Connecting the dots to measure value

Last week, IBM celebrated 100 years of business and coincidentally posted  annual sales of $100 billion.  Recently, several profiles and news stories acknowledged  this milestone; and IBM itself has hosted many “parties”  to celebrate.

The roster of American companies and organizations that have survived 100 years is not that large, and even globally this milestone is not an easy feat to achieve.  Common among 10o+ year old companies,  Vicki TenHaken, observed these principles:

…companies see themselves as part of an integrated web of relationships with their community and the other partners in their value chain; their purpose is generally described in terms of the broad value they provide rather than profitability.

Not hard to recognize these principles at work at IBM.  Sam Palmissano, IBM’s current CEO  readily acknowledges the last 100 years have not all been smooth sailing – the early 1990s were particularly tough.  He often credits refocusing on what they do well, e.g. deep analytics, as key to their success all part and parcel of  how   IBM continues to distribute value to multiple stakeholders.    IBM’s commitment however to broader value , though less tangible to outsiders, is perhaps just as  critical.

Values and Vision

The visionary impact of Thomas Watson and his son Thomas Watson Jr.  on IBM for its first six decades, set the tone and culture around core values that are still actively embraced.  Subsequent  leadership also deserve praise for growing and  steering  the corporation  in the face of significant challenges, and for their wisdom to recognize  IBM’s  strength  emanating from the connection  between core values and long-term high performance.

If GE brings good things to life, IBM has pressed into our subconscious the message of its founder Thomas Watson–Think.  Yep, simple as that.   Palmissano,  and his team are betting that IBM’s unique combination of capabilities that link the past with its present will insure its own survival AND that of  the entire planet.  Thus the smarter planet association.

Adaptation-the key to survival

Lessons in Innovation, Steve Lohr’s piece in The New York Times on Saturday June 18, brought into focus another one of the many secrets to longevity for companies, the power to reinvent themselves or innovate.  The manufacturing that once drove IBM’s  revenues has been significantly scaled back.  Today,  mainframe hardware sales represent only 4 percent of its revenues.  Add in the software, storage and service contracts to support those mainframe sales, estimates suggest they amount to  25 percent of sales, and 44 percent of operating profits.

Rich Karlgaard, the publisher of Forbes,  interviewed Sam Palmissano, and asked which milestone would have impressed Thomas Watson more. Palmissano replied:

Watson believed if you really created value and not just technology you could be around a very long time.

Innovation was clearly expected to contribute to value creation. Both Watson Sr. and Jr.  believed that every decade or so IBM would need reinvention to help drive it to the future.   Today, IBM’s  success most  evident by its business model transition away from hardware sales  into selling its knowledge, continues to focus on long-term value creation.  This is unusual in an era in which the stock prices of public companies are routinely chewed up by the hunger of the markets for immediate results.

Palmissano describes his approach as translating  macro economic shifts into the company’s long-term financial model.

People can agree on numbers. …We don’t run IBM in quarterly cycles, even though there’s tremendous pressure to do that, to give quarterly guidance within a penny. You certainly have to make your numbers. But I just feel it is wrong for the long-term to run a company like that. That’s why, in 2007, we came up with our 2010 road map. That way IBM could communicate to its investors, as well as its employees, about the long-term.

This however is only one ongoing translation exercise for employees At IBM.

Getting to Value through measurement?

The faith in  innovation  when deeply embedded into an organization’s culture also requires supplemental commitments. As Palmissano points out, it requires translation or connecting to financial performance the values of the organization, going out of its way to recognize and measure value more broadly.  The dashboard that Palmissano and his team review goes beyond  productivity and sales figures and likely incorporates less tangible activity associated with the culture.

Harvard Professor Richard Tedlow  studies industry titans, or  executives who have created or transformed industries and in the process changed the world.    Titans, shared more than one trait, but a most remarkable ability to tell the difference between the seemingly impossible and the genuinely impossible.  By the way, all of Tedlow’s titans grew fabulously rich in part by their ability to capitalize on their realization.  [Note, significant time has to pass to meet the eligibility for titanship.]

These observations, published by Harvard Business Review in 1991 entitled What Titans Can Teach Us . Tedlow’s work identifies several other relevant traits, though deeply woven into the lives of the titans whose careers he studied, are also replicable by mere mortals. These include:

  •  Have the courage to bet on your vision of market potential.
  • Shape your vision of the market into a mission for the company and consistent messages for customers, employees, and investors.
  •  Deliver more than you promise.
  •  Be dedicated, even to a fault, to your company.
  •  Don’t look back.

In 2011, these traits are often found in profiles of organizations with strong cultures and somewhat of a cult following, such as Facebook, Apple, Southwest Airlines, McDonald’s , Coke or even Amway.  It’s not surprising that the ones that quickly come to mind also show very strong brand connections; but only a few have had withstood the test of time and tumult that  characterized the last century.

In the first bullet, swap out the word message with values and it’s easy to recognize the new capitalism rallying cry being sounded by Michael Porter and Mark Kramer in their discussions of Shared Value.

Interestingly, The Economist similarly noted this link in its slightly awkward comparison   The Centenarians: IBM and  the Carnegie Foundation, both organizations marking 100 year anniversaries this month.  The point of the comparison was to understand, if not find, some answers that Shared Value seeks to answer.  What is the proper role of business in society as well as which organization’s methodology has been more effective at making the world a better place?  Both the public,  profit motivated IBM, and the private philanthropic activity of the Carnegie foundation continue to draw strength from the fundamental values of their founders and have done a great deal to shape the world.

Not every organization lives with the philosophy of built to last, but having and living values that focus beyond generating profits to generate and connect for social  impact  clearly helps!

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