Sustainability No Buzzword in Running a 21st Century Company

June 23, 2011

The time for a management reset has come. It must be a seismic change, a complete rethinking of what an organization’s objectives are and the way they are achieved.

It is needed in order to develop organizations that will be sustainably effective in today’s and tomorrow’s world—a rapidly changing, very demanding world that is not forgiving of organizations that don’t measure up to its standards. The right management approach for this world is a sustainable management one that enables organizations to perform well financially, socially and environmentally.

One of the major differences between traditional organizations and sustainable management organizations, or SMOs, is how important talent is to their success and how it should be managed. Although it is common for the CEO and other senior executives in all kinds of organizations to say employees are their company’s most important asset, they often do not behave like this is the case. This may be acceptable in traditional organizations, but it certainly is not in SMOs.

As SMOs rely heavily on talent as a source of competitive advantage, they must excel at managing and rewarding talent.

Given the importance of talent management, SMOs must have an effective performance management system. SMOs must use a system that is different—and much more effective—than the flawed performance appraisal systems used in traditional organizations. SMOs have to elevate the importance of performance management so that it is a key element of the organization’s management strategy.

In addition to managers using measures to direct behavior, a major emphasis needs to be placed on self management and peer control. This kind of accountability requires a combination of good metrics and goals; commitment to the organization’s purpose; and public information about goals, objectives and performance. Only when performance management systems are well-designed and well-implemented can the kinds of accountability and performance direction that are critical to an SMO’s success be realized.

English soccer club Manchester United is one of the most successful sports teams in the world, with fans from Manchester to Malaysia to Madagascar. Manchester United doesn’t provide annual merit increases, doesn’t pay people doing the same job even remotely the same and ignores hierarchy by paying the boss (i.e., the coach) less than many of the players. To what extent should an SMO have a reward system that is like Manchester United’s?

Like Manchester United, SMOs require reward systems that are different from what traditional organizations have because they are structured differently and have different employment relationships. A reward system must be created that motivates and attracts individuals. It is clear that individuals in different stages of their careers value different kinds of rewards, people in different countries view rewards quite differently, and different types of work designs require different approaches to rewards.

One of the traditional design principles of reward systems is to treat people the same, but this similar treatment approach is incompatible with the diversity that today’s organizations face. Like Manchester United, SMOs must pay much more attention to the value an individual contributes and reward accordingly even if it means paying them much more than less valuable individuals. Doing this requires a definition of fairness that is based on value and contribution, not sameness.

The talent management approach of an SMO must establish an attraction, selection, development and work assignment process that gets the right people into key jobs. The same kind of rigor and analysis that goes into making important physical and financial capital decisions needs to go into human capital decisions.

This requires the effective operation and integration of a number of systems, including those for recruiting and selection, pay, performance management and development and career management.

SMOs need an employment deal that allows for change and attracts individuals who can perform in ways that contribute to sustainable effectiveness and who care about it. Accomplishing this requires an integrated approach to attraction, selection, development and careers.

Developing a sustainable work system is a great place to start in creating an SMO. Changing the way work gets done—so that economic value is added in more socially and environmentally acceptable ways—gets the internal house in order before sustainability goals are proclaimed to the marketplace. Unilever, Gap Inc., General Electric Co., PepsiCo, Cisco Systems Inc. and Procter & Gamble Co. have made (or are making) the transformation to sustainable management. They are challenging long-held assumptions and making important complex changes in their strategies and organization designs.

Source: Excerpted from Management Reset: Organizing for Sustainable Effectiveness, by Edward E. Lawler III, Christopher G. Worley with David Creelman. Reprinted by permission of the publisher, John Wiley & Sons, Inc. Copyright (c) 2011 by John Wiley & Sons, Inc. All rights reserved.

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