{"id":1984,"date":"2012-07-06T13:48:25","date_gmt":"2012-07-06T03:48:25","guid":{"rendered":"http:\/\/blogs.unsw.edu.au\/knowledgetoday\/?p=1984"},"modified":"2012-07-06T13:48:25","modified_gmt":"2012-07-06T03:48:25","slug":"company-sustainability","status":"publish","type":"post","link":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/blog\/2012\/07\/company-sustainability\/","title":{"rendered":"Happiness \u2013 the key to company sustainability"},"content":{"rendered":"

\"\"<\/a><\/strong><\/p>\n

Sir Stuart Hampson | CSI Blog<\/a><\/strong><\/p>\n

When Jigme Singye was King of Bhutan he took the unconventional approach of declaring \u2018Gross National Happiness\u2019 as the measure of success for his government.\u00a0 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.\u00a0 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.\u00a0 We didn\u2019t 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.<\/p>\n

John Lewis is the UK\u2019s largest department store group and is widely regarded as \u2018a great British institution\u2019.\u00a0 Its customer loyalty is legendary, and its readiness to publish weekly sales figures means that it\u2019s regularly cited as a bellwether of the consumer economy.\u00a0 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.\u00a0 With combined sales last year of \u00a38.7bn (some AUD13bn) and profits of \u00a3354m (AUD527m), JLP would comfortably occupy a place in the FTSE100 \u2013 except that it\u2019s not quoted.\u00a0 JLP is a private company, and since 1929 it\u2019s been owned by a Trust for the benefit of the people working in the business, all of whom are called \u2018Partners\u2019.\u00a0 So, no outside shareholders, and almost half of last year\u2019s profits \u2013 \u00a3165m \u2013 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.\u00a0 The rest was ploughed back into expansion of the business.<\/p>\n

Like Jigme Singye, JLP starts from a different place from its retailing competitors, but this doesn\u2019t mean it can ignore efficiency or customer attraction.\u00a0 Despite that sobriquet \u2018a great British institution\u2019, there\u2019s no room for resting on one\u2019s laurels in the vigorously competitive UK retail sector.\u00a0 Nonetheless, its unusual business structure enables JLP to strike a distinctive chord in its statement of corporate purpose:<\/p>\n

The Partnership\u2019s ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business.<\/em><\/p>\n

On first reading, this focus on happy staff might look like a defiant fist-shaking to the orthodox obsession with satisfying shareholders, but it\u2019s just a logical extension of the well-recognised \u2018employee-customer-profit chain\u2019 concept championed by the Sears retailing group in the USA.\u00a0 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.\u00a0 Crucially, it went beyond the modern mantra adopted by many businesses of having to be \u2018customer oriented\u2019 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.\u00a0 The former Chairman of Marks & Spencer Sir Rick Greenbury was proud of the reputation his company had for employee benefits: \u201cWe look after our staff well, but look at how well they look after our customers.\u201d\u00a0 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 \u2013 all key ingredients to sustainable success and even to that goal of creating shareholder value.<\/p>\n

The John Lewis Partnership converts the Sears model of an \u2018employee-customer-profit chain\u2019 into a self-sustaining circle.\u00a0 Happiness isn\u2019t just about having fun, working in a pleasant environment or being well paid for the job \u2013 though all three are energetically pursued.\u00a0 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.\u00a0 There are three key points here.\u00a0 First, the jobs have to be \u2018worthwhile\u2019 \u2013 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.\u00a0 Secondly, let\u2019s be clear \u2013 there\u2019s no satisfaction or happiness from working in an unsuccessful business.\u00a0 And thirdly, the benefits of success are returned to the Partners, whose happiness and job satisfaction are increased accordingly.\u00a0<\/p>\n

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.\u00a0<\/p>\n

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\u2019m also realistic enough to recognise that most companies have an established corporate structure which they\u2019re unlikely to change radically.\u00a0 Revolutionary cries of \u201cmore ownership for the workers\u201d are not my scene.\u00a0 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 \u2013 which seems to me what most managements would see as their agenda.<\/p>\n

Many companies might consider that they\u2019ve grasped this point already by introducing profit-sharing schemes.\u00a0 I\u2019ll 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\u2019ll say no more).\u00a0 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.<\/p>\n

Profit-sharing is ineffective unless matched with constant communication \u2013 in two directions \u2013 on the link between the efforts of employees, whatever their role, and the profits which are generated.\u00a0 Companies need to share knowledge \u2013 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. \u00a0When I\u2019ve 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 \u2018need-to-know basis\u2019 during sensitive negotiations or product development.\u00a0 But generally it comes down to trust:\u00a0 if you can\u2019t 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?\u00a0 Can you trust them to convey to your customers the corporate image which might be in the mind of top management?<\/p>\n

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 \u2013 taking notice of what employees are saying and harnessing those ideas for improving the business.<\/p>\n

Again, the John Lewis Partnership\u2019s unusual constitution means that it has crystallised this process in its statement of purpose:<\/p>\n

\u00a0\u201cBecause the Partnership is owned in trust for its members, they share the responsibilities of ownership as well as its rewards \u2013 profit, knowledge and power.<\/em>\u201d<\/p>\n

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.\u00a0 At JLP this opportunity applies to all employees \u2013 Partners \u2013 but it isn\u2019t seen as a right but as a responsibility.\u00a0 Employee\/owners don\u2019t take a share of the profits just through turning up at work.\u00a0 They have a responsibility<\/em> to share knowledge about what\u2019s going on in the business \u2013 contributing their experience and perceptions and facing up to some of the unpleasant truths about the competitive scene.\u00a0 And then they have a responsibility<\/em> 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.\u00a0<\/p>\n

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.\u00a0 At JLP there isn\u2019t management by committee.\u00a0 In contrast to the fashionable enthusiasm for \u2018flat companies\u2019, it recognises that business decisions are of varying magnitude and need to be taken at various levels of authority.\u00a0 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.\u00a0 I was always conscious that I didn\u2019t serve customers, and yet the John Lewis reputation depended every day on the care taken over that critical interface.\u00a0 Respect for the \u2018front line\u2019 sits alongside\u00a0 the importance\u00a0 of the strategic planning\u00a0 provided by senior directors.\u00a0 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\u2019t been involved in that part of the business.\u00a0<\/p>\n

If one judges by published Reports & Accounts a large proportion of companies ought to have no difficulty with this approach.\u00a0 \u201cOur greatest asset is our workforce\u201d is a truism which is rarely omitted, but too often these are empty words.\u00a0 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.\u00a0 It\u2019s often described as \u2018managing in a gold-fish bowl\u2019.\u00a0 Undeniably, for some managers brought up in a more authoritarian school this style of management will prove uncomfortable or maybe even impossible.\u00a0 The good news is that those managers will tend to work for the competition!<\/p>\n

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.\u00a0 Sometimes units which clearly have no long-term future have to be closed down.\u00a0 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.\u00a0 Not much happiness around when that news was broken.\u00a0 But the survival of an employee-owned business \u2013 just like any other \u2013 will involve tough decisions, and the greater good of the business as a whole is well understood.\u00a0 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.<\/p>\n

In his book \u2018The Loyalty Effect\u2019 [Harvard Business Press 1996] Frederick Reicheld quoted some grim statistics:<\/p>\n

US corporations lose half their customers in five years, half their employees in four years and half their investors in less than a year.<\/em><\/p>\n

He painted a picture of a future \u2018where business relationships are opportunistic transactions between virtual strangers\u2019.\u00a0 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.\u00a0 Yet it\u2019s a prospect which is encouraged by a narrow focus on short-term profit as the indicator of success.\u00a0 The ability of a company to survive through bad times as well as good \u2013 and that much targeted goal of shareholder value \u2013 is the outcome of a process driven by the engagement of its employees.\u00a0 Anyone hoping to create long-term value needs to concentrate on the people<\/em> who will make a difference rather than on the share register or the quarterly profit figure analysts are expecting.\u00a0<\/p>\n

The accountancy profession will have problems determining how \u2018happiness\u2019 can be quantified as an asset on a company\u2019s 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.\u00a0 Happy, satisfied and committed employees will want to stay with a business.\u00a0 They\u2019ll ensure that you have loyal customers, engaged suppliers and a sound reputation in the community<\/p>\n

If you\u2019ve worked in a company which already practices these ideas, then it seems impossible to think of managing in any other way.\u00a0 The idea of \u2018mutual interest\u2019 is self-evidently practical and powerful.\u00a0 If, however, you\u2019ve seen nothing but \u2018command and control\u2019, all this consultation must look scary \u2013 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.<\/p>\n

This\u00a0post previously appeared in the CSI Blog: Happiness \u2013 the key to company sustainability<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Sir Stuart Hampson | CSI Blog When Jigme Singye was King of Bhutan he took the unconventional approach of declaring \u2018Gross National Happiness\u2019 as the measure of success for his government.\u00a0 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 […]<\/p>\n","protected":false},"author":336,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[257],"tags":[4765],"class_list":["post-1984","post","type-post","status-publish","format-standard","hentry","category-sustainability","tag-centre-for-social-impact"],"_links":{"self":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/1984","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/users\/336"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/comments?post=1984"}],"version-history":[{"count":2,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/1984\/revisions"}],"predecessor-version":[{"id":1987,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/1984\/revisions\/1987"}],"wp:attachment":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/media?parent=1984"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/categories?post=1984"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/tags?post=1984"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}