One of my all time favourite articles is ”How to Put Meaning Back into Leading” by Joel M. Podolny, Rakesh Khurana and Marya Hill-Popper (Harvard Business School Working Knowledge, 2005). They emphasize that a leader’s ability to forge new meaning and purpose for an organization and its employees is a key criteria for leadership effectiveness. Unfortunately, until today, the value of leadership is often solely understood in terms of economic impact.
Talking about purpose and meaning is typically perceived as too soft for the business world. However, there is a connection between meaning creation and performance. If employees find meaning in those aspects of work that differentiate a firm from its competitors, then meaning can be the foundation for sustainable competitive advantage. The creation of meaning is positively related to performance.
I strongly believe that providing meaning was the foundation for the incredible success run of my former employer, Merck Ltd., Thailand, a pharmaceutical and chemical company. Overthere, we achieved between 1991 and 2008 double digit sales growth in 14 out of 17 years. This even included the period of the Asian crisis that started in 1997 and lasted for several years.
How did we provide meaning and purpose to our people? You can argue that the fact alone of being a pharmaceutical company might already create a lot of meaning to the employees. Developing and producing drugs and making them available to people is in itself already a significant contribution to mankind. But then, we all know that the pharmaceutical industry has failed since decades to manage its reputation. And with the chemical industry, it is not much different. Despite a lot of positive contributions to society, chemical companies are typically associated with an image of damaging the environment.
Therefore, at Merck Thailand, we went away from deriving at meaning and purpose from our products or businesses. We rather focused on a more general concept; the 4 stakeholders – approach. We positioned our company as a caring company: a company that doesn’t care only about shareholders, but one that cares also about employees, customers and the society. With other words, balancing stakeholders’ interests.
As caring leaders, we helped our people to find purpose and direction. And so, people became energized and passionate about what they were doing.
The care-concept was holistically implemented throughout our company. It was part of our business strategy and became a key component of our culture; the DNA of our organization. It was communicated intensively internally and externally. Employees and customers became familiar with our 4 stakeholders – concept. Actions for employees and customers were developed regularly and frequently. And twice a year, we asked our employees and our customers in surveys how we were doing in terms of providing meaning and purpose. We got very positive feedback showing that our concept worked.
One strong sign of our genuineness to the 4 stakeholders – approach was also the firm commitment under my leadership that Merck Thailand will spend every year about 1.5% of its profit before tax for CSR (= Corporate Social Responsibility). I had done some search on this topic. I found out that an amount of 1% to 2% of profit before tax for CSR-related activities is considered as acceptable and reasonable for companies.
Balancing the interest of stakeholders served us very well at Merck Thailand for many years and led to outstanding results. In the December 2009 issue of Harvard Business Review, Nathan T. Washburn of Thunderbird School of Global Management shares his findings of a research that he had done with three co-authors. They studied 520 organizations in 17 countries and came to the conclusion that profit shouldn’t be the CEO’s top goal!
Their research showed that CEOs who put stakeholders’ interests ahead of profit generate greater workforce engagement – and thus deliver the superior financial results that they have made a secondary goal.
Survey data from executives and their subordinates showed that CEOs who focus on traditional economic values often come across as ruthless and autocratic, and focused on the short term only. This results in employees developing negative feelings towards the organization. Employees resent this leadership style and withhold their best efforts, which hurts the bottom line.
But when the CEO makes it a priority to balance the concerns of customers, employees and the community while also taking environmental impact into account, employees perceive their leader as visionary and participatory. They report a greater willingness to exert extra effort, which improves company performance.
The results of the study haven’t been any surprise to me. After all, I have experienced the findings of that survey first hand at Merck Thailand for over a decade. Although we were not part of the survey, I can only strongly underline the conclusion:
Have a meaningful purpose behind your business that matches people’s interest. Organizations perform best when they balance financial goals with respect, care, and fairness for the well-being of everyone involved. The human side of the business should never be neglected, since it has a major impact on the willingness of subordinates to follow their leaders.
This blog is dedicated to my son Jomar who is celebrating his 8th birthday today. He is giving great meaning and purpose to my life.
Dear Mr. Landau,
I enjoy following your posts, but need to remark from a bit more academic view that an observed correlation is often mistakenly interpreted as causation.
Just because “the creation of meaning is positively related to performance” does not mean it is the cause. It could also be that employees feel good about working in a company that performs well, a positive feeling that in turn might have them say that they find much meaning in working at that company. Ask the same employees in the same company, but in a year with financial struggle and pressure on the profit, and you might as well get as an answer that the work at that company seems quite meaningless.
The same counts for the observation that “balancing the interest of stakeholders” leads to outstanding results. It sounds plausible and it may be so indeed, but it is at least as plausible that it was outstanding results in the first place which enabled the company to consider and apply a 4-stakeholder approach.
And the CEO who “focuses on traditional economic values” might do so for a reason. If the company is under financial pressure then this is exactly what one should expect from the CEO. Employees resent this leadership style? Yes, that sounds plausible. It is also plausible that they resent being in a company that is not doing so well, especially if they have to start worrying about their job. Ask any employee in such a situation about how they perceive their boss …
Altogether I am not saying that your observations are wrong. They could as well be true but from an academic standpoint it is necessary to differentiate correlation and causation. My own observation is that academic research makes this quite clear before business press snaps at mere correlations and celebrates the missing key to enduring greatness. For me, balancing the interests of all stakeholders as well as focusing on a purpose beyond cash are simply the basics of good managing. If these things also cause higher performance and to which degree … we don’t know for sure.
Kind regards,
Tobias
Hi, Tobias,
referring to your last sentence, it reads like giving the answer, who was there first: chicken or egg. And this is, indeed, an accademic topic to do a good deal in researching the origin of a cause.
For my experience, meaning, and thus motivation, is created by two things: good working experiences in the present, and a perspective – a purpose – for the future. Accademically proven, by the way, by Tal Ben-Shahar, Havard lecturer and expert in Positive Leadership, I recommend his book “Happier”.
And this is especially true during financial crisis: when both, good experience in the present and former perspective for the future are fading away – especially here, on the basis of a sound management you need to reestablish meaning an purpose first – otherwise you lose those, who have to manage the crisis, as you – as leader – are in charge of leading…
J.P.Kotter, another Harvard scholar, differenciates quite well both perspectives, management and leadership, I recommend his book “Leading Change”, accademically proven by experience.
Cheers, Stephan
Kotter himself revealed that only 30 percent of change programs succeed. So perhaps his approach is not yet the holy grail. I would almost presume that the problem may not always lie in “what we do” but in “who we are”.
What you describe from your experience is just that and I believe it makes a lot of sense to many people. It makes even sense to me, but at the same time it only reflects how you and me arrive at meaning in our current stage of mind. Therefore I’d be careful to replicate this as dogma.
As for Harvard lecturers and experts, or so-called “thought leaders”, I would be surprised to hear from any expert in any field of management that his domain does not have a significant impact on great performance.
As for sharing experiences, I find the “Care Guys” an interesting place. Maybe there is already some research ongoing somewhere, which will soon also provide hard evidence for the impact of providing meaning and purpose on a company’s performance (or vice versa).
Kind regards,
Tobias
Hi, Tobias,
Please, check the websites of Gallup and Towers Perrin. There you find hard evidence, research and a chance to be better informed.
Cheers, Stephan
Dear Mr. Roder,
If you do some search, you will surely come across academic evidence for the impact of providing meaning and purpose on a company’s performance.
Apart from getting access to the research behind the papers that I had mentioned in my blog,
as one example, please find below an excerpt from the homepage of the Purpose Institute (www.thepurposeinstitute.com) referring to some relevant examples:
“Jim Collins demonstrated in Built to Last that organizations driven by purpose and values outperformed the general market 15:1 and outperformed comparison companies 6:1.
Harvard Business School faculty members Kotter and Heskett studied blue-chip firms across 20 different industries and found that firms with strong adaptive cultures based on shared values significantly outperformed firms with weak, values-neutral cultures. Over the four-year period that they observed these companies, revenue grew more than four times faster, rate of job creation was seven times higher, stock price grew 12 times faster and profit performance was significantly higher than comparison companies in similar industries.(1)
In a book entitled Firms of Endearment, the authors identify 30 companies (three of whom include our past or current clients: BMW, Southwest Airlines and Whole Foods Market) driven by a sense of purpose and humanistic principles. These companies put the needs of their stakeholders ahead of the needs of shareholders and are bringing about a profound change in the existing capitalist paradigm. The authors found that companies that choose to put their employees and their customers first are outperforming conventional competitors (who have an eye almost exclusively on profit and shareholders), on the order of 8-to-1 in stock market performance.
Not only is overall stock performance significantly better, employee turnover is lower, productivity is higher and pricing strategy is not subject to the same low pricing pressure experienced by pure profit-driven, shareholder-focused competitors.(2)
Far from being some touchy-feely concept, the best business gurus of our time have identified purpose as a key ingredient of high-performing organizations.
(1) Corporate Culture and Performance, John Kotter and James Heskett
(2) Firms of Endearment, Rajendra Sisodia, David Wolfe, Jagdish Sheth”
You mentioned in your comment that balancing the interest of all stakeholders as well as focusing on a purpose beyond cash (probably you meant profit) are simply the basics of good managing for you. At the same time, I believe you are aware that a considerable number of companies are not led and managed this way.
You also mentioned that the CEO who is focusing on traditional old values might do so for a reason. In your opinion, if the company is under financial pressure that is exactly what you epect him to do. Does that mean that in times of crisis, the company should throw over board its meaning, purpose and value – system? Actually, that is a common mistake that is made all too often. You need to follow your values and your meaning and purpose also in terms of crisis. A good (or rather a bad) example is the (non)-commitment of companies to CSR that they show in terms of crisis. In such times, you can see whether CSR is purely a fashionable marketing gimmick or whether the company has an authentic belief in CSR. I know from some directors in my NGO – network that last year and still ongoing, a lot of companies have given up their support to NGOs either completely or have reduced it drastically. I fully understand that in such situations a reasonable cut of CSR – support makes sense (in line with other budget cuts), but I seriously doubt the genuineness towards CSR of such companies in the first place.
Kind regards,
Heinz Landau