UK: TOMORROW'S DO-GOODERS. - The RSA's Tomorrow's Company is the fruit of a two-and-a-half-year inquiry. Management Today's survey - of reactions to the report - is on a smaller scale.

by Anita van de Vliet.
Last Updated: 31 Aug 2010

The RSA's Tomorrow's Company is the fruit of a two-and-a-half-year inquiry. Management Today's survey - of reactions to the report - is on a smaller scale.

'First, we live in an increasingly ferocious competitive global market economy. Second, unless we can be as good as the best in our markets, no one can save us: in that sense, business and all of its employees own the problem, not the government. Third, long-term, shared-destiny relationships with all the stakeholders in a company are actually a superior route to competitive advantage.'

So John Neill, group chief executive of Unipart Group, sums up the ideas underlying Tomorrow's Company, the latest in the recent spate of reports on UK competitiveness. Published in June by the RSA, Tomorrow's Company is the fruit of a two-and-a-half year inquiry, which brought together senior executives from 25 top UK businesses (including Neill himself). The inquiry involved hundreds of consultations and interviews, together with case studies, market research and the dogged scrutiny of a wide range of secondary sources.

Its interim findings won widespread press coverage last year, evoking such bold headlines as 'Excel or die' and 'Short-termism must end' - and, less flatteringly, 'Worthy waffle' (from the Economist, in case you hadn't guessed).The final, 32-page report has slid into the public domain with rather less of a media splash. But inquiry chairman Sir Anthony Cleaver (formerly chairman of IBM United Kingdom and now chairman of the Atomic Energy Authority) reports that he has been presenting Tomorrow's Company internationally, over lunch, dinner and tea, across Europe, the Far East and the US, and 'Nobody has seriously challenged our conclusions'. Management Today has conducted its own small-scale inquiry, to gauge the response closer to home.

First, the report in greater detail. Tomorrow's Company starts with the grim conclusion that the UK does have world-class companies, but that there are too few of them - that on average UK companies are performing worse than their major competitors, that national performance is being dragged down by the long tail of under-achievers, and that the focus on competitiveness at both national and company level is weak.

It then unfolds a gloomy litany of depressing rankings and statistics. From the World Economic Forum (WEF) comes the news that the UK ranked only 14th overall out of 41 countries in its 1994 World Competitiveness Report. If, as seems almost inevitable, success in the global markets of the future will depend on the knowledge and skills of a country's human resources, then the following WEF rankings for the UK should be particularly worrying: 32nd place for in-company training; 34th for the willingness of the workforce to re-train and learn new skills; and 37th for the ability of its education system to meet the needs of a competitive economy.

Extracts from two recent IBM/London Business School studies reveal that only 2% of UK manufacturing companies surveyed in 1993 were world-class in terms of performance, and that this percentage rose to just 2.3% in 1994. Tomorrow's Company also quotes from the two Lean Enterprise reports on the automotive parts industry in eight countries: the second report concluded that 'the UK showed the lowest productivity of any European country and the second worst quality. The UK is still a long way behind the world-class leaders and, if anything, the gap between the UK and Japan is widening rather than narrowing.' The report suggests three main factors behind this poor showing. The first is complacency: 70% of UK companies think they are up to world-class standards, apparently, even though, as we have just read, only 2.3% really are. Second, UK companies traditionally define success in terms of financial performance, which is not an adequate gauge of the overall health of a business. 'It neither defines competitive performance, nor measures the broader value created through product quality, speed of response and service.' And third, our 'national adversarial heritage' makes partnerships (for example, with large customers and with suppliers) rather difficult to achieve. Tomorrow's Company, by contrast, sees 'relationships as the underlying source of competitiveness'. The successful company of the future will value and learn from partnerships with, and between, all the so-called stakeholders involved - employees, customers, suppliers, investors and the community. This 'inclusive' approach, the report maintains, must replace the current narrower focus on responsibilities to current shareholders: legally, it points out, the directors' fiduciary duties are owed to their company, not to any specific third-party group; and their responsibility is to maximise sustainable value over the long term. Success should not be measured only in narrow financial terms.

So what should tomorrow's companies be doing? They need to define their individual purpose and values, precisely and honestly, comes the reply. They need to communicate these values consistently to all stakeholders, not, for example, describing employees as labour costs to be cut when talking to the investment community and then going back to address employees as 'our greatest asset'. They need to define their key relationships in detail (for these will obviously differ from company to company), so as to create a framework for performance management; to develop a new language of business success, beyond the limitations of traditional accountancy; and to find new ways of measuring success on an inclusive basis.

The report also stresses the growing importance of the 'licence to operate': companies need to maintain public confidence, and to show a far greater sensitivity to changing standards, whether on environmental issues, animal rights or top executives' pay awards. And crucially, tomorrow's companies need to realise people's full creativity and learning potential, by focusing on learning at board level, linking rewards to learning achievements, supporting individuals with learning targets, mentoring, and so on.

So how have British industrialists taken to these recommendations and exhortations? Among those contacted by Management Today, the response has generally been favourable, even though several confess to a certain weariness at the thought of yet another report and 'talking shop', some have found it a 'little long on prescription but short on practicalities', and one compares it wistfully with last year's Competitiveness - How the best UK companies are winning - a zappy publication that was issued by the DTI and CBI. It covered similar ground but was written in a rather brisker style and more upbeat mood.

Comments Sir Colin Marshall, chief executive of British Airways, however: 'The RSA report involved more people and includes greater detail than the DTI report; yet they draw similar conclusions, which is good. I hope that the one will substantiate the other.' The fact that the RSA commentary involved a team of industrial chairmen and chief executives rather than a government department might also mean it has a better prospect of being read, he says.

For Marshall, Tomorrow's Company 'hits the nail on the head in terms of illuminating the concerns and needs of British business and industry. Everything now depends on whether people will read it and take action.' At Inchcape, chairman Sir David Plastow is well-disposed to the general tenor of the report, but cautions: 'The modern management of a decent company would be addressing all these issues anyway.' So is the report just stating the obvious? David Lyon, chief executive, Rexam Group (formerly known as Bowater), believes that it is not. In particular, he commends the suggestion that major issues (such as the company's measurement systems or framework for learning), which are difficult to define and to quantify, should be raised to board level, to exercise the minds of directors.

He also points out that 'What is obvious to the best companies is not necessarily obvious to the average and below average,' and adds, 'In fact, it does no harm to state the obvious. When you are leading change, you have to state the plain simple facts over and over again, or they just don't get taken on board.' On the question of the originality or otherwise of the report's proposals Frank Barlow, chief executive of Pearson says: 'Most companies will say that there's nothing new under the sun; but even if the ideas are not new, if you do set out to implement them, with a definite plan and with determination, it would make a difference.'

For Barlow, too, not everything was that glaringly obvious: the inquiry's definitions of success, measured in terms of relationships between the company and its suppliers, customers and so forth, are 'pretty new', he suggests. (These definitions were contained in the set of case studies published with Tomorrow's Company rather than in the report itself.) In some cases, however, facts and assumptions that were self-evident to the writers of the report were less so to its readers. The gloomy diagnosis of British industry and its dire lack of competitiveness, stated with such apparently incontrovertible assurance in the opening pages, left Sipko Huismans, chief executive of Courtaulds, unmoved (except to protest).

'In many sectors, British industry has made an enormous amount of progress over the past five years,' he says emphatically. 'We at Courtaulds operate in all European countries, and from such experience as we have inside our own operations and outside, with our suppliers, the UK is among the better if not the best in terms of productivity.' Huismans is 'genuinely not complacent', he says, but he vigorously rejects the 'defeatist' laments over British industrial performance. 'We have a good infrastructure, good workforce and very fair middle management,' he insists. 'Many German politicians and economic commentators are making similarly gloomy pronouncements about German industry.' (Of course, the chemicals and speciality materials which is Courtaulds' sphere is generally acknowledged to be more competitive than the UK automotive sector, on whose sorry performance the report does tend to dwell.) All the industrialists approached by Management Today were sympathetic to the report's central idea - or ideal - of the 'inclusive' company, which values all its stakeholders and not just current shareholders. For Plastow, it was important that the report had not tried to establish some strict batting order among these stakeholders: 'The pecking order will vary between companies. A chemical company would place greater emphasis on the environment than a trading company, for example.' At British Airways, Marshall remarked on the interdependence of these stakeholder relationships - between employee and customer loyalty, for example. 'You have got to have well-motivated people (and that comes through a whole range of efforts), which will lift morale higher, and which inevitably leads to a far more positive interface with the customer,' he comments.

Huismans, likewise, believes 'passionately' that companies are not just committed to current shareholders: 'At Courtaulds we started talking about stakeholders a long time ago.' The 'massive elevation' of the shareholder above all other constituents of a company prevails only in the Anglo-Saxon countries, he points out. 'In that way, we are the ones that are slightly unusual.' Crispin Tweddell, retailing consultant and chairman of Piper Trust, who sat on the RSA committee for providers of capital along with the merchant bankers, pension fund managers and the institutional investors, reports that everyone on the committee were in complete agreement that the 'inclusive' approach was the best way forward. 'There was no denial among the providers of capital,' he says.

However, Huismans still remains sceptical about the realistic prospect of actually changing the business model. 'Tomorrow's Company is a very idealistic model,' he believes. 'I want to see a credible strategy for getting there.' Anglo-Saxon business is designed around the concept of shareholder pre-eminence, he observes. 'Management is rewarded on its three-monthly performance ... Nobody becomes a hero by delivering the goods to society or to people. Job destruction is applauded by a rise in share price.' Interestingly, he discerns a move among German and Dutch companies, which are traditionally more socially-minded, towards the 'harsher, more aggressive' management style of the Anglo-Saxons, as more of them seek listings on the New York Stock Exchange.

Huismans does discern positive trends in other stakeholder relationships, such as the growth in partnerships between companies and suppliers. And for Alan Willett, chairman of Willett International, a private company specialising in product coding, the idea that suppliers are 'true extensions of the company' is one of the report's most pertinent points. Not only should companies share information, set target costs jointly and work together to reduce time to market, says Willett: 'We share our business plans with our suppliers, so they can take the long-term view with us.'

Another crucial point, he suggests, is the recommendation to seek demanding customers. 'Some companies are not aware how demanding the Japanese or German customer can be,' he says. 'But you must get their business, because they are the growing companies. And if you succeed in Germany or Japan, you'll succeed everywhere.'

Other executives also point to the practice of collaborating with competitors, where need be. Patrick O'Ferrall at Lloyds Register, for example, cites its recent initiatives to improve safety at sea, which were devised jointly with the society's American and Norwegian competitors.

So will Tomorrow's Company change the world? Perhaps not; but it may contribute to the process. 'It will play a similar role to the Cadbury report on corporate governance,' suggests Robert Malpas, chief executive, Cookson Group. 'Many people were already doing what was required, but Cadbury set a tone and standards of behaviour.'.

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