The Futures Company has been collaborating with the Association of Finnish Work for more than eighteen months on the idea of “High Value Work”. We define this as work that is productive (it creates new value); that is durable (it creates value over time); and work that is inclusive (it spreads value beyond the business — or the C-suite. This combination, based on the emerging post-crisis literature, also creates work that is meaningful, for employees and customers.
In the first of our four reports on High Value Work, we identified four routes to it. These are service innovation, based on a full understanding of the customer and their needs; value in authenticity, based on on a full understanding of cultural context; resource innovation, based on a full understanding of material flows; and rich knowledge, based on a full understanding of the technical knowledge held inside the organisation and a method to capture and codify it.
High value businesses combine these; for example, mastery of resource innovation often creates new technical capabilities that lead to new forms of rich knowledge.
What striking about these routes is that they have human capabilities at their heart. Service innovation and value in authenticity are based on relationships, whether human or cultural, while resource innovation and rich knowledge are based on technical processes and technical understanding. People, in short, are at the heart of value.
Of course, this is a familiar, even long-running, argument about humans and work. Douglas McGregor outlined Theory X and Theory Y some fifty years ago: Theory X, that humans were unwilling workers who need to be disciplined for the workplace, Theory Y, that humans wanted to be fulfilled through purposeful work but that management systems often got in the way. More recently, Matthew Stewart added an axis — T and U — which is about conflict. T, for Tragic, sees conflict as inevitable and irresolvable, U, for Utopia, sees conflict as coming from misunderstandings that can be resolved.
These days, there is barely a human resources professional who does not at least pay lip service to Stewart’s Freedom Lovers quadrant, and there are businesses that are trying to live it, none more so that the US online shoe retailer Zappo’s. But there are plenty of businesses that are camped on the left hand side of the axis. Zappo’s parent, Amazon, for example, has anchored itself strongly in the XT “Controllers” quadrant.
High value companies
In our research, we found different examples of companies operating in the world of High Value Work. The Spanish supermarket Mercadona, for example, pays its staff above average and trains them extensively, while also expecting them to be able to perform tasks right across the retail environment as needed. It also asks its customers “why” they bought things as well as capturing what they bought, and has a highly effective system for trialling and rolling out innovation ideas. It outperforms its sector.
The aero engine business Rolls Royce no longer sells aero engines, but sells flying hours. The performance of every Rolls Royce engine in flight is monitored by its data centre in Derby in the English Midlands, and information is sent to maintenance centres as to maintenance tasks to keep the engine running at 100%. The Finnish lift manufacturer Kone monitors its lifts in service in a similar way. Both companies have wrapped a data layer around their engineering products that helps customers get the most out of what they have bought, and removes surprises.
In England’s pottery district, in Stoke on Trent, the sector is using a combination of design, technology and authenticity to improve its profitability and rebuild employment levels. Employment fell from around 50,000 in 1979 to 10,000 in 2008. During that time, much of that production was outsourced to Asia. Now, they are discovering that the brand (Wedgwood, for example) is not enough; customers want a “Made in England” stamp as well. Gross value added has increased by 45% since 2008.
And Gore Tex, something of a poster child in these matters, has used the expertise and curiosity of the chemists it employs to develop the potential of its compound PTFE. It is best known for its waterproof and breathable fabrics and outdoor wear, but it is a market leader in the medical sector, in dental flossing, and in the guitar strings market. Like Mercadona, it has a well-developed innovation programme within the company, and this encourages its staff to experiment with new uses for the compound.
People drive value
Increasingly business research is finding that people drive value. Christof Binder and Dominique Hanssens published research based on analysing M&A data from 6,000 transactions over 10 years, In that time, they found that the value of brand had halved as a share of transacton value, while customer value had doubled. Of course, people have criticised the research (the branding business is large and valuable), and it is hard to disentangle brand and customer research, but Futures Company data also suggests that the value of brands is declining in the minds of customers.
In their study of high growth businesses, The Three Rules, Michael Raynor and Ahmed Mumtaz found through analysis of thousands of businesses over 45 years, including an average growth control group, that only two factors distinguished the performance of high growth businesses. They prioritised revenues over costs, and put “better” before “cheaper.” An algorithm can cut costs and calculate the cheapest way to do something; it takes people to grow revenues and make a better product or service.
Similarly, in research done in Finland, with a sample of 10,000 businesses, Markku Kesti has found that high performing firms generate 2.5 times as much revenue per head as low performing firms. The difference? They also spend three times as much on training and technical support.
Better employee relationships
Businesses which do meaningful work also have better employee relationships: purpose matters. In the latest Deloitte Millennials Survey, respondents were asked about the gap between purpose and impact. In many ways, this is an unrepresentative sample. Deloitte research 7,800 millennials worldwide. Respondents needed to have a college degree, to work in the private sector, and for businesses of more than 100 people.
When asked about the gap between Purpose and Impact, or what their businesses did and what they talked about, the respondents found that they fell short on “improving society”, on “social and environmental benefits”, and on “enhancing employee livelihoods,” while over-delivering on “profit generation” and “wealth creation.” These underlying attitudes are one of the reasons that B-corps businesses and social enterprises, which have their social or public purpose written into their company articles, are becoming an employer of choice for younger workers.
The same Deloitte’s research also found that — in the view of respondents — businesses with strong purpose tended to have good financial performance, high employee satisfaction, and growing employee numbers. Again, this chimes with Futures Company data, from its Global MONITOR research, that shows that consumers also appreciate companies that have a clear purpose and values.
These are significant changes in attitudes, so it is worth pausing to ask what happened. At one level we seem to be experiencing a long term secular shift (pdf) towards “post-materialist” values, which place a higher priority on intrinsic values than on extrinsic values: who you are and how you act are more important than what you own or what you buy. But this has been sharpened by our experience of the corporate world over the past thirty years, especially in the Anglo-American business cultures. Oliver Stone’s 1987 film Wall Street captured this corporate ethic well, with its story of financier Gordon Gekko, played by Michael Douglas, buying out a airline so he could asset-strip it.
The 1990s saw this process systematised by businesses and consultants, best represented by Business Process Re-engineering [BPR], developed by Michael Hammer and James Champy. BPR claimed that it could improve workflows, improve customer service, and increase competitiveness. One of the outcomes of BPR, whatever the rhetoric, was redundancies. It was designed to streamline processes and get rid of those who were not contributing to them. With hindsight, one of the inventors thinks it succeeded 50% of the time, while the other puts the success rate at 30%. The reason for this abysmal success rate: it seems that while chopping out apparently ineffective workers, those who moved knowledge around the business (whatever their job title) were removed, making the business more dysfunctional as well as leaner.
The song-writer Allen Toussaint has a line that says, “The same dudes you misuse on the way up/ You might meet up on the way down.” For the 21st century business, it seems that on the way back down they are meeting the children of those they made redundant in the 1980s and 1990s.
It is also possible that the conditions that allowed corporations so much power over labour were a particular set of circumstances, caused by a sudden influx of workers into the global labour pool.
Recent Morgan Stanley research suggests that the proportion of the world population who were of working age increased from 55% to 65% between the mid-1960s and the turn of the century. But now that the rate of increase in the global population is slowing, fewer people are coming into the workforce than are leaving it.
At the same time, despite widespread fears about technological unemployment, there is credible economic research that argues that the worst of this is already over. According to research done by David Autor, the impact of IT during the last twenty years was to eliminate “routine jobs” in the economy. At the same time, demand for both “knowledge jobs” and “manual jobs” was increasing. However, in the case of manual jobs, demand for those jobs was not increasing fast enough to absorb the displaced routine workers. But, as with population growth, the worst of that IT displacement is now over, according to Autor. And increasingly arguments about technology and work are about “augmented work,” in which technology complements humans. We are also becoming clearer about the limits of technology. As the tech VC Peter Thiel says in his book, Zero to One,
Doctors need to marry clinical understanding with an ability to communicate it to non-expert patients. And good teachers aren’t just experts in their disciplines: they must also understand how to tailor their instruction different individuals’ interests and learning styles. Computers might be able to do some of these tasks, but they can’t combine them effectively.
It’s important to note that technology does not vanish in the world of the high value businesses. Instead it is deployed in such a way that workers can add more value where it matters. Mercadona, for example, invests heavily in stock management systems; Rolls Royce in data systems. In one of our High Value Work reports, we called this “Lean in the right places.”
Investing in people has meant that Mercadona has had to stay lean elsewhere in the business to maintain its low prices. As a result, its warehouses and stocking systems were automated before any of their competitors.
Increasing value competitiveness
So high value work is about increasing value competitiveness, and the secret to success in this is in the heart and heads (and hands) of the workforce. There is a telling contrast in the United States between Costco and Walmart. While they are not identical businesses — they have slightly different business models — they nonetheless fish in the same labour pools. Costco pays substantially more than Walmart, and trains its staff far more extensively. Costco is doing well, while Walmart is struggling, Costco’s workers stay with the business for longer, and difference in performance seems to come down to the knowledge capital that Costco creates in its workers through its High Value Work strategy.
The cost of paying decent wages is also over-estimated. The UK division of Lidl recently announced that it will pay all of its UK staff as a minimum the Full Living Wage. The cost to the business is a rounding error: an increase of £9 million in wages on UK turnover of £4 billion.
There’s a famous saying in the knowledge world, by Dave Snowden, that “Knowledge can only be volunteered, it cannot be conscripted”. One of the distinctive features of the “Freedom Lover” businesses in the top-left UY quadrant is that their workers are volunteers, not conscripts. High Value Work, in turn, creates a virtuous circle in which productivity increases, investment increases, and the social impact of the businesses increases. Everyone gains when businesses compete on value instead of cost.
The High Value Work reports can be found at The Futures Company and the Association of Finnish Work. They comprise the Agenda, the Business Briefing (for companies), the Manifesto (for governments and public agencies) and a report on High Value Employment (for employees). This post has also been posted on Medium.