Leadership

Beyond Strategy to Purpose

by Christopher A. Bartlett and Sumantra Ghoshal
From the Magazine (November–December 1994)

Structure follows strategy. And systems support structure. Few

aphorisms have penetrated Western business thinking as deeply as
these two. Not only do they influence the architecture of today’s
largest corporations but they also define the role that top corporate
managers play.
Yet these aphorisms and the management doctrine to which they have
given rise are no longer adequate. The job they prescribe for senior
management is no longer the job that needs to be done. Senior
managers of today’s large enterprises must move beyond strategy,
structure, and systems to a framework built on purpose, process, and
people.
The concepts that still define most senior managements’
understanding of their roles have their roots in the 1920s, when
Alfred Sloan at General Motors and a few of his contemporaries were
engineering a new strategy: diversification. Those pioneers
discovered that diversification benefited from a divisional structure
and that tightly designed planning and control systems in turn
supported that structure. From then on, the strategy-structure-
systems link has been an article of faith reflected in the design of MBA
programs, reinforced in consultants’ reports, and confirmed in the
actions and mind-sets of practicing managers worldwide. Top-level
managers view themselves as the designers of the strategy, the
architects of the structure, and the managers of the systems that
direct and drive their companies.
For decades, this philosophy served companies well. It supported
successive waves of growth as companies integrated horizontally in
the 1950s, diversified in the 1960s, and expanded into global markets
in the 1970s and early 1980s. But over the last decade, technological,
competitive, and market changes have eroded its effectiveness. The
problems of companies as diverse as GM and IBM in the United
States, Philips and Daimler-Benz in Europe, and Matsushita and
Hitachi in Japan can be traced, at least in part, to top management’s
cleaving to this philosophy too tightly and for too long.
The great power—and fatal flaw—of the strategy-structure-systems
framework lay in its objective: to create a management system that
could minimize the idiosyncrasies of human behavior. Indeed, the
doctrine held that if the three elements were properly designed and
effectively implemented, large, complex organizations could be run
with people as replaceable parts. Over time, as corporate size and
diversity expanded, strategies, structures, and reporting and planning
systems became more and more complex. Employees’ daily activities
became increasingly fragmented and systematized.
In the benevolent, high-growth environment that followed World
War II, strategy, structure, and systems offered much-needed
discipline, focus, and control. Today’s economic environment is
different. Overcapacity and intense competition are the norm in most
global businesses. The lines separating businesses have blurred as
technologies and markets converge, creating new growth
opportunities where traditional businesses intersect. And, most
notably, the scarcest corporate resources are less often the financial
funds that top management controls than the knowledge and
expertise of the people on the front lines.
Analysts have many prescriptions for these challenges, and executives
have rushed to adopt them: from focusing on strategic intent to
inverting the organizational pyramid; from corporate reengineering
to employee empowerment. Yet after five years of research in which
we studied 20 large, vigorous European, U.S., and Japanese
companies, we believe that these prescriptions address the artifacts of
the problems and not their causes. They focus on partial, operational
solutions. What managers need, however, is a fundamental change in
doctrine.
Consider some examples. Over 30% of 3M’s sales come from products
introduced in the last five years. How has 3M managed to retain its
innovative capability and entrepreneurial spirit despite its $14 billion
bulk? What enabled ABB to transform two also-ran companies into
the leaders in the global power-equipment industry while world
markets were in recession? How has Canon managed to grow and
renew itself, expanding from cameras to calculators to copiers to
computers? And what has kept other large, complex companies like
AT&T, Royal Dutch/Shell, Intel, Andersen Consulting, Kao, and
Corning from succumbing to the so-called inevitable decline of large
corporations?
Although the strategies, structures, and systems of these companies
have little in common, their leaders share a surprisingly consistent
philosophy. First, they place less emphasis on following a clear
strategic plan than on building a rich, engaging corporate purpose.
Next, they focus less on formal structural design and more on
effective management processes. Finally, they are less concerned with
controlling employees’ behavior than with developing their
capabilities and broadening their perspectives. In sum, they have
moved beyond the old doctrine of strategy, structure, and systems to
a softer, more organic model built on the development of purpose,
process, and people. In this article, we examine the first element of
the changing role of top management: shaping organizational
purpose.

Top managers of successful companies

share a surprisingly consistent
philosophy.
Such a transformation can start only with top management. Before
senior managers can realign behavior and beliefs throughout the
corporation, they need to change their own priorities and ways of
thinking.
From Setting Strategy to Defining Purpose
Formulating strategy has long been the domain of top management.
From Alfred Sloan to Lee Iacocca, the powerful, even heroic image of
the CEO as omniscient strategist is ingrained in business history and
folklore.
When companies were smaller and less diversified, setting business
strategy was a straightforward task. As companies grew larger and
more complex, however, senior executives needed elaborate systems
and specialized staff to ensure that headquarters could review,
influence, and approve the strategic plans of specific business units.
Over time, the workings of increasingly formalized planning
processes eclipsed the utility of the plans they produced: sterile
generalities to which frontline managers felt little affinity or
commitment.
Ironically, disaffection only increased as senior managers ceded
responsibility for unit-level strategy to the divisional managers and
shifted their own attention to crafting an overall corporate framework
and logic. That shift led senior managers to explore the elusive
concept of business synergies, to work on balancing cross-funded
strategic portfolios, and, in recent years, to articulate notions of broad
strategic vision or highly focused strategic intent. Meanwhile, the
people actually running business units grew increasingly confused
about their roles. The elaborate contortions required to fit their
strategies into the corporate rationale frustrated them. Classification
of their complex businesses into simplistic, portfolio-funding roles
demotivated them. And strategic visions that seemed vague or
definitions of strategic intent that were overly constraining made
them cynical. All in all, top management’s efforts to provide strategic
leadership often had the opposite effect.
The problem is not the CEO but rather the assumption that the CEO
should be the corporation’s chief strategist, assuming full control of
setting the company’s objectives and determining its priorities. In an
environment where the fast-changing knowledge and expertise
required to make such decisions are usually found on the front lines,
this assumption is untenable. Strategic information cannot be relayed
to the top without becoming diluted, distorted, and delayed.
CEO Andy Grove, for example, acknowledges that for a long time
neither he nor other top Intel executives were willing or able to see
how the competitive environment had undermined the company’s
strategy of being a major player in both memory chips and
microprocessors. Yet for two full years before top management woke
up to this reality, various project leaders, marketing managers, and
plant supervisors were busy refocusing Intel’s strategy by shifting
resources from memories to microprocessors. Management, Grove
confessed, might have been “fooled by our strategic rhetoric, but
those on the front lines could see that we had to retreat from memory
chips . . .. People formulate strategy with their fingertips. Our most
significant strategic decision was made not in response to some clear-
sighted corporate vision but by the marketing and investment
decisions of frontline managers who really knew what was going on.”
Yet at the very time that top-level managers are acknowledging their
own limits, many are also learning that the people who can
“formulate strategy with their fingertips” are deeply disaffected.
Neither the valueless quantitative terms of most planning and control
processes nor the mechanical formulas of leveraged incentive systems
nurture employees’ commitment or motivation. In fact, even this
fragile relationship is eroding as successive waves of restructuring,
delayering, and retrenching weaken any reserve of corporate loyalty.
In most corporations today, people no longer know—or even care—
what or why their companies are. In such an environment, leaders
have an urgent role to play. Obviously, they must retain control over
the processes that frame the company’s strategic priorities. But
strategies can engender strong, enduring emotional attachments only
when they are embedded in a broader organizational purpose.
This means creating an organization with which members can
identify, in which they share a sense of pride, and to which they are
willing to commit. In short, senior managers must convert the
contractual employees of an economic entity into committed
members of a purposeful organization.
Embedding Corporate Ambition
Traditionally, top-level managers have tried to engage employees
intellectually through the persuasive logic of strategic analyses. But
clinically framed and contractually based relationships do not inspire
the extraordinary effort and sustained commitment required to
deliver consistently superior performance. For that, companies need
employees who care, who have a strong emotional link with the
organization.
Prescriptions for forging such links surface regularly. One that is
currently fashionable calls for building a Zen-like focus on strategic
intent to challenge and eventually overcome less focused rivals. To
create an obsession with winning, top management identifies a
specific stretch target (typically defined in competitive terms) and
drives the organization toward that goal through a series of operating
challenges.
The flip side of this technique, however, is strategic myopia and
inflexibility, because a laserlike focus risks constraining rather than
liberating the organization. Consider Komatsu. During the mid- to
late 1980s, Komatsu was widely cited as an example of the power of
strategic intent. But even as management students in the West were
admiring the company’s obsession with beating the market leader,
Caterpillar, Komatsu’s leadership had decided that “Maru-C”
(surround Caterpillar) had led to stagnation and stereotyped thinking.
Over the last four years, President Tetsuya Katada has reoriented
Komatsu toward a corporate agenda reflected in a new slogan,
“Growth, Global, Groupwide,” or the “Three Gs” for short. He
describes it as “a much more abstract challenge than one focused on
catching and beating Caterpillar, but it will stimulate people to think
and discuss creatively what Komatsu can be.” (See the insert, “From
Strategic Intent to Corporate Purpose: The Remaking of Komatsu.”)
From Strategic Intent to Corporate Purpose : The
Remaking of Komatsu
When he succeeded his father as Komatsu’s president in
1964, Ryoichi Kawai articulated an objective that the
company ...

Obviously, strategic visions can be so broad that they convey little

meaning or guidance to people deep in the organization. Andy Grove
is characteristically blunt in labeling most strategic vision statements
“pap.” Yet some of the elements of both strategic intent and strategic
vision are evident in the efforts that Grove and other top-level
managers are making to shed their uncomfortable and increasingly
inappropriate role as strategic gurus. Their objective is neither to
impose a tight strategic agenda on their line managers nor to inspire
them toward some ineffable goal. Rather, they are working to embed
a clearly articulated, well-defined ambition in the thinking of every
individual while giving each person the freedom to interpret the
company’s broad objectives creatively.
Three characteristics distinguish this approach from previous
practices. The executives we observed articulated the corporate
ambition in terms designed to capture employees’ attention and
interest rather than in terms related to strategic or financial goals.
They engaged the organization in developing, refining, and renewing
the ambition. And they ensured that it was translated into measurable
activities to provide a benchmark for achievement and a sense of
momentum.

Capture Employees’ Attention and Interest.

Defining a company’s objectives so that they have personal meaning
for employees is hard. Most such statements are too vague to be
useful to line managers, and often they are too out of touch with
reality even to be credible. At AT&T, Bob Allen found himself atop a
company that had to change from thinking and acting like a regulated
utility and do so amidst industry turbulence. The formal planning
process defined the key strategic task as loading more traffic onto the
existing telecommunications network and developing products to
meet the needs of an emerging infocom business. But Allen decided
not to talk about AT&T’s objectives in such rational and analytic
terms. Nor did he choose a competitively focused strategic intent—
countering Northern Telecom’s invasion of AT&T’s home market, for
example—or a broad vision of futuristic information highways and
virtual worlds. Instead, Allen chose very human terms, stating that
the company was “dedicated to becoming the world’s best at bringing
people together—giving them easy access to each other and to the
information and services they want and need—anytime, anywhere.”
This simple statement captured AT&T’s objective of providing
network linkages as well as the attendant access to information and
services—but in simple, personal language that anyone could
understand. Equally important, employees could relate to and take
pride in such a mission.
Other companies achieved a similar impact by focusing on the
development of core capabilities. At Corning, for example, CEO Jamie
Houghton challenged his organization to overlay its exceptional
technological capability with a commitment to quality that would
make the company truly world-class. To an organization that was
feeling demotivated and even defeated, this commitment to quality
provided a focus for rebuilding organizational pride and self-
confidence while simultaneously boosting a crucial strategic
competence.

Get the Organization Involved.

A statement of corporate ambition is only a touchstone for the larger
process of gaining organizational commitment. The statement must
be broad enough to invite—and indeed require—the organization’s
involvement in interpreting, refining, and making it operational. In
practice, this means tapping into the reservoir of knowledge and
expertise that is widely distributed throughout the company. As Andy
Grove observed about Intel’s shift out of the memory business and the
importance of inviting organizational discussion and debate, “The
more successful we are as a microprocessor company, the more
difficult it will be to become something else . . .. We need to soften
the strategic focus at the top so we can generate new possibilities
from within the organization.”
For many top-level managers, softening the strategic focus isn’t easy.
They worry that the organization will interpret such an approach as
strategic fuzziness, or worse, indecision. But these concerns
evaporate when senior managers realize that they are not abandoning
their responsibility for the strategic direction but rather improving
the quality of its formulation and the odds of its implementation.
At AT&T, for example, Bob Allen challenged his entire organization to
interpret and operationalize the deliberately broad “anytime,
anywhere” statement. He also created a Strategy Forum and invited
the company’s 60 most senior managers to participate in two- or
three-day meetings held five times a year. There they discussed and
refined AT&T’s overall objectives and direction.

Create Momentum.
Top management’s third challenge is to build and sustain
commitment to the objectives the organization has helped to develop.
Everyone needs to believe that the articulated ambition is legitimate
and viable; that it is more than public relations rhetoric or
motivational hype. By making tangible commitments to the defined
objectives, senior managers substantiate such belief. They also
provide people deep in the organization with the motivation that
comes from making perceptible progress.
Jamie Houghton demonstrated the seriousness of his belief in
Corning’s quality crusade by appointing one of the company’s most
capable and respected senior managers to head the effort.
Furthermore, despite a severe financial crunch, Houghton allocated
$5 million to create a new Quality Institute to lead the massive
program of education and organizational development. He also
committed to boost training to 5% of every employee’s total working
hours. Corning’s quality program quickly achieved Houghton’s aim.
As one executive committee member said, “It did a lot more than just
improve quality. It put self-respect and confidence back in our
people.”
Bob Allen also backed his statement of corporate ambition with
tangible commitments. The Strategy Forum’s discussions led to the
conclusion that “bringing people together anytime, anywhere” would
require major investments in several complementary information
technologies likely to become vital in the new communications
highways. The resulting decisions to acquire NCR for $7.5 billion and
McCaw Cellular for $12.6 billion were strong evidence of the vision’s
organizational legitimacy and a powerful mental jump-start to a belief
in its viability.
Instilling Organizational Values
There are few more powerful or public signals of what a company
stands for than the ways it defines and measures performance. Most
companies focus almost entirely on financial results: the strategic
objective to become number one or number two in the industry
justifies the pressure to meet the budgeted 15% increase in sales. That
goal in turn is crucial for the company to achieve its overall aim of a
20% return on net assets by mid-decade.
If managers’ interest in such quantitative objectives flags or signs of
organizational exhaustion appear, top management often responds by
presenting the objectives in a more compelling way—linked to a
highly leveraged incentive program, for example, or motivated by a
crisis—real or manufactured.
But often, corporate leaders simply continue to explain and justify the
objectives in greater detail in the hope that acceptance will follow
understanding. GE’s Jack Welch hoped that a more detailed
explanation of his demanding profit objectives would build
commitment to them, but it didn’t help. In 1988, Welch made a highly
polished presentation to top-level managers in which he depicted the
company as a “growth engine” powered by a balanced capability to
generate and apply funds. His charisma notwithstanding, Welch
failed to generate the interest, excitement, and commitment he had
hoped for. Instead, his dramatic but stark imagery increased some
line managers’ frustration with and alienation from a company that
was already driving them hard. The presentation confirmed their
feeling that they were little more than cogs in a perpetual-motion
money machine.
Although achieving acceptable financial objectives is clearly
important for a company’s survival, a target ROI will rarely galvanize
an organization into action. If people are to put out the extraordinary
effort required to realize company targets, they must be able to
identify with them. As one disaffected manager said, “It’s fine to
emphasize what we must shoot for, but we also need to know what
we stand for.”

If employees are to put out extraordinary

efforts to realize company targets, they
must be able to identify with them.

It’s fine to stress what to aim for, but

people also need to know what the
company stands for.

Identifying, communicating, and shaping organizational values is

more difficult than articulating a strategic vision because it relies less
on analysis and logic and more on emotion and intuition. Moreover,
although every well-established company operates on a set of beliefs
and philosophies, they usually remain implicit. Some companies even
repress them so as not to distract employees from the business
agenda or offend people who have other views. Financial objectives
are popular performance measures in part because they are “safe”;
people won’t dispute them.
Companies that assert more boldly what they stand for typically
attract and retain employees who identify with their values and
become more deeply committed to the organization that embodies
them. “In the end,” observes Goran Lindahl, ABB’s group executive
vice president responsible for the company’s power transmission and
distribution business, “managers are loyal not to a particular boss or
even to a company but to a set of values they believe in and find
satisfying.”
Nowhere is this powerful alignment between company and employee
beliefs more evident than in The Body Shop, the U.K.-based beauty
products retailer. Founder Anita Roddick has articulated a strong,
clear business philosophy, which she acknowledges is “quirky.”
Nonetheless, the values she has created have attracted a group of
employees (and a following of customers) who identify with the
organization’s commitment to environmental causes and with its
belief that companies can be agents of social change. As Roddick
describes her approach, “Most businesses focus all the time on
profits, profits, profits. I think that is deeply boring. I want to create
an electricity and passion that bonds people to the company.
Especially with young people, you have to find ways to grab their
imagination. You want them to feel they are doing something
important. I’d never get that kind of motivation if we were just selling
shampoo and body lotion.”
Social altruism isn’t the only way to give employees a strong
emotional link to their companies. Ask the managers at Lincoln
Electric how their little company has outlasted giants like
Westinghouse and Airco to dominate the fiercely competitive welding
equipment and supplies businesses. Lincoln Electric managers
attribute most of the company’s success to a philosophy that has
allowed them to develop the industry’s most productive workforce.
Founded on a strong belief in the power of unfettered capitalism, the
company is driven by a highly leveraged incentive program that
retains many of the characteristics of a nineteenth-century piecework
system. The program has survived because the company attracts
employees who identify strongly with Lincoln’s unshakable belief in
individual accountability and the power of pure meritocracy.
For companies that have been less clear and consistent about what
they stand for, the challenge is difficult but still achievable. Drawing
again on the experiences in our study, we discerned three lessons for
top management. First, build the new philosophy around the
company’s existing value and belief system. Second, maintain a high
level of personal involvement in this activity over many years. And
third, translate broad philosophical objectives into visible and
measurable goals.

Build on Core Values.

Today it is a truism that a company’s culture—the values it embodies
—influences the decisions and choices of its managers. As a result,
some CEOs are using the same didactic methods to change their
companies’ values that they once reserved for driving down profit
objectives. Moreover, they try to impose these new value sets almost
as often as they used to revise budget targets. The result is an
organizational cynicism that brushes off any new initiative as the
“culture of the month.”
New values cannot be instilled through a crash program, nor should
existing belief systems be chucked or subverted without careful
consideration of the effect on the relationship between the
organization and its members. In fact, the goal for most companies
should be to build on the strengths and modify the limitations of the
existing set of values, not to make radical changes in values. And
where value confrontation is essential, it requires careful attention,
not a broadside attack.
Consider Corning. When Jamie Houghton assumed its leadership in
1983, Corning was experiencing difficult times. A major restructuring
had reduced its worldwide payroll from 45,000 to 30,000. Its core
businesses, mostly in mature segments, were under attack by foreign
competition. To make matters worse, global recession seemed to
guarantee that Corning’s long-term decline in financial performance
would continue. Within the company, a sense of drift and a lack of
confidence were eroding the family-like atmosphere that had long
bonded employees to Corning.
Houghton knew he had to eliminate the paternalism that had
sustained a country-club culture at Corning for years. But he also
understood that much in the company’s existing but largely implicit
value system—respect for the individual and a commitment to
integrity, for example—were important and worthwhile. He wanted
to highlight those values and sharpen their focus.
Houghton also wanted to add other values that he believed would be
important to Corning’s future self-identity. So he began to talk about
the importance of corporate leadership and performance
accountability, not only because they were crucial in the emerging
competitive environment but also because they reflected the belief
system of a new generation of Corning employees whom he wanted
to attract. Gradually, Houghton overlaid these new values on the old.

Sow the Message.

Planting new values takes more than inspiring speeches. At best, the
speeches can only confirm the message sent by senior executives’
daily actions. Management is the message; speeches only call
attention to it.
Houghton set himself the task of visiting ten different corporate
facilities each quarter to “talk, listen, and feel the atmosphere.”
During these visits, he reiterated Corning’s new values and told
stories that reflected their impact. This was no mere jawboning,
however. Houghton translated abstract statements into action to
make them real and relevant to all members of the organization. For
example, to signal that he was serious about performance
accountability, he terminated any budget presentation that did not
meet corporate targets. Furthermore, he incorporated broad idealistic
values into action programs—for example, one to break the
company’s glass ceiling for women, minorities, and non-U.S.
nationals. Finally, he made sure that the company’s business
strategies were consistent with its core values. He divested or spun
off businesses that did not match the company’s professed identity as
a market and technology leader.

Measure Progress.
Despite their best efforts, many companies find that strategic and
operating imperatives block or erode the values they strive to build.
The reason is that such goals and objectives are inevitably quantified,
whereas value statements usually offer neither clearly defined goals
nor satisfactory methods for gauging their accomplishment.
Unavoidably, the hard drives out the soft, and commitment to the
desired values dissipates.
Like many companies, Corning had long allowed financial targets to
dominate its objectives and thus had calibrated its performance in
terms of growth, profitability, and ROI. Houghton realized that
Corning needed an equally compelling way of tracking progress
toward attaining its new culture.
In describing what he wanted Corning to become, Houghton
repeatedly used the words “a world-class company.” To ensure that
this was not just empty rhetoric, he established a corporate objective:
by the mid-1990s, Corning would be broadly and publicly recognized
as among the world’s most respected companies—by, for instance, its
inclusion in the annual Fortune CEO poll of “America’s most admired
corporations.” This standard included outstanding financial results
but also encompassed superior performance on dimensions such as
quality, innovation, and corporate responsibility. Equally important,
employees could identify with the standard and take pride in
achieving it.
Giving Meaning to Employees’ Work
In the end, every individual extracts the most basic sense of purpose
from the personal fulfillment he or she derives from being part of an
organization. Creating that sense of fulfillment is the third challenge
senior managers face as they strive to develop an energizing
corporate purpose. Institutions like churches, communities, even
families, which once provided individuals with identity, affiliation,
meaning, and support, are eroding. The workplace is becoming a
primary means for personal fulfillment. Managers need to recognize
and respond to the reality that their employees don’t just want to
work for a company; they want to belong to an organization. More
than just providing work, companies can help give meaning to
people’s lives.
 Employees don’t just want to work for a
company. They want to belong to an
organization.

To realize the value of a committed employee, an organization must

bring its big ideas and bold initiatives down to a personal level. Senior
managers must establish and maintain a link between the company
and each of its employees. This is not to say that North American
companies must shift from their characteristic impersonal contracts
to the Japanese model of lifetime employment. But a link does imply a
mutual commitment, in which the employer treats the employee not
as a cost to be controlled but as an asset to be developed. Employees
for their part commit not only their time but also their emotional
energy to making their company as effective and competitive as they
can. In short, the objective is to change the relationship from one in
which employees feel they work for a company to one in which they
recognize they belong to an organization. It is the difference between
hiring out as a mercenary and becoming a Marine.
In the companies we studied that were best at achieving this new kind
of relationship, top-level managers focused on three activities. They
recognized employees’ contributions and treated them like valuable
assets. They committed to maximizing opportunities for personal
growth and development. And they ensured that everyone not only
understood how his or her role fit into the company’s overall
organizational purpose but also how he or she might contribute
personally to achieving it.

Recognize Individual Accomplishments.

As companies grow larger and more complex, employees can come to
feel more like cogs in a machine than members of a team. To retain
some sense of humanity, companies may publish in-house
newsletters, sponsor social functions, or implement a casual dress
code. But the impact of such exercises is seldom significant or
enduring. Indeed, their very existence emphasizes the awkwardness
and impersonality of organizations that can respond to human needs
only in mechanistic ways.
Further, while most senior managers understand the need to
recognize and celebrate the major contributions of star performers,
few realize the importance of acknowledging the ongoing efforts of
those who sustain the organization. IKEA, the world’s largest home
furnishings manufacturer and retailer, is an exception. Even after the
company had grown to almost 50,000 employees in 20 countries,
founder Ingvar Kamprad still tried to visit each of the chain’s 75
outlets and meet every employee. He would often invite a store’s
employees to stay after closing for dinner at the in-house restaurant.
It was a ritual that frontline associates would go to the buffet first,
then managers, and last Kamprad. He would circulate and offer
praise, encouragement, and advice to the people who worked for him.
Personal recognition must reflect genuine respect. People on the front
lines are quick to recognize empty public relations gestures or
attempts at manipulation. Andy Grove built an enormous reservoir of
credibility and goodwill when he took extraordinary measures to
retain employees during the memory-products bloodbaths of the
mid-1980s. Grove tried to retain as many of the people as possible
who had built this business for Intel, recognizing them as genuine
company assets. To avoid layoffs, he first chose to sell a 20% interest
in Intel to IBM in order to finance the company through its crisis.
Next, he implemented the “125% solution” by asking employees to
work ten hours more a week without compensation. Then followed
the “90% solution,” a 10% across-the-board pay cut to minimize
separations. Only after that did Grove resort to layoffs in the face of a
$200 million loss.
Through actions such as these, born of genuine respect and concern
for individual employees, senior managers develop the basis for
mutual commitment. They can then build on this foundation by
demonstrating equal concern for the growth and development of all
the organization’s members.

Commit to Developing Employees.

As companies have delayered, restructured, and downsized,
employees who were already feeling distanced and detached have
become more disillusioned and even cynical. Too often, layoffs have
been the aftermath of grand corporate visions that promised personal
opportunities. Companies tout the “partnerships” they have with
their organization’s members, then shower them with pink slips. It’s
not surprising that employees are unlikely to commit to new goals or
values until they’re convinced that the future holds new opportunities
for them.

Companies tout the partnership they have

with employees. Then they shower them
with pink slips.

Top-level managers must take a broader view of employee training

and development and make a much stronger commitment to it than
they traditionally have. Instead of simply training employees for job
skills, companies must develop their capacity for personal growth. In
her colorful way, Anita Roddick explained The Body Shop’s decision
to establish an education center offering not only courses on
company products, skin care, and customer service but also sessions
on topics like sociology, AIDS, aging, and urban survival. “You can
train dogs,” says Roddick. “We wanted to educate our people and help
them realize their full potential.”
Poul Andreassen, CEO of Danish-based ISS, believes that one reason
his commercial cleaning business has grown into a $2 billion
enterprise employing 114,000 people in 16 countries is his respect for
workers, which he backs by investing in their development. Despite a
strong philosophy of decentralization—headquarters has only 50
people—ISS still manages training centrally. Andreassen believes that
training is key to transforming workers into professionals. Beyond
teaching his employees basic job skills, he uses training as “a
demonstration of caring” that motivates, bonds, and gives people
confidence. For cleaning-team supervisors, for example, a five-stage
training program covers basic skills and broader topics such as
financial knowledge, interpersonal skills, problem solving, and
customer relations. These people, once regarded as little more than
work-gang bosses, have grown to be effective team builders and new-
business generators. ISS’s labor turnover is 40% below the industry
average, and its cleaning crews have become an important source of
innovative practices and entrepreneurial ideas for the company.
Andersen Consulting views the development of its people as a goal in
itself and makes no proprietary claims to the skills and knowledge it
develops. Its recruiting brochure promises that “after training with
us, you could work for anyone anywhere—or you could work for
yourself.” The result is an exceptionally well-trained and extremely
loyal group of associates.

Foster Individual Initiative.

In a few companies, individual effort and personal contribution still
constitute the bedrock of organizational process. 3M is one. Since the
1920s, when the company’s fortunes were turned around by the
development of waterproof sandpaper and adhesive tape, 3M
management has valued the enormous potential of the entrepreneurs
in its midst. Management developed a culture that recognizes
individual initiative as the source of the company’s growth, and it
confirmed and institutionalized that strongly held belief through its
policies and procedures. For example, the “15% rule” allows
employees to spend up to 15% of their time on bootleg projects that
they believe have potential for the company. As bootlegged
innovations developed into major businesses, company folklore
became filled with stories of entrepreneurial heroes whose impact
was direct and tangible. Through the stories and its organizational
infrastructure, 3M keeps alive the highly motivating belief that
individual effort is important and has real impact on the company’s
performance.
Likewise at Kao, the Tokyo-based branded packaged-goods company,
CEO Yoshio Maruta has developed an organizational culture and
management philosophy that rejects authoritarianism and fosters
individual initiative in a variety of ways. First, the company shares
information openly; everyone can know what anyone can know and
can use the information to do his or her job more effectively. Further,
Kao’s internal environment encourages cooperation, and the twin
tasks of teaching and learning are ingrained as a major responsibility
of every employee. Finally, the decision-making process is open and
transparent—literally, in open-space areas—so that those with
relevant knowledge and expertise are embraced by the process, not
locked out of it. By translating his philosophy into norms and
practices, Maruta built an organizational environment in which
employees right down to the front line know that they are connected
with and are contributing to overall corporate goals.
From Economic Entity to Social Institution
A fundamental philosophical difference separates senior executives
who see themselves as designers of corporate strategy from those
who define their task more broadly as shaping institutional purpose.
Strategy makers view the companies they head as profit-maximizing
entities with a narrowly defined role in a large and complex social
environment. In their view, companies are simply agents of economic
exchange in a broader marketplace. They are dependents of their
shareholders, customers, employees, and larger communities, and the
purpose of strategy is to manage these often conflicting dependencies
for the maximum benefit of the company they serve.
This minimalist, passive, and self-serving definition grossly
understates reality. Corporations are one of the most, if not the most,
important institutions of modern society. A company today is more
than just a business. As important repositories of resources and
knowledge, companies shoulder a huge responsibility for generating
wealth by continuously improving their productivity and
competitiveness. Furthermore, their responsibility for defining,
creating, and distributing value makes corporations one of society’s
principal agents of social change. At the micro level, companies are
important forums for social interaction and personal fulfillment.
Purpose is the embodiment of an organization’s recognition that its
relationships with its diverse stakeholders are interdependent. In
short, purpose is the statement of a company’s moral response to its
broadly defined responsibilities, not an amoral plan for exploiting
commercial opportunity.
The three aspects of top management’s task in building a sense of
purpose are mutually interdependent and collectively reinforcing. If
corporate ambition begins to focus on the company’s narrow self-
interest, it eventually loses the excitement, support, and commitment
that emerge when objectives are linked to broader human aspirations.
When organizational values become merely self-serving, companies
quickly lose the sense of identification and pride that makes them
attractive not only to employees but also to customers and others.
And when management’s respect for and attention to its employees’
ideas and inputs is diluted, motivation and commitment fade.
Purpose—not strategy—is the reason an organization exists. Its
definition and articulation must be top management’s first
responsibility.
AHarvard
versionBusiness
of this article appeared in the November–December 1994 issue of
Review.

CB
Christopher A. Bartlett is a professor of business
administration at Harvard Business School in
Boston.

SG
Sumantra Ghoshal is a fellow at the Advanced
Institute of Management Research in the U.K and
a professor of strategy and international
management at the London Business School.