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Five Fundamental Beliefs for Business Success

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In his excellent book A Business and its Beliefs: The Ideas That Helped Build IBM, Thomas Watson Jr. (the second chief executive of IBM) gives us five great lessons on business success.

From the time of our divisional reorganization we have found that an ingrained understanding of the beliefs of IBM, far more than technical skill, has made it possible for our people to make the company successful. 

In looking back on the history of a company, one can’t help but reflect on what the organization has learned from its years in business. In thinking specifically of the period since the war when IBM faced the twin challenges of great technological change and growth, I would say that we’ve come out with five key lessons. They may not be applicable to all companies. All I can do is attest to the great value these five lessons had for us. 

  1. There is simply no substitute for good human relations and for the high moral they bring. It takes good people to do the jobs necessary to reach your profit goals. But good people alone are not enough. No matter how good your people may be, if they don’t really like the business, if they don’t feel totally involved in it, or if they don’t think they’re being treated fairly — it’s awfully hard to get a business off the ground. Good human relations are easy to talk about. The real lesson, I think, is that you must work at them all the time and make sure your managers are working with you. 
  2. There are two things that an organization must increase far out of proportion to its growth rate if that organization is to overcome the problems of change. The first of these is communication, upward and downward. The second is education and retraining. 
  3. Complacency is the most natural and insidious disease of large corporations. It can be overcome if management will set the right tone and pace and it its lines of communication are in working order. 
  4. Everyone — particularly in a company such as IBM — must place company interest above that of a division or department. In an interdependent organization, a community of effort is imperative. Cooperation must outrank self-interest, and an understanding of the company’s particular approach to things is more important than technical ability. 
  5. And the final and most important lesson: Beliefs must always come before policies, practices, and goals. The latter must always be altered if they are seen to violate fundamental beliefs. The only sacred cow in an organization should be its basic philosophy of doing business.

The British economist Walter Bagehot once wrote: “Strong beliefs win strong men and then make them stronger.” To this I would add, “And as men become stronger, so do the organizations to which they belong.”

What is the Purpose of a Corporation?

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From Harvard Business Review on August 23:

On Monday, 181 CEOs — from top companies including Apple, Walmart, JPMorgan Chase, and Johnson & Johnson — acknowledged that firms do not exist only to serve shareholders. In a statement issued by the Business Roundtable, a corporate lobby group, they affirmed a commitment to “all of our stakeholders.” Those include customers, employees, suppliers, communities, and — last but still very much not least — shareholders.

It’s a welcome shift. In 1970 the economist Milton Friedman made the case in the New York Times that management’s sole obligation ought to be maximizing value for shareholders. Over the past few decades, that view became commonplace in many boardrooms and business schools and on Wall Street. But there have been dissenters, especially in recent years.

In a 2017 HBR article, Joseph Bower and Lynn Paine of Harvard Business School argue that the shareholder-centric view “is flawed in its assumptions, confused as a matter of law, and damaging in practice.” They write that “a better model would recognize the critical role of shareholders but also take seriously the idea that corporations are independent entities serving multiple purposes and endowed by law with the potential to endure over time.”

To which I say: It’s about time.

I love Milton Friedman, but he got this one wrong. The purpose of a corporation is not simply to make a profit but to make the world better. The best businesses have always understood this and seen their own companies in this way. Jim Collins’ excellent chapter “More than Profits” in his classic Built to Last, for example, brings together dozens of incredible quotes on this. For example:

We’ve also remained clear that profit — as important as it is — is not why the Hewlett-Packard Company exists; it exists for more fundamental reasons. — John Young, Former CEO, Hewlett-Packard

We are in the business of preserving and improving human life. All of our actions must be measured by our success in achieving the goal. — Merck & Company, Internal Management Guide, 1989

We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been. — George Merck, President and Chairman, Merck & Company, 1925 – 1957

We are workers in industry who are genuinely inspired by the ideals of advancement of medical science, and of service to humanity. — George Merck II (once again, because it’s so good)

Sony has a principle of respecting and encouraging one’s ability…and always tries to bring out the best in a person. This is the vital force of Sony. — Akio Morita, Co-founder, Sony

I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. … Our main task is to design, develop, and manufacture the infest electronic [equipment] for the advancement of science and the welfare of humanity. — David Packard, co-founder, Hewlett-Packard

Service to customers comes first … service to employees and management second, and … service to stockholders last. — Robert W. Johnson, Co-founder, Johnson & Johnson

Man’s objective should be opportunity for greater accomplishment and greater service. The greatest pleasure life has to offer is satisfaction that flows from…participating in a difficult and constructive undertaking. — Bill Allen, Former CEO, Boeing, 1945 – 1968

Putting profits after people and products was magical at Ford. — Don Petersen, Former CEO, Ford

Collins also shows that the companies in his study who saw their purpose as more than making money actually made more money than their competitors who didn’t.

This is in line with the biblical purpose of business, where every sector of society exists for the service of people.

However, if business exists to bring good into the world, then how does it differ from the non-profit sector?

The answer is that “more than profit” does not mean “other than profit.” The mandate of business is to bring good into the world in a way that is profitable for the long-term . So profit is essential to the nature of business. It is simply not the only, or even most ultimate, purpose.

In the Christian view, a corporation exists to do good for the world in a profitable way. In so doing, it must give appropriate attention to the needs and interests of all stakeholders, not just the shareholders.

For more on this, see also the excellent book A Sense of Mission, which brings together additional academic research showing that companies who have a purpose beyond making money perform better. [I can no longer find it at Amazon, but here is a short summary.]

Business is Art

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workbench

This is a great perspective from Work the System by Sam Carpenter:

Who says art must include a canvas, sculpture, or musical instrument? Art is creativity, and is there a better example of a creative endeavor than the machinations of building a successful business? Indeed, business is art in its purest form! The painter and the musician shouldn’t scoff at the entrepreneur or corporate chief who must take hard, cold life – sights, sounds, events, things, people – and stir them into an efficient enough mixture to produce a successful business. Business is art. It’s a heroic undertaking, and with it lies two superb by-products: tangible value to others–employees and customers–and personal income for the creator.

Rescuing Ambition in the Workplace

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I think you’ll benefit from this excellent series of articles from Dave Harvey, author if Rescuing Ambition (also highly recommended!).

This is how Dave introduces his series on ambition in the workplace:

A few years ago I wrote the book Rescuing Ambition and called for a rescue. I wanted to  snatch ambition from the heap of failed motivations and put it to work for the glory of God. I wanted Christians to realize that to understand our ambition, we must understand that we are on a quest for glory. And where we find glory determines the success of our quest. Since I wrote that book, many suggested that I address God’s design for ambition in the workplace and in one’s daily calling. 

Here are the links to Dave’s multi-part series, “Rescuing Ambition in the Workplace”: Part 1 , Part 2, Part 3, Part 4.

 

Don’t Divide Your Christian Principles from Your Practical Decision Making

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This is well said by Phillip Johnson, in his foreword to Nancy Pearcey’s Total Truth: 

Every one of us has a worldview, and our worldview governs our thinking even when — or especially when — we are unaware of it.

Thus, it is not uncommon to find well-meaning evildoers, as it were, who are quite sincerely convinced that they are Christians, and attend church faithfully, and may even hold a position of leadership, but who have absorbed a worldview that makes it easy for them to ignore their Christian principles when it comes time to do the practical business of daily living.

Their sincerely held Christian principles are in one category for them, and practical decision making is in another. Such persons can believe that Jesus is coming again to judge the world and yet live as if the standards of this world are the only thing that needs to be taken into account.

That’s a very profound statement. It is worth re-reading and reflecting on.

I remember experiencing this dichotomy in my own life. My senior year in college, I had an internship as a claims adjuster at a large insurance company. One of the things we were taught was that the popular dictum “the customer is always right” would bankrupt the company.

The reason is that customers often had an inadequate conception of their insurance policies, thinking that certain things would be covered when they are in fact not. If we granted the wishes of the customer in each of those cases, we would be paying far beyond what the policies were designed to cover, which would indeed spell disaster for the company.

In this case, of course, the reasoning is correct. The policy rates were set on the basis of the limitations on the policy spelled out in the contract, and to go against those would be to over extend the capacity of the company to pay the claims. I don’t think there is anything unbiblical about sticking to agreed upon characteristics of the insurance policy, especially since the customers are able to read and agree to the policy with full knowledge and consent when they sign on.

The problem, though, was that this could easily have an unwelcome side effect. Even though the company did not advocate doing so, nonetheless this reality could easily create an adversarial mindset toward the customers of the insurance company. You could go in expecting them to disagree, and your mission was to make sure not to give in. Your task could easily become not seeking to maximally serve the customer within the constraints imposed by the policy, but standing your ground against the customer. And justifying that by saying “this is what the policy states. You just have to deal with it.”

That would be an example of following the standards the world often follows — and thinking you are justified in doing so because, of course, you really can’t pay out for things the policy does not cover. Right?

The problem here is not with upholding the policy. The biblical answer here would not be to go against the agreed upon characteristics of the insurance policies. The problem is with what is being left out — namely, humanity. 

The biblical answer here was not to go against the policies, but to remember compassion and understanding. As claims adjusters we might not be able to give the customers what they really wanted in certain cases, but we could always accompany that with saying “I understand this is frustrating. I am sorry about this. And perhaps the conception of this policy is not as helpful as it should be, and we will need to look into that. But this is the policy that was agreed on, and this is what we have to stick to.”

That is a very different approach than just giving people the cold hard facts and saying “deal with it.” It seems so obvious. This is a way of treating the customer with dignity and respect, even when they are not “right” and cannot have their way.

Yet, that that is the type of thing you don’t always see. Perhaps some people think that showing understanding opens them to liability or risk. To acknowledge the person’s frustration, they think, is perhaps to acknowledge that the policy is indeed bad, thus opening them to a lawsuit.

But fear of risk is never a good reason to fail to take the actions that are necessary for affirming a person’s dignity. People’s concerns need to be validated. Even if the company is technically “right,” as was the case most of the time in these situations, it is never right to toss that out as a cold hard fact that a person just has to “deal with.”

This is just one small example of how Christian principles can be set aside in the name of seemingly doing “the right thing” according to a certain (even legitimate) set of standards, and how a Christian view can come in and provide what is missing so that people are always treated the way they ought to be treated.

There are lots of other examples that are more extreme and more significant. Regardless of the situation you are in, always remember to ask not only “what are the typical practices for handling this situation in my industry” but also “what does God have to say about this type of thing, and how does that apply to me as well?”

Is Excessive CEO Pay a Problem?

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I am a capitalist and I believe in the free market. Government interference almost always makes things worse, not better. Then, when the government “solution” causes those worse problems, people forget that government caused those problems in the first place. And so another government “solution” is called for, and so the cycle continues.

So one might expect me to say that high CEO pay should not be considered a problem.

But that is not what I think. My thinking is in line with Peter Drucker’s thinking, well summarized by William Cohen in The Practical Drucker: Applying the Wisdom of the World’s Greatest Management Thinker:

Drucker defended perceived high executive salaries in his earlier writings. He knew how hard executives had to work to reach the pinnacle of their careers.

However, skyrocketing executive salaries caused him to drastically alter his opinion. He said executive salaries at the top had clearly become excessive and that the ratios of compensation — top managers in relation to lowest paid workers — were the highest in the world. Moreover this income difference wasn’t slight — it differed by magnitudes.

Drucker felt that this was morally wrong, and that we as a nation would end up paying a tremendous price for this. Indeed, in 2001, the ratio of average US CEO compensation to average pay of a non management employee hit a high of 525 to 1. At that point, Drucker recommended a ratio of no more than 20 to 1.

Interestingly, Drucker drew a parallel between high executive salaries and the demands of unions for more and more benefits without increases in productivity. He predicted we would pay a terrible price for these examples of gluttony from both management and labor. “It is never pleasant to watch hogs gorge,” he said. In fact, we have been paying this price for several years.

I agree that in general, CEO pay is too high in proportion to the pay of the non managerial worker. I believe this causes all sorts of problems. While I believe that companies ought to have the freedom to pay their executives what they choose, as it is their money, that does not mean that all of their decisions are by definition morally good or beneficial.

So what is the solution? Well, we know what it is not. It is not government interference, such as in the form of wage controls. That will simply cause even more — and likely worse — problems (see first paragraph). A company owns its money, and has a right to do with it what it chooses. For the government to come in and force certain wage restrictions or other such things is simply a disguised form of stealing. It is for the government to force itself into participating in the management of the company, which it does not have a right to do.

So what, then, is the solution? The solution has to come from the market it self; from people. From persuasion, not force (read, laws).

And that is one of the beautiful things about the free market. The market does have imperfections. But, just as with the scientific method, by being left free those imperfections often become self-correcting as we begin to see the damage they are creating.

The imperfections of the market can often be overcome by ordinary people making good decisions and using influence to change culture. And so even when the market is imperfect, it must be left free to correct itself. (Cases of ethical violations of course excepted.)

And that, I believe, is the solution here. But at some point, this specific issue of extreme executive pay needs to become a bigger issue. It’s not a crusade I’m interested in taking up. But it is something worth thinking reflectively and intelligently about — from a free market (rather than command and control) perspective.

 

Beliefs Before Policies!

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Thomas Watson, Jr., the second president of IBM and 16th US ambassador to the Soviet Union:

I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions. Next, I believe that the most important single factor in corporate success is faithful adherence to those beliefs….Beliefs must always come before policies, practices, and goals. The latter must always be altered if they are seen to violate fundmantal beliefs.

Note that: if your policies are inconsistent with your beliefs, you change your policies — not your beliefs. So many companies do the opposite, saying they value people all the while enforcing policies that communicate anything but that.

Of course, the way you know whether a company (or person) really believes something is by what they do.

So what are companies that institute person-depleting policies really saying?

What Christians Can Learn from Secular Business Thinking: My Article in Christianity Today

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As a companion piece with the article on Jon Acuff, I wrote an article for Christianity Today on why Christians need to be learning from secular business thinkers.

More and more Christians have been learning from secular business thinkers over the last few years. I think this is a really good thing. What I seek to do in the article is lay out a brief case for why this is a good thing — something you don’t hear articulated much.

I also highlight two of the most important trends in the best business thinking that we can especially learn from as Christians.

Some Christians are hesitant to learn from business thinking. I think in most of those situations what is happening is that bad business thinking is being confused for the whole of business thinking. 

In other words, there is certainly bad business thinking out there. Some Christians have rightly critiqued that and said “this doesn’t belong in the church.” I agree — it doesn’t. But not all business thinking is like that. There is also good business thinking that is based in principles of character and respect for the individual. This business thinking is something we can — and must — learn from.

Often, those who have critiqued bad business thinking haven’t realized that they’ve only encountered one strain of business thinking. By then implying that all business thinking is like that, they close us off from learning the lessons that we really do need to learn and apply in the church.

We need to move past that and redeem good business thinking. Even more, when we do that we can also stop giving bad business practices a “pass” by saying “that’s just business.” No, it’s not. Business is required to seek the good of the other person just as much as every other area of life. That is the guiding principle of all good business thinking, and that’s why we can indeed learn from it in the church.

So take a look, and if you have any thoughts, let me know what you think.

 

The Gospel-Centered Business

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From Tim Keller and Katherine Leary Alsdorf’s Every Good Endeavor: Connecting Your Work to God’s Work:

The gospel-centered business would have a discernible vision for serving the customer in some unique way, a lack of adversarial relationships and exploitation, an extremely strong emphasis on excellence and product quality, and an ethical environment that goes ‘all the way down’ to the bottom of the organizational chart and to the realities of daily behavior, even when high ethics mean a loss of margin.

In the business animated by the gospel worldview, profit is simply one of many important bottom lines.

Keller nails it here. It is also very interesting that his statement that profit should be only one of many bottom lines syncs up with the research of Jim Collins. In the landmark book Built to Last, Collins’ research shows that the most profitable companies actually don’t put profit first — they put the customer and the mission first.

This doesn’t mean they don’t seek profit (just as Keller isn’t saying not to seek profit). Rather, it’s that they realize that profit is not the point. Making a contribution and serving the customer is. You have to do this in a profitable way, but ironically, Collins’ research shows, you will be more profitable when you pursue more than profit rather than just profit. 

And so here we see that the nature of a gospel-centered business is very much in line with what the best business research is showing as well. Common grace and the gospel are allies, not opponents.

Writing Good Business Documents

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These are notes I took several years ago over something I read on writing good business documents. I can’t recall what I had read, but these notes have always been helpful.

 

General principles for proposals, memos, letters, and reports.

“Organization is the key writing principle. If you organize your documents well, you almost surely will have successful documents–even if you violate other writing principles….The ideas presented in a document should be structured in a natural but emphatic sequence that conveys the most important information to readers at the most critical times.”

Beginning Principles

1. The document should announce its organizational scheme and stick to it.

2. The ideas in the document must be clear and sensible, and comprehensible, given the readers.

3. The document should conform to the readers’ sense of what the most important points are and of how those points are arranged.

Main Principles

1. Organize information according to your readers’ needs. Consider their perspective and what they need to know, then order it so that the most pertinent goes at the beginning.

2. Group similar ideas. If you separate similar ideas, you create chaos.

3. Place your most important ideas first. Lead from major ideas, not to major ideas. This is not a science paper. If you lead to, you will provide unnecessary detail and be hard to follow. The strongest part of a document is the beginning, by virtue of its position. So begin with the most important ideas, and then support them afterward.

– The scientific format. If you are writing a scientific paper, then you do lead to. This process is only acceptible if the readers will be as interested in the process of arriving at the conclusions as they are in the conclusions themsleves (in business, this is typically not the case–people are busy, and the point is not exegesis). In some scientific reports, therefore, this scheme is used: Abstract, summary, introduction, materials and methods, results and discussion (Fact 1, Fact 2, Fact 3, therefore), conclusions, recommendations (optional), summary (optional).

– The managerial format. Follow in all dcouments except sicentific documents written for scientific peers. It is the reverse of the scientific format. A desirable format is: Summary/Executive summary, introduction, conclusions (and recommendations), (because of) [Fact 1, Fact 2, Fact 3, Fact 4], results and discussion. Having the conclusion early in the report facilitates reading becasue the reader is given a perspective from which to understand the facts and data being presented.

Note: The principle of emphasis through placement extends to all documents and all sections of documents. Most important ideas should appear at beginning of the documents and of individual sections. The most important idea in most paragraphs should appear in the opening sentence. The most important words in a sentence typically come at the beginning of the sentence.

Note 2: A corrolary of this is that you should always subordinate detail. Place it in the middle of sentences, paragraphs, sections, and documents. Detail includes data, explanation, elaboration, description, analysis, results, etc.

Note 3: In lengthy documents, begin and end with important ideas.

4. Keep your setups short. Do not delay your major ideas any longer than is necessary. Do make sure to set up negative information well.

5. List items in descending order of importance.

6. In most business or technical documents, preview your most important ideas and your major content areas, and reveiw (summarize) major points at the end of sections.

7. Discuss items in the same order in which you introduce them.

8. Use headings, transitions, key words, and paragraph openings to provide cues to the documents organization.

9. Other. Most effective letters or memos should have a clearly identified action (a to-do statement). If no to-do, then needs to begin with a to-know statement. Title/subject line should reflect the to-do or to-know statement. The repitition between the to-do statement and title/subject line is deliberate.