Tools for Managing Purpose

Abstract

In order to successfully implement management by missions (MBM), it is necessary to redesign “traditional” management tools—typically grounded in an MBO philosophy—so that they are oriented toward the corporate purpose. In this chapter, we discuss how to do this on five basic management areas: strategic planning, deployment of objectives, missions’ scorecard, talent development and performance appraisal.

The sponsors are: DPMC Foundation & Chair in Management by Missions and Corporate Purpose (UIC)

In the previous chapter, we proposed our model for deploying purpose throughout a company’s various functions and levels. However, purpose deployment should not be seen as a simple add-on to existing management systems. If it were, the result would most likely be inconsistent, and the purpose would have no real impact on daily activities.

Therefore, the next step, once the purpose chart has been implemented, is to redesign the company’s management systems, so that they are oriented toward the corporate purpose. As we saw earlier in this book, existing management systems are quite inadequate for putting a company’s purpose into effect which in turn undermines the performance of individual employees and of the company as a whole.

To remedy such shortcomings, we need new management tools that link business interests to people’s interests, and provide the means to motivate people based on a company’s purpose, missions and values. Under this new management system, people will see work not just as “a way to earn a living,” but also as a way to contribute to society and discover personal fulfillment.

In recent decades, many management experts have acknowledged the need to redesign “traditional” management tools.¹ If the ultimate end of any management system is to fulfill the company’s purpose, then shouldn’t every part of the whole must be oriented toward that purpose? Indeed, one of the greatest experts in management systems, W. Edwards Deming, reminds us that every system must have a clear and definite purpose: “without a purpose, there is no system.”²

We see companies using a wide array of management tools. Examples include the selection process, orientation manuals, training plans, internal and external communication policies, career plans, ethics codes, flexibility and social responsibility policies, corporate governance and so on. Since it would be overwhelming to explain how each of them can and should be aligned with the purpose, we will instead focus on how to integrate purpose into five basic areas that drive performance:

• strategic planning

• deployment of objectives

• missions’ scorecard

• competency development

• performance appraisal

New Management Practices?

Anyone with a passing interest in management will know that these five practices are not new. They are all thoroughly documented, and backed by decades of experience by consultants and practitioners. Ours is an evolutionary proposal: to take these practices a step further by reorienting them to promote missions- and values-focused approach to business so that there can be a concrete connection made to the company’s purpose. In other words, we are not trying to introduce new management tools, but to use the ones we already have as a vehicle for deploying the purpose throughout the organization. MBM is intended as a natural development from traditional management methodologies, not a radical new departure.

By reorienting management systems toward the corporate purpose, we also aim to overcome two of the most significant limitations of many management systems today. The first is the tendency to concentrate on tangible measures of success (e.g., productivity, profit, asset utilization), while neglecting intangibles (e.g., customer satisfaction, employee motivation). The second is the excessive focus on individual performance and individual rewards, rather than overall organizational performance.

Strategic Planning: A Question of Congruence

Strategic planning is one of the most important management practice a company has to perform. More or less structured, formal or creative, a strategy outlines the company’s main challenges and lays down the rules for achieving them. In a purpose-driven management system, however, purpose and strategy are not two separate entities. They must be closely aligned and complement one another in a cause-effect relationship. If purpose and strategy are not aligned, organizational members are likely to conflict with one another. Usually, the root of the problem is that the company’s purpose has not been properly worked out at the strategic level.

For example, a pharmaceutical company might have a purpose such as “preserving and enhancing life” or “alleviating pain and curing disease”; and yet describe their strategy as “doubling revenues by 2030.” What does “preserving and enhancing life” have to do with “doubling revenues by 2030”? Everything and nothing. A deeply purpose-driven CEO will quickly point out the connection: by doubling revenues and gaining more customers, the company fulfills its purpose more effectively and more completely, reaching more people whose lives need preserving and enhancing. But is that what the production manager, head of sales, or workers on the packaging line understand when they hear the message?

When the goal of the strategy is to fulfill the purpose, both elements reinforce and complement each other. When this happens, the resulting organizational congruence benefits the entire company. When a company knows its purpose, the various strategies it pursues over time are more likely to be robust and consistent with one another. When the purpose is unclear or nonexistent, the company is at the mercy of opportunistic market forces. Purpose concentrates the company’s efforts and keeps it focused in times of crisis. Purpose also helps to make the right decisions when times are good.

At the same time, purpose always demands more from strategy: it demands tangible results. If a strategy does not yield results, the purpose will force a change, possibly a radical change. In other words, change does not come about at the whim of some senior executive, eager to prove their worth (and sometimes crippling the company in the process). To the extent that it is genuinely necessary, change is dictated by the purpose. On the strength of his experience at Medtronic, CEO William George insisted that “employees can adapt to major strategic shifts as long as the company’s mission and values remain constant. […] In fact, employees are remarkably resilient as long as they are fully confident that their leaders will do the right thing.”³ Strategy changes, purpose abides.

To understand the relationship between purpose and strategy, we need to distinguish between three basic theories of strategy formation⁴ (see Fig. 8.1).

Fig. 8.1

Strategy formation. (Source: Adapted from Exploring Corporate Strategy: Text & Cases, by G. Johnson, K. Scholes and R. Whittington (Financial Times and Prentice Hall, Harlow [England] and New York, 2009))

• The first sees strategy as a result of deliberate managerial intention. According to this theory, strategy reflects the manager’s choice among a range of ends and the means to achieve them.

• The second theory sees strategy as the outcome of political and cultural processes. Here, strategy emerges from negotiation and bargaining among internal or external stakeholders, with managers acting as “mediators seeking consensus.”

• The third view is that strategy is imposed from outside the organization. This theory holds that managers have very little power to determine strategy, which is shaped mainly by market circumstances and outside agencies.

Generally speaking, strategic decisions cannot be satisfactorily explained by any one of these theories, but only by a combination of all three. Therefore, to formulate a strategy that is aligned with the company’s purpose, managers must aim for a balance between their missions and the various pressures coming from their stakeholder.

The strategy time horizon varies widely from company to company. Some companies have detailed strategic plans over a horizon of three, five or even ten years. In today’s volatile environment, however, such long-term plans are becoming increasingly questionable. For this reason, some organizations have abandoned long-term planning in favor of other, more dynamic and agile alternatives that allow for constant revision and updating.

To make strategic planning more agile and dynamic, in recent years we have been using a model we call SIA (Systemic, Institutional & Analytic), which focuses on strategic integration of analytical (market, trends, etc.), institutional (purpose, missions, values, etc.) and systemic (business models) logics. This planning tool, which we have explained in greater detail in another publication,⁵ graphically represents the integration of missions and values with the business model and strategic control indicators. This model enables a dynamic integration of purpose and strategy, allowing them to be adjusted and reinforced over time.⁶

Deployment of Objectives

In the MBM philosophy, purpose and objectives are interdependent: a purpose without objectives is dead, and an objective without a purpose is blind. As in management by objectives (MBO), objectives are a key component of the MBM system, but with one clear proviso: they are meaningful only if they serve the corporate purpose. It could be argued that objectives are already implicitly focused on the purpose in a managers’ mind. However, the focusing needs to be done explicitly, so as to enrich the entire goal-setting process and give it a purpose orientation.

A senior bank executive acknowledged as much: although the bank’s purpose placed great emphasis on customer service and employee development, the management team’s objectives were almost exclusively economic and financial. How can people identify with a richer, broader purpose if their objectives are exclusively financial? Once it was accepted that objectives should genuinely serve the purpose, it became clear that the economic and financial objectives needed to be complemented with new objectives, especially in customer service and employee development.

When the objectives serve the purpose, the purpose itself will demand that the objectives be met. And objectives may change significantly, or even completely, without there being any change in the purpose. On the other hand, some objectives may stay the same for several periods if the purpose is best served that way. Basically, each person must decide in each period what objectives he or she must set for himself or herself in order to most effectively fulfill the purpose.

In MBM, the deployment of objectives is linked to the deployment of missions. As Fig. 8.2 shows, purpose is deployed in missions, while strategy is deployed in objectives. Purpose and strategy should be deployed in parallel, so that they are linked (as in the figure), just as the missions are linked to the objectives. Then, the congruence between purpose and strategy is reproduced throughout the organization, and the objectives are imbued with a strong “sense of purpose.”

Fig. 8.2

Deployment of purpose and strategy

Here, each individual would be responsible for setting his or her own objectives. In hierarchical organizations, the objectives they choose might be guided—and ultimately approved—by a higher-level manager. But with other organizational models, such as autonomous teams or agile organizations, they might use methods for approving objectives in teams or other, more participatory approaches. In either case, there is a balance between top-down and bottom-up deployment of objectives. A manager may—and sometimes must—impose objectives on their subordinates. But they must also appeal to each person’s sense of responsibility and willingness to take the initiative in setting his or her own goals.

In MBM, the aim is not to achieve more ambitious objectives each year, but to fulfill the purpose more completely. Upping objectives by, say, 2% or 5% will not be enough unless it serves to infuse the purpose with a real sense of urgency. It may turn out to be necessary to raise objectives 50%, or lower them 20%. It is the purpose that gives meaning to the objectives, not the other way around.

Missions Scorecard

Purpose deployment would not be complete without the means to measure progress. Many managers, and management literature in general, would agree that measuring progress with indicators and ratios is essential for the day-to-day control of operations: “You can’t manage what you can’t measure.” To define indicators for management by missions, we used the scorecard method, which we had been using before we started the project. And we have found that the existing methods, in particular Kaplan and Norton’s balanced scorecard, are indeed a good starting point. However, there are certain important differences in outcome and procedure which we believe are worth briefly commenting on.

Scorecards came into use in the 1930s. They were based on ratios and indicators that recorded a company’s principal management variables. In the 1990s, Kaplan and Norton conducted an excellent critique of such scorecards. They pointed out that most of the indicators used by companies are essentially economic or financial and short term. By contrast, the “balanced scorecard” (BSC) includes other indicators, based on a representation of cause-effect relationships which the authors called a “strategic map.” Besides the financial perspective, the strategic map also encompasses the customer perspective, the process perspective, and the learning and growth perspective.

However, whenever we’ve tried to design scorecards centered around purpose, we have found that the BSC does not always have an adequate tool. This is because the BSC uses the same preestablished perspectives for all companies, whereas a purpose may include different perspectives. For this reason, we regard the BSC as an intermediate solution.

Moreover, in the BSC approach, customer service, employee motivation and community contribution are not ends in themselves, but means to improve a company’s financial performance. With reference to quality enhancements or reduced customer response times, for example, Kaplan and Norton suggest that such improvements “benefit the company only when they are translated into improved sales and market share, reduced operating expenses, or higher asset turnover.”⁷ However, in the MBM approach, missions are important in themselves, as they are implementing the company purpose. This difference in approach ends up having multiple repercussions when put into practice.

But these repercussions disappear when the scorecard is derived directly from the corporate purpose and becomes, in essence, a “missions scorecard.” Such a scorecard is the result of translating purpose into missions that contain specific, measurable performance goals as well as indicators for each one of the missions. The scorecard thus derives directly from the corporate purpose and is not necessarily limited to financial indicators or preestablished perspectives.

The purpose scorecard usually includes many of the indicators we use regularly in day-to-day management (for instance, that appear in a traditional BSC). In some cases, however, a company may have to exercise their creativity and develop new indicators, especially for mission statements addressing intangibles such as customer service, employee satisfaction or impact on society. Table 8.1, which ties back to the example of the shared missions in the previous chapter, below shows the scorecard designed around the purpose and missions of a company with clearly defined success indicators.

Table 8.1 Example of a missions scorecard

Competency Development

In 1988 , Boeing published and distributed among its employees a document that listed, in the form of clear and specific behaviors, the desired competencies that every Boeing manager was expected to develop. This list, based on a system known as “Corporate Direction,” similar to the missions and values, bore the title “Desired Characteristics of Managers.”

Five years later, Boeing chairman Frank Shrontz received a letter from employees saying that while the list of behaviors seemed reasonable, it bore little relation to the way people actually behaved in the company. As a corrective measure, Shrontz first scrubbed the word “desired” from the document title. He then established a management tool whereby each manager would send a questionnaire to his or her superiors, peers and subordinates, asking them to assess their manager’s performance in relation to the competencies and behaviors listed in “Characteristics of Managers.” This made Boeing a pioneer in the use of competency systems.

Competency management is aimed at enriching and complementing traditional MBO. While MBO focuses on goal setting (“what to do”), competency management looks at the means to achieve those goals (“how to do it”). Competency systems are designed to help companies evolve toward “a new system combining objectives and competencies”⁸ (the “what” and the “how”), where competencies are “observable behaviors that contribute to success in a task or function.”

In practice, most competency systems have three components:

• 1. A competency directory. This is a fairly concise document in which the company defines the competencies (usually totaling between 7 and 10) that it considers crucial to the success of its business. The directory also describes the observable behaviors resulting from each competency.

• 2. A measurement and assessment method. In line with the notion that “you can’t manage what you don’t measure,” competency systems establish various ways of measuring and assessing organizational members’ progress in acquiring certain competencies. Common measurement tools range from simple self-assessment to external assessment involving a person’s boss (90° feedback), subordinates (180° feedback), or peers (360° feedback). In some instances, customers can also provide feedback.

• 3. A development plan. The purpose of the development plan is to reinforce a person’s strengths and address any deficiencies or areas for improvement. Development plans may be implemented at the individual, group or even company level. Three of the most important development tools are training courses, on-the-job training and coaching.

Such tools are inadequate and ineffective, however, unless people genuinely want to improve. Many competency systems fail precisely because the people who are supposed to acquire certain competencies (especially bosses) don’t see why they should. Therefore, the first step in any competency management system is to get people to accept the need to acquire certain competencies. The aim is to encompass the “what,” the “how,” the “why” and the “why.”

In MBM, competency systems derive from the company’s missions and values (see Fig. 8.3). Based on the missions and values, a company can define a set of generic competencies that will be applicable to the entire enterprise. In addition, it can develop specific skills through shared missions and adapt them to the particularities of the different teams or people.

Fig. 8.3

Competency directory

MBM also gives managers a new responsibility in the form of what we earlier termed the managerial mission: to contribute to the development of subordinates. This means that coaching is one of the basic functions of any manager. A manager must see to it that their subordinates “realize their potential and develop their professional capabilities.”⁹

Performance Appraisal

There is a direct relationship between the way a company is managed and the way employee performance is evaluated. Specifically, we can distinguish three different appraisal methods, depending on a company’s management system and leadership styles.

First, recall that in management by tasks, we find the “command and control” type of manager, who manages people through strict role assignments. This type of manager is unlikely to produce a good performance appraisal; instead, he or she will merely correct mistakes when subordinates fail to carry out their job exactly as required. This way of managing people tends to foster a reactive attitude in subordinates, because they are afraid of making mistakes and so do the bare minimum. As a result, employees’ potential and motivation are wasted.

In a more advanced system such as MBO, managers are encouraged to delegate, and subordinates are encouraged to assume responsibility. Each employee works in a context defined by certain objectives, which are their assumed responsibility; they accept them as a challenge and pursue them proactively. In MBO, performance appraisal is not just about a manager correcting mistakes. Instead, performance measurement is centered on the degree to which mutually agreed objectives are achieved. Although MBO has proven effective, it still has limitations when it comes to developing an employees’ full potential. Because employees’ efforts and energy are focused entirely on achieving the agreed objectives, they tend to lose sight of the big picture or the needs of the whole.

MBM overcomes this limitation through what we call “integral evaluation,” which is centered on employees’ contribution and development. MBM combines goal achievement with other qualitative or intangible factors, such as personal behavior and competency development making it easier to assess the way in which each employee contributes to the fulfillment of the company’s purpose.

To do that, we use a system of integral evaluation where intangible factors carry as much weight as tangible or quantitative measures. Take the case of a sales manager, for example, integral evaluation does not merely count the contribution to sales; it also measures other outcomes that are important to the accomplishment of the missions, such as collaboration with other departments, customer satisfaction or the development of particular leadership skills.

Integral evaluation under MBM is an effective way to develop each person’s potential to its fullest, while also serving the company’s purpose. The focus on results remains, but there is also a broader perspective, one that takes the long view and the organization’s values into account as well. However, for integral evaluation to work, a company must link performance evaluation to all success factors, both quantitative and qualitative, and not manage behavior through financial incentives alone.

Some authors further recommend that qualitative factors be assessed separately from quantitative factors and at a different time of year, so as to avoid any association between the two. In fact, there are companies that do monthly or even weekly evaluations on performance in areas related to the shared missions, purpose or even personal development. Meanwhile, they proceed with their traditional assessment of economic objectives separately, either annually or semi-annually. Whatever practice a company adopts, evaluation must not be seen as a form of wage negotiation, but as an exercise designed to help fulfill the purpose and develop competencies.

In Table 8.2, we summarize the different philosophies on performance appraisal.

Table 8.2 Performance appraisal

Management Systems and Leadership

Leadership and management systems need one another to bring about lasting cultural change (see Fig. 8.4). In MBM, the leader is a catalyst and facilitator of change who uses a variety of management systems to build unity around a set of shared missions and corporate purpose.

Fig. 8.4

Virtuous cycle of MBM

Just as you need a good car and driver to win in Formula 1 racing, in MBM you need the right systems (purpose-driven) and the right leader to navigate them. The most important act of a leader is to generate a multi-layer of leadership so that the company purpose does not just sit at the upper levels, but rather embeds itself into each level of the organization.

This style of leader, which we would call missions-driven leadership (MDL), is required along with the proper use of the management systems outlined in the MBM methodology. In the next chapter, we will go into more detail on the type of leadership required for successful MBM implementation .

Restoring Commitment

In April 2004, at Shell’s offices in Portugal, when it was finally confirmed that the company was going to be sold, its employees were overcome with anguish and fear. They could not believe that Shell, the oldest oil company in Portugal, had decided to sell its assets after 92 years in the country. Just one year prior, the latest work environment survey had been launched and the item with the highest level of agreement, representing 98% of the workforce in Portugal, was: “I am proud to belong to Shell.”

Repsol, the buyer, was a Spanish company that had been in Portugal for just ten years trying to break into the market. Despite being a benchmark company in the oil industry in Spain and some Latin American countries, it was relatively unknown in Portugal. In addition, Repsol had a bad image, due to the spread of false reports saying the gas and fuel they sold were of poorer quality. When the Repsol representatives informed the employees of the acquisition, nearly all the Shell personnel got up from their seats and walked out of the hotel conference room where they had gathered.

The ensuing years were marred by confusion and resistance to change. The constant overhauls of the strategy during that period did anything but provide clear objectives or vision. After years of downsizing and other reorganization efforts, the company’s staff was at a loss. A work environment survey showed that Repsol Portugal employees still did not see a clear direction. As a result of these data and the progressive deterioration in the financial performance of the different business lines, the company held a series of work sessions to carefully analyze the internal situation. In conclusion, three out of four participants agreed that the main problems were lack of trust, poor communication, low degree of collaboration between different departments and lack of leadership. The Repsol Portugal management team realized the need to move things in a new direction.

Faced with this challenge, the management team started working on a new change initiative based on management by missions. The aim was to earn people’s commitment from the ground up, by creating a sense of mission. The first step of this new initiative was a reflection exercise to debate and specifically identify Repsol Portugal’s reason for existence. As a starting point, they took the key stakeholders of the Repsol Group—customers, shareholders, people and society at large—and, based on those groups, the missions of Repsol Portugal were established.

To the management team’s surprise, there were many points of convergence during the discussion. Directors, regardless of their background, found that, at least when discussing the essence of the business, opinions were remarkably consistent. With that, the executive committee established a shared commitment that, symbolically, all attendees signed.

For the first activity in the deployment process, each of the department directors met with their team to develop missions for their area. In the end, shared missions were defined in all nine divisions of the company. The preparation of these exercises was supervised by an external expert, but in each case, it was established that the area manager would be the one leading the process. This way of proceeding and communicating turned out to be particularly effective, as this ensured that the missions had credibility and the support of all the managers.

After the process was completed, they built a large mural and invited employees to sign it, symbolically showing their commitment to the missions. In all, 280 signatures were collected, representing 90% of the workforce, and the mural—10 m wide by 2.5 m tall—was placed in the cafeteria, so the employees could see it anytime.

Once the shared missions had been defined, the next step was to bring them to life through the different management tools and practices that already existed at different levels of the company. The objectives were tied to the missions; interdisciplinary projects linked to the missions were established, which were then added to the agendas of the different team meetings; projects were launched to improve cooperation and interdependence between areas (support commitments); a “missions scorecard” was designed to measure progress and evolution of the missions; and special projects were developed for the different areas of the missions, such as customer service, employee satisfaction, increased profitability and social work, among others.

All of these efforts were backed by “enveloping” communication, which used the missions as a basic framework to channel the company’s different communications and interactions. For example, the company magazine was completely updated using the missions’ design, colors and graphics. When talking about any news, event or occurrence, it was related, in both graphic and written form, to some aspect of the missions. The same was done with the intranet, corporate videos, employee communications, results presentations and so on. And so, instead of being communicated to a select few, the missions became the logical, graphic and symbolic basis of all company communications.

At the same time, to support the managers’ efforts, they were offered a voluntary program of personalized coaching. This program, which was embraced by all directors, was designed to guide the main promoters of the project and support them in the development of missions-driven leadership. The leaders voluntarily undertook the change and, thus, increased their moral strength and set an example to promote it among their collaborators.

During the following years, it began to show results. For example, more cooperation, better goal alignment, increased sense of belonging, greater recognition and an improved work environment. After the first year, one of the most symbolic and enthusiastic displays of the progress being made in the company came during the December meeting, which employees traditionally attended for the annual results review. When the presentations ended, the entire audience unexpectedly gave a rousing standing ovation.

Over the next two years, these positive results were bolstered by an increase in operating profit of more than 150%. The Repsol Group once again launched a company-wide climate survey, which had a 94% response rate among Repsol Portugal employees. Reacting to statements such as: “I identify with Repsol’s plans for the future” and “I am proud to be part of Repsol,” Repsol Portugal received responses that were 87% and 90% favorable, respectively. In just a few years, Repsol Portugal’s business unit became one of the divisions with the highest level of commitment and identification in the entire company.