The outcome of focusing on profit targets is not always so positive. Cases like the Enron scandal clearly demonstrate this dilemma. So how can good corporate governance help your company to create positive benefits without everything going astray?

An organisation goes in the direction of its measures, or at least it tries to, that is why it has measures. So for example, if an organisation has a target to make a profit, the people in that part of the organisation will shape themselves around the need to make that profit. If everyone in the company is focused on it, then that will be the staff’s primary concern. Great, you say, everyone here trying to make a profit, it is bound to be successful. However it often doesn’t work like that. The extreme cases like Enron are classic examples of one or more targets driving behaviours in a very negative way, but there are plenty more.

Say you are a creative business and hire a bunch of creative people to service your creative hungry clients. You then focus your creative people on profit, what effect does that have on their creativity? Does it make them more creative, or does it divert their attention away from the creative process and end up giving them creative block, or whatever the expression is?

What has this got to do with corporate governance?

We have worked in this area for many years now and we know that an organisation which sets itself transactional targets (such as how quickly they answer the phone or how many sales calls they make) are more likely to end up busy, as organisations follow their measures.

However why would an organisation want to be busy, does it make them better?

Being busy proves to me much more likely to create a desire to “work the system”, which can create a climate which contributes to less positive corporate governance. What we have found, and this is not rocket science, is that if an organisation measures benefits and starts to focus on those benefits, it will end up with a positive organisation which wants to follow the laws of corporate governance because there is no benefit not to.

Its a common-sense approach

It has a number of other positive benefits, which include:

• If you measure the benefits your organisation delivers you will attract and keep the best staff, and the same will happen with customers. Why? Because people buy benefits. There are not too many customers, or staff for that matter who are committed to making your company rich, but people do like to feel that they have made a positive difference, and if they are a customer are keen to realise the benefit they bought your company’s service for in a tangible way.

• The organisation will have a real and positive reason to sustain itself; this is because the reason for existing will be more than just profit.

• There will be no, or very little temptation to massage the figures to match unrealistic or irrelevant measures and expectations thus eliminating one of the biggest drivers to contravene normal corporate governance rules.

Now think about it for just a minute

Which company is going to be the most successful? One which has everyone focussed on profit, or another where they are focussed on the benefits the business provides, be they tangible or intangible? All our work has shown that the profitable businesses are the ones who align themselves behind the benefits they sell. Yes, they measure profits, but the main focus is an alignment behind the core business they operate. The staff stay and the customers are loyal, profits more naturally ‘drop out of the bottom’ as a result.

Perhaps an example will help make the point. A question we often are asked is how come Company X is doing so well and yet Company Y is struggling. Company Y appears to be working hard, you see them advertising or their vans driving around, but suddenly they go out of business. Is going bust unlucky, can it happen to anyone? Well we know the answer to that one, and the good news is, that is not bad luck which forces companies out of business, it is a devotion to the wrong things, and being too successful in following those things.

So what do we mean by that? Well firstly, Company Y might have set themselves a target for growth. They might have said “we want 50 vans on the road by the end of the next financial year”. They will do everything they can to hit their target, including borrowing money, taking on slightly unprofitable contracts and not always paying attention to the service they are providing, as they are in a volume business in their minds, not a quality or beneficial one.

Their customers want something different

They do not care how many vans the company has, they want their parcels on time, and delivered by people they trust. This is what Company X does so well. Company X focuses on quality, not just in their mission statement, but also by what they measure. Company X think 50 vans would be nice, but they only have 32 really reliable drivers, so what is the point of 50 vans? They know what a reliable driver looks like, and that a reliable driver delivers a reliable service. So Company X stays smaller, makes very good profits, and Company Y expands to hit their target of 50 vans, but sadly has insufficient quality staff, delivers a poorer service, runs out of money and has to close its doors.

Company X is pleased though; they take on 20 of Company Y’s drivers, 18 who prove to be very reliable. They get some of Company Y’s customers too, and have their best ever profits. Company X are not lucky, they are run by a team who know exactly what it is their customers want, and know the characteristics of those who can deliver what their customers want. They measure those things and stick with them; it makes them successful.

It may be that Company X will not be doing anything which would contravene the normal rules of corporate governance, although they may feel pressured to as times get really tough for them.

By Alison Bond and Bryan Foss

Alison Bond is a widely recognised researcher, Associate Fellow at the Centre for Sustainability Management with Middlesex University and founder of ABA Research Ltd and Halo Works Ltd.

Web: http://www.thehaloworks.com/
Email: alison@abaresearch.com

Bryan Foss is an independent non-executive director, adviser and business author, also founder of www.FossInitiatives.com

Editors note: Alison and the Halo Works will be kicking off a round of community sensing activities for THE marketing leaders ^TM in next months special B2B issue. You can add your thoughts and input - so keep an eye out for the links ..... and of course you can register your interest in all things B2B Marketing NOW by clicking here.