by Dov Seidman
The business world is heading for a “Moneyball” moment.
As a book and on film, “Moneyball” conveys how Oakland Athletics (A’s) General Manager (GM) Billy Beane revolutionized baseball by stepping back and asking two fundamental questions: What truly matters to the endeavor of baseball, and how can we measure what truly matters? Business leaders should follow Beane’s lead.
It turns out that scoring more runs than your opponent matters most in baseball. It also turns out that there are far more effective and precise ways to measure how players produce and prevent runs than the traditional metrics (e.g., home runs and RBIs) that every other GM has used to assess and pay baseball players. Beane and his assistant began using new metrics, such as on-base percentage and pitches per at-bat, that helped them pull levers that correlated to wins. Beane’s first-mover advantage enabled the A’s to pay less for talent that other GMs neglected or under-valued – talent that propelled the A’s into the playoffs despite the club’s small-market payroll.
In business – where the 20th Century adage that “you can’t manage what you don’t measure” remains as valid as ever – we’re finding that traditional measures just do not add up in a globally interdependent world. We painstakingly track revenue, risk, engagement and other “how much” metrics, yet revenues are flat (or worse), risk has never loomed larger and engagement scores are at all-time low. While these measures remain necessary, they are no longer sufficient. Values, behavior and culture become the hard currency of business. As a result, leaders should step back and ask what truly matters in business – and how can it be measured?
Stakeholders also want to know HOW our organization behaves in all of its relationships, HOW our company creates the products and services they deliver, HOW profits can be generated in a sustainable manner and HOW we as business leaders intend to ensure that our company will thrive in a resilient way despite historically high economic volatility.
Business needs a better measure, a game-changing metric that reflects current conditions and presents an accurate link to performance and resiliency.
The good news is that these measures exist. A new study indicates that companies that self-govern) via shared values that guide the behavior of all employees significantly out-perform companies that don’t self-govern (http://www.forbes.com/sites/dovseidman/2011/09/19/humanity-is-job-1/ ).
The bad news is that only 3 percent of companies today are self-governing. Equally troubling, business leaders’ favored measures need recalibration: U.S. CEOs are six times more likely than average workers to believe they work in a company where people are inspired; however, employees say they are primarily coerced (84 percent of respondents) or motivated (12 percent) by carrots and sticks on the job rather than inspired by values and a commitment to a mission and purpose (4 percent).
By most measures, the business world confronts some major problems. But what if most measures – of revenue, profit, market share, etc., while still necessary, are no longer sufficient?
As we became increasingly proficient at measuring “how much?”, the determinants of long-term organizational success transformed. In the 21st century, values, behavior and culture are the hard currency of business. Stakeholders are no longer content to track how much revenue we earned last quarter, how many sales we have in the pipeline or how much risk our company assumes. Stakeholders need those measures, but they also want to know HOW our organization behaves in all of its relationships, HOW our company creates the products and services they deliver, and HOW business leaders intend to ensure that our company will thrive in a sustainable manner despite the economic volatility.
In short, stakeholders want new measures. The findings of the inaugural HOW Report – a survey of more than 5,000 U.S. employees designed and conducted through a collaboration between academics from The Center for Effective Organizations at the University of Southern California, my company LRN, and the Boston Research Group earlier this year – suggest that self-governing organizations are delivering the measures and benefits that 21st Century stakeholders need. The HOW Report (http://www.lrn.com/form/43-how-report-form.html) produced five major findings:
- Self Governance remains rare in corporate America: only 3 percent of respondents report that they work for organizations that have a governance, culture and leadership system characterized by self-governance. Moreover, those most responsible for implementing culture- specific initiatives — C -suite executives and human resource professionals – are much more likely to observe that their organizations are self-governing than the overwhelming majority of their co-workers.
- There are tangible elements of culture that can be measured and acted upon to create a distinct competitive advantage in the 21st century marketplace.
- Organizations that exhibit self-governing behavior experience significantly fewer risks associated with employee misconduct: specifically, self-governing organizations endure half the incidents of misconduct that blind obedient organizations suffer.
- Organizations that exhibit self-governing behavior are significantly more likely to achieve higher levels of innovation, employee loyalty and greater customer satisfaction.
- When viewed systemically, the four primary outcomes of self-governing organization – less employee misconduct and greater innovation, employee loyalty and customer satisfaction — come together synergistically to deliver superior financial performance.
Although only a fraction of companies self-govern, this approach brings significant benefits. Self-governing organizations:
- Deliver five times the level of innovation that blind obedience organizations produce and roughly 1.5 times the level of innovation that informed acquiescence organizations produce;
- Experience three times more employee loyalty than blind obedience organizations and 1.5 more times employee loyalty than informed acquiescence organizations generate;
- Provide nine times higher levels of customer satisfaction than blind obedience organizations and roughly twice as much customer satisfaction than informed acquiescence organizations produce; and
- Deliver significantly higher levels of financial performance.
These findings also point toward a fundamental conclusion: companies need to get deliberate and intentional about their cultures. The HOW Report demonstrates that organizations that track HOW metrics to intentionally foster self-governance are leading a step change within the business realm much like the way baseball management throughout the Major League transformed in the wake of Beane’s efforts with the Oakland A’s to measure what matters in sports.
Following Beane’s lead, the Boston Red Sox employed a form of Moneyball to win two World Series titles. Not only can HOW be measured in business, but it also can be managed to deliver competitive advantage. Leaders of self-governing organizations understand that what we measure within our companies serves as a window into our values – and into our organization’s long-term value too.
Originally published on Forbes.com.