Return on Character

 In the most recent issue of the Harvard Business Review, there is an article called “Measuring the Return on Character” that presents the research findings in the book Return on Character:  The Real Reason Leaders and Their Companies Win, by Fred Kiel. The conclusion is that leaders “ of strong character achieved up to five times the ROA for their organizations as did leaders of weak character.”

If I changed the leaders’ character to organizational character, I could see some parallels to my own conclusions in my new book, The Demand Perspective: Leading from the Outside-In, in that it is the “soft,” human-centered components of an organization—which I boil down to how an organization thinks, learns, relates to customers, perceives its value and leads—that determine the organization’s fundamental orientation and performance. 

The book is based on a 7-year study of more than 100 CEOs and over 8,000 of their employees. These CEO’s were rated on the basis of four indicators of character:  integrity, responsibility, forgiveness, and compassion. The findings surprised even the researchers.  At one end of the spectrum were those he called “virtuoso CEOs”—CEOs whose employees rated them highly on all four qualities of character.   At the other end of the spectrum were the CEO’s who lacked character. Kiel calls them “self-focused CEO’s.”  They were “often described as warping the truth for personal gain and caring mostly about themselves and their own financial security, no matter the cost to others.”

 In my book, organizations were grouped into two categories along a continuum.  At one end of the continuum were bureaucratic, rigid organizations focused on themselves. These could only see the outside world from the narrow lens of their own interests, values and products. At the other end, were flexible, open organizations, focused entirely on their customers and able to see the world through the eyes of those customers.  The organizations that thrived and were able to constantly adapt to their constantly changing markets were the latter.  Their relationship with customers and employees were characterized by intimacy, empathy, collaboration, co-development and shared authority.

 In their outstanding new book, When Millennials Take Over, Jamie Notter and Maddie Grant talk about the importance of understanding what drives the success of one’s organization.  They caution, however, that it is equally important to realize that there are many levels of understanding:  the 35,000 feet strategic level and the real level of culture and execution.  One of the examples they cite is that of Quality Living, Inc.—a company that provides rehabilitation services to people with brain and spinal cord injuries.  On paper the company’s structure seems rigid and traditional. In practice, however, the company is flexible and its complete focus on the patient crosses silos and drives all aspects of its business and culture. 

Staff doesn't narrowly focus on only patients' medical needs. They take time to understand patients as whole persons, beyond their physical ailments. In one case, for example, they learned that a patient’s passion was longboard skateboarding.  This level of understanding shaped this patient’s treatment as the staff employed a longboard skateboard (with the wheels removed) as the basis of that patient’s strength and balancing exercises. In the case of a patient passionate about scuba diving, the staff found “a local diving program that works with people with disabilities," while kayaking was used for the rehabilitation of another patient with a passion for the sport.

 At a high level, the authors observe, QLI’s success can be seen as driven by the goal of providing quality care for its patients.  To achieve this purpose QLI hires qualified health care experts who occupy predictable roles within its hierarchy.  However, “rebuilding a shattered life requires more than medical attention. It requires deep knowledge of a patient as a person and integrating that person’s life and passions in the medical care.” This is the real driver of QLI’s success in practice; and this is where it makes a difference in the patient’s life; excels and differentiates its services from those of others.

 QLI's patient-centered culture and practice required re-thinking of all aspects of its business, such as the way leadership was exercised and the definition of expertise.  The authors cite the case of a QLI staff meeting in which both the CEO and staff from all levels participated. When asked, the guests who were present had no idea that the CEO was present.  This was because staff with experience in the particular case discussed, rather than those with high level positions, led the meeting. “At QLI,” the authors write, “when you know what matters to the patient at a deep level, that expertise gives you the authority to make decisions.”  It was in these human-centered qualities that the company’s “character,” and hence success, resided.

 Conclusions?  Paradoxically, the more an organization focuses on itself--its prestige, programs, interests, processes and policies--the more disconnected it becomes from its own customers and, hence, the less successful. “Hubris and greed,” the HBR article says, "have a way of catching up with people, who then lose the power and wealth they’ve so fervently pursued.”   When leadership and management are based on self-interest, control and strict pursuit of the bottom line, they cannot create the deep relationships, on-going flow of value, loyalty and flexibility that allow for constant alignment with the fast-paced market and provide a far more solid foundation for growth.  

You cannot lead an organization to success today with a narrow focus on profit, numbers (of members/customers, events, etc.); logistics, tactics and even strategy. You have to focus on what used to be seen as the “soft” aspects of your business such as authentic commitment to customers, deep understanding, empathy, integrity. And it takes leaders with “character” and a focus on the success of customers rather than on themselves and their agendas, to build organizations from the outside-in rather than from the inside-out; organizations focused on people rather than products.


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