Big Think

Michael Beer: You need to think strategically about how you are going to manage, and lead the enterprise to enable an adaptive, resilient organization with high commitment and the capacity to innovate and change.

Michael Beer, Professor Emeritus at the Harvard Business School and Chairman of TruePoint.

Leaders of these organizations have made, and those who have aspired to build these firms, need to make a number of critical choices.

The first and foremost choice is about what is the purpose of the organization. Is it to increase shareholder's wealth and stop there, or is it more than that? Most high commitment, high performance organizations have a multi-stakeholder perspective. They see their tasks as achieving profitability, that's very important, it's essential for survival, it's essential for satisfying one of their critical constituencies, the investor, but they also aspire to create commitment not only in investors but in customers and employees, importantly in employees, and to be concern among the community and society as a whole. So the choice of purpose and the choice of values that reflect that multi-stakeholder perspective is an essential first step in the development of a firm. Without that philosophy, without that viewpoint, you can get Human Resource Departments to do all kinds of things with policies and practices you will not succeed.

The second important choice they make is about strategy. High commitment, high performance organizations are characterized by a logical incrementalism [sic], as a researcher once called it, logical incrementalism in their strategic evolution overtime. They don't strike out into areas they don't have capabilities there. They stretch their capabilities, they develop their capabilities and they move into adjacent areas and grow that way, off core capabilities.

Hewlett Packard, again, would be a great example. A core technology in test and measurement lead them to improve things for the customer, that led them to begin to develop computer capabilities, information processing capabilities, because that was part of building better test and measurement organizations. And then they began to apply those same ideas in other ways into the computer business, the server business and the printing business, which was an offshoot of that whole approach.

Logical incrementalism in their strategy, a strategy that both puts emphasis on exploitation and exploration. One of the companies that fail, they either focus on exploitation; let's make the most money we can, let's not worry about innovation and the future. Or they focus entirely on exploration; new ideas, new technology, but they don't focus on exploitation, and therefore their profit margins go down and eventually they're forced to make decisions that are not good for them, not good for the long run.

The third element is risk management, and we've seen that in spades in the 2008-2009 period, with the deepest recession we've ever had since the Depression. Firms that are high commitment, high performance organizations take very measured risks. I'm not saying they're not taking risks, they are taking measured risks and carefully considered risks.

Some characteristics of them, for example, that I found in Hewlett Packard, Southwest Airlines, I just interviewed Gary Kelly the CEO of Southwest Airlines about six, nine months ago. For example, they are characterized by very careful management of debt. In fact, HP had no debt ever other than short term debt. Southwest Airlines characterized by the same thing, no long term debt. In other words it's a self-financing idea here. Now in some industries that's not entirely possible, but you live as close to that set of ideas as you can.