It appears that the old aphorism, "people are our most important asset," is actually true. Compelling evidence suggests that organizational success comes more from managing people effectively than from attaining large size, operating in a high-growth industry, or becoming lean and mean through downsizing -- which, after all, puts many of your most important assets on the street for the competition to employ. But while many leaders believe that putting people first makes strategic sense, all too few of their organizations do it.

What can you actually do to implement high-performance management practices and enjoy the benefits that will almost certainly accrue? Unfortunately, there are no easy answers -- if there were, this strategy would not be such an important foundation for sustainable competitive success. But there are things that high-performing organizations do that can spur new thinking about the question.

Achieving profits through people requires consistent leadership attention -- and that is the biggest barrier to success. The scarcest resource in most organizations is time and attention -- what leader has enough? Time spent focusing on one thing cannot be spent on others, and too often quarterly financial results crowd out the long-term management of people. Leaders of truly successful organizations -- such as Whole Foods Markets, Southwest Airlines, the Men's Wearhouse, and AES Corporation -- see their role as systems architects, engaged in the critical task of building values, cultures, and a set of management practices that enable the recruitment, retention, development, and motivation of outstanding people. They also engage in the important work of building work practices that ensure that the ideas of all people become known and used.

Whole Foods, which has grown in the 1990s from $100 million to $1 billion in sales -- in the grocery business, no less -- is famous for its use of self-managed teams. The company shares detailed performance and financial information with all its people -- so much information that, because many people own stock in the company, all employees are considered insiders for purposes of Securities and Exchange Commission regulations. The company even makes data about individual salaries available to all its employees. It also shares productivity gains with its people through team-based incentive compensation, in the process of fostering decentralized decision making.

The Men's Wearhouse has succeeded in the retailing industry -- notorious for its use of part-time, low-paid, undertrained, and poorly treated help -- by doing exactly the opposite: investing heavily in training, using few part-time staff, and paying above-industry-average wages and encouraging employee stock ownership. The company recognizes that what is important is not what people cost, but what they do. AES, a global developer and operator of electric power plants, has succeeded by fostering radical decentralization, sharing financial and performance information (all of its people are also insiders), recruiting on the basis of cultural fit, and eschewing bureaucracy. How many companies with several thousand employees do you know that have no human resources staff, and that make business development and strategic planning part of everyone's job, not just the province of some centralized staff?

The Real Source of Success

It may seem obvious that building organizational capability and ensuring the implementation of high-commitment management practices is a key managerial responsibility. But this prescription is frequently honored in the breach. Conventional wisdom argues that senior leaders should focus on making strategy, seeking some technological edge, and worrying about financial engineering, mergers and acquisitions, and restructuring.

But the data on the sources of sustained success are clear. Is being in a high-technology industry an essential source of competitive success? It can be, but not necessarily. When the Wall Street Journal ranked industries by their five-year returns to shareholders, in 1997 only 3 out of the top 15 industries were in high technology. In the Journal's 1996 list, restaurants (ranked 26) provided a higher five-year return to shareholders than did medical devices (ranked 28), and footwear (ranked 30) outperformed pharmaceuticals (47). The computer industry ranked only 78th, behind industries such as automobile parts (34), heavy machinery (29) and even railroads (33). Inc. magazine's list of the fastest-growing companies in 1996 was headed by a toothbrush manufacturer, a consumer products distributor, and a human resources service company.

Does being in a rapidly growing industry matter? A study by consultants at Booz, Allen and Hamilton of over 1,800 companies with a market capitalization of more than $500 million in 1994 found that industry growth rates were completely unrelated to the growth rates of individual companies, as measured by the 10-year return on shareholder equity. Another study of growing companies found a similar disconnect between company growth rates and the growth rates of their industries. The Men's Wearhouse, for instance, has enjoyed compound growth of more than 30 percent annually in both sales and profits over the past half-decade. In the relatively stagnant market of men's tailored clothing, the firm grows by taking business from the competition.

Should leaders worry about having the right strategy? Sure, but implementation is a lot more important. As a senior officer at one of the leading strategy consulting firms admitted to me, "finding the answer is relatively easy; doing the answer is frequently impossible." Richard Kovacevich, CEO of Norwest, the enormously successful financial services company, recently told the Wall Street Journal, "I could leave our strategic plan on a plane ... and it wouldn't make any difference. No one could execute it." As Tom Farmer, the CEO of Kwik-Fit, the largest supplier of automotive repair services in the United Kingdom, says, "In a service business [and in today's world, all businesses are service businesses], there is only one successful strategy -- providing your customers outstanding value and service -- customer delight."

The evidence is also clear on the effects of downsizing and restructuring -- these actions will not increase stock price (over an 18-month or two-year period), nor will they increase productivity or efficiency. Rather, downsizing will do only one thing: make the organization smaller. So leaders would do well to spend less time worrying about finding the right competitive niche, searching for technological silver bullets, and massaging financial statements, and spend more time developing their people to provide the competitive edge. Numerous studies indicate that managing people using high-performance or high-commitment practices can produce enormous economic returns (see box). Moreover, really making people your most important asset turns out to be difficult to copy.

Three Guiding Principles

I

Building Trust

At the most basic level, one builds trust by treating all members of the organization as though they can be trusted. This means, among other things, sharing information with everyone. When John Mackey, CEO of Whole Foods, was asked why the firm shared all of its performance information with everyone, and even made it possible for each team member to know the salary of everyone else in the company, by name, he replied that to keep secrets implied that the organization didn't trust those from whom information was withheld. Knowledge is power, and sharing information entails sharing power. But not to share information suggests that there are some in the organization who can be trusted with its secrets, and others who can't. This is the wrong message to send if you want to harness the efforts and energy of everyone.

You cannot build trust without treating people with respect and dignity. It is now all too common to have layoffs in which those let go are immediately escorted off the premises. This process deprives them and those left behind of the opportunity to say good-bye and, more fundamentally, signals distrust and disrespect. Consider instead the New Zealand Post, which, since becoming a state-owned enterprise expected to operate like a private company in 1987, has accomplished amazing things (for instance, actually reducing the cost of a stamp). People laid off were offered generous severance, given parties on their leaving, and recognized for their contributions to the company. Indeed, the Post even let the staff help decide who would go and who would stay -- for it turned out that some people the organization intended to keep wanted to leave or retire and others wanted to stay.

Building trust also means taking the organization's values seriously. At AES, the annual report discusses how well the organization is doing in living up to its four core values of fun, fairness, integrity, and social responsibility. Whole Foods Market's annual report prominently presents the results of its employee satisfaction survey. These organizations signal that they take seriously their commitments to both their values and their people by publicly discussing where they are succeeding and where they are falling short -- and what they are going to do about it.

Encouraging Change

Leaders can encourage change in many ways. One is by exposing themselves and their colleagues to alternative models of management. It is useful to read about Southwest Airlines or AES or the Men's Wearhouse, but it is much more compelling to visit these companies, talk to their people, and experience firsthand what a different way of treating people feels like. When Citibank recently became interested in using quality as a way of organizing and motivating change, it invited people from Motorola to visit. The reverse of that process -- having Citibankers spend time actually experiencing Motorola -- might have been even more powerful.

Another way organizations can encourage change is by doing things that break old ways of organizing. The New Zealand Post did two such things. First, it reorganized frequently. Putting people in new roles in a new organizational structure almost automatically ensured that they would have to do things differently and not be bound by old habits and assumptions. In addition, the company physically reconfigured the workplace to promote new ways of working and thinking about customer service processes. At the Dallas plant of AT&T in the late 1980s, the new plant manager, Ken Weatherford, encouraged change by making visible changes to the plant's operations -- changing the dress code so that ties were no longer worn, moving the engineers out to the production area, reorganizing the plant into four focused factories by moving equipment and rearranging production process. In a world in which new initiatives are greeted with skepticism, the easiest way to convince people that this time it's for real is to begin doing things that demonstrably signal that change is occurring and that put people in new places with new work roles that require them to work in new ways.

Measuring What Matters