using values & ethics for competative advantage.pdf

8/18/2019 using values & ethics for competative advantage.pdf

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© Strategic Business Ethics, Inc.

11601 Wilshire Boulevard Suite 500

Los Angeles, CA 90025(310) 444.9602

[email protected]

Using Values & Ethics for Competitive Advantage Written by SBE CEO, David Lapin

Summary:

Financial excellence results when a corporation's values and its ethics support its strategy.

Many companies, unbeknownst to their leadership, operate with at least three separate andusually non-aligned value systems: the Values that management communicates both orally and

in writing, the Values that employees believe drive management’s conduct, and the Values that

actually underpin the interpersonal dynamics of the organization. To gain strategic advantage,these three systems must first be identified and then integrated into one system of values.

The Role of Ethics in Strategy

Financial excellence results when acorporation's values and its ethics support its

strategy. Ethics is a component of strategy

because every business secures its future by

making a contribution. The act of making acontribution is fundamentally an ethical

activity. Identifying that contribution and

maximizing its value is the field of strategy.Profit is the value the market attaches to an

organization's contribution and the

efficiency with which it makes that

contribution.

Employees who see their company making a

valued contribution, (with profits as theoutcome) rather than merely generating

shareholder wealth, commit to their workwith greater passion. This leads to a

partnership between employees and

corporate leadership that boosts innovationand uplifts performance. Ethics play a vital

role in the preservation of this priceless

partnership, which can thrive only in anatmosphere of trust and integrity. Trust and

integrity result from integrating an

organization's disparate value systems and

aligning them with the organization'sstrategic objectives.

What is Ethics, and How does it Differ

from Values?

Values are beliefs about what is good and

what is bad, what is right and what is wrong.

Even people of different cultures differ very

little about these beliefs. 1) Nearly all people would like their children to be honest,

fair, courteous, charitable, and so on.

People do, however, differ substantiallywhen it comes to the "price" they are willing

to pay for what is right. 2) Ethics is the

"cost" that a person will pay to uphold his

values. It is the way a person translates hisor her beliefs into actions (or abstentions)

that entail a cost. Most people differ in theirethics rather than in their values.

Thus, adopting a change in values alone willnot impact on any aspect of organizational

performance. Rather, the way an

organization translates its values into anethic will impact on its strategic objectives.

Integrating Disparate Corporate ValuesMany companies, unbeknownst to their

leadership, operate with at least three

separate and usually non-aligned valuesystems. Measuring the degree of alignment

between these value systems and

determining what drives each of them,highlights the opportunities for change.


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The three value systems are:

1. The Espoused Value System –The Values that management

communicates both orally and in

writing.2. The Perceived Value System –

The Values that employees believe

drive management's conduct.3. The Actual Value System –

The values that actually underpin the

interpersonal dynamics of the

organization. Management may

have never previously articulatedthese values and employees may

never have identified them.

To gain strategic advantage, these three

systems must be integrated into one system

of values. Furthermore, in order for thesevalues to impact on financial performance,

senior management must translate them into

an ethic that supports the organization'sobjectives, that is aligned with its strategy,

and is understood at all levels of theorganization.

Identifying the Espoused, Perceived, and

Actual Values

An organization's espoused values are either

implied or articulated in its publishedmaterials. 3) But the way employees

honestly perceive management's values is

often very different from the values thatmanagement espouses. Qualitative research

methodology can probe employee perceptions. However, exposing the actual

values and ethics that drive the organizationrequires that one analyze the reasons for

those perceptions in light of various

management decisions and behaviors.

Integrating Espoused, Perceived, and

Actual Values into One System

It is, at times, difficult for an organization'sleadership to acknowledge the existence of

divergent value systems and to understand

the implications of the divergence. It iseven more difficult for leaders to confront

the truth of what values really drive their

organization. Yet this confrontation withthe truth is a vital step in crafting an

integrated value system that can transform

an organization and impact its performance.

An integrated value system takes intoaccount the strategic objectives of the

organization, the personal values ofleadership, and the diversity of its

employees. It aligns employee perceptions

with management's espoused values. A

system such as this can translate into theactual ethic that drives management

decisions and conduct. This ethic

differentiates the organization in all that itdoes.

Translating a Value System into a

Corporate Ethic

Choosing values is easy. However, leadersoften rethink their organizations' values

when they confront the behavioral and

organizational changes that those valueswould compel when translated into a living

ethic. They need to examine how congruent

the chosen values are and how they promoteor undermine corporate intent and strategic

objectives. Only then can leadershipcomfortably commit to a new system with

all of its defined implications.


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How Values and Ethics can Undermine

Strategy

We shall describe three cases oforganizational values actually or potentially

undermining organizational strategy and

describe SBE’s approach to resolving thesituations. The first case is in the Health

Care Industry, the second in the Banking

Industry, and the third is a case of Mergersand Acquisitions.

Case Study I: The Health Care Industry

The people in an organization who developits strategy are not usually the same people

tasked to develop the organization's values.Even when the same people undertake both

of these tasks, they do not often appreciate

the intricate relationship between values and

strategy, nor do they have the expertise totranslate values into ethics.

Conflicting Values Priorities

The Vice President of Human Resources of

a large Health Care Organization wasenergetically imparting the value of caringin the organization. All of the staff

espoused this value, and the Chief Executivesupported it. However, the Vice President

of Operations was driving a relentless

strategy of cost reduction to ensure thesurvival of the organization in a tumultuous

phase of the Health Care industry's

evolution. Both leaders are people ofimpressive intellectual and moral stature and

drove their campaigns hard. Both initiativeswere vital for the organization. Their two

departments enjoyed excellent relations.Yet the value of caring undermined the

efficiency strategy. Staff could not align the

need to reduce nurse/patient ratios with thevalue of caring. They could not relate to the

downsizing of certain departments in an

organization that claimed to care not only

for its patients but also for its staff. Not

only did the organization fail to achieve itscost-cutting goals, but it was also

experiencing reductions in standards of

caring. More serious, however, was

employees' losses of respect for leadership'sintegrity. The values initiative lost

credibility, and employees saw the cost

focus as the only thing that really counted.Patients were not the only ones who suffered

from this deterioration. Everyone suffered,

including the organization's capacity to

sustain its dominant competitive position.

An Integrated Solution

We changed cost-consciousness from a

survival tactic to a value that integrated with

patient caring. Nursing staff began to seektheir own ways to cut costs as part of their

patient caring, realizing that doing so would

extend quality medical care to more people.

Staff reductions initiated by the nursing staffthemselves did not cause resentment and did

not impact negatively on the quality of patient caring. We translated these andother supporting values (beliefs) into an

ethic (conduct) that management began tolive by. Even senior personnel responsible

for large amounts of revenue were counseled

when they transgressed organizationalvalues. No longer was rainmaking seen to

be more important than quality in

interpersonal conduct. Very soon this work began to impact achieving astonishing

results in employee commitment to both costefficiency and excellence of care.


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Case Study II: The Banking Industry

Loyalty versus ExcellenceThroughout its long history, a prominent

banking institution entrenched the values of

fairness and loyalty among its managers andemployees. When globalization and

technology transformed the Financial

Services industry, these values began toinhibit the Bank's drive for efficiency and

excellence. The Bank downsized and

started to reward peoples' performances

rather than their loyalty. Employees felt

alienated from the organization’s traditionalethics and began to passively sabotage the

company's objectives.

An Honest Integration of Values

We redefined the implications of loyalty andexplained it as 100% mutual commitment

during an employee's career at the Bank, not

lifetime employment. We taught the reasonswhy lifetime employment was neither

strategically nor ethically appropriate. Weexplained fairness as treating all peopleaccording to the same value system rather

than as treating all people the same. Thevalue system dictated that greater

contributors be treated more favorably than

smaller contributors. This was not unfair.The impact on morale and employee

retention during the changes was remarkable.

It enabled management to focus on the

Banks pressing strategic needs rather than

pacifying disgruntled but key employees.

Case study III: Mergers and Acquisitions

Growing Value by Merging Values

The pressure to "close the deal" in mergersand acquisitions should never undermine the

greatest imperative - delivering shareholder

value. Often, the most critical cause of

failure is the clash of cultures and

incompatible strategic thinking. Successfulmerging requires synchronizing the diverse

skills of all employees into a vision for a

new company that is greater than the sum of

its parts. Architects of successful mergersand acquisitions should always diagnose the

ethical dynamics of both companies and

qualitatively evaluate the strategic thinkingof each of them. This forewarns them of the

potential pitfalls of the merger and assists

them to design a merger strategy that

extends beyond structure, a strategy to buildan integrated ethic for the new corporate

entity. When employees see this process ofincorporating ethics into strategy, they gain

faith in the direction of the new entity, the

integrity of its leadership, and the brilliance

of its future.

A Merger of Values

In a recent merger, two successful bankswere struggling to convince each other of

the merits of their respective strategies in anattempt to truly merge rather than merely"take over.” Our ethical and strategic

diagnosis clarified to the combinedmanagement team why each strategy served

the cultures of each bank in the past, but

neither could serve the culture of the newentity. After understanding the value system

of the new entity, we designed a strategy

different to either of the original two buttailored to the new organization. In harsh

conditions, this accelerated revenuegeneration beyond expectation.

In Conclusion

Organizations optimize their productivitywhen employees view their work as much

more than the mere trading of skills for


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money. To achieve this heightened

commitment, organizations should integrate

their values, translate them into an ethic, andalign that ethic with their strategies. When

an organization achieves this, its employees

see their work as a vehicle with which to

fulfill their own higher spiritual quests tomake rare and needed contributions. The

money they earn reflects the value of their

contribution and provides them with botheconomic security and emotional self-

esteem. This leads employees to invest their

intellects and their passion in the work they

do, driving their organizations' thinking tothe very edge of competitiveness and their

performance… beyond that.

Footnotes:

1 This theory was confirmed in research conducted by Strategic Business Ethics among 10 000 people of

10 different cultures and all management levels.(Lapin, B.D. 1992 The Impact of Cultural diversityon Corporate Ethics and Financial Performance.

Research Report for JCI Ltd., Johannesburg.)

2 Everyone believes in honesty, for example, but in

situations where honesty could entail substantial loss,

many people will compromise their honesty. The

point at which a person will make that compromisevaries from one person to another.

3 These values are generally listed rather than presented as a system. A list reveals what values a

company has chosen but it does not reveal the way

that company thinks about values. When values are

systematized, a moral philosophy emerges. Theespoused values need systematization to reveal the

thinking behind them.

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using values & ethics for competative advantage.pdf