The Impact of Leadership & Culture on Collective Decision-Making (part II)

Posted April 16th, 2019 in Culture & Leadership by Irving

(part one can be found here)

Part Two

The Impact of Culture on Leadership Decision-making

By

Dr. William (Bill) DeMarco, Ph.D.

 

Defining Culture

 

Leadership is more about ideas than time and place. “Culture”, like “leadership”, is a term of many countenances.  Not only does the word “culture” mean different things to different scholars and non-scholars alike; it is also often simplistically used as a catchall classification for a complex mélange of frequently changing, discreet yet defining elements of a society.

In 1952, Alfred Kroeber and Clyde Kluckhom, American anthropologists at Harvard’s Peabody Museum of Cultural History and Anthropology, published a list of 160 definitions of culture.  By 1952, anthropologists on both sides of the Atlantic had already been studying culture for nearly a century.  For example, in 1872, a committee of the British Association for the Advancement of Science prepared a list of seventy-six cultural topics deserving of anthropological field study.  It was based on the work of the British anthropologist Edward Tyler.  In 1937, the Institute of Human Relations at Yale University created a classification tool for what they called the Cross Cultural Survey.  Led by the American anthropologist, George Murdock, the Cross Cultural Survey led to the 1938 publication of the Outline of Cultural Materials, with seventy-nine major divisions and 637 subdivisions of cultural background information.  This process and work are still used today.

In more recent times, some scholars have applied the models and ideas of anthropologists, sociologists, behavioural psychologists and cultural historians to the field of organizational culture.  The work of Geert Hofstede, on what he describes as the five cultural dimensions – most notably “power distance” (Hofstede, 2001), and the Globe Study of sixty-two societies with nine cultural dimensions (House, Ed., 2004) add textured layers of information to discourse on the meaning of culture.  So does the work of Edgar Schein  (2004) and Daniel Denison (1990), both of whom try to unlock the meaning of a culture with the intent of aligning culture and leadership.  While Dennison created a link between certain corporate culture models and bottom line financial performance, Schein linked his work to more traditional areas of culture enquiry when he focused on the role of history, rituals, and symbols on culture.

Since the early twentieth century, many culture scholars have specialized their areas of enquiry.  For example, Columbia University’s Franz Boas, Ruth Benedict, and Margaret Mead immediately come to mind when we think of early research on the role of religious practices, myths, language patterns, symbols, and gender/sexuality on culture.  Boas, considered by most to be the founder of modern anthropology, gave anthropology a rigorous scientific methodology, modeled after the natural sciences, where research is followed by generalizations, and not the other way around.  A tipping point occurred when Boas encouraged significant field research where scholars attempted to understand a culture from the inside looking out. In more recent times, the ethnographic studies of Clifford Geertz (1973) placed emphasis on the importance of “systems of meaning” (i.e. symbols) to culture.

 

 Different research approaches

In 1967, Kenneth Pike coined the terms emic and etic, the former referring to the inside out and the latter referring to the outside-in perspectives (Pike, 1967). For decades, researchers have focused on these two approaches as being mutually exclusive. In actuality, both the emic and etic perspectives have equally long pedigrees in the social sciences.  “The emic or inside perspective follows in the tradition of psychological studies of folk beliefs (Wundt, 1888) and in cultural anthropologists’ striving to understand culture from the ‘native point of view’ (Malinowski, 1922).  The etic or outside perspective follows in the tradition of behaviorist psychology (Skinner, 1938) and anthropological approaches that link cultural practices to external, antecedent factors, such as economic or ecological conditions (Harris, 1979), that may not be salient to cultural insiders “ (Morris, Leung, Ames, & Lickel, 1999: 781).

The question of who got it right is truly irrelevant here.  What is relevant is the recognition that all of us “see”, “know” and “imagine” based on the prisms through which we view the universe.  All too often, there is a tendency for culture scholars who use one or the other method to dismiss the alternate approach as lacking in some methodological or conceptual rigor. (Martin &Frost, 1996).  Debates over qualitative data v. quantitative techniques are the wrong discussion.  Given culture’s complexity, we need both.

Elements of both emic and etic approaches became part of the research protocols of the emerging academic discipline of sociology long before Kenneth Pike coined the terms.  In 1921 Park and Burgess and their colleagues at the First Chicago School of Sociology studied contemporary social problems in the city of Chicago. Their research demonstrated that the physical environment a society inhabited is a major factor in shaping human behaviour.  They also championed the use of oral histories and interview techniques, as well as recognized the importance of subcultures. This research serendipitously verified what indigenous societies worldwide have made an important part of their folklore for centuries:  physical environment is a key influencer on culture.  Apropos to this, it is worth mentioning that New Zealand, the last substantial land-mass in the world discovered and settled by humans other than Antarctica, focuses much of its cultural history on this very issue. (Prickett, 2001; Bellwood, 1978).

Culture scholars who focused their research on the culture of emigration/immigration frequently used both emic and etic approaches without stating it. (Anfiteatrof, 1973; DeMarco, 1981, 1882; Dinnerstein & Reimer, 1977; Handlin, 1973; Hansen, 1940; Howe, 1976; Hughes, 1943; Jones, 1960; Tomasi & Engel, 1970; Whyte, 1943). For example, William DeMarco, heeding the advice of C. Everett Hughes of the First and Second Chicago Schools of Sociology, studied official government records on housing, employment, and marriage patterns for Italian immigrants to Boston’s North End from 1880 to 1930. He also gained access to private company employment records.  He interviewed more than one hundred residents who immigrated to Boston during the period studied.  He also studied church marriage records partly because they specified where the married couples came from in Italy.  By using both emic and etic approaches, he discovered the degree to which old world cultures were replicated within the new environment over a fifty-year period.  This work demonstrated the enduring nature of centuries old cultural patterns within a new physical locale…change occurred but at a very slow pace.

  

 

 

A WORKING DEFINITION OF CULTURE

 

I define culture as the sum of the history, folklore, and values that, taken together, make up the unique identity of a society at a given place and point in time (Image 1).

 

 

 

 

Culture’s Complexities

The study of culture is not an either/or paradigm; it is rather a sum game!  Researchers in the field of culture study have long argued about the merits of various approaches to research on the topic.  The reality is all approaches and all insights are required today if the complexities

of new global realities are to be understood, and mutually beneficial solutions are to be found in times of crisis/need.   Sarah Meharg and Alan Okros said it well when they wrote: “…there is a requirement to shift from the use of analysis tools to the understanding of culture concepts. Thus, the key is to understand ‘me’ and ‘here’ in order to understand ‘them’ and ‘there’.” (Meharg & Okros, 2008: 2)  This is akin to the ongoing need for a transparent outward focused cultural prism and a mirrored inward focused prism.  Without a common, conceptual framework about the meaning of culture, it becomes increasingly difficult if not impossible to simultaneously address the issue of how to build trust networks within and between the defence, diplomacy, development and commerce (3D plus C) communities within fractured states.

 

Culture’s Multi-dimensionality

All cultures are made up of individuals and societies with shared history, folklore and values.  Cultures are living organisms where the dynamic interplay of life impacts on and is impacted by it.  The centuries old interplay between human hunter-gatherer existence, and the relatively “recent invention” of agriculture is a good example of culture as a living organism (Nicholson, 2000).

 

We are also part of a variety of cultures, each with its own history, values and folklore. Given this, it is no overstatement to say cultures are complex and constantly in a state of change. The kind of change we are talking about is most often imperceptible, but it is always there because yesterday’s realities have become part of today’s history…yesterday’s experiences are part of today’s folklore…and the quality of yesterday’s decisions have become today’s updated value system.

 

It is important for us to first recognize that we are part of many cultures.  The first and most important is our primary culture: the “culture of self” that defines our uniqueness.  This is what the philosopher and Noble Prize winning economist, Amartya Sen calls our multi-dimensionality (Sen, 2005). This is also what Meharg and Okros referred to above as the key to understanding “me” and ‘here” in order to understand “them” and “there”.   We are also part of many different societies, each with its own culture.  We have our ethnic culture, family culture, religious culture, community culture, work culture, racial culture, etc. etc.  Some play a more prominent role than others.  For all their multiplicity and complexity, they generally share certain elements in common.  Our ability to build true trust networks is driven by our ability to find, understand, value and utilize these cultural commonalities.

 

Image 2 defines the history components of the culture definition.  Like other components of the model, it stresses the individual and collective uniqueness of the members of the culture. It also recognizes that both internal and external persons, events and institutions impact the society’s unique identity over a period of time.  Of particular interest here is the “Institutions” component.  Its definition has broad application, including the inclusion of the systems, structures, and formal/informal working relationships of governmental, quasi-governmental, social service, and religious agencies/institutions.  However, their symbols belong under “Folklore” and their value system belongs under “Values”.

 

Image 2. History component of DeMarco Culture Model

HISTORY The people, events and institutions that collectively impact a society’s unique identity.
People Individuals, both inside and outside the society, who impact its direction and values over a period of time.
Events Incidents both inside and outside a society that impact its direction and values over time.
Institutions Systems, structures, and formal/informal relationships that impact a society’s direction and values over time.

The Folklore component is where a culture’s stories live.  Stories have been an integral part of the human experience since the beginning of time.  Stories inspire, inform, and connect participants to what the society stands for.  They are rich cultural anthologies of high value as well as entertainment. They link the listener/observer to messages from the past, handed down from one generation to the next. We see this in the Jewish and Christian Scriptures, as well as the sacred scriptures of the other religious traditions.  Some of these stories are symbols in the form of artistic expressions of all sorts.  In societies like the Maori in New Zealand, they even tell the creation story, providing not just an ancestral linkage but also a link to the divine. The great educator and lifetime student of the history of civilization, Will Durant, described a candidate for Folklore classification in the following manner: “The reader must not be shocked to learn that Socrates is half myth and only half a man. A learned Frenchman, M. Dupreel (in La Legende Socratique) has reduced the noble gadfly to the misty historical status of Achilles, Oedipus, Romulus, and Siegfried. …we may be certain that in good measure Socrates owes his fame as a philosopher to the creative imagination of Plato…How much of Plato’s Socrates was Socrates and how much of it was Plato, we shall probably never know. “ (Durant, 2002: 15).  All cultures have stories about individuals whose exploits are bigger than life.  We frequently have difficulty recognizing the demarcation line between truth and fiction.  In the Descartian world we live in, what is knowable/provable usually trumps folklore. Nonetheless, professionals in the defence, diplomacy, development and commerce communities would do well to enhance their understanding and appreciation of the heroes, myths, and symbols of the host culture.  This would likely contribute to authenticity, enhanced quality of dialogue and trust building

 

The noted historian, Peter Gay, could have as easily been writing about folklore as history when he described the work of Herodotus this way: “He included stories that were obviously mythic or epic in origin not because they were historically reliable, but because they signified how people felt and thought and were thus historically relevant.”(Gay, 1972:1 [2] ). The key word is relevance…relevance to cultures being studied.  One of the great challenges for western professionals trained in scientific methods of any and all sorts is to recognize the power of cultural relevance. The components of Folklore as describe in Image 3 can be of great help with this.

Image 3.  Folklore component of DeMarco Culture Model

FOLKLORE The body of knowledge/practice concerning what the society stands for, has been handed down from one generation to the next in oral/written traditions, and lives in the society’s heroes, myths, and symbols.
Heroes Individuals whose exploits are viewed as outstanding examples of what the society values most.
Myths Stories about people, events, or institutions, loosely based on reality, commonly given as examples of what the society values most or least
Symbols Visual, spoken, artistic, religious, and culinary manifestations that reflect a society’s essence.

Values are the unique blend of perceived beliefs, needs and attitudes that live in the behaviour of most members of a society.  Most culture models include values as integral to the definition.  What is unique here are the three subcategories.  Values in this model have everything to do with perception.  It is not dissimilar to the Peter Gay’s comment about history quoted earlier.  The issue is not one of truth; it is one of relevance.  Cultures see their reality through their own hierarchy of truth.  That hierarchy has three levels of reality:  (1) beliefs, which, for the most part, are immutable; (2) biases (called attitudes here) which have significant influence on individual/group behaviour; and (3) needs, which are requirements for survival/success.  In fractured states or natural disaster zones, peace making and trust building can only be achieved if the fundamental needs of a culture are first addressed.  An example would be a doomed initiative of creating a working civil society in an environment with inadequate potable water, food and shelter from the elements.  Beyond this, some cultures have ceremonial, religious, or symbolic needs which are so deep seated their absence would totally undermine any meaningful discourse concerning “giving purpose to collective effort and causing willing effort to be expended to achieve that purpose. “

 

The study of values should include the study of the history and folklore of the culture in question. The history and folklore of a culture are the outward manifestation of the inner value system. For example, if we want to know more about the beliefs of a society, look at the historical and mythological personages they lionize.  These “beliefs in action” can reveal the “say-do gap” (Cox & Rock, 1997), a litmus test that differentiates beliefs from attitudes. Far too many change agents make the mistake of expecting to make changes in a cultural belief system in a relatively short period of time.  Short of a truly transformational or life-altering event, beliefs are immutable.  Attitudes, on the other hand, are not so deep seated and may be more open to change.

 

Each society/culture’s values are truly unique because individuals and groups are unique. Having said this, it is important to keep in mind that the uniqueness of individuals and societies does not lie in the uniqueness of their parts; we share far more in common than not.  The uniqueness lies in the totality and interoperability of the history, folklore, and values, which, taken together, make up the unique identity of a society at a given place and point in time!  The challenge is to find the common ground where discourse between cultures can contribute to trust building.

 

Image 4.  Values component of DeMarco Culture Model

 

VALUES The unique blend of perceived beliefs, needs and attitudes that live in the behaviour of most members of the society.
Beliefs Ideas viewed as being true by most members of the society.
Needs Conditions or situations perceived by most members of the society as being required for survival/success.
Attitudes Predispositions of most members of a society that an idea has special merit.
 

 

 

 

 

CONCLUSION

Leadership is more about ideas than place. Its context is all about culture. Cultures are living organisms where the dynamic interplay of life impacts on and is impacted by it.  We are also part of a variety of cultures, each with its own history, values and folklore. Given this, it is no overstatement to say cultures are complex and constantly in a state of change. The kind of change we are talking about is most often imperceptible, but it is always there because yesterday’s realities have become part of today’s history…yesterday’s experiences are part of today’s folklore…and the quality of yesterday’s decisions have become today’s updated value system.

 

Individual and societal cultures see the world through prisms, which ideally are transparent looking out, and mirrored looking in. All cultures suffer from some form of opaqueness when we look through our prisms.  Culture is the sum of the history, folklore, and values that, taken together, make up the unique identity of a society at a given place and point in time.

 

The relatively new field of organizational culture can be particularly helpful in this activity because it comes out of the social science academic traditions; it attempts to find patterns of shared values to build trust relationship within rapidly changing and fast paced organizations.   Morris, Leung, Ames and Lickel described it this way when they wrote: “ In the study of cognition in organizations, and in social science more broadly, there are two longstanding approaches to understanding the role of culture: (1) the inside perspective of ethnographers, who strive to describe a particular culture in its own terms; and (2) the outside perspective of comparativist researchers  who attempt to describe differences across cultures in terms of a general, external standard.” (Morris, Leung, Ames, & Lickel, 1999: 781).  The study of organizational culture focuses on observed behaviours (language, customs, and traditions), shared vision and shared knowledge, metaphors and symbols, group norms and embedded skills. (Schein, 2004).

 

All of these give purpose to collective effort and cause willing effort to be expended to achieve that purpose.  Within organizational contexts, understanding the particulars of the culture becomes key to unlocking dialogue about what the company truly stands for and the rules of the road concerning what is necessary to operationalize collective effort. (DeMarco, 1984).  These are core elements of the Jacobs and Jaques definition of leadership, leadership being more about ideas than place, and the context being fundamentally about culture.  While some “visionary successes” have been catalogued as a result of the use of organizational culture methodologies (Basrick, 2000;Gerstner, 2002;Welch, 2001; Ulrich, Zenger & Smallwood, 1999), their analysis and their successes are limited to a short life cycle primarily because culture is a living organism.

 

The study of culture in its many guises has been a lifetime professional commitment of this author.  Work is already under way to create a field tool, which will link elements of the DeMarco Culture Model with a trust building scale.  This will be a “community engagement tool” which will help leaders “give purpose to collective effort and cause willing effort to be expended to achieve that purpose.”  This has relevance because there is a new emergent global culture that calls for new insights, new thinking, and a new ethos (van der Erve, 2008)

 

The study of culture is time consuming and challenging.  It is also one of society’s best hopes for finding common ground to engage in meaningful dialogue with fractured states and societies in crisis.  It is hoped that the ideas expressed in these pages will enhance trust building; the fundamental challenge faced by fractured societies within global leadership locales.

 

 

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Meaningful Reflection!

The Impact of Leadership & Culture on Collective Decision-Making

Posted December 26th, 2018 in Culture & Leadership by Dr. William (Bill} DeMarco

Defining Leadership

There are literally hundreds of definitions of leadership. For this paper, we will use a definition inspired by Jacobs and Jaques in 1990: leadership is giving purpose to collective effort while causing willing effort to achieve that purpose. This definition requires that leaders have both a vision, which Jacobs and Jaques called “purpose”, as well as an ability to inspire others to follow. Leadership can be for either good or ill.  It does not call for a leader who solves all challenges; instead, it calls for a shared perspective (collective/group effort) where followers enroll in the vision of the leader to the point of committing their willing effort. This can be viewed as similar to Thomistic philosophy, where free will is placed in service of a cause perceived to be more noble than “self”.

The nature of “giving purpose to collective effort” is more a function of ideas than a function of time and place (frequently referred to as “locales of leadership”). It calls for a dialogue between individuals and societies. It has been thus since the ancient Greek Academy. What has changed over the millennia is the size of the population that makes up the cohorts of this dialogue. If we subscribe to the notion of the uniqueness of each human being, the challenges faced by the leader in “giving purpose to collective effort” exponentially changes with the increase in cohort size. In the business world, this is frequently referred to as “span of control”.  Increased levels of complexity partially drive this challenge.  While the fundamental participants -i.e. individuals and societies – have not changed much, the nature of the dialogue has radically changed mostly due to the increased multiplicity and complexity of ideas represented by the enhanced size of the cohorts involved. In the modern context, ideas and interactions migrate from local to global villages and back again at hitherto unknown speeds. This becomes a collective cross-cultural relation where comparative rhetoric is impossible because there are no static entities to compare. This is in alignment with the Daoism “one world” view of reality, where an underlying stable reality does not exist because reality is always changing. As if all of this was not enough complexity, the twenty-first century phenomenon known as “social media” has brought complexity to new levels.

We frequently view the impact of globalism on society as a relatively recent phenomenon. Leaders, however, have valued the importance and impact of globalism since ancient times. Herodotus, frequently referred to as the “Father of History”, wrote at length about the impact of events and ideas on enquiry. In his introduction to the History of the Persian Wars (c.440B.C.), he wrote: “I endeavor …to preserve from decay the remembrance of what men have done, and to prevent the great and wonderful actions of the Greeks and Barbarians from losing their due mead of glory…also to put on record what were the grounds of their feud, relying on my eyes, my judgment and my talent for enquiry.” Globalism in the fifth century B.C. was mostly brought about by the medium of foot travel. His histories came about from his dialogues and discourses throughout Asia Minor, Egypt, Thrace, the Aegean islands, Babylon, and the Scythian Islands north of the Black Sea. Engaging in dialogue about what he saw and heard, and engaging in discourse about their relevance, he presented stories about leaders giving purpose to collective effort and causing willing effort to be expended to achieve that purpose.

Nearly a century after Herodotus, Plato’s Republic was publicly read and studied at the Acropolis in Athens, but not until he traveled to Egypt and Italy. This is less a story of the importance of Athens and the Acropolis, though important it was! It is more a story of the importance of ideas. Plato understood the importance of ideas in the fostering of a new social order; a social order, which causes as much discourse and dialectic today as it did more than two thousand years ago.

Almost two hundred years after Plato’s Republic was read in the Athenian Acropolis, Julius Caesar’s Gallic Wars was read in the Roman Forum. Again we have an example less about place than about ideas. Caesar viewed himself as the solution to what he describes as the weakening of the Roman Republic, sounding a bit like the current American political leadership scene. He seized on the theme of how Gaul threatened the Republic and he was the noble leader who could bring Rome back to its former glory.

In 2006, George Lakoff, writing about the battle for the American notion of freedom during the second George Bush administration, could have been describing ancient Greece or Rome when he wrote: “Ideas are not abstract things. They are components of action. They define ideals. They create norms of behavior. They characterize right and wrong, and accordingly change our understanding of the past and the present, our vision of the future and even the laws of the land. Ownership of the word means ownership of the idea that goes with the word, and with it, domination of the culture defined by the idea!” These words were a prescient call for meaningful reflections in Trumpian Times.

Herodotus, Plato, and Caesar were not writing about locales of place. All three understood the power of ideas. They were obsessed with “giving purpose to collective effort and inspiring willing effort to support that purpose”.

“Our World” Depends on our “Prism”

The Merriam Webster dictionary describes an “idea” as a “mental image or formulation of something seen or known or imagined”. It is this author’s contention that if the locales of leadership are more about ideas than place, then the foregrounding context for these locales of leadership are mostly about culture, for it is through culture’s prism that we see… we know… we imagine!

From the age of exploration in the West to the early twentieth century, discourses on the meaning of culture had more to do with the perceived differences between “native”, “aboriginal”, “barbarian”, or “primitive” societal behaviours and practices as compared to an ancient Greek rhetoric and Eurocentric assumptions of “being cultured”. Participants in this great quest for cultural meaning seemed to have been well intentioned, though bound by the respective prisms from which they viewed the opposite universe [more about this in Part Two].  Demonstrating this reality, while metaphorically speaking for leaders and members of nation-states, missionaries, explorers, and scholars of culture alike, U.S. President William McKinley (1897-1901) said the following as part of an 1898 newspaper interview, in answer to the question “why did the U.S. invade the Philippines” (during the Spanish American War): “…there was nothing left for us to do but to take them all, and to educate the Filipinos, and uplift and civilize and Christianize them and by God’s grace do the very best we could by them, as our fellow men, for whom Christ also died. ”. Well intentioned though President McKinley may have been, his “religious beliefs prism” as a devout Protestant did not allow him to recognize that Roman Catholics were Christians and that the “Filipinos” had been Roman Catholic for centuries!

McKinley’s comments are Kiplingesque in their recognition of the “White man’s burden”. They elevated the relationship of locales of leadership and their foregrounding context to nobility of purpose, in spite of the opaqueness of the prism in question. He failed to mention the importance of naval vessel refueling stations in Asian waters, most likely because it had little to do with nobility of purpose.

McKinley was certainly not alone! His comments were all part of culture as foregrounding context for an empire-building world; it was already famously described in 1869 by the English poet Matthew Arnold as contact with the best, which has been thought and said in the world. Arnold’s perception of the meaning of culture is an example of an “idea” as a “mental image or formulation of something seen or known or imagined”. The work/comments of Arnold, Kipling and McKinley all show leadership as a process of giving purpose to collective effort while inspiring willing effort to support that purpose.

Getting Past the “Clutter” to See the Culture

When we see “leadership in action”, it is all too easy to mistake the trees for the forest. It is very natural to mistake what is most obvious in the foreground for what is really going on because we see our universe through very complex cultural prisms. This is no less true of leaders at their moments of decision.

There are many examples of culture as foregrounding context. One such example has particular resonance in today’s lingering post 9-11 world. In 1898, William Sumner, a prominent and very popular anti-imperialist professor at Yale University, wrote: “The first principle of Mohammedanism is that we Christians are dogs and infidels, fit only to be enslaved or butchered by Moslems. It is a corollary that wherever Mohammedanism extends it carries, in the belief of its votaries, the highest blessings, and that the whole human race would be enormously elevated if Mohammedanism should supplant Christianity everywhere.” This seems to represent the current beliefs of the “votaries” of Osama bin Laden, ISIS, and Boko Haram as well.

Needless to say, Benazir Bhutto’s view of the principles of Islam (“Mohammedanism”), are quite different from such “votaries” because her prism allowed her to see the universe quite differently. Educated in arguably the finest universities in the United States and the United Kingdom, and ostensibly committed to lifetime learning (Senge, 1990). Benazir Bhutto, a devout Muslim and a child of Pakistan, was a woman uniquely positioned to see and appreciate both the foregrounding and backgrounding contexts of locales of leadership.

The prism through which we see all cultures is uniquely our own. We tend to use a prism which Chris Argyris would likely call a single loop –no need to test the “underlying assumptions” our outward view of the universe is based on; we know they are correct! On the other hand, we usually demand nothing short of a full double loop assessment of the observed culture: both the actions of others and our view of their underlying assumptions. (Argyris, 1977). While Argyris was describing learning in organizations, his model has wider application. All of us are bound by culture as a foregrounding context. To fully do justice to what we see when observing cultures, our respective prisms need to simultaneously be transparent looking out and mirrored looking in.

For all the opaqueness brought on by good intentions, the prisms of Arnold, Kipling, McKinley, and Sumner represent the former while Bhutto represents the latter. The study of culture is a lifetime learning experience. It is as Eric Hoffer described in 1963: “Learners inherit the earth while the learned find themselves perfectly equipped to inherit a world that no longer exists. (Hoffer, 1963: 36)”.

Part Two (found here) will also contain references from this article.

Meaningful Reflections!

Dr. William (Bill) DeMarco

 

Corporate Bulimia: Why Current Profitability Models are Unsustainable & What to Do about It.

Corporate Bulimia: Why Current

Profitability Models are Unsustainable…& What to Do About It

By

Dr. William (Bil)l DeMarco

_______________________________________________________________________

Abstract:

Over the past few decades, profitability has become almost the exclusive driver for most businesses due to the unrelenting-short term profitability demands of boards and shareholders.  Service to all stakeholders, superior quality, leading edge research, and executive & management development have all become casualties to the lowest hanging fruit in most organizations: cost-cutting.

Key business and government decision makers, including boards of directors, need to be weaned off of what has become an addiction to “chop-chop, cut- cut leadership”, because it is an unsustainable “fools gold” model of what good performance looks like, not to say anything of their fiduciary responsibility to sustain the enterprise. This has led to an obsession with having more profit in the next quarter/year than the last, with the ultimate goal of becoming/remaining the biggest  company in the industry.  Stockholders are rarely educated about what good really looks like.

Part One of this article points out why the current profitability model is unsustainable, and how we got here. Part Two is all about what inspired leaders can and should do about it.

_______________________________________________________

 Part One

Profitability is the gaining of advantageous returns on investments. When I began my career decades ago, there was discussion about the role of service to customers, respect for employees, and service to the community as a major if not primary purpose for a business’s existence. That was still the era of mutual insurance companies, multi-generational company employers/employees, banks partnering with customers and the community for the general good, and company towns.

Much has changed since those days. We have experienced a steady diet of downsized companies, unemployment rates so severe that even unemployment statistics fail to count the millions who have just stopped looking for employment, entire key industry sectors eviscerated or just moved offshore, millions of minimum wage jobs replacing well paying pensionable jobs.  Even mutual insurance companies, originally founded to perform some noble purpose for widows, orphans, and the general public, have almost all migrated to for-profit models.

There has been a gradual but undeniable redefinition of what a well run company looks like: profitability irrespective of the quality of customer service, employees treated as commodities, and service to the community frequently taking the form of events sponsorship and naming rights. One of the most glaring changes has been around pension funding.  Defined benefit (DB) programs, once very  highly valued for their secured pension fund  savings, have mostly been replaced by defined contribution (DC) profit-driven models. According to a Bloomberg 2018 report, the reliance of both pension models on stock investments over the last decades has led to a significant underfunding of  the pension reserves. Governments in both the U.S. and Canada, responsible for overseeing the funding of contractually agreed-to pension plans, allowed this, frequently charging an administrative fee for deferring funding company pensions, placing those administrative fees into government operating funds. All of this has led to a domino effect, not unlike families today relying on borrowed money (credit cards, lines of credit, home equity loans, etc.)…it looks good in the beginning until it comes time to pay the bills, or the income line slows down.

Feeling the profits-now pressure of most stockholders, company leadership very frequentlyThat failed to fund their pensions by taking “contribution holidays”; in Canada, federal and local governments that allowed this to happen were ostensibly trying to keep jobs within their jurisdictions.  During that time, Ontario pension law was not significantly different from other North American jurisdictions. Companies that took pension fund “contribution holidays” hoped to achieve higher market evaluations, stock splits, and other market-related activities that would generate “money” more quickly.  This in turn, would put a “happy face” on the next financial report. Hundreds of stock history shows us that this is unsustainable; stocks that go up in value do eventually go down as well.  While running out of resources to”sell off” and the ” happy face” approach to putting a good face on financial statements  quickly deteriorates to a personal and corporate survival issue.  Of course this is understandable at a purely human level, but this  hehavior has little to do with sound leadership.

To illustrate this, I once had a major Fortune 500 Company client that had a fantastic year-end in Europe, driven in no small part by the strength of the American dollar vis-à-vis the German Deutschmark.  European executives received large bonuses. In all these cases, irrespective of whether it was pension- related or not, we have examples of a “fools gold” model of what good performance looks like.

Like a drug addiction, these companies over time failed to see what was happening until it was too late. The Fortune 500 Company just mentioned, like so many others, was eventually sold off in parts. They all failed to recognize what really counted was truly growing the business through innovative new products, superior customer service, increased sales, constantly returning happy customers and more effective operations; for companies with under funded pension liabilities, this is particularly more important than the risky roll of the dice they too frequently engage in.

“Insanity is doing the same thing over and over again

and expecting different results.” – Albert Einstein

Governments in both the U.S. and Canada, responsible for overseeing the funding of contractually agreed-to pension plans, allowed this, frequently charging an administrative fee for deferring funding company pensions, placing those fees into government operating funds. All of this has led to a domino effect, not unlike families today relying on borrowed money (credit cards, lines of credit, home equity loans, etc.)…it looks good in the beginning until it comes time to pay the bills, or the income line slows down.

In the early to mid 1990’s, it seemed to work well for everyone. These diverted pension funds initially bolstered quarterly company and government numbers. Many pension funds even ran surpluses, while quarterly company profits looked rosy. As time went by, these under funded pension liabilities reached minor (1999) and not so minor (2008) tipping points as stock values deteriorated. Coupling these events with the ever-increasing number of retirees, even once venerable companies like General Motors frequently faced a perfect storm: ever-increasing underfunded pension liabilities, deteriorating value of corporate investments, and a rapidly growing number of retirees. The beat went on so relentlessly that by the end of 2011, 93 percent of federally regulated DB plans were under-funded according to the Office of the Superintendent of Financial Institutions of Canada.

The situation has gotten even more dire since then. For example, an August 2012 study by the credit rating agency Dominion Bond Rating Service Limited (DBRS) looked at 451 major corporate DB plans in the United States and Canada, including 65 north of the border. It found funding deficits of US$389 billion. DBRS noted more than two-thirds of the plans were “underfunded by a significant margin” and heading into a “danger zone, ” the point at which reversing the deficit becomes extremely difficult.As of 2018, with the highest stock values ever, these dangers have been masked for the time being; but hundreds of years of stock market history show that there will be a downward trend in the future.  That “danger zone” is still lurking.

I am not attempting to be critical of stockholders or pensioners here; they are on the receiving end of a profitability model which common sense would dictate is not sustainable for the long haul. Unfortunately, there ends up being multiple victims in this scenario… including stock holders/pensioners who rely on recurring profits for sustenance and lifestyle choice.

There are fundamentally two ways of achieving profitability: (1) grow the business through the judicious design and distribution of market-desired goods and services; (2) cut costs. The latter has become the dominant, and uninspired business/government means of obtaining more desirable numbers, because for all its management challenges, it is relatively easy to achieve and does not require much real business imagination. Of course companies need to be judicious with how they manage their businesses. However, there is an increasing obsession today with beating the analysts’ predictions, getting “bigger” , becoming the biggest in the industry at all costs, beating last quarter’s/year’s numbers no matter what, etc. etc. Executives of major companies enjoy hefty bonuses when this is achieved, frequently achieving seven and eight figures, irrespective of the sustainability of the means used to achieve such results. Company and government decision-makers have become too often addicted to the opiate of what I call “cut-cut, chop-chop leadership”, as if there is an endless supply of physical and human resources to be cut, or suppliers willing to provide goods and services for almost nothing. In this scenario, the temptation to cut salaries/benefits is great since human resource expenses account for over 50% of overall expenses for most companies; and the savings can go to the bottom line almost immediately.

Key business and government decision makers, including boards of directors, need to be weaned off of this addiction to “chop-chop cut- cut leadership”.  This management addiction is absolutely not sustainable for the long haul; and the lure of this borderline unethical yet highly profitable practice for too many executives/ board members to sell off the company is so very tantilizing.  in spite of their fiduciary responsibility to sustain the enterprise. In 1957, the average life expectancy of a company in the S&P 500 index was 75 years. Today, it’s less than 15 years.

There is a better way. It requires inspiration, courage, and real leadership where the enterprise is given a real purpose, recognition in high places that making money is a result not a purpose, and stakeholders at all levels give their willing effort to support that purpose. This is not a call to go back to a bygone era of any form of utopianism (welfare/ social / Nordic/ Rhine capitalism). Rather, it is a call for a common sense that recognizes that current profitability models are unsustainable for stock values do go down.  To make a real difference,  senior executives need to think and behave for both the short AND long haul, rather than leaving this untenable situation for their successors to handle! Of course, this assumes that stockholders and their elected boards are interested in the long haul instead of cashing out for frequently obscene amounts of money when there is precious little left to cut, and selling/going offshore appear to be the only options left.

Let me offer an example. About twenty years ago, I was a senior executive at a major consulting firm. A client of our firm for many years was a global aerospace company, known for its decades of engineering creativity and performance. In recent years, they were having difficulty growing the business, mostly due to a risk-averse culture and leadership. The firm’s ceo and the board really needed positive year-end numbers to beat the buzz on the street about the company’s financial underperformance.

Since I was responsible for our Organizational Effectiveness Practice, our consultant responsible for the account asked me to come in to help the special ad hoc committee put together by the CEO to come up with some way to quickly improve the bottom line numbers. The reality was that the CEO had a white knight willing to “invest” several billion dollars for new product development, subject to agreeable year-end numbers. The committee chair was an executive vice-president. He and his staff had come up with one recommendation, which they wanted me to put our firm’s reputation behind when he presented it to the CEO. The suggestion was to implement an early out program for all employees over 52 years of age. The amount saved in salary and benefits would marginally surpass the targeted amount sought.

I asked two related questions: “Does an aerospace engineer with thirty-plus years experience have more business and technical knowledge/capability than an engineer with ten plus years experience? Why get rid of just about all of the knowledge, capability, and experience that distinguished the firm in the marketplace?’’ His response was they had that covered. They would hire back senior engineers as consultants as needed. If I was a stockholder, I would have been appalled with the idea of simultaneously paying out retirement benefits, generous exit packages and high consulting fees, while losing the resident capability that made the company great. My firm and I refused to support the idea.

To no one’s surprise, the company went ahead with the plan any way. The company beat the street’s year-end expectations… executives got hefty bonuses. Big headlines appeared in the Wall Street Journal a few days later; the company leadership was praised for their leadership. Most importantly, the company was bought up by a competitor in a fire sale less than two years later. Truly a long-term victim of corporate bulimia: risk-aversion and “chop-chop, cut-cut” leadership!

So what is a better way? Is it possible to be profitable now and for the long haul? What does a sustainable profitability culture look like? It starts off with leadership that gives purpose to organizational effort while inspiring willing effort to support that purpose! Part Two will cover some specifics.

Part Two

What to Do About It

All attempts to improve performance for the short and medium/long-haul must start with a vision of what is wanted AND what good performance looks like, and NOT just fixing what is not working! By only fixing what is not working will most likely fail to get us what we do want. We need to focus on what we do want.

The best way to cut the cord on “chop-chop cut-cut leadership” as the solution is to understand what real leadership is all about. I am writing about the kind of understanding that is internalized, thought through and fully embraced. Far too many of us quickly dismiss a lot of what I am going to say as kind of obvious, but, based on my years of experience, I know that is not really so.

1. Define leadership’s Purpose

Let’s start off with a working definition of leadership. Leadership is all about giving purpose to group effort, while inspiring willing effort to support that purpose.

The power of this definition, besides being field- tested in hundreds of situations, is that it works at two levels. (1) It provides a universal definition, which all stakeholders can understand; and (2) if properly conceived, can inspire employees, who represent a company’s greatest assets/costs, to give that extra effort when the times get tough and the enterprise is on the line. If properly conceived and implemented, it greatly helps minimize grousing about the nominal leadership, and greatly increases efficiency.

Not all people of title are leaders and not all people without title are not leaders. This applies to any individual who attempts to give purpose to what a group of individuals are doing. Without a working definition, just about any thing that is in the mind of everyone in the group will get in the way of progress of any sort.

Here are a few tips on what is required to “give purpose to group effort”.

2. Define the industry or industry segment your company/operation is part of.

Talk about stating the obvious but so many companies don’t ever really do this. If they did, we would not have the following missed opportunities or failures by otherwise great firms:

  • In the middle of the twentieth century, the Swiss watch industry owned over 80% of the world’s watch market. Their CEH (Centre Electronique Horloger) research lab dismissed the first digital watches because they had no mainspring…a critical element of how they defined a watch. They were really in the time keeping ibusiness and not the mainspring business. Their failure led to the current situation of having an 18.4% share of the world watch market, and no patent ownership of the quartz/digital technology as well.
  • Chester Carlson invented photocopying in 1938. Among other things, the technology uses mirrors and illumination. From 1939 to 1944, he approached over twenty companies to sell his invention. Two of them were Kodak and GE. Kodak recognized the importance of mirrors in his invention, but it failed to see how it fit within their model of photography. GE, on the other hand, understood the importance of illumination to his invention, but they defined themselves as being in the light bulb business. By 1948, Carlson joined forces with business partners to create XEROX .
  • The train industry is the classic example. For decades, they saw themselves as being in the train business and not the transportation business. Hence, they lost significant commercial transport business to the trucking industry. It was not until the late 1950’s that they created the standardized steel Intermodal container, which started to reverse the trend.
  • Edwin Land founded Polaroid in 1937 as an instant film camera company. The importance of that description became an organizational roadblock to embracing the digital revolution. Hence Polaroid, once one of America’s photography industry giants, failed to leap from instant film to “digital photography”.

There are many other examples. No matter how your organization defines itself, there is an ongoing need to reflect/define/redefine the industry/industry segment it operates in, and make this definition an integral part of the organization’s Vision/operational Mission.

3. Understand the Difference between Efficiency and Effectiveness

There is an obsession today with operational efficiency. I believe it is a byproduct of the obsession with MBA education, which is mostly about efficiency modeling. Efficiency is the creation of a system which optimizes performance within a single element of the business. Of course this is a good thing in theory, because it ideally eliminates waste and redirects all activities in one direction, which sounds like our definition of leadership. It is not! It rarely if ever tests the underlying purpose of the enterprise, and usually encourages the attainment of profitable numbers as its real goal. Efficiency needs to have a purpose within a higher order of things.

Primarily focusing on organizational efficiency is like a sports team having the drafting of the most accomplished player(s) at each position as its main success formula. The results are likely to lead to individual players earning a number of personal achievement awards, but the team is less likely to win the big prize. The reason is quite simple: teams need to play as more than a collection of high performing individuals, but rather as a collection of individuals inspired to achieve a common purpose especially when the going gets tough. What they should be looking for is seamless handoffs, self sacrifice for the greater good, and running plays that take advantage of optimal team performance.

For more on this, take a look at Henry Mintzberg’s controversial though highly respected 2004 book, “Managers Not MBA’s”. In this book, Mintzberg, a much respected leadership and business scholar, writes at length about how just about all MBA programs focus on efficiency within silos. MBA programs generally provide high degrees of useful knowledge in operational efficiency, but that is not the only thing that is needed within organizations. What is needed to stop the “chop-chop cut-cut leadership” cycle, most often given in the name of efficiency, is true operational effectiveness. The difference between efficiency and effectiveness is what, the late-great organizational theorist, Russel Ackof, described as the difference between knowledge and wisdom. That is because organizational effectiveness focuses on institutional purpose and links all the “silos”into an integrated whole. To make this happen, both technical and human organizational effectiveness are needed. This combination will lead to superior product quality, greater competitiveness in the marketplace, better delivery systems, and a greater likelihood of achieving objectives.

There are several universities I am familiar with that try to get the efficiency/effectiveness balance right. They are Mintzberg’s programs at both INSEAD (in France) and McGill University (in Montreal), the University of Toronto’s new Institute for Management & Innovation (IMI), and the University of Guelph’s Master in Leadership program, which is designed around organizational effectiveness principles of cross-functional collaboration and alignment with the organization’s stated vision and goals. The latter program ideally should be paired with the knowledge derived from an MBA program, while the former university programs have more of an integrated efficiency-effectiveness design.

4. Put in Place Performance Management Systems, Based on Both Organizational Effectiveness AND Efficiency

Performance management is all about defining and tracking what good looks like within the organization. Once leadership’s purpose is clearly defined, an organization can align its technical and people systems to that purpose.

On the technical side, there are:

  • enterprise resource planning (ERP) systems,
  • enterprise planning systems, and
  • customer relationship management software.

Enterprise systems (ES) are built on software platforms. Examples are Oracle’s Fusion and SAP’a NetWeaver.

On the hardware side, , enterprise systems are the servers, storage and associated software that large businesses use as the foundation for their IT infrastructure. They manage large volumes of critical data, and provide high levels of transaction performance and data security. More well known ES vendors are HP, IBM, Oracle among others.

At least as important as integrated ES systems are the integrated people systems. These have to do with:

  • Recruitment systems
  • People development systems
  • Recognition and reward systems
  • Promotion systems
  • Succession Systems
  • Communications systems

Once technical ES systems are in place, it is too easy not to “spend the money” required for integrated people systems. Beyond this, organizations which subscribe to the “Chop-Chop Cut-Cut Leadership” model will argue either that they have these elements in place already or they are not part of their core business model. My years of Organizational Effectiveness experience tell me that in most cases, these and other popular objections are based on a lack of what Russell Ackof, called organizational wisdom. The answers to the following questions should provide an insight into the effectiveness of an organization’s performance management system:

Are the stated goals of the organization part of the organization’s definition of the leadership’s purpose, which is most often found in the vision of what is wanted AND what good performance looks like? If not, why?

What were recent promotions primarily based on? Did it appear as if these promotions were based on the stated goals of the organization? Were you inspired to go the extra distance to support the goals on the organization as a result of this process?

Are those who are held up as examples of what “good looks like” fundamentally represent the stated purpose of the organization, or are they primarily models of something else? Why?

Everyone knows that an organization which has two sets of financial books is probably up to something unsavory, and puts its future at risk. An organization which has both a stated and unstated understanding of what good people-performance looks like also puts its future at risk because succession is a key part of its performance management system.

If you are particularly intrigued by the topics covered in this article, please contact me to find out how you / your organization can find out more.

Meaningful Reflections!

Dr. William (Bill) DeMarco