LEADERSHIP

Beyond Strategy to Purpose

by Christopher A. Bartlett and Sumantra Ghoshal
FROM THE NOVEMBER–DECEMBER 1994 ISSUE

S tructure follows strategy. And systems support structure. Few aphorisms have penetrated Western business thinking as deeply as
these two. Not only do they influence the architecture of today’s largest corporations but they also define the role that top corporate
managers play.

Yet these aphorisms and the management doctrine to which they have given rise are no longer adequate. The job they prescribe for senior
management is no longer the job that needs to be done. Senior managers of today’s large enterprises must move beyond strategy, structure,
and systems to a framework built on purpose, process, and people.

The concepts that still define most senior managements’ understanding of their roles have their roots in the 1920s, when Alfred Sloan at
General Motors and a few of his contemporaries were engineering a new strategy: diversification. Those pioneers discovered that
diversification benefited from a divisional structure and that tightly designed planning and control systems in turn supported that structure.
From then on, the strategy-structure-systems link has been an article of faith reflected in the design of MBA programs, reinforced in
consultants’ reports, and confirmed in the actions and mind-sets of practicing managers worldwide. Top-level managers view themselves as
the designers of the strategy, the architects of the structure, and the managers of the systems that direct and drive their companies.
For decades, this philosophy served companies well. It supported successive waves of growth as companies integrated horizontally in the
1950s, diversified in the 1960s, and expanded into global markets in the 1970s and early 1980s. But over the last decade, technological,
competitive, and market changes have eroded its effectiveness. The problems of companies as diverse as GM and IBM in the United States,
Philips and Daimler-Benz in Europe, and Matsushita and Hitachi in Japan can be traced, at least in part, to top management’s cleaving to this
philosophy too tightly and for too long.

The great power—and fatal flaw—of the strategy-structure-systems framework lay in its objective: to create a management system that could
minimize the idiosyncrasies of human behavior. Indeed, the doctrine held that if the three elements were properly designed and effectively
implemented, large, complex organizations could be run with people as replaceable parts. Over time, as corporate size and diversity
expanded, strategies, structures, and reporting and planning systems became more and more complex. Employees’ daily activities became
increasingly fragmented and systematized.

In the benevolent, high-growth environment that followed World War II, strategy, structure, and systems offered much-needed discipline,
focus, and control. Today’s economic environment is different. Overcapacity and intense competition are the norm in most global businesses.
The lines separating businesses have blurred as technologies and markets converge, creating new growth opportunities where traditional
businesses intersect. And, most notably, the scarcest corporate resources are less often the financial funds that top management controls than
the knowledge and expertise of the people on the front lines.

Analysts have many prescriptions for these challenges, and executives have rushed to adopt them: from focusing on strategic intent to
inverting the organizational pyramid; from corporate reengineering to employee empowerment. Yet after five years of research in which we
studied 20 large, vigorous European, U.S., and Japanese companies, we believe that these prescriptions address the artifacts of the problems
and not their causes. They focus on partial, operational solutions. What managers need, however, is a fundamental change in doctrine.
Consider some examples. Over 30% of 3M’s sales come from products introduced in the last five years. How has 3M managed to retain its
innovative capability and entrepreneurial spirit despite its $14 billion bulk? What enabled ABB to transform two also-ran companies into the
leaders in the global power-equipment industry while world markets were in recession? How has Canon managed to grow and renew itself,
expanding from cameras to calculators to copiers to computers? And what has kept other large, complex companies like AT&T, Royal
Dutch/Shell, Intel, Andersen Consulting, Kao, and Corning from succumbing to the so-called inevitable decline of large corporations?

Although the strategies, structures, and systems of these companies have little in common, their leaders share a surprisingly consistent
philosophy. First, they place less emphasis on following a clear strategic plan than on building a rich, engaging corporate purpose. Next, they
focus less on formal structural design and more on effective management processes. Finally, they are less concerned with controlling
employees’ behavior than with developing their capabilities and broadening their perspectives. In sum, they have moved beyond the old
doctrine of strategy, structure, and systems to a softer, more organic model built on the development of purpose, process, and people. In this
article, we examine the first element of the changing role of top management: shaping organizational purpose.

Top managers of successful companies share a surprisingly

consistent philosophy.
Such a transformation can start only with top management. Before senior managers can realign behavior and beliefs throughout the
corporation, they need to change their own priorities and ways of thinking.

From Setting Strategy to Dening Purpose

Formulating strategy has long been the domain of top management. From Alfred Sloan to Lee Iacocca, the powerful, even heroic image of the
CEO as omniscient strategist is ingrained in business history and folklore.
When companies were smaller and less diversified, setting business strategy was a straightforward task. As companies grew larger and more
complex, however, senior executives needed elaborate systems and specialized staff to ensure that headquarters could review, influence, and
approve the strategic plans of specific business units. Over time, the workings of increasingly formalized planning processes eclipsed the
utility of the plans they produced: sterile generalities to which frontline managers felt little affinity or commitment.

Ironically, disaffection only increased as senior managers ceded responsibility for unit-level strategy to the divisional managers and shifted
their own attention to crafting an overall corporate framework and logic. That shift led senior managers to explore the elusive concept of
business synergies, to work on balancing cross-funded strategic portfolios, and, in recent years, to articulate notions of broad strategic vision
or highly focused strategic intent. Meanwhile, the people actually running business units grew increasingly confused about their roles. The
elaborate contortions required to fit their strategies into the corporate rationale frustrated them. Classification of their complex businesses
into simplistic, portfolio-funding roles demotivated them. And strategic visions that seemed vague or definitions of strategic intent that were
overly constraining made them cynical. All in all, top management’s efforts to provide strategic leadership often had the opposite effect.

The problem is not the CEO but rather the assumption that the CEO should be the corporation’s chief strategist, assuming full control of setting
the company’s objectives and determining its priorities. In an environment where the fast-changing knowledge and expertise required to
make such decisions are usually found on the front lines, this assumption is untenable. Strategic information cannot be relayed to the top
without becoming diluted, distorted, and delayed.

CEO Andy Grove, for example, acknowledges that for a long time neither he nor other top Intel executives were willing or able to see how the
competitive environment had undermined the company’s strategy of being a major player in both memory chips and microprocessors. Yet for
two full years before top management woke up to this reality, various project leaders, marketing managers, and plant supervisors were busy
refocusing Intel’s strategy by shifting resources from memories to microprocessors. Management, Grove confessed, might have been “fooled
by our strategic rhetoric, but those on the front lines could see that we had to retreat from memory chips . . .. People formulate strategy with
their fingertips. Our most significant strategic decision was made not in response to some clear-sighted corporate vision but by the marketing
and investment decisions of frontline managers who really knew what was going on.”
Yet at the very time that top-level managers are acknowledging their own limits, many are also learning that the people who can “formulate
strategy with their fingertips” are deeply disaffected. Neither the valueless quantitative terms of most planning and control processes nor the
mechanical formulas of leveraged incentive systems nurture employees’ commitment or motivation. In fact, even this fragile relationship is
eroding as successive waves of restructuring, delayering, and retrenching weaken any reserve of corporate loyalty.

In most corporations today, people no longer know—or even care—what or why their companies are. In such an environment, leaders have an
urgent role to play. Obviously, they must retain control over the processes that frame the company’s strategic priorities. But strategies can
engender strong, enduring emotional attachments only when they are embedded in a broader organizational purpose.

This means creating an organization with which members can identify, in which they share a sense of pride, and to which they are willing to
commit. In short, senior managers must convert the contractual employees of an economic entity into committed members of a purposeful
organization.

Embedding Corporate Ambition

Traditionally, top-level managers have tried to engage employees intellectually through the persuasive logic of strategic analyses. But
clinically framed and contractually based relationships do not inspire the extraordinary effort and sustained commitment required to deliver
consistently superior performance. For that, companies need employees who care, who have a strong emotional link with the organization.

Prescriptions for forging such links surface regularly. One that is currently fashionable calls for building a Zen-like focus on strategic intent to
challenge and eventually overcome less focused rivals. To create an obsession with winning, top management identifies a specific stretch
target (typically defined in competitive terms) and drives the organization toward that goal through a series of operating challenges.
The flip side of this technique, however, is strategic myopia and inflexibility, because a laserlike focus risks constraining rather than liberating
the organization. Consider Komatsu. During the mid- to late 1980s, Komatsu was widely cited as an example of the power of strategic intent.
But even as management students in the West were admiring the company’s obsession with beating the market leader, Caterpillar, Komatsu’s
leadership had decided that “Maru-C” (surround Caterpillar) had led to stagnation and stereotyped thinking. Over the last four years,
President Tetsuya Katada has reoriented Komatsu toward a corporate agenda reflected in a new slogan, “Growth, Global, Groupwide,” or the
“Three Gs” for short. He describes it as “a much more abstract challenge than one focused on catching and beating Caterpillar, but it will
stimulate people to think and discuss creatively what Komatsu can be.” (See the insert, “From Strategic Intent to Corporate Purpose: The
Remaking of Komatsu.”)

Obviously, strategic visions can be so broad that they convey little

From Strategic Intent to Corporate Purpose meaning or guidance to people deep in the organization. Andy Grove is
: The Remaking of Komatsu characteristically blunt in labeling most strategic vision statements
When he succeeded his father as Komatsu’s president in 1964, “pap.” Yet some of the elements of both strategic intent and strategic
Ryoichi Kawai articulated an objective that the company would
vision are evident in the efforts that Grove and other top-level
pursue for more than 20 years. Komatsu’s strategic intent,
Kawai announced, was to “catch up with and surpass managers are making to shed their uncomfortable and increasingly
Caterpillar.” inappropriate role as strategic gurus. Their objective is neither to
The management approach Kawai adopted to pursue this goal impose a tight strategic agenda on their line managers nor to inspire
became a well-studied and widely emulated model in the them toward some ineffable goal. Rather, they are working to embed a
West. Each year, Kawai would define a clear and specific
clearly articulated, well-defined ambition in the thinking of every
operating priority—for example, improving quality, reducing
costs, or expanding exports—that used Caterpillar’s individual while giving each person the freedom to interpret the
performance as a standard and cited Caterpillar itself as the company’s broad objectives creatively.
competitive target. Then each year’s priority would be
translated into detailed action plans through PDCA (plan, do,
check, act), Komatsu’s tightly controlled management system. Three characteristics distinguish this approach from previous
practices. The executives we observed articulated the corporate
ambition in terms designed to capture employees’ attention and
Kawai’s strategy worked well, and by 1982, when he was interest rather than in terms related to strategic or financial goals. They
choosing his successor, Komatsu had grown from a tiny local
engaged the organization in developing, refining, and renewing the
competitor with poor product quality to Cat’s most serious
global challenger in the construction equipment market. But ambition. And they ensured that it was translated into measurable
the market was about to change. By 1989, when Tetsuya activities to provide a benchmark for achievement and a sense of
Katada became the third president to follow Kawai, worldwide
momentum.
demand for construction equipment was down, competition
was up, and Komatsu’s profits were in steady decline.
Capture Employees’ Attention and Interest.
As Katada saw the situation, Komatsu’s management had
become so obsessed with catching Caterpillar that it had Defining a company’s objectives so that they have personal meaning
stopped thinking about strategic choices. For instance, its for employees is hard. Most such statements are too vague to be useful
product development efforts were biased toward Cat’s high-
to line managers, and often they are too out of touch with reality even
end bulldozers rather than toward smaller, lower-priced
products like hydraulic excavators, for which market demand to be credible. At AT&T, Bob Allen found himself atop a company that
was growing. Katada worried that Komatsu’s top management had to change from thinking and acting like a regulated utility and do
had stopped questioning the business the company was in. so amidst industry turbulence. The formal planning process defined
Further, he was concerned that the inflexible, top-down style
the key strategic task as loading more traffic onto the existing
that had become embedded at Komatsu had crushed “the
spirit of enterprise” among middle and frontline managers. telecommunications network and developing products to meet the
needs of an emerging infocom business. But Allen decided not to talk
As Katada saw the situation, Komatsu’s
management had become so obsessed with about AT&T’s objectives in such rational and analytic terms. Nor did he
catching Caterpillar that it had stopped thinking choose a competitively focused strategic intent—countering Northern
about strategic choices.
Telecom’s invasion of AT&T’s home market, for example—or a broad
Managers, Katada decided, “can no longer operate within the vision of futuristic information highways and virtual worlds. Instead,
confines of a defined objective. They need to go out and see Allen chose very human terms, stating that the company was
the needs and opportunities and operate in a creative and
“dedicated to becoming the world’s best at bringing people together—
innovative way, always words, he told the company, “I want
everyone to stop concentrating simply on catching up with giving them easy access to each other and to the information and
Caterpillar.” services they want and need—anytime, anywhere.”
At meetings and discussions, Katada challenged managers at This simple statement captured AT&T’s objective of providing network
several levels to find ways for the company to double its sales
linkages as well as the attendant access to information and services—
by the mid-1990s. What emerged from these and subsequent
discussions was a new definition of the company. Rather than but in simple, personal language that anyone could understand.
thinking of Komatsu as a construction equipment company Equally important, employees could relate to and take pride in such a
trying to catch Cat, management began to describe it as a mission.
“total technology enterprise” with an opportunity to leverage
its existing resources and expertise in electronics, robotics,
and plastics. Other companies achieved a similar impact by focusing on the
Under a new banner of “Growth, Global, Groupwide” (the development of core capabilities. At Corning, for example, CEO Jamie
Three Gs), Katada encouraged management at all levels to find Houghton challenged his organization to overlay its exceptional
new growth opportunities through expanding geographically
technological capability with a commitment to quality that would
and leveraging competences. He appointed a Committee for
the 1990s to determine how Komatsu could enrich its make the company truly world-class. To an organization that was
corporate philosophy, broaden its social contributions, and feeling demotivated and even defeated, this commitment to quality
revitalize its human resources. His objective was to create an
provided a focus for rebuilding organizational pride and self-
organization that could attract and stimulate the best people.
“Compared with our old objective,” Katado acknowledged, confidence while simultaneously boosting a crucial strategic
“the Three Gs slogan may seem abstract, but it was this competence.
abstract nature that stimulated people to ask what they could
do and respond creatively.”
Get the Organization Involved.
More than a strategy, Komatsu now had a corporate purpose,
A statement of corporate ambition is only a touchstone for the larger
to which its managers could commit and in which they had a
voice. In the first three years after Katada articulated the process of gaining organizational commitment. The statement must be
Three Gs Komatsu’s sales which had been declining since broad enough to invite—and indeed require—the organization’s
involvement in interpreting, refining, and making it operational. In
practice, this means tapping into the reservoir of knowledge and
expertise that is widely distributed throughout the company. As Andy
Grove observed about Intel’s shift out of the memory business and the importance of inviting organizational discussion and debate, “The
more successful we are as a microprocessor company, the more difficult it will be to become something else . . .. We need to soften the
strategic focus at the top so we can generate new possibilities from within the organization.”

For many top-level managers, softening the strategic focus isn’t easy. They worry that the organization will interpret such an approach as
strategic fuzziness, or worse, indecision. But these concerns evaporate when senior managers realize that they are not abandoning their
responsibility for the strategic direction but rather improving the quality of its formulation and the odds of its implementation.

At AT&T, for example, Bob Allen challenged his entire organization to interpret and operationalize the deliberately broad “anytime, anywhere”
statement. He also created a Strategy Forum and invited the company’s 60 most senior managers to participate in two- or three-day meetings
held five times a year. There they discussed and refined AT&T’s overall objectives and direction.

Create Momentum.
Top management’s third challenge is to build and sustain commitment to the objectives the organization has helped to develop. Everyone
needs to believe that the articulated ambition is legitimate and viable; that it is more than public relations rhetoric or motivational hype. By
making tangible commitments to the defined objectives, senior managers substantiate such belief. They also provide people deep in the
organization with the motivation that comes from making perceptible progress.

Jamie Houghton demonstrated the seriousness of his belief in Corning’s quality crusade by appointing one of the company’s most capable and
respected senior managers to head the effort. Furthermore, despite a severe financial crunch, Houghton allocated $5 million to create a new
Quality Institute to lead the massive program of education and organizational development. He also committed to boost training to 5% of
every employee’s total working hours. Corning’s quality program quickly achieved Houghton’s aim. As one executive committee member said,
“It did a lot more than just improve quality. It put self-respect and confidence back in our people.”
Bob Allen also backed his statement of corporate ambition with tangible commitments. The Strategy Forum’s discussions led to the conclusion
that “bringing people together anytime, anywhere” would require major investments in several complementary information technologies
likely to become vital in the new communications highways. The resulting decisions to acquire NCR for $7.5 billion and McCaw Cellular for
$12.6 billion were strong evidence of the vision’s organizational legitimacy and a powerful mental jump-start to a belief in its viability.

Instilling Organizational Values

There are few more powerful or public signals of what a company stands for than the ways it defines and measures performance. Most
companies focus almost entirely on financial results: the strategic objective to become number one or number two in the industry justifies the
pressure to meet the budgeted 15% increase in sales. That goal in turn is crucial for the company to achieve its overall aim of a 20% return on
net assets by mid-decade.

If managers’ interest in such quantitative objectives flags or signs of organizational exhaustion appear, top management often responds by
presenting the objectives in a more compelling way—linked to a highly leveraged incentive program, for example, or motivated by a crisis—real
or manufactured.

But often, corporate leaders simply continue to explain and justify the objectives in greater detail in the hope that acceptance will follow
understanding. GE’s Jack Welch hoped that a more detailed explanation of his demanding profit objectives would build commitment to them,
but it didn’t help. In 1988, Welch made a highly polished presentation to top-level managers in which he depicted the company as a “growth
engine” powered by a balanced capability to generate and apply funds. His charisma notwithstanding, Welch failed to generate the interest,
excitement, and commitment he had hoped for. Instead, his dramatic but stark imagery increased some line managers’ frustration with and
alienation from a company that was already driving them hard. The presentation confirmed their feeling that they were little more than cogs
in a perpetual-motion money machine.
Although achieving acceptable financial objectives is clearly important for a company’s survival, a target ROI will rarely galvanize an
organization into action. If people are to put out the extraordinary effort required to realize company targets, they must be able to identify
with them. As one disaffected manager said, “It’s fine to emphasize what we must shoot for, but we also need to know what we stand for.”

If employees are to put out extraordinary efforts to realize company

targets, they must be able to identify with them.

It’s fine to stress what to aim for, but people also need to know what
the company stands for.
Identifying, communicating, and shaping organizational values is more difficult than articulating a strategic vision because it relies less on
analysis and logic and more on emotion and intuition. Moreover, although every well-established company operates on a set of beliefs and
philosophies, they usually remain implicit. Some companies even repress them so as not to distract employees from the business agenda or
offend people who have other views. Financial objectives are popular performance measures in part because they are “safe”; people won’t
dispute them.

Companies that assert more boldly what they stand for typically attract and retain employees who identify with their values and become more
deeply committed to the organization that embodies them. “In the end,” observes Goran Lindahl, ABB’s group executive vice president
responsible for the company’s power transmission and distribution business, “managers are loyal not to a particular boss or even to a company
but to a set of values they believe in and find satisfying.”

Nowhere is this powerful alignment between company and employee beliefs more evident than in The Body Shop, the U.K.-based beauty
products retailer. Founder Anita Roddick has articulated a strong, clear business philosophy, which she acknowledges is “quirky.”
Nonetheless, the values she has created have attracted a group of employees (and a following of customers) who identify with the
organization’s commitment to environmental causes and with its belief that companies can be agents of social change. As Roddick describes
her approach, “Most businesses focus all the time on profits, profits, profits. I think that is deeply boring. I want to create an electricity and
passion that bonds people to the company. Especially with young people, you have to find ways to grab their imagination. You want them to
feel they are doing something important. I’d never get that kind of motivation if we were just selling shampoo and body lotion.”

Social altruism isn’t the only way to give employees a strong emotional link to their companies. Ask the managers at Lincoln Electric how their
little company has outlasted giants like Westinghouse and Airco to dominate the fiercely competitive welding equipment and supplies
businesses. Lincoln Electric managers attribute most of the company’s success to a philosophy that has allowed them to develop the industry’s
most productive workforce. Founded on a strong belief in the power of unfettered capitalism, the company is driven by a highly leveraged
incentive program that retains many of the characteristics of a nineteenth-century piecework system. The program has survived because the
company attracts employees who identify strongly with Lincoln’s unshakable belief in individual accountability and the power of pure
meritocracy.

For companies that have been less clear and consistent about what they stand for, the challenge is difficult but still achievable. Drawing again
on the experiences in our study, we discerned three lessons for top management. First, build the new philosophy around the company’s
existing value and belief system. Second, maintain a high level of personal involvement in this activity over many years. And third, translate
broad philosophical objectives into visible and measurable goals.

Build on Core Values.

Today it is a truism that a company’s culture—the values it embodies—influences the decisions and choices of its managers. As a result, some
CEOs are using the same didactic methods to change their companies’ values that they once reserved for driving down profit objectives.
Moreover, they try to impose these new value sets almost as often as they used to revise budget targets. The result is an organizational
cynicism that brushes off any new initiative as the “culture of the month.”
New values cannot be instilled through a crash program, nor should existing belief systems be chucked or subverted without careful
consideration of the effect on the relationship between the organization and its members. In fact, the goal for most companies should be to
build on the strengths and modify the limitations of the existing set of values, not to make radical changes in values. And where value
confrontation is essential, it requires careful attention, not a broadside attack.

Consider Corning. When Jamie Houghton assumed its leadership in 1983, Corning was experiencing difficult times. A major restructuring had
reduced its worldwide payroll from 45,000 to 30,000. Its core businesses, mostly in mature segments, were under attack by foreign
competition. To make matters worse, global recession seemed to guarantee that Corning’s long-term decline in financial performance would
continue. Within the company, a sense of drift and a lack of confidence were eroding the family-like atmosphere that had long bonded
employees to Corning.

Houghton knew he had to eliminate the paternalism that had sustained a country-club culture at Corning for years. But he also understood
that much in the company’s existing but largely implicit value system—respect for the individual and a commitment to integrity, for example—
were important and worthwhile. He wanted to highlight those values and sharpen their focus.

Houghton also wanted to add other values that he believed would be important to Corning’s future self-identity. So he began to talk about the
importance of corporate leadership and performance accountability, not only because they were crucial in the emerging competitive
environment but also because they reflected the belief system of a new generation of Corning employees whom he wanted to attract.
Gradually, Houghton overlaid these new values on the old.

Sow the Message.

Planting new values takes more than inspiring speeches. At best, the speeches can only confirm the message sent by senior executives’ daily
actions. Management is the message; speeches only call attention to it.
Houghton set himself the task of visiting ten different corporate facilities each quarter to “talk, listen, and feel the atmosphere.” During these
visits, he reiterated Corning’s new values and told stories that reflected their impact. This was no mere jawboning, however. Houghton
translated abstract statements into action to make them real and relevant to all members of the organization. For example, to signal that he
was serious about performance accountability, he terminated any budget presentation that did not meet corporate targets. Furthermore, he
incorporated broad idealistic values into action programs—for example, one to break the company’s glass ceiling for women, minorities, and
non-U.S. nationals. Finally, he made sure that the company’s business strategies were consistent with its core values. He divested or spun off
businesses that did not match the company’s professed identity as a market and technology leader.

Measure Progress.
Despite their best efforts, many companies find that strategic and operating imperatives block or erode the values they strive to build. The
reason is that such goals and objectives are inevitably quantified, whereas value statements usually offer neither clearly defined goals nor
satisfactory methods for gauging their accomplishment. Unavoidably, the hard drives out the soft, and commitment to the desired values
dissipates.

Like many companies, Corning had long allowed financial targets to dominate its objectives and thus had calibrated its performance in terms
of growth, profitability, and ROI. Houghton realized that Corning needed an equally compelling way of tracking progress toward attaining its
new culture.

In describing what he wanted Corning to become, Houghton repeatedly used the words “a world-class company.” To ensure that this was not
just empty rhetoric, he established a corporate objective: by the mid-1990s, Corning would be broadly and publicly recognized as among the
world’s most respected companies—by, for instance, its inclusion in the annual Fortune CEO poll of “America’s most admired corporations.”
This standard included outstanding financial results but also encompassed superior performance on dimensions such as quality, innovation,
and corporate responsibility. Equally important, employees could identify with the standard and take pride in achieving it.

Giving Meaning to Employees’ Work

In the end, every individual extracts the most basic sense of purpose from the personal fulfillment he or she derives from being part of an
organization. Creating that sense of fulfillment is the third challenge senior managers face as they strive to develop an energizing corporate
purpose. Institutions like churches, communities, even families, which once provided individuals with identity, affiliation, meaning, and
support, are eroding. The workplace is becoming a primary means for personal fulfillment. Managers need to recognize and respond to the
reality that their employees don’t just want to work for a company; they want to belong to an organization. More than just providing work,
companies can help give meaning to people’s lives.

Employees don’t just want to work for a company. They want to

belong to an organization.
To realize the value of a committed employee, an organization must bring its big ideas and bold initiatives down to a personal level. Senior
managers must establish and maintain a link between the company and each of its employees. This is not to say that North American
companies must shift from their characteristic impersonal contracts to the Japanese model of lifetime employment. But a link does imply a
mutual commitment, in which the employer treats the employee not as a cost to be controlled but as an asset to be developed. Employees for
their part commit not only their time but also their emotional energy to making their company as effective and competitive as they can. In
short, the objective is to change the relationship from one in which employees feel they work for a company to one in which they recognize
they belong to an organization. It is the difference between hiring out as a mercenary and becoming a Marine.

In the companies we studied that were best at achieving this new kind of relationship, top-level managers focused on three activities. They
recognized employees’ contributions and treated them like valuable assets. They committed to maximizing opportunities for personal growth
and development. And they ensured that everyone not only understood how his or her role fit into the company’s overall organizational
purpose but also how he or she might contribute personally to achieving it.

Recognize Individual Accomplishments.

As companies grow larger and more complex, employees can come to feel more like cogs in a machine than members of a team. To retain some
sense of humanity, companies may publish in-house newsletters, sponsor social functions, or implement a casual dress code. But the impact
of such exercises is seldom significant or enduring. Indeed, their very existence emphasizes the awkwardness and impersonality of
organizations that can respond to human needs only in mechanistic ways.

Further, while most senior managers understand the need to recognize and celebrate the major contributions of star performers, few realize
the importance of acknowledging the ongoing efforts of those who sustain the organization. IKEA, the world’s largest home furnishings
manufacturer and retailer, is an exception. Even after the company had grown to almost 50,000 employees in 20 countries, founder Ingvar
Kamprad still tried to visit each of the chain’s 75 outlets and meet every employee. He would often invite a store’s employees to stay after
closing for dinner at the in-house restaurant. It was a ritual that frontline associates would go to the buffet first, then managers, and last
Kamprad. He would circulate and offer praise, encouragement, and advice to the people who worked for him.

Personal recognition must reflect genuine respect. People on the front lines are quick to recognize empty public relations gestures or attempts
at manipulation. Andy Grove built an enormous reservoir of credibility and goodwill when he took extraordinary measures to retain
employees during the memory-products bloodbaths of the mid-1980s. Grove tried to retain as many of the people as possible who had built
this business for Intel, recognizing them as genuine company assets. To avoid layoffs, he first chose to sell a 20% interest in Intel to IBM in
order to finance the company through its crisis. Next, he implemented the “125% solution” by asking employees to work ten hours more a
week without compensation. Then followed the “90% solution,” a 10% across-the-board pay cut to minimize separations. Only after that did
Grove resort to layoffs in the face of a $200 million loss.

Through actions such as these, born of genuine respect and concern for individual employees, senior managers develop the basis for mutual
commitment. They can then build on this foundation by demonstrating equal concern for the growth and development of all the
organization’s members.

Commit to Developing Employees.

As companies have delayered, restructured, and downsized, employees who were already feeling distanced and detached have become more
disillusioned and even cynical. Too often, layoffs have been the aftermath of grand corporate visions that promised personal opportunities.
Companies tout the “partnerships” they have with their organization’s members, then shower them with pink slips. It’s not surprising that
employees are unlikely to commit to new goals or values until they’re convinced that the future holds new opportunities for them.

Companies tout the partnership they have with employees. Then

they shower them with pink slips.
Top-level managers must take a broader view of employee training and development and make a much stronger commitment to it than they
traditionally have. Instead of simply training employees for job skills, companies must develop their capacity for personal growth. In her
colorful way, Anita Roddick explained The Body Shop’s decision to establish an education center offering not only courses on company
products, skin care, and customer service but also sessions on topics like sociology, AIDS, aging, and urban survival. “You can train dogs,” says
Roddick. “We wanted to educate our people and help them realize their full potential.”

Poul Andreassen, CEO of Danish-based ISS, believes that one reason his commercial cleaning business has grown into a $2 billion enterprise
employing 114,000 people in 16 countries is his respect for workers, which he backs by investing in their development. Despite a strong
philosophy of decentralization—headquarters has only 50 people—ISS still manages training centrally. Andreassen believes that training is key
to transforming workers into professionals. Beyond teaching his employees basic job skills, he uses training as “a demonstration of caring”
that motivates, bonds, and gives people confidence. For cleaning-team supervisors, for example, a five-stage training program covers basic
skills and broader topics such as financial knowledge, interpersonal skills, problem solving, and customer relations. These people, once
regarded as little more than work-gang bosses, have grown to be effective team builders and new-business generators. ISS’s labor turnover is
40% below the industry average, and its cleaning crews have become an important source of innovative practices and entrepreneurial ideas for
the company.
Andersen Consulting views the development of its people as a goal in itself and makes no proprietary claims to the skills and knowledge it
develops. Its recruiting brochure promises that “after training with us, you could work for anyone anywhere—or you could work for yourself.”
The result is an exceptionally well-trained and extremely loyal group of associates.

Foster Individual Initiative.

In a few companies, individual effort and personal contribution still constitute the bedrock of organizational process. 3M is one. Since the
1920s, when the company’s fortunes were turned around by the development of waterproof sandpaper and adhesive tape, 3M management
has valued the enormous potential of the entrepreneurs in its midst. Management developed a culture that recognizes individual initiative as
the source of the company’s growth, and it confirmed and institutionalized that strongly held belief through its policies and procedures. For
example, the “15% rule” allows employees to spend up to 15% of their time on bootleg projects that they believe have potential for the
company. As bootlegged innovations developed into major businesses, company folklore became filled with stories of entrepreneurial heroes
whose impact was direct and tangible. Through the stories and its organizational infrastructure, 3M keeps alive the highly motivating belief
that individual effort is important and has real impact on the company’s performance.

Likewise at Kao, the Tokyo-based branded packaged-goods company, CEO Yoshio Maruta has developed an organizational culture and
management philosophy that rejects authoritarianism and fosters individual initiative in a variety of ways. First, the company shares
information openly; everyone can know what anyone can know and can use the information to do his or her job more effectively. Further,
Kao’s internal environment encourages cooperation, and the twin tasks of teaching and learning are ingrained as a major responsibility of
every employee. Finally, the decision-making process is open and transparent—literally, in open-space areas—so that those with relevant
knowledge and expertise are embraced by the process, not locked out of it. By translating his philosophy into norms and practices, Maruta
built an organizational environment in which employees right down to the front line know that they are connected with and are contributing
to overall corporate goals.

From Economic Entity to Social Institution

A fundamental philosophical difference separates senior executives who see themselves as designers of corporate strategy from those who
define their task more broadly as shaping institutional purpose. Strategy makers view the companies they head as profit-maximizing entities
with a narrowly defined role in a large and complex social environment. In their view, companies are simply agents of economic exchange in a
broader marketplace. They are dependents of their shareholders, customers, employees, and larger communities, and the purpose of strategy
is to manage these often conflicting dependencies for the maximum benefit of the company they serve.

This minimalist, passive, and self-serving definition grossly understates reality. Corporations are one of the most, if not the most, important
institutions of modern society. A company today is more than just a business. As important repositories of resources and knowledge,
companies shoulder a huge responsibility for generating wealth by continuously improving their productivity and competitiveness.
Furthermore, their responsibility for defining, creating, and distributing value makes corporations one of society’s principal agents of social
change. At the micro level, companies are important forums for social interaction and personal fulfillment.

Purpose is the embodiment of an organization’s recognition that its relationships with its diverse stakeholders are interdependent. In short,
purpose is the statement of a company’s moral response to its broadly defined responsibilities, not an amoral plan for exploiting commercial
opportunity.

The three aspects of top management’s task in building a sense of purpose are mutually interdependent and collectively reinforcing. If
corporate ambition begins to focus on the company’s narrow self-interest, it eventually loses the excitement, support, and commitment that
emerge when objectives are linked to broader human aspirations. When organizational values become merely self-serving, companies quickly
lose the sense of identification and pride that makes them attractive not only to employees but also to customers and others. And when
management’s respect for and attention to its employees’ ideas and inputs is diluted, motivation and commitment fade.

Purpose—not strategy—is the reason an organization exists. Its definition and articulation must be top management’s first responsibility.

A version of this article appeared in the November–December 1994 issue of Harvard Business Review.
Christopher A. Bartlett is a professor of business administration at Harvard Business School in Boston.

Sumantra Ghoshal is a fellow at the Advanced Institute of Management Research in the U.K and a professor of strategy and international management at the London Business
School.

This article is about LEADERSHIP

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Related Topics: Organizational Structure | Competitive Strategy | Strategy

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