corporate purpose

8/6/2019 Corporate Purpose

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CORPORATE PURPOSE

Sumantra Ghoshal and Christopher Bartlett in a series of three articles published in Harvard

Business Review (HBR) have tried to explain this phenomenon and at the same time provide a

new framework for the role of top management. They argue that in the past when companies

were smaller, setting strategy was a straightforward task. The traditional framework worked

when companies were small but as companies grew larger companies continue to use the same

framework. In order to it, complex elaborate systems were developed so that top management

could continue to review, influence and approve the plans of specific business units. In a

complex environment that exists today, information is filtered in the channels it travels through

before it reaches top management. This has not only impacted the ability to take good

decisions, but it has also weakened the links of top management with front line managers.

Figure 2-1: Global Rate of CEO Turnover (1995-2007)i

These developments of resisting developing a new framework in the changed circumstances

have led to a failure in the ability of top management to provide strategic leadership. As Figure

2-7 shows, this has resulted in a steep increase in CEO turnover, in the US. The CEO turnover

has nearly doubled in the last decade. This brings to focus the need to change the principles by

which top management functions are defined and for a new paradigm.

This new paradigm has been developed by Ghoshal and Bartlett, where the role of top

management has three dimensions. The first is to provide a purpose to replace strategy; the

second to create processes to replace structures; and the third is to empower people instead of

creating systems. We will discuss each of these three dimensions in this section.

Corporate Purpose: In a survey of 1,500 senior executives from 20 different countries, when

asked the most important behavioral trait a CEO must have, 98 percent responded that the

CEO must convey "a strong sense of vision or purpose."ii


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There are a number of steps necessary for creating a corporate purpose. Corporate purpose

has six major aspects to it, which are important. These are the following:

y Capture Employee Attention and Interest

y Get the people in the Organization Involved

y Create Momentum

y Instill Organizational Values

y Give meaning to Employees work, and

y Project yourself from an Economic entity to a Social Entity.

Capture Employee Attention and Interest : The purpose of an enterprise is a description of what

the company is capable of becoming.Successful CEOs generally have a clear strategic visionand a strong passion for their company. However, defining a companys intent or what it is

capable of becoming should be such that they have a personal meaning to the employees. Thisis the first step to capture employee attention and interest.

Bob Allen, CEO of AT&T, was faced with the same issue and was able to do this successfully.

AT&T had a broad vision of becoming a leader of futuristic information highways and virtual

worlds. He was able to state this very human terms, stating that the company was dedicated to

becoming the worlds best at bringing people together giving them easy access to each other

and to the information and services they need anytime, anywhere. This simple statement

captured the imagination of employees because they could relate to it and take pride in the

mission.

Get the people in the Organization Involved: The next step is to examine if the statement is

broad enough to challenge the employees. It should not constrict growth options and not

constrain the organization. This is reflected in the statement of Andy Grove, the Chairman of

Intel, who said that the more successful Intel became as a micro processing company, the more

difficult it became to be anything else. This means that the strategic focus has to be softened so

that new possibilities can be explored. Also, the focus should not be so broad that it conveys

little meaning or guidance to people deep in the organization and the frontline managers. The

strategic should be such that you get the organization involved.

Komatsu started out with the strategic intent to encircle Caterpillar with a slogan Maru C i.e.

encircle Caterpillar, its leading competitor. However, this became an obsession with Komatsu,

and after their initial successes, led to stagnation and stereotyped thinking. People in Komatsu

had stopped thinking of strategic choices, though the market had changed. The market for


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Caterpillars high end bulldozers was stagnating, but Komatsus product development was

putting most of its efforts into this market. There was a demand for smaller, lower priced

hydraulic excavators that was totally ignored. Katada, who was then the CEO of Komatsu,

decided that in order to grow Komatsu had change the focus. He told his people that they

should stop concentrating on Caterpillar. He created a new slogan, Growth, Global,

Groupwide. This was able to catch the imagination of the middle and frontline managers, who

worked to change the bias. As management supported them, they started to believe that they

had a voice in the company. Komatsu that was stagnating as a company was able to record a

growth of 40 percent over the next three years.

Create Momentum: Top management's enthusiasm, (or lack of it) about the company and its

people and what they stand for, tends to be contagious. This strong sense of vision or purpose

not only has to be communicated to people, the challenge for top management is to make it

contagious enough that the enthusiasm of the top management flows down into the enterprise

such that it is able to embed the corporate ambition into its employees. They then feel that they

had the freedom to interpret the companys broad intent creatively and work towards it.

The success of Louis Gerstner, the CEO of IBM, in changing the vision of IBM demonstrates the

point. Gerstner proposed a new vision for IBM to change its business model from computer

hardware to services. His enthusiasm in the belief that if customers were going to look to an

integrator to help them envision, design, and build end-to-end solutions, then the companies

playing that role would exert tremendous influence over the full range of technology decisions -

from architecture and applications to hardware and software choices, was accepted by the

frontline managers of IBM. He was able to convince employees and his enthusiasm was

reciprocated. It created a strong emotional link of the employees with the organization and they

also start caring. This ultimately led to the resurgence of IBM that had been stagnating for some

time.

Instill Organizational Values: However, top management needs to go beyond this to get

organizational commitment. It has to build and sustain commitment, so as to create momentum.

In order to do this, they have to convince their people that the articulated ambition is legitimateand viable. In the case of Komatsu, Katado encouraged management to find new growth

opportunities and leverage their competencies. He put in resources so that Komatsu could go

into electronic, robotics and plastics, using the competencies within the organization. He also

appointed a high-powered committee to examine how the company could enrich its corporate

philosophy, broaden its social contributions, and revitalize its human resources. This paid off.


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Demonstrating the seriousness of beliefs is a very important requirement to sustain

commitment. Committing resources or making major investments convinces employees of the

seriousness in the intent of the company and proves that the intent is not just rhetoric. This

creates the momentum essential for success.

However, if employees are to put out extraordinary efforts to realize company targets, they must

be able to identify with them. Identifying, communicating, and shaping organizational values are

critical for this purpose. This requires convincing people in a manner that involves their logical

and analytical abilities. The first three tasks of top management were based on the emotion and

intuition of people.

This is more difficult and needs acting on ones beliefs in a transparent manner. Ratan Tata, the

Chairman of the Tata Group, is reported to having said, If you fail to do what you promise, then

everything gets thrown away. Your words have no meaning to anyone. The rewards of the

exercise are long-term, sometimes slow to accrue, but it can strengthen the leadership position

and fortify the companys appeal amongst its employees and beyond.

The Tatas, in India, are an example of this. The employees believe that the Tata name stands

for integrity, fair play and quality. This has made them a premium Indian organization for people

who believe in this philosophy. Mr R. Gopalakrishnan, Executive Director of Tata Sons, puts it

this way: "Today the Tatas represent assurance, reliability, a sense of nationalism, value for

money Irrespective of the product you are making, those are the attributes you would like to

be known for, whether it is through a wristwatch, a piece of software or a car."

Give meaning to Employees work: It is further necessary to give meaning to the employees

work. Every individual would like to have a feeling of personal fulfillment from the work they are

doing as being a part of the organization. Fulfilling this need is a challenge top management

faces to energize employees and tie them up to the corporate purpose. This means establishing

a close link between the company and each of its employees.

The Japanese used the lifetime model to advantage. Anita Roddick (of Body Shop fame)

installed a bulletin board, a fax machine, and a videocassette recorder in every shop. She

continually bombarded her employees with images and messages designed to get them talking.

She visited stores to tell stories and listen to employees concerns, and she held regular

meetings with cross sections of employees, often at her home. She encouraged upward

communication through a suggestion scheme. Another process allowed any employee to

bypass the formal systems and communicate directly with a director-level executive on any


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issue.

This may not be possible with many companies, but leading companies today focus on three

activities:

y

They recognize employees contributions and treat them as valuable assets, byrecognizing individual accomplishments.

y They provide maximum opportunities for personal growth and development.

y They invest in finding out how employees fit into the companys overall purpose and

communicate to employees how they can personally contribute to it.

Through these three activities they encourage a true partnership between the employees and

the company and try to make sure that this is apparent.

Project yourself from an Economic entity to a Social Entity: The last element in creating a

corporate purpose is to deemphasize the company as being a profit making entity to that of a

social institution. The Birlas have been highly successful in this aspect in their businesses. Birla

employees are supported in all the social events that they are involved in. In the case of

employees who have shown their contribution to the family management, they more of less find

themselves with lifetime employment. Tatas also in some of their firms like Tata Steel promise

employment to one member of a retiring employee.

A company today is more than a business. At the micro level it is an important forum for social

interaction and personal fulfillment. At the macro level, it is a repository of resources and

knowledge. Companies are also creators of wealth. Their responsibility for continuously

defining, creating, and distributing value makes them the principle agent for social change. The

characteristic of transformational leaders - that is, leaders who provide change and movement

in an organization is by providing a purpose, a positive attitude characterizing many well-known

industrial leaders.

The Tata Groups achievement on building a brand image for integrity, fair play and quality, was

not an overnight phenomenon. The seeds were sown in the mid 1990s and the Tatas are now

enjoying the fruits of their efforts. The Tata Group logo has become a powerful symbol,

signifying the values of the house of Tata and in helping to coalesce group companies and the

people working in these companies under a common canopy.

In order to achieve such results what are the leadership qualities required? What are the

qualities that have been shown by Bob Allen of AT&T, Katada of Komatsu, Louis Gerstner of


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IBM, and Anita Roddick of Body Shop? To create change through working with the employees

in the organization, especially transformational change, requires certain traits in its leaders.

i See David D. Burnison, Leadership in a Time of rapid Change, Korn/Ferry Institute, 2009

ii See M. Lipton, Demystifying the development of an organizations Vision, Sloan Management Review, Summer1996

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