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Bottom-Up Approach

My recent conversation with AJ Mizes on the Share, Inspire, Repeat podcast got me thinking: how might we unite our teams for the company purpose? On the show, AJ and I concluded that once the team figures out their purpose, the strategy and the how of implementation naturally flow. There is no need for a detailed playbook, nor a monitoring or tracking dashboard. The financial and economic benefits come as a result of each team member engaging in their purpose.

Front Line First

So how can a company figure out its purpose and unite the team towards achieving it? For most organizations, the purpose, mission statement, and strategy come from the top-down, from senior management.

I’d argue that purpose needs to be built from the bottom up. When people say, “This is what head office told us to do” or “This is what senior management wants”, I hear the frustration and see employees who are disengaged and perhaps even demoralized from their work. In many organizations, strategies and business plans are cascaded down for those in the local offices and front lines to execute. Often these plans focus on achieving sales and profit targets that are less than inspiring to strive towards. Does anyone get excited to go to work in the morning thinking, “I am going to sell X dollars so that we can gain more market share”?

What if companies derive strategy from the purpose and core values of individuals that make up the business? This means going to the front line, those who interact directly with customers, suppliers, and communities. This means listening to the employees themselves, and understanding what really matters to each person. If the overall strategy is based on input from employees, employees will be more motivated to achieve the targets because they contributed to the strategy. Second, the aggregated input would be more data-driven because of the complementary qualitative insights from the teams, rather than based purely on quantitative data.

Photo by Leon on Unsplash

Building the business strategy this way can help scale culture. A recent study, Return on Culture, found that companies with a healthy culture are more likely to report revenue growth and stock price increases over three years. Companies that invest in their culture save an average of $150 million due to lower attrition and higher employee engagement. Yet less than a third of employees believe that their organizations have a well-defined value system. Building the core values, purpose, and strategy from the bottom up can ensure that the organization's culture is well understood by employees.

Power to the People

One way to discover the value system, culture, and what drives employees is simply to ask them. Technology can facilitate swift aggregation of opinions, pull out emerging themes and identify a coherent thread. One company that has done this exercise extensively is Zappos, which resulted in The Zappos Culture Book. Zappos asked each employee to define the company culture and then came up with a list of ten core values. These core values define how employees behave and relate to customers, vendors, and the community. There is no extensive sales playbook or list of things that the team can or cannot do. Customers and vendors sing praises of the team, showing how the interests of stakeholders need not be in conflict with each other.

Involving employees in the process of defining the company’s core values and purpose empowers everyone to create their own path towards supporting the business achieve the overall group’s goals. This process has the advantage of discovering team members who may not be the perfect fit to achieve the group’s shared purpose.

Skin in the Game

One way to unite employees in achieving the business purpose is to increase employee ownership. When team members own shares in the company, they have a vested interest to ensure long term sustainable growth of the business. There are various ways in which employees can have skin in the game and own a piece of the pie in the company they work for. Companies can grant shares through pension plans, or employee share ownership plans (ESOP), or be structured as a cooperative. In public companies, employee ownership tends to be a minority compared to cooperatives which have almost 100 percent employee ownership. ESOP grant employees the right to a certain number of shares at a pre-determined price. Such plans are a way to reward team members particularly at early-stage companies and can be used to facilitate succession planning in family-owned businesses. These plans are more effective from a tax perspective, as employees only pay tax upon distribution of the shares (at a lower rate) rather than upfront on contribution. In the US and Europe, shares are typically vested linearly over four years.

It is not surprising then that businesses, where more employees are also shareholders, report longer retention periods and lower attrition rates. This keeps knowledge and experience within the company.

Photo by Austin Distel on Unsplash

During recessions, businesses with ownership across all levels of the organization hierarchy, tend to be more resilient. Attrition rates and employment base remain more stable during business volatility at employee-owned businesses: non-employee-owned businesses reported 12 percent lay-offs compared to under 3 percent in employee-owned companies. These companies were also 20 percent more likely to survive compared to their non-employee owner peers who closed down or went bankrupt.

The higher resiliency may be attributed to greater cooperation, information sharing, and commitment that comes from the psychological ownership of the company. From a stakeholder capitalism perspective, the needs and interests of employees, vendors, and the community are met while maintaining financial growth.

North Star

An argument against a bottom-up approach, or an employee-driven purpose and strategy could be the lack of coherence. The process takes a long time, leading to short-term inefficiencies. So start by experimenting—solicit feedback on company purpose from a smaller group with diverse backgrounds and from different teams. This smaller group can define the North Star or direction of the business. This hybrid approach can be adapted and refined with time as more data is gathered.

Some argue that employee ownership plans shortchange employees. One experiment found that 30 percent employee ownership actually results in better wealth distribution, with the bottom half of the population increasing their wealth by four times. Increasing the opportunity for employee ownership in companies could resolve the destabilizing inequality situation in the community. This is at minimal cost to the upper 1 percent of the population as distributing share ownership and wealth grows the pie for the entire population.

Both techniques, bottom-up driven purpose, and strategy, and employee ownership, unite team members in purpose and deliver benefit to all stakeholders.

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