Volume 18, Number 3 Article by Kuldeep Singh September, 2006
Why the Bottom Line Isn’t! How to Build Value through People and Organization : By Dave Ulrich and Norm Smallwood, 2003, New Y :
For a long time, it has been a matter of curiosity and interest among academicians and practitioners as to how two firms with the same level of earnings can have different market capitalisations. The answer is out in the book authored by Ulrich and Smallwood, according to whom it is the intangibles that make the difference. The book presents a four level blueprint or framework to render the intangibles tangible, or in other words, to communicate to everyone in the company as to how they can contribute in building a stronger organisation that is differentiated from others in their industry. Of the four levels, Level 1, termed most critical, emphasises that credibility in the market place can be built only if a company keeps its promises and delivers consistent and predictable earnings. Level 2 focuses on the development and implementation of a credible long-term strategy which can sustain shareholder confidence. At Level 3, the emphasis is on the core competencies of the company (technical and functional) and their alignment with its strategy. Level 4 emphasises creation of long term value for the company through talent management, which essentially means attracting, motivating and retaining the employees needed for exceptional performance. The book is organised into 12 chapters, with Chapters 2 to 5 dealing with each of these four levels in detail and Chapters 6 through 11 focussing on the processes required for creating the organisational capabilities explicated in Level 4.
The focus of Chapter 2 is on Level 1, which outlines that meeting expectations is the first step towards building intangible value. This begins with setting realistic goals, building in measurement and feedback loops, making bold adjustments to strategies when necessary, and communicating with both internal and external stakeholders. In Chapter 3, Level 2 is explored which deals with the content and process of designing a growth vision. The authors stress that when a company has a growth strategy based on a clear growth vision which will produce a stream of future earnings, the current earnings are valued higher. Leaders at all levels of the organisation have the obligation to build growth visions. A ‘growth tripod’ model is suggested to define alternatives for growth, along with guidelines to develop desired actions for each alternative.
Chapter 4 covers Level 3 of the framework for converting intangibles into tangibles and emphasises that organisations need to ensure that ‘future competencies are aligned to strategy’. The authors point out many technical competencies that need to be aligned with the strategy such as product innovation, operating efficiency, customer intimacy, distribution and technology. When investors perceive an organisation as having a leadership position in a core competence area that is aligned with its strategy, they have more confidence that the firm will execute its strategy and deliver future earnings.
The main body of the book consists of nine cases. Each case begins with the history of the organisation in question, its growth, the issues of failed governance and the status of the company as on the date of writing. The author does not attempt to provide simplistic solutions to complex issues. Instead he tries to highlight the underlying problems which have brought down many a corporate giant – individual greed and compensation plans, organisational weaknesses, lacunae in regulatory processes – and invites the reader to form her opinion on how organisations can possibly avoid such dangerous scenarios in the future.
Chapters 5 through 11 cover Level 4 of the framework which deals with the building of ‘organisation capabilities’. According to the authors, organisation capabilities are the things a company knows how to do well, including the ability of an organisation to use resources, get things done, and behave in ways that lead to accomplishment. The capabilities identified are: shared mindset/culture, talent, speed, learning, accountability, collaboration, and quality of leadership. Each of these capabilities is covered under a separate chapter with detailed ‘know how’ for developing these capabilities, along with examples from industry. Further, each of the chapters provides detailed step by step approaches, matrices and models to help practitioners implement the ideas given in the book.
The book has been written in a very reader friendly format, particularly from the practitioner point of view. Each chapter has industry examples along with best practices to clearly emphasise the major theme covered. Further, the authors have provided a number of worksheets and also emphasised the major implications of each theme at the end of each chapter. In general, the book tries to link the ‘softer’ (intangible) aspects of managing a company with the ‘harder’ (bottom-line/tangible) aspects in a simple, accessible manner.
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