In the last chapter we looked at some of the opportunities for rapid growth which are constantly being generated by changes in the external environment. These changes create enough potentials for any company to double. But the opportunities created by these external treasures pale into insignificance when compared with the vast riches which every company can unearth within itself. The key to those riches is values.
The word values is often used to describe something rather vague and nebulous, a grandiose idea or ideal, a corporate ethic or philosophy. But when we use the word, we mean something very different-something very real, very concrete and very powerful. Values possess power, a phenomenal power-the power to energize a company for rapid growth in revenues and profits-and this is a power which is fully available and accessible to every company. Like opportunities in the external environment, the only essential conditions are: you must be aware of their enormous potentials and you must really want to tap them.
Earlier we said that companies direct their energies by focusing on the achievement of corporate goals. The goal may be to achieve a quantitative target for units produced and sold or dollars of revenue and profit. The goal may also be to improve the quality of performance-to do work better, faster, more efficiently, more safely, more systematically, with improved communication or coordination, in a manner more pleasing to customers or more satisfying to employees, etc. These qualitative goals are what we mean by corporate values.
BANG & OLUFSEN
Robert Cavalco discovered the power of values a few years ago after he took over as CEO of Bang & Olufsen of America. BOA is the U.S. subsidiary of a $300 million Danish electronics manufacturer, known throughout the world for its technically sophisticated and superbly designed audio and video home entertainment systems. Bang & Olufsen is the Mercedes and BMW of hi-fi.
When Cavalco joined BOA, he found the company facing fierce competition from Japanese electronics manufacturers. As a result sales had remained flat at around $22 million for the past three years. Cavalco started looking for some chemistry to turn a difficult situation into an opportunity for growth and he found one, not outside in the marketplace, but within the company itself.
The opportunity he hit upon was a value-customer service. He decided that it was not enough that his company offered the most elegant products on the market or offered acoustical quality equal to the world's best. BOA would offer the most elegant and best quality service to its customers as well.
Having identified an opportunity, he took the idea to his four senior executives and shared his thoughts and enthusiasm with them. Customer service was something that they could share and get excited about. Then he carried it to his employees at BOA's Chicago headquarters and spoke with missionary zeal about the company's new direction. He talked with the company's sales representatives and customer service representatives, but he did not stop there. He got virtually everyone in the company involved, even the shipping and warehouse crews, the accounts receivable and credit personnel. He brought in a consultant to work with groups of employees to define what customer service should mean to the company and elicit their ideas on how to improve it. The idea seemed to appeal to everyone and it caught on.
Cavalco and his management team spent the next few months travelling hectically around the U.S. meeting their customers and asking them, "What can we do to help and serve you better?" He and his team listened carefully and responded immediately wherever possible. They took action to liberalize the company's merchandise return policy, offer more flexible credit terms where appropriate, increase the speed of order processing, and improve the quality of packing. They sent out a travelling sales training program and trained 1,500 dealer sales people. Cavalco took many other steps to improve communication with his dealers. He even sent his chief financial officer to give free consulting services to electronics retailers who needed advice on how to manage their own companies better.
The immediate result of these initial efforts were visible to everyone who knew and dealt with the company. Though few tangible changes had yet been made in the company's policies or practices, these efforts generated tremendous energy and excitement. Employees became more active and enthusiastic. Customers began to look on the company differently, as a friend and a partner. By the end of the year, Bang & Olufsen was rated the best customer service company by specialty home entertainment retailers. And after three years of no growth, the company's sales grew by 35%. That is the power of a value.
POWER OF VALUES
There are seven important reasons why values have power.
Values Release Energy
People at London Life Insurance had gradually lost that sense of pride and satisfaction over the years as the quality of performance slowly deteriorated, so slowly that they still perceived the company as high quality long after that quality had begun to fade. After Ben Thompson-McCausland arrived, people became conscious of what the company had been in the past and could be again in the future. They took up the challenge to re-establish the company's great traditions. Once divided departments and groups started working together as a team to establish and achieve higher standards for speed, quality of work, customer satisfaction and communication. "We took a deliberate decision to commit ourselves to the values," Thompson-McCausland says. The focus on values released tremendous energy.
Values also motivate people to improve individual performance on their own jobs. Profit and revenue growth may be powerful motivating goals for the owners of a company, the CEO and senior management. But what does accountant, the receptionist or the warehouse clerk have to do with profit? Even if the company has a profit sharing plan, many employees cannot easily see a direct relationship between their activities and corporate profits. But everyone can relate to values, because values apply to every job, every activity, every operation in a company. Achieving a high level of performance on any value is self-gratifying, self-rewarding, even when it is not linked to compensation.
At London Life everyone got involved and felt the personal impact of the focus on values, even the file clerks and secretaries. Employees worked together in groups to identify which values needed to be strengthened and the best way to do it. This gave each individual a sense of participation and ownership in the values. Once a consensus had been established, each person had a responsibility for increasing the quality of performance on his or her own job. The values became a personal challenge to every employee to improve execution of work.
Values promote non-stop expansion
Values, on the other hand, are not subject to this limitation, for they can never be fully and finally achieved. The achievement of better quality and improved teamwork today is no assurance that they will still be better tomorrow, any more than cleaning a room today ensures that it will remain clean tomorrow. Values are like ever-receding or never-ending goals. The higher the values, the more the energy and effort required to achieve and sustain them. The more you pursue them, the greater the energy they release and put into action.
Values are precise measures of performance
High corporate performance requires perfect precision in decision-making, product quality, timeliness of action, personal behavior, clarity of communication, and in countless other respects. Although revenues, profits, production volume and other quantitative goals are good measures for overall corporate performance, they are too broad and crude to serve as effective and motivating measures of individual and group performance on many jobs and activities. But the quality of performance on every job, every activity, and every act can be accurately assessed in terms of values.
American Express is a company dedicated to the value of customer service. The company has discovered how effective values can be for measuring and improving performance. It has set clear standards for what type of service it wants to deliver: replace lost or stolen charge cards within 24 hours, process new card applications within 15 days, ensure bills are completely error free, etc. It has a very sophisticated system for measuring the quality of service by monitoring performance on over 100 different activities. Every month the top management of the company reviews performance on these activities and takes action where necessary to bring it up to standard. The company also has over 100 recognition and reward programs in place to motivate its people to deliver the very best service possible to American Express customers. Cash awards of up to $1000 are given for outstanding individual service. These and other programs help explain the conclusion of one expert on the credit card industry: "There's no getting around the fact that American Express's service is far and away the best in the industry."14
Values generate profits
Robert van Harten, a Dutch researcher, suggests there is a relationship between implementation of high corporate values and the long term share value of public companies. It is common knowledge that share value does not always directly reflect short term financial performance. Non-financial factors such as the perceived quality of management undoubtedly influence investors. The quality of management is a nebulous entity, which has not been adequately defined up until now. The implementation of values is a very direct and appropriate measure of the quality of management.
Studies of performance on specific values indicate a direct link between financial performance and implementation of values. The value quality has become the buzz word and cure all of the eighties, and rightfully so. Quality is powerful stuff. An analysis of 2,600 companies over 15 years by the Strategic Planning Institute of Cambridge, Massachusetts revealed that "financial performance is tied directly to the perceived quality of a company's goods and services. "Companies that offer the highest quality of products and services achieved the best long term financial results in terms of market share, return on investment and asset turnover."
Punctuality or speed is another crucial value for high performance, one whose importance is greater than ever before. Fortune recently ran a feature article entitled "How Managers Can Succeed through Speed." The article cites a study by McKinsey & Co of manufacturers of hi-tech products, which shows a direct linkage between punctuality and profits. Companies that are able to bring out new products according to schedule earn 33% more profits on them over five years than companies which come to market six months late.15
Values apply to every activity
When C & J Industries decided to improve deliver time on their molds, they had to raise performance on a host of other values. First they increased communication and coordination between sales, engineering and production in order to improve production scheduling. Then they analyzed the entire range of molds they were making and found that 85% of them could be built with standard off-the-shelf bases. So they decided to standardized their entire product line and only offer those sizes. They also standardized the process of developing bids for customers' jobs and found they could reduce bidding time by 90%. The company also improved coordination with its supplier of mold bases to ensure that they could always get immediate delivery on the mold bases they required. Defective quality resulted in the need for frequent reworking of molds, which also delayed deliveries. The company made a major commitment to eliminate the need for reworking by improving quality. They introduced a comprehensive quality training program based on Deming's 14 points to upgrade the skills of their people. Therefore, in trying to improve punctuality, they actually enhanced the values of coordination, standardization, quality and development of people as well. The focus on values enabled C & J to cut their delivery times by 50%.
Values are the keys to the five engines
When Waltz Brothers was on the verge of bankruptcy, the owners focused on values to turn their business around. One of the keys to their success was the value systematic functioning. When the four cousins took a close look at their business, they realized that they were spending so much of their time on routine operational tasks that they really had no time left to manage the development of their business. The also saw that many important tasks were not being done very regularly or reliably. They decided that one way to dramatically improve the performance of their company would be to run the company much more systematically. So they reviewed all five components of their business and improved the systems for budgeting and cost control (finance); manpower planning, recruitment and training (people); inventory control and scheduling (organization); quality and maintenance (technology); and sales planning and customer service (market).
Values raise the quality of corporate energies and elevate work
AMRE was just about the only very fast growing company we visited which has been able to manage rapid growth without a lot of wear and tear on its people. In fact, no matter how hard we tried to get AMRE employees to complain about the pressures of rapid growth, invariably they started talking about how enjoyable it has been to work for the company. Bud Lane joined AMRE as National Production Manager after 25 years with another company in the industry, "because I wanted to work hard and have fun. Its been the most exciting experience of my life. The growth is fascinating, exciting. The first two weeks I was here, at least 100 times I heard people say 'I love this company'."
AMRE has been able to make a smooth transition from small scale to high growth, which many other companies in the home improvements industry have failed to do in the past. A commitment to powerful corporate values has enabled AMRE to expand rapidly without feeling the stress and burnout so commonly experienced by other fast growing companies.
This is a company that believes in standardizing and systematizing everything. The forms and procedures used in every office have been standardized, so that the company can operate a highly decentralized operation and yet maintain uniformity and control. "If we had 44 offices operating 44 different ways, we would go crazy," says founder Steve Bedowitz. "We are great believers in standardization. We want everything done in the same way in every place. Everything should be kept simple. You can build a large, profitable company by keeping it simple." The emphasis on organizational values like standardization and systematic functioning has enabled AMRE to operate very smoothly and to grow without stress and strain.
Yet despite the effort to organize and control, AMRE is a very lively and enjoyable place to work, because the standards and systems are there to make work easier and more pleasant. Hand in hand with these organization values, the company has developed another very powerful value, which continuously releases the psychological energies of its people.
AMRE is as much committed to development of its people as it is to its standards and systems. The company implements this value through a wide variety of programs for training sales people and managers, continuing education of employees, and promotion from within. "We promote from within," says Rob Levin. "That's important for people to know. People want to know where they can go within the company. Personal growth is very important. It is a great source of pride to walk through the offices and see people who started as accounts payable clerks now in supervising positions. Internal growth is important."
By constantly taking efforts to upgrade the skills and job opportunities of its people, AMRE has established a close linkage between the growth of the company and the growth of its people. Bedowitz explains: "What will keep people excited and happy is to keep the company growing. As long as we continue to grow, the people will see there is room for them to grow." Not surprisingly, the company has virtually no turnover of administrative employees.
THREE TYPES OF VALUES
The list on the next page includes some of the most important corporate values, but it is not exhaustive. These values are divided into three categories, according to the primary type of energy which the value generates when it is implemented. Implementing values in the first list releases greater physical energy. Work becomes brisk and precise. It proceeds on schedule without interruption. Implementing values in the second list upgrades the functioning of the organization. People, departments and activities function more smoothly and interact more harmoniously. The organization becomes alive and dynamic, responsive and adaptable. There is a sense of competence and momentum. The psychological values release the emotional and mental energies of people in the company, customers, vendors and even the general public. These values make work exciting and rewarding. They generate pride and dedication. They motivate employees to go the extra mile to serve and please the customer. They can also invoke an intensely positive attraction or loyalty from customers-like the intense loyalty of many Macintosh users to Apple Computers.
VALUES PROPEL GROWTH
Our interest in values is far from academic. Values have everything to do with energy, the five engines and the energy conversion process. Therefore they have everything to do with growth, especially rapid growth, and with doubling or tripling your company.
In earlier chapters we asked you to analyze the five components of your business and the energy flow in your company in order to help you answer the question "Where are we?" Values represent a third and final piece of the picture. In order to evolve the most effective strategies to accelerate the growth of your company, you need to know where it is with respect to values as well. In the next chapter we will examine specific strategies to raise the level of value implementation. But first, think about the values in your company. How many of the values listed above are really important to your company? Which are the strongest? Which are the weakest? Which values have helped propel the growth of your company? Which ones have a direct impact on sales? on profitability? on motivation? How successful are you in actually implementing these values on a day to day basis and maintaining a high level of performance on them?
RATING CORPORATE VALUES
The following exercises are designed to assist you in evaluating the actual extent to which important corporate values are implemented by your company. If you are directly involved with work in only one division, office or department of the company, you may wish to answer the questions with respect to that area, or for both the company as a whole and your area of work. In answering the questionnaires, it is important to distinguish between how important the value is to the company and how well it is actually being expressed in work. These questionnaires focus on the level of implementation, not the level of importance.
Part 1 contains a detailed set of questions on two fundamental corporate values, orderliness and punctuality. These questions have been made quite specific and detailed in order to illustrate how these values apply to virtually every level, department and activity. Each questionnaire consists of ten statements. Evaluate how true each of these statements is for your company (division, office or department) on a scale from 0 (low) to 10 (high) as shown below. You may score the statements with any whole or decimal number, e.g. 2, 3.5, 6.7, 9, etc.
After completing each questionnaire, add up a subtotal score for this value. The maximum score is 100.
Rating Corporate Values
Part 2 consists of a list of 30 corporate values with a brief note on some of the most important areas in which each value applies. In this section, you will be giving only one score for the value. Therefore, this score should represent the general level of value implementation of each value in the company. The notes are intended to assist you in thinking in broad terms about how the value applies to many different areas, levels, departments and activities, so that your answers will be more comprehensive and representative.
Rate your company (division, department or office) on each value on a scale from 0 to 100%. Begin this exercise by transferring your subtotal scores from the two questionnaires in Part 1. These will help you in evolving a relative scale for the other values. Try to formulate a comprehensive and representative rating for each value based on the actual level at which it is implemented in the company at the present time.