The Six Secrets of Change: What the Best Leaders Do to Help Their Organizations Survive and Thrive

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Love Your Employees

Theories can be very general or more grounded. For our purposes-helping leaders thrive in complex times-theories need to be close to the action. Secret One takes us all the way back to the general theory of Douglas McGregor a half century ago. McGregor (1960) contrasted two theories of human motivation concerning behavior in the workplace, which he called Theory X and Theory Y.

Theory X Assumptions

The average human being has an inherent dislike of work and will avoid it if he or she can. Because of their dislike for work, most people must be controlled and threatened before they will work hard enough. The average human prefers to be directed, dislikes responsibility, is unambiguous, and desires security above everything else. Theory Y Assumptions If a job is satisfying, then the result will be commitment to the organization. The average person learns under proper conditions not only to accept but to seek responsibility. Imagination, creativity, and ingenuity can be used to solve work problems by a large number of employees.

Let's go back even further to Frederick Taylor, a proponent of Theory X almost a century ago in his Principles of Scientific Management (1911/2007). According to Taylor's studies in the steel industry, work tasks could be broken down, and workers could be taught to perform them with maximum efficiency and productivity. Taylor (2007) developed four principles of scientific management:

1. Replace rule-of-thumb work methods with methods based on a scientific study of the tasks. 2. Scientifically select, train, and develop each worker rather than passively leaving them to train themselves. 3. Cooperate with the workers to ensure that the scientifically developed methods are followed. 4. Divide work nearly equally between managers and workers, so that the managers apply scientific management principles to planning the work, and workers actually perform the tasks [p. 31].

Taylor demonstrated, for example, how a worker could be taught to nearly quadruple the volume of pig iron he moved simply through optimal timing of lifting and resting. (Incidentally, the six secrets actually integrate Theories X and Y and even Taylor's principles, but we are getting ahead of ourselves.) We leave Taylor for the time being and return to his ideas on the more modern concepts of precision and specificity. We will see that there is no incompatibility between being consistent in using what we know while being open to improvements (Secret Four).

Taylor did discuss the relationship between managers and workers, and this goes to the heart of secret one. We need here to examine more closely the relationship between employees and customers, and how managers conceive of this relationship. To take an education example, consider what looks like a straightforward case: that children should be first. Secret One belies that one-sided conclusion.

The major trumpet call for education in the United States is a piece of legislation called No Child Left Behind. England's is Every Child Matters. New York City's is Children First; these are the first two sentences of its report: "We call our plan Children First and we mean it. Our goal is to focus everything we do on the only outcome that matters: student success" (New York City Department of Education, 2007, p. 1).

I have centered my own work around the moral imperative of raising the bar and closing the gap of achievement for all children, so I am an advocate of the sentiments expressed in these policies. But there is one problem: Secret One tells me that the children-first stances are misleading and incomplete.

A new report from McKinsey and Company focusing on the top-performing school systems in the world provides the central reason why we must value employees (in this case teachers) as much as customers (children and parents): "the quality of the education system cannot exceed the quality of its teachers" (Barber & Mourshed, 2007, p. 8). I'll mention two examples of how even the best school superintendents can miss the nuance of Secret One, knocking its delicate balance out of whack. Gerry House was superintendent of the Memphis City School District in Tennessee from 1992 to 2000. The Memphis district has 110,000 students and 161 schools. One in three children live in poverty. The superintendent's theory of education was to commit the district's schools to select among seven so-called whole-school reform models that had been sponsored by a national agency.

By 1998, 75 of the 161 schools were involved, with more being added. House was awarded the 1999 National Superintendent of the Year Award. Yet within a year she resigned. What went wrong? The answer is very much Secret One foretold in a 1998 report by an external research team: "teachers and principals express fatigue and feel unappreciated" (cited in Franceschini, 2002). Superintendent House, in the heat of battle in 1999, responded to teacher protest saying that "lagging test scores in city schools leave no room for the faint-hearted." (Any time you hear a manager say that the work is not for the faint-hearted, head for the exit, because this is a sure sign that Secret One is not understood.)

A similar example of another great school superintendent concerns Tony Alvarado, the highly successful leader of District 2 in New York City, who moved in 1997 to become chancellor of instruction (reporting to chief superintendent Alan Bersin) in the San Diego Unified School District. Alvarado and Bersin were in a moral hurry, as well they should have been, considering the low performance scores of students in San Diego schools. The relentless push from the top was met with mounting resistance in the union and on the part of some teachers. Alvarado was asked to leave in 2002, and Bersin was replaced by the school board in early 2005. The story is complicated (see Hubbard, Mehan, & Stein, 2006), but my point is that Bersin and Alvarado never figured out how to love their employees as much as their customers (students and parents). And yes, if you must choose one over the other, choose your customers, but my point is that this approach is doomed to failure.

Carl Cohn, who replaced Bersin as superintendent, publicly distanced himself from the Bersin-Alvarado approach and wrote an article in the national publication Education Week titled "Empowering Those at the Bottom Beats Punishing Them from the Top" (2007). Shades of Secret Three, but not the nuances; it is not just that you don't punish them, but also that you invest in their capacity building linked to results.

Secret One, then, is not just about caring for employees. It is also about what works to get results. It is about sound strategies linked to impressive outcomes. One of the ways you love your employees is by creating the conditions for them to succeed. This notion is related to George Bernard Shaw's observation: "the difference between a flower girl and a lady is not how she behaves, but how she's treated." This is pure Theory Y. But there is more to it than that. It is helping all employees find meaning, increased skill development, and personal satisfaction in making contributions that simultaneously fulfill their own goals and the goals of the organization (the needs of the customers expressed in achievement terms). If that fulfillment is not simultaneous for employees and customers, Secret One is not in place. In implementing Secret One, you can have your Theory X and eat your Theory Y too.

Secret One in Action

One of my criteria for theories that travel is that they help us make sense of the world while guiding action in a good way. The test of Secret One is whether there is any proof that loving employees and customers equally can be done such that everyone benefits. I have already made the point that one without the other is deficient, but what does combining them look like, and what proof is there that the results are beneficial?

I find solid evidence in a book with the cute title Firms of Endearment (Sisodia, Wolfe, & Sheth, 2007). The fact that it is grounded in evidence relative to named companies is especially helpful. Firms of endearment (FoEs), say Sisodia et al., endear themselves to stakeholders (customers, employees, investors, partners, and society). When these authors claim up front that no stakeholder is more important than any other, they are getting at the core of Secret One. FoEs create emotional value, experiential value, social value, and financial value. Customers, the authors say, "want to be in love, and if they don't find it, they'll settle for price and convenience" (p. 5). We will get to their full list of companies shortly, but let's look for a moment at Wal-Mart (not an FoE) and Target (an FoE). Wal-Mart treats its employees instrumentally at best and offers low prices and convenience. Customers can be loyal in behavior to a company without being loyal in attitude: they might frequent a store because of low prices, but have no emotional attachment and therefore little long-term commitment to it. Any competitor that values quality and treats the customer well, as we shall see, will outperform other companies in the long run. As Sisodia et al. put it, "the logical 'left brain' says you should shop at Wal-Mart so that your shopping ends up saving a few bucks. However, the emotional right brain may not welcome the experience. Integrating the two sides is one of the secrets to Target's success [whose] customers get low prices, as well as a pleasant experience and more stylish products than they could find at Wal-Mart" (p. 5).

If you want bottom line, consider that Wal-Mart's stock has been stagnant for five years, whereas Target's has risen nearly 150 percent.

Companies that do not understand Secret One do not prosper as much as those that do. I have already predicted that General Electric would be in trouble with its tough approach. GE was renowned for its pragmatic, hard-nosed management and its record of earnings improvements (Sisodia et al., p. 8). GE's stock is down 40 percent over the past five years. It is relevant to compare the two rivals who were in contention to replace Welch. Jeff Immelt, who was appointed CEO, is more of an FoE leader and is trying to reinvent GE along those lines. Immelt is "a cooler, humbler and more reserved chief executive" than Mr. Welch, observes the New York Times ("Is GE too big for its own good?" 2007, p. B1), and quotes Immelt: "We have to re-earn the respect of investors."

Sisodia et al. (2007) also quote Immelt:

The reason people come to work for GE is that they want to be about something that is bigger than themselves. People want to work hard, they want to get promoted, and they want to get stock options. But they also want to work for a company that makes a difference, a company that is doing great things in the world. Good leaders give back. The era we live in belongs to those who believe in themselves but are focused on the needs of others.... The world's changed. Businesses today aren't admired. Size is not respected. There's a bigger gulf today between the haves and have-nots than ever before. It's up to us to use our platform to be a good citizen. Because not only is it a nice thing to do, it's a business imperative [pp. 31-32].

The GE senior executive who lost out to Immelt was Robert Nardelli-more in line with GE's tradition under Welch (and in fact was known as "Little Jack"). Nardelli was then immediately appointed as CEO of Home Depot in December 2000. Erring on the too-tight side of the equation, Nardelli streamlined operations and centralized supply orders, which resulted in the doubling of sales. Revenue increased from $45.7 billion in 2000 to $81.5 billion in 2005. (Incidentally, this was a slower rate of growth than Home Depot had previously experienced-the company had doubled in size every four years from 1979 to 2001, admittedly largely through expansion.) The cracks began to show as employees and customers were turned off by Nardelli's hard, results-driven management and as the company's share price eventually stagnated. Nardelli abruptly resigned in January 3, 2007, with a severance package of $210 million, which further alienated stakeholders. On August 5, 2007, as I write this chapter, it was announced that Nardelli has been appointed as chairman and CEO of Chrysler. Watch out, Chrysler, unless Nardelli has learned more about Secret One through his experiences at Home Depot. (Irony of ironies, business guru Ram Charan, 2007, p. 102, lavishes ten pages of praise on Nardelli for his leadership at Home Depot in "reinventing an entire social system." Caveat lector.)

I am aware that this analysis runs the risk of attributing the ups and downs of a company to the CEO as the dominant figure. In fact, as I will conclude eventually, it is the culture of the entire organization that counts, shaped by the CEO but manifested by leaders at all levels of the organization.

Sisodia et al. (2007) did not begin their selection process by assessing companies' financial performance. (In other words, they avoided the halo effect by deferring the question of success.) Instead, in their first stage they sought nominations of companies that met their "humanistic performance" criterion-that is, they looked for companies that paid equal attention to all five stakeholders (customers, employees, investors, partners, society). They then proceeded to an initial screening (stage two), to in-depth research of the companies that passed screening (stage three), and to final selection of the FoEs (stage four). The following are the twenty-eight companies that made the final cut (p. 16):

Amazon eBay Johnson & Southwest BMW Google Johnson Starbucks Carmax Harley Jordan's Timberland Caterpillar Davidson Furniture Toyota Commerce Bank Honda LL Bean Trader Joe's Container IDEO New Balance UPS Store IKEA Patagonia Wegmans Costco JetBlue REI Whole Foods

Now we can work backwards. What was the financial performance of the companies in absolute terms and relative to their competitors? What did these companies stand for and do to get such results? First, let's look at the results of the financial analysis. Based on S&P 500 performance over the ten-year period between 1996 and 2006, "the public FoEs returned 1,026 percent for investors over the 10 years ... compared to 122 percent for the S&P 500; that's more than an 8-to-1 ratio! (Sisodia et al., 2007, p. iv; italics in original).

Sisodia and his colleagues then made a direct comparison with Jim Collins's eleven Good to Great (2001) companies (Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo):

Over a ten-year horizon, FoEs outperformed the Good to Great companies: 1,026 percent return versus 331 percent (a 3-to-1 ratio). Over five years, FoEs returned 128 percent, compared to 77 percent by the Good to Great companies (a 1.7-to-1 ratio). Over three years, FoEs performed on par with the Good to Great companies: 73 percent to 75 percent.

None of the eleven Good to Great companies made the cut as an FoE (although Gillette came close). Put differently, none of the Good to Great companies met the "humanistic performance" criteria.

In a nutshell, Secret One concerns the involvement of everyone in a company in meaningful pursuits that transcend the bottom line. Much of the detailed analysis of the cultures of FoEs feeds into several of our subsequent secrets, and I will make the connections at the appropriate times. But now let's consider one set of comparisons in the food industry: Whole Foods, Albertsons, Kroger (one of the Good to Great companies), Safeway, Costco, and Wal-Mart. Whole Foods' declaration of independence states that, among other things, "satisfying all of our stakeholders and achieving our standards is our goal. One of the most important responsibilities of Whole Foods' leadership is to make sure the interests, desires and needs of our various stakeholders is kept in balance. We recognize that this is a dynamic process. It requires participation and communication by all our stakeholders" (Sisodia et al., 2007, p. 128).

(Continues...)

Excerpted from The Six Secrets of Change by Michael Fullan Copyright © 2008 by Michael Fullan. Excerpted by permission.
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