Organizational Performance: Why a Values Hierarchy Matters?
Most organizations claim to follow a set of “values,” but few actually follow their own values or take them seriously enough. But among those who do try to follow their values, a select few treat their values with utmost reverence, a strategy that gives them an unassailable competitive advantage. These value-driven organizations consistently outperform their competitors.
What’s the importance of values to an organization’s performance? And even if an organization does have values, should all values be treated equally or different values be used for different objectives?
Values are what an organization stands for. Values are principles that guide its thinking, decisions and actions. Values are often seen on an organization’s Web site, in its annual reports or on the walls of its offices, but real values are revealed in the day-to-day behavior of its employees and leaders.
For example, consider Zappos.com, a highly successful online retailer of shoes and clothing. Zappos’ competitive advantage lies not in its products, which many other retailers offer, but in the way it conducts its business. It has strategically branded itself as a company offering “wow” level of customer service. How does it do it? Zappos is known for its unique culture, which has been carefully cultivated by adhering to the following ten clearly defined values: deliver WOW through service; embrace and drive change; create fun and a little weirdness; be adventurous, creative and open minded; pursue growth and learning; build open and honest relationships with communication; build a positive team and family spirit; do more with less; be passionate and determined and be humble. Zappos proudly displays its values on its Web site ( http://about.zappos.com/our-unique-culture/zappos-core-values ).
Like Zappos, in the hi-tech realm, Google is the flag bearer of value-driven organizations. Google’s values include fanatical focus on end user, ability over experience, open and unrestricted flow of ideas, doing few thing really well (lately, Google seems to be deviating from this, attempting many diverse things), data-based decision making, great is not good enough and so on.
Finally, think about Apple. What kind of values one “feels” from its products and the way it conducts its business? Clearly, its values are anchored around innovation to change the world, passion for simplicity and focus on doing few things but extraordinary well. (“We are perfectionists, idealists, inventors.”)
Do values matter?
Looking at how casually most organizations treat their values, it would appear that values don’t really matter much. And yet, when one compares Zappos, Google or Apple with their competitors, it is clear that values matter even more when the playing field is flat (like in case of Zappos due to commodity products) or when the field highly uneven (due to constant innovation) as is the case with Google and Apple.
Weak or lack of clearly defined values, on the other hand, can be a big impediment to achieving high performance. For instance, tech giant Microsoft, once the undisputed leader in the software industry, is now struggling. It offers a range of products but none a leader in true sense. Its current state is partly due to its strategy, but the rest is cultural deficit as a result of behaviors that allowed “me too” products to be released besides slow response. Even today, it is hard to figure out Microsoft’s values.
When it comes to high-technology firms, according to Stanford Professor Charles O’Reilly, adaptive cultures are best suited for securing them from the uncertainties of the future. “Adaptive” cultures means encouraging behaviors like risk-taking, willingness to experiment, innovation, personal initiative, fast decision-making and execution and ability to spot unique opportunities.
Values spur employees to act in certain ways, which in turn defines the culture of an organization--and culture has direct bearing on performance.
In the words of Steve Jobs, in a noisy, crowded and complex world, no organization can survive for long without adhering to a carefully and sharply defined set of values.
Even if an organization takes its values seriously, should all values be treated as equal? Most organizations treat each of their values as equally important, which is natural because it would be extremely difficult to say which one is more important and which one is less important.
Take the example of Zappos.com, an organization with 10 values (listed above). The question is whether all these ten values are equally important? There is another way of looking at this values paradigm.
Values or “Key Behaviors” can be imagined as a pyramid with the following three distinct levels (see diagram below).
Level 1 (Foundational values): These values form your organization’s DNA and you can’t imagine any business without these key behaviors. This is your foundation. For example, values like integrity, sustainability, fairness, etc. belong to this level.
Level 2 (Performance values): These values have brought you where you are today. These behaviors were fundamental to your success so far. At this level, there are values like customer focus, excellence or innovation.
Level 3 (Future values): These values are key to securing future competitiveness. Without them, organization may falter in the future. Values like innovation, changing the world, adaptability, change, etc. belong to this level.
Why does should an organization create a values hierarchy? Practically, some values contribute to the very survival of an organization (Level 1), some contribute to its current performance (Level 2) and some enable it to adapt to the future or lead into the future. (Level 3).
Going back to Zappos example, “embrace and drive change” underlines its flexibility to adapt, which is the driving force for the future; outstanding customer service is the key value or behavior driving its current success; and the rest of its values, such as creative and open minded or fun are foundational.
Enron is a classic example of an organization that faltered on its most foundational values.
Consider Infosys, a highly value driven $ 8 billion IT company based in India. Its values are integrity and transparency, fairness, excellence, client value and leadership by example. It started with outsourcing solutions based on cost arbitrage and is now is struggling to take its business into future, even lagging behind its peers in commonly accepted performance metrics. In this case, the foundational values are strong, the middle tier value (success behaviors) and top tier values (driving force for the future) are weak. This is a case absolutely ripe to revisit values and slice them using values hierarchy model.
Values are an asset that many organizations choose to ignore, but highly successful ones treat and nurture this asset with utmost care. And the value of “organizational values” goes up when an organization makes the strategic choice of creating a “values hierarchy.”