In consulting with and training hundreds of employees with dozens of different organizations, I've discovered a real desire on the part of the employees to make significant contributions. We all share a desire to make contributions and be recognized for them. We all desire to feel self-worth. Many organizations are structured to make this nearly impossible . Yet from time to time a leader in a rank-based organization comes along who wants to challenge the status quo and allow greater participation from the ranks below. This can have drastic and immediate positive effects on the company, but those beneficial results will fade if the underlying paradigm of rankbased thinking is not addressed and replaced with peer-based thinking. A good example is merchandise retailer Sears, Roebuck & Company during the 1990s.
In 1992, Sears had a financial loss of $3.9 billion and was faced with the real possibility of still worsening business conditions. The CEO at the time did everything in his power to turn things around. It was, however, an attempt at top-down damage control. As recounted by authors Pascale, Millemann, and Gioja in Surfing the Edge of Chaos: The Laws of Nature and the New Laws of Business (2000), "One regional manager characterizes the atmosphere as one of 'salute-and-obey.' Directives came down from above and we did our best to follow them" (46). This type of rank-based solution only allowed the situation to grow worse as both employee morale and customer satisfaction decreased. It was time for a change of leadership.
The new CEO brought in was Arthur C. Martinez. Martinez took many actions to correct the downward slide of Sears, which in most cases involved shifting the power of decision making and control to frontline employees. Martinez developed what were called the "3 Cs", or the three "compellings": a compelling place to shop, a compelling place to work, and a compelling place to invest. This opened up Sears to incredible employee-based initiative and innovation. Empowering the employees had the obvious consequence of boosting employee job satisfaction. What wasn't expected was how higher employee job satisfaction directly led to higher customer satisfaction. As Pascale, Millemann, and Gioja point out, Martinez was able to exactly quantify this increase. "The evaluation demonstrated that a 5 percent improvement in employee satisfaction caused a 1.3 percent improvement in customer satisfaction" (52). The 1.3 percent jump in customer satisfaction also led to an 0.5 percent increase in store revenue.
By 1995, Martinez, with these peer-based initiatives, seemed to have turned Sears around. Not only were profitability and the share price back up, but Sears was also recognized as one of the most admired companies as measured by employee satisfaction. In 1997, Fortune named Sears "the most innovative general merchandise retailer." The future looked bright. Unfortunately, Martinez had never adequately challenged the rank-based thinking of his senior executives. He had turned the rank-and-file employees loose to innovate and speak up, but all under the suspicious gaze of other senior leaders .
When difficult financial decisions had to be made, some senior executives took it upon themselves to impose them from above in classic command-and-control style. Rank-based leadership habits are hard to break. For all of Martinez' peer-based thinking, senior leadership remained rank based, and they waited for their opportunity to reexert control. Already by the end of the 1990s these rank-based leaders were making it difficult for Martinez' more peer-based initiatives. When he left Sears in 2001, the retailer reverted to rank-based thinking with predictable consequences. In late 2002, the retailer warned that it would miss its third-quarter earnings estimates, and the stock dropped more than 14 percent ”its biggest one-day drop in fifteen years . The company's 2003 results were poor.
It's not enough to institute peer-based behaviors in an organization without explicitly addressing the paradigm of rank-based thinking. Most employees want a part in the decision making and managing of work in their organization. In fact, the measure of control employees have over their work is a good indicator of their overall job satisfaction. It is a drastic blow to employee morale when one leader gives them control and, just as quickly, another leader takes it away. That leaders have the right to command over others whose chief duty is to obey is engrained in our thinking, especially among those who achieve the leadership position. Only by explicitly challenging this rank-based thinking can it be changed.