Focussing solely on cost-cutting may not get you through a recession. Evolving to meet the needs of changing times and pursuing learning opportunities are the key to success.
In Built to Last: Successful Habits of Visionary Companies, authors Jim Collins and Jerry Polars presented their research on what made firms sustain greatness. They identified eighteen companies that were “visionary,” that is, a premier institution in its industry that is widely admired by knowledgeable businesspeople, made an imprint on the world, had multiple generations of Chief Executive Officers (CEOs), had multiple product/service life cycles, and was founded before 1950.
In 2004, ten years after Built to Last was published, a feature in Fast Company provocatively titled Was “Built To Last” Built To Last? stated that at least seven of Built To Last’s original eighteen companies have stumbled. Clearly, sustaining industry leading performance — leave alone greatness — is a challenge for firms.
Not surprisingly, there is evidence to show that firms find it difficult to sustain their performance in difficult recessionary times, like the one we are witnessing now.
Focusing solely on cost reduction during a downturn is unlikely to drive superior long-term performance.
In the general bear market that existed between 1966 and 1982, a majority of companies that outperformed their peers on total shareholder returns, saw higher growth in sales compared to EBIT or dividends. So, these firms were investing more in the business.
Ability to evolve
What sustains the longevity of firm performance? In my view, apart from the Built to Last elements — like preserving a core ideology, the BHAG (Big Hairy Audacious Goals) concept, owning a cult-like culture, trying new things, refusing the idea of a “great idea” to start a company, and consistent innovation — investing in the learning and development of employees to enable all the other elements is important as well.
An important aspect of sustaining a competitive performance is the ability of firms to evolve by building new competencies. A couple of examples that come to mind are IBM’s metamorphosis from a product to a services firm, and Intel’s transformation from a commodity manufacturer of DRAM memory chips into a niche branded microprocessor manufacturer.
A good example is of GE, a diversified infrastructure, finance and media company. GE is more than a century old, tracing its beginnings to Thomas A. Edison, who established Edison Electric Light Company in 1878. The fact that GE is the only company listed in the Dow Jones Industrial Index today that was also included in the original index in 1896 is a testimonial to its sustainability! While many know GE’s focus on research and development (R&D) and innovation, not many know about its focus on competency and leadership development. his is reflected in its investment of about $ billion annually in learning and development. Its John F. Welch Leadership Center at Crotonville, established in 1956, is a trend-setter, and a model for other iconic firms like Boeing and Toyota Motors.
Focus on employees
The continued investment in learning and development underlines the importance firms place on improving competencies that make them even more client/customer centric.
In the uncertain times where revenues are under competitive pressure, a workforce that is focused on clients/customers is a key differentiator to grow and sustain. According to the American Society for Training and Development (ASTD), a sample of Fortune Global 500 firms spent, on an average, $1,067 per employee as direct learning and development expenditure in 2010 and an average of 32 hours of learning were used by an employee in 2010.
A sample of technology and communication firms across the globe spent on an average $1,352 on direct learning and development expenditure per employee in 2010 and an average of 38 hours of learning were used by an employee in 2010.
And this continued investment in learning and development is a strong signal from the firm to its employees that their employer believes in them, and, hence, continues to invest in building their competencies. This is essential to build a win-win emotional contract between employees and the firm to sustain performance.
Learning and development is essential to the firm’s competitive performance, and in some contexts like India, goes beyond to fill the gaps in the inadequacies of university system to provide an industry-ready workforce. In fact, the good news is that the Indian corporate sector is thinking right in its focus on learning and development.
Unlearn to learn
Peter Cappelli, Harbir Singh, Jitendra V. Singh, and Michael Useem in their Harvard Business Review (March 2010) article Leadership Lessons from India show that 81 per cent of the heads of human resources (HR) reported learning and development was essential to building competitive organisational capabilities.
The current uncertainty in the global economy is a classic context where firms need to unlearn competencies that are no longer drivers of competitive advantage and learn the new competencies that will power their competitive advantage in the future.
Every industry is today a knowledge-based industry. And with the ubiquitous access to the Internet, codified explicit knowledge is a commodity, while the tacit knowledge is the key to sustain competitiveness.
Learning and development programs need to focus on transferring this tacit knowledge across the firm. Some firms have managed this well. An example is Yamaha, a global leader in the musical instruments industry. Yamaha, headquartered in a rural Japanese community, has a complex system of creating knowledge transfer programs that transfer tacit knowledge from across business functions, and more important from customers across the world.
Learning and development requires a rethink of the traditional linear lecture based learning to more non-liner experiential immersive pedagogies.
This excerpt from an 1899 report by the American Banker’s Association Committee on Education sums up the relevance of learning and development in sustaining a firm more than a century later, “As never before there is required in every branch of business the most thorough training, scientific and technical, for the attainment of success under the intense competition that prevails.”
(The writer is Senior Director, Zinnov.)