Corporate consultants tell us that a key driver of success is having a clear vision for the corporation and being able to execute this at all levels. However, how many employees really know or understand the overarching strategy of their company? How many know why they are there (other than to make money)? How many know what the priorities are so that they can make the important trade-offs when dealing with their subordinates, customers or other stakeholders? This issue is made all the more important when we consider the need for companies to have multiple strategies – e.g., a corporate strategy for the business and an environmental/social responsibility strategy for society.
If these strategies are important to performance, then it is necessary that the final and performance vectors relating them to individual actions by employees are critical. Yet one hears anecdotal evidence that few employees really understand their firm’s strategy. My colleagues Grahame Dowling and Pat Auger decided to investigate this more formally. In particular, we were not only concerned about whether or not individuals recognized their own companies strategy when placed in comparison with competitors but whether there was a difference between the corporate strategy and the firm’s environmental sustainability strategy. We were also interested in seeing if there were any systematic differences in which employees knew the strategy better.
In this investigation, we looked at employees in 20 major corporations in 5 industries in Australia. All of these companies have clear competitors (they are basically oligopolies locally) and large market shares. All of these companies have articulated and public strategies (which we confirmed with executives) and all have an environmental sustainability and social responsibility strategy and publish reports annually outlining the good that they do. Individuals in the study were presented with six strategy statements and had to indicate which fit their firm plus their 3 major competitors.[1] In addition, they repeated this exercise for the firms in an industry in which they did not compete (e.g., banking employees might see mining companies). This exercise was done for both corporate strategy and environmental sustainability strategy.
What we found was rather depressing. As individuals saw six different strategy statements they had a 16.67% chance of getting it right just by sheer luck. As the table below reveals, this is approximately what is found when the individual is attempting to distinguish amongst different strategies from a random industry.
Percent Identified Correctly |
||
Industry of Employment |
Random Industry |
|
Corporate Strategy |
29.3% |
15.7% |
Environmental Strategy |
15.8% |
16.0% |
Yet overall, we find that only 29% – 30% of employees could correctly match their company to its publicly espoused strategy. Or put more damagingly, 70% of employees could not identify their employers publicly presented corporate strategy when compared to its three major competitors. When we look at the environmental strategy of the firm this is even worse, with individuals doing no better than random.
At one level this is a serious indictment on the importance of publicly stated strategies and their value as points of guidance for employees. This is reinforced by the fact that the 20 companies examined all performed well, were leaders locally and/or globally, and had won many awards for things like environmental and social performance. So what we are seeing is that even for the best firm’s the “vision thing” may not matter all that much.
In addition, it is quite depressing when one looks at whether or not employees know what the company is doing strategically. As we noted, all of the companies studied had an environmental sustainability strategy and all of them published annual reports on this. All of firms also had a stakeholder engagement strategy that they presented publicly on their websites. Yet most employees had no clue either that these existed or what they were (as seen in the table below).
Percent Saying Yes | |
Have you seen your company’s last annual report? |
36.5% |
Does your company have an environmental sustainability strategy? |
29.2%
|
Does your company publish a public environmental sustainability report? |
17.9%
|
Does your company have a social responsibility strategy |
16.6% |
Does you company have a stakeholder engagement strategy? |
7.9% |
However, at another level we see some interesting differences (which we just summarize for simplicity) and opportunities for improvement.
- First, employees who can better distinguish other firm’s strategies are better at knowing their own firm’s strategy. In other words, some employees do a better job at understanding the differences between their firm and competitors. If you can identify your competitor’s strategies more readily you also seem to know your own. These individuals are also better at being able to explain their company strategy in words to others.
- Second, middle managers are better at understanding the strategy than lower level staff or even senior executives. This may be all that is necessary. Lower level staff may simply need to understand their tasks and not why those tasks matter. It may be delusional to believe that staff or line workers need to be cognizant about higher-level strategic issues to be effective (although this goes counter to those believing strongly in the value of “engagement”).
- Third, training matters. Firms with more direct training of the strategies seem to do have employees who are better able to recognize what the firm views as its goals. What seems to matter most is documentation. What is potentially disheartening however is that no doubt most of these companies would argue that they are doing significant amounts of training on exactly these issues.
- Fourth, rewards matter. This may appear to be a blinding glimpse of the obvious but when we queried individuals as to what determines their pay and what determines how well they do on their performance appraisal, items such as “meeting the organization’s sustainability goals” and “meeting the company’s social responsibility goals” come out dead last. Hence it is no wonder that employees spend no time worrying about whether or not they know the company’s sustainability strategy.
- Fifth, some companies seem to be better at doing this than others. While we choose not to identify the companies involved in this study it is clear that some firms possess employees who are better at articulating and recognizing their company’s strategies when compared to competitors in the same industry. However, it is important to remember that (a) this does not necessarily seem to be related to performance per se and (b) even those that do better don’t do terribly well.
What are the implications of this? Our initial reason for studying this issue was to ask the question of whether or not employees knew their firms sustainability strategy? The answer is basically that they do not. However, many of our colleagues felt that employees would not even know their firms corporate strategies. Hence it was important to see if the lack of an understanding of the firm’s sustainability strategy was just part of a larger issue. While it seems to be to some extent, the reality is that employees at all levels are more cognizant of the firm’s corporate strategy than its environmental strategy. Indeed, most employees do no better than random in just recognizing their organization’s strategy when presented to them while they do much better than random (but still not great) in recognizing their corporate strategy. This may imply that most firm’s environmental strategies are so loaded with general motherhood statements that there is not much that distinguishes them from the “feel good” reports of their competitors. It may also be the case that managers view these activities and reports are more for external consumption and that they do not matter materially to what they as employees are doing. Whatever the reason, it is clear that such reporting is not materially reaching the workforce.
[1] The exercise was quite simple. The individual was presented with 6 statements and had to match these to 4 companies. Four of the statements match the four firms and two of the statements are statements from firms outside Australia (e.g., such as Deutschebank in banking).
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