Sir Stuart Hampson | CSI Blog

When Jigme Singye was King of Bhutan he took the unconventional approach of declaring ‘Gross National Happiness’ as the measure of success for his government.  Bhutan is, of course, a country with a tiny population in a remote Himalayan region; it benefits from being able to sell hydro-electric power from its melting snow to its energy-hungry neighbour India, and you might say that they can afford to stand aside from the urgency of raising productive output or the international competitiveness of their workforce.  But during my fourteen years as Chairman of UK retailing group, the John Lewis Partnership (JLP), I felt a close affinity with Jingme Singye and his different view of life.  We didn’t have the magic equivalent of melting snow to drive customers through our doors, but our competitive edge was the power of employee ownership and the happiness it created.

John Lewis is the UK’s largest department store group and is widely regarded as ‘a great British institution’.  Its customer loyalty is legendary, and its readiness to publish weekly sales figures means that it’s regularly cited as a bellwether of the consumer economy.  The other part of the company is the Waitrose supermarket chain, a niche operator with some 4% of the UK market, but punching well above its weight with a reputation for high quality and product innovation.  With combined sales last year of £8.7bn (some AUD13bn) and profits of £354m (AUD527m), JLP would comfortably occupy a place in the FTSE100 – except that it’s not quoted.  JLP is a private company, and since 1929 it’s been owned by a Trust for the benefit of the people working in the business, all of whom are called ‘Partners’.  So, no outside shareholders, and almost half of last year’s profits – £165m – was divided up among the 81,000 Partners, with everyone, from long-serving Chairman to newly recruited part-time sales assistant, receiving the same 14% of their annual pay.  The rest was ploughed back into expansion of the business.

Like Jigme Singye, JLP starts from a different place from its retailing competitors, but this doesn’t mean it can ignore efficiency or customer attraction.  Despite that sobriquet ‘a great British institution’, there’s no room for resting on one’s laurels in the vigorously competitive UK retail sector.  Nonetheless, its unusual business structure enables JLP to strike a distinctive chord in its statement of corporate purpose:

The Partnership’s ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business.

On first reading, this focus on happy staff might look like a defiant fist-shaking to the orthodox obsession with satisfying shareholders, but it’s just a logical extension of the well-recognised ‘employee-customer-profit chain’ concept championed by the Sears retailing group in the USA.  Sears saw that well-trained and motivated staff would serve customers better and lead to higher profits for shareholders, and therefore investment in the first part of that chain was beneficial to the dividend flow and capital growth which investors could expect.  Crucially, it went beyond the modern mantra adopted by many businesses of having to be ‘customer oriented’ as it recognised that the delivery of excellent customer service depended on the quality of the employees and the interest they took in caring for customers.  The former Chairman of Marks & Spencer Sir Rick Greenbury was proud of the reputation his company had for employee benefits: “We look after our staff well, but look at how well they look after our customers.”  In the same way, employees who feel a commitment to the success of their business will be better motivated to develop innovative products and processes, get the best out of supplier relationships and nurture a sound reputation in the community – all key ingredients to sustainable success and even to that goal of creating shareholder value.

The John Lewis Partnership converts the Sears model of an ‘employee-customer-profit chain’ into a self-sustaining circle.  Happiness isn’t just about having fun, working in a pleasant environment or being well paid for the job – though all three are energetically pursued.  The model asserts that happy Partners doing worthwhile jobs get satisfaction from those jobs, ensure that customers experience a high level of satisfaction too, and thus create a successful business.  There are three key points here.  First, the jobs have to be ‘worthwhile’ – no room for inefficiency or soft options, and experience shows that peer pressure in an employee-owned business creates an expectation of high performance rather than complacency.  Secondly, let’s be clear – there’s no satisfaction or happiness from working in an unsuccessful business.  And thirdly, the benefits of success are returned to the Partners, whose happiness and job satisfaction are increased accordingly. 

So, employee ownership creates a virtuous circle designed to achieve continuous progress, in contrast to the Sears model where the chain is seen in terms of the benefit to shareholders, who are divorced from the creators of success and where the objective is a flow of profit out of the business. 

Although I believe passionately in the merits of this kind of mutual ownership of businesses and feel encouraged to see it being more widely adopted, I’m also realistic enough to recognise that most companies have an established corporate structure which they’re unlikely to change radically.  Revolutionary cries of “more ownership for the workers” are not my scene.  I do believe, however, that companies which, in one way or another, embrace the concept of the self-sustaining circle described above will outperform their less enlightened competitors, give better service to their customers and deliver higher returns to their investors – which seems to me what most managements would see as their agenda.

Many companies might consider that they’ve grasped this point already by introducing profit-sharing schemes.  I’ll gloss over the observation that frequently the nature of such schemes either skews the benefit to the top echelons of management or encourages behaviour which is hostile to business sustainability (both topics currently enjoying plenty of public airing, and so I’ll say no more).  But if profit-sharing is to provide the incentive to improved efficiency and productivity, not only does it have to recognise that commercial success is the result of every person working in the business, but it also has to influence behaviour towards creating long-term success.

Profit-sharing is ineffective unless matched with constant communication – in two directions – on the link between the efforts of employees, whatever their role, and the profits which are generated.  Companies need to share knowledge – to update their employees as a matter of course throughout the year on the progress the business is making, to trust them with real figures, to engage them in the challenges it faces.  When I’ve suggested this to companies they frequently pale at such open disclosure and plead the need for commercial confidentiality, and obviously some information does have to be retained on a ‘need-to-know basis’ during sensitive negotiations or product development.  But generally it comes down to trust:  if you can’t trust your staff to know your figures and to be aware of your overall corporate strategy, can you really expect them to understand the direction the business is supposed to be taking?  Can you trust them to convey to your customers the corporate image which might be in the mind of top management?

Sharing information is the essential starting point, but this needs to be linked to what some may see as the even more unnerving idea of sharing power – taking notice of what employees are saying and harnessing those ideas for improving the business.

Again, the John Lewis Partnership’s unusual constitution means that it has crystallised this process in its statement of purpose:

 “Because the Partnership is owned in trust for its members, they share the responsibilities of ownership as well as its rewards – profit, knowledge and power.”

As well as sharing profit, conventional shareholder/owners also expect to enjoy full knowledge about their business and to have the ability to wield power at least through their ability to appoint directors.  At JLP this opportunity applies to all employees – Partners – but it isn’t seen as a right but as a responsibility.  Employee/owners don’t take a share of the profits just through turning up at work.  They have a responsibility to share knowledge about what’s going on in the business – contributing their experience and perceptions and facing up to some of the unpleasant truths about the competitive scene.  And then they have a responsibility to use their power to do something about it, both through their individual actions and also through elected councils which are involved in many commercial decisions. 

Companies might be nervous that consultation will slow the business down, and in the 1970s the Labour government in the UK encouraged the setting up of worker co-operatives which precisely demonstrated that weakness.  At JLP there isn’t management by committee.  In contrast to the fashionable enthusiasm for ‘flat companies’, it recognises that business decisions are of varying magnitude and need to be taken at various levels of authority.  Hierarchies are beneficial to speed of management initiative, as long as they are characterised by respect for the essential contribution made at all levels and for the people making that contribution.  I was always conscious that I didn’t serve customers, and yet the John Lewis reputation depended every day on the care taken over that critical interface.  Respect for the ‘front line’ sits alongside  the importance  of the strategic planning  provided by senior directors.  Sharing power implies no diminution of the responsibility of management to manage, but there is an expectation that this will be matched by a willingness to explain and to listen to the views of Partners who haven’t been involved in that part of the business. 

If one judges by published Reports & Accounts a large proportion of companies ought to have no difficulty with this approach.  “Our greatest asset is our workforce” is a truism which is rarely omitted, but too often these are empty words.  The consistent performance of JLP demonstrates that consultation and genuine sharing of information and responsibility between managers and managed is an accelerator not a drag anchor.  It’s often described as ‘managing in a gold-fish bowl’.  Undeniably, for some managers brought up in a more authoritarian school this style of management will prove uncomfortable or maybe even impossible.  The good news is that those managers will tend to work for the competition!

In case I seem to be describing a Utopian vision of management when everyone can be happy all the time, I readily acknowledge that employee-owned businesses go through tough times just like any other company.  Sometimes units which clearly have no long-term future have to be closed down.  This was the conclusion reached about two small department stores in the London suburbs, and the decision to close them down meant that the jobs of 800 Partners were lost.  Not much happiness around when that news was broken.  But the survival of an employee-owned business – just like any other – will involve tough decisions, and the greater good of the business as a whole is well understood.  Probably the main distinction of JLP when handling those job losses was the extent to which there was forward planning, holding vacancies at other neighbouring department stores and Waitrose supermarkets and arranging transfers where these were feasible.

In his book ‘The Loyalty Effect’ [Harvard Business Press 1996] Frederick Reicheld quoted some grim statistics:

US corporations lose half their customers in five years, half their employees in four years and half their investors in less than a year.

He painted a picture of a future ‘where business relationships are opportunistic transactions between virtual strangers’.  I find that an unappealing prospect in terms of the kind of dysfunctional society it predicates as well as its contradiction of the aim of business sustainability.  Yet it’s a prospect which is encouraged by a narrow focus on short-term profit as the indicator of success.  The ability of a company to survive through bad times as well as good – and that much targeted goal of shareholder value – is the outcome of a process driven by the engagement of its employees.  Anyone hoping to create long-term value needs to concentrate on the people who will make a difference rather than on the share register or the quarterly profit figure analysts are expecting. 

The accountancy profession will have problems determining how ‘happiness’ can be quantified as an asset on a company’s balance sheet, but the extent to which it is identified as a management objective will provide a better forward indicator of performance than just historical financial data.  Happy, satisfied and committed employees will want to stay with a business.  They’ll ensure that you have loyal customers, engaged suppliers and a sound reputation in the community

If you’ve worked in a company which already practices these ideas, then it seems impossible to think of managing in any other way.  The idea of ‘mutual interest’ is self-evidently practical and powerful.  If, however, you’ve seen nothing but ‘command and control’, all this consultation must look scary – but not as scary as being overtaken by competitors which are sharing knowledge, power and profit with employees throughout their business and enjoying the acceleration in performance which that brings.

This post previously appeared in the CSI Blog: Happiness – the key to company sustainability

From the Knowledge@Wharton today blog.

Rupert Murdoch’s move to split News Corp. into entertainment and publishing businesses may unlock the value he seeks. But the big imponderable in that shift could be Murdoch himself and his tainted legacy, say Wharton management professors Lawrence Hrebiniak and John Kimberly.

“Murdoch overseeing both companies actually may be a drag on performance,” notes Hrebiniak. The phone hacking scandal involving News Corp.’s defunct newspaper, News of the World, and other group publications has “definitely hurt Murdoch’s image and perceived effectiveness as a leader,” he adds. The newspapers’ employees were accused of phone hacking and bribery in publishing stories between 2005 and 2007.

Hrebiniak says Murdoch’s “past mistakes still are fresh in many peoples’ minds.” He refers to criticism that News Corp. overpaid in its August 2007 purchase of Wall Street Journal publisher Dow Jones from the Bancroft family for $5 billion. “As head of both companies and CEO of the entertainment division, [Murdoch] could easily stifle and overwhelm the creative thinking, influence, and strategic autonomy of the chosen head of the publishing business when these capabilities or skills are most needed to turn the business around,” notes Hrebiniak. “Murdoch should take a step back and reduce his active management role.”

Murdoch could still oversee both businesses, Hrebiniak adds, but needs to appoint new CEOs for each of the two divisions, and become a hands-off executive. Those CEOs could then focus on strategic opportunities and challenges “with a fresh vision, without excessive Murdoch influence or interference.”

News Corp. also has to contend with the overhang of Murdoch’s legacy, and two key components of that are unclear, according to Kimberly. First, he wonders how history will view the man as a business leader given the stain of the hacking scandal and the questions it raised about Murdoch’s personal integrity. Second, how well would Murdoch’s empire fare once he is gone, Kimberly asks. “Arguably, the most important challenge facing any leader is building an organization that can thrive in his or her absence.”

The phone hacking scandal has “severely tarnished” Murdoch’s personal reputation, and its economic consequences will not be known for some time, Kimberly notes. The fallout from the incident also led Murdoch’s son and heir apparent James Murdoch to step down as chairman of British satellite and broadcasting company BSkyB (of which News Corp. owns a 39% equity stake) this past April.

Unshackled by the Murdoch style and legacy, News Corp.’s split will bring some obvious benefits, experts say. For one, it allows for separate strategic attention to the two very different businesses of entertainment and publishing. “Each business can focus more directly on its own industry forces, competitive problems and opportunities,” Hrebiniak says.

Hrebiniak also suggests that with a more sharply focused entertainment business after the split, Murdoch could revive his attempt to complete his ownership of BSkyB, which is the biggest pay TV broadcast company in the U.K. and Ireland. The phone hacking scandal forced Murdoch to withdraw his bid last year to buy the remaining equity in the firm. Hrebiniak points to the immediate increase in the stock value of both News Corp. and BSkyB shares after the split announcement as indicative of the value investors see in the move and what might follow.

But News Corp. still faces major challenges after the separation, which is expected to be formalized over the next year after regulatory approvals. Hrebiniak notes that not all of its entertainment businesses have high growth prospects and profitability. The company’s cable business is doing well — much better than broadcast and satellite TV. “But the split won’t guarantee increased growth and profitability for the entertainment side of the business; serious strategic and execution issues won’t be overcome automatically,” Hrebiniak says.

In steering the newly separate publishing business, News Corp. will need major efforts to reduce costs and avert further slippage in already thin profit margins, according to Hrebiniak. He doesn’t see that as an easy task, given the many competitive challenges to publishing.

The split, in fact, raises more questions about the future of News Corp.’s publishing business than the entertainment arm, according to Kimberly. He notes that the publishing business is the “historical core” of Murdoch’s empire, and that he is understandably very attached to it. “By spinning it off, and by painting an optimistic picture of its future, he is playing a very risky game,” says Kimberly. “If he wins, his judgment is vindicated and some reputational capital will be rebuilt. If he loses, he loses big.”

Sasha Graham | CSI Blog

What kind of Australia do we want?

We all want a better life, for ourselves and our children. We also care about the progress of our communities and our country. We like to think that we will leave a positive legacy for the generations that come after us. But how do we know if we, as a nation, are on the right track?  What does progress really mean? How do we decide what counts as progress? How can we measure how well we are succeeding? By definition, the progress of a nation or a community is measured by how well it moves towards set goals and values. Until recently, most of the national conversations about our progress have been focused on economic growth or GDP as the key goal for Australia. The growth of wicked problems such as social and financial exclusion, mental health and environmental degradation are all linked to our state of wellbeing. Now, more than ever, human progress is increasingly being understood as more complex than this, including the values that underpin our life together, goals that relate to our wellbeing as individuals and as communities, and the effective and sustainable use of our resources for the wellbeing of future generations.

Deciding what progress means for Australia and how to measure it isn’t simply a matter of policy for lawmakers or a technical question for experts. It’s a democratic question for all Australians. Interestingly, the Australian Bureau of Statistics (ABS) was the first national statistics office in the world to develop an integrated set of national progress measures and this project itself became one of the main inspirations for the OECD’s global project. Over the past year, there have been some interesting developments at the Federal level, with commencement on development of Australia’s Wellbeing Index announced in 2010. Where traditional polling methods and ‘social-lite’ census questions exist, there is a need for local place-based approaches in addressing disadvantage and sustainability. 

Place or asset-based strategies have emerged as a key element of the Australian Government’s Social Inclusion Agenda, and last year its Social Inclusion Unit released a groundbreaking report, Governance Models for Location Based Initiatives. Based on deep research and consultation, the Board provided a set of recommendations and proposed that location-based initiatives should be based on six key elements:

• a clear connection between economic and social policy and programs at a local level;
• a framework for providing integration of effort across governments;
• a level of devolution that allows significant and meaningful local involvement in determining the issues and solutions;
• capacity development at both local level and in government, without which greater community engagement or devolution of responsibility will be impossible;
• and funding, measurement and accountability mechanisms that are designed to support the long term, whole-of-government and;
• community aims for an initiative, rather than attempting to build an initiative around unsuitable measurement and accountability

This is reinforced by recent developments in NSW Government with release of the Department of Education’s Connected Communities strategy. The strategy positions disadvantaged schools within high Indigenous/disadvantaged populations as community hubs. Similar to any location or ‘asset’ or place-based strategy, these hubs will be co-designed with each community based on contextual information from a comprehensive community profile, including input from the community about its strengths, issues, vision and aspirations. And, this month the Strategy was raised as a matter of public importance in NSW Parliament with support by the Opposition. This is a radical move which is sure to advance the collective social impact mission. 

Progress is more than economic growth

In the past decade, there has been increasing recognition that national wellbeing is based more than just economics. This movement is being driven by citizens, policymakers, academics and statisticians working together globally and locally and championed by international organisations like the OECD and the United Nations.

This has stimulated research to define fulfillment and quality of life through measures related to social, cultural, spiritual and environmental dimensions. A focus on wellbeing recognizes that increased economic wealth is not always positively aligned with increased health and happiness of an individual or the wider community. Hazel Henderson put it aptly that, ‘statistical codes become the DNA of our nations’ and that ‘they reflect society’s values and goals and become the key drivers of economic and technological change’.

Here is an interesting link to national “indicator land map” which highlights various indexes and projects from the Australian Community Indicators Network.

So, who should decide what progress is, our values and goals are for our nation or communities? Why should citizens be engaged in that task? And how can they be best engaged? And, why should we measure our progress (national, community) and how best to? 

Understanding community wellbeing 

Wellbeing is a holistic concept that is closely related to ‘quality of life’ and wicked problems that face communities require non-linear, iterative processes to solve them. An understanding of genuine progress requires multi-dimensional measurement. Each of these dimensions is a ‘domain’, for example; environmental, social, economic and cultural. Within a domain, there are numerous specific indicators of progress and programs or activities (outputs) to support them. Indicators, Schmindicators *reader mumbles*.  Perhaps the best way to convey the concept of a community wellbeing project is to explain my experience whilst working on fly-in/fly-out social impact projects in rural and remote areas of Queensland while at The Hornery Institute. In order to gain a deeper understanding of these communities, we developed a place-based strategy to engage all stakeholders in exploring the issues, aspirations and opportunities inherent to the local government area (Maranoa and Gladstone). Through an inclusive approach we were able to meaningfully engage people about what they value, working collaboratively to prototype and develop community agreed sustainability indicators framework and suggested social programs that would help mitigate potential negative impacts of industry.

We consulted widely, with over 750 voluntarily participants from schools, local businesses, farmers, landowners, NGO’s, industry, Indigenous groups, local government, universities and state government using a combination of participatory group action research methods and face-to-face meetings. Meanwhile, back at headquarters desktop team members undertook research to profile the community using demographical ABS data, regional strategies and other ethnographic research. Appreciative enquiry methods had us also photographing the urban character and its heritage as we mapped the local community services and facilities (assets).

We gained a lot through the ‘wisdom of the crowds’ and I was blown away with the willingness of the community in sharing their insights to intelligently map and tap the resources within the local area. They were knowingly committed to helping themselves with that self-determination common to most Queenslanders. Throughout the project we returned to engage original community groups and present findings, adding to their ideas for suggested programs, community assets and urban planning. Given the independent status of working for a non-profit community development organization, we were able to scaffold trusting relationships.

Reams of butchers paper later, delivery of the studies to community groups they intelligently deliberated, voted and agreed on priorities for approval of each community wellbeing framework. It was true democracy in action. The indicators in each domain are transparent, were publicly released and are referenced often. To demonstrate the impact of the study (Maranoa LGA) fifteen community development programs have been implemented since 2010. Not all issues could be addressed alone by the local community, but the process served as an evidence gathering exercise to identify externalities that could inform higher tiers of government  to undertake more research in areas, such as health and human services or environmental legislation. However, combined with a collective impact approach, there is unlimited potential for more humanitarian service design which can serve to create system level change.

Through our work we developed strong relationships, particularly the Lord Mayor who invited us to present the study at Council’s AGM. Based on community support for the project, we also met with Premier Bligh’s office and Queensland University to discuss the community wellbeing approach as a more stringent method of evaluating social impact assessments for environmental impact assessment development applications.

The community wellbeing framework is intended to provide complete impact data to drive forward positive change and sustainability around key areas of community defined progress. Once experienced and understood, the approach is essentially a concept which makes sense to everyone. Despite the complexity and ambiguity of working on experimental projects with communities, my intention is to leave you with a good impression of just how practical and enjoyable place-based projects can be. A transparent framework for measuring progress, over time, is a journey that involves all stakeholders within a local context to establish agreed priorities for the community, therefore creating evidence of a shared vision for the future. Local engagement with as many stakeholder groups as possible serves to articulate community concerns, aspirations and policy priorities for the future of their area and community – which is really, everyone’s business.

The need for a locally supported approach

Redefining progress requires a contextual approach, and while common wellbeing framework methodologies exist, perhaps the biggest barrier is that current indicator initiatives are a bit of a magpie. Given that measurement of community wellbeing requires the development of location-specific studies, currently we are lacking a cohesive and visible national entity at the macro level that supports local community and governments to undertake this work easily on the ground. And, although data research has gone to great lengths in seeking to highlight certain indicators, for example, financial exclusion, there is no one-size-fits-all solution that truly reflects other meaningful priorities and indicators for sustainability from one community to the next. This is why a shared cross-sectoral commitment by State and Local Government is urgently needed in building momentum for the development of community wellbeing action plans.

We expect place-based indicator frameworks will provide a richer evidence base from local governments that will inform and guide Federal government on ‘community accounts’ of wellbeing to prioritise strategic funding and policy decisions. This will be enabled by a combination of networked and online engagement. With the growing innovation of interactive platforms, the proposition of using the internet makes this idea a whole lot more do-able. Perhaps one of the most impressive examples of community accounts we could hope to emulate is in the Canadian province of Newfoundland-Labrador.

Once in full swing, a platform like this would help guide due diligence for social investment; scope more strategic social enterprise development; provide crowdsourcing opportunities; form volunteering initiatives, providing an evidence base of unmet need to stimulate creative financing, for example, matched community development funding through councils and community banks.

There are a number of benefits from a national index which reflects more holistic local priorities. With the capacity to distil multiple dimensions of progress measures, it will also attract high levels of public, political and media attention that will be referenced frequently. The single number result will be the doorway through which people will start thinking about which elements of progress matter most to them. It will also challenge the specificity of economic measures that are currently used.

Progress on measuring progress – an Australian National Development Index (ANDI) is underway

….which brings me to ANDI and what this blog is really all about. Its development has been a long process in Australia going back 16 years, with some members providing international input since the 1970s. It is an independent, citizen-led, community initiative to revitalise our democracy and engage all Australians in a national debate about our shared vision for Australia. Based on the idea of an ongoing national conversation about what kind of society we want to be, ANDI’s aim is to help develop clear, ongoing measures of our progress towards increasing equitable and sustainable wellbeing through an Australian National Development Index. ANDI’s interim National Organising Committee comprises a large collaborative of distinguished practitioners from government, non-profit and academic institutions, with key advisors and sponsors from across the sectors. ABS is a key partner to ANDI for development of the Australian Wellbeing Index. ANDI seeks partners from the private, not-for-profit, academic, government and philanthropic sectors. ANDI and the Australian Community Indicators Network are working closely together to develop the tools for citizens to be engaged in measuring, planning and discussing their own communities, whether local or national. ANDI is currently seeking to form a partnership with an information technology company to support the technical development of  its website, as well as media partners and sponsors to help advocate and drive this national and locally led initiative.

For more information please see the ANDI website: www.andi.org.au

This post previously appeared in the CSI Blog: What kind of Australia do we want and how do we know if we are making progress?