The Strategic Value of Values: A New Guidance System
By Rosabeth Moss Kanter
Any company can say it has values, but what Banco Real did was to embed them in business practice and make them credible to the skeptics inside and outside of their walls. Vanguard companies go beyond the lists of values posted on walls and websites by using their codified set of values and principles as a strategic guidance system. They gain business advantages from actions they take based on the societal responsibility these statements imply, as Banco Real does, both in terms of external constituencies in their extended family of partners and stakeholders and with regard to their employees.
After outlining some of the strategic uses by vanguard companies of their new or renewed values and principles, I will turn to exactly what is involved in transmitting them to people in the organization so that they internalize and use them in practice.
For vanguard companies, grounding strategy—which businesses to pursue and how—in a sense of wider societal purpose provides many significant advantages and only a few potential disadvantages. Values and principles of this sort not only speak to high standards of conduct but also stretch the enterprise beyond its own formal boundaries to include the extended family of customers, suppliers, distributors, business partners, financial stakeholders, and the rest of society. Vanguard companies gain both a moral compass and an entire guidance system. The range of advantages for vanguard companies through their strategic use of values and principles include the following.
- Competitive differentiation. The Banco Real case shows how an emphasis on purpose and principles builds specific lines of business as well as building the brand. Of course, success means that competitors might start emulating particular initiatives, and that happened in Brazil, too. But that merely raises the bar. The clear sense of purpose provides a wellspring that can produce the next wave of activity. Those who attempt to copy the strategy without having the underlying core principles in place will always be behind the vanguard.
- Public accountability via end-to-end responsibility. Societal purpose and values help meet an emerging public demand that companies know about, care about, and report about everything that goes into their products and services, from sources (e.g., labor conditions in paper plants where company stationery is manufactured) to applications and ultimate fate (e.g., how used computers are disposed of). Whether this is called acknowledgment of multiple stakeholders or ecosystem consciousness, greater contact across the value chain and especially with end users builds the company brand and triggers opportunities for innovation.
- Rationale for thinking long-term. Sustainability is more than a buzzword for vanguard companies, and it means more than being “green.” Values and principles help them create continuity through time, from past successes and traditions to present goals to future visions and changes. They become institutions that have meaning beyond the current bundle of assets or lines of business. That is important in a world of change. Values and principles help vanguard companies avoid “short- termism” and make choices with an eye on the future. “Management is temporary; returns are cyclical,” IBM CEO Sam Palmisano said, explaining to me why he puts so much emphasis on values and culture. IBM is the sole survivor among the other major computer companies prominent in 1975; it has entered and exited businesses, but it is recognizably the same institution.
- Common vocabulary and guidance for consistent decisions. The need for fast decisions and actions in far-flung or differentiated operations makes principles an essential decision-making guide. Clear articulation of values and principles helps employees choose among alternatives in a consistent manner. “One Cemex, we are only one Cemex,” CEO Lorenzo Zambrano declared to me. The Mexican company is one of the world’s top cement makers. At the time I met Zambrano, it had doubled its size by acquiring a large European company and was about to do it again by buying an Australian global company. Zambrano viewed clear core values and standards as an important element of success, particularly as Cemex expanded quickly overseas through acquisitions starting in the 1990s. Via the Cemex Way, a set of “best practice” principles and processes developed over the years to help people succeed in the Cemex family, the company disseminated its culture across its increasingly far-flung global network. “We know that high standards have to be applied everywhere.”
- Talent magnets and motivation machines. Talented people with many options are increasingly attracted to companies and stay there because of compatible values. Banco Real became one of Brazil’s most desirable employers for top college graduates; P&G and IBM also get the best in highly competitive labor markets because of their reputations and values. “At first, we thought of our reputation conceptually, as something that we needed to keep improving. Now we know it affects our ability to attract the right people. After all, businesses are a network of people working toward the same end. And everyone has to be proud of what they’re doing,” Zambrano said.
- “Human” control systems—peer review and a self-control system. In vanguard companies, belief in the purpose and embrace of the values generate self-guidance, self-policing, and peer responsibility for keeping one another aligned with the core set of principles. This kind of human control system does not work perfectly by itself, but it certainly reduces the need for rules and thus helps people feel autonomous. Rather than feeling forced into conformity, employees feel that they are willful actors making their own choices based on principles they can support.
Not everything is good, true, and beautiful, of course. There are potential pitfalls. One is foolish choices, in which, for example, social commitments do not have an economic logic that sustains the enterprise by attracting resources. Another pitfall is the creation of heightened expectations that are difficult to fulfill, leading to disappointment when performance falls short of the ideal or cynicism about whether company leaders really believe the lofty words in their statements of values. The first issue raises the question of whether companies should have anything in mind other than immediate business considerations; the second suggests that companies cannot live up to their pronouncements anyway. Vanguard companies must be on guard against these extremes.
Moreover, obtaining strategic value from principles-based guidelines requires attention to the business itself. Values and principles may be invoked to shape approaches, but a “business case” is also important. To be strategic, an initiative must also contribute to the fundamental way the company makes money, with customers and clients in mind. That strategic use of principles based on end-to-end responsibility is illustrated by one of Cemex’s international initiatives.