Purpose: The Starting Point of Great Companies

In Purpose, world-renowned thought leader Nikos Mourkogiannis turns the entire idea of leadership on its head and shows

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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

trademark

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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