Companies operate for stakeholder’s benefits, but isn’t it shareholders?

Since quite some time I have been thinking about writing this post, and when I found the article on Davos 2010, I realized this was the moment. When I started my professional life, people used to tell me companies had four key stakeholders, shareholders, employees, clients and suppliers. Today, frankly, most CEO’s only focus on the first, the shareholder, and receive insanely large bonuses while leaving employees out of a job, pushing suppliers to bankruptcy and barely looking at customer satisfaction. How have we gotten there?

As long as the world was bifocal (liberalism and communism), the people oriented values were present in our cultures. People were respected, their well being was part of what enterprises and businesses were looking for. Since the collapse of the communism, the egoism has taken over. I think about myself and don’t care about others. That’s the ultra-liberalism that is currently being pushed by businesses. Companies have completely lost their social responsibilities. Oh, don’t understand me well, we have never spoken as much about social and environmental responsibilities, but it’s all related to avoiding that the supplier uses child or slave labor. The basic thinking around the employee for example has completely been lost.

I already hear you. The writer of this entry is a dangerous communist or socialist. Actually that can’t be further of the truth, but I strongly believe in a social liberalism where a company takes its responsibilities towards all four stakeholders.

The current trend results in employees no longer finding any bonds with their company, ready to jump from one to another as soon as a good proposal comes along. Loyalty is quickly disappearing, and with it the knowledge that makes the company unique. While in the short term, the large profits obtained by firing employees and squeezing suppliers, will benefit the shareholder, in the long run, many companies will collapse as they have lost their essence.

Sure a shareholder should be rewarded for the money he/she invests in the enterprise, the employee should be rewarded for his/her time, creativity, initiatives, energy and enthusiasm he devotes to the company, and the supplier should be allowed to make a reasonable profit.

The CEO’s that have driven this future catastrophe will no longer be there when the disaster strokes. In the mean time they will have made hundreds of million on the back of employees and suppliers. What a strange world we are in, where people are no longer responsible for their acts.

Culture and Collaboration, an explosive mix

Saying that Italians, French, German and Dutch people react differently is an understatement. We all have our stories of culture clashes. Our colleagues in different countries do not behave exactly like us. Although we probably share the same organizational culture, our cultural background makes us approach events and situations differently. This often make our colleagues blink, as they do not understand our reactions. Particularly in large global organizations, collaboration is hindered by these elements, without being taken care of.

When I started working with Indian colleagues, I quickly got completely confused. Not only did they shake their heads strangely, they also told me they would do something and did not do it. Actually, my statement is NOT correct. I should say I understood they were going to do something because they answered “yes” to my question. My assumption became my reality within the frame of my own cultural value system. Much later I understood, India had a different value system. As one of my Indian friends one day told me, “there are 40 ways to say yes in Hindi, there is no way to say no”. They had responded candidly to my question, with what in their eyes meant something like “yes, I hear what you say”. They were sincerely astonished when, one week later, I expected a deliverable.

This example demonstrates the misunderstandings happening daily in large enterprises. The more globalization moves to the east, the more we encounter such issues. Employees are not prepared for such challenges. I found the image hereby, based on work performed by Huntington an interesting starting point, although I believe in differences between ethnic groups within the areas.

When working in an international environment it is impossible to understand all cultures we are confronted to, However, building cultural awareness is important to avoid clashes and misunderstanding in the first place. Cultural sensitive people will be less astonished about unusual responses and try to understand what is happening rather than reacting negatively. Achieving this is already great progress for collaboration as it allows the people to openly discuss their differences and explain why each  member behaves the way he/she does. Let me finish this note with a small example. When I started working globally, I received the name of a contact in Japan. I called him up, as a good European, telling him I wanted to ask him a couple questions. He responded “please send your questions in writing”. This drove me nuts. Who did he think he was? Was I not good enough to be allowed to talk to him? I actually was so angry I talked about it with my boss. He explained that the Japanese person was far from excellent in English. As he did not want to loose face by giving me a wrong answer, he asked me to send my questions in writing. This would allow him to use his translation tools to ensure he understood exactly what I needed and provided the best answer. This was a lesson I never forgot. Lets not look at the reaction from the other through our own lenses, but rather try to understand what the reaction actually mean. Much later, when I had build a relationship with him, I had the opportunity to discuss this “near incident” with him. We had a real good discussion, it helped us to understand each-other better and to become friends. If the reaction of one of your foreign colleagues drives you creasy, it may be time to try to understand rather than judge.

Compensation & Recognition

Many things can be said about how people behave, but recognition and compensation make many people do the right thing. So, the fundamental question is how we distill the right collaborative behaviors through the use of compensation and recognition. In the area of compensation, we obviously refer to variable financial compensation in one way form or shape. This is often called bonuses, and frankly these days that word does not have a very good press. Measuring people on collaboration, as referred to in the previous entry, and combine the achievement of appropriate goals with rewards help distill behaviors. However, there are a couple elements to keep in mind:

• First the objective needs to be achievable and the person needs to have the feeling he/she can influence the objective
• Second, the reward needs to be significant enough it gives the person the impression he/she is valued. Never forget that in many countries reward is taxed, resulting in the beneficiary absolutely not receiving what you pay.

Most people are in great need of recognition. According to Maslow’s Hierarchy of Needs, once people have addressed their physiological and safety needs, they are looking for a belonging and esteem. Recognition helps them feel part of a group and being respected. In today’s environment where most people in business have their physiological and safety needs covered, belonging to a group, being respected and growing their self-esteem covers their needs, and prepares them to unleash their creativity, their problem solving capabilities and all those other elements that maximizes their value for the business.

Recognizing somebody is often easy. But I am so astonished it is regularly overlooked by managers. Saying to somebody “Job well done”, pointing out the value he/she added, congratulating her/him in front of people should be a natural to management. It is a major aspect of leadership, one that helps getting the best out of people and increases their loyalty to the company and to management.

Compensation complements this as it is a more tangible way to recognize. It complements recognition, and should, in my mind, be kept for great achievements. It should not become a given. In my mind, the current bonus discussion demonstrates that compensation needs to be managed very carefully, or things are getting out of hand. The team and collaboration aspects should always be included. I remember my frustration when selling projects that the sales person received a lot of recognition and a big bonus, while myself, the project manager, and my team, who really had established the credibility in front of the customer, barely received a thank you.  That does not foster collaboration.

So, in a nutshell my rules are simple, recognize and say thank you, reward when truly remarkable, but always look at the core team as one, not a bunch of competing individuals.

Organizational structures often hinder collaboration

Large enterprises often have complex organizational structures based around business units and product lines. Customers on the other hand are looking at them as one organization and are astonished of the difficulty they have to collaborate amongst business units. The first of the 5 key elements I highlighted in my previous post is the organizational structure. The revenue generating entities are typically supported by shared service centers such as finance, human resources, marketing, IT and others. Each BU (business unit) has its own budget and is supposed to manage its own environment.

Many companies use an allocator key to spread the costs of the shared services over the business units. And here starts the debate. What key is used? For example, HR costs are often shared by headcount and this makes sense. But in my company, IT costs also got allocated by headcount, arguing that the more people were working in a department, the higher the IT costs. This worked well till some BU’s started to outsource production, using important IT resources to track operations with partners. They increased IT, but their headcount reduced, resulting in lower allocations. This obviously does not improve collaboration between the BU’s as some feel they end-up paying for others.

Shared services are required to ensure consistent operations across the organization at the lowest cost, but ensuring a fair mechanism is used to ventilate the costs of these services across the whole organization is critical to foster collaboration not just between a shared service and a BU, but also between BU’s. In our organization , we have moved away from allocations all together. We rather request BU’s to deliver a given “contribution margin”. The BU now has under its responsibility the management of the costs it controls, while corporate manages all shared services costs and funds those from the accumulated contribution margins. It eliminates the allocation debate, but replaces it with a debate about why one division’s contribution margin should be higher than another.

Another area of friction between BU’s is related to the place of the sales force. As pointed out earlier, customers expect sales teams to represent the whole company. So, should the sales force be a shared service, or should there be sales teams in each BU? Frankly, there is no right answer here. If a central sales force is used, debates about the cost of that sales force and the lack of representation of a particular BU in front of the customer, will be at the center of the debate. On the other hand, if each BU has its own sales force, the representation of the integrated portfolio of the company is lacking. If you are an IT company for example, despite the fact the customer wants his business problem to be resolved, it is difficult to explain the hardware BU the customer is not interested in blade servers for example. He will buy them if the sales person can demonstrate they resolve his problem. They are a consequence, not a selling argument. But frankly, this is heresy for hardware BU people.

There are many other examples where the organizational structure hinders collaboration. This is actually a never ending story and continuous adaption is required to address this. Strong leadership at the top will guide the organization through this. But we will come back to that element in a later post. Have you had experiences like the ones described hear? Share them, we can all learn from it.

Promote Collaboration in large Enterprises

After a good break where I had the opportunity to discover other cultures, I’ll come back to that, I found an interesting challenge at my return in the office. One of my clients want me to present on how to promote collaboration in a large enterprise that has grown through acquisitions. I point this out as each of the business units has its own culture, making things a little more interesting.

Many large companies are actually confronted with this problem and although many have tried most have failed of really getting things going. The first issue is that each business unit is ultimately measured on its results. When things get though, as in the current environment, business units have a tendency to focus on their own objectives, ignoring anything else. And one can argue that, ultimately, collaboration will give them more benefits than working in isolation, it does not matter, they focus on their own objectives. Dave Packard used to say “Tell me how you are measured and I will tell you how you behave”. He is absolutely right in this. It’s all about measurement and the associated incentives. So, you could say, lets change the measurement and reward everybody on the company successes. Yes, that would work, but would dilute responsibilities. Who is responsible to maximize the revenues from each of the business units.

Developing the incentives to ensure maximal revenues for each business unit while maximizing collaboration, taking advantage of the “power of the portfolio”, is really an art. It consists in establishing measures and rewards that include both aspects. The use of balanced scorecards may help in this process. But there is another element to take into account. It is not enough to incent teams to work with each other, its also important to ensure they know of each-other and can easily find the appropriate resources to collaborate with. Particularly in large enterprises grown through acquisitions, this is absolutely not trivial. One approach I have seen in companies is the use of a “buddy program” where employees from different business units help each other understand the workings and culture of the other unit. It works effectively to integrate an acquisition for example and it helps harmonizing the cultures.

A more intriguing approach to finding the right resource in a large organization I have seen lately is a program from HPLabs, called WaterCooler. WaterCooler is a social networking tool focused at helping employees find the right resources (information and people) to address a particular problem. It aggregates shared internal social media and cross-references it with an organization’s directory.

As I progress with the preparation of my presentation, I’ll share some more thoughts with you. Feel free to share yours with me. We may be able to find the approach that helps companies to break down the Chinese wall they have between their BU’s.

Where there is a Will, there is a Way

Today I’d like to share an experience which is a little different from the ones I shared up till now on this blog. Indeed, over the Christmas period there was a large religious event in Brussels. It was the international pilgrimage of Taizé, stopping for the year-end in Brussels. 40000 young people from all over Europe and from a variety of Christian religions converged to Brussels for a three day event consisting in prayers, workshops, meetings and being together.  We got involved through our parish as they were looking for households to provide space for the people to sleep. Speaking English, I was asked by my neighbors to serve as a translator, and having some space at home, we welcomed a couple polish people. She spoke some English and he a little German. But we got along quite well.

In pour parish, we welcomed 20 Italians, 20 Serbs (some of which actually turned out to be Slovaks) and 20 Polish people, a couple of which actually came from Ukraine and a couple other countries. A nice melting pot of languages, cultures, religious and historical differences. Reviewing those couple days, it was actually a great success, despite the difficulties in communication. People were constantly speaking in 3 or 4 different languages, with translation from Serb to Slovak to Polish for example.

Experiencing this, I was thinking back on a number of those international meetings I assisted over the years, where professional translators need to be hired, or where people expect you to speak to them in their language or will refuse to listen to you. What was the difference. here we had people from all over Europe coming with the intention to live something together. Silence, songs (and I believe, despite my awful track record in singing, I must have sang in 8 or 10 different languages over those days), and eagerness to learn to know and understand others better made the difference. And, as somebody told me, if the words could not be understood, gestures and drawings did the rest.

I believe we can learn something important from such an event. Where there is a will, there is a way. Indeed, its by being open and eager to understand the other, his/her standpoint that communication can truly take place. But how often are we blocked by feeling we are the customer and the other should adapt to us. How often are we in a one-way street. That’s our problem. So, lets take a lesson from those 40000 youngsters who are the Europe of tomorrow.

Can you beat up your customer

In the last couple entries, I spoke about the cultural differences between the Dutch and the Belgians, let me stay on that topic as it allows me to illustrate even more why we cannot take things for granted.

Several years ago, I was asked by one of our sales people to join him in a sales call to his Dutch customer. This was actually my first sales call in the Netherlands and I accepted it immediately. I thought it might be interesting, it actually was, way beyond my expectations, but for completely different reasons.

After the check-in at reception, we were guided to our clients office and sat down in front of him. My colleague introduced me, up till then, nothing unusual. But he turned back to his client and told him in non uncertain terms, he was completely pissed of with him because he had not placed the order he had promised and as such, my colleague had missed his forecast. Obviously, the client did not take that and the discussion heated up quite heavily. I was sitting on my chair completely frozen and asked myself how soon we would be thrown out. I could not understand why he was risking the whole relationship for what turned out being a small delay due to some administrative issues. The bashing lasted for about one hour. When they finally came to an agreement and the customer apologized (believe me or not), he turned back to me, and as it was already late afternoon, told me, "look I want to hear what you have to tell me, why don't we go and take a drink in a nearby bar. This will allow us to talk more freely." And yes, the customer even paid for the drinks.

The Dutch have this great capability to completely separate business and private life. It is not because you have an issue on the business side, that this will affect your personal relationship. This is actually a great asset, but that got me shivering before understanding what it was all about. Never take things for granted, make sure you get briefed on how business is done in a country prior to go to the first customer meeting. I can tell you out of personal experience. Do you also have such stories to tell?

A little more on culture

Last week my wife and I went cycling in the Loire valley in France and obviously, visited some castles. What else can you do out there, isn't it? Each castle has its way to represent its history. In one of them, plastic sheets were available for the visitors in each of the rooms. Several languages were provided, they included beside French, English, Italian, Spanish, German and a couple sheets in Dutch. I was actually quite impressed about the number of languages available and the effort the French owner had mad to translate the text. So, when I heard a couple Dutch speaking people complain about the fact there were not enough Dutch documents.

Later in the day, we were lunching in a lonely spot along the river when a group of Dutch speaking people choose a spot 50 cm from our place to have a noisy lunch with their family. Then it daunted on me. Despite the fact we are living within a distance of a couple hundred kilometers from each other, we have very different sensitivities. I would have been pleasantly surprised to find a text in my language all together, and I try to respect people's intimacy. But that is probably not something I share with some Dutch at least.

Now, if we are already so different, while living so closely, what about the differences of sensitivities with people living on the other side of the planet.

Understand the language

I am currently in Kuala Lumpur and this morning we had a conference call with a customer in China regarding a project they were asking our advise on. The discussion was held partly in English, partly in Cantonese. Frankly, my knowledge of Cantonese is zero, or even worse, which means I did not get anything of what was said in that language. Fortunately, I had with me in the room one of my friends who can understand the language reasonably well.

This sounded invaluable, as it allowed me to assess more or less the thinking and feeling of the customer. Not being able to see him, it is important for me to understand how what I am saying is actually coming over. In some cultures, and when you know the language, you can assess that from the tone used. Unfortunately, when things just sound as a series of sounds without any meaning to you, it is very difficult to assess things.

That's the reason why it is of the uttermost important, when holding such discussions, to have somebody with appropriate language (and culture) understanding to keep you on the right track. And it needs to be a person you can trust. Particularly with Asians, that are very good at not showing their emotions, having such an ally is critical for any serious negotiations. Here again, I can only stress the importance of gaining a good understanding of what is in the mind of the person at the other side of the line. Keep that in mind when having discussions over long distances. Otherwise, you will be flying blind and may end-up in completely the wrong place. Remember this old Chinese proverb (actually this is how it was explained to me) "If you do not know where you are, no map will help"