The 3 Things Business Leaders Worry About (And How To Solve It)
Lately we spend more and more time discussing the Bucket List companies from more traditional ones) with a business leaders from all around the world. From senior executives and HR leaders of multinationals to entrepreneurs and managers of small and medium sized companies. After speaking to many of them we started to notice that the business leaders we meet worry mostly about the same things.
Because, despite talking to such a broad range of business leaders we constantly end up talking about the same issues and concerns. Many of the leaders seem very well aware that they need to change major things in their organization in order to stay competitive in the near future. Moreover, they all want to change their own organizations in such a way that they become a more attractive workplace for future talents.
There are three questions that pop up regularly at the leadership teams:
- How to create a more engaging workplace?
- What kind of leadership do we need to develop?
- And how to structure our organization in such a way that it is future proof?
It seems that most business leaders know that major things need to change, they just have no clue how to do it and where to start.
But we are not the only ones noticing those concerns. A recent Deloitte research report surveyed over 7000 business and HR leaders in more than 130 countries around the world. They asked them to assess the biggest worries and challenges they are facing in their organization today. They report that organizational design is at the the top of the agenda among business leaders worldwide, with 92% rating it a key priority. Leadership, culture and engagement are the other major concerns that complement their key priorities. All of them are aspects that we have researched thoroughly.
1. Organizational structure
As we wrote before, the command-and-control mindset is killing traditional companies. The organizational structure of the old hierarchical pyramid is old-fashioned and outdated. And apparently, nine out of ten business leaders agree with it. We witness an increasing focus on adapting the organizational structures in such a way that it enables the organization to successfully compete in today's rapidly changing business environment.
One big problem remains though: only 14% of the business leaders believe their company is ready to redesign their organization or even know how to do it successfully. Luckily, the Bucket List organizations show us that there is a potential solution. They show us an alternative way of organizing that better fits the world we are living in.
Many of the progressive organizations we visit welcome what we call a Network of Teams. They created structures that are increasingly agile and customer or client-focused. In 8 trends we see, this one is the most disruptive to an organization and probably the one with the biggest impact on future success. No wonder that it keeps many of the business leaders awake at night.
Not only the outdated organizational structures are broken, the traditional pyramid-shaped leadership development model is failing as well. It is simply not producing and promoting the kind of leadership that employees are engaged and motivated by. This fact leaves an astonishing 89% of the business leaders to rate their organizational leadership development as an important priority. Things are getting interesting here too as more than half of the business leaders (56%) report their organizations not to be ready to meet the future leadership needs!
Our research suggests that organizations should move away from old-fashioned directive leadership models and start to focus and promote more supportive leadership styles. Leaders should stop telling their employees what to do, but should start to ask how they can best support them to excel. This is once again part of the trends we observed and also an important part of our Corporate Rebels Canvas. But enough about leadership for now, next week we will dive deeper into this topic.
3. Culture and Engagement
The third important aspect is culture and engagement. We have shown in a previous piece that once the culture of an organization is aligned with its purpose and values it will outperform the ones that don't. It attracts talents who can identify themselves with the culture and feel comfortable with it. It helps organizations to motivate their employees, leading to high levels of engagement and ultimately to higher levels of (business) performance.
Sadly, only 12% of the business leaders believe that their own company is having the right culture. Maybe even more shocking: not even one out of three (28%) business leaders understand their own organization's culture! This leaves 54% of the business leaders to report that they feel they are not prepared to tackle their employee engagement challenge.
But why should they be prepared? Well, because there is plenty of proof of companies that focus on culture and employee engagement and therefore outperform their competitors. These are critical issues and factors for future success and therefore these points should have top level leadership commitment and support.
Let's for example take the ranking of the annual Fortune's 100 Best Companies to Work For, most often considered the gold standard for the companies bearing the right culture. It become interesting once we start comparing the stock-market returns for the publicly held companies on Fortune's list with the performance of other public companies in major market indexes.
We can clearly observe that companies that treat their employees well greatly outperform the average S&P Index year after year. There is even an investment fund, Parnassus Workplace Fund, that mostly invests in companies from Fortune's list. It's a smart move. Over the last ten years the fund has shown an average annual return of 10.62%, that's almost double the return from the S&P Index, every single year!
Those results show the strong correlation between employee engagement and shareholder returns. But one could always argue that those lists are compiled by outsiders and not by the employees themselves. To counter this we have to turn to Glassdoor, a website where employees and former employees anonymously review companies and their management. Basically some kind of TripAdvisor for companies.
On the website employees and former employees can rate their organizations with a score from 0 to 5 on organizational culture. Within a few clicks we can now all see how a certain company is performing on employee engagement. It leaves companies and their leadership more transparent than ever, whether they like it or not.
If we take a look at the overall rating of over 200.000 of those ratings we can clearly observe an almost perfect Gaussian distribution. A minority of the companies present on Glassdoor scores above 4. But that's exactly the part we are interested in. As we can now start comparing the stock-market returns for the companies on Glassdoor's list with the performance of Fortune's list and the S&P Index.
The graph clearly shows that the companies scoring the highest ratings on Glassdoor are systematically outperforming the other two indexes. The lessons should be obvious and evident. Employee engagement is a strong predictor of long-term company performance.
To solve the culture and engagement issues (and all other issues), business leaders better start to listen to their employees. They should gather inspiration from various sources, and should collectively explore their own unique path towards ultimate employee engagement. Once they really believe in it, and truly want to make a positive and successful change, it proves to be well worth the effort!
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In early 2018 I took on a new challenge. After two years in the popular management world I decided to take a leap into academic life. I started a part-time PhD program in Business at the VU University Amsterdam. Since then I have researched how large organizations (with thousands of employees) can scale and organize without the need for middle management. It’s time to share what we’ve learned.