The establishment of lasting values and their consistent application is a winning formula for the likes of Marks & Spencer. Robert Heller looks at the company's strikingly ordinary underlying principles.
The question 'Which is the best managed British company?' has an instinctive, almost boring answer: Marks & Spencer. In the age of hi-tech and hype, a low-fashion store chain which deploys the understated virtues of solidity and consistency can easily look like a tortoise racing with the hares.
Yet 'slow-but-sure' keeps on winning the race, as the latest performance, the chain's first billion-pound profit, makes clear. Indeed, since 1991-92, turnover at M&S has grown by 136%, profits by 87% before tax and net margin from 11.7% to 13.2%.
This wondrous profitability explains why market value, at over £14 billion, exceeds that of J Sainsbury and Tesco combined - though each has far larger sales.
M&S is not the only company whose record suggests lasting success. But it is worth repeating its unwritten, underlying principles. These are strikingly ordinary: satisfying customers and making a profit for shareholders by treating employees, customers and communities in a decent and honourable manner.
Research by Harvard's John P Kotter and James L Heskett endorses this approach. They looked at companies over the period 1977 to 1988, comparing those which gave equal priority to investors, customers and employees to those that put shareholders first: the equal priority group won four times the revenue growth and created eight times more jobs. In the financial sector, the egalitarians enjoyed 12 times more share price appreciation and vastly higher growth in net income.
Equal priority is certainly a value, one that in some form is reflected in most 'value statements'. Such statements almost invariably dedicate the company to the customer and declare its devotion to its employees. The commitment to enhancing shareholder value is either explicit or implied.
These are fine words, but (as someone recently said) they butter no parsnips on their own. M&S's values may be unwritten, but for the company it is living by them that is at the heart of the matter. The management function concerning values is to set real life standards, guidelines and signposts which govern people's behaviour. That is also the power of values - in a business world of conflicting ends and means, they narrow choices to the actions that best fit the organisation.
Commercial principles and corporate values are linked by the human bridge.
Commercial concentration is on the four Ps: product, place, processes and people. The first three effectively mean what you sell, where you sell it and how you sell it. But in the case of M&S, the supreme emphasis should clearly rest on the fourth P. Get the first three right, but fail on the fourth, in M&S's belief, and you may well find yourself failing altogether. This may go some way to explaining why the most profitable retailers tend to have least labour turnover - in some cases a better indicator of employee morale than attitude surveys.
Every company, good or bad, is liable to echo M&S's sentiments about people: and, for that matter, its motto, 'Quality, value and service'.
Where does the difference lie? Tesco and J Sainsbury find themselves locked into fiercely competitive battles, not least with each other. This is something that M&S has sedulously avoided.
The difference therefore lies partly in being different. From its early days, M&S has exploited large and lasting brainwaves that have only been generally imitated in recent times - often very recent - like the virtual company, which goes beyond its boundaries to make suppliers part of the value chain. This begins with product design and ends with delivery to a satisfied, gratified or delighted customer.
Delivery is a key word. The highest common factor of value-based companies is that, year by year, decade after decade, they deliver on their promises.
They make mistakes, of course. Take global expansion. M&S mismanaged its first forays abroad, in Canada and France. In the US, it overpaid for Brooks Brothers, which was by no means the ideal strategic fit. But value-based firms stick to their guns and doggedly, painstakingly, they get there in the end.
North American operations generated £580 million of profitable M&S sales in 1996-97, somewhat ahead of Europe outside the UK. And the concept of the global retailer is slowly but surely becoming a reality. Likewise, a company once noted for IT lags can now boast about its state-of-the-art systems. But a nagging doubt remains. Is success truly driven by values? Or do the latter merely get sanctified by success?
Former Shell executive Arie de Geus studied corporate life-spans and found four common characteristics of the stayers: sensitivity to the environment; cohesion and identity; tolerance and decentralisation; and conservative financing. The establishment of lasting values, and still more their persistent and consistent application, ties a business firmly to these four bastions of rich survival and growth. Individuals work best when they know clearly what's expected of them - which includes, above all, living up to those expectations. Organisations are no different.
Robert Heller was founding editor of Management Today.