[MUSIC] In this segment we're going to talk about how companies transition from a focus on linear alignment to a focus more on obliquity. To get started on this, it's just worth acknowledging some of the, the risks of this oblique principle that I described in the previous segment. The problem with it is, is very simple. Which is that even though one can make a compelling case that setting higher order goals, setting some sort of long-term purpose is a good thing. It does make a lot of people very nervous. First of all, it creates ambiguity for employees. If you tell them that our job is to create value for society in some sense, it's sometimes not completely clear what that means. It's much easier albeit less value added, to just give somebody a financial goal. And so, we have to make sure that our organization is, shall we say, comfortable with a, with a certain level of ambiguity. That comes from an oblique goal. Secondly, of course, shareholders, the people who own the company. Typically are also very nervous or uncertain, shall we say, about this as a model. So when you look at companies that deliberately sets goes around community or about employees or whatever. They will always get push back that was the push back from analysts saying how is this really helping us as shareholders? Now, the answer is in, in the long term it will absolutely help you. But many shareholders just don't take that long term view. They want to be convinced that investments being are going to be good for them in the short term. And in, in fact it's not surprising in fact that, that many of the most successful companies using these oblique principles are actually privately held companies. So for example, in America we've got WL Gore. I mentioned them in the first segment. In the UK, we've got a company called the John Lewis Partnership. Which is essentially owned by its employees through a, through a trust. You know, these are companies which clearly are built on these types of oblique principles. And yet, they have been able to do it largely because they haven't got to worry about the rigors of the short term needs of the stock market. So, that is our points to be brought in mind and we're going to come back to before we're finished. So basically, oblique goals involve a certain amount of, of risk. And they do make people a little bit nervous. If we think about the framing I've been using all the way through, in terms of, of the diagram on the right hand side, here. Once again, companies are, to some degree, saying to themselves, how can we be a, be a bit of a hybrid? How can we, to some degree, reconcile the needs for essentially short term alignment thinking versus more long term oblique thinking. Now there are opposing principles on some level, but the reality is that we are trying to find ways of getting both. Now there are some companies out there that which are purely short term focused. Who only care about making money in, you know, a 12 month or 24 month period. But we can't find too many good examples of companies which are purely focused on the, kind of the oblique end of the spectrum. And the reason for that, of course, is that most companies, even privately held ones, do have to think at some level about the accountability for results. And so what we see most companies, far sighted companies doing is saying to themselves. Can we create a balance between the short and the long term between these principles of linear alignment and the principle of obliquity? To create what are sometimes been called the kind of purpose with profits. And the reason that they have to get this balance is very clear, which is that unless you manage the profits in the short term, there is no long term. A company that only focuses on doing good for society will go out of business. Now obviously if you are a charity and you rely on charitable funding, you can afford to put all of your money as it were into good, good deeds. But if you are a commercial organisation, you need to both manage the short term in order to have the profits. To be able to invest at the same time in the long term. So there is a real tension between these two. So that is the kind of the basic principles around it. What I'm going to give you in the course room is a little bit of reading to do. Just to give you three examples of companies that have explicitly and deliberately sought to get the balance between purpose and profits. Between oblique goals and linear alignment. The first is, is HCL Technologies. You were introduced to HCL Technologies in the first module of this course. The chief executive, or the former chief executive Vineet Nayar came up with this slogan a few years ago. Employees first, customers second. And he announced this at the Global Customer Meeting. Not surprisingly, a lot of customers were a little bit upset about this. A little bit nervous that this was actually him investing in his employees ahead of the customers. But, of course, he wasn't saying that at all. He was just employing the oblique principle, which is very simple. Which is, as an executive in HCL, his job is to make sure his employees are engaged and committed and happy. Because the value in a services company like HCL, which is in the world of information technology systems. The value that they create is all in the relationship with their customer. So if he's got committed and engaged employees, almost by definition. They will then put the effort into making the customers needs are satisfied. So you will simply say, my job is to focus on employees. Employees job is to focus on the customer. The second example we have here is a Swedish bank called Handels Bank. Which for 43 years straight has actually made greater profits than the average profit within the Swedish Banking Center. Which is a pretty impressive long term performance. What has been the secret of that? Well, in a word, it is a story of decentralization. What Handelsbanken does, which none of the other Swedish banks does, at all. Is to put the old traditional concept of the branch, the bank branch, into, into fruition. So the branch manager, the person who runs the branch, is responsible for all of the activities of lending money, and borrowing money in that local environment. So he or she as a bank manager, is actually concerned about the individual customers that they've got. And they are a company that has, has been putting in place this, this lean budgeting technique that I talked about in the previous segment. The logic is that if we don't give people budgets, if we just say to them, try to make sure that your customer satisfaction numbers. And your overall profitability are higher than the average in your local region, then you have done your job. Again, their focus here is on the customer, customer satisfaction. And if we make our customers happy. Then the, the, the profits will, will follow due, in due course. So, if the HCL story is about employees first, the Handlesbanken con, concept is about customer's first. The third case case study is, the Tata group again, I've already mentioned them once. Ratan Tata, the former Chief Executive, very, very clearly focused on the communities that we serve. Making sure every business unit feels that it has an obligation to the community. Now, to be very clear, they're not avoiding making money, far from it. These are very commercially driven companies. But in addition to that, they have very explicit goals around investing a certain amount of money in the local communities. A certain amount of their profits, and having good causes linked specifically to that. So those three examples hopefully illustrate this oblique principle. And give us a sense of the sort of transitions that have to be made. Let me finish the statement just by focusing on, four kind of summary points. About, particularly about how companies can move towards this oblique principle. Point number one, the oblique logic does not have to have some sort of elaborate or novel or even very clever high order principle. As I said, in HCL it's about employees. In Handelsbanken it's about customers. If you're working at Tata it's about the communities that you serve, and that's about it. Essentially, you know, the job is to say not having come up with some snappy slogan. But how can we identify a particular group of stakeholders that we care about. And can we serve them in a way that creates viable business for us. Second, we need to have supporting systems to make the idea stick. What do I mean by that? I mean if we're going to talk about customer satisfaction we better measure it. If we're going to talk about making our employees highly motivated as HCL, we better make sure that we invest a lot of money. In developing and motivating our employees and making sure that we understand when they're happy and when they're not. We also have to invest a lot in the communication systems to make sure that everybody gets that this is an important part of the story. Third point, and very, very specific point here. Really to kind of bolster the second point, is this notion of a counterweight. Now what do I mean by that? Think of an organization which says that it focuses on the communities that they serve and it's also out to make money. Over the years there is a risk that that message gets diluted. And that when push comes to shove in a particular difficult year. Rather than putting money into the community we make sure that we make our numbers, that we make our financial goals. So the principal, the counter weight says that we need to create a, a specific mechanism which is accountable for this oblique principal. So in the world of Tata, there is essentially a, a holding company, Tata Sons, which owns stake in all the different Tata businesses. And it's kind of written into their statutes. That the individual operating businesses which bear the Tata name have to give a significant percentage of their profits every year to charity. If you go to Handelsbanken, the Swedish bank we talked about, they have a profit sharing scheme, Oktogonen its called. And that is the scheme you get, which is built 40 years ago as a way of insuring that 7% of the profits were distributed every year. Into some sort of employee scheme whereby everybody actually gets exactly the same amount of this. You don't get more just because you're senior. Everyone gets the same amount. And in all these cases what we're trying to do is putting this, this counterweight in places. It's a bit like having a separate judiciary from the, you know, from the executive office in, in a, in a country. We're having a counterweight, which is somebody accountable for making sure that this oblique principle actually gets adhered to. Finally, just worth acknowledging that the oblique principle doesn't just apply at a corporate level. I can think of many examples of organizations where an individual might have a team of 20, or 30, or 50 people. Has actually put in place his or her own version of the oblique principle. So we can't just wait for you know our chief executive to do this, we can actually think in terms of this something we do ourself. In the course room, I'll give you a very specific example of this that you can read up on. As a way of saying to yourself, how can I apply this for myself as an individual.
