People are not a factor of production but an intangible asset to be developed via a coherent strategy and an engaging management style – with challenging implications for conventional business, writes Vlatka Hlupic
For many years, business management and education have been informed by economic theory, with an impersonal philosophy and lexicon. It feels rational to deploy the terms ‘human resources’ (HR) and ‘human capital’, converting an intangible asset into a factor of production with a cost and an approximate value.
In theory, this empowers managers to make more business-like decisions. The problem that has emerged with such an approach has been to dehumanise the company too far. If people, or human capital/resources, are conceived as just one of the assets, this downplays their importance, and misstates the behavioural reality of organisational life. The commonly expressed quest to align HR strategy and business strategy begs a bigger question: how did they come to be misaligned in the first place? All strategies ultimately depend on your people doing
the right things.
The conceptual problem is compounded by the traditional division of a corporation into departments, of which HR is but one of them, and a ‘command and control’ mindset in which all decisions have to be passed up the line before approval. For 20 years, my research has been dedicated to analysing the problems of a dehumanised business model, and developing an alternative. Empirically, I have learned that command and control management, in a company with departmental silos, leads to seriously suboptimal performance. Disengaged, or partially engaged employees and slowness of decision making can lead to erratic customer service and weaknesses in adaptation and innovation.
Levels of engagement and higher performance show some correlation and can be divided into five discernible strata:
• Level 1: at this level, the dominant emotion is fear, the leadership style is tyrannical and nothing gets done through voluntary effort.
• Level 2: at this level, the culture is stagnant and employees reluctant.
• Level 3: this is probably the most common level in workplaces: it is ordered, rule-based and competent, but also hierarchical and lacking in energy.
• Level 4: the move to this level involves a transformational shift, as higher engagement releases energy and ideas from motivated teams, geared towards solving the customers’ problems.
• Level 5: this level is a rarefied stratum of unbounded passion.
While the heights of Level 5 are hard to achieve and sustain, I am convinced that most employers could switch from Level 3 to Level 4; and the evidence I have gathered shows that, when they do, dramatic improvements in performance follow.
High engagement is not enough
If it’s that straightforward, intuitive and evidence-based, why isn’t this the norm? One explanation is that the aforementioned separation, or misalignment, can be deeply ingrained, so that efforts to boost engagement at team level are not sufficiently supported at strategic level. High engagement is not enough, and it won’t
be sustained without purpose and a coherent strategy.
In my 2018 book, Humane Capital, I interviewed 58 business leaders who combined high levels of passion and commitment among their employees with exceptional business performance. The interviewees led inspirational places to work that were cherished by investors as well.
The move from ‘human capital’ to ‘humane capital’ may seem like a softened approach; more inclusive and pleasant but something that could potentially compromise profit making. The evidence, however, shows that a committed approach to maximising engagement at Level 4, combined with an entrepreneurial culture and a smart strategy, leads to far higher financial returns than the more static Level 3-approach of treating people as resources. It involves transformation, not compromise.
Yes, the teams led by these 58 leaders had high engagement, but this was only part of the story. They were also allied to smart strategies, lean operations and continual innovation. They have a strong and widely understood sense of purpose. Moreover, the need for such teamwork, inclusivity and adaptability grows in an age of disruptive technologies and the shorter lifespan of a viable business model.
Cocoon Projects, based in Italy, was founded by Stelio Verzera, whose learning on this point occurred during the financial and economic crisis of 2008-2010. Rigid, departmentalised command and control structures were incapable of reacting to a need for change in time. He was one of the interviewees for Humane Capital, and
told me:
‘I was working in marketing innovation in 2008 when I first realised that new organisational models had to be devised and implemented. We experienced this in our own company when we were trying to get structured in order to grow. We started to apply the rigid and static structures, the tenets of which are taught in almost all Business Schools. It turned out to be the wrong thing to do in one of the biggest economic crises that hit Europe sometime between 2009 and 2010. We saw that almost all of our customers suffered from that error too… They were unable to adapt to the fast-changing environment where there was people disengagement.’
Instead, Verzera and his team devised a form of operating that they dubbed
the ‘liquid organisation’. It began with a blank-sheet approach and they asked themselves: ‘If starting afresh, what would a genuinely innovative and resilient company look like?’ They concluded that three dimensions were essential: openness, inclusiveness and leanness.
Strategy and tactics
Strategy and tactics are continually made and remade ‘driven by purpose, vision, values and emerging reality,’ in Verzera’s words. This replaces upfront budgeting and formal strategy sessions confined to an elite. The distance between those setting strategy and those responsible for implementation – what he calls the ‘air sandwich’ – should be as small as possible. The company is driven by principles, not rules. Another practice at Cocoon is that conventional performance appraisals are replaced with a concept of ‘contribution meritocracy’, in which a manager and an employee carry out continual co-assessment of the contribution to value made.
This approach is not only for trendy startups. I interviewed senior managers at corporations and in the public sector who reported tremendous improvements in productivity and performance by empowering their teams, rather than trying to dictate operations, and instilling a sense of purpose. Paul Polman was Chief Executive of the consumer goods giant Unilever between 2009 and 2018, and he instilled a sense of purpose around hygiene and alleviating poverty, rather than profits.
In the interview for Humane Capital, he said: ‘I’ve always made it very clear that by focusing on the consumer, by making our brands purpose-driven and by making that our main reason for being, our shareholders will ultimately benefit. Where we have conflict, it is with short-term shareholders or speculators… Short-termism is the world’s biggest challenge.’
During his tenure, Unilever soared in popularity among talented graduates and rated alongside younger, trendier digital firms. Data gathered for Humane Capital put the returns from such an approach well into the millions of dollars, even for medium-sized companies, and some interviewees credited the switch to Level 4 with saving the company.
One of the greatest barriers to switching to this high-engagement, high-performance culture is a tendency to underestimate the personal challenge. It is a different philosophy and mindset, compared with that of command and control. It can sound nebulous when described in outline terms, and there can be scepticism that the rewards really are as great as you see in the best firms. The way to make the switch is by doing and learning; by immersion, iteration and implementation. Experiential learning is not new, but it has been taken to new heights by some of the enlightened employers I have interviewed or worked with in recent years. The main thing that these leaders have in common is that they would never countenance a return to rigid departments, hierarchies and thick rule books.
Above all, the move to Level 4 is attitudinal and behavioural. It involves far more than techniques, tactics and knowledge. Advances in neuroscience inform us that, for optimal learning to take place, people need to engage different parts of the brain – those covering tasks, understanding, remembering, decision making and motivation.
Tapping the inner drive of individuals to make a difference and serve the customer is commercial gold dust that is downplayed, almost overlooked, in a conventional approach to business focusing solely on resources, strategy and technology.
Playing the game
Gamification is increasingly established as a more participative and effective learning mechanism than seminars and instructions. So, to assist managers making the shift to high engagement and performance, and to help students in executive education learn the key principles and strategies, I devised a strategy board game.
The game, also named Humane Capital, enables participants to identify the most pressing issues in their organisation and begin practical steps towards the shift to high performance. It’s based on eight pillars for leveraging humane capital that the research shows are decisive: mindset, motivation, purpose, values, alignment, self-organisation, a caring ethos, and organisational learning.
The game helps participants identify which of these pillars are helping their organisation to fulfil its potential and which are hindering it. It then enables identification of an action that would counter any problems and unleash higher levels of collaboration and purpose. Strategies utilised by the game have been contextualised for four sectors: corporate, SME/entrepreneurial, non-profit and public sector.
At the highest levels of organisational performance, the evidence shows us that employee engagement is necessary, but not sufficient. With the latest findings, we are learning more about the different dimensions of ultra-high performance, including how individual managers themselves prepare and learn.
Vlatka Hlupic is a Professor of Business and Management at Westminster Business School, CEO of The Management Shift Consulting and a Visiting Professor at Birkbeck, University of London.
