The Power Values that Drive Sustained Profitability

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    In their new book, Repeatability, Bain & Co partners Chris Zook and James Allen show that the small percentage of companies that are able to sustain profitability over long periods do so because they are able to control growing complexity which slows them down. These leading companies have repeatable models that allow the company to react to new situations in a systematic way.

    Zook and Allen write in the Harvard Business Review:

    Our findings show that the simplest strategies, built around the sharpest differentiations, have hidden advantages not only with customers but also internally, with the frontline employees who must mobilize faster and adapt better than competitors. When people in an organization deeply understand the sources of its differentiation, they move in the same direction quickly and effectively, learning and improving the business model as they go. And they turn in remarkable performance year after year.

    Easier said than done. The three steps that are the recipe for success: 1) a well-differentiated core that is well understood, 2) a short list of non-negotiable business practices, and 3) robust learning and feedback loops, are the very places where strategy execution breaks down. After the intense efforts to evaluate and refine your company’s strategy for success, leadership often falls short on the implementation. It is in the nuts and bolts of making the plan operational where good strategies get bogged down.

    Our work in values and culture has shown that there are three core areas, represented by three critical values, which must be effectively managed if an organization’s strategy will succeed to moving from the boardroom to the field.

    Commitment –

    Zook and Allen call for a “well-differentiated core.” Whether the strategy is narrowing the company’s focus to sustain strong product and service differentiation, or reorganizing to better manage costs, how much effort has truly been made to ensure that everyone is on board? Research has shown that in the 10 percent of companies that have achieved more than modest levels of profitable growth over a decade, there is clarity from top to bottom as to what the company stands for and how it will succeed. From Apple to IKEA, employees and customers know exactly what the company stands for. What are you doing to ensure that your employees are engaged and committed? Are the values of your people aligned with your organization’s mission and goals?

    Integrity –

    According to the Bain research, companies with repeatable models translate their strategies into a few simple values and business practices that everyone can understand and use to shape decisions and actions. Discipline in execution requires everyone to be on the same page. Consistency and predictability in how everyone does their job is essential. So make it simple. Work with leaders all the way down to front line supervisors to develop a very short list of business practices that become non-negotiable. There must be clearly understood consequences for not following these steps. Consistency and fairness is a critical foundation for commitment.

    Transparency –

    Things change quickly and companies must adapt. A learning organization that can gather inputs and self-correct must be built on a foundation of trust. Employees at all levels must first embody values that support collaboration, teamwork and innovation. And then the organization must be self-aware to know where and when those values are repressed and challenged.

    Measuring and managing these three “power values” will ensure that great strategies can sustain great companies.

    David Gebler is the President of Skout Group, LLC, business advisors helping global organizations measure and manage culture-based risks to performance. David’s book The 3 Power Values: How Commitment, Integrity and Transparency Clear the Roadblocks to Performance is available from Jossey-Bass.