olds who have had full and successful careers who have the means to ‘rev up’ rather than slow down and look at opportunities to ‘invest’ in craft-based businesses. But we must be realistic and recognise that there will be a large proportion of this over 50 age group that will suffer – they will not be able to afford to live a decent life – not being able to afford fuel bills to keep them warm in winter, and even lack the finances to feed themselves properly.

 

The suffering that exists today within the elderly population will just increase – and what I’m not seeing anywhere is the plan for dealing with this group of people. Many will suffer through no fault of their own, where pensions – that were once secure vehicles to ensure you had a good retirement – are no longer secure.

 

So many will have to work after retirement simply because they need the income to survive and this group will compete with other job hunters unless organisations can find a win-win scenario to develop dual operating structures that allow retires to work for them.

 

The retirement landscape is definitely changing and in a big way – and though academics and researchers have recognised and written about this phenomenon, it’s not clear that organisations (or governments) are making any changes to their ‘modus operandi’ to cater for this change.   

 

So it seems likely that the ‘baby boomers’ themselves will have to spearhead the change in the retirement landscape – and it’s a change that is coming very, very quickly.

 

References:

 

Ford, R. (2014). Over-50 ‘superboomers’ rewrite the retirement rules. The Times. 4th August, p.9-10.