Leadership, Culture and Value Creation · Alphabet (Google) 706 • Microsoft 650 • Amazon 560 • Facebook 508 • Berkshire Hathaway 481 It’s • Alibaba 447 Darwinian ! •

Leadership, Culture and Value CreationCIO Breakfast Gallery Dec. 6, 2017

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Leadership and Culture•“Value Creation”

•The Intangible Value Chain- “Culture” and Innovation

•Principled Leadership that drives Value Creation- what the best leaders do best: 3P’s

Defining “value creation”

•In any self-respecting business, board room or business school classroom, what do we instinctively think of when we hear the words….

“Value Creation” ?

$$$

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A More Comprehensive Definition of Value Creation

ANY organization must create value for some select constituencies or it will cease to exist !

High performance organizations, and high performance leaders tend to define value creation more broadly to include:

- Customers- Shareholders- Employees- Community

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“Culture”

•Most ubiquitous term in organizational life…what is it?

•How would you describe the culture of your current organization…use three words !

•Culture may be an organization’s most compelling competitive advantage…why?

•Culture can either promote or put a ceiling on…innovation

•How important is innovation in organizations today ?.....

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Top 10 Companies by Market Cap…not many ‘traditional’ companies, why ?

•Apple $878 B•Alphabet (Google) 706•Microsoft 650•Amazon 560•Facebook 508•Berkshire Hathaway 481 It’s•Alibaba 447 Darwinian !•J&J 376 •Exxon Mobil 353•JP Morgan Chase 353

In fact: the Fortune 500 was introduced in 1955, today only12% of the original companies remain (88%are extinct)

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Disruptive innovation across industries….Industry Traditional Innovator

Retail Brick & Mortar-Sears Amazon

Fast food McDonald’s Chipotle (?)

Airlines ‘everybody else’ Southwest

Hotels Hilton, Marriott AirBNB

Transportation Taxis Uber (?)

Automobiles ‘everybody else’ Tesla

Q.: Why haven’t these disruptive innovations come from inside the established competitors ?

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Does your organization have an “innovation culture” ? (A-F grade)

Item* Rating

1.Our workplace provides us the freedom to pursue new opportunities2.We have a healthy appetite and tolerance for ambiguity when pursuing new opportunities3.We are not afraid to fail, and we treat failure as a learning opportunity; it’s OK to make mistakes here4.We avoid analysis paralysis when on new opportunities by exhibiting a bias for action5.Our leaders are able to modify and change course of action when needed6.Our leaders persist in following opportunities, even in the face of adversity7.We are able to freely voice our opinions, even on unconventional or controversial ideas8.We minimize rules, policies, bureaucracy and rigidity to simplify our workplace9.People take responsibility for their own actions and avoid blaming others10.We have effective feedback loops between our organization and the customer11.We quickly stop projects based on pre-defined failure criteria12.We reward people for participating in potentially risky opportunities, irrespective of the outcome

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*from: Sloan Management Review, 2013, Rao & Weintraub

“Culture”

•Most ubiquitous term in organizational life…what is it?

•How would you describe the culture of your current organization…use three words !

•Culture may be an organization’s most compelling competitive advantage…why?

•Culture can either promote or put a ceiling on…innovation

•How important is innovation in organizations today ?.....

•Bottom line…CULTURE EATS STRATEGY FOR LUNCH !-and ‘culture’ is an “intangible”

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The ‘Hard’ Case for ‘Soft’ Factors

•Classic economic theory-- and market valuations-- historically followed book value, tangible assets and earnings growth, in lock step

•Over the past 15 years, ‘intangibles’ have begun to account for the majority of market cap of publicly traded companies

•Lev at NYU and Kaplan & Norton at Harvard have put clear algorithms out there to “value” intangibles

•‘Intangibles’ can be a long list, but are mostly about:- intellectual capital (patents, skills, etc.)- customer equity (brand and service reputation)

Hmmm, what’s going on here? (mrq Q3 2017 Yahoo Finance)

High market:book

Amazon.com 24.0Starbucks 14.2Tesla 10.0Alibaba 9.7Nike 8.2Facebook 7.6IBM 7.3 Apple 6.7J&J 5.2Google 4.7S&P 500 3.3

Low market:book

JP Morgan Chase .40AlG Insurance .70Honda .90Nissan .90Toyota 1.10MetLife .80Barnes & Noble .90Royal Dutch Shell 1.40General Motors 1.40Xerox 1.50Ford 1.55

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S&P Benchmarks: High point: 2000 dot.com bubble: 5.00Low point: 2009 derivative mortgage melt down: 1.75

The Service Profit Chain: Heskett, et al, 1994Operating strategy and service

delivery system

-workplace design -service concept -retention-job design -repeat business-employee selection -referrals-employee rewards -service designed to

meet customer needs

InternalServiceQuality

EmployeeProductivity

ExternalServiceValue

Customer Satisfaction

Customer Loyalty

Revenue Growth

Profitability

EmployeeSatisfaction

EmployeeRetention

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Employee Attitudes


Leading LaggingLeading

Value Creation

A simple idea:

The ‘intangibles’ analog...

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1 Expertise2 Partnership3 Responsiveness4 Long-term

relationship5 Consistency

Building a Model…at Cardinal Health

Employee Attitudes


The12

Questions

Overall satisfactionRepurchaseconsiderationWillingnessto recommend

Value Creation

123456789101112

Intent to purchase Loyalty

Revenue Growth

+ EBIT

Growth

Leadership& Culture

Employee Satisfaction

PatientSatisfaction

Value Creation

Culture survey: Staff survey: Patient survey: Fin’l.: +$100mm+33 pts. +10 pts. +11 pts.

Research:+$108mmM.D. survey: Med Students

+11 pts. survey: Academic rank: + 8 pts. 4431

Clinical rank:3520

Journal of Academic Medicine, 2008

Ohio State University Medical CenterValue Creation Algorithm

2001 2006

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Value Creation

A simple idea:

Q. What exactly do we mean by “customer satisfaction”?

The ‘intangibles’ analog…

Selected Company Winners and Losers: theACSI.org (U. of Mich.)National average > 250 companies = 76.7; thru Q2 2017

Winners:-Chick fil A 87-Lexus 86-Amazon 86-Hershey 86-Pepsico 85-Cracker Barrel 84-Anheuser Busch 84-Clorox 84-Apple 83-Google 82-FedEx 82

Losers:-Time Warner/Spectrum 63-Spirit Airlines 61-Linked In 65-Motel 6 65-AT&T Cable 68-Federal Gov’t. 68-Facebook 68-McDonalds 69-Twitter 70-United Airlines 70-WalMart 72

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So what ? Does customer sat matter ?19

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Employee Attitudes



Value Creation

A simple idea:

Q. What exactly do we mean by “employee attitudes” ?

The ‘intangible’ value creation chain:...

People

As a former boss of mine put it very ‘elegantly’….

“You know, Tony, running a big company would be a piece of cake, if it weren’t for people. People will take the best strategy in the world and completely screw it up”.

- V. Loucks, CEO Baxter circa 1986

People drive strategy !

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What do we know about employee attitudes ?

“Happy” employees ≠ Satisfied customers“Loyal” employees ≠ Satisfied customers

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The ‘newest’ workforce: Gen Y

Need a scorecard to keep generations straight:

How many Born Age todayBaby Boomers 78 mm 1946-1964 52-70

Gen X 51 mm 1965-1976 40-51

Gen Y (echo boom) 75 mm 1977-2000 18-39.Millenials

Gen Z 74 mm 2001- ??? < 17

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The ‘new’ workforce: Gen Y

Baby Boomers: The “me” generation; be better off than parents; education; success driven; political activism; higher divorce rates

Gen X: Don’t make boomer mistakes; divorced parents; latch key kids; independent; resilient; wary of loyalty

Gen Y: Baby boomers kids; tech savvy; self-confident; want a ‘purpose’ to their work; high maintenance at work; pampered; lazy; attitude of entitlement: optimistic; want balance in life; bright; educated; 40% have a tattoo or a piercing, other than their earlobe !

Gen Z: REALLY technically literate !; fewer than 50% live in a conventional “nuclear family”; parents are struggling to ‘catch up’ to them on Facebook

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What do we know about employee attitudes ?

“Happy” employees ≠ Satisfied customers“Loyal” employees ≠ Satisfied customers

“Committed” employees = Satisfied customers

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Employee CommitmentThe Best Leaders…

Create Commitment

An operational definition:

Gaining the discretionary energy, effort, and ideas from people who voluntarily choose to follow your vision

*Nun story

Defining and measuring employee commitment…

Rucci survey metric1.My work gives me a sense of accomplishment2.I am proud to say I work here3.I have a good understanding of our business strategy

4.We are making changes to compete effectively5.We make customers a high priority6.We are investing in innovative products and services for our customers

7.I see a direct connection between my job and the goals and strategy of this organization

8.I feel good about the future of the organization9.We are driven to high standards of performance10.People take personal accountability for their actions here

11.I have a good understanding of our core values12.I like the kind of work I do13.The dignity of the individual is never compromised here

Gallup survey metric***1.I know what is expected of me at work2. I have the materials and equipment needed to do my job3. At work I have the opportunity to do what I do best every day4. In the last seven days, I have received recognition or praise

for good work5. My supervisor, or someone at work seems to care about me

as a person6. Someone at work encourages my development7. At work my opinions seem to count8. The purpose/mission of my company makes me feel like my

work is important9. My co-workers are committed to doing quality work10. have a best friend at work11. In the last six months I have talked with someone about m

progress12. At work I have opportunities to learn and grow

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***The Gallup work/questions are fully copyrighted and may not be used without their permission.

So what ? Does commitment matter ?28

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Employee Attitudes



Value Creation

A simple idea:

You’ll notice this CONSPICUOUSopen space above ??

The ‘intangibles’ analog...

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Employee Commitment Customer

SatisfactionValue Creation

A simple idea:

- ‘Leaders’ they choose to follow

What do people remain committed to ?

LeadershipActions

Try to answer the question…32

Q: Why would anyone choose to follow you?

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Best LeadersTheir Actions Are Guided By…

Passion

The 3 P’s

Performance

Principle

Have a personal passion for what they do. They’d continue to do it if they were independently wealthy. They’d also continue to do it if they were compensated very little.

As much as they enjoy winning, they hate losing even more. They keep score, they set high standards, and they hold themselves and their people accountable, and are tough-minded.

Cheating in order to win doesn’t count. When faced with a decision that puts profit ahead of principle, principle will always win.

The “WHAT” Versus “HOW” Matrix34

H

O

W

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- +WHAT = RESULTS


H

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W

+

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ALL-STAR

- +WHAT = RESULTS


H

O

W

+

-

ALL-STAR

- +WHAT = RESULTS


H

O

W

+

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ALL-STAR

- +WHAT = RESULTS

Promoted !


H

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+

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ALL-STAR

- +WHAT = RESULTS

Promoted


H

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+

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ALL-STAR

- +WHAT = RESULTS

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Best LeadersTheir Actions Are Guided By…

Passion

The 3 P’s

Performance

Principle

Have a personal passion for what they do. They’d continue to do it if they were independently wealthy. They’d also continue to do it if they were compensated very little.

As much as they enjoy winning, they hate losing even more. They keep score, they set high standards, and they hold themselves and their people accountable, and are tough-minded.

Cheating in order to win doesn’t count. When faced with a decision that puts profit ahead of principle, principle will always win.

Why would anyone choose to follow you? “Principled” Leadership

It’s a higher standard…

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Legal andRegulatory Compliance

“staying out of jail”

Ethical Conduct

“doing the right thing”

Principled Leadership and Behavior

“what are you willing to get fired for”?“what’s my personal code of conduct?”

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• “So what ?”-what does all this mean to you in your leadership role ?

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A simple idea:

How do you find principled leaders that others will “choose” to follow ?

The intangible value chain

LeadershipActions

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1.Leadership wont happen by accident….either at the individual or theorganizational level

-know which leadership criteria “work” in your organization-be looking for ‘leadership potential’ at the college campus,

entry-level recruiting stage, not just technical competence-screen for “character” in candidates-DON’T “settle” ! Hold out until you find the right talent

2.

3.

Recruiting, selecting, identifying and developing “principled” leaders

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-know which leadership criteria “work” in your organization-be looking for ‘leadership potential’ at the college campus,

entry-level recruiting stage, not just technical competence-screen for “character” in candidates-DON’T “settle” ! Hold out until you find the right talent

2.Routinely and proactively evaluate leadership potential throughoutpeople’s careers

-annual performance review process-360 surveys-annual human resource planning/succession planning

3.


Leadership and Succession Planning

+

Leadership Potential OK

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- OK +Performance

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7. 8. 9.

4. 5. 6.

1. 2. 3.


+


-

- OK +Performance

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7.

???

8.

++Develop

9.

++All Stars

4.

???

5.

OK

6.

OK

1.

???

2.

???

3.

OK


+


-

- OK +Performance

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7.

???

8.

++Develop

9.

++All Stars

4.

???

5.

OK

6.

OK++

1.

???

2.

???

3.

OK++

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-be looking for ‘leadership potential’ at the college campus, entry-level recruiting stage, not just technical competence

-screen for “character” in candidates-DON’T “settle” ! Hold out until you find the right talent

2.Routinely and proactively evaluate leadership potential throughoutpeople’s careers

-annual performance review process-360 surveys-annual human resource planning/succession planning

3.Developing Leadership talent needs to be experiential over thecourse of one’s career

-the life leadership stages-take risks with your most talented people; accelerate development


Stages of Life Leadership: The shift from “I” to “We”(George, Discovering your True North, Wiley, 2015)

“I to We” wisdom and giving back

peak leadership

stepping up to lead

bumping up againstreality

character formation

crucibles

Age Preparing 30 Leading 60 Giving back 90 to lead

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A simple idea:

- ‘Leaders’ they choose to follow

The “leadership, culture, intangibles, value creation” chain…

LeadershipActions

Documents

Leadership, Culture and Value Creation · Alphabet (Google) 706 • Microsoft 650 • Amazon 560 • Facebook 508 • Berkshire Hathaway 481 It’s • Alibaba 447 Darwinian ! •