How Happy is Your Company?

And its key stakeholders – yourself, your customers, employees, suppliers, partners, etc.?

© Oleg Cheremnykh, MBA, strategic management consultant cheremnykho@cnt.ru

Every business owner must constantly ask himself (or herself) one fundamental question: Is my company a happy one? And if the answer to this question is ‘Not quite’ (which is by far the most likely outcome), then What needs to be done to make my business happy – and make it stay happy?

Why you need to own and run a ‘happy company’

All management theories are based upon certain assumptions. Therefore, any management theory is only as good as the assumptions it is based on (i.e. how well these assumptions correspond to common sense and reality). The contents of this paper (its statements, questions and recommendations) is based on the assumption that your most fundamental objective in life is to be happy – at home, at work, in social life, etc.

Common sense tells me that in your case, this assumption is true. Of course, there are individuals whose fundamental objective in life is something other than _happiness, but such characters are usually committed to some radical religious or social idea which is quite rare among entrepreneurs and business owners.

Whether we like it or not, a human being is a social being and, therefore, can only be happy in a ‘happy environment’. Again, there are exceptions (mostly, religious hermits) but I strongly doubt that there are any religious hermits among successful entrepreneurs and business owners.

As your life is inseparable from the life of your business (in other words, your emotional well-being depends heavily on the ‘quality’ of your emotional relationship with your business), you can only be happy owning and running a ‘happy company’. Any degree of ‘unhappiness’ in your company will inevitably ‘poison’ your emotional life and, therefore, prevent you from being happy.

Therefore, to achieve and maintain personal happiness, you simply have to own and run a ‘happy business’ (and therefore, to transform a ‘not-so-happy’ business into a happy one).

Conduct a comprehensive ‘happiness audit’ of your company

You know that there’s only one way to find out whether the company is financially sound – conduct a comprehensive financial audit. Same thing with operations. Likewise, to find out whether the company is, indeed, happy or ‘not quite’ you must conduct a comprehensive ‘happiness audit' (CHA).

From a practical standpoint, conducting the CHA means finding straight, honest, unambiguous and candid answers to a number of key corporate happiness – related questions (based largely on common sense – the foundation of any effective business management methodology).

This paper is essentially a very practical guide to conducting the first step in a CHA – a so-called ‘comprehensive blitz-audit’ (CBA) which, on the one hand, you can conduct rather quickly, but, on the other hand, will give you a fairly realistic estimation of an aggregate level of ‘corporate happiness’ in your company and a list of the most immediate steps that you need to take in order to transform your company into a much happier business entity.

CBA procedure presented in this paper (as well as the deeper CHA) are based on a key strategic business management diagram presented in Appendix 1.

Properly define ‘corporate happiness’ and ‘happy company’

But before you can even begin the CBA project, you must come up with the most appropriate definition of a ‘corporate happiness’ and ‘happy company’. This definition must not only be based on common sense, but also allow for the development of (1) a comprehensive and efficient system of plans and activities aimed at achieving and preserving ‘corporate happiness’ in your company and (2) a comprehensive and efficient system of key performance indicators to be used for “measuring corporate happiness” in your company.

Fortunately, such a definition is not that difficult to come up with. An individual can be called truly ‘happy’ when his or her aggregate needs – financial, functional, emotional and spiritual – are completely (or at least adequately) satisfied.

Therefore, a ‘happy company’ is the one that at least adequately (‘acceptably’) satisfies aggregate needs of all of its key stakeholders – yourself, other company co-owners, your clients (customers), your suppliers, your partners, appropriate government entities, etc. A comprehensive list of key categories of a typical business entity is presented in Appendix 1.

Naturally, the company that adequately satisfies aggregate needs of its stakeholders is valuable (ideally, highly valuable to them). In other words, it creates a large amount of aggregate value - financial, functional, emotional and spiritual – for its stakeholders.

Therefore, a ‘happy company’ is the one that creates the highest possible amount of aggregate value for its stakeholders (both in ‘absolute terms’ and compared to its competitors) or, what is essentially the same thing, maximizes its aggregate value to its stakeholders.

Common sense tells us (if necessary, you can verify the truth of this statement by conducting a thorough study of decision-making patterns) that your stakeholders – explicitly or implicitly – choose the company they are going to deal with based on the abovementioned ‘aggregate value maximization’ criterion.

You can measure and manage the aggregate value of your company by establishing a system of ‘key happiness indicators’ (KHI) – financial, functional, emotional and spiritual. Most of these KHI are simply more or less ‘traditional’ ‘key performance indicators’ (KPI) which are already being used in business management systems (most likely, in your company as well). To build a comprehensive system of KHI you only need to properly categorize and structure these ‘traditional KPI’ and complement them with several directly happiness-related indicators – and you will be all set.

Therefore, you must start the comprehensive blitz-audit of your company with answering the following questions:

How well does you company (at all levels) know the key needs – financial, functional and emotional of all of its key stakeholders (not just clients)? Their decision-making processes? Can your company make a proper distinction between the needs and desires of its stakeholders? How well does it satisfy needs and desires of its stakeholders?

Have you ever estimated the aggregate value that the company created for its stakeholders (‘in absolute terms’ and compared to its competitors)? What kind of methodologies and tools did you use for this purpose? How close to its ‘maximum’ is the aggregate value of your company?

Which indicators do you use to measure the corporate efficiency of your company? Have you categorized them into financial, functional, emotional and spiritual? How complete, comprehensive well-structured and easy-to-use is your system of KPI?

Conduct a thorough ‘reality check’

One of the key differences between a ‘happy company’ and a ‘not-so-happy’ one is that the former one lives and operates in a real world, while the latter – at least to some extent (sometimes to a significant extent) lives in a “world of illusions”. In other words, in a happy company, reality and its perceptions at all levels in a corporate hierarchy are one and the same thing. A ‘not-so-happy’ company suffers from a (sometimes large) gap between perceptions and reality.

Hence, the owners, management and employees of a ‘not-so-happy’ risk to experience ‘in one of these days’ a ‘rude awakening’ (usually at the least convenient moment). Hardly a highly desirable experience.

Another key feature of a ‘happy company’ is its heavy reliance on common sense – by far the most powerful business management tool. In other words, practically all decisions and actions in a ‘happy company’ are firmly rooted in common sense. In a ‘not-so-happy’ one, a significant number of these decisions and actions are driven by something else – in most cases, by one or several of the ‘seven deadly sins’ – greed, pride, envy, lust, wrath, sloth and fear.

It should be noted that, if not driven out of the decision-making process in time, these sins can indeed become deadly for prosperity, efficiency, competitiveness and even the very existence of the company in question.

Therefore, your next step in a CBA should be a thorough ‘reality check’ by finding candid and honest answers to the following key questions:

Are most (ideally, all) decisions and actions (especially the most important ones) based on common sense? How strong and efficient are your defenses against the ‘seven deadly sins’?

How comprehensive & efficient is your information & knowledge management system? Is it focused on data, information or knowledge ? Is your data and information accurate, timely, reliable, comprehensive, sufficient, well-structured and easy to work with? How well you, your managers and employees know the internal and external reality of your company (first and foremost, the key external factors )? How accurate are their perceptions of this reality?

Specify and validate your financial needs & objectives

In a happy company, its owners (i.e., you) are the most important stakeholders (the ‘first among the equals’). So are your financial needs and objectives and financial value of the company to you – among other components of its aggregate value.

Therefore, the cornerstone of a business management system in a happy company is a declaration of financial needs and objectives of its owners: dividends in absolute terms, dividends’ growth rate and the financial value of the company (estimated using more or less sophisticated financial valuation model). This declaration then becomes the firm foundation for a strategic financial plan, on which, in turn, your strategic business plan will be based.

Therefore, the next set of questions that you’ll need to answer during a CBA will be:

Have you developed a declaration of your key financial needs and objectives? How well are your financial objectives supported by common sense and sound reality? Have your financial analysts developed a financial valuation model (FVM) for your company? How well does this model correspond to your key financial needs and objectives? How sound and adequate is the methodology used in developing the FVM for your company? How accurate is the ‘historical part’ of your FVM? How realistic are the forecasts in your FVM? Is your FVM firmly based on common sense?

Are both strategic financial plan and a strategic business plan explicitly based on your key financial needs and objectives? Is your FVM an integral part (ideally, the foundation) for both of these plans? Are both of these plans firmly rooted in sound reality and common sense? How well does your company satisfy your financial needs? How well does it meet your financial objectives?

Specify and validate your functional needs

In order to make you truly happy, your company must not only satisfy your financial needs but allow you to do what you want to do – and always wanted to do (formally speaking, ‘perform the function that you want to perform in this society’). And this usually means not only the general function of an entrepreneur (owning and running a business, regardless of the specific nature of the latter), but owning and running the business that you always wanted to own and run. In other words, satisfy your functional needs.

Hence, at this stage in the CBA, you will need to ask yourself the following questions:

Do I know exactly which kind of business I would like to own and run if anything was possible (it usually is)? In other words, do I know my functional needs? Do I confuse my needs with my desires? Is the business that I own and run the right one for me? In other words, does it satisfy my functional needs? Do my financial needs agree with my functional needs or is there a contradiction between them?

Specify and validate your emotional & spiritual needs

Naturally, your company can make you happy only when your personal (emotional and spiritual) values, principles, beliefs and priorities are implemented in its corporate culture and corporate code (which “codifies” the corporate culture). But first, the former have to be properly identified and specified.

Therefore, to complete this step in the CBA, you will need to answer the following questions:

Have you identified and declared your fundamental moral, emotional and spiritual values, principles, beliefs and priorities? How comprehensive and balanced is this description? Are there any contradictions between its components? Are your actual values, principles, beliefs and priorities identical to declared? Do your declared and actual values, principles, beliefs and priorities agree with the ‘universally accepted human values’? Requirements of your religion (if you have any)?

Is there any disagreement between your values and your strategic financial objectives? Between your values and your functional needs? How well does your company satisfy your emotional and spiritual needs and meets your moral and ethical standards?

Put together a ‘declaration of corporate identity’

In order to turn your key financial, functional, emotional and spiritual needs into the most solid foundation for a strategic management system in your company, it is advisable to combine all three abovementioned declaration into a single document – a declaration of corporate identity and strategic objectives (DCI & SO). The reasons for putting such a ‘label’ on this document are straightforward – the corporate identity of your company are obviously defined by your functional needs and moral, ethical, emotional and spiritual values, principles and beliefs; and your key financial objectives form the foundation for the corporate strategic objectives.

After you put together this fundamental declaration, it will prudent to thoroughly analyze it to guarantee the highest possible quality of this document by answering the following questions:

How complete, detailed and realistic is this declaration? Is it based on our needs or on our wants/desires? How balanced is this declaration? What is the level of synergy within each of its sections (financial, functional, emotional, spiritual) and between its sections?

Examine your corporate culture and corporate code of conduct

In order for your company to be truly happy, its factual corporate culture must be identical to the officially declared culture (‘de facto’ must match ‘de jure’) and the factual behavioral patterns of company employees must match the ‘official’ corporate code of conduct.

True, in order to make you happy, the corporate culture and corporate code of conduct in your company must incorporate your moral, ethical, emotional and spiritual values, beliefs, principles and standards.

But in order to make other stakeholders happy (otherwise your company will not be happy at all), your corporate culture and code of conduct must also incorporate a number of universal features: a thorough understanding – by every manager and employee – of a ‘corporate raison d'être ’; confidence in the future – both corporate and personal; ‘corporate justice’; mutual reliability and trust – vertical and horizontal, internal and external; ‘corporate openness and transparency’ (i.e., a common sense-based approach to ‘confidentiality’ of corporate information and knowledge); feeling of ‘being needed’ (being important for) and cared about – by company owners, colleagues, superiors, subordinates, external stakeholders, etc.; permanent professional and personal growth of every manager and employee (which should accompany corporate growth).

Therefore, in order to make sure that your corporate culture and code of conduct meet these ‘corporate happiness requirements’, you will need to ask the following questions:

Do you have a formal declaration of a corporate culture and a formal description of corporate code in your company? How complete, detailed and balanced are these documents? Are these declarations based on common sense and firmly rooted in reality? Do actual corporate culture and corporate code match their ‘declared versions’ and if not, how large is the discrepancy?

How completely and deeply declared and actual corporate culture and corporate code incorporate your moral, ethical, emotional and spiritual values, beliefs, principles and standards? Key features of a ‘happy company’? How well do they correspond to your declaration of corporate identity and strategic objectives? How efficient is the mechanism for enforcing the declared corporate culture and corporate code?

Analyze mission, vision and strategies for your company

As you have probably already noticed, the ‘corporate happiness - based’ approach to business management is much more evolutionary than ‘revolutionary’. It can be successfully argued that this approach marks a logical next step in the history of business management technologies and thus is a continuation of a ‘classic’ business management methodology rather than a radical break from it.

Hence, it utilizes each and every concept, method and tool in the ‘arsenal’ of a ‘classic’ business management methodology which does not explicitly contradict the basic principles of ‘corporate happiness’. Therefore, a ‘happy company’ (like any other company) must have its own MVS - mission, vision and strategies (both the general corporate strategy and a complete set of functional strategies – marketing, financial, information/knowledge management, personnel, etc.)

However, in a ‘happy company’ these declarations (to be considered the ‘right’ ones) must meet certain ‘happiness criteria’; the most important being the company-wide understanding that these are not the ‘sacred cows’ to be worshiped (as some ‘gurus’ may want you to believe), but only tools (albeit important ones) for achieving the fundamental objective of business management – building a ‘happy company’ and making it stay happy. In other words, a ‘happy company’ must not confuse ‘ends’ with ‘means’.

For this fundamental reason, a ‘happy company’ must be a ‘happiness-focused organization’ (or an ‘aggregate value-focused organization’) – and neither a ‘mission-focused organization’, nor a vision-focused organization (and not even a ‘strategy-focused organization’).

To make sure that in your company this is, indeed, so, you will have to find honest and unambiguous answers to the following questions:

Do you have an ‘official declaration’ of mission, vision and strategies (general and functional) of your company? How complete, clear, concise, consistent and unambiguous are these documents? How effective and powerful are their content and style?

Are these documents based on common sense and firmly rooted in reality? How competitive are these documents (compared to those of your competitors)? How compatible is the contents of these documents with your declaration of corporate identity and strategic objectives? With each other? How strong is the synergy between these declarations?

How does the actual identity and behavior of your company correspond to its declared mission and vision? How your actual strategies correspond to declared ones? Is your organization focused on corporate happiness, aggregate value, financial value, mission, vision or its general strategy?

Evaluate the system of unique aggregate value propositions to your stakeholders

After developing the right mission, vision and strategies for your company, you must take the ‘natural’ next step in building (‘engineering’) a ‘happy company’ – developing the right unique aggregate value propositions (UAVP) to your stakeholders – starting with the ‘basic’ (‘universal’) UAVP. This basic UAVP (to the whole ‘universe’ of your stakeholders) will then become a firm foundation for more specific UAVP aimed at individual industries, target markets – up to (when appropriate) individual clients and other stakeholders.

Naturally, your universal UAVP will become the foundation for developing your corporate brand, while specific UAVP – for developing individual brands, product lines and individual products and/or services. Corporate UAVP are determined by corporate key competencies and competitive advantages ; basic UAVP – with more basic (‘fundamental’), specific UAVP – by more specific. Obviously, key competencies and competitive advantages must match the key success factors – universal, industrial, in the corresponding target markets and with specific individual stakeholders.

To find out how ‘good’ are your UAVP (in terms of ‘corporate happiness’ and ‘aggregate value’ criteria), you will have to ask the following questions:

Does your company have an ‘official declaration’ of its core competencies at all levels – universal, industrial, target markets? How complete is your system of corporate key competencies? How good is the synergy between your core competencies? Do your actual core competencies match the declared ones? How compatible is your system of corporate key competencies with your declaration of corporate identity and strategic objectives? With your mission, vision and strategies?

How good is your knowledge of key success factors at levels – universal, industrial, target markets? Of your competition – their MVS, core competencies and competitive advantages, UAVP, competitive positions? How well do your key competencies match the key success factors at all levels – universal, industrial, target markets? How sound and secure are your core competencies? How well your perceptions of key success factors and your competition match the reality?

Does your company have an ‘official declaration’ of its competitive advantages (and disadvantages) at all levels – universal, industrial, target markets? How complete is your system of corporate competitive advantages? How good is the synergy between your competitive advantages? Do your actual competitive advantages match the declared ones? How compatible is your system of corporate competitive advantages with your declaration of corporate identity and strategic objectives? With your mission, vision and strategies? How well do your competitive advantages match the key success factors at all levels at all levels – universal, industrial, target markets? How sound and secure are your competitive advantages?

Does your company have an ‘official declaration’ of its UAVP to all key categories of its stakeholders at all levels – universal, industrial, target markets? Do your actual UAVP match the declared ones? How competitive are your declared and actual UAVP? How compatible is your system of UAVP with your declaration of corporate identity and strategic objectives? With your mission, vision and strategies? With your core competencies and competitive advantages? How well do your UAVP match the key success factors at all levels at all levels – universal, industrial, target markets?

How sound and secure are your UAVP? Does the perception of your UAVP by your stakeholders matches your actual UAVP? Do the expectations of your clients regarding your UAVP match your actual UAVP? Can your company on a regular basis exceed expectations of your stakeholders regarding your UAVP?

How strong and secure is your market share and your competitive position – aggregate and by product/service, brand, product line – in each target market and in each industry? Overall?

Assess your key business objects and the corresponding synergies

In order to create and maximize aggregate value to its stakeholders, your company needs to implement your basic and specific UAVP in its unique brands, products and/or services which, in turn, will require development of its operational infrastructure – business units, regional/geographic branches, functional units (finance, marketing, logistics and other departments), legal entities (which do not necessarily match your business units or geographic branches), assets/instruments (both tangible and intangible), personnel (managers, supervisors and ‘rank-and-file’ employees), plans, projects and business processes.

These elements of your operational infrastructure interact with your external environment – your industries, target markets and individual stakeholders, creating (hopefully) aggregate value for the latter. These elements of your business system (brands, products/services, components of your operational infrastructure and your external environment) are referred to as internal or external objects of your business system (or simply business objects). By the way, design and implementation of your business system (or any business system, for that matter) is rightfully called business engineering.

Naturally, the objective of business engineering is to build (‘engineer’) a happy company which generates the maximum amount of aggregate value for its stakeholders. Which also requires choosing the right business environment (from the standpoint of ‘corporate happiness’ and aggregate value generation).

To achieve this objective, you have to ensure that (1) your business system contains exactly the right number of objects of each ‘nature’; (2) that each object operates ‘at its happiest’ (i.e., at peak effectiveness and efficiency) and (3) that the synergy between objects in each category (‘portfolio’) and between portfolios is maximized.

A diagram depicting the key categories of business objects for a typical business entity is presented in Appendix 4.

Therefore, the next step in your CBA will require answering the following questions:

Does your company have a formal description of at least your key business objects? How well does the system of your business objects correspond to your declaration of corporate identity and strategic objectives? With your mission, vision and strategies? With your UAVP? Is it compatible with reality & common sense? How good is synergy between objects in each category/portfolio and between categories?

How comprehensive, realistic, concise, structured and easy-to-use is this description (especially a list for key performance indicators for each object, portfolio and the company as a whole)? How good is your knowledge about each key business objects? How good – in contents, structure and style are your corporate documents that contain this knowledge about your key business objects? How valuable is each object – financially, functionally and emotionally – for the company and its stakeholders? How efficient is value management system for each object, each object category and the company/system as a whole?

Examine your relationships with key stakeholders of your company

In order to maximize the aggregate value of your company to its stakeholders, you and your employees must build and maintain the right relationships with your stakeholders. This requires utilization of stakeholder relationship management (SRM) technologies which are somewhat similar to well-known and widely used CRM technologies, albeit significantly expanded – both in functionality and scope (to include all categories of stakeholders, not just clients). Therefore, a ‘happy company’ can be rightfully called a ‘shareholders-focused organization

SRM technologies are based on three fundamental principles/requirements: aggregate value balance, proper ‘expectations management’ and a proper match between perceptions and reality.

Requirement for aggregate value balance means that, in the long term, the amount of aggregate value that the company creates for its stakeholder must be roughly equivalent to the amount of aggregate value that the corresponding stakeholder creates for the company (which makes the relationship not only mutually beneficial, but balanced). In other words, not only the company must be valuable to its stakeholder, but the stakeholder must also be valuable to the company.

Proper expectations management means that your company must not only create in its stakeholders high enough expectations of its aggregate value (to make the company more attractive to the stakeholder in question than its competition), but also exceed these expectations on a regular basis (it is well-known that receiving even so slightly more than expected to is an important component of happiness).

A proper match between perceptions and reality (which must work both ways) means that your stakeholders must at all times have a true and correct perception of an aggregate value generated for them by the company (and the company – by its stakeholder). In particular, it stipulates that your company must avoid ‘creative communicating technologies’ that create an illusion that the aggregate value of the company to its stakeholder is much higher than it really is.

The proverbial ‘cat’ will inevitably ‘get out of the bag’ (most likely, at the least convenient moment) – with the disastrous consequences for the relationship with the shareholder in question – and to the well-being of your company.

Neither should it allow its stakeholders to underestimate the amount of aggregate value that the company creates for them (as the relationship with the stakeholder and the well-being of the company will inevitably suffer).

To estimate the value of relationships with stakeholders, the following questions must be answered:

Can your company be rightfully called a ‘shareholders-focused organization’? Are your company relationships with its stakeholders based on common sense and firmly grounded in reality? How well do they correspond to your declaration of corporate identity? Mission, vision and strategies? Corporate culture and corporate code?

Does your company maintain a list of your key stakeholders? How comprehensive, concise, well-organized and easy-to-use is this list? How well does your company know its stakeholders (in terms of SRM requirements)? How well is the company informed about relationships between your stakeholders and your competitors? Does your company maintain a list of products/services that it provides to its key stakeholders? Of products and services provided to your company by its stakeholders?

Does your company estimate the aggregate value of products/services “given” and “received”? How realistic is this estimate? How balanced – individually and collectively - are relationships between your company and its stakeholders? How well do these relationships meet the requirements of proper ‘expectations management’ and a perfect match between perceptions and reality?

The key SRM diagram is presented in Appendix 2.

Deploy Aggregate Value Scorecards – your key ‘happiness management’ tools

Measuring and managing financial value – of companies, business units, regional branches, brands, products, target markets, clients, etc. – requires utilization of adequate tools – financial valuation models. Likewise, measuring and managing aggregate value of business objects, synergies between these objects and relationships with stakeholders requires utilization of adequate tools – aggregate value scorecards (AVS) integrated into aggregate value scorebooks (AVB).

Obviously, description and evaluation of different categories of business objects requires different AVS. However, in order to make these scorecards as easy to use and universal as possible, all AVS are based on a similar structure, thus creating a common business description language. Naturally, the more complex and important a business object is, the more complex and detailed is its AVS.

Every AVS contains information (knowledge) about the manager of the corresponding object, synergy or relationship; a system of key performance indicators (including the aggregate efficiency index); a system of actions (typically structured into financial and operational plans) aimed at maximizing the corresponding aggregate value; and documents that contain additional knowledge required to make an accurate measurement of the corresponding aggregate value and develop and implement the most effective and efficient plans to maximize this value.

Therefore, a comprehensive system of AVS and AVB becomes a ‘natural’ backbone for a corporate knowledge management system focused on ‘corporate happiness’ and aggregate value maximization.

Re-engineer your company to make it radically happier

If the results of CBA will not make you happy (by far the most likely outcome), you will have to conduct a more or less radical strategic corporate re-engineering of your company aimed at making your company significantly happier and at considerably increasing its aggregate value to its stakeholders (as vice versa). First, you will have to conduct a more detailed ‘corporate happiness audit’ to get a better understanding of the current situation in your company (‘AS IS’) from the standpoint of ‘corporate happiness’ and aggregate value maximization.

Then, you will have to describe – in new answers to the same set of CBA & CHA questions – the desired (‘TO BE’) state of your company (from the same standpoint).

And then, you will have to develop and implement a transformation plan (form AS IS to TO BE), including financial plan, operational plan, textual comments as well as adequate mechanisms for feedback, monitoring, control, employee motivation and adaptation of these plans to constantly changing environment of your business.

Appendix 1. Key Business Management Diagram

Appendix 2. Key Stakeholders Relationship Management Diagram

Appendix 3. Key Stakeholders of a Typical Business Entity

Appendix 4. Key Object Categories in a Typical Business System

changed January 7, 2008