Let’s start with an example of where things went entirely wrong when we placed technology over people.
For years we suspected our newspaper distribution would benefit from a technological innovation: track and trace. This allowed people to track their newspaper delivery people in an app indicating where they were located. This gave subscribers clarity and the distributor more data insight.
It sounded like a huge step forward, and we decided to test the idea with our subscribers, distribution holders, and delivery people. Track and trace turned out to be a solution, but for which problem?
Delivery people and distribution holders had bigger problems, like the inability to recruit new, reliable delivery people. They wanted newspapers to be delivered earlier. The dwindling number of delivery people had to travel farther distances, and they had to account for more neighbourhoods per person. Some delivery people felt they were being checked up on by track and trace instead of being helped by it. And customers wondered why they would follow a delivery driver if they were sleeping.
Connecting to others offered an unexpected picture: Hardly any of the ideas our office thought of proved to be correct. We almost started the wrong innovation, thinking that innovation starts with technology when it’s just a tool.
To respond properly to your environment, you must focus on someone else’s needs. You will never come up with the best solution to someone else’s problem from your office if you don’t know them well enough and haven’t researched what’s going on. We have experienced that many times.
Focusing on someone else is not something you do from time to time. It has to be part of the organisational culture and is reflected everywhere: in the way managers deal with employees, how employees approach customers, and how innovation comes about. A range of studies and literature show that an organisational culture in which employees focus on others contributes to success.
In Hit Refresh, for example, Microsoft CEO Satya Nadella offered his vision of Microsoft’s successful turnaround from an old-fashioned PC software vendor to another fast-growing tech giant. A leader has to have empathy, he says, so empathise and listen to understand, not answer. This is a characteristic that you wouldn’t normally see on a list of the most important characteristics of a CEO. But according to Nadella, empathy is the most important source of innovation because it stems from a person’s ability to understand the unfulfilled, unnamed needs of customers.
Leaders used to be expected to look after their own interests. However, this time of growing uncertainty and rapid change calls for cooperation and co-creation: a shift from the opinion of experts to the authentic opinion of customers. Leaders who focus on others should therefore no longer represent pure interests (thesis), but investigate what the other wants (hypothesis), says Christopher Bones of the Henley Business School.
Jim Collins discovered 20 years ago in Good to Great that a special kind of leadership is required, which he calls “level five leadership.” These are leaders who look in the mirror when the results are poor. They blame themselves and wonder what they could have done better.
On the other hand, when the company is successful, they look through the window and owe it to the employees, external factors, and luck. Level 5 leaders are “other-focused.” They work from a place of connection and are strong in building and maintaining lasting relationships.
It is the horizontal connection with the other that makes people excel — not proving one’s own right or throwing around criticism. When a leader focuses on others, it creates security for the managers below to be generous with energy and attention for their direct reports. This is how a culture of connection can emerge.
Marshall Goldsmith was coach of the crème de la crème of leaders such as Jim Kim, president of the World Bank, and Alan Mulally, CEO of Ford Motor Company. He discovered a golden rule about top managers who were able to make a positive change in their organisations: that what you’ve learned to reach the top, you have to unlearn as soon as you get there. It’s not about showing off your own skills. You need to focus on the others so they are allowed to flourish.
Research by Rajendra Sisodia, David Wolfe, and Jagdish N. Sheth, authors of Firms of Endearment, also shows leaders’ empathic behaviour can lead to highly profitable companies if their behaviour can create a culture of connection throughout the company. They describe “firms of endearment,” which have particularly high productivity, high customer loyalty, and fantastic financial margins.
Key features of firms of endearment:
- Their goal transcends earning money.
- They seek to align all stakeholder interests instead of only serving investor interests.
- Director salary levels are relatively modest.
- Management is accessible and safe to approach; you can take problems there.
- Staff are granted salary increases and opportunities to grow.
- Staff training is longer and better.
- Staff churn is lower.
- Staff are empowered to ensure the full satisfaction of the client.
- The best staff are selected for their character and whether they will respect company culture.
- They maximise the human element in client-staff relationships.
- By winning customer loyalty, they win access to their budgets.
- Their marketing expenses are lower than the competition.
- They count on loyalty coming through customer experience and word-of-mouth advertising.
- Their suppliers are actually real partners: employees but with a different sort of contract.
Their research approach was as simple as it was effective. To determine which companies they were looking at, they asked consumers around the world just one question: Which companies are you really in love with? These companies included Google, IKEA, Honda, Inditex, BMW, Timberland, Patagonia, UPS, Mariott, Harley-Davidson, IBM, and Amazon. Only then did the authors look at the financial results of these firms of endearment. They crushed the competition. Over a period of 15 years, they did 14 times better than the market average of the S&P 500.
Directors of these companies point to their organisational culture as the greatest competitive advantage. A striking similarity is that the culture is driven by a strong sense of connection with other people, consciously creating value for all stakeholders: customers, employees, suppliers, investors, communities, and the environment.
Does this sound like new-age nonsense? Not so. These companies are all run by business professionals who enhance the people-focused culture thanks to sound management skills. The difference is in dealing with stakeholders. An organisation focused on humanity operates in such a way that all stakeholders — employees, colleagues, suppliers, business partners, society, and investors — can make an emotional connection with the organisation. They do not increase the value for one stakeholder at the expense of another, but align all interests in such a way that everyone can thrive.
So, who are these stakeholders? Building on Freeman’s stakeholder theory, the authors of Firms of Endearment came up with five main categories:
Each stakeholder is connected to the others. The relationships are not unilateral between the organisation and each stakeholder. The stakeholders strengthen each other in a network. The principles of building and maintaining each individual relationship are:
- Value creation goes both ways so that both partners benefit from the relationship.
- The interests of all those involved are aligned.
All these connections with employees, investors, partners, and society make sure the organisation adapts. Because you are connected, you can see changes coming and respond to them. You become agile and don’t look like the proverbial rabbit in the headlights. Because of the relationship with your surroundings, they will be willing to help you adapt. Evolving with disruption, or change in general, will become more of a fluid and continuous process. You become resilient and are not overwhelmed by a changed world.
This blog series is based on the book The Human Touch, in which Xavier van Leeuwe and Matthijs van de Peppel share their experiences as media executives in turbulent times. They deftly applied smart data and technology, but the quantum leap lay elsewhere: in the connections between people, within and beyond their companies.