The Strategic Value of Values

Words: Thomas AdamsDaily, our headlines shout of blatant disregard both for the law and for right vs. wrong by obscure and prominent businesses alike. We see headlines like "If you violate the law, you will pay for it," quoting Harvey Pitt of the SEC in response to questions related to the Enron debacle with its possible auditor complicity, witting or unwitting.

Or headlines like "Tyson Foods Executives Indicted" for smuggling illegal aliens, aiding them in obtaining false documents, and paying INS undercover agents "recruiting expenses."

Deplorable? Yes. Shocking? Maybe. New? No. The products of human greed and moral expediency have been with us almost forever.

Unfortunately, seldom do we see headlines that highlight those companies and organizations that consistently live out positive values. Our gut feeling is that these businesses must benefit from their positive, values-centered approach. But how much? Do the benefits rise above simply having well-rested employees with easy consciences? Does a values-centered approach produce a payoff that makes these companies significantly more successful at achieving their strategic goals over the long run than they otherwise would be?

Values – A Definition

Let's define the term "values." First, consider what values are not. They are not operating or cultural practices, processes or policies. These are subject to continual revision in response to environmental changes. These may be values-based, but are not values themselves. Instead, (borrowing from the definition of Core Values in "Built to Last" by James Collins and Jerry Porras) values are the organization's essential and enduring tenets – a small set of general guiding principles; not to be compromised for short-term financial gain or expediency.

Values include both the Commitment Statement portion of the Mission Statement and Goals in the Simplified Strategic Planning (SSP) process. For example, statements like "establishing Trust and Respect as the basis for relationships with all stakeholders"; "the Company exists to alleviate pain and eliminate disease" (Johnson & Johnson Credo); the biblical Golden Rule; and "respecting and encouraging each individual's ability and creativity" (Sony) would all qualify as values.

The term "values-centered" applies to an organization that only makes decisions that satisfy its values. A values-centered organization is more likely to take a profit hit in order to better satisfy other values.

Values' Value

Now we can address our question "does a values-centered approach make companies significantly more successful at achieving their strategic goals over the long run than they otherwise would be?" Studies resulting in hard information are very difficult to structure. The best-known and widely accepted study is the one reported in Built to Last. As you are probably aware, this study selected 18 world-class Visionary Companies that were the best of the best, enduring winners in their industries, and compared each to a similar Comparison Company whose long-term performance was substantially less stellar. One of the major areas explored was the difference in the existence and role of a core ideology in the paired companies. The following statements encapsulate the findings:

"In nearly all cases (of Visionary Companies) we found evidence of a core ideology that existed not merely as words but as a shaping force."

"Although profit is consistently a value in all Visionary Companies, profit maximization does not rule. They pursue their ideological aims profitably." "Visionary Companies tend to have only a few core values – 3 to 6."

"In a Visionary Company, the core values need no rational or external justification. Nor do they sway with the trends and fads of the day. Nor even do they shift in response to changing market conditions."

The points above clearly indicate that companies with implemented values enjoy greater success than those that don't. If there is strong logic as to why this indication should be true, we can elevate its status from being simply a statistical correlation to that of a cause-and-effect relationship.

An enterprise is composed of transactions. Behind every transaction lie relationships – some good, some bad. Constructive, long-term relationships require trust and respect, inseparable, intertwined values. Trust and respect depend on fulfillment of the expectations of one party by the other. Expectations are based on values. Everything else being equal, two parties sharing deeply held values in common are drawn toward one another and develop a productive rapport. Conversely, where values conflict, it becomes much more difficult to develop rapport and "Get to Yes."

Clearly, values are logically a cause and the type and strength of relationships are direct effects, anywhere relationships occur.

Market Value

Now let's shift attention specifically to the impact of values in the marketplace. If you have been highly successful in the marketplace you likely have consistently done an excellent job at answering three Strategic Questions:
  • What are you going to sell?
  • Who is your market?
  • How are you going to beat or avoid your competition?
All three questions are totally wrapped up with values. For example, will you offer only products and services that provide social benefit? Which customers (and suppliers) should you "fire" because they cause you to constantly spin your wheels over a mismatch of values? What benefits can you provide that differentiate you and your offering from your competitors'. Even if you have to compete on a commodity basis, where price is king, what can you do to get your act together internally to reduce your customer's total transaction costs and still satisfy your values, including profitability?

Everywhere you look you see anecdotal evidence that values and market success are causally related. Scores of our clients report that their values such as trustworthiness and integrity are the reason their customers choose them over their competitors.

Values will become even more critical determinants of market success in the future as the marketplace evolves. What is known as the Experience Economy is superseding the Service Economy and will itself be superseded by an emerging Transformation Economy, where the highest product forms are the customers themselves, transformed the way they want to be. So it is not hard to conceive of markets where values become the most important, explicit part of an organization's offering.

Conclusion? Values of organizations cause market success today and in the future.

Internal Value

Now, how about the internal operation and culture of an organization? Can we logically support the assertion that values cause success there too?

Nowhere are relationships more important than in the internal workings of an organization. Unity in those relationships is crucial for fostering the synergistic cooperation that produces high performance. Colonial theologian Jonathan Edwards' statement, "One alone is nothing," rings true.

Creating unity in a team is a crucial leadership function. It depends heavily on shared values as well as shared vision. Cultures attract leaders with like values and leaders attract followers with like values and, thus, build strong cultures based on shared values. This implies that even strategic alignment, which we know causes success, is dependent on values alignment.

Values-driven organizations win because they utilize leadership power properly. As Stephen Covey points out in "Principle-Centered Leadership," power in an organization has three forms that lead to different results:

Coercive Power – based on the fear that the leader can do harm to the follower; promotes ultra-reactivity among followers.

Utility Power – based on leader and follower each offering something of value to the other; tends to foster individuality and situational ethics on the part of followers; still tends toward follower reactivity.

Principle-centered (or Values-centered) Power – based on the trust and respect earned by the leader over time; results in high follower proactivity.

So values-driven leaders enjoy more power and greater follower productivity, loyalty and teamwork. That permits them to implement more effectively the changes demanded by their strategies. Paraphrasing Covey, "The ability to make change is limited unless the leaders driving the change are secure in their values, and their values are fundamental values that do not change and are, therefore, not challenged by the change."

Defining Your Values

Hopefully, everything we have covered to this point motivates you to make sure your organization has a well-defined set of values at its core and is consistently living them out everywhere. Two related questions beg to be addressed.

What process should you use to clearly define your values and recognize them in your strategic planning?

How can you achieve alignment with the values throughout the organization?

Workable processes for initially defining your values are available in plenty of books. For example, check out the Mission Statement and Goals sections in "Simplified Strategic Planning," by Robert Bradford and Peter Duncan.

Here we will limit ourselves to mentioning several key principles and techniques as follows:
  • Define no more than six values at the deepest, most fundamental level possible, without regard for how they match up with the outside environment; these are your Core Values.

  • Don't try to define your values using a democratic process – the top leaders have much greater weight in selecting the final set because they must authentically exemplify values that inspire their followers.

  • Once established, these Core Values should be subjected to two tests. The first test is the Credibility Test. Have the behaviors of you and your people inside and outside of the organization been consistent with these values over the past year? If not, are they really core and/or what must change?

    The second test determines which individual values or combinations of values have particular strategic worth, in that they can provide sustainable competitive advantage. The technique, borrowed from page 86 of Simplified Strategic Planning, is the same as that used with Competencies to determine which are strategic.

Recognizing Values in Strategic Planning

When you analyze and strategize your markets, be sure to consider the values dimension explicitly, looking for competitive openings within which you can leverage your distinguishing values.

Use your Core Values as a "gate" through which any new opportunity must pass. If an opportunity can't be structured in such a way to pass, dump it!

Deal with the strategic issue mentioned earlier, "Which customers and suppliers should you 'fire' because they don't fit your values?"

If your participation in a core market segment becomes too small due to a values conflict, challenge your values only to the extent of seeking a deeper, more timeless value or principle to replace the one that conflicts with your market. For example, a hallowed practice of making your product "super-rugged" may need to be challenged by a deeper value like "satisfying the customer."

Alignment of Values Within the Organization

Famous quality guru Dr. W. Edwards Deming contends that quality, the result, is a function of quality, the process. The same can be said about values. Essentially the same principles and processes for aligning values within your organization apply where major changes are required as where you are simply trying to sustain your values at a high level. Interestingly, the process for changing values involves the same steps as farming.

Preparing the Soil

If followers are expected to accept new values, they must be the values that their leaders model with authenticity and passion over an extended period of time. Establishing the soul of an organization demands that top management set the tone by being real, values-driven people. Cultural change percolates down through an organization and that takes time and patience.

Planting

An organization changes one person at a time. The process must, then, be individually tailored to permit leaders to discover and deal with each person's specific values conflicts.

Hire the "brightest and best," where "best" deals with character and "values fit." This is particularly desirable when values are threatened by the cultural dilution that accompanies rapid growth.

Fertilizing and Cultivating

Celebrate frequently your progress in making the change. Don't confuse conforming behavior for the real thing – shared values. Make certain that your processes, policies and procedures reflect your values and promote peer accountability.

Promote from within whenever possible – it motivates performance and preserves culture. Borrow from Jack Welch: "Believe that corporate cultures will change in response to clearly articulated ideas – if the ideas are endlessly repeated and backed by consistent action."

Hold "town meetings" with employees to establish direct communication and information flow. Systematically weed out the poorest 10 percent every year.

Harvest

Look for your harvest. Continually build on initial harvests. Enjoy the fruit of your harvest, but be sure to save some of it as next year's seed. Feel great satisfaction – you have accomplished a noble purpose. You have confirmed the old Quaker adage, "Thee can do well by doing good."

So remember, your values have strategic value far too great to permit them to be taken for granted and allowed to drift along in the background. Force them to the forefront, establish them and commit the energy and resources to keep them there. Reap the benefits!

And start now!
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