This article was originally published in Forbes.
In modern business, perhaps the most sacred management adage is that what you measure is what you get. Therefore, it follows, you must manage what you measure. At the same time, Albert Einstein cautioned that "Not everything that can be counted counts and not everything that counts can be counted." All of these sayings contain both truth and wisdom that apply to this day, but as we forge ahead in a new century, we have yet to come to grips with what is, perhaps, an even deeper truth.
Our metrics--what and how we measure--are a window into what we value and, by extension, our values. Now more than ever, we must stop to reexamine and reconsider what it is we value and pursue as it informs and guides us on our unfolding journeys. This challenge to stop and think is one of the most important that organizations and those who lead them have ever had to contend with. More than that, the stakes have never been higher because, today, we live in a reshaped world.
Technological disruption has radically reshaped our reality, faster than we have yet been able to reshape ourselves, our institutions and our leadership. Now, new things matter. Power has taken on a horizontal structure. Authority no longer comes from a title but from connection and shared values with those that lift leaders up. More than perks or pay, what really drives employee engagement and inspiration are deeper connections: shared values, a sense of deep purpose and a foundation of trust.
In order to build the human relationships necessary to scale truly sustainable businesses, executives must stop to ask different, deeper questions, not about what we are, but "how" we are.
Although, generally speaking, organizations' inner workings are more visible and public trust is lower than ever, most companies still focus too heavily on their external--"how much"--performance measures at the expense of their internal--"how"--ones. To put it another way, instead of asking, "How much revenue are we making?" why aren't more leaders asking things like "how deep does trust run in our company?"
While "how much" measurements--ROI, revenue, employee engagement, etc.--are still necessary, they are no longer enough. They are reactionary rather than proactive, reflecting the effects of a company's programs, policies, and actions, without examining where or how they came about. These measures fail to provide a full picture of HOW an organization actually operates.
With this in mind, what we currently measure is part of business' human problem: standard "how much" metrics reflect a value system out of sync with the reality of the world we're living in.
Now, culture matters more than ever--as seen in the brutal exposes Amazon suffered in the summer of 2015 from both the New York Times and the Los Angeles Times. Increasingly, people are less concerned with individual bad apples and seek to take a deeper look at the "trees"--cultures, companies, institutions, etc. that produce them. To effectively craft culture, we need metrics that can measure what matters most today--our organizations' internal patterns, relationships, and policies.
Research demonstrates that there are distinct financial benefits to becoming more rigorous about what kind of culture your company is cultivating. 97% of values-and-trust-based organizations demonstrate better financial performance than their competitors in all 17 countries studied in LRN's latest HOW Report. Additionally, these same organizations that demonstrate a high level of character are eight times more animated by long-term goals, six times more resilient, and eight times more efficient at making expedient, effective and values-based decisions.
Understanding what success looks like today, however, is only half the battle and only part of the HOW Report's essential purpose. The HOW Report seeks to provide leaders with the metrics and tools to transform their personal and organizational approach--increasing employee engagement and customer satisfaction while boosting revenue and resiliency.
To help guide leaders through this process, the report breaks all companies studied into one of three archetypal categories allowing teams to self-identify and discuss management processes in more concrete ways. These are not static categories, but rather a chain of organizational evolution that leaders and employees can use to track their progress and development.
Companies in the first group called "blind obedience," are power-based. They are hierarchical and top-down, run by command-and-control leaders who use coercion and formal authority to drive others through specific tasks. The second group, the management standard of the 20th century, are "informed acquiescence" organizations. These are defined by their rules-based hierarchy where employees are motivated to follow set processes and policies through external, performance-based rewards.
The third group, "self-governing" organizations, consists of the most farsighted organizations, best positioned to thrive in a hyperconnected, interdependent world. People at all levels of these companies are trusted to act on their own initiative and to collaboratively innovate. Instead of reacting to the external carrots and sticks of motivation or coercion, "self-governing" employees are inspired through an internal sense of shared purpose and common values which guide their behavior.
Over the last few decades, prevailing management models have moved increasingly from blind obedience to informed acquiescence, and it's just now moving to self-governance. At present, self-governing organizations make up 8% of all businesses surveyed--more than double the 3% finding from LRN's first HOW report in 2012. Additionally, even the organizations that fall outside of this 8% are increasingly making strides toward self-governance, with informed acquiescence organizations increasing as blind obedience organizations fall.
As this process of evolution continues, it is the companies that create richer, deeper, and enduring connections--real human relationships--through values and trust that experience sustainable competitive advantage. Extending trust to others builds inspiration within a workforce, resulting in employees who are dedicated, hold themselves accountable and take responsibility for their actions. Not only do companies with high levels of trust experience 11 times more innovation than their competitors who do not, the HOW Report's findings demonstrate that employee inspiration is 27% percent more effective than employee engagement as a measure of performance impact.
The benefits of self-governance do not stop at an organizational level. Individually, leaders who emphasize instilling and building character in their organizations and provide their employees with the freedom to live up to these expectations stand out above the rest. Leaders who built self-governance were categorized as "effective" by their workers 96% of the time, compared to 52% for leaders of the other two varieties.
LRN's new metrics provide a path forward for leaders and organizations in a reshaped world, but reshaping ourselves is not something that happens overnight. This is not a quick fix. It is difficult and hard work, but ultimately a rewarding effort--one that adds value to your organization by connecting with its values. Companies and leaders who become rigorous about bringing the human traits we value to the fore outperform their competition by "outbehaving" them through true self-governance and healthy relationships.
In the face of disruption, we have the option to succeed or fail spectacularly. Fortunately, we now have a roadmap to guide us on the journey. By providing updated metrics for a new reality, LRN hopes its HOW report will help point the way for companies committed to undergoing the deep work of true transformation.
For a copy of the latest edition of the HOW Report, featured in part below, click here.