Michael Beer is Harvard Business School Professor Emeritus, Chairman of TruePoint, and author of nine books, including High Commitment, High Performance. Drawing on his 40-year career helping senior business leaders build organizations that are highly committed and high performing, Beer can analyze the strategies of Corporate America’s business leaders to rebuild their broken firms in the aftermath of an economic recession that left some of the world’s leading companies in shambles. Beer’s research shows that companies will only rebound from near-collapse if senior leaders refuse to choose between people and profits. He’s found that sustained financial performance will only follow from the development of strong emotional attachments to the firm by the top team, board of directors, employees, investor, and customers. Beer can analyze how current business leaders are building such widespread commitment to corporate goals and offer a proven method for achieving it. He can also analyze how well they are managing the six “silent killers” of high commitment – conflicting priorities, ineffective senior teams, top-down leadership, poor horizontal coordination and communication, inadequate leadership development, and poor vertical communication. Through this framework, he can therefore predict which companies are most likely to return to the front of the market – and weather the next storm. His most recet book is Higher Ambition: How Great Leaders Create Economic and Social Value, co-authored with Russell Eisenstat, Nathaniel Foote, Tobias Fredberg, and Flemming Norrgren, published by Harvard Business Review Press (2011).
Morris: Before discussing High Commitment, High Performance, a few general questions. First, in your opinion, what has been the single most significant change that has occurred in business schools such as Harvard’s during the past 12-15 years?
Beer: The biggest change has been the ever increasing and unquestioned focus on shareholder value as the goal of managers and organizations. The capital asset pricing model has become the accepted means for assessing the value of an enterprise. A complementary change has been unquestioned emphasis of financial incentives as the means to motivate people. These are trends not only in business schools but in society at large. They are at the root of the economic collapse we have seen in the last year.
Morris: Here’s a related question. In which area is there the greatest need for improvement in business schools such as Harvard’s?
Beer: Business schools need to help students understand their responsibilities to multiple stakeholders and to see their responsibility as building an enduring organization that is profitable and develops customer and employee commitment. This is a complex task and requires more than the typical course in ethics and social responsibility. Business Schools need to put ethics, values and social responsibility into the context of what general managers must do to build an organization that ensures this. That is what my book High Commitment, High Performance is about. The book and the CD of cases that can be purchased with it should become the basis of an advanced course about how to build an HCHP organization.
Morris: In an article that appeared in the Harvard Business Review in 1963, Peter Drucker observes: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” Nonetheless, how do you explain the fact that so many business leaders fail to concentrate on what is most important?
Beer: There are many business myths that are perpetuated from one generation to the next. These myths govern how business leaders run their companies, and until they are questioned publicly and proven wrong, business leaders will continue to make the wrong choices because they don’t know they are the wrong choices. One myth is that shareholders are the only constituents companies must serve. Employees, customers, community and society must be considered in all decisions.
Another myth is that companies can change how they are managed and organized overnight. Organizations are complex, multidimensional systems, and unless all facets of an organization fit together, it will not be able to create sustained high performance. Culture is the hardest facet to change because it involves changing people’s minds, hearts and skills. Therefore, transformation is a multiyear effort.
Third, companies shouldn’t have to choose between people and profits. Effective organizations give equal prominence to profits and non-financial goals like teamwork. They therefore achieve the individual striving needed for innovation and teamwork that enhances firm efficiency.
Finally, the cost of hiring and developing people and the costs of developing organizational capabilities such as coordination, commitment and competence should not be thought of as budgeted expenses. Rather, they are front-end investments that will yield a stream of benefits over time.
Morris: In Leading Change, James O’Toole identifies various barriers to change initiatives and suggests that most are the result of what he characterizes as “the ideology of comfort and the tyranny of custom.” Do you agree?
Beer: I agree with O’Toole that senior management too often looks to what other companies are doing to decide what they should do. And their assumptions about what should be done are untested. They do not engage their key people in honest fact based conversations to define and diagnose problems before acting. Is it surprising the change initiative does not solve the real problem or that they have difficulty of getting the buy-in of employees. For leaders in any company, whatever the country or industry, to transform into a resilient, high performing organization, they must build a community of purpose. Change can only happen if everyone is committed to it and believes it is the only way to achieve sustained advantage in this new era of business.
Morris: Throughout your career thus far, you have worked with a number of high-performance CEOs. However different they may be in most other respects, what do they all share in common?
Beer: High-performance CEOs are able to combine a laser like focus on achieving short term financial results while thinking about and acting on long term goals to develop the business and organization. Their greatest skill is the ability to transform their companies – to lead change in such a way that employees are highly committed to the new direction and to stretch goals. These CEOs are the antithesis of the heroic leaders. Single-handed and single-minded leaders who do not engage employees, key executives and other stakeholders in the type of collaborative process required to develop strategic and psychological alignment or the capacity for learning and change that are imperative for sustained commitment and performance.
Instead, high-performance CEOs are self-aware. They are open about their beliefs, motives, values and emotions, have the will to receive feedback humbly, are ready to have the conversations that matter and engage the tensions and conflicts those conversations will produce, and have the interpersonal skills to develop a partnership with employees and other stakeholders.
Morris: Now please focus on High Commitment, High Performance. By what process, what you call a “disciplined approach,” can a multi-unit HCHP organization be built? For example, what are its three pillars?
Beer: HCHP companies are built, designed and led to achieve sustained high commitment from all stakeholders (e.g. employees, customers, investors and community), while also realizing long-term excellence and success. These companies are found in myriad industries and sell a variety of products, but all achieve three .paradoxical organizational goals:
• Performance alignment – organization design, goals and capabilities support and are aligned with the strategy
• Psychological alignment – employees love the company, are deeply committed to its mission and do the right thing even if means sacrificing personal interest
• The capacity for learning and change – the ability of people to confront important business and management issues, discuss them and potential solutions openly and constructively.
There are three choices leaders must make to achieve these organizational outcomes.
First, leaders must define a higher purpose for their firms than profits. They see their organization as serving multiple stakeholders – customers, employees, investors and society.
Also, leaders define a distinctive and focused winning strategy that everyone in the organization understands and is committed to. This prevents managers from being tempted by declining financial results or opportunities for big profits to enter fields outside the company’s mission or core capabilities. Rather, high commitment, high performance firms grow by using their distinctive capabilities to move into adjacent markets, products or services and geographies in an incremental manner.
HCHP firms also avoid taking large financial risks that could force them to make dramatic workface reductions that in turn will destroy their high commitment culture. They do this by self-financing their growth and avoiding large amounts of long term debt. This in turn enables them to grow at rate that will allow them to hire people that fit their high commitment culture. Similarly these firms are careful about acquisitions – how large they are and how they are managed – recognizing the potential for acquisitions to destroy their high commitment culture.
Finally, leaders of HCHP firms have positive assumptions about people. They believe that people want to contribute to a larger purpose and collaborate so long as the organizational environment invites them to participate.
Morris: What is then needed to sustain high levels of both commitment and performance?
Beer: Leaders at the top must be able to confront inconvenient truths about the state of their business and organization to avoid the blindness that led to the downfall of large Wall Street banks, mortgage companies and automobile companies in 2008. In every organization there are a significant number of employees who know about barriers to effectiveness but cannot find a way to get top management to listen and act on them.
Morris: What kind of an “early-warning system” can an HCHP organization have in place that indicates a current or imminent decline in commitment and/or performance?
Beer: High commitment, high performance companies enable honest, collective (organization wide) and public conversations (everyone knows the conversation is going on and expect to hear the result) about the direction of the company and barriers to commitment and performance people at lower levels see. By institutionalizing a disciplined and safe means by which truth can speak to power firms avoid the all too common tendency of leaders to be insulated from the truth. Such a process enables leaders and their people to learn together the truth about problems the organization faces and to work together to solve them. In the best companies the process of feedback and learning is institutionalized. Consider Southwest Airline’s culture committee assigned to learn from employees if the company is straying from its purpose, mission and values.
By making themselves vulnerable, leaders actually strengthen their leadership position and influence. They legitimize their leadership.
Morris: Following up on an earlier question about barriers to change initiatives, you discuss what you characterize as “silent killers” in Chapter 5. What are they and which one seems to be the most difficult to overcome?
Beer: Organizational and managerial barriers can stand in the way of developing HCHP organization – for example, conflicting priorities, an ineffective senior team or leader and poor coordination and collaboration between value creating activities. Fear of negative consequences makes it hard for people at lower levels who see managerial barriers to bring them out in the open with top management. We have found a syndrome of six barriers in many ineffective, low commitment and low performance organizations. These are unclear strategy, values or conflicting priorities, an ineffective senior team and leader, poor coordination and collaboration, inadequate leadership development and down the line leaders and the inability for truth to speak to power. The latter makes these barriers undiscussible and self-sealing until crisis leads to wholesale replacement of top management. Without confronting these barriers change is superficial and fades out over time. Changes in hard and tangible elements of the organization like structure, information technology or strategic planning fail because of managerial ineffectiveness.
Contrary to conventional wisdom, most people in most firms are good people. The primary barriers to effectiveness, commitment and performance are the system and the management process that prop it up. Once these barriers are lifted through honest, collective and public organization-wide conversations, the organization can start building a community of purpose.
Morris: Presumably an HCHP organization must have effective leadership at all levels and in all areas in order to sustain effective strategic performance management. In your opinion, how best to develop these leaders?
Beer: The leadership development policies and practices of the most progressive, resilient, high performing companies bear remarkable similarities. This is because management is always positive and optimistic about employees. They assume people are capable of learning, motivated intrinsically, want to contribute and make a difference, and prefer not to be controlled through monitoring and incentives.
As a result, the best companies hire for the long-term – even for life. They insist on hiring talented people who fit the values and principles that underlie their culture, so they select on the basis of attitudes, values and potential to grow and develop. Then they invest in leadership development by giving people stretch assignments, giving them assignments in a variety of functions and most importantly pushing responsibility for decisions to the lowest level possible. Leadership development is not delegated to the HR function. Senior management takes responsibility for tracking, evaluating and developing the next generation of leaders.
Morris: In the book and in an article you co-authored that appeared in the Harvard Business Review (July 2008), you suggest that leaders in HCHP companies are “uncompromising” and “refuse to chose between profits and people.” Please explain.
Beer: Importantly, these leaders must see their role as much larger than achieving quarterly profits. It is essential they navigate the paradox posed by short-term demands from capital markets on one hand, and the imperative of organizational and cultural development on the other. By embracing this paradox, they are able to develop the organization, enable people to exercise their unique gifts, and inspire. And, in spite of the challenges of sustaining a high performing firm, they are able to stay true to their values and principles. Indeed it is their principled leadership approach that allows them to stay the course and build an enduring firm. HCHP leaders are able to embrace the paradox of people and profits because they care deeply about building an institution, about leaving a legacy. They are competitive and want to win but they value people and understand that unleashing their energies is the key to success.
Morris: For those who have not as yet read High Commitment, High Performance, please explain the separate but related roles of learning and governance in strategic high performance management.
Beer: HCHP leaders require a learning and governance system that enrolls the larger organization in a collective learning process. Such systems institutionalize iterative, honest, collective and public conversation about the state of the business and organizational system – a powerful means for leaders to achieve continuous improvements in the quality of their management and leadership. When required of leaders in all parts of the organization, as Jack Welch did with “Work Out,” top management will be able to ensure continuous improvement in the quality of leadership throughout the company.
Systems that are designed in this way enable real and fundamental change. Open conversations, ensure by mechanisms that create safety for those who share the truth, create trust, commitment, and community. Enabling truth to speak to power allows senior management to tap vital knowledge that employees have about firm effectiveness and commitment. And when senior teams are at the center of the process, as opposed to delegating it to staff functions or consultants, they learn the truth about how their assumptions and behavior have shaped the system they are leading.
Morris: In Chapter 11, you discuss two archetypal strategies for change, Theory E and Theory O. What are they and why is each necessary and must be integrated in each of various dimensions of change?
Beer: Theory E focuses on creating more economic value while, usually through restricting of the business and organization. Theory O focuses on developing organization capabilities and culture. While each change theory has validity and can help senior executives achieve some important goals, neither strategy is sufficient to achieve both commitment and timely and sustainable performance improvements. CEOs must implement both E & O through an integrative strategy that occurs in eight dimensions of change:
- Goals: An integrated E/O strategy will drive the rapid improvements in shareholder value needed to survive in the short run while simultaneously building the organizational capabilities and culture needed for long-term success.
- People: An integrated E/O strategy actively incorporates replacement and development to allow the company to move forward effectively
- Focus: An integrated E/O strategy focuses on both hard and soft aspects of the organizational system to allow for a total system change
- Process: An integrated E/O strategy allows change to be planned at the top to achieve speed and consistency but led in the subunits to manage complexity and build commitment
- Motivation: An integrated E/O strategy uses goals and involvement to motivate and rewards to recognize
- Consulting resources: An integrated E/O strategy forms partnerships between experts and employees to solve problems
- Pace: An integrated E/O strategy moves forward at a deliberate pace to bring rapid, sustainable change.
- Leadership: An integrated E/O strategy requires CEOs to lead the change from the top early on in the transformation and slowly increase the degree of lower-level involvement and decision-making.
Morris: Which question do you wish you had been asked during this interview – but weren’t — and what is your response to it?
Beer: I wish I’d been asked what the source of my own assertions is about that value of HCHP organizations and what it takes to build them. My views come from triangulating these three sources of knowledge – my own grounded experience in helping many senior teams improve commitment and performance, visits to and case studies of great HCHP companies and studies by academics on many substantive issues ranging from human resource management, organization design, strategic management, leadership and organization development and change. I have worked with numerous companies and business units to help them develop high effectiveness, commitment and performance. Working with these companies I learned what barriers stood in the way and what they needed to do to change leadership and organizational effectiveness. Cases of outstanding HCHP companies like Southwest Airlines and Hewlett Packard (until the late 1990s) provided many insights. Finally, I have reviewed many academic studies and was able to find a lot of support for what I learned from the first two sources of information. Putting it all together was what led to the core insights in the book.
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Tags: co-authored with Russell Eisenstat, Flemming Norrgren, Harvard Business Review Press, Harvard Business School Professor Emeritus, High Commitment [comma] High Performance, Higher Ambition: How Great Leaders Create Economic and Social Value, Nathaniel Foote, Tobias Fredberg, TruePoint