As part of my ongoing experiment with Arcane Liberty, I’ve decided to open up this site to guest bloggers. Topics can be “op-eds”, essays, observations, journalistic style reporting, or in this case a book review. I ask that it be on topic for this blog. Economics, politics (especially libertarianism), business, finance, etc. I just ask it be a reasoned article, and keep it clean (PG). If you are interested, send me an e-mail, arcaneliberty at gmail.com.
My first guest blogger is a friend of mine named Collin Petty. I think you’ll find his review quite fascinating, I certainly did. You can find out more about Collin in his bio, found at the bottom of this post. And now on to the review.
In-Depth Book Review: Hidden Value, by Charles A. O’Reilly III and Jeffrey Pfeffer
Hidden Value is subtitled “how great companies achieve extraordinary results with ordinary people.” This immediately gives away the overarching theme of the book, which attempts to observe and report on the actions of top leadership in 8 different companies, and how the values, culture, and organizational design affect employee commitment and motivation. The premise of the thesis is that great companies with great culture can’t easily be imitated – that the people working for these companies are who truly make the difference. Hidden Value’s message is that the attitudes, value systems, organizational commitment, and culture fit of the employees make the difference between great companies and average ones.
The first lesson from Hidden Value is actually not from the authors but from Herb Kelleher, the historically charismatic former leader of Southwest Airlines and oft-referenced keeper of their uniquely “fun” culture. Southwest has been able to preserve its culture by growing slowly and methodically, placing the importance of hiring for fit above the short-term financial merits of expanding quickly. In doing so, it carefully hires people who are willing to take a pay cut to work for them, who want to progress through career steps with the company and make a long-term commitment, who desire to exhibit the company’s passion for customer service, and truly live the values of maintaining a fun culture and doing things a bit differently… If one does a brief search on YouTube for Southwest Airlines, one can doubtlessly find many clips of employees whose behavior characterizes just what I’m talking about, such as this employee’s unique boarding announcement, viewable at http://www.youtube.com/watch?v=U_yW1zdQzaY&feature=related.
Next, we learn about the value of frugality and hypersensitivity to changing market needs by examining Cisco Systems. Cisco has done what many technology companies fail to do in that they retain their most critical asset – people — in a hypercompetitive marketplace. Cisco’s CEO, John Chambers, realized that in order to grow quickly and stay ahead of the technology curve (which is often measured in months, not years), they must always be looking to acquire companies with needed technology and socialize their employees rapidly, if the cultures are deemed compatible. It is these two core competencies – retention of talent and rapid yet careful acquisition — that have allowed Cisco to maintain a leading position in a constantly evolving marketplace. Chambers speaks candidly about not clinging to a technology religion and giving the customer exactly what they want, even if it is an inferior technology that might be replaced soon, saying “we have no technology bias” (O’Reilly / Pfeffer 55). Ironically, is this non-committed attitude that has allowed Cisco to stay relevant in a turbulent, highly complex market. One of the most innovative things I discovered about Cisco was their “Make Friends @ Cisco” recruiting tool. This enables casual career browsers to be matched with their Cisco counterpart, after which the Cisco employee will make contact with the potential recruit and give them an overview of life at Cisco. If the employee believes their new friend may be a good hire, they can refer them to a manager for an interview. At Cisco, ultimately it is the core values of the importance of cultural fit, and “…a shared vision, speed, frugality, and the need to continually change” (O’Reilly / Pfeffer 76) that allows its people and the organization to succeed.
The Men’s Warehouse is next explored as a success story in a declining market, lest we chalk up the other companies’ success to a ripe market. Retail in general is not an industry where truly great employee performance or accomplishments are realistically expected. The potential candidate pool is of mostly part-timers with little commitment; most are young and relatively undereducated. The skills required are largely portable, too, contributing to abysmal industry-wide attrition. The Men’s Warehouse attempts to differentiate itself, compensating its “wardrobe consultants” rather well, and treating employees with generally more and better care and with higher expectations in return. They give potentially good employees “second chances” when they fail, and invest millions of dollars every year in development and training, gaining commitment and excellence in customer service in return for a generous base-plus commission compensation package. Again, people are the key factor, and unlocking their potential is how the best retailers are continuing to succeed even in grim economic climates that continue to stagnate, even twelve years after this book was written.
Chapter Five gives us a peek into the extraordinary software giant known as The SAS Institute. SAS is in a very complicated business. They partner with – not just sell to – business and institutional customers who use their software on license to perform incredibly complex, precise statistical analysis of enormous chunks of data, while creating relationships with the companies they do business with. Incidentally, SAS Institute today finds itself enviably positioned. Although the media has centered on Google and Facebook in particular, many companies are doubtlessly eager to exploit the wealth of knowledge they have collected about their users, but how that will translate to revenue is not yet clear – “Everyone has a feeling that this unprecedented resource will yield something big, but nobody knows quite what” (Simonite, 2012). SAS is uniquely positioned to serve this market and capitalize on this enormous new power that social networking sites, banks, Apple, Google, and others have based on their knowledge of our collective buying habits, social circles, interests, arcane hobbies, etc. (yes, that was a nod to the blog’s owner). SAS’ uniqueness is oriented about its holistic view of people and family-friendly integration of work and personal life. Indeed, SAS’ overarching strategy is built on relationships, with customers through licensure renewals and impeccable service, and with employees through seeking long-term egalitarian attachments. A few of the ways they accomplish this is through providing their employees with peerless benefits, such as on-site child care, health benefits including an on-site treatment facility staffed by SAS-employed doctors and nurses, a health-conscious cafeteria staffed by SAS employees, and discounted land near the campus available to employees for home sites. SAS’ top management believes strongly in a Theory-Y (MacGregor, 1960) intrinsic motivation of their employees, in which it seeks to build rapport by treating their employees with dignity and respect, offering them a “fun” place to work, in exchange for organizational loyalty and commitment. The strategy continues to pay off, as SAS has one of the lowest turnover rates in the industry. David Russo, former head of Human Resources, comments that “the best way to produce the best and get the best results is to behave as if the people who are creating those things for you are important to you individually… …why we do the things we do is what’s important. The things we do are secondary….if you really mean that your people are important, you will treat them like they are important” (O’Reilly / Pfeffer 108).
We see this strategy paying off at PSS World Medical as well, where individual drivers delivering supplies to physician’s offices have the job title of “CEO” printed on their business cards (O’Reilly / Pfeffer 127), signaling their empowerment to make things happen for the customer, whatever it takes. It also signals the company’s belief in their ability, which is reflected in the openness with which they operate. PSS World Medical gives its employees unprecedented access to financial data, performance metrics both at the branch and corporate levels, and expects them to act like owners. The goal is empowerment, using open book management to “drive out fear” with the ability to “fire the boss,” supporting employees with unequalled training, while holding people accountable for their results.
A common theme emerges by about two-thirds of the way through the book. “Each of these organizations is managed in a way that leads to immense productivity from their employees. Southwest does this through their fifteen-minute turnarounds [of aircraft]… …The Men’s Warehouse invests in people, who then sell more merchandise than their competitors. AES, a company that runs power plants, reaps a similar reward by running their plants with greater efficiency than the competition. PSS has sales reps who call on 33 percent more accounts on average and are better at meeting the customer’s needs. Each of these firms does this not by pressuring or “pushing” people but by giving them information, opportunity, training, coaching, and a fun place to work. The secret of these companies is no secret at all – it simply requires more attention to detail than many managers are willing to devote. Success is in the small operational details, not the grand strategic decisions that entrance many senior managers” (O’Reilly / Pfeffer 149-150). But more than providing attention to people, it begins with hiring the right people and ensuring the right people are in the right places for synergy to occur.
AES, as previously mentioned, recruits and selects for aptitude and cultural fit, not for current skill. The company believes that skills can simply be acquired, but attitude and ability are more important. The company also encourages risk-taking among its employees (not in safety but in initiative), allowing employees the freedom and flexibility to pursue business goals and initiatives that they believe hold promise without fear of reprisal. Again, the hallmarks of the leadership at AES are giving people the power and responsibility to do their jobs, and then to trust and enable.
If there were an objection raised that starting with the right people make all the difference, O’Reilly and Pfeffer then explore a company whose entire workforce was laid off, only to be hired back by a re-envisioned new venture following entirely different management principles. NUMMI (New United Motor Manufacturing) was created from much of the old workforce of the defunct Freemont GM Assembly Plant, following a lean production system pioneered by the Toyota Motor Company, instead of the union-steeped labor practices that had brought quality to its knees and production to a standstill. The goal was to foster “…an innovative labor relations structure, minimizing traditional adversarial roles and emphasizing mutual trust and good faith” (O’Reilly / Pfeffer 183). The new system encouraged employee participation, centered on a new team-based culture. It offered employees continual training and a relatively flat wage structure, job redesign based on ergonomic factors and job enlargement, and the sharing of information widely with peer coaching and a peer Team Leader. The lessons from NUMMI are clear – if management truly believes in the values they are stating, they will act in accordance with them. If not, the old command structure will reappear over time, and it will become painfully clear of the dichotomy between espoused values and actual values. Employees will see right through the supposed “commitment,” lose respect for management and their supposed “value system,” and act accordingly.
As an experiment in the latter, the book concludes in the fiercely competitive semiconductor industry, exploring a company where the alignment is off, and practices do not always match the values supposedly held by the CEO and top management. At Cypress Semiconductor, a company that flourishes on rapid adaptability, it is critical that employees not be micro-managed and allowed flexibility to focus on one goal or another. Yet, tracking software is used to critically monitor employee goal attainment – even to the point of withholding paychecks until goals are met. This unresolved conflict between management’s supposed trust in employees and their actual behavior in implementing software that undermines that trust causes value congruence conflict, and holds back the organization’s potential.
So it’s clear from reading about these organizations that people-centered companies can succeed brilliantly by following several deceptively simple guidelines. It’s vital to put values and culture first, and make sure what senior managers say and do are congruent with those values and culture, and ensure that people are hired for fit. This is not to say that performance is not important – in fact, all of these companies place high value on performance and are noted for how fiercely they compete. “What is different in these firms, however, is the emphasis they place on two dimensions frequently absent from their competitors: a sense of purpose – why what they are doing is important – and the importance and dignity of people… …the larger purpose of the organization through both management actions and practices” (O’Reilly / Pfeffer 235). Of equal importance is to make the values real and to align them with organizational goals consistently, creating a strong organizational culture and then staffing that organization with people who fit, investing in those hires, sharing information with them, empowering them, linking them with team-based systems once socialized, and rewarding and recognizing the right performance for the right reasons.
This is what O’Reilly and Pfeffer’s theme is and the “Hidden Value” to be found in organizations: people! But quality people need to be led, not managed. Properly led, people in organizations exhibit what the authors refer to as distributed intelligence. “Dennis Bakke has commented that he may not be as smart as some other CEOs, but that collectively, “AES’s people, all 10,000 of them, are very smart, and he would bet them against any single CEO” (O’Reilly / Pfeffer 258). It is this collective of ideas, insights, and wisdom of the workforce that makes the organization great – and greatly successful.
There are many principles of Hidden Value that I found to be applicable as I grow my leadership potential. One of these that immediately came to mind was the concept of what is central to one’s work – what truly matters – and how great organizations like AES empower employees to get things done within the framework of their capability. I was immediately taken back to one of my first classes as a graduate student, Management in a Changing World, taught by Dr. Don Van Ornam. While doing ancillary readings for the class, I became ideologically enamored with British economist and social philosopher Charles Handy’s idea of The Doughnut Principle. Perhaps you are familiar with it, but if not, I will explain briefly. Handy compares a job to an inverted doughnut, where instead of the hole in the middle you have a core, and outside of the core, you have an area bounded by the doughnut’s edge. The core is the essential function of the job, and outside of that is an area that resides inside the boundaries of the doughnut, which represents the variable potential of the job. Thus, the potential is variable; one can develop as much or as little of it as one might want or be capable of, but it does have a limit. It must. Good companies place controls on what is ultimately expected of their employees, too, for as the doughnut has a boundary, so must a given role. “Without a boundary it is easy to be oppressed by guilt, for enough is never enough” (Handy, 1994). Conversely, good companies know what’s at the heart of their employee’s core functions and reinforce what’s truly important, but “Societies [and organizations] which over-emphasize the core can be too regulated” (Handy, 1994). Quality organizations strike a balance between the two expectations of employees.
In the case of some organizations, just finding and keeping employees is one of their greatest challenges. Hidden Value, even though fully twelve years old, recognizes this fact relatively early in our transition to a knowledge economy (away from the service economy that characterized the closing decades of the 20th century). Gone are the days when employees are loyal to an organization because it meets some, or even most, of their needs. Hidden Value recognizes those companies who seek to create a long term relationship with their employees, recapturing an era of organizational commitment that many have dismissed as the relic of a bygone era of capitalism. For example, all of the companies featured in Hidden Value try to help employees reach self-actualization (in Maslow’s Hierarchy of Needs), and go a step further by creating processes, procedures, and equitable reward systems that satisfy Adam’s Equity Theory (such as at PSS World Medical), and Vroom’s Expectancy Theory (such as at AES). These companies aren’t just paying lip service to these principles, but allowing them to pervade the strategic thinking that sets policies in the first place. I would do well to embrace these when creating and shaping the culture within my own “doughnut,” or sphere of influence.
So once again, I return to Charles Handy and how his thinking relates to Hidden Value and the practical examples set forth in this book. I come away from reading Hidden Value with practical insights as to how organizations are implementing the abstracts that Mr. Handy set forth. When I think of Handy’s principle of “portfolio lives” (Handy, 1991), I think of the knowledge workers that Cisco and SAS seek to court a long-term relationship with. Regarding the former, Handy foresaw in The Age of Unreason the emergence of workers who would pursue “a multi-faceted, multi-client freelance career in which individuals take responsibility for their own earning potential, personal development and general well-being” (Handy, 1991). Employees in our new knowledge-based economy are in fact independent to an extent rarely approached in organizations, moving about among a portfolio of jobs, employers and even kinds of work. Similarly, Handy contends that a mid-career course correction can open new challenges and achievements in what was once viewed as the twilight of one’s career, which is actually encouraged at AES. They give “…people responsibility, letting them move to new jobs, and holding them accountable for their decisions … and is the best way AES has found to develop future leaders and encourage people to learn” (O’Reilly / Pfeffer 164). Regarding ownership, Handy contends that workers should be corporate citizens who hold a financial stake in the company in which they work (such as at PSS World Medical, where many drivers own stock (O’Reilly / Pfeffer 139)). Handy furthermore believes that employees should enjoy a set of inalienable rights, such as the right to be heard (such as at NUMMI) and to even potentially block the sale of a company they work for.
Work / Family balance is important to great employees such as those at SAS, who are given the opportunity to reconcile the two by integrating on-site child care and allowing the flexibility to manage competing priorities. Again, I return to Handy in The Empty Raincoat, when he writes about modern life being about the identification, acceptance and management of paradox and in getting the balance right between work and life outside of work. Hardy sees this as balancing “the four p’s (Profit, Performance, Pay, and Productivity) with the four f’s (Family, Friends, Festivals, and Fun) (Handy, 1994). Hidden Value exposes how successful organizations like The SAS Institute leverage their employees’ innate capabilities by seeking to restore this balance. SAS’s top management, particularly those involved in interacting with employees and setting policy, believes that “…an employee with some of the normal workday stresses relieved … is more productive, not only for that day, but comes back more refreshed and able to be more productive that second day … and so on” (O’Reilly / Pfeffer, 108). If I can learn to apply this in some small way to my doughnut and help people seek to achieve balance in their own lives, my team or organization or business may benefit from this resolution of paradox in employees’ lives as well.
Perhaps the greatest idea I come away with from Hidden Value is regarding how we view our “human resources” – the new capital in a true knowledge economy – and is a philosophy from AES. “The company dislikes the phrase ‘human resources’ because steel is a resource, not people. AES people are called just that: AES people. You will not hear or see words like ‘employee’ or ‘worker’ in AES materials or in conversations at the company. In fact, the company does not even like or use the term ‘management.’ It’s not that AES people prefer ‘leader,’ but that they don’t like to distinguish between people on the basis of job titles or hierarchical positions” (O’Reilly / Pfeffer 169). I can think of no better philosophy that sums up the values expressed by the companies who have unlocked their own Hidden Value – and one I aspire to adopt in my own personal and professional career.
Hidden Value is available at many fine retailers or from www.amazon.com
Handy, C. B. (1989). In The age of unreason. Boston, Mass: Harvard Business School Press.
Handy Essentials | Handy Essentials – London Business School BSR. (n.d.). London Business School – Business Strategy Review – London Business School BSR. Retrieved from http://bsr.london.edu/lbs-article/576/index.html
Handy, C. B. (1995). In The empty raincoat: Making sense of the future. England: Arrow Business Books.
McGregor, D. (1985). The human side of enterprise: 25th anniversary printing. New York: McGraw-Hill.
O’Reilly, C. A., & Pfeffer, J. (2000). Hidden value: How great companies achieve extraordinary results with ordinary people. Boston, Mass: Harvard Business School Press.
Simonite, T. (2012, July/August). What Facebook Knows. Technology Review. Retrieved from http://www.technologyreview.com/featured-story/428150/what-facebook-knows/.
Collin Petty began life in the Golden State, but subsequently spent many formative years in Central Alabama, which probably explains his “arcane” thinking about what constitutes “freedom” or an “ideal” American societal model. He will gleefully wax semi-eloquently about the merits and drawbacks of a purely capitalistic society, but as a graduate student pursuing his MBA, has mellowed somewhat to embrace a shift to more organic systems of capitalism, and its intricate, complex influences on “the common man.” He embraces many Libertarian ideals, and spends a great deal of time pretending to philosophize about economics and sociology, considering the effects of strategic policy. He is known for challenging both the macro and micro impacts of everyday business, and often punts to Charles Handy or shamelessly mutilates a dubiously attributable quote. He listens to NPR, insisting that he’s not a closet liberal but simply a reflective nostalgic of radio shows such as This American Life or A Prairie Home Companion.
Collin resides in Chattanooga, TN, where he attends Southern Adventist University as a graduate student and insistently peddles a renewed faith in the future of manufacturing in the Tennessee Valley. On weekends, he can be found proselytizing his many hobbies, such as science and technology, weather, aviation, being a vegetarian foodie, hiking, anything related to automobiles, regional travel, or simply trolling about on social media. Collin can be contacted on Facebook or via e-mail at firstname.lastname@example.org