In business, having a clear and shared understanding of who your organization serves is the mark of a great vision and a powerful strategy. There are clear dominance hierarchies in every organization, big and small. The bigger the organization, the more important it is for the leadership teams to understand how these hierarchies add up and how they should be communicated so that they can be used to drive more effective decision making. When these hierarchies are unclear, misunderstood, or distorted to achieve gains for the wrong stakeholders in the short term, it causes a myriad of problems. The most prominent symptom your teams will experience is confusion around whom they are serving. This article lays out a framework for clarifying who we are serving by considering all stakeholders, choosing those we can impact most powerfully, prioritizing them, and purposefully allocating energy to the top stakeholders with specificity and focus.
A few years ago while working with a large, publically traded company, the senior leadership team was alerted that the technology used to support one of their key applications was being berated by the marketplace for some security holes and a general lack of support. After getting wind of this news, they made the decision to completely rebuild and re-platform the application immediately. It was time, anyway, as the application had a slew of bugs and the consumers were asking for many features that they wouldn’t be able to build into this legacy application. Being driven completely by their concern for market sentiment and its impact on the stock price, the decision was made to re-platform as quickly as possible, meaning the team was not allowed to improve the product until feature parity had been achieved and the old technology could be retired. The project took many months to complete and the new product was released into the market with much fanfare and celebration amongst the team. However, when the users got their hands on this much-anticipated release, they were beyond disappointed. While the app was relatively bug-free and much faster than the prior version, they were vocal and aggressive with their complaints about the update in the market. Market analysts got wind of this news and it had the opposite impact that the leadership team had hoped for. They eventually recovered, but it was an expensive and painful lesson that could have been avoided.
What happened here is a breakdown in the dominance hierarchies of service. This application serves its users first and foremost. Thus, upgrade decisions should have been made, at the very least, to add a few features that will make users' lives easier by solving key problems for them in the new release. Applications like this are rarely built solely to serve the organization’s shareholders, yet the “feature parity” mantra chosen by leadership to drive decision-making was specific and made it clear to the team that they were to put shareholder concerns above user concerns. The shareholders are obviously important, and all teams should steward their resources carefully to this end. In this case, however, only focusing on shareholders was a big mistake. This learning drove a stake in our understanding of the importance of keeping the dominance hierarchies clear in these expensive initiatives. We have to work to understand and balance the shareholder perspectives purposefully.
THE PEOPLE YOU SERVE
Every organization exists to serve a myriad of different people and perspectives. Ken Wilber, in a Theory of Everything, introduced a model for looking at various perspectives in any given human problem domain. It is a simple and elegant framework that I have found useful to apply to business. If you draw a map, using a simple four-quadrant diagram with internal perspectives on the left, and external perspectives on the right, individual perspectives along the top, and group perspectives along the bottom, it allows you to create a clear map of all of the players and perspectives in your ecosystem.
Placing all of our stakeholders on a single map allows a team to have a dialog that is more inclusive of all of the different perspectives in the ecosystem, including the shareholders, the employees and teams, the customers, and even the government if they play an important role. Once you have them mapped out, you can have more powerful, inclusive conversations around your stakeholders and their concerns. This is a practical way to get more specific about the people we serve so that we can serve them great. “The Hedgehog Effect,” popularized by Jim Collins in “Good to Great” was inspired by an ancient parable about a fox and a hedgehog: “The fox knows many things, but the hedgehog knows one great thing.” This thinking allows leadership teams to be clear about their mission, where their bread is buttered, and where their advocates come from. Every organization exists to convert raw materials, knowledge, and/or technology into products and services valued enough by its customers to pay for them. In the case of a non-profit, it allows the team to clearly understand their complicated ecosystems of vendors, employees, donors, program leaders, and beneficiaries of their programs. The best organizations compete by providing a great experience through the life of the relationship. In the best of all scenarios, the organization’s ability to convert its clients or customers into advocates will attract the right kind of employees, who are also invigorated by solving specific problems for a specific set of people, through their work. There is an important hierarchy to the people that your organization serves and if you don’t get it right, or are not clear about it, confusion will ensue and the downstream impact can be detrimental. Understanding the people in your ecosystem, however, is rife with complexities that must be grappled with. Within each quadrant, a hierarchy exists, adding to the complexity. Next, we will take a look at each quadrant, in turn, to understand the complexity.
EXTERNAL GROUP PERSPECTIVES | “THEY”
The external, groups quadrant, is the source of the organization’s resources. It is the wellspring of our capital investment, natural resources, governmental resources, community resources, supplier resources, and industry resources and benefits. These resources comprise the complicated set of raw materials that our organization needs to organize and exploit to generate economic rents. There is a hierarchy of stakeholders, each with their own perspectives and demands on the organization that we cannot ignore. They are mostly outside of the organization and its day-to-day operation that looks roughly like this:
Each layer has a stake in our organization’s success and a complicated interplay exists between the layers. Representing the relationships this way is a gross oversimplification of how these groups interact, but it allows us to zoom out enough to start to make sense of how this quadrant represents the source of all of our organization’s resources. Resources flow from the investors through other sources of resources, like our planet, our nation, our industry consortiums, or the communities that we live and operate in. Take our nation, for example, we are subject to whatever regulations are imposed and to the taxes that we should gladly pay for access to legal protection, police services, and other services that we are able to exploit to do business safely and with integrity in our country. Our local communities provide services for our families and the physical environment within which we operate. The resources flow from the outer layer to the inner layer where those stakeholders are in the closest proximity to the value being created. Economic rents, in general, flow backward. It is important to note that every business serves the world in different ways. I believe that great leaders determine how their business uniquely fits into the external world (industry, community, nation, planet, investor community) and makes sure that all of the resources that are extracted from these ecosystems get paid back, in spades, before the investors get paid. This can get muddled and convoluted in small privately held businesses, because the owners sometimes serve the business in multiple ways. They may play one or more operational roles and be the primary investors in the organization.
The investment dollars are most distal to the value created in this quadrant because investment dollars are used to take advantage of services from the government (roads, safety, infrastructure), extract resources from the planet, leverage the communities in which they serve, and take advantage of industry standards and consortiums to create their products and services. The flow is clear. Problems can occur for organizations when they don’t recognize this and make appropriate investments in their communities, industries, and other resources before paying their financial investors. I’m sure there are many profit-mongering capitalists who over-prioritize the generation of capital who disagree. However, when the organization does its job well, the economic rents flow purposefully back to these stakeholders in a balanced way. Organizations invest in their local communities, participate in industry consortiums, pay their fair share of taxes, give more back to the planet than they take from it, and are able to pay a fair return to their investors. Having this clear helps the people in the organization know how to make decisions that aligned with the stakeholder communities that we value.
INTERNAL GROUPS | “WE”
Once we get the resources we need to be able to deliver on our products, services and programs delivered to our doorsteps, the decision making flows to the internal group stakeholders. The dominance hierarchies here are generally well understood inside of an organization. The larger the organization, the more complicated the structure and the interplay between the structures become, but these lines are generally drawn very carefully and precisely. In general, this quadrant is structured similar to your organizational chart:
This, too, is an oversimplification of how your company is organized. Informal hierarchies, matrix organizations, and cross-functional teams are becoming commonplace, as the need to address more complex problems in the market is growing. Similar to the external groups, the resources in this quadrant flow from the outside in. The highest levels control and divy up the budget and the decision rights over the resources to the layers below them. The reason organizational hierarchies were created in the first place to serve the layers of people below them. In turn, the economic rents flow back up. The higher level groups in the organization tend to consume more of the resources, per-capita than the levels below them.
INTERNAL INDIVIDUALS | “I”
Once the sub organizations have their resources allocated, they are divided out to individuals to do their jobs in the service of their clients. The internal, individual hierarchy is most often based on titles. However, when the organization is setting out to solve problems, the real dynamics of how the hierarchy works generally becomes much more fluid and complex. For each problem domain, the people with more proximity to the value creation have the most knowledge, and the most ability to impact the relationship.
The clearer these value creation hierarchies are articulated, the more powerful the vision is for the organization. When the front line workers, in any organization fully understand the impact of their work and role, at the time they are interacting with the customer, and they are highly motivated in their role, they are the most valuable person in the company, for that relationship, at that moment in time. As you move up the internal hierarchy, it becomes clear why it is important for each level to see themselves as servant-leaders to the roles downstream in the hierarchy. Resources and decision rights flow from the outside in from the CXO to the line worker. The larger the organization gets the more bifurcated the decision structures in the organization get. The “strategic” decisions are made at the top, while the “tactical”, day to day decisions are made at the line and team lead level.
Our goal with each individual in this hierarchy is to have them on their own relationship ladder in regards to the organization. Imagine if the leadership team maximized the number of employees in the ecosystem that behaves as an advocate of the organization. How would it feel to work for such an organization? Most importantly, the team must be aligned on the primary objective, maximizing the number of advocates that they can create from profitable customers.
EXTERNAL INDIVIDUALS | “HE/SHE”
The people at the line level have the most interactions with actual customers, in most cases, making this quadrant, the quadrant where the value culminates and is delivered. It represents the objective, external perspectives of those who pay for your products or services or those who receive the most benefit from your programs. These are the folks that determine whether or not the organization’s products and services are worth investing in. In the business-to-business environment, the dominance hierarchy might look similar to your customer's organization chart, as referenced in the diagram.
A similar argument applies here, in terms of the dominance hierarchies within this quadrant, but this is where I see companies struggling the most to get it right. Their internal value flows are the same as yours in that that the most value delivered by your firm is often at the the lowest level that you work with. You may have to go through purchasing or a CEO in the sales process, but once the sale is over, you have to deliver to consumers of your products or services. Service and value from from the outside, in where the value creation is most proximal to the consumers of your product or service.
In a not-for-profit, the beneficiaries of the services may be at the core with their respective community of stakeholders surrounding them. When it is flowing well, goodwill, relationships (strategic), and economic rent (tactical) flows from this quadrant back to the financial stakeholders.
Alternatively, this plays out negatively in organizations that are driven primarily by the incentives of financial stakeholders. Bad decisions made for short-term gains have a detrimental and expensive impact on the long-term health of the culture and ultimate sustainability of the organization. When the vision is not set appropriately, following this pattern, confusion is apparent, silos are erected and disfunction ensues. Financially greedy leaders poison the well with a relentless focus of their organization on their own selfish desire for growth and personal financial returns. The worst of the bunch use financial instruments to reward and manipulate those who do their bidding and the market ends up with results similar to those at Enron and Madoff Investment Securities.
Using the ecosystem map, it is easy to see the flow from the external, groups quadrant where resources are derived, through the internal quadrants, to the external, individual quadrant where the most value is delivered.
If we have done our job well, we will have created a tremendous amount of goodwill, in the form of a relationship with the customer in addition to the economic value that would flow backward in the form of economic rents.
In 1982, Tylenol was faced with one of these decisions when their product was laced with Potassium Cyanide, resulting in the death of 7 people in the Chicago area. The expert opinion and even the governmental recommendations of the time were to pull all of the products from the shelves in the Chicago area. But without enough information about the source of the contamination, and using their credo as a guide, Johnson and Johnson’s then CEO, James E. Burke, took quick, decisive action and made a $100 Million dollar decision to pull every single bottle of Tylenol from all retail shelves across the country.
Here is the J&J credo, bold added to demonstrate the pattern:
We believe our first responsibility is to the patients, doctors and nurses, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to provide value, reduce our costs and maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our business partners must have an opportunity to make a fair profit.
We are responsible to our employees who work with us throughout the world. We must provide an inclusive work environment where each person must be considered as an individual. We must respect their diversity and dignity and recognize their merit. They must have a sense of security, fulfillment and purpose in their jobs. Compensation must be fair and adequate and working conditions clean, orderly and safe. We must support the health and well-being of our employees and help them fulfill their family and other personal responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide highly capable leaders and their actions must be just and ethical.
We are responsible to the communities in which we live and work and to the world community as well. We must help people be healthier by supporting better access and care in more places around the world. We must be good citizens — support good works and charities, better health and education, and bear our fair share of taxes. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.
Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed, investments made for the future and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.
Robert Woods Johnson, decades before “corporate responsibility” was in vogue, wrote this and clearly laid out this pattern for future generations of leaders at J&J to follow:
Note the organization's shareholders are on the outer ring. They are the suppliers of the financial capital that J&J needs to operate their business and the most distal from the value creation. The patients are clearly at the core, most proximal to the value delivery of J&J’s products. When an organization, like Johnson and Johnson, has a well-organized and articulated vision, its leadership team has a clear articulation of how it should be prioritizing and organizing its resources across its population of perspectives and stakeholders.
By now, it should be clear how complex it is to deeply understand the people that the organization serves. There are complicated interrelationships between each layer of the hierarchy and the outer layers impose constraints and guardrails on the inner layers. At the extremes, it is clear that it is not acceptable, nor sustainable, to create long-term damage to the planet in the service of our value proposition to our clients. The same can be said for our financial stakeholders. The organization will not sustain itself for long without ensuring a reasonable financial return. It is clear, however, looking at this pattern, that the flow of service works from the outside in and when we establish a clear flow of value in that direction, while also valuing the constraints and guardrails established by each layer in the process, we create a sustainable, productive organization.
At the core of a great vision lies a clear understanding of the prioritization of its stakeholders.
The larger the scale and the longer the time horizon of your goals, the more important it is to clearly understand the priority of the perspectives that you are serving. If the group you are leading is small, and your goal is attainable in a short timeframe, it makes little sense to expend too much energy clarifying all of this. However, if you have a worthwhile goal with the intent of producing long-term scalability, it behooves the organization to have clarity around who we are serving. Once you an appropriate level of clarity and priority of the people in your organization’s ecosystem, you should dig as deeply as possible into understanding what makes them tick.
Once you have a clear priority stack identified for your stakeholders, you can go to work clarifying with your teams how to divide up their energy and resources in their service. I’ve seen many teams struggle here. The harsh reality is that we all serve many masters in the pursuit of our complicated goals. We have to find creative ways to balance our energy or our confusion will lead to resistance, frustration, and ultimately waste. If we take our units of work and divvy them up into corresponding chunks, we can make sure to balance the needs of all of our stakeholders a little more purposefully.
Your actions belie your priorities.
For example, let us use Uber as a case study. We know that Uber has at least three key groups of users. Riders, Drivers, and System Admin. There are others, of course. And, we could debate for days about how to prioritize the different customer segments within each one of those categories, but for simplicity's sake, let's just take these three. It becomes clear that the System Admin service the Drivers who serve the Riders. But, it is a close call, and some might argue a bit of a “chicken and egg” dilemma which could derail us for weeks if we are not careful. If we assemble a simple chart and ask for alignment on a basic segmentation of work, it might look something like this:
Your segmentation doesn’t have to be perfect, nor do you have to be perfect in sticking with it. It does, however, provide your team with a clear focus on each group of users with an agreed-upon level of priority. If you have enough budget, assigning teams to each user set might be a better strategy, but at a minimum, split the workstreams up so that each user base gets undivided attention for a significant amount of time. When your teams can maximize their focus and put themselves into a more specific mindset, they are more likely to maximize their creativity and spend more time in a state of flow while in their workstream. If they have to be switching their mindset to contemplate different perspectives, it leads to diffusion and reduces the possibility for flow.
Understanding and communicating clearly the dominance hierarchies in your human ecosystem and how your teams should be dividing their energy and resources is the mark of stellar leadership. It is one of the primary components of a great vision and it rolls up to a powerful strategy. There are clear dominance hierarchies in every organization, big and small. The bigger the organization, the more important it is for the leadership teams to understand how these hierarchies add up and how they should be communicated so that they can be used to drive more effective day-to-day decision-making all the way through the organization.
Great Visions Unlock Human Potential
A Theory of Everything by Ken Wilber
Good to Great by Jim Collins
Flow by Mihaly Csikszenmihaly