Building Better Organizations

How to Fuel Growth and Lead in a Digital Era

Claudy Jules

• Publisher: Berrett-Koehler Publishers
• Year: 2022
• ISBN:
  9781523000463
• Edition: 1
• Topic: Business
• Subtopic: Leadership
• Index: Business

This essential playbook shows how companies can scale success by coupling digital strategies with an investment in the health of their organizations and the people within. To scale and grow, a company must get the organizational elements right. That begins with having the right strategy, the right leadership to drive it, and the right talent, culture, and organizational design to realize a company's potential. This is especially true in the AI era, where a company's most valuable assets are its people. To begin with, leaders must rethink their value creation strategies. To hone their organizational edge, leaders must prioritize their organization's health in seven vital areas: strategic direction, culture, leadership, talent, organizational design, EID (equity, inclusion, and diversity), and well-being. No matter what type or size of business, those essential conditions must be leveraged for increased value and growth. Put simply: organizational matters matter. To hone their digital edge, leaders must understand AI, as advances in technology allow leaders to build organizations that can compete and win in the future. Finally, an investor mindset will enable leaders to invest wisely in the technology (and leverage that tech) that sets their organizations apart.

PART I

DESIGN THE CONDITIONS FOR EFFECTIVENESS

Seven Essentials for Successful, Healthy

Organizations in the Digital Era

1 ▪ Strategic Direction

Prioritize Purpose over Profit

Organizational matters matter—not only to financial performance but also to creating value for organizations, the people employed by them, and society at large. For decades, the first of our seven conditions of building a better organization—strategic direction—was designed for one purpose only: to create maximum value for shareholders. But in the digital era, that formula no longer fits. Why? Because strategy that is rooted in a deeper, social purpose ultimately enables speed and resilience. Today, successful organizations create strategies that prioritize purpose over short-term profit, creating long-term value for shareholders and for customers, communities, the environment, and employees.

In the summer of 2020, after the death of George Floyd while in police custody, protests erupted around the country and then the world. Floyd was by no means the first unarmed Black man killed by police. But what was unique was the speed with which a video taken at the scene spread worldwide, igniting a global protest—a phenomenon unimaginable in the predigital era. Equally remarkable was how quickly the public discourse broadened, from a renewed call for racial justice and police reform into a social challenge for businesses everywhere.

Almost overnight, it seemed, corporations that had long dawdled with often-ineffectual “diversity training” were suddenly tackling compelling reformation, and in some cases radical transformation, of their existing talent and organizational practices. For example, retailer Sephora unveiled new customer-service protocols aimed at reducing racial bias in stores, and both Sephora and Ulta Beauty significantly increased shelf space for Black-owned brands.¹ Mean-while, Netflix has doubled the number of Black professionals in its organization.² Both Netflix and Google’s YouTube have made good on their promises to feature more talent and programming from Black artists, and each of the companies has also pledged $100 million toward economic development in Black communities and racial justice initiatives.³

Healthy organizational practices have always mattered, of course, but today the digitization of everything has made them vital for survival. By prioritizing organizational health, businesses can find the tools they need to account for and adjust to the speed and unpredictability with which events unfold. The power and velocity of social media, which enabled the George Floyd video to quickly go viral and become a key piece of evidence resulting in the conviction of his killer, is just one example of the impact of recent technology and digital speed. Consider, too, the following:

• An increasing number of organizations are following the lead of companies such as Microsoft and FirstEnergy, which tie a percentage of CEOs’ pay to meeting diversity goals.⁴

• Top-line growth is increasingly tied to how well companies harness data and analytics to shape their operating models and to inform their strategic planning, resource allocation, and decision processes.

• Consumers’ changing expectations regarding speed, service, and cost are prompting companies to reshape their operating models to achieve operational excellence.

• The U.S. Securities and Exchange Commission (SEC) is pressuring companies to disclose information on their human capital initiatives, per the Human Capital Management Coalition’s petition and Investor Advisory Committee’s 2019 proposal to modernize required disclosures.

• Employee advocacy and stakeholder activism have increased around issues such as climate policies, racial equity, firearm sales and financing of the gun industry, and selling facial-recognition products to police forces (particularly regarding the potential for discrimination those products present against people of color). Such activism has already prompted action by regulators and investors on several fronts—for example, legislation around more consistent use of police body cams.

• The influence of investors is growing around how well businesses monitor organizational topics and environmental, social, and governance (ESG) criteria—and how well they integrate those criteria into mainstream business and investment practices.

Consider too that it isn’t just digital and AI-first companies that are giving more attention to organizational matters; they are also becoming increasingly important to “old economy” companies and to investors. Historically, a focus on people-related issues was limited. But AI-first companies—and their investors—are beginning to understand that org health is the secret sauce to executing on a vision. As Stanford professor and author Jeffrey Pfeffer writes, business success “comes from successfully implementing strategy, not just from having one.”⁵ That implementation depends in large measure on the betterment of the enterprise itself.

Today, as businesses worldwide begin to rebound from the havoc wreaked by the COVID-19 pandemic—while simultaneously contending with continuing social, environmental, and financial uncertainty—the companies that survive and thrive will be those that purposefully develop healthy organizational conditions. In this sense, we can draw from organizational life an analogy to the field of holistic health. Unlike Western medicine, which often focuses on isolated elements of the body, a core principle of holistic health posits that human beings are greater than—and different from—the sum of their parts. Healing human malaise, the belief goes, requires a comprehensive view of mind, body, and spirit, and therefore should focus on understanding the underlying cause of the illness, not simply treating symptoms. Similarly, the sum of a company is greater than its parts, and organizational context requires consideration of all its components.

Note that not every element of organizational health will be salient to all stages across the maturity and growth of a business, or even throughout the life cycle of a deal. That is why leaders in both publicly held and private companies need to hone their ability to identify and manage the relevant aspects at any given stage. For example, in a startup, crafting a well-understood vision and purpose that guides the company’s strategy and key decisions needs the most attention. In a mature, post-IPO company, on the other hand, your focus would be on evolving the company’s structure, job architecture, and career paths to support product expansion and new growth areas.

No matter where your business finds itself within the growth cycle, however, its strategic direction—the first of our seven organizational conditions—will always be central to success. In this chapter, we will explore strategic direction in detail and how identifying an underlying purpose is key to creating a strategy that can harness the power of big data and artificial intelligence to benefit both organizations and society.

Purpose Wanted: Now More Than Ever

What characterizes a successful business strategy? Certainly, it needs to articulate a clear long-term vision and mission. It should account for external environments and market conditions and leverage existing assets and capabilities—or define a clear plan to develop or acquire them. But in the current hypercompetitive and hypergrowth marketplace, companies’ strategies have been challenged by changes in the business environment. In short, constantly changing macro-environmental factors shorten the shelf life of many strategies. Dealing with such disruption requires a series of strategic “micro battles,” discrete, time-boxed initiatives that rapidly bring strategic choices to action and formulate ways to scale the results, resolving conflicts as quickly and as close to the customer as possible.⁶

But while changes to the business environment often force companies to quickly rethink individual business strategies—that is, the set of actions needed to capitalize on growth opportunities—a company’s strategic direction or its articulation of its ambitions, including trade-offs, risks, priorities, and main efforts, is less prone to disruption. Ideally, a clear strategic direction provides the structure to support the organization through stormy weather.

That’s where purpose comes in. The driving force of an underlying purpose is the first and arguably the most important thing that an organization needs when it comes to formulating its direction. Purpose is one of three elements—along with first principles and aspirations—that require wide agreement from the board, founders, and other company leaders. Let’s define these three elements in turn.

• Purpose. A company’s reason for being that guides organizational behavior at all levels of the company and decisions about the business model and key investments—and how to leverage the operating model to execute against those decisions. An example of purpose is CVS Health’s “helping people on their path to better health.”

• First principles. The value-creation drivers that will help the company grow and clarify its value proposition to differentiate itself from its competitors. For example, Haier Group, headquartered in Qingdao, China, transformed from its traditional manufacturing model to a customer-relationship management model by focusing on giving customers what they want most. The company created a statement, the Win-Win Value Added Approach (WWVA), that helped it to operationalize its first principles of being “user-centric, driven by a new, open Internet of Things (IoT) ecosystem linked to other companies’ products and services.”⁷

• Aspirations. The envisioned future and objectives—and the key results a company will seek to achieve in pursuit of those. For example, as it rebranded itself as a health services company, CVS decided to stop selling cigarettes—a bold aspiration and move that initially cost the company $2 billion in lost revenue.

Google offers an example of how organizations can convey purpose, first principles, and aspirations to sharpen strategic direction. The company, which grew from a garage startup in 1998 to a large, complex organization, has always aspired to embody its famous motto of “Don’t be evil.” The company’s bedrock first principles, known as the three “respects” (respect the user, respect the opportunity, and respect each other), are words that are etched into employees from the beginning—as they were for me from my early days as a “Noogler” (or new Google employee).

Historically, the organization has “long believed that over time, companies tend to get comfortable doing the same thing, just making incremental changes,” according to Google cofounder Larry Page in a blog post. “But in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant.” Therefore, when Google’s existing structure began to limit its potential to expand, it restructured to a holding company, Alphabet. This allowed Google and the portfolio of “Other Bets” to grow autonomously so that Alphabet could meet stakeholders’ expectations and, indeed, outperform competitors.

The change, however, didn’t relieve Google of its responsibility in the portfolio to grow and be profitable. Therefore, Google made the big pivot from being a mobile-first to an AI-first company—marking an important inflection point not only in the company’s history but also in the tech industry overall.

Because I believe purpose is the most important of the three aspects of setting strategic direction, that is where I will focus for the rest of this chapter.

Purposeful Strategic Direction in the Age of AI

Why is purpose so important? The answer comes back, again, to the need for companies today to embody a clearly articulated ambition and enact it with speed. In the current age of digitization, in which artificial intelligence will soon become a default application, technology companies and investors must proactively work together to understand key organizational conditions, such as purposeful strategic direction. This is where we begin to see how our three main building blocks, as described in the introduction—the health of the organization, digital advances, and investment—come together. Dynamic, rapid, and agile investment decision making will depend on such mutual understanding and prioritization.

Here’s why. Near-real-time responsiveness has become the new competitive advantage, but organizations can act only as quickly as their people are willing to do. So, the first essential way to be fast is to capture the hearts and minds of employees at all levels of the organization. A common commitment to a meaningful purpose does that. Purpose offers a strategic direction for the organization, yes, but it also provides something that employees care about. It defines right behaviors and actions to beat the competition, and it empowers people to own their decisions—thereby pulling the company’s strategic purpose directly to customers.

Today’s most purpose-driven organizations—CVS Health, Google, and Patagonia to name a few—place purpose at the heart of their strategic direction, serving as a kind of guiding north star for how they plan to compete. In other words, purpose goes beyond culture to strategy—defined as the long-term roadmap to realize top management’s vision and meet business goals.

But what, exactly, is purpose? It is an organization’s aspirational, human-first reason for being. By this definition, a company’s purpose serves many stakeholders—shareholders and owners, yes, but also employees, customers, the environment, and society.

Once seen as a rather soft corporate issue whose value wasn’t always understood by the C-suite, purpose is now becoming a central tenet of organizational life. Leaders at many levels are using the concept to anchor and guide the decisions they make in response to new situations and unforeseen events—making purpose an inescapable focus for companies grappling with the challenges of today’s disruptive business environment. That is why management teams worldwide are realizing that it’s time to welcome back purpose as a key focus of an organization’s effectiveness.

Consider the following recent headline: “Shareholder Value Is No Longer Everything, Top C.E.O.s Say.”⁸ On August 19, 2019, close to 190 corporate CEOs belonging to the Business Roundtable (BRT) took a moment to pause, reflect, and reevaluate what had become clear: along with any financial investments they considered, companies must also invest in and make new commitments to employees, communities, suppliers, and, most of all, customers. In other words, these CEOs of major public companies that together have a market capitalization exceeding $13 trillion declared their commitment to a broader group of stakeholders. The BRT statement issued a forw...

Table of contents

• Cover
• Title Page
• Copyright Page
• Dedication
• Contents
• Preface
• Introduction: Start with a Better Foundation
• Part I. Design the Conditions for Effectiveness: Seven Essentials for Successful, Healthy Organizations in the Digital Era
• Part II. Grow into a Better Organization: Using Digital to Unleash the Business’s Full Potential to Scale and Adapt
• Part III. Lead a Better Organization: Top Priorities for Leaders Seeking Investment Optimization
• Conclusion: Looking Back, Looking Ahead
• Notes
• Acknowledgments
• Index
• About the Author