Second in a series on the Higher Abition session at the Academy of Management’s 2013 annual meeting.
Richard Gochnauer, retired CEO of United Stationers, joined the Higher Ambition panel at the Academy of Management 2013 annual meeting in Tampa, Florida. He has shared a transcript of his formal remarks at the session which can be found below.
Gochnauer told us that he sees Higher Ambition as analogous to the quality movement of the 1990s: A lot of business people didn’t grasp it initially but, over time, came to see that improving quality helped both lower costs and deliver a better product or service to the customer. Quality was, like Higher Ambition, a values-guided path to profitability. “My business experiences have taught me that values-based companies are not only more rewarding to work in, but get higher sustainable results over time,” he said. Do you agree?
Higher Ambition- Purpose Driven Leaders: Driving Performance through Social Good
Governments are increasingly failing to address social needs. No group is better positioned to help fill this void than business, if higher ambition leaders can successfully transform the role and purpose of business.
Higher ambition leaders understand that there are few higher rewards than to combine one’s work with one’s life purpose. They also know that creating a purpose driven company that can at the same time unlock and harness it’s various associates’ life purpose is not only powerful but can create tremendous value for all stakeholders, including the society it serves. Such an approach enables companies to do well by doing good. But to create such a firm from the traditional model and norms is not easy or for the faint of heart. Rethinking the role of business, highlighting the success of higher ambition leaders, providing role models and spotlighting a growing list of successful companies all are important steps required for business to play a meaningful constructive role in society and fulfill its true purpose.
My views have been shaped by a number of experiences and beliefs, starting with my faith and work as a servant leader in various non-profit organizations. From these I learned the joy of giving back, the value of applying business principles to social problems, and that one’s life purpose generally lies in giving of yourself, your talents and resources to a higher calling focused on others. My business experiences have taught me that values-based companies are not only more rewarding to work in, but get higher sustainable results over time. They create energy and emotional engagement that leads to higher corporate performance and a sustainable competitive advantage.
I also learned that transforming a company to become a purpose-driven firm increases trust with associates, customers and suppliers, breaks down barriers and grows healthy relationships. All these soft benefits pay off in surprising ways and have a much bigger impact than is generally known.
The transformation of United Stationers is illustrative. From a declining company that analysts had written off as obsolete, it became a company which consistently outperformed its peers and is considered the industry leader. I will discuss United’s journey to discover and live out its purpose and the surprising benefits the company is seeing.
Upon arriving at United Stationers, I spent the first four months in the field talking to customers, associates and suppliers; picking orders; making sales calls and going on deliveries. It did not take long to discover that being a service-based company, you have to win each day by out executing competition and we simply were falling short, despite beliefs and good intentions to the contrary. We had declining sales and profits for three years, our costs were high and our service advantage had been eroded by competition. Employees and investors had lost confidence in the company and its leaders. It was clear to affect a turnaround some fundamental things had to change.
Step one was to establish a solid foundation based upon building a values based, high performance culture focused on continuous improvement, superior execution and regaining customer trust. Our values were refined and republished and then used as the basis for decision making. You have to find opportunities to walk the talk, such as parking with everyone else instead of in the heated indoor CEO parking spot or making decisions where values trump short term profits, before people began to believe values really count. In the down turn, we cut senior leaders compensation first and by higher percentages before asking others to do the same. This along with frequent open and frank communications and other similar actions allowed us to cut costs and staffing while actually increasing trust and engagement and surprising the street with our performance.
We reorganized the company to optimize functional excellence and best practices. We created business teams to make cross functional decisions while pushing decision making as close to customers as possible. I inserted myself in the hiring process to insure we began to hire A players in all key positions. I committed to our board and investors that we would take out $100 million in waste in 5 years while improving the customer experience. We then created project teams with specific goals, trained them in how to identify and drive out waste and celebrated our success. The teams remove $34 million of waste the first year and achieve our $100 million goal in less than 4 years and then committed to a second $100 million target.
We created a value based, results culture. Our successes reestablished confidence with all stakeholders as our execution, customer trust, and profits all steadily improved.
Once we had a solid foundation we were able to focus on the next step in our journey, unlocking growth by becoming a purpose driven company. 80% of our sales are to small businesses. We were basically a business process outsourcer. Our sales and profits increased the more customers relied on us for such services as buying, warehousing, delivery, marketing, catalogs, IT, web content and design, and various administrative functions. The more customers trusted us, the more services they would buy and the better their ability to compete and win against large companies such as Staples or Office Depot. The problem was customers did not trust us. They had learned that public companies put their profits first at the expense of their customer’s profit and wellbeing. To defend themselves, our customers had minimized the services they purchased from United. They simply did not want to depend on us.
So we established our purpose as Enabling our Partners – customers, employees, suppliers, investors and community – to Succeed. We made it clear that we could not be successful unless first our customers were successful. If our partners thrived we would as well.
Solving the customer trust issue was critical for the success of our strategy of growing our services business. We learned to our surprise that the key to developing trust with our customers was to teach our associates about the joy of giving back to the community. We created and funded a foundation with corporate and associate contributions. We formed local teams to decide how best to spend the money. Our focus was on finding opportunities to help others in need where our associates could contribute their time and talents as well as our foundation funds and therefore experience the transformative joy of giving back.
Our associates developed some very creative and entrepreneurial programs. To address a lack of even the most basic school supplies with poor kids, they packed backpacks filled with supplies and personally handed them out to inner city second graders in schools around the country. One associated commented, you would think it was Christmas the way the children were so excited. The backpacks led to discussions with school principals who had another problem, serious delinquency issues. So our associates created a free bike program for good attendance and hung the bikes in the school lunch room as a reminder. Attendance went up significantly as did the number of free bikes which were eventually contributed by suppliers wanting to help.
The result of these and many other initiatives was that our associates began to make a difference in their local communities and found the joy in helping others. They felt good about themselves and work began to be more than just a job. They were making a difference and were proud to work for a company that cared. Many found their own life’s purpose in the process. This unlocked a tremendous energy, creativity, engagement, trust and loyalty. It broke down barriers within the company and with customers and suppliers, unlocked latent creative energies, fostered diversity and had many other unexpected benefits.
Customers, most of which were small dealers or resellers, began hearing from associates about the work they and the company was doing to help others. Consequently, the dealers began to reassess United. United was investing time, talents and funds to help others with no obvious link to growing United’s profit or increasing its shareholder returns. Perhaps United really does care about others and will put its partner’s interests first ahead of their own. Maybe we can trust them. Customers started asking if they could join us as did suppliers. Dealers and suppliers began to see that their employees become excited about helping others and more engaged. Schools, hospitals, non-profits and other organizations that were recipients of United’s and our dealers’ community involvement efforts gave our dealers new business and were more reluctant to switch suppliers.
As our dealers gained a new found trust in United, they began to utilize more of our services. We were able to break down some long standing barriers to collaboration. Utilizing new services, dealers were able to win large contract business that they were previously locked out of because of their limited size and capabilities. As dealers gained new business, United grew and was able to invest more in developing and improving new services for them. This allowed us and our customers to grow even if the market was not.
As our purpose played an increasing role in our success, we began to share our journey and our surprising results with our board and investors. It took a while for many to understand or connect the dots, let along believe that by investing resources in doing good you can actually deliver even better results. But our results spoke for themselves and we continued to pull away from others in our industry. Today United has successfully transitioned to a new CEO and enjoys record stock prices as the delta in its stock performance with others in our industry continues to widen.
Our story at United illustrates that the maxim of capitalism – making a profit and creating shareholder value – can be enhanced by adopting a higher purpose. United is just one of many that show how companies can do well by doing good and this strategy builds a strong foundation for the future. It creates a healthier company and society because it helps all stakeholders find the joy in living their purpose, and enables them to make a meaningful difference. Participating in such a journey enables companies and their partners to fulfill a higher calling and, as Bob Buford points out, go from Success to Significance.