What is the priority among stakeholders? Which stakeholder is the “north star,” the number one stakeholder? When the

inter-ests of stakeholders come into conflict, the one whose interinter-ests prevail is the primary, north-star stakeholder. The unquestioned assumption that the shareholder is the north-star stakeholder in for-profit enterprises is now being challenged not only by schol-ars (see Richard Ellsworth’s chapter in this book), but also by in-creasing numbers of practitioners, even in America, which is the bastion of shareholder capitalism. Informal surveys that I have conducted with managers around the world, for example, indi-cate that those from Asian cultures point to customers as the north-star stakeholder, those from France point to employees, and Scandinavians view society as the north-star stakeholder.

In addition to providing an assessment of the success or failure of an enterprise’s strategy, the thinking and discussion needed to an-swer these questions typically provide important clues, if not direct answers, to the what question (mission) and the why question (vision and values) concerning purpose. In the case of Edward Jones, for ex-ample, the answers to the three questions just given are as follows:

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1. The key stakeholders of Edward Jones are (a) its clients, the in-dividual investors, (b) its financial advisors (FAs) and other staff members, (c) the suppliers of the financial products it offers to its clients, and (d) the firm’s partners, who are the owners.

2. Edward Jones surpasses the expectations of all the key stake-holders. It is number one relative to its competitors in client and FA satisfaction surveys conducted by J. D. Powers and Regis-tered Rep, its suppliers covet the firm’s patient investors and its wide distribution reach, and the partners—whose firm earns the highest return on equity in the industry—plow capital back into the firm and have no intention of selling the firm or taking it public. Thus, we can assess the strategy of Edward Jones as being highly successful.

3. When the interests of the stakeholders of Edward Jones come into conflict, the interests of its clients always prevail. Most tellingly, the firm advises clients to buy and hold high-qual-ity stocks and mutual funds for the long term; the resulting low turnover in its clients’ portfolios generates lower trading commissions for the FAs and lower profit for the partners.

By not yielding to the temptation of manufacturing and sell-ing its own financial products to make more money for itself, Edward Jones sidesteps any conflict of interest and advises clients to choose the suppliers that best fit their needs. Clearly the clients, the individual investors, are the firm’s north-star stakeholder.

So far, we have been able to assess the strategy of Edward Jones as being highly successful and determined that its fundamental pur-pose is to serve its clients, the individual investors, who are the firm’s north-star stakeholder. We now need to diagnose why Edward Jones’s strategy has been so successful in achieving its purpose. The short answer is that the firm has developed what Drucker calls a

“theory of the business” that works extremely well, as he points out in a Harvard Business Review article:

A theory of the business has three parts. First, there are assumptions about the environment of the organization. . . . Second, there are as-sumptions about the specific mission of the organization. . . . Third, there are assumptions about the core competencies needed to accom-plish the organization’s mission. . . . It usually takes years of hard work, thinking, and experimenting to reach a clear, consistent, and valid theory of the business. Yet to be successful, every organization must work one out. . . . In fact, what underlies the current malaise of so many large and successful organizations worldwide is that their theory of the business no longer works.

The POSE framework builds on Drucker’s theory of the business and also incorporates contemporary strategic thinking on industry analysis and competitive advantage (see Figure 7-1). Having covered

“P,” let us now turn to “O.”

Objectives

As Drucker emphasizes in Management: Tasks, Responsibilities, Practices, “The basic definition of the business and its purpose and mission have to be translated into objectives. Otherwise they remain insight, good intentions, and brilliant epigrams which never become achievement. . . . Objectives are not abstractions. They are the . . . standards against which performance is to be measured.”

Objectives may be qualitative or quantitative, financial or nonfi-nancial, but they must be meaningful milestones on the path to the achievement of purpose.⁵Although most enterprises have plenty of financial and even nonfinancial targets, these often do not pass the test of being meaningful milestones. Why? Because most enterprises cannot answer the question “strategy for what purpose?” Without a

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clearly understood purpose, there is no way to talk about meaning-ful milestones on the path to that purpose.

A key objective for Edward Jones is healthy growth in the number of its financial advisors—healthy in the sense that the new FAs, who are carefully selected and intensively trained, must become produc-tive quickly, and growth because the firm views the opportunity to serve its number one north-star stakeholder, the serious long-term individual investor, to be far greater than its market share currently is. Specifically, Edward Jones aims to get to 20,000 FAs by 2017.

Strategy

Drucker’s three famous questions provide clarity regarding the busi-ness and its customers in light of the purpose of the enterprise: What business are we in? Who is the customer? What does the customer consider value? Because all enterprises, whether for-profit, nonprofit, volunteer, or government, have “customers” that they serve, Drucker’s approach can be applied to any organization, unlike the sole goal of maximizing shareholder value.

Once Drucker’s three central questions have been answered, di-rect competitors can be identified—these are other players that are attempting to serve the same customers with the same value propo-sition. Contemporary strategic thinking can then be applied to de-termine the relative attractiveness of the industry and the firm’s competitive advantage vis-à-vis its rivals, so there is no need to say more here except to note that the specific trade-offs that the enter-prise makes will determine whether the strategy is aligned with the purpose or not.

The specific trade-offs that Edward Jones made ensured that its strategy was always pointed to its north-star stakeholder, the indi-vidual investor. As John Bachmann, who was managing partner of Edward Jones from 1980 to 2004, wrote:

As Professor Porter points out in Competitive Strategy, one defines trade-offs not in terms of what one chooses to do but what one chooses not to do. . . . I will identify and briefly examine some of the trade-offs Edward Jones made. None made us unique. None suggests moral su-periority. However, each makes us a little more different and, together, they make us very different. So different, in fact, that few if any com-petitors would even want to emulate us. . . . That led us to a decision not to serve large institutions. All our competitors were doing so and we had nothing special to offer. We also chose not to serve those who trade frequently. . . . We chose not to manufacture our own products.⁶

Thus, appropriate trade-offs are what give the firm a distinctive focus, alignment with its north-star stakeholder, and competitive advantage.

Execution

There is an old and very silly debate about which is more important, strategy or execution? The simple answer is both. Without a sound strategy, the firm will flounder. But what good is a sound strategy without effective execution? There are four key elements to effective execution: having people with the right skills that fit the job and the organization, motivating and aligning them with the purpose of the enterprise using the right policies, giving people responsibility for re-sults, and holding them accountable for results.

Skills and Fit

An enterprise needs to carefully select people with the necessary skills who fit the job and the organization, and then invest in continuous education and training to facilitate their growth. With the proper skills and fit, it is possible that people will come to view their work not just as a job or as a career, but as a calling.

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Edward Jones selects its financial advisors carefully from thousands of prospects each year and invests heavily in their education, training, and mentoring. Most new FAs join the firm viewing it as a job. Those FAs who learn to do the job well and progress in the organization may come to see it as a rewarding career that can sustain them and their families. Later, typically five to ten years after they begin, some of the FAs begin to hear from their clients about how the financial advice they gave had changed their clients’ lives for the better, perhaps by en-abling them to send their kids or grandkids to school or by allowing them to retire with dignity. For these FAs, what was once a job and then a career becomes a calling to change people’s financial lives for the better. These FAs no longer work to make money; they work to serve others, and money becomes a by-product of a meaningful work life.

For example, more than 1,000 Edward Jones FAs have voluntarily participated in the firm’s “Goodknight plan,” in which a seasoned FA gives up some of his compensation by handing over smaller accounts to a new FA in order to better serve the larger accounts, resulting in better service for both smaller and larger customers.

Policies

Do the policies of the enterprise motivate the appropriate behavior by promoting what Peter Drucker calls “self-control”—a situation in which people understand what needs to be done and why, and feel emotional ownership of it and accountability for getting it done? To achieve self-control, people must be given responsibility for deliver-ing results, not for performdeliver-ing activities spelled out in a job descrip-tion. And they must be held accountable for results.

Edward Jones encourages its associates to exercise self-control via its system of “responsibility-based management” (RBM). In consul-tation with the person to whom she is responsible (the word boss is taboo in the firm because it connotes authority rather than respon-sibility), each associate develops a list of four or five key

responsi-bilities for which she is accountable, with the understanding that she has the freedom to determine how best to accomplish these results.

Responsibility and Accountability for Results, Not for Activities

It is easy to fall into the activity trap. For a salesperson, for example, results are not the number of sales calls made per week but the num-ber of sales dollars generated. When it is difficult to quantify results, the danger of falling into the activity trap is greater, and this is an even larger problem when attempting to measure and improve the productivity of knowledge work. For developing other people, for example, it is easy to count the number of days of training provided for them, but did they develop new knowledge or skills as a result?

Even a rough qualitative assessment of the latter is more meaningful than a precise quantitative measurement of the former.

What happens when people are held accountable for performing activities rather than for delivering results? Naturally, their focus then shifts to performing these activities rather than taking ownership of finding new and better ways to deliver the best results. Edward Jones’s RBM system strives to ensure that people are held responsi-ble and accountaresponsi-ble for results, not for activities. For example, the firm does not use job descriptions, since these tend to focus on ac-tivities rather than on results. The “Goodknight plan” that the FA Jim Goodknight created was not part of his job description. He came up with the idea in the quest for better results.

Conclusion

The POSE framework is based on Drucker’s seminal work and also incorporates contemporary thinking on strategy. It explicitly asks,

“Strategy for what purpose?” and provides a method for answering this question that is at the heart of strategy.

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As illustrated throughout this chapter with the example of Edward Jones, POSE is both an assessment tool and a diagnostic tool. It can be used to assess how well an enterprise is performing relative to its purpose and objectives. It can also be used to diagnose how an en-terprise can do better. One common malady is purpose drift, that is, the strategy remains unchanged, but the purpose has drifted. An-other is strategy drift, that is, the purpose remains the same, but the strategy has drifted. POSE can help to diagnose such problems and ensure that P, O, S, and E are internally consistent and aligned in order to achieve success.

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