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.

Collaboration and Measurement, the best enemies

We started this journey on collaboration in large enterprises discussing how organizational structures can stand in the way as far as collaboration is concerned. Today I would like to focus on a second aspect and this is measurement. To make it simple and to quote Dave Packard, a great west coast entrepreneur, “Tell me how you are measured and I will tell you how you behave”. And he is so right.

Indeed, people are willing to work together, naturally they have a helpful attitude. But in the end, the “what’s in it for me” question comes up. And frankly, if the measurement do not line up, bad luck. When times are good and the measures easy to achieve, there is not too much of an issue, but in the current environment, where the recession (officially ended though) is making achieving numbers difficult, it often is lonely out there.

I have seen companies giving sales people numbers by product lines, resulting in those numbers being achieved at the detriment of what is right for the customer. In particular, when the business units are strong, when they are the profit centers, developing an integrated approach to customers may be difficult. Top management should spend valuable time engineering a simple, but at the same time compelling measurement system to ensure they achieve the behaviors they want their company to portray. And it is that behavior that will foster collaboration.

Calculating bonuses on the success of the company (e.g. achieving objectives, profitability) may be seen as a way to foster this integrated approach, but it is important to think about how the individual contributor can influence the numbers he is measured on. If he is one of 300.000 employees to take a number, can he really influence the objective he is given? And so, will he act to improve this measure?

For sales people in particular, it is key to balance the measures that are part of the variable pay and the ones that provide bonuses. variable pay ones have the tendency to be the first ones to focus on, while the bonus ones are nice to have.

In a nutshell, developing a measurement framework fostering collaboration is feasible. However it requires a good dose of sound judgment and engineering at top management level, which ids often unfortunately forgotten.

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.

5 key elements to promote collaboration

I couple weeks ago, I wrote an entry on this blog titled “Promote Collaboration in large Enterprises” where I pointed out I had been requested to present on the subject. I have progressed my thinking since and found 5 key areas playing an important role in building such collaboration. I’d like to spend the next entries to discuss each of those in a little more details, and do hope this can spur a conversation between us on the subject.

But before doing so, let me highlight which those 5 areas are so you have a structure of what I intend to blog about over the next weeks. Once the presentation has taken place, I also intend to give you some feedback on the discussion. So, what areas did I come up:

• Organization & Finance. Large companies are build around business units or product lines. Does the enterprise architecture, in other words, its organization foster collaboration? How are the budgets set-up and does this push them to competition or collaboration? Where are profits and revenues recognized?
• Measurement. This is the second leg. How are business units or product lines measured? Are those measurements inclusive of collaboration, or exclusive? Are they pushing entities to collaborate or to compete?
• Compensation & Recognition. Business Units or Product Lines work through people. How are those compensated and recognized for their success in collaborating with other BU’s?
• Culture & Leadership. Is collaboration core and center to the culture of the company, or is it a nice to have? How does top management behave? How often is the collaboration subject addressed by management, are they leading by example?
• Tools & Techniques. Tools support collaboration and make it easier for people to work together. Using specific techniques and approaches, collaboration can be made easier. However, it is a myth that tools & techniques on their own push companies to collaborate.

Actually what I discovered is that none of these 5 key elements can foster collaboration on their own. All 5 are required for collaboration to work across business units. Common vision and objectives need to be established and buy-in by the organization as a whole is required. Collaboration is not something that is established once and for all. A continuous reinforcement and effort is required for it to work within a large enterprise. When the economy works well, it’s easier than when times are hard. This might be a reason why the subject is popping up today. So, stay with me. We’ll look at this in more details.