In Purpose, world-renowned thought leader Nikos Mourkogiannis turns the entire idea of leadership on its head and shows
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English Pages 280 Year 2006
PURPOSE THE STARTING POINT OF
GREAT COMPANIES
FOREWORD by ROGER FISHER AUTHOR OF GETTING TO YES
r ISBN I-4039-7581-7
essential resource for today’s business
“An
and
leaders
for the next generation as they face
the fresh challenges of this
— Roger
F
1
s
he
,
new century.”
from the Foreword
ose y WORLD-RENOWNED thought leader Nikos Mourkogiannis turns the entire idea of leadership in business, the choice
is
no choice
satisfy the
defines
at
all.
on its head and shows that
between values and success
He argues that a company must
need for Purpose
— a set of values that
and inspires and motivates its employees.
it
Rather than organization and structure, ideas are
what cause companies
to
go from good to
Drawing on the works of the
great.
great philoso-
phers and using examples from multiple industries,
Mourkogiannis of Purpose
identifies the four
major types
— discovery, excellence, altruism and
heroism
— and shows how to harness their power
to unite
and energize an organization. In an era
of corporate scandals and declining morale, the principles revealed here will be indispensable for
companies that aspire to meaningful success.
•
•
Digitized by the Internet Archive in
2016 with funding from
Kahle/Austin Foundation
https://archive.org/details/purposestartingpOOmour
PRAISE FOR PURPOSE
“At
this
when
time,
drowned by greed, here
dom
is
a
roadmap
the fate of the world rests.
worth
a
The
— buy book!” —Robert A. G. Monks
read
J
for future leaders in
clear
has been
whose wis-
notes and bibliography alone are
this
co-author of Corporate
,
“For the pharmaceutical industry, purpose
makes
CEOs
the credibility of American
how we
is
Governance
Mourkogiannis
central.
can use purpose to draw on the passion of our
people to save and improve
lives.”
—Dr. Daniel “Mourkogiannis has
it
right: the organizations
Vasella
with
,
CEO
,
Novartis
moral purpose
a
by something
are the long-term winners because they are motivated
more powerful than money.”
— Chris Holm, Chairman of The Children
's
Investment
“Mourkogiannis can make things happen, because he
how
really
Fund
knows
business works.”
—
Professor
Dr
Wolfgang
“Mourkogiannis glides beautifully on the
Reitzle,
razor’s
is
,
Linde
AG
edge of where we
are in the current reality of the business world today.
future practice that
CEO
Purpose
is
the
here now. You will find insight that will help
you become more aware and centered on the
realities
of practicing in
today’s global business environment.”
—Louis
Carter, President
and
CEO
,
Best Practice Institute
“Building on vast experience, Mourkogiannis analyzes what drives action and adds a
new dimension
to leadership.
A
truly inspirational
piece of work.”
— Thomas Thune Andersen, CEO, Maersk Oil and Partner A.P Moller Maersk .;
“An overriding sense of purpose
hard to achieve, and hard to
is
change once achieved, but potentially transformational tions, as
in
its
implica-
Nikos Mourkogiannis’s book so persuasively demonstrates.”
—Pankaj Ghemawat,
Professor,
Harvard
Business School
Mourkomind with
“Across a broad array of industries and businesses, Nikos giannis has
made
a substantial impact;
exceptional mental
making circumstances,
many
He
agility.
he has an inquisitive
has turned
many companies,
in loss-
into winners in this field. In Purpose he reveals
of the processes that have brought his clients success.”
—Sir Jackie Stewart “Mourkogiannis reinvents strategy by anchoring egy that has no purpose ganization depends
is
merely
upon the
it
to purpose. Strat-
transformation of an or-
tactics; true
principles described in
Mourkogiannis s
book.”
— “Through
Dr. Reto Francioni
his vast global business experience,
offers fascinating stories
ness success. This
book
,
CEO
,
Deutsche Borse
Nikos Mourkogiannis
and insights on the role of purpose will inspire
CEOs,
aspiring
in busi-
CEOs, and
stu-
dents of business everywhere.”
—Donald
T. Phillips,
author of Lincoln on Leadership
and “Nikos
is
On the Wing of Speed
the genuine Philosopher Consultant
completely
new
—with him you gain
insights.”
—Sir John
Parker,
Chairman
,
P&O a?id National Grid
PURPOSE THE STARTING POINT OF GREAT COMPANIES
Nikos Mourkogiannis
Foreword by Roger Fisher
palgrave macmillan
PURPOSE Copyright
© Nikos Mourkogiannis, 2006.
All rights reserved.
No
part of this
Foreword
©
of brief
RG2
1
6XS.
representatives throughout the world.
PALGRAVE MACMILLAN is
the global academic imprint of the Palgrave
Macmillan division of St. Martin’s Press, is
any
10010 and
Houndmills, Basingstoke, Hampshire, England
Macmillan®
in the case
in
2006 by
PALGRAVE MACMILLAN™ 175 Fifth Avenue, New York, N.Y. Companies and
Fisher, 2006.
book may be used or reproduced
manner whatsoever without written permission except quotations embodied in critical articles or reviews. First published in
Roger
a registered
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and other countries. Palgrave
is
LLC and of Palgrave Macmillan
in the
a registered
United
States,
trademark
Ltd.
United Kingdom
in the
European Union
and other countries.
ISBN-13: 978-1-4039-7581-2 ISBN-10: 1-4039-7581-7 Library of Congress Cataloging-in-Publication Data
Mourkogiannis, Nikos.
Purpose p.
:
the starting point of great companies / Nikos Mourkogiannis.
cm.
Includes bibliographical references and index.
ISBN 1.
1-4039-7581-7
Business planning.
HD30.28.M686
2.
Leadership.
I.
Title.
2006
658.4'01-dc22
2006049494
A catalogue
record of the book
is
available
Design by Letra Libre First edition:
10 9 8 7 6 5 4
October 2006 3 2
1
Printed in the Linked States of America.
from the
British Library.
To Waleed Alexander Iskandar (1967-2001)
My beloved friend and colleague Whose altruism brought Purpose
to
our
lives
,
CONTENTS
Acknowledgments
ix
Foreword by Roger Fisher
xiii
Part
I
What Is Purpose? Chapter
1
Chapter
2
The
Chapter
3
What
Introducing Purpose
3
Real Value of Purpose
Purpose
Is
Not
Part
23
45
II
Great Stories of Purpose Chapter 4
Tom Watson s
Chapter
Warren
5
Passion for Discovery J
Buffett and the Excellence
67
of Financial Artistry
Chapter 6
Sam
Walton’s Altruistic
to the
Chapter
7
Commitment
Customer
77
The Heroic Purpose
of
Henry Ford and
Siegmund Warburg
Part
How Purpose Chapter
8
59
89
III
Builds Greatness
Purpose and Morale
113
Chapter 9
Purpose and Innovation
127
Chapter 10
Purpose and Competitive Advantage
137
Chapter
Purpose and Leadership
149
Purpose
173
Epilogue
1 1
in
Action
Appendix One: Panthea and Booz Allen Hamilton: Our Proposition
197
Appendix Two: 50 Key Points
203
Notes
209
Critical Bibliography
217
Index
247
ACKNOWLEDGMENTS
focused on Purpose after
I
me
many years
of studying Leadership.
the one conversational topic that has followed
Leadership
is
throughout
my life. Around
our family table there seemed to
be no discussion except what would have happened
and otherwise, had acted differently
We
my
were
As
My
mother,
to involve other
I
significant leaders.
Eisenhower
who was from Macedonia, had
historical reference:
grew up,
I
came
father had met; Churchill, de Gaulle and
his favorites.
one cherished
people, famous
often started by revisiting
the family war stories. But soon the stories
people that
if
only
Alexander the Great.
know and admire two people who were Professor Michael Stassinopoulos, who was also a came
to
judge, one day declared null and void a decision by the then dictator
know for a fact that Professor Stassinopoulos did not do become anyone’s hero. He was just doing his job, interpreting
of Greece. it
to
I
the law. In the process, however, he triggered the
ing against the dictatorship in
came the
Republic’s
first
my country.
first
moral awaken-
Eventually, in 1974, he be-
President. Professor Adamantios Pepelassis,
way to find promising and helped them pursue graduate
an accomplished economist, went out of his
Greek
students, myself included,
studies in America. If
it
were not for him,
I
would not have gone
to
Harvard.
While los
at
Harvard,
I
often traveled to Greece to
Averoff and Christoforos Stratos, statesmen
ample that one enters the public domain only
My
first
my Greek
who
to
for
taught
Evange-
me by ex-
make
a contribution.
my
parents and to
acknowledgments, therefore, are to
mentors.
work
PURPOSE
X
The
first
who made me
think about purpose as an intellec-
was Professor James Buchanan, who was
tual topic
Nobel Prize
me
person
Economics. Professor Buchanan,
in
who
kindly asked
was
to be his research assistant at Virginia Polytechnic Institute,
totally
preoccupied with questions of purpose, not only with the pur-
pose of government, but also with other questions:
purpose of government?” “What
is
“What
is
“What is not the purpose of private Like many people of my generation, I
enterprise?”
spent a significant part of
time fighting the Cold War, or trying to find ideas to
During
this
period
whom
vard, with
I
I
came
worked
to
know
Roger trained me
it.
for over six years. Roger’s exciting purpose is
his preferred strategy.
to look for the answers, there
were
five
pro-
Harvard Graduate School of Arts and Sciences who
fessors of the
equipped
settle
Professor Roger Fisher at Har-
has been “Getting to Yes.” Negotiation If
not the
the purpose of private enter-
prise?”
my
later to receive a
me with
the facility to research fundamental questions. Karl
Deutsch asked the question, “What
is
nationalism?” Stanley Hoff-
man and Guido Goldman asked, “What is peace and what is war?” Sidney Verba asked, “What is different about American voters?” And Richard Musgrave asked, “What is economy and what is society?” It was not until the Cold War ended that I came to focus on the purpose of the business firm. As
a strategy consultant,
about leadership and moral purpose from Kirag taught
most
me
clients.
learned a lot
Madame Suna
the most. She was the daughter of Vehbi Kog, the
successful entrepreneur and businessman in Turkey.
four children, years
my
I
how
it
was she who kept the clan together.
I
Of
Kog’s
observed for
she “walked the talk” of any ideal her father had preached,
while at the same time transforming the conglomerate that her father
had
built into
a
regional competitor with the purpose of being
Turkey’s national champion.
Eight years ago
I
realized
ship and purpose with the
cused on strategy. For
under the roof of discussions with colleagues.
a
I
wanted
on
same singlemindedness
while
I
thought
a strategy firm.
Mark
to focus
Fuller,
I
this
issues of leader-
that others
had
fo-
could be accommodated
enjoyed enormously
my
lengthy
Bruce Allyn and other Monitor Group
Those conversations helped me
to realize that
I
could not
ACKNOWLEDGMENTS
my work
book about leadership while
write a
XI
me
had
focused on
strategy. I
took
year off and went to
a
England where
read, thought
I
my
house on the
and wrote. During
four people sustained me: Charles Seaford,
Isle
of
Wight
in
this critical time,
who was
indefatigable in
research, contribution of ideas and the compilation of the bibliogra-
phy on which
this
who engaged me
book
Richard Rawlinson,
rests;
a
tower of strength,
an endless debate over the ideas; and Lord Jacob
in
Rothschild and Sir Jackie Stewart, leaders of unique accomplish-
ments,
who
continually encouraged me.
was not
It
until
I
met Art
my
for strategy +business, that eral
helped
ideas crystallized.
At
seemed
that
me this
own
write an article
same time
am deeply grateful: Max Weston, Sam Gilpin and Chiku Sinha.
my
ideas for a
sev-
perspectives and
I
Acker, Khoi Tu, It
Sal
who
of my Panthea colleagues contributed their
thoughts, for which Bill
Kleiner,
book could become
Lilian King,
a reality
when
Bianco and Randy Rothenberg of Booz Allen Hamilton read
draft.
Randy became
Levine,
When
who
guided
met
I
champion, introducing
its
me
me
to
sensed that she was the right editor for
content and related to
agent,
Jim
through the labyrinth of publishing houses.
Stuart at Palgrave Macmillan,
Airie
my
a
it
my book.
I
immediately
She understood the
with passion. Jesse Kornbluth helped
me
polish the manuscript into a book.
My and
12 years at
strategy, for
Monitor Group taught me
which
I
am
very grateful. But
a lot it
was
about business
my
10 years at
me about management and allowed me to see leadership in action. I am very grateful to the people at General Dynamics who allowed me to think outside of the box: General Dynamics that taught
David Lewis, George Sawyer, Robert Duesenberg, Jim Mellor, Nick Chabraja, Dain Hancock, Vernon Lee, Ralph Heath, John Tibbs and
Henry Gomez,
A
lot
to cite only a few.
of gratitude
is
due to Booz Allen Hamilton for the support
the firm has extended to this
book
realized the potential of the ideas.
in the past year.
Dan Lewis
Shumeet
Banerji
started the ball rolling.
Dennis Doughty, Klaus Mattern, Steve Wheeler and Lloyd Howell extended the support of the organization. Adrienne Crowther and
PURPOSE
XII
Jonathan Gage mobilized the network. John Harris generously gave of his time in introducing the ideas of the book to
CEOs
both
in
North America and Europe.
And then
it
was Panthea and
clients of Panthea,
its
incredible team, as well as the
who encouraged me and
helped
me
every step of
the way. Special thanks are due to Deutsche Bank, Arab Bank, Tesco
and Braun for giving
all:
me
an opportunity to write about their Purpose.
My wife, Janet,
encouraged
to leave a secure
and highly remunerative position to spend
me
researching and writing this book.
to take the
Our
most
difficult step a
of
year
daughter, Ceci, was a source
of inspiration as she herself relentlessly pursued excellence in academics, music and horsemanship. family
affairs,
And none
allowing
me
My
brother Alex dealt with the
to concentrate
on more
lofty endeavors.
of this could have been possible without the probings of
Dr. Bruce Lloyd; as the Ancient Greeks would oneself before entering the public domain.”
say,
“One
has to
know
FOREWORD
by Roger Fisher
T
hirty years ago, Karl Deutsch, distinguished social scientist
and then chairman of the American Academy of Arts and
me
Sciences, introduced
one of
to
his teaching assistants,
Nikos Mourkogiannis. Deutsch would joke that the only one of
his
Henry Kissinger. way as well. Like
previous assistants with as heavy an accent had been
The comparison was Kissinger,
Nikos was
sought to play Initially,
apt in a
a role in
a
more
substantive
young man of remarkable
intelligence
who
the major issues of the day.
Nikos worked with
course on negotiation that
I
me
to develop the curriculum for a
then began to teach
at
Harvard. This was
the beginning of several years of fruitful creative collaboration, in
which he played
a vital role in establishing the
Program on Negotiation and
my book ation: It
about.
Getting
to Yes.
refining the principles that
wanted
we developed
at
To
leaders to
in action, that
this end,
he truly cared
come and formulate
On
and
he looked for ways to
Harvard to the ongoing
tween Greece and Turkey over Cyprus. ical
explored in
to take the Program’s ideas about negotiation
put them to work in the world. apply the tools
I
But Nikos’s true passion went beyond negoti-
was leadership, and leadership
He
Harvard Law School’s
his behalf,
I
conflict be-
invited polit-
possible solutions to the problem.
PURPOSE
XIV
He also made important contributions Camp David negotiations. Since then, Nikos’s career has taken political circles
now
Panthea. But his
from that of most
Having seen the
munism and thority
CEOs
make
his desire to
life
as
work on
the
him away from academic and
and into the world of business
companies such
sibility in
to the Program’s
via positions
of respon-
General Dynamics, Monitor Group, and
story has given
him
a perspective different
and consultants.
He
has never lost sight of
world around him.
positive contributions to the
effects of atrocities
committed
in the
name of com-
nationalism in his native Greece, Nikos speaks with au-
on the power of ideas
to motivate people, for
good or
for
ill.
The book you are holding now is his exploration of this aspect of human nature, and the indispensable role it plays in successful leadership. It
informed by
is
from more than
his
wide reading and the insights that come
thirty years of first-hand experience
—and
reflection.
human rights to domestic politics, we inhabit a world that, perhaps now more than ever, is defined by competing values and ideas. Yet somehow this basic insight is too often lost on corporate leaders, who constitute one of the world’s most in-
From
fluential
war on
the
terror to
communities. Business
often mistakenly thought of as a
is
dispassionate, value-free pursuit, reducible to quarterly earnings re-
ports and valuations of brand equity. But just as there are in a foxhole, there are
found
in
a
human need Nikos
offices.
for guiding ideals that give
them
atheists
no automatons bound by the laws of finance
company’s executive
refers to
no
as
There
meaning
is
a
fundamental
to our actions.
Here
Purpose, which he correctly identifies as one
of the most potent tools for managing an organization. Great leaders are those
who
ployees to
can articulate
work toward
its
a
company’s vision and inspire their em-
realization,
bound together with
a
shared
Purpose.
Over the
last several
ers of their ilk the
none
years
we have seen
in
Enron, Tyco, and oth-
consequences of abandoning Purpose (or having
to begin with).
Through
Nikos not only shows how
company corporate
the principles described in this book,
to avoid the practical
scandal.
More
problems that ac-
importantly, he demolishes the
popular conception of business as rapacious and inherently amoral.
FOREWORD
Here business
xv
joins politics, science, and, yes, religion as
one of the
great avenues for bettering the world and the lives of everyday
and women.
It is
my
hope
that Nikos’s
book
men
will help to dismantle
the false dichotomy of financial success versus social good.
It will
be
an essential resource for today’s business leaders and for the next generation as they face the fresh challenges of this
new
century.
PART
I
WHAT
IS
PURPOSE?
CHAPTER ONE
INTRODUCING PURPOSE “ One
must
be something, in order to do something. ”
—Johann Wolfgang von Goethe
O
ther children had fairy tales at bedtime. story of my family. story was
what
story of the day the
my
wanted
father,
I
And from
the time
thought about
Communists came
but
my
father
as
I
I
I
had the nightmare
was
six
or seven, that
drifted off to sleep
to our farm in Greece.
was long gone; he’d
—the They
left to fight
the
Communists. So the Communists made do with the women.
There were 54 women
demanded
in
denounce
that they
our village that day.
my father. They refused — all
So the Communists shot them cause there were so
many
The Communists
all.
Two women
bodies that the
of them.
survived, only be-
wounded could
hide under
the pile. I
offer this story not for shock value, but because concrete stories
are usually are the
more powerful
way we
learn,
teachers than abstract ideas. Indeed, stories
from childhood
fairy tales to the biographies
we
PURPOSE
4
devour. This
way
best
not to say that
is
recommend extreme tragedy
I
importance of Purpose. There are
to learn the
ways. But one thing about tragedy
day
—quite As
that
is
never
it
as the
less cruel
—even on
good
a
leaves you.
because of the tragedy that befell
a result,
my
family,
have
I
never been in danger of forgetting the centrality of Purpose for any enterprise
— because, even though my family was destroyed that
their deaths
the
day,
added to the horrific body count that ultimately toppled
Communists. The
women
my family died
in
to help
freedom pre-
vail in their country.
Serious stories
Thucydides and
make
thrilled to the
the Athenian dead in
Greek
for serious boys.
history, the
I
was 12 when
Funeral Oration that Pericles gave for
490 B.C. For those who have forgotten
background of
this
cultures:
“liberal”
their
speech was the long-running
war between Athens and Sparta. They were not rival
read
I first
just rival cities
but
Athens and “conservative” Sparta. Their
yearly battles were often inconclusive
— Spartan troops regularly
as-
saulted Athens, ran out of supplies and retreated. But the year before Pericles’ speech, Sparta
tans
had won
had been uncommonly successful.
a decisive battle against
among them some
sualties,
people in the Athenian
And
of the most noble and highly regarded
city-state.
Morale
in
over and over,
copied
Athens was low.
then Pericles spoke. His words were the model for
of Britain” speeches
it
I fell
—
I
about
in love with
whole earth
is
this
the
Winston
Abraham
Churchill’s “Bat-
not only read the Funeral Oration speech
out mice. Eventually,
What
Spar-
Athens, inflicting significant ca-
Lincoln’s second inaugural address and for tle
The
it.
By
the time
memorized
I
was
I
a teenager, I
had
it.
speech appealed to me? This passage: “For the
tomb of famous men; not only
rated by columns and inscriptions in their
own
are they
commemo-
country, but in foreign
lands there dwells also an unwritten memorial of them, graven not
stone but in the hearts of men.”
Which
is
to say:
from goodness and high purpose, and true fame As
a boy, I believed that
forever
unknown, even
mortal.
I
wanted to be
my
in their
is
True fame comes immortality.
dead family members
own
—were
countrv
their equal, to be
on
—
their
names
nonetheless im-
somebody who changed
the
INTRODUCING PURPOSE
world for the
To do
better.
be somebody important,
need to find
I
that,
I
concluded,
would have
Purpose worth being
a
5
to stand for
and,
for,
Just about everything that has happened in
teenage resolution has proved to
would not only have
I
me
if
something
and “management.” Purpose
strong-minded
and spines of steel
real character
Purpose
men and women
is
my
life
since
that Purpose
the
mostly notice by
its
absence.
I
made
that
crucial for
is
—adults with powerful — are suited
The news
would
all
and “tac-
game of champions. Only for
intellects
and
it.
function of character, and character
is a
I
necessary, dying for.
truly successful enterprises. Let others play with “strategy” tics”
—
to
these days
is
something we
is tilled
with stories
about the absence of character: Enron; Arthur Andersen; Worldcom.
And on
that
is
just in the
a daily basis,
ment and
realm of business.
The
headlines
tell us,
about the gap between rhetoric and reality in govern-
warfare.
Even
scripted, in real time
sports
—with
contests that take place, un-
— have been tainted by scandal.
Behind ever) tainted enterprise, we 7
like to think,
is
someone who
simply forgot that the law applied to him. So he cut corners.
He
the rules.
didn’t consider himself to be a criminal
being “aggressive” and “entrepreneurial.” those caught in scandal, nations.
It
almost
wasn’t as
if
we
see
And
He
bent
— he was
just
in the personal lives of
more of the same
self-justifying expla-
they were immoral; they were good spouses,
involved parents, concerned citizens.
What
is
courthouses
troubling about the faces is
we
that they look so like ours.
see going in and out of
Could they be
find ourselves “going along” with behavior that
No,
if
we
us? Yes,
we know
if
we
to be dodgy.
are people of Purpose.
What
is
Purpose?
Why is
Purpose so important?
Is
something so
seemingly esoteric really essential to effective leadership? After
ernment
all,
there are plenty of success stories, in business and gov-
alike, in
much money as possible, or to be recognized as star There are many successful enterprises in which the purpose
been to make achievers.
which the overwhelming purpose of the leaders has
as
PURPOSE
6
is
no more than
a confection,
providing a
boost to morale
little
when
needed, but only peripheral to the central dynamic of maximizing
some other kind of tangible
profit or pursuing
Given these undeniable to, say,
why
facts,
success.
shouldn’t
we
attribute success
the personal characteristics of an individual leader (like a
CEO or government head), or the workings of the top team? Because Purpose
Purpose
bigger than
is
means by which Purpose Purpose,
bigger than ambition or greed.
is
leaders pursue their goals.
a step-by-step
— indeed,
had many
it
lacked a reason is
—
it
is
strategies.
But strategies are about means;
An end
a reason.
is
crucial because of
its
scope and ubiquity.
larger than any other element in a business formula.
more
involving.
It is a
tirely
through
you
make
stances,
you
a rational
—
a
deeply
thought
—
it
Though
it
A
all
at
once, or en-
successful Purpose
awareness of yourself, your circum-
felt
to do. It draws equally
lead.
leader of yourself and
or analytical process.
and your potential
intellectual
as a leader
not the kind of choice that you make
will incorporate a
And much
— the ultimate
represents a choice you it is
It is large,
choice to pursue your destiny
destination for yourself and the organization
—
Enron
lacked Purpose.
much
others
short-term
path toward optimal results. Enron had strat-
they cannot be an end in themselves.
Purpose
represent the “how,” the
bigger than strategy. At best, strategy
is
egy
tactics. Tactics
calling:
what the world might be asking
upon your emotional self-knowledge and
calls
upon everything you
are,
everything
you’ve experienced, everything you believe.
Purpose to think.
It’s
is
the answer
opposed to the
Purpose
is
First,
your moral
DNA.
It’s
what you believe without having
you give when you’re asked
factually correct
for the right
—
as
— answer.
crucial to a firm’s success for three reasons.
Purpose
is
the primary source of achievement.
about wealth creation and success are
we recognize
far easier to
the part that Purpose has played.
Most
stories
understand when
—
:
INTRODUCING PURPOSE
7
Second, Purpose reveals the underlying dynamics of any activity7 the ,
ior, in
most fundamental
either a
element that
organization. Its the core energy, the
fuels everything else, big
Third, Purpose
is all
and small.
want
that successful leaders
although they do not usually use the word because of what they see every day: are
and behav-
issues involving motivation
community or an
human
The
itself.
to talk about
They
care about
it
most
executives they value
driven by Purpose, and the executives they worry about most
all
are not.
appreciate that Purpose
I
not
is
commonly understood
to be an
com-
animating idea. In Business 101,
it’s
pletely ignored. All the focus
on economics: Public companies
is
make products or perform sendees
not
just
overlooked,
it’s
that create profits for their share-
holders; private companies exist to support their owners; non-profits create value for the funds they are given.
And only
in the real
more
a little
Money, money, money.
world of business and public respect.
Recommending
Purpose gets
affairs,
business books for the
Wall Street Journal, Gil Schwartz, chief of public relations at CBS, has this to say
human
about
affairs
a
book
that guts the importance of Purpose in
—Niccolo Machiavelli
Masquerading as a philosophical utive, this book
is
The Prince
treatise in support
actually a road
that does very well because their
s
map for
of a strong senior exec-
—
ruthless narcissists
primary concern at
all times is
Uno. Machiavelli discovered a central truth that leads
Moral concerns have very ful management. No, tive
murder and
it's
little utility
to
the kind
Numero
business success:
in the day-to-day conduct of success-
not a nice book. It advises all kinds of pre-emp-
destruction of one's enemies and,
when
necessary,
of one's
fiends. But an embrace of its world view has been at the center of virtually all executive success since the
was
to
make
One
What Machiavelli did
the tactics of the big guys available to anybody
consider them.
at once
beginning of time.
A firm grasp
cool, polite,
who cared
of his tenets creates a business etiquette that
thoughtful, strategic
and
is
brutal.
sentence jumps out: “Moral concerns have very
little utility
in the
day-to-day conduct of successful management.” But
this
not the case: Moral concerns in fact have immense
is
to
in reality,
utility.
And
PURPOSE
8
so
my book
represents an answer to that kind of knife-at-the-ready,
quarterly-results-are-all, get-a-corner-office-at-any-cost thinking.
acknowledge that an executive can
quickly to the top by brilliant job.
And you
might have to do the job when business turns bad and
there’s a
gamesmanship just
—but
rise
I
terrible crisis
baby birds help
in a nest awaiting their
nothing you stand
Ralph Waldo Emerson
what
I
have
who go
CEOs
come
high.
to
do the
and your people are looking to you for leadership
Machiavelli then?
is
there’s
some point you have
at
I
When
for,
mother’s return with food.
no one
there’s
said that “business
to believe
is
and
at
you?
divine activity.”
That
is
— that people who aim high are the ones
believe that Purpose turns out to be the quality that
most need
in
order to do their jobs well. Purpose
what they
is
look for in the executives they select to succeed them. Purpose difference between
good and
great,
is
the
between honorable success and
legendary performance, between fifteen minutes of fame and
We may
What
knife,
left to
won’t the knives be pointed
like
a legacy.
who do
read in the papers about whistle-blowers
the
— and get crushed. Or major executives who say no to im-
right thing
moral schemes, and are ejected from the executive
no guarantee of success,
in itself.
success in the long term.
The
But
it is
Purpose
floor.
a prerequisite
road to the top requires
—
is
at least for
a clear, consis-
tent understanding of the reasons for our decisions and actions.
And
the rewards of keeping to the institution’s highest values, while adjusting strategy along the way, are reflected in
money. The acclaim of millions, the bust wards
— don’t go
They go
to the hustlers.
title,
in the hall
power and
— the
big re-
to the heroes, to the leaders
with Purpose. I
believe that Purpose
—not money, not
status
—
is
what people most
want from work. Make no mistake: They want compensation; some want an ego-affirming to
title.
Even more, though, they want
mean something, they want
Middle Ages, craftsmen worked nition
—on cathedrals that even
their lives
their lives to have a reason. In the
—with no thought of personal recogtheir grandchildren
would not
live to
— INTRODUCING PURPOSE
see completed.
For what
tom of
That
9
didn’t bother them; in fact,
it
kept them going.
more important than doing God’s work? Bach,
is
his compositions,
wrote
SDG— Soli
at the bot-
deo Gloria,
u
God
to
alone the glory.” In the composer’s view, he was simply the messenger.
You don’t have
your
life. It’s
simply
My
a
Purpose
Once you’ve
a great deal to
in
mod-
matter of seeing the meaninglessness of
a
ern material culture.
may matter
want
to be religious, or an artist, to
received that message, Purpose
you.
They come from my experigraduated from Athens Law School, I was the valedic-
views of Purpose are not abstract.
ence.
When
I
torian. It should have
sorrow and anger.
Army had
been
a great day. Instead, I
The sorrow was
my
for
was weeping
country.
The
many Greeks were
—
in
Turkish
The anger was for members of my graduating class two policemen who had, during the regime of the Colonels, “invited” me to the police staged a second invasion;
dead.
—
my
station to be “questioned.” In
there in the same room, that incident. Should
By turbed.
the time
I
I
I
wondered
let it
should say anything about
if I
go? Sorrow ruled.
enrolled at Harvard that
There had been more violence
in
I
in crisis.
I
my rage.
held
fall, I
was even more
Cyprus;
concentrate on graduate courses in Economics.
was
it
was
told a professor: “All these theories are fine, but
to help
professor at Harvard
my country.” He Law who was
tiation.
This was exactly what
fessor
Fisher’s
Negotiation.
(I
team
on
I
sent
exploring
was looking
developing
also joined the
me
campaign
to see
new for.
—
Roger
I
year, I
need
Fisher, a
nego-
worked with Pro-
Harvard’s
first
to get the U.S.
impose an arms embargo on Turkey. This was not
course
in
Congress to
terribly wise
foreigners are not allowed by law to participate in American politics. risked deportation. But
I
I
have to
strategies of
I
dis-
difficult to
By my second
theory that can become practice and make a better world
do something
them
valedictory speech, seeing
I
had to do something to help Greece.)
Professor Fisher’s course in Negotiation eventually became the third most-attended course at
Harvard and was introduced to many
10
PURPOSE
American professional schools.
I
in the process
taught this course for several years,
helping Professor Fisher develop the ideas that led to
book Getting
the best-selling
to Yes.
In 1978,
I
was part of the team
that devised the “Single Negotiating Text,” a technique used
retary of State
Egypt
Cyrus Vance to establish peace between
Camp
in the
David Accords. Three years
by Sec-
Israel
and
was appointed
later, I
senior advisor to the Harvard Negotiation Project.
But
I
was attracted to the world outside academia. In 1982,
I
Manager of Business Development for EuMiddle East. I coined the word “offsets” and put to-
joined Westinghouse as
rope and the gether the
first
“offset”
programs
defense division, which was I
wanted
treaties.
sabers
move peace
to
support of Westinghouse’s
major supplier of the F-16
aircraft. Yes,
forward, to be present at the signing of
But these were the 1980s, and the Soviets were rattling their
— and
weapon.
a
in
I
you
can’t negotiate with
anyone who’s brandishing
went into the American defense industry very consciously,
the better to defend Greece against the Communists.
might I
say,
a
taken on
my father’s
struggle.
who masterminded
have been accused of being the person
“commercial
sale” of
F-16s to Greece
plead guilty. Until the
first sale
had, you
I
at the
the
beginning of the 1980s.
I
of F- 16s to Greece, commercial sales
of military aircraft were unheard
of. It
was necessary to have the con-
cept of “commercial sales” in order to enable those
first
40 F-16s to
go to Greece when the American and Greek governments were experiencing a period of extremely frosty relations, effectively not talking to each other.
purpose was not
contain the Soviets, but
military weakness and political isolation.
definitely not the salary tractor, that
side the
I
It
was
a
period of
this
purpose,
received as the employee of a defense con-
made me work day and night
for years, thinking far out-
box and with dogged determination.
Even though the all
just to
pre-empt the Turks from taking advantage of
also to
Greek
My
sale
of the F-16s was immensely popular with
the centrists in Greece, one group was opposed to
than the Communists were.
pushing the
sale
The Greek extreme
through, because
it
helped
right
its
even more
blamed
a Socialist
headed by Andreas Papandreou, to prolong
it,
me
for
government,
stay in power. But
INTRODUCING PURPOSE
my
given
purpose,
I
made
my
it
duty to disregard
all
considerations
of power politics and money.
From Westinghouse I moved on to General Dynamics, where, in 1984, I was named its youngest Director of Programs. Five years later, I resigned. The Berlin Wall had fallen. Communism as we knew it had come to an end. I flew to Greece to see my father. He was old and, everyone said, failing. But he was clearly pleased to hear the
news about the for
But a
“Now
me:
had
I
Soviets’
.
.
.
fulfilled
And, with eyes shining, he had
fall.
my obligation
my
to
father.
ment.
It
Dimly, action.
I
one thing to defeat
saw,
could see the outline of a
Not just accomplishing
a better
I
was ready for
me
to
could continue to ex-
I
obsession: the relationship between Purpose and achieve-
was,
I
Indeed,
asked General Dynamics to send
I
Harvard Business School for two years so that
my
question
what about the Chinese?”
personal “peace dividend.”
plore
a
new
another to do good.
evil,
career
— bringing ideas into
day-to-day results but actually making
world, by making companies
more
effective
and more
fully
realized in their Purposes. I
was
my
in
late thirties
After graduating in 1992, sulting firm founded
Porter and
Mark
them address else
was
To make
ter leaders.
1996,
when
I I
went
to
And
as
about
I
—
I
a
strategy con-
began to see something that no one
their
better companies, a
Company,
worked with companies and helped problems tended to stem from
Making companies more
had
Harvard Business School.
by Harvard Business School professors Mike
Fuller.
really talking
I
joined Monitor
their problems,
lack of idealism. goal.
I
when
chance to
effective
one must
test this
start
a
with developing bet-
approach between 1994 and
was head of Global Recruiting
viewed and hired hundreds of new
was too abstract
a
MBAs
at
Monitor;
and graduates,
as I
I
inter-
checked
out their values and ambitions.
The bottom line about recruiting is, it’s mostly dependent on internal morale. The Harvard MBAs would call people from the preceding classes who were already at our firm. The testimony of our
PURPOSE
12
employees had much more impact than events
cial
cially
we would put together of foreign students,
true
the presentations and so-
all
to attract the best. (This
who had
their
own
was espe-
tightly knit
networks, and
who
saw how
they would be to a mid-sized firm with international
vital
I
was particularly interested to
attract because
I
ambitions.) Later, as head of Eurasia for Monitor, clients. I led the
growth of the firm
Russia, Greece,
Germany, France and
colleague to
whom
this
book
is
I
was more involved with
in countries such as Turkey,
Waleed Iskandar
Israel.
dedicated
UAE,
— the
—and others who joined me
expected as their reward very careful attention to their individualized
needs for professional development and the functioning of a joyous
and mutually supportive community. This gave into
something that would become
way
to
grow
a firm
is
to
grow
its
my
motto
at
me my
first
Panthea:
inkling
“The
best
people.” Monitor indeed experi-
enced phenomenal growth in Eurasia.
remain very proud of the
I
achievements of the team. Later,
as
chairman and
Africa and the Middle East, tion,
I
CEO
of Monitor Europe, Eurasia,
had to cope with the dot com revolu-
which caused the greatest upheaval
in the history
of the con-
Times had changed; we could not offer traditional rewards and compete with the dot corns. We were on the defensive. sulting industry.
History had taught sive a
war
is
me
that the best
way
to
to invoke ideology, but the best
defensive war
is
lift
morale
way
in
to sustain
an aggres-
morale
through patriotism. So with Waleed’s help,
I
in
ap-
pealed to the loyalty of our younger employees in the community.
We
did not lose a single account in Europe.
And our
ranks grew as
senior and junior hires from other firms noticed both our newly
minted equity program and our revitalized programs for training consultants.
In 2004, that led
my
me
I
resigned from Monitor to do the reading and thinking
to write this book.
try to
combine
a
on
also instrumental in
“many
gods”), a firm that
strategic leadership issues. Conceptually,
broad overview of the
tional effectiveness with the
were
ideas
decision to join Panthea (Greek for
consults with companies
we
These
many
sources of organiza-
deep impact that leaders can have, within
INTRODUCING PURPOSE
13
and outside their organizations. This tends to involve us
CEOs
hensive initiatives, working primarily with
compre-
in
and on large
issues
that require changes in strategy, in leadership direction, and in orga-
nizational capability.
xAlong the way,
have had to confront
I
myself and others, that make clearly.
One
is
handle
will dissolve into
esteem.
An
difficult to see the value
it
the business guru
crisis,”
“style dissolves into character.” ability to
of attitudes, in of Purpose
the idolization of “character” as the source of success.
moments of
“In
a variety
a crisis
Warren Bennis
who believe that on their own character,
But for those
depends only
panic whenever
a
—
fail
their style
serious crisis threatens their self-
understanding of Purpose makes
ancient learning ritual
has said,
and try again,
fail
it
easier to follow the
and try again, and
ulti-
mately succeed.
Another thinking.
attitude
I
had to confront, again and again, was magical
Many people,
consciously or not, grow up looking to some-
one greater than themselves ceived magic powers the concept of the
—
—
a father
or mother figure with per-
and solve major problems. This
is
CEO as Moses, if not as God Himself. He or she
is
to step in
all-knowing and charismatic, and will be seen as legitimate as long as the masquerade holds. But
people assume that there the individual. clear
They
Purpose would
The more I saw
is
when
fail
in that position.
the absence of Purpose, the
to phrase the question, but
all
I
mandate. T here
tion with
is
knew
that val-
The modern world may not know it wants its own realistic recipe for a lot
of good in the
over the world are
tivated to deal with that question.
my
more
but one question remains inadequately addressed:
competing/orT’ Leaders
their
many
don’t understand that any individual without a
Purpose. Competition has done us tury,
fails,
something wrong, even duplicitous, about
ues mattered, and not just to me.
how
CEO
the charismatic
Some
now
of them
last
half-cen-
“What
increasingly
feel that
it is
part of
an increasing, albeit unspoken, preoccupa-
doing the right thing. In the
dialogues with the chairmen and
last
few years
CEOs
that
I
in particular
respect,
—
in
and in re-
ports of critical issues on the front pages of daily newspapers see the thought frontier
we mo-
are
—
I
can
moving from an obsession with “How do we
PURPOSE
14
we want?” back
get the results
does
it
So
to
“What
is
to be done?”
“Why
and
have to be done?” I
thought again about Thucydides, the
“man and strategy.
the plan”
— that
is,
first
to write about the
the relationship between leadership and
His purpose, he said
at the time,
was to teach. Historians
have used that statement to claim that he was the father of historical writing. But
no writer writes
Thucydides was
just for posterity.
writing for the leaders of his generation.
He was
the
also
to write sys-
first
tematically about the importance of Purpose in leadership decisions.
The
he described, the orations and the campaigns were
strategies
all
part of his curriculum in Leadership studies.
This thought gave
me
an anchor:
would be Leadership. Not best
The domain
that
I
would serve
in history, but in business, the field
I
knew
— business leadership, from the vantage point of philosophy. At
Panthea, beliefs,
we
help
where
CEOs
excavate their moral codes and apply those
possible, to their businesses. In this way, they not only
find a personal source of strength, they find a
way of
inspiring their
colleagues and getting everyone’s eyes on the real prize:
bution that they make, to wealth and humanity
Purpose together with their own innate energy,
alike,
The
contri-
from yoking
creativity, talent
and
resources.
As I
I’ve said, ideas are
went back
to
my
American business
powerful but stories are more powerful. So
library, this
time to read about the pioneers of
—men who seized the opportunities of unfettered,
unregulated capitalism to shape their companies and their century as well.
Even allowing
between
for the differences
was obvious that these men were not gods today they might never be appointed ies,
and not
common
just in their businesses
their time
in the
and ours,
it
temple of charisma;
CEOs. But they were
visionar-
— they had Purpose. Indeed, the
thread that linked these great figures of the tw entieth cen-
tury was Purpose. I
believe that today’s business leaders
inspired by stories of Purpose. Thus, past success, but also to
some
Berkshire Hathaway, Lord John
Computer and
others
—who
I
— and tomorrow’s—can be
have not limited
leaders
—such
Browne of
as
my stories
Warren
to
Buffett of
BP, Steve Jobs of Apple
are very active today.
Aly intent
in in-
INTRODUCING PURPOSE
eluding them
how
is
not to lionize them
15
as individuals,
but rather to show
an explicit sense of Purpose has enabled them to attain their
ible
and well-known accomplishments.
It is
my hope First,
that this
of course,
book
it is
finds a
for the
These men and women
zations.
vis-
number of audiences.
CEOs will
and leaders of today’s organi-
be in their
late forties
and
fifties,
when what Erik Erikson called “the crisis of generativity” manifests itself. They have worked hard and achieved much; now they are looking for meaning. They want their lives to matter, and the obvious way to do that is to make their companies and organizations great. And not
just
during the remaining years of their stewardship
— they want
That
will require
to leave their successors poised to rule the future. instituting
more than good
tives the right way.
business practices and developing execu-
At the end of the
day, that will require articulating
the company’s Purpose with clarity and eloquence, and
employee and every
that message reaches every
stituency, be they unions, the press, local
or
outside con-
and national government,
— most important of —customers. all
Second,
There
are
this
book
is
for executives
volumes galore that
shiny
new ways
there
is
is
critical
making sure
to stand for
will give
to get attention and
no other book
that
something
who
aspire to
them
strategic advice
“manage up.” But
shows them that the
—
become CEOs.
to explicitly
real
way
to
my
and
mind,
to get ahead
and consciously develop
val-
ues that will coalesce into the kind of Purpose that businesses can fol-
low to succeed
in today’s world.
Happily for
all
of us,
I
ence hungers for Purpose. spent
a
believe that this 2 5-to-45 -year-old audi-
A
decade enhancing our
colleague writes:
own
employability
“My
generation has
— becoming increas-
ingly skilled mercenaries interested in getting paid and promoted,
changing firms or building new ones
been very
satisfying.
in the
chase for ‘success.’
It
hasn’t
We no longer have loyalty to a firm, we’re lonely
from being journeymen, we’re disillusioned by pure material gain. Purpose matters because
it
makes work meaningful and integrates
it
PURPOSE
16
my
into
do
to
it
,,,
well.
life; it
enables
better.
And
He
has
to feel pride in
gives
it
me
a
what
do and
I
liberates
mantra: ‘Do the right thing and do
book
for business students
is
and those
many people
sons. In our time,
hunger
clearly
who
are con-
number of
templating business careers but are hesitant for any
rea-
worthy challenges
for
and for the opportunity to produce achievements that endure. In
own
a great
is
This
who
is
while.
and
a
It is a
what
I
greater
that ripples out into the world, inspiring oth-
hope you
is
meaningful example for
set a
As such
can’t do.
will take
away from
preparation for doing what it
weight or
a
this
book.
right
is
and what
is
worth-
creates a sense of obligation. But this obligation
drag in any way
—
it’s
a
Because Purpose provides certainty,
petitive advantage.
“Do
“Do
it
also provides
the right thing and do well”
is
up
sponse. In the chapters that follow,
— four moral ideas that appeal
world.
A
a business
I
elicits
the
will focus
new way of
stood the test of time. are
specific
to our deepest instincts
re-
Pur-
and that
or enterprise to long-term success in today’s
problems that leaders face today, and on culture of humanity.
same subjective
on four
Purpose’s effectiveness depends both on
There
a
to the individual. Aaid indeed, people define
“goodness” in personal ways. “Purpose”
can inspire
—
com-
well by doing good.”
Interpretation
poses
is
way of knowing what you can
confidence. All of that comes together to contribute to a firm’s
saying
It
follow.
Purpose
not
way
and helping them, in their turn,
those
view from the mountain top.
thing to receive great rewards for hard work.
thing to do so in a ers
as satisfying as the
my
Purpose-driven
career, I have learned, as leaders do, that the
climb to the top is
me
exactly right.
it
Finally, this
me
It
its
its
connection to the shared
must draw on philosophical
Not
all
relevance to the
ideas that have
ideas are born equal.
many more moral
ideas that
we could
consider, but
these four are fully realized moral traditions in our culture, and they are also equipped to
form the
basis for a competitive
Purpose
in
INTRODUCING PURPOSE
today’s
commercial
ceptions of what
is
These Purposes revolve around four con-
society.
right and worthwhile; they involve pursuit of Dis-
covery (the new). Excellence (the helpful)
and Heroism (the
effective).
discoverer seeks action that
new
The
places.
The
chosen for the sake of advancing
freely
is
The
justification for an action.
pursuer of excellence seeks action that consti-
tutes innate fulfilment for
gant”).
Altruism (the
intrinsically beautiful),
Each idea provides an ultimate
into
17
own
its
sake (and thus “beautiful” or “ele-
And
altruist seeks action that increases happiness.
the
hero seeks action that demonstrates achievement. In each of these four ways, those
guish themselves from other mortals.
were
ples
by
articulated
best
These of
life,
from
philosophers:
Soren
great
including business. In this respect business
or culture or any other public
politics,
becomes
ness success
a
distin-
and Friedrich Nietzsche.
and the wars between them, drive action
ideas,
these ideas represent neither that
princi-
four
Hume
Kierkegaard, Aristotle, David
who act with Purpose The ideas behind these
is
in all
walks
not different
activity.
Accordingly,
constraint on business (an obligation
cost item or reduces profits) nor an enabler of busi-
a
(a tool for
making
when un-
profits). Instead, these ideas,
derstood and articulated, drive the business forward.
Six •
It is
key points about Purpose: based on well-established moral ideas.
that lasts, •
It
one does well
to
To
build a business
draw on ideas that have
lasted.
advances both competitiveness and morality: Purpose
is
in
an
area of overlap between the two. •
It relates
•
It
people to plans and
relates leaders to their colleagues.
cannot be chosen quickly or on an ad hoc
discovered, and this •
it
It is a
a firm
may
matter of a firm’s
and
its
loss
take time and
life
or death.
Finally, if it is
it is
a
paradox.
pursued for
and
its
It will
own
it
has to be
error.
presence can transform
can destroy an institution. As
worth more money than anything •
Its
trial
basis;
a result,
it is
else.
boost profits
— but
will
only do so
sake. It will boost morale, build the
brand, help in assessing the strategy
— but
it
can never be just
a
— PURPOSE
18
tool. It
is
this duality that
makes Purpose
difficult to
harness
and hence so valuable.
WHO There
is
IT?
always a story of Purpose underlying the identity of signifi-
cant business leaders.
It
may not
outside world perceives, but closely at the leader sider, for
HAS
it is
always be the same story that the
when you look her organization. Con-
there to be seen
and the impact of
his or
example, the stories of four leaders and the organizations
they founded,
all
of which continue to sustain success long after their
Motor Company), Thomas J. Watson, Sr. (and IBM), Sam Walton (and Wal-Mart), and Siegmund Warburg (and the S. G. Warburg investment bank, headquartered in Henry Ford (and
deaths:
London).
What
is
the Ford
interesting in their stories
is
not just their motiva-
men became wealthy, their Purposes transcended making money. More significantly, in each case their personal, moral and commercial Purposes supported each other: The same actions tion; while all four
served
all
Ford
of their goals. set
out to end the “frightful rule of folly and chance,” to use
new machine called the motor vehicle. This heroism led him to develop the Model T the one car he believed the world wanted and needed. Warburg more than once bet his own career and the reputation of his firm in order
Nietzsche’s words, in the form of a powerful
—
to
win
a
takeover battle.
He emerged
victorious very often, and al-
ways the hero of the iconoclasts. Warburg’s heroism was linked with Nietzsche
was that he knew
it
—the only difference
and he spoke about
it.
between him and Ford
Watson
set
things “beyond our present conception.” His emphasis
even
when
Walton
set
times were bad, meant
Among
his
out to find
on
discovery
,
grew when times were good.
out to serve his customers in
inspire their lives. they, like
IBM
also closely
a
way
employees he
that
would
exalt
and
instilled the ethic that
him, would treat customers “better than sales people in
other stores did.” This ingrained alt?nism led to an incredibly tightly
managed organization
—one
that could always negotiate the best
INTRODUCING PURPOSE
prices, deliver
19
goods rapidly across long distances, and remain
flexible
and responsive.
Of course, outsiders may not truism; they may attribute more They may
other organizations.
always credit
Sam Walton
self-interest to
also have
with
al-
Wal-Mart than
to
good reason
for feeling this
way. But this does not affect the degree to which an ideal of service
Sam Walton and
drove
possible
Nor
Wal-Mart s is
employees during
his
and made
his lifetime,
success.
the impact of Purpose visible only in business stories from
the past. Today, well-known leaders in the private sector can be found
who embody
pursued
plicitly
excellence
and investment
artist,
tional,
shire
each of these Purposes. Warren Buffett has always ex-
—
as
he once wrote, he considers himself an
This has led him to
his “canvas.”
measured investment
style in a
very small organization (Berk-
Hathaway) that has allowed him competition. Like
less refined
highly ra-
a
to benefit
from Wall
Henry Ford before him,
Bill
Street’s
Gates
is
an avatar of heroism; his corporate Purpose, from the beginning, has
been
tied to a will to achieve
on
a scale
beyond that of any other com-
pany. Richard Branson, the creative spirit behind the Virgin
Group of
companies, embodies discovery
means or
in
each of his enterprises:
a
technique that will allow him to understand the world better, and
new
thus offer a distinctive Airlines
was
service.
altruistic in its intent
travel inexpensive
And Herb
Kelleher’s Southwest
from the beginning:
to
make
airline
and comfortable for the sake of the customers
flew with them. David
Neeleman, founder of JetBlue, took
who
that altru-
concept one step further and successfully competed with South-
istic
west on
its
own
Purposeful
turf.
Some companies change Purpose tion:
moment
of
CEO
transi-
Jack Welch’s heroism has been supplanted by Jeffrey Immelt’s
Purpose of discovery company’s role ture.
at the
Some
in
at
GE. This
is
an appropriate change given the
shepherding the next wave of industrial infrastruc-
leaders carry the
next: Steve Jobs has
been
same Purpose from one company
a living
symbol of excellence
at
to the
Apple, NeXt,
Pixar and Apple again, and he will undoubtedly bring the same Pur-
pose to Disney.
And some
leaders
may
well switch Purposes during
— PURPOSE
20
the course of their
own
careers, as
Lord John Browne of BP has done.
Through most of the 1990s, like its archrival ExxonMobil, BP was a company with a highly heroic Purpose; but in championing the environmental cause and taking up a role as the most proactive oil company it,
in facing climate
BP
has adopted a mantle of discovery instead.
Every time
a
company changes Purpose,
involved.
When
explicitly
prepared to talk and think about
is
there
is
a
transformation
the leaders understand this shift in Purpose and are
likely to succeed.
When
it,
then the transformation
they don’t, the transformation
is
likely to
backfire or short-circuit.
stall,
Finally,
who
it is
not just famous entrepreneurs or large corporations
display Purpose.
Anyone who
leads a
modern
enterprise, large
or small, public or private, can discover a Purpose and that
may lead
change, no matter where that decision
manage
it
so
contributes to competitive advantage.
it
zJin
How
can leaders use Purpose to create advantage? Leaders do not
simply invent veloping
a
Purpose; they discover
a strategy
it,
while at the same time de-
and ensuring that Purpose and strategy support
each other. This requires that they listen to themselves and their colleagues,
and are
sensitive to their
moral
ideas, as well as
being aware
of the commercial opportunities offered by the firm’s strengths.
Then
Community
they must establish a
of Purpose in their or-
ganizations, offering themselves as prototypes, and they ate the individual tasks
and goals that
of Purpose into action.
They must keep
will
convert the resulting sense
the Purpose under review
ensuring, through the negotiations of tasks, that the firm and for the people in are systems
An
and mechanisms
effective
also stimulate this
Purpose
And
it.
it
remains right for
they must also ensure that there
in place that maintain the
will
must negoti-
momentum.
not simply translate into goals.
and guide actions
in the firm that are
It will
not specified in
formal way, illuminating and guiding day-to-day interactions
with customers and colleagues.
The Purpose
actions coherence, not just at any given
gives the array of these
moment, but over
time, and
— INTRODUCING PURPOSE
21
thus helps ensure that the firm does achieve a
genuine difference from
its
a
genuine specialization,
way
competitors. In this
it
makes supe-
rior profits possible.
Purpose also reduces
risk aversion
see
beyond current convention.
als
both within and beyond the firm,
more
and
and helps innovators
fear,
underpins trust between individu-
It
making
as well as
sensitive to each others requirements. In these
stimulates
individuals
ways Purpose
two key forms of action that contribute
the
strengths of the firm and thus competitive advantage
the
to
—innovation
and the formation of relationships. These forms of action constantly refresh the firms strengths, creating an enduring advantage that
not dependent on the
It is
fate
is
of this or that strategic position.
very unusual for senior executives to diagnose their problems in
terms of Purpose. Normally the symptoms
something
else,
something
ations that indicate that
1.
There appears
to point to
profound. Here are some
telltale situ-
something
lacking in the realm of Purpose:
there’s a shortage of energy,
flat,
flatness
accompanied by
is
is
morale problem
to be a
things are
top
2.
less
seem
a feeling
management cannot or
will
do not
really believe
what they
There
are calls for a
new
is
a
need for
a
will
completely
no buzz. Often
among employees
not “walk the talk”
this
that the
— that they
say.
strategy.
new
company
in the
Sometimes
direction,
this
means there
sometimes
just a
need
for reassurance, a rediscovery of the foundations of the current strategy. 3.
There ments
are
problems implementing the
to be targeted have
developed
— but action, or
been
strategy.
The
seg-
identified, the action plans
at least the right action,
does not
follow. 4.
There
are reputational
However much
problems that
just will
not go away.
the chief executive declares integrity as a core
value and despite the best efforts of the
PR
department,
PURPOSE
22
newspapers continue to report
a
series
of scandals
—even
minor ones seem newsworthy. 5.
There
is
example
a a
window of opportunity for a new new chairman or chief executive
direction
—
for
has been ap-
company will or find a new sense
pointed, and this creates an expectation that the
rediscover
its
way, or get back to
its
roots,
of itself. 6.
There
is
quisition
egy and
Do
a
major structural change
— that forces
its
a
—
typically a
merger or
ac-
re-examination of the company’s strat-
employees’ sense of direction and identity.
these situations sound familiar?
seems that most companies are
afflicted
They
should; these days,
it
with problems involving Pur-
pose in one way or another. In which case, what follows should be of interest even to those
who thought
phy when they staggered out of
they had seen the
freshman year of college. Because Purpose
ceed.
And when you
enters business to
fail.
down
of philoso-
their required humanities course in
their
get
last
is
the
to ultimate motivation,
way
to suc-
no sane person
CHAPTER
TWO
THE REAL VALUE OF PURPOSE f
I
you ask people anywhere
why do
drink, It’s
brand
—
a
world to name an American
soft
they always say “Coke?”
not the
power
in the
taste. It’s
built
not the advertising.
upon the
That Purpose went
It’s
the
power of the
brand’s Purpose.
international during
World War
II,
when
CEO Robert Woodruff promised to put a bottle of Coke in the hands of every American soldier.
The
U.S. government built almost one
hundred Coke bottling plants overseas, which enabled Coca-Cola
to
supply American soldiers with 95 percent of the soft drinks they con-
sumed during
the war.
And when
the war ended, Coca-Cola had the
makings of a global business, courtesy of the U.S. government.
Coke used lages,
most
distant vil-
where no one had any profound association of the United
States, people taste
that opportunity brilliantly. In the
equated Coke with America. To drink Coke was to
freedom. For
a
price almost
anyone could
afford, citizens of
PURPOSE
24
repressive dictatorships could
be
like to
—
for a
few moments
—
feel
what
it
was
free.
The Purpose of Coke was thus to provide freedom in a bottle. And a powerful Purpose it was. Talk all you want about Ronald Reagan bringing down the Berlin Wall, there were other factors. Blue jeans. Rock music. The Catholic Church. And Coke. Indeed, as the Wall was crumbling, the Coca-Cola Company was shipping truckloads of
Coke
to Eastern Europe.
must be re-examined every few
Strategies lucky,
that
Purpose
seemed
forever
is
—
or, at least for
Freedom was spreading around
the world, and
visers
and America’s invasion of
to 2003,
is
1980s and 1990s.
in the
there, a celebration of that freedom, a kind of
Cut
company
two or three decades. And
Coca-Cola
to be the case with
years. If a
Coke was always
pop champagne.
Iraq.
The
president’s ad-
spoke of U.S. troops being welcomed with flowers; one can
imagine Coca-Cola bottlers loading cases of soft drinks bound for Basra and Baghdad. But then everything went wrong. America’s
civil-
ian leaders failed to prepare for an insurrection. America’s traditional allies sat
on
war followed. The
their hands. Civil
liberators
were de-
scribed as imperialists, invaders, colonialists.
That harsh assessment has
persisted ever since.
And, around the
world, hostility to America has been extended to products that symbolize the
brand,
United it’s
pressors.
States.
What
does Coke represent now? As a global
the pause that refreshes
Freedom? For
—
that
of that,
a taste
by insurgency and terrorism
—
will
is,
the pause that refreshes op-
many
people
—even
if
repelled
drink anything but sodas associated
with the United States. And, in Europe, other companies have begun to believe that Coke’s
Can Coca-Cola changed perception?
ment and on
the
market share find a I
—
fly
just
might be vulnerable.
new marketing
think not. Such a strategy would be of the a
adopting
for
Coke a new
enough a
to
a
message powerful and
change negative perceptions for very long by
new marketing
strategy.
has had a long run with one.
mo-
hostage to ongoing political and military de-
velopments. Coke could not hope to find seductive
strategy to address this
its
global Purpose.
Now
it is
time
THE REAL VALUE OF PURPOSE
Consider: Back
when Coke became
ing points was that
water might be
risky,
make you sick. Now, in many not just purity,
what
it’s
it
was
Coke was
where the
beverage you could trust
a
once again an
is
also scarcity.
What Coke
already doing in America
drinks, sell
global brand, one of its sell-
safe to drink. In places
places, water
it’s
a
25
issue.
—
local
didn’t
it
This time,
it’s
needs to do abroad
is
—wean consumers off sugar-based
them “healthy” beverages
instead, and, if necessary, ad-
dress local issues of shortages and purity.
Coke,
in short,
needs to make
its
Purpose
a socially
redeeming
one: alleviating thirst around the world. If
you wanted
would argue vantage: ful
Not
to
for the
make
of Coca-Cola, you
importance of Purpose by repeating
companies have
all
CEO
this case to the
a
Purpose
key ad-
its
— but enduringly success-
ones do.
Purpose makes employees maintains morale and energy
feel their
work
is
worthwhile and so
levels. If effectively
managed,
it
also
guides their work, leading them to do things that create competitive
advantage for the company.
Sam Walton associates at
turned serving the customer into
Wal-Mart. By tapping into
He
and helpful way, which
And he
fun to
roomy
built
feel that
at
good
his
feelings
what they were
to treat customers in a friendly
customer loyalty and thus advantage.
could do this because these were his feelings
communicated them
Or
them
led
Purpose for
their natural
toward fellow human beings, he made them
doing was worthwhile.
a
— and because he
every turn.
consider JetBlue, one of the rare airlines in America that are fly.
The
individual televisions are part of the reason.
So are the
leather seats and generous legroom. But the real difference be-
tween JetBlue and other enjoy their jobs
carriers
— they actually
is
like
that the
employees actually seem to
serving you.
And
so, at the
end of a
when they ask you to help them tidy up the plane so it can takeoff again more rapidly, you’re happy to pitch in. Where does that attitude come from? It comes from the CEO and founder, David flight,
Neeleman, who ard’s apron,
is
not above quietly hoarding
a
plane,
and announcing, “Hi, I’m Dave, the
donning
a
stew-
CEO of JetBlue.
I’m
PURPOSE
26
here to serve you this evening, and I’m looking forward to meeting
each of you before
we
land.”
It’s
The
simple formula:
a
reason beyond business for running his
company
The hunger
and
it,
believe
it
it.
value in establishing a Purpose and tapping employees’ for that
Purpose has long been recognized. Henry Ford was
own
shareholders in 1914 for breach of fiduciary respon-
sued by his sibility.
has a
in a certain way,
he communicates that reason, and his employees accept
and follow
CEO
On
the witness stand, he argued in effect that businesses run
solely for shareholder profit
businesses run for Purpose.
would ultimately make
When
less
money
than
Philip Selznick wrote in 1957
about the differences between “organizations” (which were “technical instruments judged on engineering premises”) and “institutions”
(which were “the receptacles of group idealism”), he made that the role of leaders
was to turn organizations into
it
institutions.
1981 Richard Pascale and Anthony Athos identified “vision” as
component successful
distinguishing successful Japanese
clear
a
1
In
key
management from un-
American management. 2
Thirteen years
Jerry Porras and Jim Collins reported that
later,
strong underlying values, and purposes going beyond profit, were
some
distinguishing feature of
companies that had long
large U.S.
outperformed their peers. 3 Purpose
“reflects the
importance people
attach to the company’s work,” as the authors put
Dave Packard
as a typical leader
“Profitability ...
is
a
company
gether in a
means [in
order
to]
that top
4
ends. People get to-
.
.
.
they
make
profit, if it
is
argued
to achieve long-term competitive advan-
who do
not
much about them.
But renunciation of worldly pose for
contribu-
recently, in 2002, Richard Ellsworth
Paradoxically, shareholders are best served by those
care too
a
management’s purpose needs to be serving customers, not
maximizing tage.
More
and they quote
accomplish something collectively
that they could not accomplish separately
tion to society.”
it,
of such outperforming companies:
more important
to
a
a
Managers
monastery, that
want
a
is
not in
company
affairs,
while
itself a viable
it
may
be
a
good pur-
purpose for business.
to last should build
it
on
ideas that
THE REAL VALUE OF PURPOSE
have
lasted.
Among
27
these are offering great products, giving
good
sendee and focusing on the customer. In their influential
book
Built to Last
Porras and Collins
,
that the content of the ideas animating a corporation matters
compared
The
to
how
content of
hard they are pushed by management."
purpose matters.
a
us
tell
little
disagree.
I
true that an institution that
It is
members and the rest of the world can effectively brainwash those members into believing anything. This is the technique of some religious groups; perhaps some draws
boundary between
a tight
its
on
their employees’
the average length of
employment with
exceptional companies have a comparable hold attitudes.
But
one company
an era
in is
when
4.5 years,
for cult-like allegiance to
A
6
employees don’t stay around long enough
become standard
successful Purpose both drives a
business practice.
company forward and
helps
build sustainable competitive advantage. In the hands of an effective leader,
Purpose becomes the engine of
energy.
And you can
a
tell,
by
its
of energy, whenever there has been
lessening of Purpose. Such lassitude often happens after a major
change
—
a
change
in the strategic
ership, or a reorganization.
and for
a
real
environment, or
These may
precipitate
time the energy generated by the
going. But
it
a loss
company, the source of
a
when
the
danger zone.
If
company it
is
crisis
emerging from
does not reconnect to
its
a
change
energies.
Teams no longer
fire
summon up
own-
some kind of crisis, keeps the
its crisis, it
Purpose
simply stops moving forward. Things do not happen.
tems and incentives no longer
in
company enters the
at this stage,
The
old sys-
employees’ creativity and
off each other and people either
fall
back on routine or lose direction because they’re not sure what to do.
The
result
is
productivity, top
an upsurge in anxiety, demoralized employees, lower
management disproportionately preoccupied with
reassuring outside constituencies, painful efforts to restructure the firm, frustration with vain efforts to revive
it,
the eventual split of the
top team and ultimately the decline of the firm or unfavorable absorption by another. As a client said to
not so painful because cause then the pain
it is
an event.
lasts for ever.”
me
It is
years ago, “Bankruptcy
the decline that
I
is
dread be-
1
PURPOSE
28
Purpose
more important now than
is
it
Those
has ever been.
companies that are genuinely “receptacles of group idealism,” to use Selznick’s phrase, stand out sharply against a
background of corporate
greed, scandal and moral uncertainty. In 2004 a survey conducted by
UK Committee
the
on Standards
companies among the
large
journalists
and
United States
“least trusted”
World Economic Forum report
trust of corporations has
Purpose
Uncertainty breeds that’s
form of frequent
layoffs
And
it’s
And when
to fads.
code of
in, a
uncertainty takes the
and ever-changing executive teams,
The
Lindahl, former chief executive of
point was
ABB,
there’s
made by Goran
the Swiss-Swedish Indus-
Giant: “In the end managers are not loyal to a particular boss
company but
or even to a satisfying.”
10
an anchor, something to hold on tolerable. It will
meant
to
do
do
is
to,
that shared
which
will
in the twenty-first century
And
in the twentieth.
will justify the risks associated
in
Purpose
make
what job
it
loyalty
was
an era of innovation, Purpose
as rhetoric.
Who’s
profits.
against
it?
Purpose has to involve more than rhetoric.
drive strategy, and help shape the choices
importantly,
more
with innovation, which would not nor-
Purpose works wonderfully effective
provide
will
insecurity
mally be acceptable to executives focused on short-term
But an
and find
to a set of values they believe in
In an era of change, the hope
1
No one. It
has to
managers make. Even more
has to motivate employees and underpin the dynamics
of the company’s teams, including
such
in almost
over.
is
something to believe
even more demand for Purpose.
trial
a significant decline
more than a passing problems of the new millennium.
growing.
is
a desire for
immune
while a
9
capitalism of the late nineties in
8
By many accounts, the misbecome even more pronounced since then.
fashion or a reaction to the ethical
behavior
survey in the
in their dealings
2003 showed
in
countries where data was available.
But interest
A
companies over the previous two years
in levels of trust in
The triumphant
above tabloid
2002 found that only 26 percent of the public believe
companies are straightforward and honest
all
— barely
but below MPs.
real estate agents
in
ranked directors of
in Public Life
a vital role,
it
must have
a
its
top team.
moral dimension.
If
Purpose
is
to play
THE REAL VALUE OF PURPOSE
29
In the dictionary, morality and ethics are synonyms: both concern
wrong
the question of distinguishing right from
come
practice, they have
to
mean
different things. Today, ethics gen-
day-by-day guidelines: People mostly think of “ethics”
erally refers to
Corporate behavior, for example,
in its breach.
“unethical,” but few people have thought
“morality” has
moral code
come
from conduct that
any one standard of morality
argument
morality are
in this book.
more
that
But
I
A
acceptable
is
difficult to
it is
contrast,
good behavior.
absolutely right; and
is
By
around the world
not. Since different people
is
the nature of
else.
to refer to the standards of
have very different standards of morality,
that
much about
means of distinguishing conduct
a
is
often pointed out as
is
by corporations or anyone
behavior,
“ethical”
behavior. But in
I
argue that
do not make
do argue that some standards of
effective than others, particularly as sources of
un-
derstanding about Purpose for corporate or organizational success.
The most
They do not
pose, are internally consistent.
They
when
effective standards of morality,
make
right now.
And
to Pur-
contradict themselves.
they agree with our
appeal to our ideas about what
such they create
a
is
what
right and
are
many moral
A
moral idea
types of
is
human
that adopts a valued
is
end
result for
human
do with “serving
you would have them do
one that concerns
activity over others.
“altruistic.”
itself
A
with the value of
moral Purpose
activity,
over
a
governed by morality can drive
a firm’s
the simple reason that success
ultimately a moral matter:
from the continued
Morality
is
is
discipline of
is
one
a person’s life-
time or the lifetime of an organization. Ultimately, only
tions regularly,
they
worthwhile. As
mean
ideas that have nothing to
others,” or even with “doing unto others as
unto you.”
sensibilities;
sense of obligation.
Please note that “moral” does not necessarily
some
comes
are also relevant; they speak to the decisions that leaders are
trying to
There
it
Purpose
competitive advantage, for
making decisions
that favor
It
stems
some
ac-
and not others. personal.
individual leader
And
there are
might develop
firm or organization.
The
many
a particular
personal reasons
purpose for
why an
a business,
four Purposes at the heart of this book are
not the only possible purposes one might choose
—
as we’ll see, there
PURPOSE
30
many others. But
are
these four are by far the
most
likely to
engender
success. Different people, of course, are likely to be attracted to dif-
ferent Purposes, and they will be
drawn
environments reflecting
to
those Purposes. See which of these descriptions apply to you.
DISCOVERY:
ADVENTURE’S CHALLENGE Discovery put
men on
corns in business. it
many
animates
It
the
moon, America on the map and the dot
involves a love of the
new and
the innovative, and
technological businesses. At Sony, the “joy of tech-
nological innovation” was explicitly stated by
its
founder as one of the
reasons for the company’s existence, 12 and innovation has consistently driven
3M.
Many
of the dot
com
entrepreneurs were driven by intellectual
were reinventing
curiosity; they believed they
their industries, eco-
nomics and indeed themselves. There were no constraints: As an em-
own decision. You created you made. Those who remained hamstrung
ployee or inventor, what you did was your yourself in every choice
by
traditional
ish,
but even immoral in their refusal to face the wide range of op-
tions a
economics or ways of doing things were not only fool-
open
to them.
The
com
dot
entrepreneurs genuinely believed in
moral imperative to transform the world though discovery.
This type of Purpose and morality life is a
We
kind of adventure.
convention.
When we
are free and should not be
course. Precisely because
we have chosen
committed This lated
is
we are constantly seeking does not mean constantly changing
we
are creating something, precisely be-
the course
we have embarked on
to pursue that course consistently.
staying with an action
is
that
we have
freely
by Soren Kierkegaard
must take
in
Denmark
make
chosen
their
own
choices, if only
to
we
are
best reason for
it.
first
articu-
in the early nineteenth cen-
responsibility for their choices
hide behind convention or rules. In the has to
The
freely,
the intuition of the existentialist, which was
tury. Individuals
bound by
live authentically,
out and creating the new. But this
cause
rooted in the intuition that
is
last analysis
and cannot
each individual
decide which fades to accept.
THE REAL VALUE OF PURPOSE
Kierkegaard makes
this
31
point using the biblical story of the sacri-
of Isaac:
fice
When Abraham his
son Isaac, he obeys; but he
fact his
him
hears the voice of the angel telling
may
realize afterwards that
choice to take the voice to be
There could never be any proof that lieving that the voice
to sacrifice it
was
in
a
genuine message from God.
it
was genuine. Therefore, be-
was the voice of an angel was
thus sacrificing his son in obedience to
was
it
his
his
own
own
act,
and
act too.
No
one but he was responsible. 13
This emphasis on our complete freedom of choice and our resulting
commitment
to the consequences of our choices recurs again
again in the writings of existentialist philosophers.
importance of the individual and applauds
It
emphasizes the
his constant
break out of conventional ways of doing things.
We
and
attempt to
must “think of
each situation afresh,” proclaimed Jean-Paul Sartre, “and try and see
.
.
.
what ought
for ourselves
.
.
.
pany’s offices. tion,
He
is
agreed
must
really decide
all
with
this
idea:
around the com-
with the consequences of his
a difficult principle to live
They have
precisely because "
a
something
we
else,
by because humans tend
another group,
say,
or corpo-
tendency to accept external rules governing
The
existentialists
are
a
recognize
this:
limitless discovery
no longer
Discovery requires
as well as joy. a
have
live
freedom resulting from
that the
is
We
occasion.
behavior and thought.
1
.
recognized that he could not hide behind conven-
to identify with
rate body.
it.”
.
—which took the company to the edge of bankruptcy on
Discovery
want
.
the slogan that he plastered up
more than one
help
IBM would
of
and he would have to
decisions
to
for the best.
remembering we could decide anything .” 14
Tom Watson “THINK” was
done
to be
is
Sartre writes
unbearable,
in a position to say, “I couldn’t
constant openness, which brings pain
Nonetheless, for those
who
morality that transcends the pain, and
accept this Purpose, there a
keen appreciation for the
accompanying freedom and power. In each choice we make, we have the potential for discovering a
new
world.
PURPOSE
32
EXCELLENCE: VIRTUE’S FULFILLMENT Excellence built the great cathedrals of cessful professional
those of an
tomers;
it
artist,
Europe and
and creative businesses.
It
implies standards, like
defined by the craft itself rather than by the cus-
creates a picture of a never-ending struggle to achieve ever-
much
higher standards. Medieval craftsmen spent as angels that would be invisible to spectators
on the see
cathedral’s
them
most suc-
today’s
on the ground
they did
as
more prominent ornaments, because God would
too. Excellent businesses prefer to turn
rather than
time carving
compromise
away customers
their quality standards. Publishing busi-
nesses such as The Economist although theoretically interested in the ,
greatest possible profit, are in practice strongly driven
and
for truth
Not conflict:
a passion
intellectual integrity.
that the pursuit of excellence and profit maximization need
Warren
Buffett,
the best examples in
who we
modern
This type of Purpose
formance
in
our role in
consider in detail
your
is
way
you can
priority,
represents the supreme good. If you care
exist to
you should
flourish in
one of
rooted in the belief that excellent per-
one outside of yourself must cellence
later, is
business of both.
is
life
will
about excellence, you are automatically part of
that
by
a
community; some-
judge your contribution.
cultivate
your character
If ex-
in such a
your community.
Aristotle articulated this thought in
B.C. His audience was young
Athens
men who were
to
in the fourth
become
century
citizens,
the ideals of citizenship and of the “polis” or city-state to which
and citi-
zens belonged were real and powerful. In his scheme, the ultimate end of nia,”
which
sometimes translated
is
human
activitv
as “happiness,”
is
but
“eudaimois
perhaps
closer to “fulfillment,” “flourishing” or “success.” Implicit in this idea is
the view that
ment of
man
has a function, with eudaimonia as the
that function.
aiming for
it;
instead
abstractions of
which lead us
fulfill-
But we do not achieve fulfillment simply by
we must
cultivate the “virtues.”
good behavior; rather they
to behave in a
way
These
are not
are traits of character,
that contributes to our success.
THE REAL VALUE OP PURPOSE
33
Aristotle has been called the eternal optimist. In his
and virtue are closely entwined,
cess
mon
between ends and means. For understood ren Buffett
in contrast to the situation
modern world where we
in the
in the is
com-
often draw a sharp distinction
Aristotle, the
end (success) cannot be
To my mind, Warmost powerful example in modern business
absence of the means
perhaps the
scheme suc-
(virtue).
of this aspect of Aristotelian morality. Aristotle identified the following as relevant for the
day: Courage,
Temper,
Temperance,
Wittiness
16
Shame,
,
his
Good
Liberality, Magnificence, Pride,
Truthfulness,
Friendliness,
Athens of
Justice,
Honor. In our time, we might choose others; the particular virtues matter
less,
under the Purpose of excellence, than the commitment to
try to reach them.
To every too
virtue there are usually
much and
vicious
too
two
vices,
corresponding to
of the virtue in question. In contrast to the
little
man, the virtuous man adopts
course of action. This
is
a
reasonable and measured
the Aristotelian balance, the “golden
mean,” which leads an individual and an organization to an excellent
life.
ALTRUISM: EMPATHY’S JUSTIFICATION Altruism
lies
behind major
political
movements,
charities
and
whole
a
range of businesses that exist primarily to serve their customers. In these organizations, altruism
beyond formal obligation affordable prices
may
(as at
(Sam Walton
s
take the form of personal service
Nordstrom), delivering products
Wal-Mart) or using technology and
ideas to improve, or save, lives (Hewlett-Packard and even
Cards).
A
at
good proportion of small business
is
Hallmark
animated by
this
benevolent ethic. In these examples, altruism
is
directed at the customer, but
it
does
not have to be. For Anita Roddick of the Body Shop, and other leaders of so called distinct. In
extent her
new age
businesses, altruism and customer benefit are
her case the altruism staff.
As she put
it,
is
directed at animals, and to
rather brutally,
“How
some
do you ennoble
PURPOSE
34
when you are selling something as inconsequential as a cosmetic cream?” The answer is by following certain principles, but the the spirit
company’s most famous principle (not selling cosmetics tested on animals)
quite unconnected with
is
to day or with standards of
ample
is
customer service
on altruism
tional, variation
what Body Shop employees do day
is
Another, more tradi-
1 .
paternalism toward
the leading British retailer
staff.
Marks and Spencer
heyday) whose Jewish founders established
A
good
ex-
(at least in its
a tradition that staff
were
to be treated as “part of the family.” Service businesses often “care”
about the
which
staff,
summed up by
will in turn care for
customers
—an approach
Federal Express as “People-Service-Profit.”
Flume
Altruism, as described by Scottish philosopher David the eighteenth century, that
we
is
less a principle
than an emotion.
care about others’ well-being as well as our
own
He
in
argued
— indeed we
maximize our own happiness only by taking into account the happiness of others, trading off our selfish pleasures against those gener-
The
ated by our moral instinct to care about others. for an action
More
increases happiness
Hume
formally
argued that the
sympathy with other humans
being triggered “It is
it
18 .
will
driven, in the last
is
by the prospect of pain or pleasure. In addition we have
analysis,
natural
thus that
is
ultimate reason
emotions
that results in our
when we contemplate harm
a
or good coming to them:
from the prospect of pain or pleasure that the aversion or
propensity arises towards any object,” an aversion or propensity that drives action; tion.”
it
follows that “reason alone can never produce any ac-
But “morals
.
.
.
have an influence on
that they cannot be derived
human sympathy man from
.
.
actions [so]
it
follows
from reason .” 19 The pleasure and pain we
get from contemplating virtue and vice natural
.
is
dependent on
closely
or compassion:
narrow
If
any
is
unaffected with the images of human happiness or misery, he must
a cold insensibility or
selfishness of
temper
be equally indifferent to the images of vice and virtue; as on the other hand,
it is
of our species
is
tions, a strong
always found that a
attended with
warm concern
a delicate feeling
of
resentment of injury done to men,
tion of their welfare.
for the interests
all
moral distinc-
a lively
approba-
this
THE REAL VALUE OF PURPOSE
Sam Walton was this
35
highly competitive, tough businessman, but
a
own account of
land of fellow feeling shines through his
his
motivations:
Also
and our goals and get with the program have
ideals tual
satisfaction
sense
want
company who
think those associates in our
I
—
.
.
go to college, or to manage
learned and start their
self-esteem.
own
There
.
Many
business, or
are certainly
do
their
a
good job and take
pocketbooks and their
some union
folks
millions of people are better off today than they
Wal-Mart had never deal,
and
gies in this life
Sam Walton,
I
spiri-
of them decide they
and some mid-
dlemen out there who wouldn’t agree with me, but
whole
some
or take what they’ve
a store,
Wal-Mart has helped
pride in that.
felt
in the psychological rather than the religious
—out of the whole experience. to
believe in our
feel
I
believe that
would have been
if
am just awfully proud of the good about how I chose to expend my enerSo
existed.
I
20 .
in other
Hume
words, was the
of American business.
His company was powerful and effective precisely because customers recognized that caring about them was the core Purpose of the company.
Later philosophers, notably
John Stuart
Mill, built
ianism.” This
is
on these
Adam
Smith, Jeremy Bentham and
ideas, eventually
producing “Utilitar-
the view that the right action in any situation
is
what
brings about the greatest possible happiness (or absence of unhappiness) to the greatest
ophy than Hume’s.
number of people It is
important
moral system often used to imization:
These
are
all
—
in
a
more widely known
our story because
justify capitalism,
said to be
philos-
this is the
markets and profit max-
good because they maximize
wealth, which, in turn, maximizes happiness.
HEROISM: POWER’S EFFECTIVENESS Roman Empire, Wfimbledon champions Serena and Venus Williams and many of the most spectacular growth Heroism resulted
in the
PURPOSE
36
companies, from Standard Oil to Microsoft. his is
Gates’ plan to put
Bill
operating system into every desktop was just such an obsession.
It
not the “winning” or the specific goals themselves that tap into
broader
human
heroism
aspirations, but the ambition, daring or
evi-
dent in those goals.
Henry Ford was by At
far the
most famous
hero of his day.
industrial
ambition to “democratize the automobile” and his
first sight, his
introduction of the $5 day for his workers might indicate a strongly altruistic
Purpose,
But
ers alike.
a desire to
this
an
is
bring happiness to customers and work-
illusion.
The
and economic
specific social
goals he pursued at different times were quite inconsistent goals were less important to
Motor Company
as his
him than
ambition to use the Ford
“machine.” Ends and means were curiously
reversed; the outputs were the his will to
his
— these
means
to his ultimate end, exercising
improve the world.
Heroic Purposes such
from the Nietz-
as Ford’s gain their force
schean intuition that only some people are truly free and have the ca-
you
pacity to lead. If
are
exercise your willpower
one of these people, you
and your influence.
you should follow those who Writing
in
Germany
realize
If you are not,
you must
you
realize
are capable of leadership.
Nietzsche
in the late nineteenth century,
was repelled by what he perceived to be the mediocrity of the democratic age
— he longed
[French] Revolution justification.
We
for rule
by an aristocracy of great men. “The
made Napoleon
if
such
a
reward were to be
its
tal
sickly,
great
no fundamen-
is
difference in value between the elite and the masses. in a
For him,
They tame
Napoleon, and may tempt us to think there
have resulted
21
result.”
Christianity and compassion should be shunned: like
is its
ought to desire the anarchical collapse of the whole
of our civilization
men
“That
possible,” he wrote.
“dwarfed, almost ludicrous species
.
.
T hese .
ideas
something
mediocre, the European of the present day.”
Courage, pride and firmness are raw materials of the Nietzchean leader, but the necessary level of these characteristics
human
These men
tively
tew
mand
those without the necessary character.
beings.
moral theory could be used to
is
are the leaders
justify the
It is
found
who
in rela-
can com-
easy to see
how
this
extremes of fascism. But in
THE REAL VALUE OF PURPOSE
less violent
forms, adulation of willpower and
37
command
also justified
the bureaucratic structures emerging as Nietzsche was writing.
SUMMARY Four possible sources of energy ideas that can underpin
Purpose
for the
company, four
— and each includes
ultimate moral basis for an action. Each set of ideas a particular
philosopher and
is
Each company expresses the idea
cellent
companies are
associated with
nor
will
in
its
own
way:
to
its
Table
two ex-
company
has
greatness by drawing on one of these philosophical tradi-
tions (consciously or not)
marized
No
com-
companies manifest heroism,
discovery or altruism in the same way. But every great
come
about the
exemplified in action in different
panies.
alike;
beliefs is
of moral
sets
in the
and applying
it
with integrity. This
is
sum-
following table.
2.1
Moral Basis Moral Purpose
Type of Morality
Discovery
“The New”
for an Action I
have freely
chosen Excellence
“The Good”
It
it
constitutes
Philosopher
Company
Soren
IBM, Sony,
Kierkegaard
Intel,
Aristotle
Berkshire
Virgin
Hathaway,
fulfillment
The Economist Apple,
Altruism
“The Helpful”
It
increases
David
Hume
,
BMW
Wal-Mart, Hewlett-
happiness
Packard,
Nordstrom Heroism
“The
Effective”
It
demonstrates Friedrich
achievement
Nietzsche
S.G. Warburg, Microsoft,
Ford,
ExxonMobil (and
its
predecessor,
Standard Oil)
PURPOSE
38
RELEVANT MORAL IDEAS
LESS There
are other moral ideas that are less likely to be useful to
most
modern competitive companies, but which have animated organizations in the past and to some extent still do. You need to understand them for the simple reason that you will need to confront them. I summarize some of them here. Patriotism differs from the four varieties of Purpose we have just described because
it is
to defend an existing
often defensive.
It is
often evoked by the need
community, rather than
a desire to
conquer or
expand into new ones. In the 1830s the Prussian General and military theorist Karl
von Clausewitz argued that the only purpose of an army
was to serve the sovereign. World
War
II
proved him half
right; the
German and Russian armies fought for their respective ideologies when they were winning, but fell back on traditional patriotism when they were losing and fighting for survival. Patriotism for
group survival that
all
after
importance.
World War
least partly
in the
kind of nationalism it
is
company. At
businesses,
a
group of collectively
Basque region of Spain, are successful
at
because they are emblems of Basque identity. In Korea,
Hyundai has taken the Korea,
a
helping to rebuild Japan was of primary
II,
The Mondragon
owned companies
the instinct
organizations have in reserve.
Sometimes the defense of the nation can energize Toyota
is
still
on
lead
re-unification.
exists, especially in
unlikely to drive
However, while
this
the United States and
most businesses
active in the global
economy. Universalism old
AT&T,
is
the spirit behind the national postal networks, the
Britain’s
National Health Service, most railway services,
and the World Wide Web.
It is
rooted in the ideas of the European
Enlightenment, most forcefully articulated by the philosopher Im-
manuel Kant. Writing
Hume, at the end of the eighsame project as Hume: to find a basis for
a little later
teenth century, Kant had the
than
moral duty independent of the Church. But instead of emotion, he alighted rived
on reason. Whereas
Hume
believed “morals cannot be de-
from reason,” Kant believed they were founded on reason, and
that like mathematics they
had universal
applicability.
His prescrip-
THE REAL VALUE OF PURPOSE
summed up
tions can be
you can
will as a
law for
in
all
two
rules:
“Act only on the
maxim which
and “Act so
as to treat ra-
rational beings,”
and never
tional beings always as ends in themselves
Kant remains one of the most
39
influential
means
as
moral philosophers. His
morality corresponds with a widely held view that there
and underlying
versal
emotions or influence
basis for duties,
politics.
count
uni-
major
as a
Universalism has successfully underpinned the
public institutions and infrastructure of the West. But
know how
some
is
independent of any person’s
desires; his line of thinking continues to
on
only.”
it is
to apply these rules in competitive businesses,
contrast to public institutions and monopolies
difficult to
which
—
in
— are constantly look-
ing to segment their markets and differentiate themselves from
com-
petitors in order to establish advantage. Religion lies
behind the idea of
had much influence
in business.
or vocation, which has
a calling
Martin Luther
preached
first
the sixteenth century, urging Christians to
work hard
had appointed for them. John Calvin
on
built
was evidence of divine
that worldly success
of the elect predestined for eternal
life.
in the role
his ideas,
favor,
Not
this in
God
and preached
of being
a
member
surprisingly, this gave
great impetus to those wishing to prove that they were part of the
according to
elect;
work
Max Weber,
was born
ethic
22 .
this is
7
the religiously driven
Since the Industrial Revolution, Christianity
and the work ethic have marched tian charity
how
less closely in step,
though Chris-
animated nineteenth-century Quaker businesses
like that
of English chocolate maker Joseph Rowntree. Even today there are businesses such as ServiceMaster in the United States,
“To honor with
God
in all
we
do.”
a significant religious
2
'
There
ticular
— our
presence, while the Parsi ethic animates
of
final variety
form of religion. In the
destroying the
Roman
of Purpose fifth
civilization
Hippo argued eloquently
tution,
is
are also Islamic-led businesses
businesses such as the Tata group based in India
The law
whose motto
—
is
24 .
exemplified in one par-
century A.D., as the Vandals were
he had grown up
for the moral
in, St.
supremacy of
a
Augustine
new
insti-
namely the Catholic Church. However appalling material
conditions might be, there was hope for those spiritually invincible authority,
who
accepted this new,
and the divine law that
it
enforced.
PURPOSE
40
The
ideal set
out by Augustine held sway in Europe for over one
thousand years. launched by
It
was reinforced by the monastic movement
Benedict; the spiritual purity of
St.
St.
Francis and the
mendicant orders; and the philosophy of Thomas Aquinas and others,
who
married authoritarianism and support for the Pope with
Aristotelian principles. Eventually the corruption of the papacy at
the end of the Middle Ages and the Scientific Revolution of the sev-
enteenth century undermined the authority of divine law. while
many
people continue to obey and believe, few outside the
Church hierarchy imperative. 2
Now,
itself
recognize authority or precedent as a moral
"
PURPOSE AND THE WAR OF IDEAS At the most fundamental least in part a
level,
competition between companies
To understand company
success and failure
fail-
we should look
underlying competition between ideas, not just
this
at
competition between different moral ideas. Successful
ideas generate successful companies; unsuccessful ideas generate ures.
is
at
at its surface
manifestations.
This competition takes place
in the market.
That
panies win or lose their everyday battles for customers,
and
capital.
ning these
where com-
staff,
suppliers
commercial organization can succeed without win-
battles.
Those ning
No
is
in the thick of the fighting naturally think in
—
tactics
a little
more value added
terms of win-
for customers here, a
new mix
management have been medium- and long-term
of incentives for staff there, and so on. Senior trained to think in terms of strategy
choices they can sition for their ship
make about
,
the
establishing an
ongoing competitive po-
company. Some have thought
at
finding ways to maximize their influence
,
make
that influence reflect their priorities
length about leader-
on outcomes, and
more
to
accurately. All of
these levels of conflict are inevitably shaped by the company’s Pur-
pose
—whether or not that Purpose
is
explicit.
In large companies, there are always
managers can support. Provided the
many
strategic options that
strategic options
managers
face
THE
REAL VALUE OF PURPOSE
are at least compatible with for their choice of
For
this
tives
what they know, the most
one option over another
unlikely to
is
41
narrow the options
reliable basis
not yet more analysis.
is
significantly. Instead, execu-
tend to gravitate to the options that they believe the organiza-
tion will act
on
effectively.
This
in turn
depends on the
of
level
emotional support the strategy attracts from the chief executive, other executives and, to
employees generally. 26
a lesser extent,
depends on the morale of
effective action
small group only, this
a
emotional support can he rooted in personal ambition or namic. But where the morale of
needs to
the Purpose
fit
—that
is,
a
Where
wider group
is
a
group dystrategy
critical,
leaders will he effective to the extent
that they can articulate an effective Purpose and align their strategy
with
it.
Over the medium
more influenced by its
the strength of
Charismatic leaders
leader.
morale
to long term,
like
its
in a large
well-known companies
contrast,
Sam Walton at best a
like
are effective precisely
3M
attracts, retains
who
try to inspire
short-term impact. 2
By
maintain high morale over
the long term without resorting to charisma.
simply the leader, that
is
Purpose than the strength of
because they are communicating Purpose; leaders
by sheer force of character have
company
the Purpose, not
It is
and motivates the best
staff.
Leaders are effective to the extent that they express effective Purpose.
But not
all
Purposes are equally
morally right and sensible to choose
a
While
strategy that
it
fits
may
be both
the Purpose,
does not guarantee success. Henry Ford found before World
this
War
I
that his Purpose
able to style his
effective.
—
many people
fit
— using mass production to make cars
inexpensively, without variation in color or
the market environment perfectly.
The
strategy based
Purpose created competitive advantage. After the war,
pose no longer
fit
the market environment.
wanted different colors and market was
less
is
styles.
this
on
Pur-
Different customers
Ford’s heroic Purpose of creating a
persuasive than General Motors’ altruistic Purpose of
providing service to
There
avail-
its
customers, and Ford was overtaken by
a level, then, at
GM.
which the competition between large
is
not between strategies and leaders, but between more or
less effective
Purposes and the moral ideas that underlie them. Apple
companies
PURPOSE
42
and Microsoft, for example, are not
just
competing on price and con-
venience. Underlying their superficial differences are two quite different sets of ideas about
what matters
in the world: great design
versus effectiveness. Apple aims for perfection:
yond what anyone
else
thought
a
iPod goes
Its
music player could be, and
far
be-
iMac
its
—with the computing power the monitor rather than an empty box with twisted wires — are nothing short of astonishing. computers
in
in
Microsoft, in contrast, does not seek perfection. As a result, engineers
who dream
and programmers
of creating beautiful, breakthrough
products gravitate to Apple. Those player find Microsoft a
more
Morale may be high
company
a digital
an
like
artist
—or
at
of being the dominant
home.
attractive
both Microsoft and Apple. Both visions of
are valid.
At Apple, however,
David. That
a
who dream
is less
it is
possible to feel
possible at Microsoft,
where
Goliath dwells. Either way, those images provide a moral foundation
And
for each brand.
that moral foundation
is,
in
each case,
a signifi-
cant corporate asset.
The same
applies to the 1930s competition
General Motors, which can be seen
between Ford and
at the tactical level as a race be-
tween individual models for customer
dollars.
Or
it
can be seen as a
contest between different strategies and styles of leadership single brand versus the multibrand,
leadership.
The
prize, in that case,
can best be seen as
a battle
dominant leader versus was lifelong brand
betw een two
sets
Humean
collegial
loyalty.
But
it
of moral ideas: Ford
Nietzschean vision, which gave him an advantage
and the more customer-focused,
— the
ethic at
s
in the early years,
GM,
which gave
company a long-term advantage. There has been an evolution in the way people think about competition. Once, it was thought that the winner was the company with that
the lets.
most tangible
assets
— the quality of plant or the location of out-
Then winning was thought
as brands, patents, internal
to be driven
by intangible
assets
systems and the quality of people. All of
these factors determined the effectiveness of tangible assets. ideas
—
I
would
mine the
say,
primarily moral ideas
effectiveness of people
be pursued?
The
such
Now
it is
— that are thought to deter-
and of intangible
assets.
What
new, the excellent, the helpful or the effective?
is
to
THE REAL VALUE OF PURPOSE
In arguing that the
panies
most fundamental competition between com-
between competing moral
is
distinction
artificial
43
ideas,
we
removing an
are only
between business and other human
politics, the arts, science
and everyday
life,
there
a
is
activities.
In
constant war of
which individuals are continually engaged. These skirmishes
ideas in
The most common question about the example, is why the United States and United
are not simply intellectual.
current war in Iraq, for
Kingdom pose,
Assuming there was
initiated the invasion.
what was
it?
Was
dominance over the
a
the reason grounded in heroism
oil
moral Pur-
— to exercise
supply and the Middle East, and thereby
—
modern army could
Was it altruism to help the people of of a tyrant? Was it discovery to find out what a do and how to promote democracy in a new en-
Or was
there a Purpose of excellence involved, aimed at
crush the threat of terrorism? Iraq escape the rule
vironment?
—
deterrence, by demonstrating the quality with which the Americans
and British could engage in war? In peace as well as war, political winners tend to be those groups
who That as
can evoke is
why
it is
a clear, consistent
more important
having “character”
moral ideas clear
and
— than
— the
Purpose that
attracts followers.
in elections for politicians to be seen
embody and
ability to
to be clever. Cleverness, unless
project sets of
grounded
it is
in a
simply be seen as trying to evade the
explicit Purpose, will
need for making hard decisions. In business, similar skirmishes are taking place.
the
new
bated.
or excellent or the helpful or the effective
The
questioned.
is
Competence
is
no longer enough,
as relevant in the
marketplace
as
it is
The war
in
counts as
constantly de-
character of business and business leaders
guarantee either legitimacy or success.
endeavor.
What
if it
is
constantly
ever was, to
of ideas, in short,
is
any other sphere of human
CHAPTER THREE
WHAT
PURPOSE
NOT
IS
K
og
is
a
venerable Turkish conglomerate that represents per-
haps 4 percent of the country’s economy. responsible, ethical and
Several years ago
money.
conducted
I
would be
fruitless
—
a
Kog had
committed
Its
owners are highly
to each of their businesses.
a textile division that
had been losing
study that indicated that efforts to prop
had no competitive advantage.
this division
study showed that this business couldn’t win. Indeed,
it
up
The
Kog probably
couldn’t even find a buyer for the factory.
Eight hundred workers. Eight hundred families. That’s what the
owners were thinking of when consider just the real estate
I
presented
my recommendation
— because that was the only value of
to
this
division.
The
family that
particular factory
opened by
owns Kog has
a serious
had sentimental value
their father, half a century ago.
—
business focus. But this it
was one of the
When
I
first
gathered the family
PURPOSE
46
together and told them the bad news,
me
solution: never see
some of them wept. Their
So much
again.
image of
for the
first
capitalists as
cold and unfeeling.
Shunryu Suzuki was once asked
The
tence.
to
great
audience laughed at the impossibility of that challenge.
But Suzuki had
What
changes.”
The
Zen master summarize Buddhism in a sen-
In half a century, though, things change.
adapt to the
new
ready answer.
a
true for Buddhists
is
situation Kog’s
he
“Easy,”
“Everything
said.
To some
true for others as well.
is
owners would have to
of their loyalties, but they would have to do
sacrifice
way
in a
it
that
was
we
find
thoughtful, large-spirited and courageous. In the end, they closed the factory. But they insisted that jobs for the workers. to
To be
sure, that
some discomfort and added
slowed
But
cost.
it
down
the process and led
demonstrated, both to their
customers and employers, that the Kog family was
word.
And
I
continued to consult for
In retrospect
business nize
it
I
realize that
in a
new
What we were
like so
some
many
sponsibility of any kind. It
is
not
as their
time.
others involved in didn’t recog-
doing was adapting Kog’s heroic
business era. Purpose
the business concepts with which
least
—
for
—were dealing with Purpose, even though we
at the time.
Purpose
we
Kog
good
as
it is
is
very different from
often associated.
It is
many of not
a re-
or “value”
a “mission,” “vision”
—
at
not the kind that can be codified in a “mission, vision and value”
statement.
It is
not
a
reason for doing something.
Nor
is it
a tool, a
vehicle for maximizing profit, a form of brand identity or a constraint (like a
regulatory policy).
It is
tion.
none of those things because,
But
in
order to hear that
call
at heart,
Purpose
and respond to
derstand the distractions that get in the
way of a
it,
is
a call to ac-
we need
to un-
serious discussion of
an organization s Purpose.
And
in
many companies,
traction: the
that starts with the
most persuasive
dis-
maximization of profit.
PURPOSE VERSUS PROFITS Economists such
as
mization should
itself
Milton Friedman have argued that profit maxibe the purpose of
a
company
.
1
There
is
no
WHAT PURPOSE
company
question that every
IS
47
NOT
has to achieve profits to survive and
prosper, but this doesn’t suggest a moral duty to maximize profits.
Two arguments the only duty of first is
that
attempting to prove that profit maximization
company
maximizing
directors are
profits
is
sometimes put forward. The
the surest
way of maximizing happi-
ness in the world, and of course general happiness
The
trouble
ness. In is
only
any
is,
maximizing
profits
case, if happiness
a rule
of thumb, not
The second argument
a
is
and elsewhere
suggests that profit maximization
mize tion
profits.) is
This
indeed
is
legal fiduciary
widely
is
also a
felt
as a
that
duty that
more compelling
a
whole. Even
managers have
weak argument. While
no one has ever shown
a duty,
the
is
only applicable in the United
and elsewhere, directors hold
it is still
thing.
moral duty.
duty to the company
legal fiduciary
good
the real goal, then maximizing profits
directors have to shareholders. (This
UK
a
is
does not always maximize happi-
company’s only ethical duty because of the
States; in the
is
so, in the a
duty to maxi-
profit
that this
is
UK
maximiza-
or should be
the directors’ only duty.
PURPOSE VERSUS GOVERNANCE AND LONG-TERM THINKING Other advocates that the
in the
Purpose of
a
realm of corporate governance have argued
company should
automatically
come down
balancing the demands of stakeholders or constituencies. In real
life,
to
this
is
way companies are managed. Corporate directors have to from customers, workers, sharebalance demands in the short run already the
—
holders,
community and
business or in
are
go beyond
good
will respect us.
will
classic
themselves out of
is
are often just adopting
screw the customers, workers or public
We
look
at the bright side: If
and customers
will build
be creating an intangible
Long-term thinking
A
will find
minimum
to our stakeholders, workers
doing so we
one.
If we
this
will get us in the end. Or, to
and the public in
that
long-term perspective:
now, they
—or they
jail.
Companies a
so on
good
we
will stay with us
relationships,
and
asset.
not the same as Purpose, but
it
may reflect
example of the value of Purpose to long-term thinking
PURPOSE
48
is
& Johnson.
the Tylenol case at Johnson
in
Several deaths were caused
1982 after someone tampered with packages of the drug.
The tam-
pering was clearly not the company’s fault and was confined to a very small
number of
but management decided to withdraw the
A few months
product anyway. container.
outlets,
The company
later, it
took
was reissued
in a
tamper-proof
a financial hit in the short
term, and
Wall Street thought the Tylenol brand was dead, but management
made its
the decision in the (correct) belief that
it
would maximize prof-
long term, strengthening the company’s brand and
in the
tation for looking after
its
repu-
its
customers.
Such decisions are often purely pragmatic. Did the Tylenol decision reflect a Purpose or was difficult to
son
know
& Johnson
simply about profit maximization?
it
the answer for sure, but there are indications. John-
has a “Credo,”
first
written in 1946, that specifies
obligations to stakeholders. Perhaps
Purpose. Ralph Larsen, the former colleagues “would hold [the values
they became
a
It is
it
does encapsulate
CEO,
a
its
genuine
has claimed that he and his
embodied
in the
Credo] even
if
competitive JAadvantage.” 2 This suggests genuine
Purpose. 3
PURPOSE VERSUS FIRM PRINCIPLES Firm
principles
are
useful
because
it
is
make
often difficult to
Tylenol-type decisions unless the ethical principles involved are internalized; only then are the individual decisions
made
protect the long-term value of the brand. Johnson the Tylenol
crisis,
took steps to make
its
Credo and
in
ways that
& Johnson,
after
ethical considera-
tions part of everyday decision making. Similarly, in the late 1970s,
the
Cummins Engine Company began
managers introduce an
The danger
is
ethical
a training
that ethical principles are not sufficiently robust to
—the ones that matter. As Tom
Chappell, of Tom’s of xYIaine, has written, “At the will
sion.”"
to help
dimension into their decision making. 4
influence the really difficult decisions
you
program
first
sign of
crisis,
begin managing more about the bottom line than the mis-
But
if
the principles follow from an active Purpose, they will
WHAT PURPOSE
be central to what the business
dent
when
difficult decisions
IS
NOT
49
about and therefore be most evi-
is all
need to be taken.
For those companies without Purpose, there
dilemmas facing
deal of agonizing about the ethical sibly there will be a
will often
a great
company. Pos-
a
dependence on standards or methods presented
by outside constituencies, including governments and even on consultants or academics. ethical
be
judgment because
it is
The danger
so difficult and
the leaders are actually abandoning
NGOs,
or
is
that in outsourcing
its
basis so uncertain,
it.
PURPOSE VERSUS CODES OF PRACTICE If
following a Purpose
is
not the same thing
pals or seeking ethical advice,
of “ ethics
”
” “
practice
,
common
in large
,
also not the
it is
“governance ”
as following ethical princi-
or
same
as following a code
“
approved behaviors.
companies, are not designed to make things happen
but to prevent or restrain action that might lead to bribes, or sexual harassment. site to
These codes,
”
that of Purpose.
The
The
role of these codes
is
liabilities,
like
therefore oppo-
codes constrain, while Purpose inspires.
Citigroup, for example, recently struggled to re-establish a reputation for ethical behavior after a series of scandals; cal
code throughout the company.
aligned
its
If
it
pushed an
Citigroup had
strategy and the moral ideas of
its
a
ethi-
Purpose that
employees,
it
would be
in a better position to rebuild its reputation.
PURPOSE VERSUS REPUTATION Purpose
is
nately this
not simply a is still
tool
how many
they think of Purpose at
all.
for improving your reputation. Unfortu-
large
companies think of it
They know
in practice, if
they have to go beyond
satis-
fying the material interests of stakeholders and either attract cus-
tomers or avoid
liabilities
by establishing an image
or “responsible company.”
The
resulting policy
rate social responsibility or good citizenship
proved reputation, not
a
more ingrained
,
is
as a
citizen”
often called corpo-
but the goal mission.
“good
is
only an im-
PURPOSE
50
Sometimes
this
is
defensive, as
customers’ concerns about
its
when Nike was
forced to listen to
subcontractors’ labor practices. This
kind of reactive posture does not constitute a Purpose. At other times it is
a
more
positive mixture of brand
development and genuine
ethi-
when Starbucks adopted ethical guidelines on sourcor The Co-operative Bank in the UK started to turn down
concern, as
cal
ing coffee,
“unethical” customers (and increased
its
market share
as a result).
Global, multiproduct companies like Nestle and Procter
&
Gamble
have also recognized that their brand equities depend on improving their social
The is
also
and environmental performance.
target for this kind of responsibility
this
is
a
.
.
.
[who] ask themselves
if
an organization whose values they share .” 6 Ethics are more im-
investors, potential recruits
And uneasy?
yet, doesn’t a
No
a
company’s reputation with customers,
and indeed
statement
doubt he and
its
own
staff.
like Fitzgerald’s
make you
his colleagues are sincere
but what will happen
when
on
a
feel a bit
personal
the values they proclaim conflict
with the underlying dynamic of the business? In any company,
primary reason for an ethical stance
to attract
is
that stance will not necessarily survive a like
it
good business because “we
is
constant flow of talented people
portant than ever before to
level,
not just customers,
Niall Fitzgerald, former chairman of Unilever, has
staff.
pointed out that social responsibility
need
is
crisis.
if
the
good people, then
Some
industry sectors,
auto dealerships, have struggled with this dilemma for years; they
attempt to build
a
reputation for ethical behavior, but their business
model depends on trying
to squeeze the greatest price possible
from
every customer through persuasion and obfuscation. If a
company’s reputation-building
separate from
its
cine to relieve the is
at
appear to be
somehow
business model, then you suspect they are primarily
a corrective to its naturally
approach
efforts
amoral or immoral inclinations
symptoms but not
a
—
a
medi-
cure for the basic disease.
bottom defensive. Purpose
is
reputation as an ethical leader in your industry.
The
not the same as having
a
Nor is
a
it
simply having
reputation for integrity or for that matter reporting your earnings ,
honestly. It
is
widely believed that investors’ lack of confidence in
what companies say has contributed
to the recent,
post-Enron stock
WHAT PURPOSE
market doldrums. But dence
in reality, the
NOT
51
underlying cause of lack of confi-
corporate behavior grounded in a lack of Purpose.
is
nies such as
Enron and Tyco were
being merely opportunistic.
more
IS
And
if
Compa-
striking for their Purposelessness,
you have no Purpose, you are
far
likely to cheat.
PURPOSE VERSUS PHILANTHROPY The
phrase “social responsibility”
may
more pe-
also refer to even
ripheral reputation-building efforts, such as philanthropic or charitable activities.
These may be
build the firms sense of
a
For
source of energy and can be used to help
community and morale, which
this reason, these activities are particularly
ment
consultancies,
which often donate
staff
time to solve problems
thematically to the company’s business: Nokia
ects.
for this reason invests in
But peripheral
activities are
sells
is
the case even
when
purposes. In a 2002 article, Michael Porter and
text.
That
is,
linked
mobile phones to
by definition not connected to the
the philanthropy
that corporate philanthropy can
may be
youth development proj-
driving intention of a company; they are not part of
This
valuable.
popular in manage-
of poverty, development and so on. Sometimes they
young people and
is
improve the
is
its
Purpose.
used for strategic
Mark Kramer
suggest
firm’s competitive
con-
philanthropy can shape the environment to maximize
the firm’s advantages.
When
companies such
as
Hewlett-Packard and
Microsoft take steps to bridge the “digital divide” by donating computers to schools in low-income neighborhoods, they are both creat-
ing
more connected communities and building more
potentially
profitable markets. This approach represents a clever and creative
way
for
managers to reconcile conflicting commercial and
pressures. But this
is
ethical
not the same as tapping into Purpose in order to
guide or inspire strategy.
PURPOSE VERSUS BRAND Finally,
many
organizational leaders see their reputation as akin to a
corporate identity or brand
— the
vehicle by
which people
in
the
PURPOSE
52
world
To be
recognize them.
at large
sure, a corporate identity or
brand conveys something permanent about
a
company, and forms
a
focus for the allegiance of employees and the respect of outsiders.
The brand may
be linked to a corporate Purpose,
The
or even a product.
lifestyle
link will vary
of values,
a set
from company
a
to
company.
Only
great brands have a moral content; in great companies, both
the brand and Purpose stem from the
companies,
as
we
align together.
same moral
shall see, the brand, the ethics
This can happen
altruism) or in a seemingly effortless
its
shire
Hathaway, where no one doubts the its
manner
(as
all
with
involves building a brand that dis-
plays
and
and the Purpose
in a self-conscious
The Body Shop, whose Purpose
ethics, its reputation
roots. In truly great
manner fit
(as
with Berk-
between the
firm’s
brand).
PURPOSE VERSUS VISION, MISSION AND VALUES As executives often
try to
manage
their reputation externally to moti-
vate consumers and citizens, they often view their “vision,” their
“mission” and their corporate “values” as the internal counterpart: a
way
to drive employees’ behavior.
Consider these two
visions:
industry” (McDonalds).
two
in every
market we
“We
serve,
“To dominate the global food
will
service
become number one or number
and revolutionize
this
company
to have
the speed and agility of a small enterprise” (General Electric ). 8 are exciting, motivating targets, and as such important tools,
but there
is
management
nothing particularly moral about them.
force because they
These
They have
draw on and strengthen the sense of belonging
and commitment employees
feel to
an ambitious enterprise, not be-
cause they feel “right.”
There
are plenty of
companies with
strong Purpose
a
—
for
exam-
Wal-Mart under Sam Walton and Berkshire Hathaway under Warren Buffett in which it’s difficult to detect an explicitly stated ple
—
vision. ily a
Purpose creates
a direction for
the company, but not necessar-
snapshot of the destination. Indeed,
Sam
Walton’s story
is
an ex-
WHAT PURPOSE
cellent refutation of the
need
“mental image of
a
IS
NOT
53
argument sometimes advanced that leaders a
possible and desirable future state of the
organization ... an all-important bridge from the present to the future .”
9
Walton had
a
very clear image of
rent state of the organization, a
much
and desirable cur-
a possible
hazier one of the future.
What
mattered was serving the customer today, not building the organization for
tomorrow.
Purpose tified
is
not
a corporate mission. First,
missions are often iden-
with mission statements, and, as everyone knows, these are
often utterly
some not
trivial: a
description of the current product attached to
quite sincere aspiration.
More
serious
is
tween mission and vision that some companies Sachs’s mission
ment its
is
tor.” In these statements,
and impact of the company, and
is
bank
in every sec-
and there are many other similar ones
throughout the corporate world, the mission
and
Goldman
— nothing wrong with that— and
“to be the world’s premier investment
while the vision
posit.
“to provide excellent investment and develop-
is
advice to major companies”
vision
the relation be-
is
given
a
is
about the output
moral twist (“excellent”),
about the success of the company in the future
is
amoral (“premier”).
Goldman Sachs), an implicit deal has to the workforce: “If we follow our mission (which, by good thing to do anyway), we will achieve the vision.”
At some of our been offered the way,
is a
clients (not
Curiously, the amoral vision
becomes
a justification for
the quasi-
moral mission, rather than the other way around. This breeds cynicism,
with the result that the mission
management
way of
tool, a
is
seen
as
just
getting from here to there. This
another is
not
a
viable role for Purpose. Finally, differ
Purpose
from Purpose
is
in
not a
two
set
of corporate values. Corporate values
respects.
They
are often not moral and
they are often not concerned with the destination of the organization.
Corporate values often involve no moral commitments by employees. Instead they are simply ways of regulating behavior. are designed to ensure the
smooth running of the company
ducing transaction
economists might put
a divisional
costs, as
it.
They
—
re-
Peter Jenson,
president at what was then Smith Kline Beecham, put
1
PURPOSE
54
it
thus:
“The key
is
to have a
team of people with
fully aligned atti-
Then you spend your time getting things done and your time explaining why you are doing it .” 10 To the ex-
tudes and values. don’t waste
go beyond the most minimal standards, these values are
tent that they
we do
intended to ensure conformity (“the way
and
a sense
you
will
fied,
of belonging.
implicit deal
you do not conform, you
If
fit in.
The
is:
things around here”)
Adopt these values and be more easily identi-
will
and then ostracized, asked to leave or reduced to impotence. “If
you remain outside our value system you have ented,”
is
management comment company is driven by a Purpose,
a
however
tal-
1
a typical
When
to go,
.
the vision, mission and
values flow naturally from that Purpose. People don’t need to be
“aligned”
— they already have been attracted to the organization,
employees or customers, by
its
as
Purpose. Corporate leaders get dis-
same way
tracted by their vision, mission and values, in the
that they
get distracted by concerns about reputation, compliance, ethics and
Those seem
public identity.
like the
concerns about their standing
in the
most
ways to address their
direct
world
at large,
or with their
own
employees. But in fact those are inadequate ways to address those concerns.
The
only effective route
is
the fundamental route: develop-
ing and deploying a clear and consistent organizational Purpose.
RECLAIMING ETHICS FOR PURPOSE Most people Purpose?
associate
What
Purpose with
ethics. So,
how about
role can ethics play in a Purposeful
viable.
Companies with
and
company? They
are extremely important as the articulation of the high
makes the Purpose
ethics
ground that
different Purposes will
find different kinds of ethics important.
The
point
gram and
its
solar energy
is
well illustrated by contrasting BP’s solar energy pro-
Third World development and
is
aiming to reduce
activities.
its
it
introduced with
corporate identity, “Beyond Petroleum.” This
set of initiatives
has invested in
dependence on greenhouse
gas-producing petroleum; hence the slogan
new
BP
is
its
part of a wider
designed to address global warming. Chief Executive
Lord Browne and
his colleagues
want
to
make money, but they do
WHAT PURPOSE
NOT
IS
55
not want to lock themselves into resisting moves to save the planet. In this instance their
moral ideas support their strategy
—solar energy
a potentially serious business for BP. Crucially
it is
long-term investment, given the problems we
face with
is
mutually reinforcing
a
BP
tives. it’s
fit
all
is
also a sensible oil.
There
between Purpose and commercial objec-
has been criticized for the slogan, and for overselling what
doing, but not seriously criticized for the program
itself.
BP
has
the high ground.
Browne himself has described this kind of activity in terms of Purpose: “Our purpose ... is to be one of the world’s great companies.
That means
ally well
day to
delivering results and doing our business exception-
But
day.
it
means aligning our
also
activity
with the
world’s needs, leading change and being a force for progress in every-
we do .” 12
thing
This
is
the language of discovery:
will
maintains the ple, as
it
set
continue to occupy the high ground so long as
of invention and exploration
spirit
credibly demonstrates
solar power.
by others
lead change and be a force
change means venturing into the un-
for progress in an era of climate
known. BP
To
its
This also means that
—or even
settle for
it
—so long, for exam-
goal of being the industry leader in
BP cannot
simply follow standards
being one step ahead of the game.
It
has to stay in front of other companies, like DuPont, which are sim-
embed
ply seeking to
“sustainable growth” in their business models.
—
DuPont it is doing far more than many of its rivals. But it has not made environmentally driven discovery part of its Purpose, as BP has; and it will not enjoy the same benefits or face
This
the
is
not to
same
The
criticize
risks.
situation
sortium that
is
is
building
a
when BP
is
attacked for joining a con-
pipeline across
Turkey and has negotiated
different
certain extra-territorial rights
companies have
a
from the Turkish government. Oil
patchy record in their relations with the Third
World, partly because they have delegated moral responsibility to corrupt national governments (such as those in Angola and Nigeria).
BP, however, leads the industry in
rights
programs and
policies
—
it
feels
its
it
development and human
has been “unfairly treated”
by the Non-Governmental Organizations (NGOs) that monitor
56
PURPOSE
multinational activity. These
NGOs, on
no more than reputation-
skeptical of policies that they suspect are
BP would
driven restraints on what
The
trouble
Third World from new
is
there
policies
fields. It is
is
and
no mutually reinforcing its
rights as they
between BP’s
nothing in them for BP, except the mainteexecutives’ consciences.
its
well have as sincere moral ideas about
do about the environment.
now
fit
strategy for developing and producing
nance of its reputation and perhaps
may
really like to do.
not that the two are inconsistent, just that the
policies appear to have
BP’s leaders
the other hand, remain
supporting
the latter
is
turns, the
former appears to be merely
a strategy,
I
applaud
this,
human
but whereas
and creating long-term re-
a restraint
on
its
strategy and a
defense of its reputation.
DuPont
is
another interesting example.
DuPont
selves the goal of turning
growth company.” That
growth while reducing
Chad Holliday
is,
its
although
it
clearly
is
not
in
—
its
“sustainable
rate of financial
CEO
global companies in the 2 1st cen-
at the
in this case
and ensuring that the company
how
call a
them-
has explained that “sustainable growth will be the
must engage
lation.
what they
negative impact on the environment.
than pragmatism of the kind any ers
leaders have set
they intend to increase
common denominator of successful tury,”
into
Its
moment. This may be no more
company looking
after its stakehold-
pre-empting government regulation
is
well positioned to respond to regu-
A test of whether it is just this or is instead part of a
Purpose
is
the plans play out inside the company. Are the plans seen as a
burden by the top team and other managers, strategy?
Or do
leagues, and
as
another constraint on
they animate and inspire the top team and their col-
form one of the
drivers of the strategy?
PART
II
GREAT STORIES OF PURPOSE INTRODUCTION deas are like trees falling silently in the forest
I
into action, they
and
women who
might
the idea of Purpose
is
as well disappear.
that history
is
—
if
What
they're not put
potent about
is
rich with examples of
men
took the idea and boldly forged ahead, carving out
great success for their enterprises and immortality for themselves. In the next few chapters, life
stories
I
will return to
examine more closely the
and business careers of leaders who, each
way, shaped the nature of the industrial society ated
great organizations
—
Each of them accomplished
profitable, this
we
influential
by choosing
in a different
live in.
Each
cre-
and long-lasting.
a different
form of Pur-
pose on which to base their enterprise: Discovery (the love of the new), Excellence (the pursuit of the intrinsically beautiful and elegant), Altruism (the urge to increase happiness)
drive to achieve).
and Heroism (the
— PURPOSE
58
Their of these
me to
stories are
men
well-known
in school.
That
the trouble of taking
tell
their stories
—you have no doubt studied some
familiarity
you through
through
a
is
a great
advantage.
their biographies
It
saves
and allows
me
very narrow window: through the role
of Purpose in their decisions and commitments.
The of IBM.
great example of Discovery
The
ren Buffett.
Wal-Mart.
classic representative
The
Altruist
Finally, I will
I
is
Thomas Watson,
of Excellence
will profile
look
at
is
is
the creator
the investor,
War-
Sam Walton, founder
of
two heroes, Henry Ford and Sieg-
mund Warburg, who could not be more different from each other but who each, in his own way, epitomizes the nature of heroic achievement in business.
CHAPTER FOUR
TOM WATSON’S PASSION FOR DISCOVERY
T
om
Watson,
a
man
cess of training
of immense creativity, designed a pro-
and thinking and
Because corporations are large
tive talents
entities,
to
become
this
approach gave
is,
of course, not invention
but the realization of results from invention. Watson sailed
into the future
on an unfamiliar, abstruse conceptual machine
computer, and
it
took him to
Tom Watsons took its
a
it.
the predominant leader of inno-
vation in the Information Age. Innovation se,
team with
requiring the execu-
and leadership of more than one man,
Watson the wherewithal per
built a great
troubled
entire
life
company and
a
new was
world. a
started
journey of discovery. it
future in gloriously abstract terms
beyond our present conception .” “progressive”
men
(like
1
called a
on
—
its
new
When
he
course, he spoke of
“a vision of
something way
Later he saw the potential for
himself and
Franklin
D. Roosevelt) to
counter the effects of the Depression and continue the technological
PURPOSE
60
revolution started in the twenties.
and
this,
pany, a
his resulting success
IBM,
as
an institution,
He
took the
needed to do
risks
encouraged him to think of
still
engaged on
a quest,
but
his
com-
now instead
bigger one, on the international stage. Finally, he passed the baton
to his sons in the
places that were
In 1939,
still
IBM
recognizing that electronics would lead to
fifties,
“beyond our present conception.”
had
That was
million in today’s terms.
—about $450 reasonably big business — though
turnover of just $34 million
a
a
compared with Ford or General Motors. 2 In the previous four
tiny
years the
company had achieved
excellent sales growth, an average of
16 percent a year, largely because of the that required
new
Social Security measures
companies to operate complex payroll procedures, for
which IBM’s machines were used. But even from 1918 sales
had grown
just 4.5
to 1935,
percent a year in real terms, Watson
joyed capitalism’s great honor
when
still
en-
— he was the highest-paid executive
in
America.
IBM Watson
dominated the
still
quite small data processing industry.
believed very strongly that
IBM
had to retain
this position in
the industry and he would always take the risks needed to maintain this leadership.
During the
over $1 million in
a
early years of the Depression, he invested
research and development facility
—an amount
company down had not the Social Secudemand for payroll processing. Later, dur-
that could have brought the rity legislation increased
World War II, he expanded production facilities for war-related work while maintaining his domestic data processing capacity and paying ex-IBM employees in the sendees 25 percent of their salaries, promising them a job when peace returned. After the war he had 2.5 ing
times the factory capacity he had before, but he insisted on maintaining this capacity; in a couple of years,
He
inculcated the view that the
demand caught up. company should be dominant
among
his colleagues, including his sons,
Watson
Jr.
makes
lived with himself
Tom
and Dick.
Thomas
clear in his autobiography that he could not have
had he
let
IBM
lose this position,
out hard on his colleagues in the 1950s
and he took
when competitors appeared
it
to
be leapfrogging the company. As the data processing industry ex-
panded with the advent of electronics
in the late forties
Tom Watson Jr.
at a
pushed
IBM
to
expand
and
breathtaking rate. 3
fifties,
TOM WATSON’S PASSION FOR DISCOVERY
Watson
Sr.
turned
tainable one. It
is
61
temporary competitive advantage into
a
a sus-
possible to explain this achievement in terms of a
— hold over colleagues and particular over son Tom — that created an organization constantly striving to personality
his
in
his
his
lead.
believe his personality
was only
as effective as
it
Purpose he subscribed to and communicated to Success,
Watson
said,
I
was because of the
his colleagues.
was based on enthusiasm, and enthusiasm
was based on knowledge. Salesmen needed to
discover their cus-
“THINK” became the company slogan, appearing on placards in all the offices. Managers and salesmen were encouraged to think creatively to come up with ideas about how to make service improvements. Then, once they had come up with the ideas getting information onto punch tomers’ problems and discover solutions to them.
—
cards faster, for example
—Watson would focus
efforts
on making the
improvements.
Watson understood how
a technical lead
can create
a
mo-
near
nopoly, which generates high profits, and which in turn pays for the research and development needed to maintain the technical lead. So
he started hiring research engineers, including James Bryce in 1917,
who
19 years later
would be honored by the U.S. Patent Office
as
one
of the ten greatest living inventors. During the twenties and thirties
Bryce and
his
pany. Almost
team produced all
steady stream of patents for the
a
of these were for the tabulating division
cause of any strategic decision by
Watson but because
— not be-
that was
the commercial, and therefore the technical, opportunities
com-
where
lay.
Executives and managers were quite emotional about Watson, telling
him such things
as
“how deeply
grateful
are to you,” and
have” and “no one could be happier serving
“you are the best friend
I
with and for you than
am.” This was due
I
we
in part to the
combined charm, generosity and harshness.
He
way Watson
was always willing to
credit the
good work of
he made
point of treating the shop floor workers with respect,
a
others, and,
from the mid-twenties
at least, visit-
ing factories and entering into conversation with individuals about their work.
he set up
But
a
He
was
a leader
country club for
on pay and working conditions and all
employees on equal terms.
as well as presenting this
harsh, haranguing
later
benevolent
face,
he could be stern and
managers and demoting those who disagreed with
PURPOSE
62
him or dared
to complain,
male graduate
recruits because the females in the year
allocated jobs within the
son put
it
and on one occasion sacking an entire year of
company.
to a class of trainees,
He
were not being
did not tolerate dissent.
As Wat-
“Sometimes young men disagree with
our ideas or our policies because they know better ways. Such young
men
never make a success with us.” His combination of warmth and
coldness could be particularly cruel and manipulative and the result was that his subordinates craved his blessing, like the children of a capricious
was
father. It
a classic case
of leadership based on dependency.
WATSON’S JOURNEY OF DISCOVERY Thomas Watson
Sr.
was hired
in
1914
as the president
of the
Com-
puting-Tabulating-Recording Company, the original “data processing” company,
whose founder Herman Hollerith had invented the
punch card tabulating machine. Watson himself had salesman for National Cash Register, and turned) in Dayton,
Ohio
a
a past as
conviction (later over-
for illegal sales practices.
(He was accused of
engineering sales of faulty cash registers and then selling
placements when the originals
failed.)
NCR
re-
Watson always claimed he was
innocent and blamed local Republicans; lifelong
an ace
Democrat and ultimately paved
this
the
experience
way
made him
a
for a close friendship
with U.S. President Franklin D. Roosevelt. Perhaps the experience
may have his heart
helped him keep
on the Purpose
closest to
— the journey of discovery which he took on full-bore when
he joined
name
a relentless focus
CTR
for the
(symbolized most strongly by his choice of
thing, even if he did not quite
expressed in Watson’s favorite
There’s
a feeling
Of new
things is
new
company, “International Business Machines,” bestowed
ten years later). Almost from the start, he
Our aim
a
felt
know what it was. The sentiment was IBM company song, “Ever Onward”:
everywhere of bigger things
coming
clear: to
he was on to some-
in store
into view.
make each year exceed
Staying in the lead in everything
we
do.
the one before
TOM WATSON’S PASSION FOR DISCOVERY
IBM was
not
just a
Watson had kind of journey.
community;
it
was
a
community with
He
described himself in the early 1920s as having a
always alert and searching.” At
is
“The reason
the late 1920s he said to his subordinates,
a
Purpose.
a
the restless curiosity that was well-suited for this
“keen mentality that
and want to
63
talk so
much
today
is
that
I
have
just
meeting
a
feel so
I
been out
in
good
in the field
couple of weeks calling on offices and learning about the business.”
Until the end of his
life
he would spend months each year traveling
around the United States and the world, doing
As well
as
understanding the strategic importance of research and
development (R
He
just that.
&
new products and
D), he was fascinated by
ideas.
was not himself an inventor or an engineer, but he would have
ideas
— for example, for
a railway ticket printing system,
or for special
bank branches. These were often impractical because
tabulators for
he was always driven by customer needs rather than by the technol-
ogy
— the opposite of Henry Ford, who saw the implications of the
technology but was uninterested
Watson pressed the customers.
his ideas
on
Twenty years
in
what customers wanted.
he helped them focus on
his engineers, later
he was slow
at first to see the impli-
cations of electronics, since he simply could not see
would want
to speed
up calculations that
they did, he relentlessly pushed the
When
fast.
company
why customers
But once he realized
forward. 4
As the 1920s progressed, opportunities became ever clearer to Watson.
IBM may have
had 80-90 percent of the tabulating machine
market, but Watson reckoned the existing market was only about
percent of its potential to the potential,
size.
His quest for the new made him sensitive
and to the immensity of the challenges.
After the Wall Street crash in 1929, lient.
He
called together his top
issue” facing
both
up
in
1930 there was
equipment, so in the
IBM
a
and making
it
a
ebul-
—and
1930 and 1931, and even growing
man
it
did,
a
market for
in the its
machines,
with sales holding
in real terms.
with
might have
bigger and bet-
had to find new markets for
perilous, but for a
more
the
to retrench, as
50 percent decline
United States and abroad
become more
all
team and announced that “the main
IBM
been expected, but “building the
office
Watson was
management was not how
ter business.” In
5
Purpose
The it
journey had
was
essential to
PURPOSE
64
continue advancing. Between 1929 and 1932 Watson effectively bet the firm and increased his manufacturing capacity by 33 percent.
Watson announced
In January 1932
on
lion
new
a
research and development
looked after his engineers well; ing,
wood
with
that he
now
was spending $1 mil-
facility.
he built them
He
had always
a beautiful build-
They
paneling, marble stairs and air conditioning.
could have any machinery they needed.
But by 1934 Watson was overextended. Sales had
just
about held
number of employees had increased by 20 percent since over 7,500. The new R & D facility seemed an extravagance
up, but the
1930, to
and
it
looked
like
Watson’s bet might not pay
even talked of replacing him. But the sevelt’s Social
Demand 7
for
crisis
off.
Some
directors
passed and in 1935 Roo-
Security measures were voted into law by Congress.
IBM’s machines started to increase sharply, with
sales
up
percent in 1935 and 16 percent in 1936. Watson’s investment in ca-
pacity and
R & D
had paid
Franklin Roosevelt’s
The war
He
off.
had been rescued by
his friend
New Deal.
more opportunity for Watson. Because he had geared up for war contracts, he knew that once the war ended he would have capacity and manpower for a major expansion in data processing, and by 1943 he was planning for it. By deciding to maincreated yet
war
tain capacity at
levels
he in effect bet the firm again.
WATSON’S PURPOSE Watson
inherited
market dominance
in data processing.
He
created an
organization that both needed to and was able to retain this dominance. But loyal
staff,
were certainly not enough to achieve of the hol
— the dark
company
suits,
the
this.
The famous
company
eccentricities
songs, the ban
—were only the outward signs of an organization with
leader.
pose, It
What
on a
alco-
strong
mattered wasn’t the quirks of his character but his Pur-
which bound people together and inspired them was
CEO
subservient managers and a celebrity
in the nature
of the Purpose that Watson was constantly
seeking out and creating the new:
was not interested
in
to action.
convention
He
pursued
this consistently.
—salesmen wearing dark
suits
He
were
TOM WATSON’S PASSION FOR DISCOVERY
made them do
unconventional in those days, and he a
symbol of
allegiance. Similarly he
time he or his colleagues arrived
what had
that they thought about
65
for a reason
it
—
as
was not so concerned with what
at the office
to be done.
—what mattered was
Salesmen should think
about their customers’ requirements and managers should think about the implications of their salesmen’s reports. Just
as the engi-
new ways of tabulating, so salesmen and their discover how to improve their customers’ businesses
neers had to discover
managers had
to
and IBM’s sendee. Because they were on 7
tory
,
a
journey into fresh
they had to shake off convention and follow the
“Think of each
prescription:
ought
to be
The
done
situation afresh
existentialist
philosophers
journey was his journey.
lives; for
company on II)
tell
us
we
Watson,
He made
consequences of those choices
World War
(existentialist)
and try and see what
for the best.”"
of discovery during our
bet the
terri-
are
all
IBiVl
on such
was
journey
a
his life
and
its
choices freely and accepted the
— most strikingly when he
felt free to
and
several occasions (in the Depression
after
and face the possibility of bankruptcy.
Watson’s Purpose animated his company. His subordinates were clearly not existentialists; for the
freedom (including the freedom
sonal, individual
up
their
effect,
own minds)
in favor
meant acting
stay.
as
meant thinking limits set
in his
It
did
last.
It
meant
style
—within
of course the It
meant never
— the comfortable, monopolistic
status
improve IBM’s products and
striving to
constantly inquiring about customers’ needs and
IBM’s
to if
mean flattering the leader. It not mean thinking his thoughts, it
by the company’s technology and objectives.
—would
They had
just
unconventional
assuming that the status quo
make
of the collective will of the company. In
But that did not
he would do.
their per-
to choose, to
they delegated that freedom to Watson himself.
they wanted to
quo
most part they abandoned
how
to
improve
service.
As the company matured, so
this
Purpose became ever more
deeply entrenched and institutionalized. other businesses
—
for example, apart
IBM
was different from
from factory hands,
only recruited graduates straight from college.
ence of other organizations was allowed
No
it
almost
one with experi-
in to dilute the
atmosphere.
— PURPOSE
66
This created
IBM
magnetic environment for the young
a
between the
thirties
and
fifties,
in
some ways
men who
joined
similar to the en-
compassing atmosphere among new ordinands in the Catholic
men were
Church. These young
entering an institution that was to
take over their lives.
Upon retirement, Watson turned over power with grace uncommon in such autocratic leaders. Here again, provided an explanation.
He knew his son would
an ease and the Purpose
do things differently
than he would (and that turned out to be true), but he also
knew
that
the changing technology called for another individual to lead. IBM’s
power diminished only
1980s and early 1990s
in the
pany.
By
when conventional com-
after several generations of leadership, it
tried to
become
then, the dark blue suits were a
a
symbol of conformity; even
IBM’s customers preferred conventional clothes. But the leadership of
IBM
had come to
feel that the
machine and the
their power, not the ethic of discovery.
Even
in the 1980s,
for example, in the
And
Tom
And IBM began Watson
original
IBM
team that created the
in the 1990s, in part
covery, as
some of the
suit
by drawing upon
its
gave them
to slide.
ethic
remained
Personal Computer.
original legacy of dis-
Watson’s company was once again able to reinvent
itself
an innovator in services by going beyond mainframe and advising
clients
on integrated
nor the
suits that
solutions. In the end,
had mattered.
It
it
was neither the machine
was, and could only be, unconven-
— the thinking that had, once, guided
tional thinking
all-animating Purpose.
its
leader to an
CHAPTER
FIVE
WARREN BUFFETT AND THE
EXCELLENCE OF FINANCIAL ARTISTRY
P
urpose has flourished for half a century in the career of the best-
known and
who
—
—Warren
Buffett,
entered the investment business in 1951 with $10,000 sav-
now worth $30 billion. For those who wonder how he did and why he has written a series of disarmingly straightforward
ings and it
wealthiest investor in America
is
—
“letters” to his shareholders,
Buffett
was born
Depression had
just
in 1930,
which
set
out his investment principles.
the son of a Midwestern stockbroker.
begun and
his fathers business
was
The
in difficulty.
At
PURPOSE
68
the age of
5,
Warren decided
that he
had accumulated enough from
rich.
At 14 he
newspaper route to invest $1,200
his
which he rented out to
in land,
was going to be
a local farmer.
At
19,
he went to Co-
lumbia University to study with one of the founders of the invest-
ment
analysis industry,
Ben Graham. After Columbia, he spent
years working for his father and for Graham’s fund
meanwhile converting
business,
Then
in
1956 he
set
up
his
own
his
a
few
management
$10,000 savings into $140,000.
investment partnership.
Between 1956 and 1970 (when he wound up the partnership), he achieved an annualized return of 29.5 percent, against the Dow’s
Between 1965 (when he took control of Berkshire
7.4 percent.
Hathaway) and 2002, he achieved an annualized return of 22 percent, against the 10 percent of the Standard & Poor 500. Berkshire 1
Hathaway vestment
now
is
trust,
did he do
rather than an in-
but Buffett continues to beat the market. This
should be impossible, according to
how
company
primarily a holding
many
professors of finance. So
it?
His strategy was to identify secure long-term cash flows undervalued by the market, and then buy large stakes in the relevant companies.
That
of investors
strategy
—and
would be
it’s
hardly
from others who agree with Purpose driving strategy.
a
blueprint for success for any
What
secret.
his strategy
his activities, a
The two
ing to do with
a
is
differentiates Buffett
that Buffett also has
Purpose around which he
neatly dovetailed.
number
“Wanting
to be rich”
had
a
fitted his
had noth-
it.
BUFFETT’S
INVESTMENT STRATEGY In the Berkshire
Hathaway annual report
for 1977, Buffett described
the four tests he applied to potential investments:
marketable equity securities in business for acquisition in
one:
(a)
prospects;
that (c)
we can
its
much
the
entirety.
understand;
way we would
We
(b)
“We
select
evaluate a
want the business
with
favorable
our
to be
long-term
operated by honest and competent people; and (d)
available at a very attractive price.”
2
WARREN BUFFETT AND THE EXCELLENCE OF FINANCIAL ARTISTRY
These
tests
may seem
so simple as to be unhelpful. Fortunately
Buffett has been quite willing to explain them. tractive price” as
value,” that
is,
He
one comfortably
less
He
has defined an “at-
than the company’s “intrinsic
the discounted value of future free cash flow.
acknowledged the test:
69
difficulty
was only interested
Then he
of assessing these prospects, hence his in businesses
any rate learn about quickly. This
really
first
he could “understand,” or
meant
at
sticking to industries
that
were predictable. Technology businesses were
and
his partner, Charlie
out, not because he
Munger, lacked the mental equipment
to grasp
the current state of technology, but because neither they, nor probably
anyone
could predict
else,
its
future state. “If
we have
a strength,
it is
when we are operating well within our circle of competence, and when we are approaching the perimeter,” he wrote. Buffett and Munger had the prudence to recognize their own limitations. They needed to be cautious because the “favorable prospects” recognizing
that
formed
his
second
test
had to be rock
As he put
solid.
it,
“We
we
businesses and industries unlikely to face major change ...
searching for operations that
we
favor are
believe are virtually certain to possess
enormous competitive strength ten or twenty years from now.” Buffet once said that his ideal investment was a
only bridge
in
toll
booth on the
town. In other words, he wanted potential for
a
mo-
nopoly or near monopoly franchise that could generate growing revenues. Such opportunities are rare. Buffett had the patience to wait for opportunities, and the courage to his
funds
when they
commit
a significant
proportion of
arose.
Buffett was interested in fundamentals, not the short-term impact
of events. This gave him
a great
advantage when the underlying
strength of a business was obscured by superficial problems. In 1964, for example,
American Express had
two products,
grow hugely
travelers’ checks
as travel itself
its
world-leading brand
name and
and charge cards, that looked
expanded with the advent of
However, the company was mired one of
a
in a
jet
set to
engines.
short-term cash problem
at
smaller subsidiaries, and the stock was cheap. Buffett in-
vested 40 percent of his partnership’s worth in this one stock; within
two
years,
enormous
it
had tripled
in price. Similarly, in
1988 Coca-Cola had
potential for continued overseas expansion, together with
a
PURPOSE
70
management team tential;
that had started to
show
that
it
could reap this po-
although the stock price had improved over the course of the
view
eighties, in Buffett s
did not reflect the long-term and rel-
it still
atively risk-free nature of that potential. Buffett invested 35 percent
of Berkshire Hathaway’s tradable portfolio in Coca-Cola. Ten years later the price
had increased almost
Buffett’s third test, as if
it
six times.
“honest and competent people,” might sound
should be shared by any rational investor. In practice he has
applied the test in a quite distinctive way. First of all he has looked for
managers who “work because they love what they do and thrill
They unfailingly
of outstanding performance.
(the highest
buying
compliment we can pay
a private
ness with
someone who .
.
.
company, not
loves his
When
think like owners
manager).” Secondly,
company, he has made clear that
bring him.
sale will
a
“We
like to
just the
nals that important qualities will likely be
when
do busi-
money
emotional attachment
this
relish the
that a
exists, it sig-
found within the business:
honest accounting, pride of product, respect for customers and loyal
group of associates having
The
do business”
“like to
working only with people
strong sense of direction.”
criteria
“We
also a matter of aesthetics:
a
a
goes beyond calculation.
It is
intend to continue our practice of
whom we
like
and admire. This policy not
only maximizes our chances for good results but also ensures us an extraordinarily
He
has
good time.”
made
the point in even
rather achieve a return of
X while
more
striking terms:
“We would
associating with people
whom we
strongly like and admire than realize 110 percent of X by exchanging these relationships for uninteresting or unpleasant ones.” Aristotle
might have
said the same.
He wrote
that this kind of ad-
miration was a strong basis for friendship; this was not purely affair
but the “bond that holds the community together”
a private
—and,
as
such, one of the greatest goods. 3
BUFFETT’S PURPOSE HIS Buffet’s strategy
AND
INVESTMENT STRATEGY only worked because he had the prudence to recog-
nize the limits of his competence, the patience to wait for genuine
— WARREN BUFFETT AND THE EXCELLENCE OF FINANCIAL ARTISTRY
71
opportunities and the courage to back his judgment to the also
had the
sensitivity to recognize
admirable
But these are not the only exceptional principles into success.
He
traits in others.
qualities that turned the
as these virtues,
he has fantastic
reads at least 2,000 annual reports a year and
photographic memory. in his office,
putting ple
As well
—
A
l
it is
he
said, “I
When am
a
asked
why he
computer.”
on the
basis of a
and the companies traded
remembering and
famous
is
did not have a
When
of the company’s resources into
He
full.
skills.
for his
computer
he allocates capital
a single stock, for
exam-
comprehensive knowledge of the market in the
market. Because of his genius for
for mental arithmetic, this
knowledge does not
have to be filtered through other people’s brains. His confidence an investment
confidence in his
is
own judgment, not
in
in that of a
subordinate.
This self-confidence makes
by emotion or
it
pletely satisfy
As
is
well
it
remain unswayed
own
his
does not work, and partly because
it
or others’.
investment
“does not com-
my intellect.” known, he does not deploy these
est salary. Rather,
—he
lives
virtues
on
and
skills
a relatively
be-
mod-
seems, he just enjoys the process of investing well
it
and making money. As he put
it,
investment
is
his “canvas”; as
with an
the creative process and the output are indistinguishable.
makes no sense what he does. wealth
to
Street-style “fashion”
cause he wants the trappings of wealth
artist,
him
whether
intellectual excitement,
Similarly he has rejected Wall partly because
easier for
is
to ask
He
why he wants
to
go on making money,
pursues investment excellence for
not even
a
score to prove that he
is
its
own
successful
it is
sake.
It
just
The
— he has got-
ten beyond that.
For
Buffett, his role in life
maximize return on formance of that
This
which involves the search a
primarily to allocate capital so as to
and fulfillment to him
equity,
role.
is
is a
excellent per-
is
textbook case of Aristotelian Purpose,
understood
for eudaimonia or well-being,
as
kind of fulfillment or flourishing achieved by performing one’s role
in the
community.
Buffett’s
investment
is
not “ethical”
that he searches out especially ethical companies, and
time he has even engaged
in
short-term
risk arbitrage.
sharp distinction between the activities of arbitrageurs
in the sense
from time to
But he draws like T.
a
Boone
72
PURPOSE
Pickens and James Goldsmith,
who
are transferring
it
from society
“are not creating value
.
.
.
they
and the profitable
to shareholders”
businesses he backs that are adding value (making “the steak taste better,” as
he put
it).
His role
is
community.
useful to the
His Purpose makes investing
a joy.
There
is
something almost
primitive about him, allowing Buffett a kind of eternal youth.
New
York investor visiting him
about him
a
at his
that
when
And
as Buffett
she was with
put
it
to
Omaha noticed A woman friend said
home
“ring of innocence reclaimed.”
A
in
him they were like “kids shooting marbles.” a friend, “some days I get up and I just want
to tap dance.”
This joy has his activities.
in turn
Indeed
helped sustain for decades the excellence of
it is
worth quoting Aristotle on courage: “Rash
people are impetuous, eager before danger arrives, but shifty is
when
it
actually present; whereas courageous ones are keen at the time of
action but calm beforehand.” Buffett’s ability to stand apart from the
emotion of the stock market displays precisely the measure of the tuous
man
vir-
that Aristotle praised.
BUFFETT AND THE MANAGEMENT OF ACQUIRED BUSINESSES Buffett has also
managed businesses
might seem surprising
— he
is
after
effectively all
once acquired. This
by no means the archetypal
conglomerate chief executive. Again, he has
set
out the route to suc-
cess in his letters. It turns out the principles guiding his
ment of
manage-
businesses are entirely consistent with those guiding their
selection:
At Berkshire we
feel that telling
managers wouldn’t work for us .
CEOs
.
.
.
how
to run
companies would be the height of foolishness. Most of our
their
ing
outstanding
.
.
if
they got
nevertheless, Berkshire’s ownership
a lot
of back seat driv-
may make even
the best
of managers more effective. First
we
and nonproductive
normally go with the job of the
CEO
[i.e.,
activities that
no meetings with Wall
St.,
eliminate
all
of the
ritualistic
the press, board etc].
.
.
.
Sec-
WARREN BUFFETT AND THE EXCELLENCE OF FINANCIAL ARTISTRY
ond we give each
a
simple mission: just run your business as
you owned 100% of
it
it
it is
(2)
and your family have or
merge
73
if (1)
the only asset in the world that you
will ever
have and
you
(3)
can’t sell or
for at least a century.
This loose approach to management works because
it is
founded on
the set of good personal relationships that Buffett has cultivated. This
mean he spends much time with individual managers: Ken Chase, who managed the Berkshire Hathaway textile business, redoes not
called that the telephone calls
were short and infrequent. The
perhaps best described
between comrades
tionship
is
a variety
of friendship Aristotle described, built on
qualities rather than
as that
warmth of sentiment. The
a
in
rela-
arms,
respect for
good
that his
man-
result
is
agers feel a personal responsibility to him. Buffett has always expressed his respect for his managers publicly in his
shareholder
letters,
and has made plain that he would not jeop-
ardize these relationships for the sake of short-term profit. Buffett has at times even foregone the best possible deal in order to build relationships.
shares in Wesco,
a
bad feelings with
For example, he paid more than he needed
California savings and loan, in order to avoid any
its
management. There was an
and the investigator expressed Buffett pointed out that feels
about
us.
.
need to work for
.
.
for
his
puzzlement
important
“it’s
how
SEC
at Buffetts
the
He
likes
working
overpaying.
Wesco management
Lou Vincenti [chairman of Wesco]
us.
investigation,
doesn’t really
for us.”
And indeed Wesco management performance improved significantly under Buffett, as has that of many subsidiaries. Buffett would not normally pay more than he needs he is not an over-generous man (if anything he can be stingy) but in the words of his biogra-
—
—
pher Roger Lowenstein, he
Good performance
is
executive pay. His policy Aristotle, for
means
whom
also is
“uncanny
as a motivator.”
encouraged by
Buffett’s straightness
on
to “pursue rationality” (again, echoes of
man’s defining task
is
“rational activity”). Buffett
that he relates pay to individual performance; in the case of his
chief executives, he relates price
is
it
to percentage return
movement based on market mood,
on
equity. Share
or higher profits resulting
PURPOSE
74
from retained earnings, or good performance elsewhere
the
in
group, are not relevant because they are not strictly rational measures of performance. Buffett
also
is
good with people running the businesses he has
had minority stakes ine
Graham,
Washington
in.
He
for example,
Post.
had an excellent relationship with Kather-
chairwoman and major shareholder
company and joining the mentor to her. To the frustration of
After buying a stake in her
board, he became something of a
some of
the Post executives, he used this relationship to stop profits
from the newspaper being dissipated
in less profitable ventures,
the result that between 1974 and 1985 shares,
In
in the
it
retired
with
40 percent of
its
and earnings per share went up ten times.
some ways
Buffett has maintained a similar set of relationships
with his investors. In the early nineties he claimed, perhaps implausibly, that
he knew, by sight
More
shareholders.
if
not by name, 90 percent of his 7,500
important, he has consistently said that he does
not want just any old shareholders. holders,” that
is
He
wants “high quality share-
to say, “rational shareholders”
who
ensure a “rational
share price” (rational again!), reflecting the underlying value of the
company. Accordingly, he has discouraged
who
are the
most
likely to
institutional investors,
be influenced by market mood, and for
years he did not split his stock,
making the
price of entry high
—
in the
year 2000 shares traded at over $70,000.
His attitude
is
Charlie and
hope that you do not think of yourself as merely own-
I
well reflected in this letter to shareholders:
ing a piece of paper whose price wiggles around daily and that
candidate for sale
you nervous.
when some economic
if
a
or political event makes
We hope you instead visualize yourself as a part owner
of a business that you expect to stay with indefinitely,
might
is
you owned
members of your
a
much
as
you
farm or apartment house in partnership with
family.
And indeed he has been successful in creating a sense of community among shareholders. This is not a commonplace trait among corporate leaders these days. in a small
A recent Halliburton annual meeting was held
Oklahoma town
(near
w here
it
has
its
headquarters),
mak-
WARREN BUFFETT AND THE EXCELLENCE
ing
it
difficult for dissident
tress at the
OF
stockholders to communicate their dis-
company’s substandard performance of
contracts in Iraq. At the annual meeting of Home
over-generous board of directors the
CEO
moved
— the
government
its
Depot
—
a
company
CEO
noted for declining revenues, an extravagantly paid
show up and
75
FINANCIAL ARTISTRY
and an
directors didn’t bother to
the get-together to
a
quick and un-
eventful conclusion.
But
a
Berkshire
Hathaway annual general meeting
a little like
is
the agora of ancient Athens. Citizens can listen to and question their leaders
—or buy insurance, jewelry or other goods and
services pro-
vided by Berkshire companies. Buffet’s annual reports display the Aristotelian virtues of truthfulness and wittiness that are so lacking in
most public documents, but
that are powerful tools for building
community.
BUFFETT: AFTER HIM, WHAT? The
extraordinary thing about Buffett
ple of Aristotelian Purpose.
new
covery or the
— he
He
is
that he
such
is
a
pure exam-
has demonstrated no interest in dis-
simply lacks intellectual curiosity about
He
matters which do not impinge on investment performance. particularly compassionate
money
daughter some
no
solutely nity).
—
for a
at
one point he wouldn’t even lend
new
kitchen
— and
desire to build an organization (as
The company
partners has ever
has
a tiny
made any
prentice investment
head
office,
opposed to
From
the outside,
—
it
his
a
commu-
and no one but the two
decisions. (Buffett did
manager but
not
he has shown ab-
that did not
once take on an ap-
work
out.)
Shareholders have frequently asked what will happen fett dies.
is
does not look as
if
when Buf-
he has created an en-
company is just too small to be a community of comrades. Has Buffett been so concerned with excelduring
organization
lence that he has had
On
no time
the contrary. Buffett
imbalanced.
and
his
It is
not
like
him
to care about such things? is
too shrewd to be so psychologically
to believe, “Apres moi, le deluge .”
4
may not have a bench filled with young talent. But know where those junior executives can be found and,
his partner
surely, they
He
—
PURPOSE
76
more, they know that young executives investing and
management
who
appreciate their style of
will find Berkshire
Hathaway.
may not survive intact. But it is reasonable to conclude ented, Purposeful men and women will surface who will do they know how for Berkshire Hathaway and its shareholders. codes
Buffett’s
that tal-
the best If
one
is
looking to create an intrinsically excellent and elegant enterprise, one can’t ask for
For right
more than
that.
his philanthropic interests,
man
for the job: In
Buffett has already found the
June 2006 he announced that he would give
the bulk of his $40 billion fortune to the Bill and Melinda Gates
Foundation. Buffett is
is
such an example of Aristotelian virtue that he
able to recognize the excellence in others, in this case Bill Gates,
someone who also
is
even richer and more successful than him, and
happens to be younger!
who
CHAPTER
SIX
SAM WALTON’S ALTRUISTIC
COMMITMENT TO THE CUSTOMER B
usiness stories about
you conclude
that
Wal-Mart
it is
that many,
deny overtime pay
many employees
recent years could
make
run by Satanists. In these accounts,
managers lock employees
clever ways to
in
in stores overnight.
to workers.
And
They
find
they pay so badly
get health care at the government’s
expense. It is
hard to believe that
Sam Walton, who
created the culture of
Wal-Mart, would have endorsed some of its recent
Mart was
policies.
His Wal-
fueled by altruism. His passion for customer service and
customer value was not,
I
believe,
undertaken
at the
expense of the
PURPOSE
78
Wal-Mart employee. Because Sam Walton, though hard-nosed and hard-driving, was nonetheless very aware of the power of consensus. Walton’s leadership
skills
were
first
noticed at the University of
Missouri, where he became president of the student body. His political style
was to greet people
they greeted him,
in the street before
whether he knew them or not. That way, classmates came to think they
knew him and
liked him,
and that he liked them right back. Wal-
ton found similar techniques useful throughout his
Walton was
naturally friendly, but he was also intensely competi-
tive.
In the words of an early colleague,
ton]
is
—
own
to
win .”
ment and
words, “a true passion
—or what he
—some would
say obses-
his gift for
merchandising, his willingness to experi-
imitate others, and above
all
towards action,”
his “bias
But whether
as a
sake, there
That was the largest
means
to winning, or because he
was something
else driving
desire to create the greatest
number of
wanted
him and
his
he
amount of happiness
for the
living: giving
as
many
them material
homogenized but comforting atmosphere.
became known
In the process, he
uprooting downtowns does not change the
for displacing local retailers
was
a
and
— and much of that may be indefensible. But
it
Wherever
a
altruistic
nature of his enterprise:
Wal-Mart opened, people moved up sense, he
its
people. For Walton, growing up in the relatively
people as possible raise their standard of in a
for
it
company.
impoverished region of rural Arkansas, that meant helping
goods
as
helped him become the largest retailer in the United States.
it,
own
motivates [Sam Wal-
1
His charm,
put
“What
the desire to absolutely be on top of the heap”
called, in his
sion
life.
into the middle class. In that
forerunner of one of the most intriguing ideas propa-
gated by business strategists today: the idea, as put forth by halad, that there
is
a
CK Pra-
“fortune at the bottom of the pyramid.” In other
words, the socioeconomic pyramid
—and
those
who
will serve the
humble, particularly the humble of India, China and other emerging nations
—
will enrich
themselves by doing good
Walton used everything and everyone
2 .
to accomplish this goal.
He
drove himself and his employees ruthlessly, and he was even more ruthless in squeezing pennies out of his suppliers.
He
also tirelessly
— SAM WALTON’S ALTRUISTIC COMMITMENT TO THE CUSTOMER
exploited his natural friendliness and charm. But natural, so
was the
Hume
pathize with others that, as
“Sympathy
not from the
In short,
start
—
this
7
Sam Walton was no
what
is
of morality:
said, lies at the heart
strongly competitive strategy into
a
now
saint.
He
core.
its
Southern discounter without to build
had the kind ot tendency to em-
Over time
empathy turned what would otherwise have
pany. But Purpose was at
on
the frugality was
the chief source of moral distinctions.” 3
is
been simply
He
friendliness.
if
79
He
Purpose.
a
created
a
very tough com-
could have become
a successful
Purpose. But he could not have gone
a
company without make money out of it.
the world’s largest
Purpose and without knowing how to
that
COMPETING WITH CORNER STORES Walton opened
In 1945,
his first variety store, a franchise of the
Franklin chain, in Newport, Arkansas. Over the next built
its
five
Ben
years he
turnover from $72,000 to $250,000. His success was based on
four things: finding cheap suppliers; employing effective display and
promotion; discounting; and engaging chandising experiments tion. Effective
in.
.
personality. “Mr. .
.
ported
It
was
often
constant stream of mer-
meant copying the competi-
promotion involved popcorn and
entrance to the store,
at the
own
—which
in a
like
cream machines
atmosphere and the force ol
a carnival
Walton had
ice
a
personality that
he brought in business by
his
his
drew people
being so friendly,” re-
a clerk.
In 1950 he was kicked out of the store by his landlord and he
had
This time he picked Bentonville,
fur-
to start again in another town.
ther to the north, and he repeated the strategy that had fore. After
1960
two years he was ready
his chain
of
1
5 variety stores
to
open
a
second
was turning over $1
worked be-
store,
and by
.4 million.
But Walton recognized that variety stores were threatened by larger “discounters.”
through the
fifties,
1962. Discounting dise at
Phis
form of
retailing
had grown rapidly
reaching an industry turnover of $6 billion by
meant
selling a
rock-bottom prices
in
wide range of nonfood merchan-
low-rent, out-of-town outlets.
He
PURPOSE
80
proposed to Butler Brothers, owners of the Ben Franklin brand,
They
that he start a chain of discount stores for them.
he was forced to start his
Walton opened the
own
first
stores
He employed
—except
now
Wal-Mart
in 1962,
and over the next
Oklahoma and
the techniques he had used in his variety
he was riding the wave of discounting, which
He
during the same period expanded threefold. prices, big
— and
chain.
eight years he opened another 17 stores in Arkansas,
Missouri.
refused
offered rock-bottom
promotions on the pile-it-high, sell-it-cheap model and
money back
guarantees. Price was
got product where he could
—and
more important than his
quality
—he
—an old
premises were scruffy
bottling plant and a converted cattle yard.
Most important, he
tar-
geted small towns where there was no discounting competition.
This expansion could not be financed from cash
flow,
and by
1970 Walton was heavily in debt. This was both irksome personally
and an obvious constraint on growth, so he decided to go public. initial
offering
An
on the Over-the-Counter market was comfortably
oversubscribed and the rate of expansion stepped up. After the mid-seventies, however, the growth rate slowed, consol-
K-Mart and a handful of other leaders began to higher standards. In this more competitive environment, many of
idation started, and set
those
who had milked
their territories
went out of business
—of the
top 100 discounters in 1976, only 24 remained in 1992. 4
COMPETING WITH LEADERS In 1976
Walton was not yet an industry
leader.
cent of K-Mart’s turnover, and, as he put stores
“so
it,
had about
5 per-
much about
their
was superior to ours back then.” But suddenly he found himself
competing head
The
clash
to
head with K-Mart
prompted him
to focus
proved the physical fabric of the
in a
he recruited
a
number of locations.
on competitive
down
strategy; he
costs.
At the same time
team of managers that went on to create the
and information systems responsible
ture success and growth.
He
and
his
for
im-
merchandise mix and
stores, the
presentation, while continuing to drive
tion
He
distribu-
much of Wal-Mart s
managers
fu-
built an organization
SAM WALTON’S ALTRUISTIC COMMITMENT TO THE CUSTOMER
was better
that
United
at
managing discount
largest
By 1990, K-Mart sales per square foot were $150 to Wal$250. In 2002 K-Mart was bankrupt and Wal-Mart was the company in the world. ’s
Walton won
this
war because he created four advantages
merchandising management, First, as
logistics
and
slimmer than anyone
else’s.
account in America.”
How
The answer
lay in
else’s,
and
One vendor did the
—
price,
service.
he grew, he maintained the drive for low
bargained harder than anyone
tough?
else in the
speed and breadth of the turnaround against K-Mart was
striking. ’s
anybody
stores than
States.
The Mart
81
prices.
His buyers
his organization
called
company
remained
Wal-Mart “the rudest
get
its
buyers to remain
what the head of buying would
tell
them:
“You’re not negotiating for Wal-Mart, you are negotiating for the cus-
tomer.
And your customer
ever feel sorry for a vendor.
bottom
his
deserves the best price you can get. Don’t
He knows what he can sell
for,
and we want
price.”
Similarly the organization was kept lean because persistently ask
how
going to help get
such and such
a better deal for the
a position
Walton would
or department was
customer. There were minimal
personnel and public relations departments, and no regional offices (other than distribution centers).
On
buying
trips,
expenses were so
had to share hotel rooms and walk rather than
tight executives often
take taxis.
Second, Walton created an organization that kept top managers close to the individual stores
— and thus the customers—even while
company grew dramatically. He himself had always been a superb merchandiser. Now, as the company grew, he continued to spend two or three days a week in the stores. In doing so he set an example for the
all
managers. Walton’s approach to merchandising was simplicity
the competition. As a
and over again:
Go
in
manager put
it:
“I
itself:
Imitate
remember him saying over
and check the competition.”
It also
involved a
constant stream of experimentation. David Glass, his successor, said:
“He
gets
up every day bound and determined
thing ... he
is
less
afraid of being
to
improve some-
wrong than anyone
I’ve
ever
PURPOSE
82
known, and once he
sees he’s
wrong, he
just shakes
off
it
and heads
in
another direction.”
This experimentation was by no means random:
It
was guided by
information, and Walton was a master at gathering and using infor-
mation.
He went
everywhere with
a
famous yellow pad and
later a
tape recorder, asking questions and recording information, about his
own and
his competitors’ stores.
Throughout
his career
he went
through the figures for every store each week. Information, he
felt,
kept him close to the stores and the customers.
From
the start, managers
met once
acted on decisions straight away. Later,
managers based
bigger, regional
at
a
week, compared notes and
when
the
company was much
headquarters would
their territories for four days, tour their stores,
fly
out to
and then convene for
meetings on Friday and Saturday. Decisions about changes to merchandise or other issues would be to store
made
at the
meetings and be given
managers by the end of the day; they would be acted on over
the weekend. Walton’s “bias towards action” prevented the system
from clogging up, and
at the
same time kept managers
close to the
stores.
Regional and
district
managers were
nications system; there was
them
essentially part of a
no time, and
certainly
commu-
no money,
for
to build the kind of layered decision-making bureaucracy that
afflicts
most
large companies.
This focus on
detail
and
efficient
com-
munications helped headquarters delegate decisions to the stores
more
effectively than the competition. Store
in allocating space, designing displays
managers had discretion
and ordering merchandise, and
had access to the information they needed to do dition, they
and
upward and
see
The
their hourly paid it
acted on
this efficiently. In ad-
workers could feed their experience
fast.
investment in information systems, together with an indus-
try-leading distribution network, constituted Wal-Mart’s third advan-
The company had built its first distribution center and established its own fleet of vehicles in 1970, because it was cheaper tage.
than relying on suppliers or third parties. Despite Walton’s skepti-
cism about the costs of information technology, Wal-Mart was the first
discounter to
install
computerized inventory control,
in 1971,
— SAM WALTON’S ALTRUISTIC COMMITMENT TO THE CUSTOMER
when
it
was
leader in creating direct links between
of
a
its
was
still
an insignificant player. In the
had some of the lowest
suppliers. It
distribution costs
Walton and
profit
late eighties
its
levels
Wal-Mart
computers and those of stock outs and
its
were half the industry average. his colleagues
have always placed most emphasis,
however, on their fourth advantage. In his loyal repeat
83
customers are
own
words: “Satisfied,
of Wal-Mart’s spectacular
at the heart
margins and those customers are loyal to us because our associ-
them
ates treat
better than salespeople in other stores do.”
small businessman
why
his business
is
Ask any some-
successful; he will say
thing similar. However, Walton’s ability to stick to this formula even
company was growing was remarkable. Indeed Walton put ?nore emphasis on this as the company expanded. Discounters have to keep their margins low, which means as the
keeping payroll low. Originally in
had always paid the
least
his efforts to
minimize costs he
he could, even below the
on occasion. While he had always been he had not seen the link between they treated the customer
— and
a
minimum wage
great personal motivator,
how he rewarded
staff
and how
perhaps, in the early days, price
had been more important anyway. In the early seventies he came
you want the people
around to the view that
“if
care of the customers,
you have
in the stores to take
to take care of the people in the
stores.”
Basic wages remained low, but in 1971
and-share plan for
staff,
made some
thousand
He
a
bonus-
quite junior employees several
hundred
his
autobiography
in
1992 he could
say,
—whether or incentives or bonuses or stock discounts — the more
more you share your will
up
did not claim that this plan was exceptional, but
by the time he wrote
salaries
set
which, because of the subsequent success of
the company, has dollars.
Walton
profits with
your associates
“the
it’s
in
profit
accrue to the company.”
Walton was strongly anti-union, and engaged to keep unions out.
The
in aggressive tactics
only reason employees might want a union,
when “management has done a lousy job of working and managing with their people.” To him, this meant more than just rehe
said,
is
warding people
fairly;
managers
also
had to he “servant leaders”
PURPOSE
84
sharing information widely, encouraging junior staff to act on their
own
initiative
and encouraging promotion from within.
Walton could do
himself superbly. “After a
this
visit,
everyone in
the store has no doubt that he genuinely appreciates our contributions,
however
insignificant” a store
an open-door policy, asking people to speak to him concerns.
He
insisted that
He
manager recorded.
adopted
they had any
if
he and other managers give intelligent an-
swers to associates’ questions, and everyone was kept informed of their stores’ sales, profits
and inventory turns.
Walton glamorized what were otherwise humdrum
jobs.
He
self-
consciously married “the traditions of small town America, especially
parades with marching bands, cheerleaders,
with some of the ideas he picked up from the early 1970s.
He would
also
teams and
drill
Korea and Japan
a trip to
push people to be
as
outgoing
himself had been at college. In the 1980s he once used the
system to ask store
staff to
pledge that “whenever you
ten feet of a customer, you will look
him
if
you can help him.” His
cared about customers and
ideal
felt a
Hume’s words, they should be
him
floats”
was associates
he
satellite
come
in the eye, greet
as
in
within
him and ask
who
genuinely
moral obligation to help them. In
“useful or agreeable” to others.
WALTON’S PURPOSE Until the mid-seventies,
Wal-Mart was more
profitable than
peers because of Walton’s merchandising and motivational
and
his natural competitiveness.
its
skills
These, rather than Purpose, were
the major source of his advantages.
The company was
and the competition weak enough, for
small enough,
his personal strengths to
carry the day.
From
the mid-seventies he had to
successful companies, but
Wal-Mart grew
maintaining the highest margins
Purpose assumed
its
compete against at
an even faster
in the industry.
rightful place in his
larger,
And
this
rate,
is
more while
where
his
company.
Everything revolved around the customer.
If,
for example, his
buyers got an especially good deal, Walton would pass the gain on to
SAM WALTON’S ALTRUISTIC COMMITMENT TO THE CUSTOMER
85
the customer rather than increase his margins. This was
mercial customer relationship-building
— but
him
also allowed
it
buyers that they were negotiating for the customer.
tell
good com-
It
was the
to
result-
ing sense of obligation and Purpose that kept buyers tough. Similarly,
management information systems were designed to help managers be more sensitive to what the customer wanted and then act on this knowledge, while the distribution systems were designed to get the mer-
chandise they wanted into the right stores as quickly as possible.
It
was the Purpose that kept the systems focused, simple and responsive. This
helped everyone remain true to the Purpose
in turn
for
exam-
having senior managers on the road, helping the in-store mer-
ple,
chandisers, local
became
constant reminder of the importance of the
a
customer to headquarters. And store
to feel a personal duty It
—
was
this
—even
to
make
a
were encouraged
staffers
pledge
— to
help the customer.
Purpose that maintained the high morale and standards of
service.
Such
a
Purpose
—
clare. In the late eighties
tonini,
imitated
customer
to serve the
—
is
easy
K-Mart’s Chairman and
Walton and exhorted
telecom system to put the customer
staff
first; it
enough
CEO, Joseph An-
over the company’s
did not work.
ence? Wal-Mart was distinguished not by the content of
but by the employees’
Walton wrote
his
commitment
to
The its
driving
is
prices
believe
by saying,
it.”
He
What
is
argued that
way of giving back to the community, “Whether you buy into the argument or not,
was
rather defiantly adding,
we
Purpose
autobiography while suffering from terminal
the nature of the morality he described.
down
differ-
it.
cancer, so he was perhaps inclined to write in moral terms.
interesting
to de-
a
He summed up
his
impact on customers and associates
“I believe that millions
of people are better off than they
would have been had Wal-Mart never
existed.”
—
Most entrepreneurs value teamwork as a necessity Walton valued it for its own sake. He said it was “more the goal of the whole thing, rather than some way to get there.” He got pleasure from the fact that many hourly paid employees, “learn to stand up tall, look people in the eye and speak to them, and they
feel
better about
PURPOSE
86
themselves, and once they start gaining confidence there’s no reason
they can’t keep on improving themselves.”
However, he was
demanding of his colleagues and could
also very
be quite gruff. Managers had to come to meetings every Saturday and
A
seven o’clock starts were the norm. called
how
colleague on a buying trip re-
they would finish work at half past midnight and Walton,
went
retiring while the others
for breakfast at
The
six.
for a drink,
would demand they meet
Walton
others might protest, but
insisted
they would find something useful to do at that hour.
For
his competitiveness
all
pacity for empathy. This scribes that
means we for
and toughness, Walton had
the root of
is
we should make
others happier
are ourselves happier
Walton,
his
empathy
when
ments of discounting and the need
growth dynamic might weaken $20
fail
fail
ried that
with the commercial require-
to create
happy customers. His
its
and
He
Purpose? Yes.
even speculated
himself.
The
to
managers
its
.
.
fail
to
.
I
also
was wor-
keep the family
we grow.”
in recent headlines
a visionary.
What he
is
associates.
team concept or
postal code
life.
over the years
and motivate our
lose the
as
The Wal-Mart
the end of his
He went on
to take care of our customers, or that our
we might
was not
company.
five
we might
to take care of
everything in
me
billion
its
that
concept viable ...
He
empathize
that the company’s size
companies than one $100
“What’s really worried
someday might
ability to
autobiography that the customer might be better served by
billion
write,
which pre-
as one.
Was Sam Walton concerned in his
—our
ethics,
others are happy. Fortunately
fitted perfectly
Purpose and strategy were
Humean
a great ca-
He
— the giant box that swallows
—would be beyond Walton’s imagining.
had
There was,
a single gift,
as a result,
did for the customer
and
it
worked
no need
for
for
him
to
him
to
doubt
— that was God’s work.
scores of altruistic companies starting out today will face
similar challenges to those
Wal-Mart faced
need to be ruthless on behalf of their ton succeeded brilliantly at that.)
in the 1970s.
altruistic
And
then,
They
will
Purposes. (Sam Wal-
when
the
shadow
the inevitable unintended consequences of their Purpose,
side,
becomes
SAM WALTON’S ALTRUISTIC COMMITMENT TO THE CUSTOMER
clear
— for
every altruistic endeavor wreaks some
whether intentionally or not
— they
will
it’s
on someone,
need to reframe their action
to keep their altruism intact. That’s the far
and
toll
87
more
not clear yet whether even Wal-Mart,
difficult challenge,
in the
absence of their
founder’s presence, will be able to rise to the occasion.
CHAPTER SEVEN
THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND
WARBURG HENRY FORD
H Once he
very
enry Ford was
money was
one of the richest men
by-product for him.
He
in the world.
looked
But
at the early au-
tomobile and knew he could build one better and cheaper.
figured out the “how,” his career was a long open road, with
little real
competition
he discover that
no
a
rich,
talent for
life is
not
in
the crucial early years.
a straight
open highway
sudden turns and sharp curves.
Only
later
would
— and that he had
PURPOSE
90
Ford’s great strength was the purity of his heroic Purpose
wanted
to
change the world through
the resulting industry.
He
let
nothing, not even the realities of a furious
Malcomson wanted
velop a cheap
car,
complete, he said to one of his mechanics a great day.
is
will see that it
in
it
mind,
We’re going
to
to develop an expen-
With
dot
this
the share transfer
driving
him home,
company, and you
grows by leaps and bounds. The proper system, to get the car to the people.”
is
cash, did indeed grow. It a
who was
expand
The Ford Motor Company, founded pany or
his
using standardized parts. Ford won, threw his
partner off the board and bought his shares.
have
argument with
fi-
responding to current market demand. Ford wanted to de-
sive car,
“This
and dominate
his automobile,
nance, stand in his way. In 1906, he had original backer. Alexander
—he
com
grew with
all
in
1
1903 with just $28,000 in
the speed of a software
—but with one huge difference.
factories spread across the
as I
It
com-
resulted in vast
United States and the world, and
a
com-
plex vertically integrated supply chain extending from iron ore factories
and
airline.
a
The
been told ter
to
rubber plantation to
a railroad, a
story of Ford’s rise
shipping
fleet
and
a small
— and subsequent decline— has often
in terms of strategic brilliance
understood in terms of Purpose. That
and is,
failure. I
as a
think
it is
bet-
single-minded effort
change the world.
FORD’S SUCCESS Henry Ford was born child,
in 1863, the
he was fascinated by
he took
a job at a
lished himself as a
all
son of
a
Michigan farmer. As
a
things mechanical and at the age of 16
machine shop. Over the next 20 years, he estabhighly competent mechanical engineer, rising to
the position of Chief Engineer at the Edison Illuminating
Company
become Detroit Edison, this was an electric power and light company aligned with Thomas Edison’s original electric power com(later to
pany
in
New York).
While Ford was building in
Germany were
his career in Detroit,
separately developing the
first
Daimler and Benz
motor
vehicles
pow-
THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND
ered by the internal combustion engine.
oping an engine and
America
trickled into
back of
at the
Working
later a vehicle.
in the evenings in a
home, and funded only by
his
slow progress, hut by 1896 he had completed his he
91
1880s and early 1890s, and Ford turned his mind to devel-
in the late
shed
News
WARBURG
felt sufficiently
group of backers,
he made
his salary,
first
model. By 1899
confident to resign from Edison and, with
up the Detroit Automobile Company. One of
set
Thomas
the causes of his confidence was praise for his vehicle from
who had met
Edison himself,
No
company.
one of similar
invention for
could take
young inventor
the
at
focus; but Ford’s drive
own
its
in
it
an electric power
doubt the discovery-driven Edison recognized some-
and concentration was oriented
Unlike Edison, he seems to have been
differently.
sake,
and more interested
less interested in
in seeing
how
far
he
shaping the world.
But that would mean putting aside short-term rewards long-term
small
a
The automobile
possibility.
in favor
of
industry was then four years
old in the United States, producing a total of around 900 vehicles a year. It wasn’t
growing
fast; after little
pany closed. Ford complained the
company
the beginning, control
like is
learned from his
first
first
who
and
as “a ve-
are following a Purpose
from
always an issue. In the next 18 months, Ford
The
work brings on
fear of failure
a result
—
Company he had first of the money in-
Flenry Ford
“the
way
and is
this fear blocks
clear for
any one
every
who
of service, of doing the work in the best possible way.” Fie
soon started development on the car he wanted to make, light
com-
other shareholders saw
experience that “thinking
avenue of business.” As thinks
Ford,
second venture,
left a
Ford’s
my ideas.”
For entrepreneurs
stead of the
later that the
a year,
mere “money making concern” rather than
as a
hicle for realizing
joined and
more than
efficient car
—
tracted the backing of
a
“family horse,” as Ford called
Malcomson,
a
it
a simple,
—and
wealthy coal merchant.
at-
A new
Ford Motor Company was formed.
From
the beginning, Ford’s clarity was exceptional and unwaver-
ing. In 1903,
tomobile
“The way to make automobiles is to make one auanother automobile, to make them all alike, to make
he
like
said:
PURPOSE
92
them come through the pin
when
low
prices,
before
it
it
factory
comes from
one pin
is
and low prices would ensure that “competition
At the same time
starts.”
per car might
circle. Profit
that overall profits
would
not just benefit Ford;
it
rise.
another
is
eliminated
would greatly increase demand,
it
further and so create a vir-
still
but scale advantages were such
fall
What is more,
would
like
This simplicity would lead to
a pin factory.”
which would allow Ford to lower prices tuous
just as
all alike,
this
happy scenario would
also benefit “the average
American
citi-
who would now be able to “own and enjoy his own automobile.” As he said to men in his plant, he wanted to produce a car that working men could buy. He was going to “democratize the automobile.” zen”
And, not the
incidentally, fulfill a heroic mission. In
company assembled and
its first full
sold approximately 1,700 cars.
October 1906, Ford launched the Model
year
Then
in
N at only $600—40 percent
cheaper than his previous basic model. Sales for 1907 shot up to 8.000 units; profits topped $1 million. Suddenly Ford was one of the
major players
was
right:
in the industry.
A vehicle
that
This
met the
level
of success confirmed that he
needs of ordinary people would
real
quickly gain dominance.
Ford began almost
Model
T.
Launched
at
once to
in 1908,
start
by 1910
work on
sales
a
successor, the
climbed to more than
company profits to more than $4 million. This was a good performance but despite more than doubling sales between 18.000 units and
1907 and 1910, Ford had not increased his market share In 1910, he was ready to implement his ideas in
pany moved to fall
a
new
factory,
enormously increasing
Ford cut the price of the cheapest Model
Sales exploded and, stimulated
By 1914
the
T was
selling almost
War
full.
The com-
capacity.
That
from $900 to $680.
by repeated price
explode until America’s entry into World later.
T
significantly.
I
cuts,
continued to
nearly seven years
250,000 units
at prices
$500; by volume, Ford had 48 percent of the U.S. market and
from a vir-
monopoly of cars under $600. By 1917, Ford was selling 730,000 Model Ts, starting at $345. None of these price cuts were needed to tual
match the competition or ensure instead
seemed
that
demand was maintained
— Ford
to be acting consistently with Nietzsche's principle
that “under peaceful conditions, the militant
man
attacks himself.” 2
THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND
WARBURG
93
FORD’S ADVANTAGE Ford dominated the bottom of the market because he was better equipped to fight
a price
war than
did not have to fight a price
made from
war
a single chassis; this
competitors
his
The
at all.
same
basic
—and
full
as a result
he
range of cars was
model was produced
for
19 years. This simplicity and the strength of the basic design under-
pinned Ford’s success.
way
Simplicity of design opened the
was not the
to
mass production. Ford
person to understand economies of scale or the
first
virtues of system in the factory, but he applied these principles with a
single-mindedness that none of his competitors matched. Fie was the
one who could,
in Nietzsche’s words, “grasp at the future with a cre-
ative hand.”
Retooling was constant only
a
few months old
— Ford
if this
would throw away equipment
was needed to make improvements
the car or efficiency gains in production.
to
And improvements were not
limited to the factory. Ford and his colleagues looked at the entire flow,
from the mining of iron ore
to the sale of cars
by the dealers,
and made changes where necessary.
The
Ford, inspired by meat-packing factories, installed the
assembly
line in car
sationally:
now took 27,
when moving
biggest change took place between 1912 and 1914,
Making than
less
first
manufacturing. This increased productivity sena chassis,
3,
which had taken over
dynamos now took
7
12
man-hours,
minutes to make instead of
and so on. f ord did not create this edifice
his first venture,
he had attracted
nothing. By 1912 he had built
a
on
his
men
own. Even before he
willing to
set
work with him
up for
powerful team; the energy they
brought to bear made the phenomenal changes and growth possible.
And
they
them put clarity
all it,
recognized that Ford was the driving force. As one of
he had the necessary foresight, originality, shrewdness,
of thought and temerity. “Most of all he was resolute in apply-
ing the foundation principles of mass production: simplicity of design,
speed and continuity of quantity production, huge sales at
ever-dropping prices and small unit profits.”
PURPOSE
94
It
was
this resolve that inspired his
team.
that created a system that, for a time at least,
To
He was
state the obvious:
How did
It
was
no one
this inspiration
else
could
their hero.
Ford, an ill-educated mechanic,
much
dynamics of the industry so
come
to understand the
How
better than anyone else?
he maintain his sense of direction between 1900, when he
mulated
did he
did
first for-
and 1910, when he started to implement them
his ideas,
How
full?
rival.
manage
The
plans into reality?
in
to build such a successful team, to turn his
answers are not found in Ford’s strategy, but
in his Purpose.
FORD’S PURPOSE Like
many
entrepreneurs, Ford did not really want to make,
more and more money. Indeed he company very closely; in the early days enjoy,
looked after the money, was probably
happy
to
let
alone
did not watch the cash in the
Couzens,
his colleague
vital to his survival.
who
Ford was
throw away comparatively new machinery, and he never
sessed the return
on
his investment. In
1917 he fought (and
as-
lost) a
Dodge Brothers, two minority shareholders (and Dodge auto brand) who wanted him to distribute div-
law suit against the founders of the
idends rather than invest in lower prices and expansion.
As one of the wealthiest men lawyer,
employ
what was Ford trying as
many workers
as
in the country, asked the plaintiff’s
to do?
Ford replied that he was trying
he could, give them high wages, provide
the public the benefit of a low-priced car, and “incidentally
money.
you that
... If
you give
can’t get out of
money
it.”
all
that, the
This remark
money lost
will fall into
him
your hands;
and ordered
Dodge Broth-
the dividends paid. Ford subsequently bought out the
If
make
the case; the judge ruled
for shareholders should not be incidental,
ers as quickly as
to
he could.
money was
incidental,
what drove Henry Ford?
He wanted
to
reshape society with the automobile, but he was no champion of
modernity
as such.
His plants may have been the perfect examples of
vast centralized production, but privately he invested in several small village factories, a
form of
industrial organization he
hoped
(in vain)
— THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND
would
revive and improve rural
life.
A
WARBURG
95
similar motivation initially in-
spired his manufacture of tractors, and he was especially pleased that
the
T sold so well
off,
the car did
Even though
to farmers.
make an enormous
rural factories never took
difference in the countryside, for
example relieving the isolation of farmers’ wives
During the
early years of the
like his
mother.
company, he had expressed the
rather naive hope that the car would be an engine of political change: “If
you get people together so
that they get acquainted with
other,
and get an idea of neighborliness, the car
effect.
We
will
won’t have any more strikes or wars.”
was apparent
World War
in the
time and
money he
In general Ford was
I.
have
a
The same
one an-
universal
idealism
spent trying to put an end to
more concerned with improving
things than meeting market demand, about which he could be quite
contemptuous.
A ment
similar desire to
improve seems to have prompted
to Couzens’s proposal in 1915 to double the
male workforce to $5
his adult
tively as a
a day.
minimum wage
became
day was only the most
good employee
a
rates
hour
day, protection
in
national figure as a result. Five
visible part
of
a
relations introduced at this time
wage
of
This has been analyzed exhaus-
shrewd business calculation; productivity did increase
the years following and Ford dollars a
his agree-
and increments for good performance,
whole program of
—more
systematic
sick leave, an eight
from arbitrary dismissal by foremen and so on.
Like the Model T, these better conditions and the extra pay were
meant
to
improve things,
in this case the lives of the workers.
To en-
sure that they did, and that the extra cash was not simply dissipated, a
team of set
up
new “Sociological Department,” was their homes to detect drunkenness, bad
investigators, part of a
employees
to visit
in
housekeeping or rack-renting landlords. Help was available for those
who wished
move to new homes, and immigrants were coached in the American way of life, including English language lessons. To a far greater extent than its rivals, the company trained unskilled workers in
to
1916 Ford
set
up the highly successful and enduring Ford Trade
School for youths. Ford treated his workforce harshly and despised those
who needed
“an atmosphere of good feeling” but he seems to
have wanted to create opportunities for disadvantaged groups.
He
— PURPOSE
96
had
good record of hiring African Americans and
a
in
1919 was em-
ploying 1,700 severely handicapped and 9,000 partially handicapped
employees
gram
workforce of 45,000. Particularly striking was the pro-
in a
to hire ex-convicts
600 convicts
in
my factory have
Ford was not
committed
and Ford’s proud remark that “Only
a social innovator,
any of these projects
to
out of
make good.”
failed to
and foremost
first
3
in the
and he was not
way he was committed
to
the cheap car. Famously, inflation quite soon eroded the value of the
$5 day and by the mid- 192 0s real wages were scarcely above their
The
original level.
power of the foremen
arbitrary
to sack workers
the Sociological
way of surplus wages to monitor, Department was wound down. In the twenties the
regime
was much
was reasserted and, with
it
at Ford’s
little
in the
like that in
other factories; by the thirties
was worse, and Ford’s labor relations involved hiring thugs from
the Detroit underworld and physical violence. strictly for the
What
good
explains these inconsistencies? Perhaps
or philosopher, even
attribute to
ment
in his
relations
were
times.
cination with the mechanical. gist
Good
if
He was
a
it
was Ford’s
mechanic, not
a
fas-
psycholo-
the public at the time wanted to
him an improbable wisdom. The one consistent eleactivities and ambitions was the way he used machines change
as a force for
— and, because organizations were
also a kind
of machine, he believed they too could improve things and people.
What
mattered was the machine, or the company, not precisely
what was done with
it.
In this Ford was very
much
the Nietzschean. Despite Ford’s
claims about democratizing the automobile, he was less interested in
what people wanted than
in exercising his will to
improve the world.
Despite the variety of social projects he pursued, he seems to have
been
less
concerned with human welfare than with effectiveness and
What the casual observer might think were working men enjoying their own cars, for example
the exercise of strength. Ford’s ends
—
were merely means to are relevant here: desired.”
German
No
this
“One
overarching end. Again Nietzsche’s words
loves ultimately one’s desires, not the thing
doubt Ford would have scoffed
philosopher
who
at this
remark, but the
preached “vast hazardous enterprises” that
WARBURG
THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND
would educate the world and end the
97
“frightful rule of folly
and
chance” was setting out the Purpose that the American industrialist pursued.
was
It
Purpose he pursued consistently.
It
underlay
his
all
democratizing the automobile, engineering peace, improving
ideas:
rural
a
educating
life,
new workforce. And
a
it
underlay the constant
drive to improve both product and process, and
made
the risks in-
volved in massive expansion seem worthwhile. This Purpose gave
him
a
strong direction, and circumstances
strategy call “the business environment”
— or
— made
it
what writers on possible for
him
to pursue this successfully.
And worked though it
made him pursue
the Purpose diligently
it
on
a
the direction resolutely. Ford
car that could be reduced in price, even
was years before
this
would happen and he had no idea how
would be achieved. The same Purpose gave him the strength
up
a
year after moving to
a
Malcomson in 1906; 1906, little more than a when the factory was op-
time in 1903; to eject
in business for the third
to start looking for
to set
larger factory site in
new
to cut prices
site;
erating at capacity in the prewar years; to fight a legal battle with
shareholders in 1917; and then to buy out these shareholders in 1920, effectively its.
3
borrowing the money against the company’s future prof-
As Nietzsche puts
it,
“It
is
not the strength but the duration of
makes great men.”
great sentiments that
And this resolution attracted others. Ford built a team of young men who sensed the Purpose could work and thus came to share it. Ford may have been an autocrat from the start, but for a long time he did not have to intervene very
product development.
The
much, spending most of
effective
work of
this
his efforts
on
team was central to
his success.
DECLINE After a wartime units
lull,
worldwide and
was the peak. until the
IN
unit sales built a
THE up
I920S
quickly, rising to 2.2 million
57 percent U.S. market share in 1923. But that
The company
did not achieve the
same volumes again
1950s and never the same share. Worldwide sales
fell
to 2.1
PURPOSE
98
when
million units in 1924 and 1925 and to 1.8 million in 1926, Ford’s U.S. share was only 34 percent.
By
then, competitors were finding
tion techniques
easy to copy Ford’s produc-
it
and erode the cost advantage he already had. Ford
had never attempted to keep what he did
were
free to
come and
secret; indeed,
competitors
inspect the plant or read one of the books con-
taining detailed illustrations of his machinery and methods.
The
was made worse by
situation
migration of managers to
a
General Motors and other competitors. Ford had always been quite explicit that
he would not share power with anybody
else, in stark
contrast with the collegiate style being developed by Alfred Sloan at
GM.
As Ford put
one man rule” speaking
—
as any.
it
to a visitor: “That’s the only
This became more marked
after
in the
more independent-minded managers were
ordinates
were
who
to get anywhere,
good an example of the Nietzschean Ubermensch
as
team morale that had driven the company the
way
survived and progressed were
World War
The
I.
prewar years faded;
fired or left.
men who
The
sub-
did what they
told.
With
the scale dynamics
more widespread and
the competition
imitating his techniques, Ford lost his price advantage.
Chevrolet was the better cheaper and had
a
car.
The
T
huge reputation
still
sold far
more
By 1924 units
—
— but Ford was coasting.
it
the
was
After
1919, Ford refused to allow significant improvements to the T, and the engineering department was poorly organized and unmotivated.
Feedback from dealers was ignored. Positive
initiatives
from subor-
dinates tended to be disrupted by Ford’s idiosyncratic personal inter-
ventions.
and by
Even the attempts
this
at
improvement by Edsel, Ford’s son
time nominally president of the company, were brushed
aside.
ple
The
nature of demand was changing too.
had
a car,
and
now
Now that so many peo-
that technical performance had
much, buyers were looking modern-looking car became been the status symbol of
its
for
improved so
improved design. Possession of
a status
a
symbol; the T, which once had
generation,
now looked
old-fashioned.
Flenry Ford refused to respond to this change in consumer taste and to allow
any changes to the body styling of the T: As
far as
he was
THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND WARBURG
concerned
was
a car
a
machine
for “getting
you
99
there.” His exasper-
ated subordinates would have recognized the “will to stupidity” that
Nietzsche described as
of strong men.
a feature
A PURPOSE OUT OF TUNE WITH THE TIMES Ford Motor Company’s been explained
in
relative decline in the twenties has often
terms of strategic choice,
a failure to
respond to
changing market conditions and an ossification of decision making brought about by the willfulness of an old man. But Henry Ford was only 60 in 1923, the peak year of company
sales,
himself into the successful development of the
Perhaps some of the company’s problems
and
in
T replacement.
Model
in the
1927 he threw
1930s and 1940s are
best explained by the aging process, but the failure to adapt the strat-
egy
in the
1920s can be more fully understood in terms of Purpose.
Ford was disparaging about the
rising
importance
in the industry
of fashion and cosmetic design:
It is
considered good manufacturing, and not bad ethics, occasion-
ally to
change designs so that old models
new ones
will
will
become obsolete and
have to be bought either because repair parts for the
old cannot be had, or because the
gument which can be used
to persuade a
has and buy something new. cisely to the contrary.
.
.
.
new model
.
We
.
.
Our
offers a
new
sales ar-
customer to scrap what he
principle of business
is
pre-
want the man who buys one of our
products never to have to buy another
4 .
Ford’s heroic Purpose had devolved into a non-competitive strategy.
The whole management team
could share Ford’s Purpose, but once
the competitive situation started to change, that lockstep
ment
didn’t matter.
Ford was not interested
customers happy, or even excellence for
made
it
own
or making
sake. Ford’s
Purpose
hard for him to adapt.
At bottom, Purpose
its
in innovation,
commit-
fit
it
was simply Ford’s good fortune that
his
Nietzschean
the prewar situation well. As the strategy derived from
Purpose became
less successful, it lost its
binding force
in the
com-
PURPOSE
100
was no longer
pany.
It
pany,
making
it
clear
where the Purpose was taking the com-
almost impossible for others to share
It
it.
no longer
underpinned the company’s morale. Ford became more and more isolated, while the organization
tum, or even
fear,
Ford became
And
own momen-
its
rather than by Purpose. a
hero once he stopped trying to discover and
started concentrating
arrow
was held together by
on
effectiveness.
in a manufacturer’s quiver.
But effectiveness was only one
Ford refused
to
change or grow.
so the hero outlived his Purpose.
SIEGMUND WARBURG In a sense, the iconoclastic
Flenry Ford’s opposite
common man
European banker Siegmund Warburg was
— an unapologetic
elitist
or mass-market products. During his early years, in
pre-Nazi Germany, he was privileged to see ated,
and he imitated what he saw. Later,
itage
and
his vision
and dressed them
in
new
level
—
The
result
was
a business that
how
England, he took his her-
wore (and that he
a business that
made
business elites oper-
in the financial equivalent of
the bespoke suits and custom shoes that he his staff wear).
with no interest in the
insisted
took fastidiousness to
out of superiority.
a virtue
a
What
could be taken for arrogance was, in his case, Purpose.
His story effectively
starts in 1931,
when
the 29-year-old
War-
Jimmy and his uncle Max to see the chancellor of pre-Nazi Germany. They had a plan for the rescue of a leading German bank, and with it the German banking system. The burg went with
his cousin
proposal was turned down; the bank collapsed.
Max was
familiar with
such frustrating encounters with national leaders, having been an occasional advisor to the Kaiser before
World War
I.
Thirty-three years later Warburg, too, would become an unofficial
adviser to a national leader, in his case English
Harold Wilson. Sneered with the
socialists,
S.
by some of his competitors for associating
he was being true to his
a banker, involving this stage, in 1965,
at
Prime Minister
—and
his family’s
—idea of
himself with national and international issues.
Warburg had moved
to England,
and
G. Warburg, was one of the top two merchant banks
his
in
By
company,
London.
THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND
WWII,
After
employed
it
the late forties and
fifties.
people but
just 15
In 1959
it
WARBURG
it
101
grew rapidly
in
achieved worldwide fame by se-
curing control of British
Aluminum
Investments in
takeover that went against the unwritten
a hostile
Reynolds Metals and Tube
for
“club rules” of the Citv of London. Indeed, the firm faced extreme pressure from the financial
community
(the
Bank of England, the
other major banks, even the Prime Minister) to abandon the deal,
but refused to back down. Three years later ized the
first
dollar
denominated bond
S.
G. Warburg organ-
United
issue outside the
immi-
States for Autostrade Italiane, an innovative response to the
nent Interest Equalization Tax the firm to dominate
Warburg was
a
in the
United
new
completely
States,
which allowed
market.
enterprising and opportunistic, and he and his firm
were highly disciplined, placing
teamwork than was common
far greater
emphasis on coordinated
in the City at the time.
But what drove
the team?
What
pline, fear,
long hours and sometimes abuse that Warburg imposed?
kept them together through the regime of disci-
And what drove Warburg
himself
—universally described
“mag-
as a
netic” or “mercurial” character with infinite charm, barely controlled
emotions and no talent for small
The formed
answer, in
I
think, lay in
Hamburg
powered by
Warburgs almost
in the 1920s,
of what
his strong sense of heroic
STARTING
talk?
IN
a
nostalgic idea,
banker should be, and
Purpose.
LONDON
Warburg came to work for M. M. Warburg and Co. In 1930, he was made a partner. He then asked to head up a Berlin branch. He stayed in Berlin until 1934, when he correctly read Hitler’s intentions In 1921,
toward the Jews and emigrated to England.
Warburg
arrived in
London with approximately £5,000
in cash
(perhaps £300,000 in today’s money). His naturalization petition was
sponsored by the Rothschilds, the Hambros and the Barings.
would work
for a
new
firm, the
New
Trading Company, which was
London by a group of Dutch including Warburg’s Amsterdam firm. Warburg
already in the process of being set up in
and German banks,
He
PURPOSE
102
had
a small personal stake, 10 percent,
managing director was
There were pany of
a
it
first
well-connected old Etonian, Harry Lucas.
initially just
this kind,
The
but he was not the boss.
three employees. Like any small
took such work
as
was available
—
its
main
combusi-
ness seems to have been acting as an intermediary for those seeking finance
— and
achieved modest success. After four years there were
it
nine employees. After the war, refugees.
all
the top executives were
These men brought
a distinctive,
German
“German”
or Austrian
of doing
style
Warburg imported some of the practices he had known at M. M. Warburg and Co. in the twenties and thirties. For example, all directors read all correspondence prior to the morning meeting business, and
and
outgoing mail was read and countersigned by
all
There was always more than one person
tive.
and the smallest
affairs,
largest
—one of Max’s
client got the
same
a
level
of service as the
rules.
was going on.
that
traveled extensively, but, wherever he was, each day he received
summary of all incoming
of meetings, a
list
on the
ports
mail, a log of
all
telephone
a list
London he worked two
and proposals.
the firm’s network himself.
daily client lunches
chat with invitees to the
most senior
minutes
of shares bought and sold, and re-
state of current client accounts
fully for the
calls,
of lunch guests, the schedules of directors, a re-
view of the financial press,
the
second execu-
familiar with a clients
Warburg himself kept on top of everything
He
a
clients.
first
He
and
sit
He
— he would
in
prepared care-
shake hands and
which was
for the second,
was reputed to stock
When
for
his conversation
with aphorisms he had either read and memorized or carefully
made up tacts
in advance.
and was even
who would did.
He
wrote regularly to
criticized
by
his rivals for
never generate business
Unlike those
rivals,
his large
range of con-
wasting time on people
— but of course
some of them
he and his colleagues thought about the
business they would be doing two or even five years into the future,
and how they would achieve
Above nates.
all,
it.
he insisted on meticulous standards from his subordi-
As he used to put
it,
“we must do things with
style.
We
must
achieve the results.”" Letters, he advised, should always be written
— THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND WARBURG
with the desired reply case,
any
mind and constructed
in
with spelling mistakes or poor
letter
103
grammar had
to be re-
typed. Strategy for a deal should include carefully worked-out
back positions, and
fall-
event of failure post mortems had to be
in the
Someone even had
carried out.
any
to achieve this. In
the job ot recording
all
the mistakes
made and what was done about them. Such diligence required long hours the company became known as “The Night Club” and employees made a point ol being visible in the evenings. The firm was thus a highly disciplined machine, which did things more thoroughly than its rivals. It also benefited from Warburgs out-
—
A
standing network of contacts.
third advantage
he and his fellow directors brought from paradoxically, this helped their competitors,
and thus more
A
logic of a situation.
Warburg’s
winning
less
time and place
hidebound by convention than
likely to
— he was
and placing
a different
respond to the underlying
much commented
advantage,
final
charm
fantastic
clients
them be
was the perspective
on, was
the supreme salesman, both in
securities.
This unique combination of strengths helped the company grow significantly
£40,000
in
during the
late
1948 to £1,000,000
forties
and
fifties
—from
profits
of
in 1957.
WARBURG’S PURPOSE Warburg engineered legendary banking by
its
traditional
exist.”
hankering for thrive.
a
The
world
As he put
aristocracy, a
idea
new
it
in
as,
was
“Either
referred to his kind of
which an
whose
a
firm
explicitly elitist,
in his private
elite,
He
name, haute banque. Even
he would make remarks such does not
deals.
intellectual
notebook, 6
is
in the early days,
in haute
banque or
it
and suited Warburg’s and moral
“I
still
hope
elite
could
for a
new
qualities will be a suspicion of luxury
and the accumulation of goods,
a
respect for substance rather than
appearance, for quality in preference to quantity, and
a fierce nobility
and independence of judgment.” Prominent among such an aristocracy would be the banker,
him
whose
strict
independence would allow
to give his clients advice that the City
thought of or would not dare follow.
crowd
either had not
PURPOSE
104
Warburg’s Purpose was to belong to
Why?
Because, as he said,
“The
real object
bring the diverse potentialities of the
That
possible level.”
own
their
— and create—such an of the
human being
to be independent. It
a privilege
is
and strength went solitude: “He solitary
.
.
the
.
echoed these words
“It
is
to their highest elite for
who had
of the strong.” With independence
shall
be the greatest
in a funeral oration for
from
flash
vision and the thunder of indignation, an
beyond good and
evil, tried
His uncle had had “the most
longed for
the business of the very few
man beyond good and
“Lightning and thunder could
far
to
is
sake.
dominance of the Ubeimensch:
most
impulse
he valued the achievements of the
is,
In this he was directly inspired by Nietzsche, the
vital
elite.
who
Warburg had
evil.”
an uncle in the 1930s:
his eyes
—the lightning of
unholy thunderstorm
to crush everything petty
difficult
can be the
courage that
exists,
that,
and ugly.”
the courage
of loneliness and independence.”
He
aspired to the
same courage
himself.
This was easier for Warburg than for other a
profound belief
made long
own
superiority.
because he had
His doctor, to
whom
confessional statements during the last decade of his
reported that
he
life,
Warburg was “completely egocentric and fundamen-
tally conceited.
He
Nietzsche had put is
in his
men
thought most other people were fools.”
it,
“The noble
Or
soul has reverence for itself.”
So
as it
not surprising that he retained such tight control over his firm, in-
sisting
on
a discipline that
and that was
he believed came naturally to the
elite,
who might otherwise fail. explains why he was so little
essential to controlling those
His conviction
in others’ inferiority also
concerned by the complaints of the Governor of the Bank of England during his British cial
Aluminum.
first
great transaction, the hostile takeover of
It also
explains
engineering, which, after
fections
On
— that this
is,
all,
why he had
depends on spotting market imper-
other people’s stupidity.
he could be eloquent. “Most of the important people in
the City,” he remarked, “will knowingly sole
such a taste for finan-
aim of sparing themselves any
make
conflict.”
blunders, with the
He
had
tred for the resulting “tolerance towards mediocrity.”
a visceral
He
ha-
was antic-
THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND
WARBURG
105
ipating, 20 years in advance, the research of behavioral economists
who
market
seem is
human
build
foibles
and misperceptions into their models of
As the years went
activity.
by, the financial
“Promotion there
to improve. In the sixties he said,
based, today
more than
markets did not banks]
[in
on the co-opting of mediocrity
yesterday,
by mediocrity.”
As Warren Buffett else, fitting in to
making money
money is
also observed, being the
in financial markets.
than the
less so,
ket liquidity that
— disliked
is its
the
The more
make more
alert will
but overall such activity adds
little
and
value and
high price for the mar-
a
only product. Siegmund Warburg
mediocrity
everyone
as
most popular way of
the
is
and companies pay
parasitical; investors
fett
mood,
the prevailing
same
— of
following
blind
Buf-
like
fashion
made money by being smarter. But he was driven by different forces than Buffett. The American investor delighted in the power of reason; Warburg delighted in victory, in being better for its own sake, being truly haute banque when involved, and also like Buffett he
others were mere pretense.
Although he hoped for
tinged with nostalgia for a world that he had glimpsed as a
man.
He
also valued
plines of a private
was
“ new aristocracy,” his aspiration
a
and wanted to preserve the traditional
bank and the international friendships of
young disci-
a private
banker, as close to the spare comradeship of the elite as could be
hoped
for in real
style for its
own
in his office
restraint. “If
life.
sake.
As well
as writing
style,
and Warburg valued
immaculate prose, everyone
had to be immaculately dressed, but with old-fashioned
you notice the
once remarked, and he
was wearing
His elitism implied
is
about Plato and
He
man
is
wearing,
down
said to have turned
monogrammed
one talked about:
tie a
it is
a client
shirt cuffs. Style also
extended to what
who were lucid who only knew eco-
Thomas Mann
rather than those
gifts
of books.
was the outward form of the discipline needed to make
firm truly flattered
because he
preferred to recruit trainees
nomics, and he flattered his clients by sending them Style
too loud,” he
elite. It
was
also part of
and won over
clients.
Warburg’s
As he put
someone’s friend to be their banker.” For
it,
all
display, the
“You have
that, his
charm to
his
that
become
doctor believed
PURPOSE
106
he was
a
deeply lonely and unhappy man, and
like
had strong emotions, both positive and negative. giving people generous presents, but,
if
many such men he
He
was constantly
the occasion dictated, would
display a fierce temper, throwing telephones out of the
tossing crockery around the office. His actor: controlling these emotions,
charm was
holding them
in
window and of an
like that
check when he
was called on to play the part of the banker. In one moment, he would laboriously learned aphorisms; at another, he
recite
sciously put
on
a
tantrum to achieve an
Nietzsche would put
it,
He
effect.
“the play actor of his
own
would con-
really was, as
ideal.” It
was
this
balance between emotion and his idea of the banker that fueled the
web of relationships that That same balance within the firm.
him such
in turn helped bring
success.
created an unusually intense atmosphere
He would
new
latch onto
recruits
and build them
up, along with his expectations of them, and, when, as almost al-
ways happened, they independence
their
failed to live
(a
up
quality he was cruelly ambivalent about), he
would be disappointed, sometimes
Employees would be
to his ideals, or they asserted
flattered
it is
said to the point of tears.
when he put
his
arm around
their
shoulders and gave them his close attention. But, as one employee
put
it,
“one lapse and one immediately saw
Warburg was
his face close.” In this,
Henry Ford, with key members
strikingly like that other Nietzschean,
who developed
a series
of his team. Almost
all
of intense relationships
of these soured and the individuals
left,
leaving Ford isolated.
We
can see the great contrast in Warburg’s mind between two
kinds of people.
On
the one hand are the elect, the
“higher class of men,” the “free spirits”
damental advice
is
who
elite,
Nietzsche’s
who understand what
is
fun-
exercise independent judgment, and thus
whose
of enormous value. Such people have no time for the
trivial
in
life,
and are immersed
in the great
dramas of the human condition. Hov-
ering above such people, but also part of this “higher class of men,” aloft as
on
their superiority, are the bankers,
part of this
elite.
Then
there
is
who
treat their clients too
everybody
else,
irretrievably
mediocre, conventional and lusting after pleasure and money, Nietzsche’s
“lower order of human beings.”
THE HEROIC PURPOSE OF HENRY FORD AND SIEGMUND
WARBURG
Ford and Warburg could not have been more different but they were driven
at
as individuals,
root by the same Purpose. Their firms were
propelled by the principal characteristic of heroism: their rivals
107
To dominate
and build an enduring advantage by establishing the stan-
dards of their industries. For Ford this was the mechanistic standard
of the integrated supply chain, for Warburg the haute banque.
elitist
standard of
?
PART
III
HOW
PURPOSE BUILDS GREATNESS INTRODUCTION
A
ll
of these stories suggest that Purpose
pany into
But what
a great
Some would is
the starting point of
greatness in companies. is
a great company
But what are the signs of greatness?
climate
is
—
in
What
say that the greatness of
other words, in the morale of
ing for their company. it.
it
when we
see
it.
transforms a good com-
one?
high morale, people
are a part of
We know
feel that
a
company
its
is
employees.
evident in
When
its
there
they do great things simply by work-
The company does
great things
itself,
and they
NO
PURPOSE
But morale late nineties,
is
a tricky indicator.
During the Internet boom of the
any number of companies had morale that would make
the cheerleaders of the Dallas
Cowboys
jealous.
And why
The
not?
stock prices were rising. Recently arrived secretaries, freshly rewarded
with stock options, were worth millions of dollars
—on paper. Execu-
tives
gave speeches in which they claimed “Trees can grow to the sky.”
And,
daily,
the stock prices rose.
Those who worked
remember
at a
com company
dot
during those years will
the strange sense of unreality that accompanied this false
How
prosperity.
reassuring
it
felt
— and
yet oddly dissonant
watch the executives claim credit for rampant growth, and to that they
knew why
How odd
it
worked gravy
it
would
it
was to see the envy on the
faces of friends
companies, and
who had been
at “old-line”
A
train.
was happening, and that
friend at
AOL
end of a week when the stock had gained
five
assert
last forever.
and family left
who
out of the
cheering in the office
recalls the
— to
at the
points a day and his net
worth topped $20 million.
The
crash
—the puncturing of the “Internet bubble” —brought the
end of “theoretical wealth” and corporate valuations that had no connection to
reality.
brilliant executives
kid
who
And
with that came a dramatic drop
The
The
more depressed than
formerly rich were found to have no in-
And as for morale, who could be an employee who had been a paper millionaire,
trinsic superiority to the rest
of
us.
just discovered that his
meager base
Another definition of greatness holds that company’s
morale.
were revealed to have no greater knowledge than the
delivered the mail.
and who has
in
ability to innovate.
This
is
true
salary it
is all
he has
left?
can be judged by
a
— but exaggerated. At many
companies during the dot com boom, “change” and “technology”
were
intellectual currency
common,
orgs” were
—buzzwords
may disguise done. The fact of
to be
it
any new
initiative.
“Re-
as if cleaner reporting relationships constituted
genuine achievement. But novel action anything,
for
in itself has
no meaning
—
if
an inability to figure out what really needs the matter
is
that, in
most organizations,
more wealth created by continuity of a smart strategy than by constant change. That is why long-term investors tend to make more there
is
money, over the course of a
year, than
day traders.
— HOW PURPOSE
BUILDS GREATNESS
Others would suggest that greatness firm
is
on
its
otherwise,
it
way
becoming great
to
will languish
among
is
if it
test
is
To put it in the words Stewart, “What counts is
failures early in their lives
Abraham
Lincoln,
long winners
many
who
w ho
w^ent
on
people with notable
to remarkable
Mahatma Gandhi, Winston
for reasons that have
too,
little
may
to
hold
do with
a
achievement
Churchill
ultimately contributed very
Companies,
greatness.
and so does the w^ay the con-
a part,
Indeed, history records
set up.
winner
not necessarily the one with the greatest capa-
Circumstance always plays
is
A
has a competitive position;
in pole position or not.” Unfortunately, the
of any given contest bility.
of a winner.
the mediocre.
of the great race car driver Sir Jackie
whether you are
mark
the
little
— and
life-
way of
in the
highly competitive position
their
own
intrinsic greatness
except for their great luck. Still
others would equate greatness with performance:
The
that consistently achieves the highest measures and metrics
greatest firm. In his
book Good
this view; his criteria for “great”
to
firm the
is
Great Jim Collins implicitly takes
companies are those with stock price
performance that outperformed the market and their own industries for at least
see
I
1 1
straight years.
two problems with any quantitative indicator of corporate
greatness, even one as well-reasoned as
formance the
late
is
bandwidth of
a
facets
of
a
— there
Collins’. First of
company’s quality into the
narrow
is
no
reliable
numerical metric or ranking. At best, a
a
performance
company’s greatness while pro-
viding the illusion of a comprehensive view\
And because numbers
easy to manipulate, greatness can he overlooked or hidden
w hile mediocrity r
per-
to trans-
metric will isolate some aspects of
ily,
all,
way
inherently qualitative
many
Mr.
all
are
too eas-
numbers) can be
(or willful manipulation of the
elevated.
How then tion: sults.
The
do you know
a
great
company? By the
quality of
its
ac-
capacity to accomplish sustained, powerful and valuable re-
When you
consider the greatness of a company, you understand
—
why the “stakeholder” idea of a company’s purpose the idea that a company exists to serve its shareholders, customers, employees, suppliers, regulators
and neighbors, balancing
its
obligations and duties
PURPOSE
112
to each
—
Purpose
pany
is
precisely wrong.
such
in
a
will naturally
way
that
produce
A great company is quality of action
its
one that embodies high.
is
Such
need to take on their demands
as
in short,
not only sustains
that
a service that
makes people glad
its
itself,
but
it
won’t
provides
makes
existence. It not only
people want, but
that this particular
istence, if only because of the great
What
It
an obligation.
continuing evidence of the value of
product or provides
com-
a
results that exalt the lives of shareholders,
customers, employees, suppliers, regulators and neighbors.
A great company,
a
way
it
does so in
company has come
that
it
plays
its
a
way
a
into ex-
role.
kind of results do great companies produce? That depends
on the company and the
situation.
The
great companies at this
mo-
—
ment in time one might include such obvious examples as Toyota, GE, Microsoft and IBM, and no doubt each reader of this book would have
his or
way. But they
•
They
all
They cute
•
own
list
— have each been great
manifest that greatness in
in their
own
some common ways.
are great places to work; the collective morale of their
employees •
her
is
high.
are great innovators; they introduce
new
ideas
and exe-
them powerfully well.
They are great competitors; they never give up fighting
for
position. •
They
are great leaders; they set an
agenda that
is
worthwhile to
follow.
In the chapters that follow,
I
want
to explore the connection be-
tween Purpose and each of these attributes of greatness.
I
will
argue
that Purpose increases morale, strengthens the ability of the firm to
innovate, solidifies position and guides leadership. In explicit attention to tential for greatness.
all
these ways,
Purpose can lead companies closer to their po-
CHAPTER EIGHT
PURPOSE AND MORALE MORALE AND ACTION
H
ow do you relative
raise
morale? That’s
transparency,
a
big challenge in an age of
when employees can
learn
much
more about their employer than that employer might ever want them to know. And it’s even harder when good people are relentlessly
head-hunted and there
an offer you can’t match ing of a bigger paycheck Still,
greatest
we count assets. And
is
always
and
less
fore,
would-be employer with
—stock options, bonuses, perks, week
after
to say noth-
week.
talented employees with strong morale as our
They embrace action, tasks and make the most of
the reasons are obvious.
bring energy and resourcefulness to their the tools at hand.
a
They
are
engaged by the nature of the work
itself,
driven by the rewards and punishments of incentives. There-
they
make
decisions
more purely
related to the strategic goals,
and to the Purpose, of the enterprise.
Employees who seem
listless,
lack morale are a drain.
They work by
curiously detached from their surroundings.
rote and
No wonder
PURPOSE
114
the Prussian general von Clausewitz believed that in factors are “little
more than
the
are the precious metal, the real
A Towers
wooden
hilt,
war the physical
while the moral factors
weapon, the finely-honed blade.”
Perrin study published in January 2003 found
cally significant correlations
1
statisti-
between employee morale and returns
to shareholders over a five-year period.
A
2002 survey by Price-
waterhouseCoopers found strong correlations between absenteeism (a
surrogate for low morale) and low profit levels.
A survey of 592
of
the largest U.S. companies published in 1986 established a signifi-
cant relationship between the existence of
management
policies de-
signed to improve motivation and strong financial performance.
A
survey of 968 companies published in 1994 showed similar results. 2
A
1998 McKinsey study of 77 large U.S. companies found that the
top 20 percent in terms of financial performance also outperformed
on
13 of 19
McKinsey measures of intangible “employee
value.”
3
A
survey of leading corporate executives, conducted in 2004 by the
Aspen
Institute
financial
and Booz Allen Hamilton, confirmed
a link
between
performance and values, showing that financial leaders
were more
make
likely to
“values” explicit by codifying or articulat-
ing them. 4
Those who put more
trust in
market performance than
in sur-
veys should note that anyone investing each year from 1998 to 2002 in
companies appearing
For”
list
in Fortune
s
'
“Best 100 Companies to
Work
would have achieved almost double the average stock mar-
ket returns.'' If the market as a whole had performed as well, at least
$500
billion
would have been added
to the value of the U.S. stock
market. 6
Such
don’t necessarily indicate that high morale leads to
statistics
higher profits, but they do suggest
good
financial
a
virtuous circle.
performance tend to be infectious
Good morale and
— they breed more
of the same, and they also seem to breed more of each other.
But good morale cannot be constructed
up
to an
employee and either shout
raise their morale.
up.
It’s
at
four building blocks
—rewards,
does not go
are right does morale
good morale
tasks,
One
them or plead with them
Only when conditions
thus helpful to think of
directly.
to
go
being supported by
as
community and Purpose. 7
PURPOSE AND MORALE
IIS
You can hear the importance of these four blocks
in the four
commonly ask about someone’s work. They ask whether the individual is being treated well (rewards). They ask whether he enjoys his work (tasks). They ask if he fits in and is loyal to his employer (community). And they ask if he is committed to the results, is driven, or, in terms currently favored among U.S. execukinds of questions people
whether he or she “has religion” (Purpose).
tives,
Rewards
the
is
first
block.
They
are the extrinsic incentives loved
by the economists. While they are necessary
in
any commercial or-
ganization, they are rarely a source of advantage since they are so easy to imitate. Instead, they are a hygiene factor: If
they cause you Tasks
is
all
you get them wrong,
sorts of problems.
the second block.
When
a task is sufficiently
enjoyable,
it
can be the primary source of morale, the most important of the four blocks.
Few
task, the
and the
tasks are like this, however,
more important
less
enjoyable the
are the other blocks, each of which can pro-
vide rational or emotional justification for the task.
Community
the third block.
is
and
feel loyal to it
will
Members
“go the extra mile”;
community has an advantage over one
community tend to company that is also a
of a
that
a
is
not. Unfortunately,
strong communities that lack Purpose tend to be rather static places,
and their members Purpose
is
will
remain passive
the fourth block.
until attacked.
Members
of
a
community
that also
They are even when
share a Purpose will not wait to be attacked before fighting.
ready for action and
will
go out to improve their
fate
things are going well.
Each of these building blocks can be managed through the range of
human
asset
management
tools listed in table 8.1.
Those followed
by an asterisk are tools primarily used by the company’s leaders. It is
my view
that Purpose, along with a sense of
community, gen-
—
commitment and that a combination of Purpose and community will work better than either on their own. The mix of the two elements needs to be right. Too little conscious Purpose and the comerates
pany
will
be inward looking and lose
its
creativity
and
its
ability to
Too little community and the company can fragment, or even become paralyzed. To generate the right kind of morale to
move
forward.
—
PURPOSE
116
maximize
effective action
manager has
to get this
— the general
mix
Then
right.
he will be developing morale that can create enduring advantage.
REWARDS As Napoleon its
said,
an army marches on
stomach. In business that means
money. Community and Purpose can be important in business, but they do
not operate in the same way as they do in politics or religion.
might share
a
we and they
are doing, but at the
Purpose with colleagues and believe strongly
what
end of the month or week, we get
paid. Rhetoric aside, for the vast majority of people that will be, a
in
We
is,
and always
why they are working. However corporation may be, not many billionaires
very important part of
meaningful work in
a
choose to be middle managers. If you
reward
which means that
a certain is
kind of action, you “reinforce” that action,
the action
you
Bonuses can send opti-
will get.
mistic or pessimistic signals about the future. Relative differences in
pay send signals about
status.
And pay
raises
and promotions (or lack
of them) can be seen as positive (or negative) feedback on perfor-
mance. After Henry Ford introduced the $5 day, workforce productivity
and
rates of absenteeism
and turnover improved markedly, not
because of any direct incentive effect of the of improved attitudes toward the job.
On
dence suggests that the generally low
new pay
deal,
but because
the other hand, survey evi-
levels
2000 and 2002 depressed morale, particularly
of pay raises between in fields like IT,
where
employees had got used to constant increases. 8
One
of the most important of these emotional effects
is
the im-
9
pact of the perceived equity or inequity of the rewards. At the Italian
firm
ST Microelectronics,
one of the world’s leading microchip man-
ufacturers, executives took a pay cut during a nineties.
Morale
—and
in the early
the company’s long-term growth and prof-
—were maintained.
itability
downturn
10
Process
is
also key to perceived equity7
PURPOSE AND MORALE
Table 8.1
Human
asset
management
117
tools
Rewards
Fitting people
Remuneration
Recruitment
- absolute amounts Pay j Pay - relativities and perceived equity Pay - processes and perceived equity Performance based pay - cash Performance based pay - shares
Training
Personal perks
3.
1.
and
task
Professional development
Transfers
Team development Community
Events and rituals
Other tangible
Office parties
benefits
and conferences
Training
Off-sites
Career development
Company songs Rituals (e.g., Monday morning
Promotion
meetings)
Termination Other communication
Symbolic communication (names, logos
Intangible benefits
Praise
etc)
Constructive negative feedback
Use of status symbols
Decision rights
Stories about the history of the
Consult rights
organization and individuals within
Victory messages
Stories about current staff
Teleconferences and video conferences
Stories about the competition
Creation of heroes
Communication about company
/unit
External status (the business card)
performance and plans Public relations - external perceptions
Other symbolic awards
Induction
Internal status
clubs etc)
(titles,
(prizes etc)
it
Peer to peer communication 2.
Task
and structure
Operational stimuli
Relationships
Goals
Work unit
Deadlines
Office design
Crises
Team
Internal competition
Informal interpersonal relationships
design
building exercises
Involvement
in recruitment,
Task negotiation
terminations and career development
Task design
plans
Participation in task design/suggestion
making
Job rotation and movement across the
schemes
Communication and
Participation in decision
discussion of
strategy
company Encouragement of personal networks
Delegation of control Increasing responsibility
Training rewards and
Encouragement of experiments
used
,
Creation of challenges and use of
On
the job development of
skills
skills
to
build
facilities
community
Training Professional and Career
Development (continues)
PURPOSE
118
Table 8.1 (continued) Pay policy -
relativities (perceived
4.
Purpose
communication of
Internal and external
equity)
Equity participation
the purpose*
Redundancy policy
Communication of unexpected
Cafeteria
Health services
and defeats (miracles) Creation of the top team*
Uniforms
Dialogue*
Moral leadership that encourages
organization
dependency*
Team *
identity stories*
Stories about the history of the
Leadership
Company
victories
Mottos, credos, visions and missions* Prototypical actions and statements*
leadership
= a leadership
activity.
and thus morale; good process requires transparency
— both about the
bases for rewards and about the different options people have for
they take them. As the
Zeneca has put all
unfairness
processes as
.
there are
.
fair.”
HR director of pharmaceutical company Astra
“Building transparency has at one stroke removed
it,
.
how
no
side deals to be
made. People see the
11
TASKS A task is a series of actions or activities
coordinated by
ager can use the task to raise morale through the
and designs the task
of the
have
urge to complete
feel a tension until
some
mid-twentieth century demon-
we do not
we
Thus
however mundane, and that
a task,
achieve
part of our mind, which
sonably uncluttered. if
in the
of organizational development, pointed out that people
a natural
occupies
sets the goals
power of these measures. Kurt Lewin, one of the founders
field
most of us
way he
A man-
itself.
Research by psychologists strated the
a goal.
this.
we
This
is
naturally
because the task
want
to
keep rea-
goals have a natural energizing effect, even
actually care about the
end
results.
In addition, the nature of the task itself can boost morale, up to a point.
Some work
is
simply enjoyable, in exactly the same way that
a
PURPOSE AND MORALE
game of
tennis or chess
and demanding and
is
it
work
enjoyable. Typically the
creates
absorbing
is
same time, and sometimes, when
satisfying at the
things go really well,
119
what psychologist Mihaly Csikszentmi-
halyi has called “flow”: very high levels of active concentration in
the worker loses itself,
all
self-consciousness and
is
which
taken over by the activity
but remains in control. 12 This kind of flow often accompanies
creative work, but research indicates that
generate
it.
more humdrum
tasks can also
Probably the most universal principle about task design
the balance of “stretch”:
To be
intrinsically enjoyable, a task
easy enough that the person doing
it
feels proficient
is
should be
and competent,
but enough of a “stretch” to keep the person from feeling bored.
COMMUNITY Employees’ need for community has been recognized ever since the 1930s,
when
it
was identified
as part
production system and the assembly ciently open,
warm and
collegial,
of the early reactions to the mass line.
When workplaces
employees
are suffi-
themselves to be
feel
part of a valued, ongoing set of relationships with colleagues, peers,
and creative partners. This
Employees who vated,
make
less often,
is
experienced as
sense of
feel that
a
sense of community.
community tend
more moti-
to be
better decisions, suffer lower burnout, change employers
enjoy greater job satisfaction and
feel
more emotionally
who feel relatively detached or isolated. The eviclear: Community is not simply a nice thing to have. It 1
cure than those
dence is
is
quite
se-
^
extremely valuable and productive to have employees driven by
legiance to the workplace, the
company and
the people with
al-
whom
they work.
Enabling the
this sense
company and
tract”
— and — that go with
of community
loyalty
it
the identification with a
is
between employer and employee. This
“psychological con-
lays
out what each side
can expect of the other, over and above the minima stipulated in the legal contract. It
is
in turn
rooted
in the social
conditions that form the context for the In Japan large
norms and economic
employment
relationship.
companies have been the focus ol loyalty
icant proportion of their workers. In return for lifetime
for a signif-
employment
PURPOSE
120
and emotional
plete dedication to his employer. a
Japanese worker offered com-
security, the traditional
Behind
this psychological contract lay
strong sense of mutual moral obligation, comparable to the obliga-
tions felt
between parents and children
would attend the new
ents
in Japanese society.
Indeed par-
ceremonies
recruits’ initiation
at
some
companies, in effect handing over their parental responsibilities to their children’s employer.
14
commitment has been
In the United States, this kind of
There has long been
prevalent. spirit
syndrome,
best, perhaps,
team
as the “organization
man”
between
William H. Whyte’s phrase describing managers of
after
the 1950s), and
ideals of
a tension
and conformity on one hand (known
autonomy and entrepreneurship on the other (known
by
Tom
Peters’ phrase “the brand called ‘me’”).
The organization man had lost; by dead. The traditional psychological
be over.
change for stable
up
But by
seemed
the end of the 1970s the conflict between these two models
ally
less
to
the nineties he was virtu-
— employment and career prospects — had been torn
in the vast majority of
norms underpinning
contract
loyalty in
commercial organizations. The
social
of loyalty each
this contract, the expectations
party had of the other, no longer had any force.
ex-
A survey
conducted
in the early nineties revealed that only 2 percent of managers believed
loyalty to the
company was
the route to success.
Paradoxically, however, the
the value of
1
"
end of the organization man made
community more apparent than
ever.
Managers every-
where now recognize that the frontline employee has ered in a
way
to be
empow-
that only a few pioneers preached or practiced a
generation ago. Everyone recognizes that the Toyota production sys-
tem, in which the sense of belonging
Toyota uses
it
element (because
a critical
to help develop employees’ collective awareness of
quality and effectiveness), ods.
is
Nobody wants
is
superior to traditional American meth-
who
to deal with a call center clerk
can only
fol-
low rules and cannot handle problems.
Whatever the
size
of the organization, most people will
greater sense of identification with their employer
engaged
in decisions affecting their
decisions.
Communications must be
work and kept full
if
they are actively
briefed
and honest
feel a
—
on broader
a hint
of conde-
— PURPOSE AND MORALE
scension or dishonesty gestions
must be
121
counterproductive
is
—and comments and sug-
vides an outstanding example of the benefit of It
would have been easy
cial confidentiality
for
him
it all
It is
lem
before;
and not give employees
Walton
— training
itself
that
is
What
some business management or
is
writers
to suggest, as
a little clever
and
it
he had
paid
off.
not the training and
is
it
loyalty, rather
it is
— deeply insulting
come
from
Aldous Huxley’s “brave new world,”
filled
basis that
insulting
training,
fulfillment or a sense of belonging
grammed
on the
important in earning
the subtext of mutual respect. is
information about the
real
approach to the morale prob-
a glib
and communication. But
communication
good communication.
resisted these temptations,
tempting to propose
pro-
behind the need for commer-
to hide
business, or to stop listening to suggestions
heard
Sam Walton
and genuinely valued.
listened to
close to doing, that with
anyone can achieve their work. in
intrinsic
We do not live in
which humans are pro-
into alphas, betas and so on, with the epsilons wholly ful-
by the most menial
Instead, there are
the workplace.
The
tasks.
two
clearly viable
first is
to foster,
ways to build community
in
encourage and further develop
the natural communities that form within companies, in the offices
and
factories,
among
people at every
level.
The second
is
to recog-
nize that in our world the causes of stress, motivation and morale are
complex and
diverse,
be different.
A
leader
and each
who
individual’s attitude
toward work
approaches employees with
self-awareness and an explicitly
communicated respect
clear,
will
honest
for each
em-
ployee’s uniqueness will, over time, earn back mutual respect.
And
that, at last,
is
where Purpose comes
into play in building
morale.
PURPOSE In any given organization, there are too individuals;
mands
many
people to treat them as
and yet they each must be regarded
a distinct relationship
a
sense of
Each de-
with the organization and recognition
tailored to his or her personal contribution;
together with
as unique.
common
solidarity.
and yet each must join
PURPOSE
122
Purpose
the solution to this dilemma.
is
—and
the only vehicle
numbers of employees
available to leaders for approaching large
once
It is
at
maintaining the kind of mutual respect needed to
still
build community.
The
Abraham Maslow and Carl Jung suggested could and should progress from mundane to higher
psychologists
that an individual
concerns during the course of his gression as
and then grated
Jung characterized
meeting one’s obligations
first
second half of
in the
self.
life.
Maslow
and so on)
(career, family
gradually developing a fully inte-
life
characterized
pro-
this
it
as first
meeting lower-level psy-
chological needs (for security, love and self-esteem) and then finally striving to reach one’s “full potential” ture.
Ultimately for
Maslow
izing people are, without
outside their
own
that involved other people: “Self-actual-
one single exception, involved
skin, in
Jung and Maslow believed
their
this
for
.
.
some
16
that only an elite aristocracy
all
of society and
levels
kind of progression.
own, but
.
were ever
But experience and observation show us that
many, many people, from
make
in a cause
something outside themselves
calling or vocation in the old sense .”
likely to achieve this.
and to be “true” to one’s na-
Some
many individuals,
all
walks of
people will end up doing
a relationship with
it
vidual is.
ready-made “larger scheme of things” when the
hard-pressed to
is
One
a
know what
on
an organization
or group can provide a platform for self-transcendence and power.
group provides
can
life,
The indi-
his or her personal vocation really
of the best corporate examples of this
is
IBM:
In
its
heyday,
it
turned otherwise ordinary individuals into me?nbe?’s of a corps.
An
organization with a strong sense of Purpose does not just
people
feel better. It also creates a
gation. Indeed
it
raises
morale
make
strong sense of direction and obli-
at least partly because
it
creates this
sense of direction. This combination of energy and direction makes
it
effective at stimulating action.
One comes
result of this
easier.
is
that
making small day-to-day decisions be-
Managers cannot determine the best course of
action,
PURPOSE AND MORALE
on the
123
basis of first principles, every time they have to decide
something. Even
if
they had the mental capacity to do
made around
cause chaos, since different decisions
so, this
on
would
the firm by differ-
ent managers would as often as not be inconsistent with each other.
number of shared understandings ence
— particularly
in a
egated to the front
The And stuff
— the
come
A
as
little
there
beliefs
made by
you have
things
GM
a
manager
group of people.
to share with a
—have nothing
beliefs,
hang on
to
then the rest of the to,
so they don’t be-
basis.”
Hewlett-Packard demonstrated
at
shared understanding
when he
“We
said:
Company
is
all
about.”
18
Bill
7
a
“about”
is
— they do not need
contribution
technical
They
are focused
for
just
not what
exists to use tech-
know
to consciously con-
ways of making that con-
on opportunities
Purpose makes these fundamental salient.
is
HP’s competitive strength,
as
though they are always on the lookout tribution.
kind of
contribution to society. As a result managers
what the company ceptualize
this
Hewlett and Dave
Packard have repeatedly stated that the company nology to make
1
simply should not be in
markets that don’t value technical contribution. That
Hewlett-Packard
to be coher-
manager: “There are
meaningful to implement on an individual
lab
is
line.
you don’t have those fundamental
if
if
world where more and more decisions are del-
point has been well
some fundamental
are vital
A
for innovation.
beliefs
about the company
Purpose adds color and therefore strength to what might oth-
erwise be dry prescriptions from the top. In a well-known story, 3M’s
Purpose to “solve problems” made one engineer so responsive to
new form of masking
customer’s dilemma that he invented a
which he
sponded
later
miliar stories
not
products; the point
sense of their
own
how wonderful is
it is
The
in his
point about these fa-
that individuals can invent
that the Purpose heightened those individuals’
role
lems they encountered. excellent engineers, but role that
had finding his page
inventing the Post-it Note. is
tape,
developed into Scotch Tape. Another famously re-
to the difficulties he himself
hymnbook by
a
and hence their responsiveness to the probIt it
generated action. Other firms could hire
was excellent engineering and
produced 3M’s flow of winning products.
this sense
of
PURPOSE
124
Company
leaders
may be more
flexible if
they are confident that
employees share the Purpose. 3M’s famous 15 percent rule
on
allows engineers to spend 15 percent of their time ects
—
is
—which
private proj-
productive and possible because both the engineers and their
leaders agree that
3M
is
about solving problems. After Danish hear-
ing aid manufacturer Oticon was reorganized from a conventional hi-
erarchy to a collection of projects, anyone could propose a project.
The
chief executive even accepted that
project without top validity
on
19 it.
was
it
management approval
fine to
— the
a
of a project’s
real test
was whether you could persuade anyone
He
embark upon
else to collaborate
only granted this freedom because he recognized that the
employees shared
a
strong Purpose: to improve the
lives
of the hard
of hearing. In short, Purpose tion easier because
— and the community that
it
it
infuses
— makes ac-
creates a shared understanding about
what
is
important. This stimulates initiative and cooperation, helps employees stick to the point and
makes many
irritating bureaucratic controls
redundant.
Morale
is
crucial to fuel the engine of action.
Purpose gives
morale traction. Together, they can lead to greatness.
FROM MORALE TO ACTION For
all
the importance companies place on extrinsic rewards
(money
and recognition), the research shows that such rewards are more fective
when combined with
munity and purpose. This
is
the “intrinsic” motivators
not
just
good and bad times
task,
com-
because intrinsic motivators are
cheaper (good job design, for example available during
—
ef-
(a
is
cheaper than bonuses) and
lower bonus than the year be-
fore can easily demoralize workers) but because they are linked to a
worker’s sense of self-determination. intrinsically has, in
chosen to apply job.
Genuinely
a
Any employee who
some way, chosen
degree of
intrinsic
that position
creativity, persistence
rewards provide
a
—or
is
motivated
at least has
and grace on the
reason for people to gen-
uinely invest themselves in a job or a company, without being manipulated or bought.
PURPOSE AND MORALE
However, while are
125
extrinsic rewards, tasks,
community and purpose
important over time, the evidence does not show that
all
means of motivating morale situation. If
my
fort
outcome, along with
will take to obtain
it
most strongly
is
it
how
effective
if I
came
I
to the
may
company
have
I
a
ef-
want
promotion that
little
to realize
want
what
me to meaning. On
may
then that
I
how much
will be. If
son’s college fees, or a
hard, while the intrinsic purpose
the other hand,
strongly
expectations about
and how
my
cash for
my
will provide security, or health insurance,
work
in every
employer wants to motivate me, the relevance of any
reward, extrinsic or intrinsic, will depend on particular
mix
are an important part of the
all
drive
my creative
ambi-
may matter more than the level of pay. WTat motivates one person may have little effect on another, and the motivation for an individual may vary dramatically at different tion,
then the intrinsic purpose
times of his
life.
armory
For
all
more
these reasons, the
manager has
tools the
— the more forms of motivation available — the
In the long run, morale tends to be maximized
mixture of both Purpose and community,
in a
better.
when
there
is
a
balance where neither
much stronger than the other. Too great an identification company for its own sake will result in a fall off in creativity, is
flexibility, risk
in
with the a lack
of
aversion and even unethical behavior. Organizations
showing some of these symptoms include the Roman Catholic
Church
today, torn
by scandal
in the
United
States,
where
loyalty to the institution has protected the hierarchy;
1980s,
the
where corporate pride weakened the capacity
UK
much
Conservative Party, during
tribal loyalty
For those
IBM
in the
to innovate;
and
of the past decade, where
replaced a sense of purpose as the unifying principle.
in strongly
strophic, as
traditional
IBM
competitive markets, these faults can be cata-
found. Loyalty to the organization needs to be tem-
pered by commitment to the cause. In
all
cases, the “right” balance will
on how the situation the attack, but which
is
need more community that has been
changing.
is
tired
as
it
An
and
in
comes
on the defensive, but
depend on the
— and
organization that has been on
danger of fragmentation,
to defend
is
situation
itself.
Aji organization
now moving into
need of creativity, may need more Purpose.
may
attack and
is
in
PURPOSE
126
Finally, the net effect
more conducive will ees,
of conscious attention to morale
to greatness.
a climate
is
As an executive of the company, you
not be the judge of this climate.
It will
be judged by your employ-
—your stakeholders, by which you be judged. book— altruism, discov-
customers, shareholders and neighbors
other words. But you can set the criteria
in
will
All four of the Purposes highlighted in this
and heroism
ery, excellence
The employee of an there. The employee with the
spirit
excellent
altruistic
of
a
company
their
company
own form is
new
of high morale.
ennobled by belonging
discovery-oriented
of a freely chosen
enterprise.
company
charged
is
The employee
Amd
the employee of a heroic
of the winner. These motivations will
company
last as
pose holds true; an effective executive ensures that
of an
work of
has the gratification of participating in
great obvious value. spirit
— have
feels the
long as the Purall
of the other
morale-building tools, including rewards, community, and tasks, have
been designed and
company
great.
set
up
to reinforce the
Purpose that
will
make
the
CHAPTER NINE
PURPOSE AND INNOVATION
A
n Innovation
be as big as
is
any development that creates change. engine or
a jet
as small as a tiny
It
could
improvement
to
production line processes. Or, as the economist of innovation
Joseph Schumpeter put
it, it
can be
a
new kind of food:
“It
should be
stressed at once that the ‘new thing’ need not be spectacular or of historic importance. It
motor. tion
—
It
need not be Bessemer
can be the Deerfoot sausage.”
in innovative strategy,
especially interested in the
1
steel
or the explosion
I’m interested
technology, products and services. I’m
two million suggestions made
Toyota through the employee suggestion scheme
in a
— because
2 cent of them were adopted. That could not happen without
consistent Purpose.
ism or altruism?
Was
it
To answer
a
innova-
in
year at 85 per-
a strong,
Purpose of excellence, discovery, hero-
that,
one would have
to
know
the nature
of most of the suggestions.
Standard strategic analysis “explains” advantage, for both countries
and companies, principally
in
terms of innovation. As Michael
PURPOSE
128
Porter puts
“Innovation has become perhaps the most important
it:
source of competitive advantage in advanced economies.”
Some companies
can defend their existing strengths for
without innovation, but tastes
not
as
top of the agenda for
all
industries
ideas.
industries.
all
tion has often led
expensive blind
Innovation
At the same time,
In 2005,
is
it is
this reliance
on innova-
companies away from their Purpose, into
allies.
while
—many packaged grocery — but somewhere on
products, for example, are fantastically stable the agenda for
a
everyone knows, patents expire, consumer
change and competitors come up with new
at the
'
a series
Booz Allen Hamilton conducted
study of the one thousand biggest spenders on innovation
of a
—the com-
panies with the largest research and development budgets around the
world.
They found no
significant correlation with
corporate success. None.
Not
profits,
any measures of
not revenues, not growth or
shareholder returns. 4 In other words, the simple decision to invest in innovation
is
not enough.
How you invest,
how
and especially
innova-
tion serves a larger Purpose, determines the value of your investment. It’s
my
convention
view that Purpose helps innovators see beyond current
—
it
improves the quality of innovation. And Purpose
counters the natural risk aversion that large companies have to innovation. It thus increases the quantity of effective innovation, often
without raising the price
tag.
Purpose makes an innovator more aware, or is itself a
it
response to the environment, and one that engages the inno-
vator strongly. uinely
because
sensitive,
felt, is
We
might even say that
a
Purposeful response,
an innately innovative response because
it
if
gen-
provides a
context for paying attention to the needs in the world outside.
Think of innovation
as taking place
company without Purpose,
within a mental space. In a
this space has three
dimensions
—under-
standing of the technology, understanding of the customers, and un-
derstanding of the competition. In a
company with Purpose,
this
three-dimensional space becomes four-dimensional, the additional
dimension being understanding of the Purpose lence, altruism or heroism.
The
extra
—discovery,
dimension makes
it
excel-
easier for
the innovator to think outside existing conventions. In the absence of
PURPOSE AND INNOVATION
129
Purpose, “what the customer wants” can be interpreted
way
servative
—extrapolating
very con-
in a
past purchasing patterns, listening to
focus-groups and consulting qualitative research data.
The tices in
Ford,
who The
innovator has every reason to identify the essence of pracother industries and repackage them for his
who
adapted meatpacking techniques, or
own
use
—
like
like Aristotle Onassis,
pioneered cruise ships by borrowing from the hotel industry. innovator
may
the engineers at
may
Sony who developed the
glimpse potential benefits in
who
neers at Seiko
new
technologies, like the engi-
developed the quartz watch or those
worked on the graphic user
nomic
new products, like Walkman. The innovator
reconfigure components into
logic in a situation
interface.
He
or she
Apple
at
may simply
masked by current convention,
who
see eco-
like Sieg-
mund
Warburg helping Reynolds Metals take over British Aluminum. Or he or she may realize how the peculiarities of his or her organization can generate new customer benefits, like Nathan Rothschild in the 1820s, who used his international network to make local payments to international bond holders. Purpose novation.
I
itself is not, strictly
do not think that Michael O’Leary,
changed the
rules in the
Purpose drove to see
difficult
existing
—
for example,
airline market,
What is
would
necessary
who
insist that
is
an
ability
market dynamics. Entrepreneurs have no
this
is
fail
it
why companies dominated by brand marketing to innovate effectively Purpose’s contribution
to help avoid this kind of constraint, to help innovators see
existing
has
but large successful organizations often find
this,
departments often is
European
his decisions at Ryanair.
beyond the
problem with
more
speaking, necessary for this kind of in-
beyond
dynamics and industry conventions. also provides a degree of emotional certainty that
makes
the prolonged openness of
mind required
easier.
Sometimes innovating means
not doing
ing for the right opportunity.
Warren
Purpose
commitment vesting when
to excellence gave
for innovation
something and instead wait-
Buffett
is a
him the patience
good example;
his
from
in-
to refrain
there were no real opportunities, even though the rest
of the investment industry thought there were. Masaru Ibuka, the
r PURPOSE
130
founder of Sony, had clear ideas about the reasons for
— “to
tion
establish a place of work
its
where engineers can
incorpora-
feel the joy
of
technological innovation, be aware of their mission to society and
work
to their hearts content.”
pose of discovery, made conference
.
.
and for weeks
.
make money
A
clear
and
by the Pur-
his colleagues “sat in
this
company was founded] tried company could enter, in order
this
kind of open-mindedness as
[after the
to operate.”^
Purpose helps ancho
Compa-
investment decisions were highly calculated.
well. Buffett’s
nies like
clear ideas, driven
tolerable that he
what kind of business
to figure out to
it
Such
Motorola and Microsoft have
are trying to achieve.
opment programs
The
a
very clear idea of what they
goals driving particular research and devel-
are not necessarily moral, but
pose underpinning the business of the
where there then
firm,
a
is
there
Puran
is
unavoidable moral discipline that engages individuals.
Having ket signals.
a
Purpose does not guarantee greater
It
can make people more bigoted and isolated, as
—
The “right” Purpose one in more likely when developed collectively,
with Henry Ford. times
—
is
than one person’s response to the environment.
when
it is
vator’s
his or
because the outcome of innovation
is
her
reflecting
more
more
likely
An
inno-
It is also
an important factor
will,
always highly uncertain. Even
embark upon the process of innovation requires an
to
we saw
tune with the
aligned with the company’s commercial strategy.
Purpose also strengthens
mar-
sensitivity to
cluding the will to persevere no matter what
may
lie
act of will, in-
ahead.
When
Henry Ford first started tinkering with the prototype that turned into the Model T, he may have thought he knew what would happen, but it
was hardly the same kind of knowledge
who
prices
successful result
from
accountant
all
a
as that
produced by
the inputs for a given output. Similarly, any
research and development lab depends on a
decision to pursue a line of enquiry, the end product of which predictable, to
some
Daniel Vasella,
Purpose
in this
a
better job
un-
of Novartis, has been explicit about using
“One way we
try to foster innovation ...
align our business objectives with our ideals. ...
do
is
discernable result.
CEO
way:
a cost
when they
believe in
I
is
to
believe that people
what they do .” 6
PURPOSE AND INNOVATION
131
PURPOSE AND RADICAL DECISIONS It
has long been observed that most fields of activity have ingrained
ways of doing things that
involved take for granted. Because each
all
player takes into account the expected behavior of the other players, these habits often
minds of
become unconsciously
established as limits in the
market of competing innovators, such
participants. In a
habits tend to limit the scope for competition. Players tend to mistrust
any innovation from outside; they become
like
boxers in
a ring,
anxiously watching each other, landing punches and going round in circles.
war
One company may win
— and, with
it,
but no
company
ever wins the
the peace.
Some companies and instead of
a battle,
just
avoid this stalemate.
winning
They
innovate radically,
battles they achieve peace, either
by so
changing the rules that they come to dominate the industry, or by carving out their while. This state
is
is
own
niche,
which they alone occupy,
at least for a
the achievement of enduring advantage; once this
reached, radical achievement breeds further radical achieve-
ment. Competitors no longer
enough”
constrained to innovate “just
feel
to beat the competition.
They
are free to discover
new
forms of competition.
Each of our entrepreneurs refused were driven by Purpose to innovate
to play
by the
in a radical way.
rules
— they
Tom Watson was
driven to search out the potential of the data processing industry, the
scope of which he thought he alone recognized. But he did not want to just lead the industry, to
its
which he did anyway; he wanted
potential. Accordingly, he took
in research in the 1930s,
huge
helping to make
risks
IBM
to bring
it
and invested heavily
impregnable. In doing
so he created a tradition of innovation that helped keep the firm
dominant and
at the
edge of development, even when technological
competition became tougher
Sam
the 1950s.
Walton’s management system was driven by his single-
minded commitment tomers.
in
Built
to offer the best possible prices to his cus-
up over many
years,
it
was nonetheless
a
radical
innovation for his industry, and other companies, such as K-Mart,
PURPOSE
132
were forced to imitate him. But they lacked and
his successors
who made
the system
his Purpose,
and
work and came
to
it
was he
dominate
the industry.
Henry Ford wanted
machinery to improve things, and that
to use
meant democratizing the automobile. Accordingly, he invested hugely in capacity, installed the moving assembly
line,
slashed prices
and attempted to control the entire value chain from raw materials to
He
—
new forms of advantage scale, automation that for a time, at least, allowed him to dominate the industry. Siegmund Warburg knew that he had to be one of the elite. He
showrooms
7
.
created
—
did not
mind running
a small
bank, but he could not tolerate simply
doing routine work for routine
pushed
clients.
Accordingly he innovated and
his clients to innovate, inventing the hostile takeover industry
and the Eurobond industry, both of which he came to dominate.
Warren being
Buffett
wanted
a rational investor.
was by staying
as far
to be an excellent investor
He knew
away
that the best
as possible
way
from Wall
—which meant to achieve this
Street.
Unlike our
other entrepreneurs, he has not dominated or changed his industry,
but he has achieved
a
kind of peace. Instead of winning an empire he
has established autarchy, his alone.
He
is
island
where he
is
supreme and
left
spared the endless battles for relative position faced by
other investment managers. to set out to
own
He
does not choose to he
conquer the world.
He
is
like
Napoleon,
content to stay in his home-
town of Omaha. In their
book
Built
to
Last
,
Jim Collins and Jerry Porras have pre-
sented some other examples of entrepreneurs and corporations that
have been driven by Purpose to innovate in
ended up changing they
tell
us,
White the ,
their industries.
wanted
first
to
and that
These include Walt Disney, who,
make people happy.
When
he made Snow
full-length animated feature film, people thought he
was mad; he came to dominate he set up Disneyland
demand
a radical way,
for this
this part
of the industry. In the
—without any market data
new
fifties
to indicate there
was
product. Again, he was driven by Purpose to
take a risk, he innovated and he changed the industry.
Masaru Ibuka
set
up Sony
in the aftermath of
World War
II,
and
he set out the “purposes of incorporation,” which included feeling
PURPOSE AND INNOVATION
133
“the joy of technological innovation.” In the
work on
interesting.”
it
said.
“This will make the business
all
company he
s
was “always reaching out
led
employed people who
“eat,
tics.”
A stream of radical
liners
— the 707
in the
counted cash flow
tomorrow” and
to
decisions led to the development of new air-
1950s (the
commercial
first
not come into
just did
wide-bodied
first
it.
the 727 in the
jet),
“We will
build
nearly did require
It
course Boeing retained
its
enormous
all
it
even
of those resources
lead over
its rivals,
industry.
Boeing changed
and
—and
continued
there
is Bill
Gates. His Purpose
every desktop in the world
risk;
as
Mc-
he in-
dominate the
—was
a
modern
— to get Windows onto
same heady speed, making him, world. But like Ford,
Purpose, there
is
a
has not established
now
Ford, the richest
that Gates has
dilemma. a
like
He
come
man
in the
close to achieving his
continues to win his battles, but he
peace. His software near-monopoly
by new developments on the Internet,
in the
Henry Ford’s company grew at the
version of
plan to democratize the automobile, and Gates’
and
non-
9
And then
daily
to
if it
— but of
such
Donnell-Douglas. Allen was driven by Purpose to take a
Dis-
jet).
takes the resources of the entire company,” Alien told a doubtful
executive in 1965.
that
breathe and sleep the world of aeronau-
early 1960s and then in 1965 the 747 (the
novated
the
chief executive of Boeing from 1945 to 1968, said that
Bill Allen,
the
he decided to
“People are saying that transistors won’t
a transistor radio.
be commercially viable,” he
more
fifties
in
is
eroded
open-source software,
nature of computer-based devices, to say nothing of chal-
lenges from regulators. Should Microsoft keep across three decades? rules again?
Or
should
it
its
old Purpose,
honed
adapt and change the industry
Perhaps consideration of
this
question prompted
Bill
Gates’ announcement, in June 2006, that he would retire as chief executive of Microsoft.
These examples do not mean only for big businesses.
It is
proach brought him success a
big businessman.
changed
it
in the
He
to imply that changing the rules
worth remembering that Walton’s ap-
as a small
changed
Midwest or
is
businessman before he became
retailing in Bentonville before he
in the
United States
as a
whole.
PURPOSE
134
The key decisions.
This applies
Henry
ket.
to changing the rules as
much
to
make
as in a global
mar-
and winning dominance
in a village
market
Ford’s competitors reckoned they could
is
make
a surer
stream of profits from the mid-size and luxury markets. Walton’s competitors allowed him to grow to
critical
Midwest while they were milking more fett’s
fund management
rivals all
fund managers would respond to
mass
lucrative
in the semirural
urban markets. Buf-
preferred to estimate
new information
how
other
rather than to
judge purely on fundamentals. If
you doubt Purpose can generate enduring advantage through
innovation,
I
invite
you
to
compare the performance of the compa-
nies in the following table with those of their rivals.
,
PURPOSE AND INNOVATION
135
Table 9.1 Seven companies that have enjoyed enduring advantage
How Company Purpose
Ford
Use machines
Rewrote the Rules Financial
Type of Purpose
Made money
Heroism
from cheap and mass
improve the world to
c.
cars
Results*
100 percent
p.a. real
return
1903-1919
production
IBM
Seek out the
Discovery
.Aimed to solve
new “beyond
customers’
our present
problems
growth 1915-1956
Encouraged
23 percent p.a
achievements
hostile
real
of the
takeovers and
growth 1948-1969
conception” S.G.
Warburg
Maximize the
Heroism
elite
Eurobonds
Wal-Mart
9 percent p.a. real earnings
Give the
Altruism
customers
good
earnings
Introduced very 27 percent p.a. low prices to real earnings
a
deal
Excellence
small towns
growth 1971-1992
Invested large
22 percent
Berkshire
Invest
Hathaway
excellently and
stakes
encourage
fundamentals
1965-2003
Created new
1
product types
real returns
on
p.a.
real returns
excellent
managers
Make
Disney
people
Altruism
happy
8 percent p.a.
1923-1998
Sony
Innovate useful
in a
Discovery
way
Invented
10 percent p.a.
portable,
real
convenient
growth 1967-1999
products
earnings
“All figures are adjusted for inflation. Figures for Ford are based on the initial investment of $ 100,000 cash dividends paid
(Nevins 1954
,
1
and
the price at which
951). Figures for
Watson took over in 1915
Wal-Man
to
Ford bought out other shareholders
IBM air based on
$87 million when
earnings grew firm $3 million
to
in
1919
—$25 5m
earnings which grew firm under Slmillion ,
he died in 1956 (Maney
2005 and Company
$1,608 million between flotation
in
when
repons).
1971 and Walton's
death in 1992 (Vance and Scott 1994). S. G. Warburg figures are based on figures from the Mercury Securities
1969 annual repon
(the last year
Warburg was a
director)
and Chemow (1993). The figures
for Berkshire Flathaway are based on the 2002 annual report. Sony figures are based on annual repons. Disney figures are based on figures in Bill Capodagli and Lynn Jackson,
The Disney Way
(1998).
CHAPTER TEN
PURPOSE A COMPETITIVE
ADVANTAGE
T this.
o enjoy
year after year.
Most
I
to be able to generate
Not
all
is
companies want or need to achieve
one of the most
much
of what he
His most important point
is
advantage through what he a distinctive
that
influential writers
says.
So
let’s
start
deliver a unique [in
from
and profitable market position
method
—
a
sustainable is,
by oc-
combination of
—that competitors is
subject,
his analysis.
companies can only achieve
not or choose not to imitate: “Competitive strategy
means
on the
calls “strategic positioning,” that
product, price and distribution
ferent. It
same industry
in the
public companies do.
agree with
cupying
is
more wealth than other companies
Michael Porter
and
competitive advantage
a
either can-
about being
dif-
deliberately choosing a different set of activities to
mix of value.
... If there
were only one
ideal position
an industry], there would be no need for strategy. Companies would
face a simple imperative
—win the race
to discover
and pre-empt
it
.”
1
PURPOSE
138
“The essence of strategy
Porter says,
To choose one
position,
Ikea has configured
who
delivery, the less able
require higher levels of service.”
it is
Those who
the best of both worlds and “straddle” different positions
between two
fall
stools
—
an example Porter
as
attempt to imitate Southwest with
failed
while
its
all
its
cus-
to satisfy try to get
too often
cites Continental’s
Continental Lite brand
maintaining certain traditional features of its service.
still
A successful
strategic position will depend, says Porter,
and complex array of
tinctive
“The more
lower costs by having
activities to
its
choosing what not to do.”
inevitably, to reject others:
own assembly and
tomers do their customers
is,
is
“activities,”
on
a dis-
and the design of
this
array should permeate every aspect of the company. In Porter’s
words: “Different positions (with their tailored
activities) require
different product configurations, different equipment, different
ployee behavior, different
skills,
and different management
tems.” Without such an array, he says,
more than nate
a
a
marketing slogan. With
a strategic
it, it
may
sys-
is little
be possible to domi-
segment. But establishing such an array
pensive.
position
em-
is
For some companies, the marginal costs
difficult
and ex-
be greater
will
than the marginal benefits.
Domination of
superior profits, but that
segment may not be the only way of achieving
a
it is
probably the most reliable way.
dominance on an array of
each other will clearly make
it
activities that
more
fit
And
basing
together and support
difficult for
someone
else to ap-
propriate, imitate ... or steal.
—
Anyone reading Porter and certainly anyone wanting to implement Porter is bound to ask just how this fit between a position and
—
all
the activities supporting
tantly, just
how
imitate
It
it.
it
it
is
to be achieved, and,
more impor-
can be achieved so that others are reluctant to
try7 to
was not simply that Ford decided to build the Model
and Highland Park. board became
We
want
to
know how
the choices
T
on the black-
made by anyone and yet it was significant that the Ford Motor Company, and not, say, Pontiac or Dodge, was the company that made them. reality.
After
all,
these decisions could have been
—
In
most
cases, the
companies making such decisions could take
action because they enjoyed distinctive strengths or a position in the
PURPOSE AND COMPETITIVE ADVANTAGE
139
from the
industry well-suited to that decision. Finns do not
all
same
of moving to the
place,
and the additional costs and
strategic position will vary
of strategic positioning
from firm
difficulties
to firm.
The
disincentive effect
— and of course the positioning — depends on
differential probability of
success with any strategic tinctive factors.
And
as
we
shall see,
missing link in developing
cial
start
all
several key dis-
an articulated Purpose
the cru-
is
of them.
STRENGTHS: ROUTINES AND RELATIONSHIPS Thucydides analyzed the of the city
battles
between Athens and Sparta
states’ respective strengths
vestment bankers tend to use
this
terms
in
and weaknesses. Modern
in-
approach, seeing firms as collec-
tions of assets rather than as holders of strategic positions. Strengths
and
assets are always
complemented by coordination, the action
that
allows their effective deployment. According to Prahalad and Hamel,
“The
real sources
ity to
consolidate corporate-wide technologies and production
of advantage are to be found in management’s abil-
competencies that empower individual businesses to adapt
into
quickly to changing opportunities.” 2 is
skills
The key
to success, they
the ability to “co-ordinate diverse production
go on,
and integrate
skills
multiple streams of technologies.”
“Coordinate.”
“Consolidate.”
while these are gies,
all
production
“Integrate.”
notice
that
parts or functions of corporate activity (technolo-
skills,
individual businesses), the activity itself
cused on the corporation as
a
whole. These terms
that underlying the corporate strategy as a
people). Coordination,
which
effective routines
is
all
is
imply the
fofact
web of (connections among
whole
routines (things people do) and relationships
depends on
Please
will
be
a
the distinctive activity of the firm,
and working relationships.
Writers on strategy during the past 20 years generally agree that the
most important and obvious part of this web of routines and
rela-
tionships exists within the firm, connecting colleagues. But they also
tend to state that
it
extends beyond the firm, to customers, suppliers,
experts, joint venture partners
and regulators and so on
— to anyone
PURPOSE
140
whose input
is
important to the firm’s output.
and relationships are formal
—
location of decision rights.
Some
of these routines
budgeting procedures, or the
like the
management procedures
innovation
Some
that
some
firms adopt, or the al-
are informal
— the
personal net-
works that allow individuals to access knowledge across and beyond the firm, or to assemble teams on an ad hoc basis, or to influence the
way
decisions are taken and so
move
events forward. But whether
formal or informal, these routines and relationships represent the reason
why
a firm
can be more than the
sum
contribute to making coordination (and thus
Those
its
parts,
and they
rest
all
“fit”) possible.
routines and relationships, in turn, are shaped by the orga-
Purpose (and the conception that employees have of
nization’s
They
of
on
a set
among everyone
in-
mere expedience, people
will
of understandings shared
volved. If the organization’s purpose
is
it).
tend to do things and have contact with people to gain only short-
term advantage.
If the organization’s
Purpose
is
altruism, discovery,
excellence or heroism, then people will tend to be guided, consciously or not, by those values
when doing
regular tasks and building
relationships at work. It
was shared understanding that made the codes of behavior
developed
at S.
G. Warburg more than bureaucratic
shared understanding that
Henry Ford work
made
the group of
effectively together, even
formal roles and reporting
lines. It is
rules. It
was
young men around
though there were few
shared understanding that
lows Warren Buffett to manage his conglomerate with such
al-
a light
touch.
These shared understandings underpin tional strengths
— motivated
all
employees, effective teamwork, knowl-
edge sharing and coordination, efficient
factories, creative
development teams, good brand management, tion, flexibility
understandings
it is
facilitate
is
learning from experience
product
of coopera-
the
way
— the
these
learning
and operations remain closely connected.
kind of learning that ensures that the positioning and
this
more than management the
a spirit
and so on. Particularly important
that ensures that strategy
And
kinds of organiza-
fit is
3
.
a
boardroom presentation and
a fantasy
of top
Ml
PURPOSE AND COMPETITIVE ADVANTAGE
These kinds of understandings do not ence such understandings have to be of openness
gree
agenda
— and
to
other
the
a willingness to
just
happen. In
built, slowly.
party
— to
They
and
adapt to that agenda. This willingness
term relationships between the
parties. In
when
there are long-
other words the short-term
coordination, systems and patterns of behavior that
Arm
require a de-
concerns
their
to adapt, to give as well as take, flourishes only
fective
my experi-
make
for an ef-
are only the visible part of long-established, carefully
built relationships of trust.
As John Kay puts
it
in his excellent study
of what makes for corporate success: If there
is
a single central
lesson
from the success of the Japanese
manufacturing industry, or from Benetton ...
it is
that the stability
of relationships and the capacity to respond to change are mutually supportive not mutually exclusive requirements.
It
is
within the
context of long term relationships, and often only within that context, that
the development of organizational knowledge, the free ex-
change of information and flexibly
In for
a
can be sustained
similar way,
modern
readiness to respond quickly and
a
4 .
communities of expertise are highly significant
business,
whether they are
in Silicon Valley, the fash-
ion industry, the advertising industry, pharmaceuticals or
The Purposes
some
some of
the profes-
sionals in these industries are moral insofar as they
go beyond
other market.
money and
uniting at least
create a sense of obligation.
these Purposes because they
make
it
Companies
easier for
benefit from
community mem-
bers to remain abreast of the latest industry developments, as well as to exploit contacts
cruits
with experts, potential partners, potential re-
and so on.
For most businesses the most important relationships beyond the firm are with customers:
ergy
in
invite
helping local schools?
do supermarkets invest so much en-
Why
customers to “private views”?
phisticated
sonal
Why
companies encourage
rather
than
American Express
mechanical
call its
do
Why
staff to
or
art galleries
do the
call
engage with
subservient
cardholders “members”?
and dress shops centers of so-
callers in a per-
way?
Why
does
M2
PURPOSE
Even businesses do
this.
sumer
that have
For them branding
no human contact with
is
about making the con-
at least partly
he has an exclusive “relationship” with the brand. Some-
feel
times, for example in the high fashion industry,
“community” of fellow customers,
part of a
tributes to their identity. relatively easy for the ucts,
Once such
and by the same token
Some companies join a Community
customers
feel that
a
consumers even
community
difficult for rivals to
a small
minority
of Purpose.
by buying
its
sell
break
—encourage
The Body Shop
products they are
feel
that con-
relationships are established
companies behind the brands to
—
to
their customers
it is
their prod-
in.
their customers
make its sharing the comtries to
pany’s Purpose (to protect animals, the environment and local ways of life).
Some commercial
art galleries try to
make
their customers feel
they are sharing in a mission to uphold cultural values. pers try to
make
Some newspa-
their customers feel that they are part of a political
or social mission.
It is
arguable that
some consulting
firms
do some-
thing similar with senior managers in client companies.
Some
of our entrepreneurs demonstrated the power of Purpose
Siegmund Warburg’s Purpose
to strengthen relationships in this way.
added tions.
to the legendary
Warren
tomers
— that
Tom Watson
Buffett’s is,
charm with which he Purpose infused
his shareholders
and
his
web of connec-
built his
his relationships
with his cus-
—some of whom were inspired by
it.
salesmen built relationships with their cus-
tomers on the strength of his Purpose. lationships are strengthened
by
And
countless professional re-
a service ethic
or
commitment
to
excellence.
PURPOSE AND ADVANTAGE So
far,
in effect,
we have
said that
Purpose provides the raw materials
from which competitive advantage
more
effective routines
created
— the underpinning
for
and relationships. But Purpose also shapes
the patterns of behavior that fectively.
is
make
the raw materials
fit
together ef-
Michael Porter would be quite right to complain that
social
complexity, or good landing slots, or even scale advantages, on their
own and
in the
absence of a strategic position, only contribute to op-
PURPOSE AND COMPETITIVE ADVANTAGE
What
erational effectiveness.
nessed to
a particular
matters
position
is
that these things are har-
— that they are tailored
supports that position. Purpose helps achieve First of
all
Purpose
is a
much should we spend on customer do we need to give customer-facing investigating?
swering such
questions,
There
What
staff? Is this
that
three ways.
this, in
a strategic
service?
way
in a
consistent guide for those
countless small decisions that add up to
ment worth
143
making the
position:
How
kind of training
product enhance-
are never definitive rules for an-
and there are limits to the rational
managers can do. Accordingly, they often have
calculations
to
guess the answers, guided consciously or unconsciously by their
perceptions of what the organization expects of them.
An
active
Purpose helps ensure that perceptions of organizational expecta-
do not sink into
tions
habit.
When
there
is
an active Purpose,
it is
the Purpose that guides the answers, rather than just mindless
company convention. Second, the Purpose,
if it
choice of the strategic position tify
has any bite, will have influenced the itself
and helped the
strategists iden-
those features of the firm that can contribute to achieving that
position.
represents
It
a
kind of lens through which the firms
strengths can be seen, and thus acts as
be used.
Henry
Ford’s heroic Purpose
prove the world large; thus
it
—made
a
guide as to
—
to use his
how
best they can
“machine” to im-
the size and efficiency of his plant
became important
loom
to engineer a car that could exploit
these features and that could be produced in vast numbers.
With
a
different Purpose, that engineering strength could have been put to a
very different use
— perhaps to produce “the best car
the stated ambition of Charles Rolls and
in the world,”
Henry Royce
at
about the
same time. Had Ford adopted the Purpose of “excellence,” Royce
did,
he probably could never have executed his idea of the
democratically priced and engineered
him
a
way
as Rolls
car,
to inspire the others in his
because the Purpose gave
company. Purpose guided
Ford’s strategic positioning as well as the day-to-day actions of his
team;
it
related the two, and helped provide consistency to the firm.
Third, Purpose provides
any given time.
The
this
consistency over time as well as at
past action that created the strengths and the
PURPOSE
144
future action that exploits
influences tions
them
What we
are linked:
what we can do tomorrow.
did yesterday
Specifically, the skills, inclina-
and patterns of interaction of employees and suppliers that
have been established by the Purpose of the past will determine strategic positions that are feasible in the future.
The
nature of the
Purpose thus influences tomorrow’s strategic position.
Companies without Purpose tion
—of constantly changing
sary continuity. This
means
are always in danger of losing direc-
that they have
hard-to-imitate strategic position
Such companies are often ger, in reaction to this,
is
and so losing the neces-
their strategy
—there
is
no chance of achieving
a
simply not enough time.
said to have “lost their way.”
that of deifying a strategy,
Another dan-
and continuing to
A&P, Sears and many other retailers fell into this trap during Wal-Mart first great wave of national expansion: Confronting a new competitive business model, they assumed they could best survive by keeping their old strategy intact. follow
when
it
it is
no longer
viable.
’s
Purpose makes both of these forms of
where there
is
a
Purpose lasting through time,
failure less likely.
common
a
ciples guides opportunistic purchase of assets,
For
set of prin-
development of new
products and brands, formation of relationships inside and outside the firm
—and the
stimulates and guides the formation of assets, assets
The same Purpose and guides how those
choice of strategic position.
can be used to achieve
a strategic
position and thus advantage.
Assured of this underlying continuity, the company can have the confidence to develop
its
strategic position creatively.
PURPOSE AND ENDURING ADVANTAGE Michael Porter believes that well-chosen specialization, supported by a
system of activities designed to deliver on that specialization,
both more profitable and more everyone vantage
else does,
difficult to imitate
however good one may be
—defensible advantage — depends on
will
be
than doing what
at that. Sustainable ad-
strategic positioning.
But even strategic positions can lose their value, either because they are eventually imitated, or because changing tastes and tech-
PURPOSE AND COMPETITIVE ADVANTAGE
make them
nologies
Companies
irrelevant.
particular position can be wrong-footed
the
company
thing else
A
is
to maintain
is
145
that
when
become
fixed
on
a
the market changes. If
advantage over the longer term, some-
its
required.
strong Purpose, built on moral ideas that have stood the test
of time, helps to provide this “something else.” This
is
because
it
stimulates successful innovation and the successful formation of
new
relationships; and
it is
these that create the strengths and assets
The
that in turn underpin a successful position.
willpower that Purpose strengthens make
company into successful new old has worn out.
A tively
Purpose
unchanging stimulus.
successful positioning reduces the
create something new. Watson,
leaders and had relatively
Look
at
markets
—where
a
&
its
by
of the latter
to fear
from
own
its
Purpose
a
very long
strong brands in relatively stable is
sustainable over the long it
to con-
Examples of the former are LTilever and
IBM, which,
1980s and failing disastrously to adapt ered
driven
rivals.
their timeless solidity
is
all
they had established themselves as
strong Purpose that has allowed
a
position.
Gamble, with
An example
little
immediate economic incentives to
strategic position
to be guided
stantly reinvent
Procter
a constant, rela-
Walton and Warburg were
when
tend either to
It will
—or
remains
any company that has been successful over
period.
term
it
helps prevent complacency even after
It
to continue innovating even
easier to advance the
positions, even before the value in the
never fully achieved, so
is
it
awareness and
and timeless brands.
after losing its
its
Purpose in the
strategic position, rediscov-
in the 1990s.
Operational effectiveness can create competitive advantage in the short term, but
tends the
life
least into the
it
of
a
will
quickly be eroded. Strategic positioning ex-
competitive advantage, making
medium
sustainable at
term. Purpose creates even longer lasting ad-
vantage than strategic positioning;
advantage
it
it is
thus
a
kind of third frontier of
—enduring advantage. Whether you are defending
developing the right weapon to take
yond the obvious one of vantage to bear.
survival
—
it
will
over, having a
a hill
Purpose
or
— be-
enable you to bring your ad-
PURPOSE
146
The
two columns of the following
first
chart, Table 10.1, are
adapted from Porter’s Harvard Business Review
article
“What
Is
Strategy?”" and summarize the key differences between the strategic
view he characterizes strategy, based
on
specialization and strategic
derlying disagreement
defend your position. view). If
it
is
If
it
does, then
you should
is
likely to
needed, and
this is
my view
where the
of this sustainability itself
column of the
of strategy and advantage. is
do.
table
comes
is
in,
likely source
company
discover
around new strategic positions while remaining
ful to certain central traditions.
sure,
sustainability
The most
Purpose, which helps the
To be
— but perhaps not
Another source of third
permanent
as in a
what you
prolong your advantage
for as long as Porter assumes.
and align
specialize (Porter’s
does not, you should think of yourself
specialization
his
over whether specialization allows you to
race with your competitors to be best at
based on
own view of positioning. The un-
dominating the 1990s and
as
faith-
PURPOSE AND COMPETITIVE ADVANTAGE
147
Table 10.1 Three views of strategy and competitive advantage (columns one and two by permission of Harvard Business Review) The
Implicit Strategy
of the
One
1
Model
990s
Sustainable Competitive
Enduring Competitive
Advantage {Boner)
Advantage
position in the industry
Unique competitive position for the company
Sequence of competitive positions for the company, stemming from Purpose
Benchmarking of all
Activities tailored to
Action, routine activities,
strategy
assets
ideal competitive
activities
and achieving
best practice
reflect
and strategy that
all
Purpose
Aggressive outsourcing
Clear trade-offs and
Trade-offs and choices
and partnering to gain
choices vis-a-vis
driven by competitors and
efficiencies
competitors
Purpose
Advantages dependent on
Competitive advantages
Competitive advantage
a
few key success
critical resources,
factors,
core
that arise
from
“fit”
across
that arises
from
assets/strengths
activities
“fit”
and
and action
competences Flexibility
and rapid
responses to
all
competitive and market
changes
Sustainability that
from the
activity7
not the parts
comes
system,
Mid-term sustainability that comes from activity system. Long-term sustainability that comes from Purpose
CHAPTER ELEVEN
PURPOSE AND LEADERSHIP
L
eadership
makes
other advantages possible.
all
When
the ultimate advantage.
is
present,
it’s
And poor
leadership can
turn even the best advantage into a disaster. Leadership
prism through which origins are a study If leadership
linked with
is
I
see
all
of ancient Greek history
it
is
the
— my country’s
on the value of effective leadership. genius, then
it is
only effective because
management. Leadership does not
enterprise like an inspiring butterfly
coming
float in
in the
it is
tightly
and out of an
window;
it’s
not
charismatic words and great deeds served up without a context. Like
everything
we were sits
atop
else,
leadership has to
picturing a
it,
we might
is
That
say that great leadership
nothing more
things done. As anyone a
a daily basis.
is
a
is
why,
roof that
who
—or
has ever
less
—than the
art
of getting
managed anything can
huge gap between that statement and
its
attest,
application.
“Things refuse to he mismanaged long,” Ralph Waldo Emerson
Not
so. If
if
framework of sound management.
Management there’s
work on
you have ever worked
says.
at a firm that’s lost its way, things
can
— PURPOSE
150
be mismanaged for death
a
long time, right until the business spins into
a
spiral.
And
yet
we
are told
—
management
in the classic
anyway
texts,
that the elements of successful corporate leadership are obvious eternal: persuasion, clear
my
In
of what
is
headedness and discipline.
experience, discipline
is
sometimes
needed to maintain and nourish
ditions, the discipline of
and
rewards and rules
a
much
as
as
90 percent
company. In stable con-
may sustain
essary for steady profits. At the other extreme, in a
the habits nec-
crisis,
discipline
management power and willpower to be maximized, and most employees will cooperate when the alternative is bankruptcy or being allows
fired.
A reasonably resolute
dividuals have to perform,
and
cohesion in the short term.
But tine
to
nor
in
many
crisis
driven
—
there?
And what
between
discipline
who
crisis,
around manager? Fear
crisis creates its
own energy and group
1
situations in
emerge from the
them
leader can quickly recast the tasks that in-
is
—those which are neither rou-
not enough. As
company
starts
support the turn-
will energetically
bring people into
will
a
line;
will stimulate the creativity
what
and
will
keep
initiative that
creates advantage? If discipline is
not enough, then people will tend to look next to
the personal qualities of the leader.
And
it
is
certainly true that
some individuals have the power to motivate followers and persuade them to do things that they would otherwise not do. The quality can seem almost magical, and employees fall under the spell of such leaders. It is
true that in any group a leader will
leaders chosen at
Those who
random tend
possess a
to increase the
good grasp of the
“emotional intelligence,” 3 essentially will
task at
direct reports,
from which
is
efficiency. a
2
degree of
others feelings,
often the role of the top
company’s Purpose to their
will typically cascade
prise in conversation after conversation.
aspects of leadership that go
hand and
even
1
will carry the
it
— indeed
groups
a sensitivity to
have even more of an impact. This
team of the enterprise, who
emerge
through the enter-
But I’m more interested
beyond the reach of face
ships to generate effective action across the entire
in
to face relation-
company.
a
PURPOSE AND LEADERSHIP
One
answer, according to
some
ISI
leadership ideologues,
The
super-energetic boss, on top of everything.
seems,
is less
to be the
is
plan he adopts,
important than the characteristics of the
man
it
himself.
This role has been described lucidly by Larry Bossidy, chairman of
Ram
Honeywell International, and
Charan. 4
The
leader grabs the or-
ganization, and by sheer strength of character forces
change,
He
respond to opportunity.
to
it
follows
to
wake up,
to
every decision
through, he works relentlessly to have the right people in the right
Because he really understands the business and the key issues
place.
that underpin success, he
tw in evils of
able to focus
is
on these and so avoid the
micromanagement and over-delegation. were so vividly
ironic that the shortcomings of this approach
It is
illustrated
by the problems Honeywell
itself suffered after
Bossidy
resigned in 2000; he had to be called back as chairman 15 months later to deal
with them.
the services of side
is
that
it
firm does not in
a
If
an organization
— and that
Bossidy
lucky enough to secure
is
quite a
is
tall
can grow dependent on his input;
know what
to do.
Of course,
such an able character
as
— the down-
when he
departs, the
Bossidy might argue that,
Honeywell’s case, the problems can be put
succession planning. But this
order
down
to a failure of
an important part of his model: If
is
Bossidy
is
unable to follow his
scription, in this case succession planning,
what does
own
pre-
this say for the
prescription?
The
leader as superhero
is
As one writer reviewing the
too difficult
literature put
leader has to be “a cross between
a
job for most candidates. it
it,
seems the business
Napoleon and the Pied Piper” 5
great decider and a great persuader.
With such high demands,
—
it is
hardly surprising that another commentator has concluded, “most organizations today lack the leadership they need. large.
I
am
not talking about
more.” 6 In many
circles, leadership
magic formula along the This
is
a deficit
lines of:
company boards all,
has
10%
the shortfall
but of 200%,
become
a
400%
is
or
kind of black box, a
“Problem + Leadership = Solution.”
evident in both the widely popular literature on the subject
and the combination of inflated
of
of
And
salaries
CEOs. Perhaps most unrealistic change company culture in short order,
are granting their
leaders are expected to
and short tenures that public
— PURPOSE
152
when, ees
in reality, cultures
—take years
— the habits and shared
beliefs of
to form.
Because most
men and women know
heroes, a second approach
is
to follow
they can never be super-
one of the many management
Since the late 1980s, a wide array of such techniques has
fads.
employ-
available: Total quality.
Benchmarking. Best
facturing. Value creation. Strategic intent.
become
practices. Flexible
manu-
Continuous improvement.
Cross-functional teams. Revitalization. Restructuring. Reengineering.
Organizational transformation. Business process redesign. Organizations as orchestras.
organization.
The
The new
The knowledge-intensive The self-designing organiza-
organization.
learning organization.
tion.
The
The
post-industrial organization.
hybrid organization.
The
post-entrepreneurial organization.
Knowledge workers. Empowerment.
Diversity. Entrepreneurs. Intrapreneurs.
Devotees of each of these fads
insist that
signed as a mere “program,” but as
thinking and redeveloping the
However, they always come
a
they should not be de-
fundamental approach to re-
management systems of the
in as a
program, and rarely
enterprise. last
longer
arguably their purpose.
They
are brought in, whether consciously or not, to divert attention
from
than two or three years. In
fact,
that
is
the painful, universally acknowledged fact that systems are not
enough and action
A
third approach
are plenty of their
is difficult. is
the elegant non-solution
CEOs who
—
They
set targets,
CEOs
are, literally,
and then wait and see whether the targets
are met. If they are, these executives collect their bonuses; not, the executives get fired.
8
For example, the
CEO
if
they are
of one of the
world’s largest corporations once complained that he had all
There
“delegate” and as a result “preside” over
companies rather than manage them. These
useless.
to give up.
no power
he could do was “approve or disapprove someone’s capital budget
and
.
was
a
.
.
—
approve or disapprove someone’s headcount
man
that’s it.”
Here
with more levers at his disposal than almost anyone else in
the world, and he had lost the will to pull them.
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