To Understand Leadership, Understand Followers

People want to be led and not controlled. Anyone involved in managing people should be a leader. This is what your people are looking for. You can start by communicating the direction for others to follow with an emphasis on delegating and supporting their efforts.  You want people to be motivated and productive, reaching their full potential in the work place. This requires staying out of the way and not being a micro-manager, but still holding people accountable for performance. 

From Shareholder Value to Stakeholder Value

The most significant sources of value for an organization are elusive, non-quantifiable and not easily discerned. They include things like talent, leadership and reputation. In order to get aligned around these elusive sources of value, companies should take a broader view of value – how do we add value to our stakeholders and not just the shareholders. The more traditional view of value has a narrow focus on the numbers and can include things like:

• Short-term reactions to valuations which are sometimes dramatic such as mergers or layoffs
• A bottom-line focus on earnings from quarter to quarter
• Slow to respond to change where new ideas are not aggressively developed
• A culture where value through intellectual capital is not widely practiced
• Business success is highly centered around how we increase shareholder value
• Sources of value are isolated or fragmented and not coherent across the entire company such as having the right culture

Let’s contrast this to a broader stakeholder view of value:

• Sustainable, competitive thinking drives the vision and the company has much more long-term strategic focus
• Value cuts across all parts of the company including the entire value chain
• There is an easy flow of ideas and a culture of innovation
• People who drive value for others (inside and/or outside the company) are promoted and advance within the company – it’s not just about meeting the numbers
• There is an incremental approach to rational decision making that is rooted in predictive analytics
• The bottom line is more about value and not earnings and this requires a broad and long-term view of the future

“A value is a belief in action. It is a choice about what is good or bad, important or unimportant. Values shape behavior. Until a value is acted upon it remains an aspiration. Values are hard to detect; yet they underpin organizations like the foundations of a house. If the foundation is weak, then the house falls down.”

- Unblocking Organizational Values by Dave Francis and Mike Woodcook

One way of moving away from shareholder value to stakeholder value is to identify real value drivers for your stakeholders. These bottom layer drivers will give you great insight into what really works on reaching the upper shareholder layer of value. This type of thinking needs to permeate all levels of the organization so that eventually, everyone is asking the question: How does my behavior or actions impact value and what can I do to create more value?

“What people value causes organizations to have cultures and acquire the reputations they have. World-class companies usually have cutting-edge technology, superior management systems, outstanding electronic systems, and database management, but their reputations all come back to human beings – the people who make decisions and take actions in these organizations, while using technological and management systems and tools. One of the critical characteristics of successful companies is a careful balance between the values, interests, goals, and objectives of the organization, and the values of the individuals who work for it.”

- Value Driven Management: How to Create and Maximize Value over Time for Organizational Success by Randolph A. Pohlman and Gareth S. Gardiner with Ellen M. Heffes

One common trap to value creation is to become overly pre-occupied with metrics. You should not confuse value creation with value-based metrics. Value type metrics are widely accepted and understood – things like EVA, Cash Value Added, Return on Investment, etc. However, the biggest sources of value (things like leadership, innovation, ethical behavior, knowledge, etc.) are not easy to quantify.

“Value is added in the sense that the situation is better than if nothing was done at all. But value is destroyed in the sense that the optimal value has not yet been implemented.”

- The Value Mandate by Peter J. Clark and Stephen Neill

Value-creation is a constant and difficult struggle since we can't predict the future and most important drivers of value are not measurable. Therefore, it may be appropriate to focus on only a few key drivers of value since organizational resources are limited. For example, one of the ultimate drivers of value resides in your people. So if you want to start at one single point on real value creation, begin with your human resource capital. One reason this is important is because people transcend and help you meet the value-proposition required by your other stakeholder groups – customers, suppliers, partners, etc. People represent the fluid dynamics that binds all stakeholders, covering the full range of value-creation in this age of stakeholder value and not just shareholder value.

“We don't believe in the word ‘measurement.' We don't supervise or manage people here; we lead. And we don't have employees; we have people. We don't have human resources; we have a people department. Our emotional contract with people is to treat them with respect, allow them to have input into the company, and allow them to self-actualize within their jobs.”

- Stephen Smith, CEO of WestJet

Three Elements of Sustainable Growth

Long-term survival of any organization requires successful execution of strategies that secure or “lock-in” elements of sustainability. Unfortunately, not all organizations have made the distinction between sustainable strategies vs. short-term tactics that undermines sustainability. For example, the business model of Walmart is somewhat predicated on becoming the lowest cost provider of consumer products. In order to grow the business and make a profit, Walmart must continuously increase volumes. This approach to strategy is not sustainable since it chases a lower and lower profit margin while at the same time, Walmart must desperately try to make-up for the loss through higher volumes. A sustainable strategy tends to “lock-in” a company's future by doing things that don't exhaust the company, but set it apart from the competition. Hanging your strategy on easy to duplicate tactics such as lower costs usually doesn't work since the barriers to competitors are minimal.

Don't Go It Alone

More and more cities across the United States are recognizing how important it is to support new startups for growing the local economy. We now live in a great entrepreneurial age where people recognize they must control their own destiny and solve the world’s pressing problems. Unfortunately, many people seeking to start a business are not tapping into the wealth of resources available throughout the United States.

“Nearly four out of five small business owners admit that they have not taken full advantage of national and community resources dedicated to helping small businesses develop and grow.” – Survey Conducted by Fifth Third Bank

Removing Distractions by Design

Today’s world is full of distractions and noise that can inhibit one’s ability to focus and apply serious attention to the most challenging issues. Take for example the proliferation of social media or how the media relegates important topics to one-minute sound bites. Couple this with the barrage of ads that inundate you from all angles and it’s no wonder that most of us lack the ability to put deep thought into our work and daily lives.

I Prefer to Deal with Facts

Today’s world is full of talking heads, all professing some degree of expertise across a wide range of issues. What seems to get lost is a solid understanding of the facts and how to deal with hard evidence in a meaningful way. Part of the problem is that facts are dry and boring, not very appealing to a mass audience thirsting for entertainment. And needless to say, many media sources fuel the problem by elevating extreme viewpoints to obtain ratings.

Feeding and Starving the Right Parts

Getting a business owner focused on value requires some basic logic that for some reason is incredibly difficult. It has to do with the fact that no-one likes being told their baby is ugly. Many business owners are too attached to certain parts of the business, making it hard to grow the company. Think of it like a garden which produces different vegetables. Some vegetables are more profitable than others. Those vegetables that sell the most fail to get fertilizer and attention because the gardener is so in love with his tomatoes, but tomatoes make no money. Farmers who are good business people change crops according to what will bring in the highest income. 

Improving the Budgeting Process

One of the most non-value-added activities within financial management is budgeting. Budgets are prepared to allocate and control how resources will be used in the future. Unfortunately, the future is hard to predict and upper-level management doesn't always communicate with people who prepare budgets. Because of poor communication, budgeting becomes an exercise in futility. Some of the problems associated with budgeting include:

Gamification 101

According to the Gartner Group, over 70% of the global 2000 companies now have at least one gamified process. Gamification is a way of improving how you engage with end-users. This typically takes place on some type of online platform – making the experience more fun and rewarding for customers, employees, or business partners. Many gamification applications will issue badges, points or some other incentive for active participation. A simple example is to allow users to vote thumbs up or thumbs down or Likes on Facebook.

Getting out of the Quantitative World

The world is highly quantitative – it’s all about the metrics and meeting the numbers. Everyone is counting something – number of customer complaints, number of web visits, percentage increase in sales, and the list goes on and on. With so much emphasis on the quantitative side, the qualitative side gets lost and it is the qualitative stuff that is becoming more important. One reason qualitative information gets de-emphasized is that it is difficult to measure. If we can’t measure it, then it gets ignored. This is one of the fallacies with financial reporting; things like talent, leadership and brand recognition are no-where to be found on the financial statement. But these qualitative characteristics are the real drivers of performance and they warrant more attention in today’s quantitatively obsessed world.