Friday, October 24, 2008

Returning to Prosperity Will Require Getting Back to Basics

Back in the 1980s, management experts W. Edwards Deming and Peter Drucker wrote about the importance of an organization understanding its purpose in order to be successful. Unfortunately, we didn’t get it. Although many companies did develop highly professional and well-written mission and vision statements, they tended to be aimed at those outside the organization – investors and customers – instead of the people inside the company, for whom this information is critical.

Now that the American economy is collapsing, it’s time to get back to the basics of running a business – something we have not done for many years – and the first step is to establish and communicate the purpose.

I have been speaking to groups and coaching executives for years about the need for communicating a clear and unchanging purpose to get people to work together and focus on what is important. I’ve also been teaching these same people that the fundamental purpose of an organization is NOT related to profits or share price. Just to be clear, though, let’s go through this one more time . . .

Why Purpose is Important

If we look at the Cambridge Dictionary of American English, we find that an organization is, “a group whose members work together for a shared purpose in a continuing way.” In line with this definition, without a purpose, there is no organization. There is only a group of people who come to work each day, put in eight or nine hours, and go home.

Without a clear purpose, those inside the organization will attempt to define it in their own terms and conflict between people and departments will result. The most basic premise of teamwork is that those on the team understand why they are there and what they are trying to accomplish. We see examples in sports virtually everyday where a superstar is more concerned about his or her own statistics instead of the team winning. This is why dream teams are rarely successful in winning championships.

The purpose statement does not need to be framed and posted throughout the organization to be effective. It just needs to be understood through indoctrination when a person is hired and continually exhibited through the decisions and actions of management.

It’s Not About Profits

An organization is established in order to serve a need in society. Either the need is not being served well or not at all by existing organizations. Although it is absolutely necessary for a business to be profitable to survive, profits are not the reason for the company’s existence. As human beings, we need air, food and water to survive, but (assuming that we have enough of each) they are not the purpose of our existence and the focus of our lives.

The need that the organization was originally created to satisfy is the purpose. Henry Ford wanted to build a car for the masses; Google wants to organize the world’s information and make it easily accessible; and the M.D. Anderson Cancer Center wants to eliminate cancer throughout the world. It is statements like these that give people clarity, focus, and inspiration.

Regarding profitability (or any other financial measure), the better an organization serves its purpose, the more profitable it will be. And contrary to popular belief, the mission statement does not need to make reference to shareholders. If the people and activities are aligned with the purpose and the company continually improves the products or services it offers, the shareholders will do just fine.

Why We’re in this Mess

The financial institutions involved in the global collapse did not understand their purpose. The bonus schemes and metrics implemented inspired greed and selfishness instead of teamwork and commitment to the fundamental need these institutions were created to provide. One has to wonder what Charles Merrill, Edmund Lynch, Emanuel and Mayer Lehman, Joseph Bear, and Robert Stearns would think about what the people in charge of the organizations they founded did to destroy these institutions.

The fact is, what happened in the financial markets can (and has) happened to other companies over the years. As long as greed continues to drive the business world, the purpose of organizations will be defined in financial terms, and the judgment of executives and managers regarding what is best for the company will be clouded.

The Basics

The financial institutions that remain must soul search to truly understand why they were created in the first place. The result will be purpose statements that Boards and executive committees can clearly communicate to team members. This is vital in order to get everyone on the same page and focus on what is important for the organization to continue to survive and prosper in the future.

This will be new to many people in these organizations and continual reminders and checks will be necessary to make sure that they stay on track and don’t stray from the purpose. It will be a difficult but highly rewarding process, and is absolutely necessary for America to regain its competitive position in the world.

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