How Will You Measure Your Company's Life?
Clayton Christensen's book How Will You Measure Your Life has turned into a well-deserved best seller. Beyond drawing individual lessons from the book, corporate leaders should turn the central framing question on their organizations — asking how they will measure their company's lives.
The book traces back to Christensen's 2010 Harvard Business Review article, which was based on a speech he gave to that year's graduating Harvard Business School class. "Over the years I've watched the fates of my HBS classmates from 1979 unfold; I've seen more and more of them come to reunions unhappy, divorced, and alienated from their children," Christensen wrote. "I can guarantee you that not a single one of them graduated with the deliberate strategy of getting divorced and raising children who would become estranged from them."
The root problem from Christensen's perspective is that "they didn't keep the purpose of their lives front and center as they decided how to spend their time, talents, and energy." A steady stream of incremental decisions without a clear focus on purpose too often led to unanticipated outcomes.
For the last few decades, if you asked leaders in most publicly traded companies the purpose of their company, the reflexive answer would be to "maximize shareholder value." Indeed, one of the managerial revolutions over the past few decades has been a series of mechanisms, such as stock option grants, aimed to ensure that corporate leaders act in the best interest of shareholders.
However, Roger Martin, Michael Porter, Christopher Meyer and Julia Kirby, and other thoughtful commentators have noted that the intent to maximize shareholder value has resulted in myopic management overly obsessed with short-term financial returns. Much has been lost in this shift, with thought leaders increasingly arguing that new models need to emerge (the most recent issue of Harvard Business Review had an article in this vein by Jay Lorsch and Justin Fox, "What Good Are Shareholders?").
The intersection between Christensen's book and this theme became clear at a recent offsite with an Asian-based company. The company had crossed the $1 billion revenue mark — a key plank of its last five-year plan — a year early and was thinking about what came next. The company's core business faces increasing pressure, meaning that future success will require some degree of transformation.
We framed most of the discussion around the idea that transformation actually involves three efforts — repositioning today's core business, creating tomorrow's core business, and building and managing a mechanism to thoughtfully share capabilities across those two organizations. (These concepts will be explained in more detail in a fall Harvard Business Review article written by my colleagues Matt Eyring, Clark Gilbert, and Dick Foster.)
Inevitably, many potential future strategies involved tradeoffs. One idea might look highly profitable, but would require bringing in external employees (which the promote-from-within company had historically eschewed); another would require radically repositioning the core business, resulting in widespread layoffs (which the family-oriented company considered severely contrary to its values).
Without a sense of purpose, it's hard to prioritize between these kinds of options. So the group went through an exercise to assess how they would trade off factors such as:
- Corporate longevity
- Employee satisfaction
- Providing employment opportunities to low-skilled workers
- Customer satisfaction
- Environmental impact
- Short-term profits
- Leadership compensation
- Shareholder wealth accumulation
The group quickly came to consensus that corporate longevity and employee satisfaction were critically important to them. The consensus served as a vital frame for the discussions that followed.
A few weeks later, the leadership team at a smaller company found similar value from a more sophisticated version of this exercise. It featured a conjoint exercise that revealed how they would prioritize 10 different factors. The clear consensus around focusing on impact over building an empire brought great clarity to strategic discussion.
The two experiences left me convinced that organizations staring transformation in the face need to ensure that they have discussed what truly matters to the leadership team. A simple starting point is to ask the following three questions:
- What really matters to us?
- Are our day-to-day actions consistent with this?
- Do we have mechanisms to hard wire these issues in planning, budgeting, and strategy processes?
The question really is, then, how will you measure your company's life?