Peter Drucker, the most prolific management guru of the 20^th Century  and author of “The Practice of Management” (1954, New York: Harper and Brothers), once stated,

“Every organization is perfectly designed to achieve the results it gets.”

Considering the number of business failures each year as well as the constant struggles some business leaders have in building great enterprises, this maxim is equally true today.

Drucker also noted that every business should serve society, and the profit that a business generates should contribute to societal growth. Jack Welch corrupted this concept in the 1980s when he promoted “stockholder capitalism” over “stakeholder capitalism” and nearly ruined GE in the process. David Gelles examined Welch’s philosophy and practices in detail within his book, The Man Who Broke Capitalism” (2022, New York: Simon and Schuster) and showed where Welch’s drive to maximize profits at the expense of experimentation led to GE’s eventual downfall. In short, Welch’s move to prioritize profits over the contributions and value of stakeholders, the most important of whom are employees and suppliers who ensure business is executed effectively, led to GE’s fall as an economic engine for sustainable success.

In the opening article of this series, we addressed the need to think differently about the future and begin to embrace paradigm shifts to face a world of constant change. Relying on functional expertise is no longer an indicator of future success. Marshall Goldsmith reminded us in his book of the same title: “What Got You Here Won’t Get You There” (2007, New York: Grand Central Publishing) co-authored with Mark Reiter. Company leaders throughout the C-suite and beyond need to be looking “over the horizon” to anticipate what needs to change as well as the ANCHORS on which their organization will stand.

The challenge of thinking AND acting differently in a VUCA-D2-BANI world is daunting, but it is possible. So, how IS your organization designed and aligned for sustainable success? Over 20 years ago, John Kotter, Professor Emeritus, Harvard Business School, identified organizational characteristics that needed to change, yet too many organizations still struggle with the dynamics wrought by an ever-changing external environment for which they are ill-equipped.

When Vince Lombardi suffered his second loss shortly after taking over the Packers decades ago, he met with his team in the locker room and simply stated, “Gentlemen, we need to get back to basics. THIS is a football.” If your company is not achieving the success you dream of, maybe it’s time to “get back to basics.” Lombardi’s team didn’t win by looking down the pike; they did it by working on and perfecting “the basics” day after day, which led to win after win. They won through purposeful design and consistent execution. What are you doing to ensure the same?

Every organization depends on CAPITAL, but Human Capital is often shortchanged in the drive for profits and financial gains. In contrast, leaders of high-performing companies fully understand that financial gains are the LAGGING indicator of how well their HUMAN CAPITAL is aligned to achieve success.

CULTURE – The Foundational Anchor

Culture is the first anchor because it is the social glue that binds people together, as the late Edgar Schein noted in his classic Organizational culture and leadership (3^rd ed.) (2004, San Francisco: Jossey-Bass). Culture is an organization’s MOST critical asset because it connects the PEOPLE to the purpose of an organization, yet a relatively recent survey by Deloitte Consulting showed that less than one-third (28%) of executives understand culture and barely 12% believe their culture is headed in the right direction.

Have you done an internal survey of your culture recently and do not know where your strengths and weaknesses lie? As the first article noted, building the right culture is the most critical responsibility of executive leaders next to building trust throughout an enterprise. Where does Culture begin? How do you expect employees to behave within your culture?

Building a Truly Effective Culture Begins at the Top

Defining ethical behaviors in an organizational context sets boundaries for the ethical principles or standards we consider important as leaders. For this reason, each organization must define its own code of ethics.

Over 90% of large U.S. corporations and 85% of Canadian corporations have a code of ethics (Schwartz, M.S.(2002). A code of ethics for corporate code of ethics. Journal of Business Ethics, 41(1), 27-43); however, simply having a code does not mean that organizations or the people within them are acting ethically.

Enron was a perfect case in point; they had a code that everyone ignored, which led to the company’s demise and the loss of millions for those who had invested in the company. How many companies do you know of that had codes but failed to live by them? Many examples exist.

Thus, acting ethically requires more than simply having a code. There must be compelling elements behind the code that cause people to act in certain ways. Schwartz suggests a set of six universal moral standards should be applied within a code of organizational ethics; ironically, this set is identical to the six values promulgated by the Character Counts! Program® that exists in about 5% of American schools and predated his exposition.

The following six values represent a universal perspective you should strongly consider as you examine and revisit your organization’s standards.

1. Trustworthiness, which includes notions of honesty, integrity, reliability, and loyalty.
2. Respect, which includes notions of respect for human rights, diversity, and inclusion.
3. Responsibility, which includes notions of accountability.
4. Fairness, which includes notions of process, impartiality, diversity, and equity.
5. Caring, which includes notions of empathy and avoiding harm to others.
6. Citizenship, which includes notions of obeying laws, protecting the environment, and acting in ways that promote the welfare of others.

These standards are “higher order” values that operate at both the individual and organizational levels. When we speak of business ethics, we are addressing a social contract between an organization and the people within it as well as with the society the organization serves. Thus, people outside of an organization have expectations of how that organization and the people within it operate. Organizational leaders who understand this social contract should seek to build character within their operations, beginning with core values that serve as a foundation for creating consistent, ethical performance.

Human Capital: The Core of A Virtuous Culture

Consider this: Employees bring their KASH (Knowledge, Abilities, Skills, and Habits) to work each day. They continue to bring their KASH IF they walked out the door yesterday with more KASH than what they started with AND they perceive their investments of time and energy are worth their efforts. How can you design your organization to capitalize on this phenomenon?

Leaders in high-performing companies recognize that HUMAN CAPITAL is their key differentiator from competitors. By emphasizing and building the critical aspects of HUMAN CAPITAL, they hire, develop, cultivate, and promote the right people who continue to carry the organization forward.

This begins with hiring the right people of Character (The Second Anchor). Once the right people are hired, training and development need to focus on Knowledge Capital and Intellectual Capital, which involves continual investment of individual KASH within an enterprise.

• Knowledge Capital resides within each person, based on what they know from experience and learning.
• Intellectual Capital is generated each day as people apply their knowledge to seek solutions for new challenges.
• Solutions become part of Organizational Learning, which strengthens and reinforces collective Intellectual Capital throughout an enterprise, which leads to greater efficiency and effectiveness as things that don’t work are quickly discarded for those that do.

Efficiency involves aligning actions to achieve desired results with the lowest expense of energy while effectiveness seeks to achieve the highest results at the lowest overall cost, which leads to greater productivity and profit. Efficiency results from the consistent and proper application of Knowledge Capital that creates Intellectual Capital in proprietary solutions that set an organization apart from competitors. Yet, it is the combination of and synergy between Knowledge and Intellectual Capital that leads to productivity and Relationship Capital, which is the next level of applied Human Capital.

Relationship Capital includes internal and external relationships, i.e., those between employees and those with external stakeholders such as customers and vendors, respectively.

Relationships fuel an organization’s drive for success. Without relationships, there are no interactions; without interactions, the reason for the organization does not exist, which is the service one provides within the context of service and earning others’ trust. The foundation of lasting relationships is the CORE VALUES of trust and care. Figure 1 below shows how Human Capital aligns in high-performing organizations.

Figure 1. Aligning Capital Within the Virtuous Cycle to Achieve Performance Excellence

• If values such as TRUST and CARE are not embedded throughout organizational practices and are not recognized and rewarded accordingly, INTERNAL customers will stop investing their KASH and look for employment elsewhere.
• If external relationships are not valued and customers lose trust in an organization’s ability to fulfill commitments, EXTERNAL customers will fail to return.
• An organization’s success depends first and foremost on the alignment of HUMAN CAPITAL in all its forms. Alignment is not just on Shared Core Values; alignment on Organizational Purpose is critical.

Regardless of an organization’s focus in either public or private sectors, for profit or NFP, Financial Capital is the base upon which services depend for sustenance. Money makes the “world go ‘round,” thus capitalism is critical for both public and private sectors. However, financial success is the result of how Human Capital is aligned, cultivated, supported, and promoted. It is a lagging, not a leading, indicator of Human Capital alignment.

Shared Core Values Set the Stage for Success

One consistent attribute we have discovered within high-performing companies is the centrality of Shared Core Values.

Beginning with the list of six above, such as Trustworthiness, Respect, and Caring, employees bring individual values to work each day through which they interpret and interact with the world, especially those they serve. Thus, opportunities abound each day for them to engage those traits-with either effective or disastrous results.

High-performing companies underpin performance expectations with a well-defined set of shared core values. These values define the boundaries within which people have freedom to operate but with consideration and respect for all stakeholders who touch the company in any way: Other employees, customers and clients, vendors and suppliers, and visitors.

Companies highlighted in “It’s My Company TOO! (Thompson, Benedetto, Walter, and Meyer: 2012, Greenleaf Book Press) emphasize shared core values that are not only “conscious actions for all employees regardless of age, longevity, or position but are moral imperatives as well” (p. 153). What are the core values that set boundaries for behaviors and expectations within your company?

Shared Core Values form the foundation of a company’s character through which others want to align because they feel good in doing so. Customers want to work with companies they like, and those feelings come from the relationships they build with the employees with whom they work. Shared Core Values are the starting point in Hiring for Character because you want to find the best candidates who already have a solid personal foundation upon which to build. Getting the right people onto your “bus” and keeping them begins with alignment on Shared Core Values and Hiring for Character to fit those values.

In the next article, we’ll address the second anchor, Character, in detail and connect more of the dots between the anchors.

Contemplation Questions

What are my company’s core values? How do I want others to perceive my company? What values are most important in building strong relationships with those we serve?

Suggested Reading

Drucker, P.F. (1954). The practice of management. New York: Harper & Brothers Publishers.

Gelles, D. (2022). The man who broke Capitalism: How Jack Welch gutted the heartland and crushed the soul of corporate America-and how to undo his legacy. New York, NY: Simon and Schuster.

Thompson, K. R., Benedetto, R., L., & Walter, T. J., with Molly Meyer. (2013). It’s my company too! How entangled organizations move beyond employee engagement for remarkable results. Austin, TX; Greenleaf Book Group.