A thoughtful piece on fairness and organizational maturity from Alvaro Feller, Chairman of OMR (Organizational Maturity Rating)
Organizational Maturity (1) refers to the degree to which an organization maximizes its value by fully leveraging the human capital potential of all its stakeholders. While the concept is the result of more than twenty years of research and discussion, it is only recently that it has been explicitly incorporated into the study of organizations and may well become a new paradigm in management.
In a mature organization each stakeholder contributes with his/her maximum capability towards the success of the organization, receiving a fair share of the success. Consequently, both the organization and its stakeholders are aligned in their interests and together maximize both corporate and individual value.
There are neither silver bullets nor general rules that always work to achieve a high maturity level. But in more mature organizations we observe a time consistent attitude toward its human capital, shareholders, creditors, clients, suppliers and society. A mature organization clearly understands that in order to achieve economic sustainability it must not only create value for itself, but for society.
Among the multiple factors that allow an organization to reach high maturity levels a key element is corporate justice. Following Kim and Mauborgne (2) , corporate justice can be divided into two categories: distributive justice and procedural justice or fair process.
Distributive justice relates to how value is distributed between a corporation’s stakeholders. If a stakeholder feels that his contribution to organization is not fairly rewarded, you cannot expect that he will keep a high level of commitment in the process of value creation and, therefore, his further efforts will be lower.
Corporate procedural justice or “fair process” refers to the process of decision making in an organization, and the participation and consideration of the views of each stakeholder involved. Fair process seeks to strengthen the degree of engagement with the organization of those affected by decisions made. Multiple research suggests that without a fair process it will be difficult to achieve good results and achieve the strategic objectives of the organization. Moreover, even if these results are achieved, it will be difficult to maintain them over time.
But why does the process matter and not just the result? Basically, because the human being needs to be “heard” if we are to reach the most favourable outcomes. Only if you feel you have been treated fairly, will you be willing to make that extra effort for the organization, “go the extra mile”, which is where there are high levels of engagement.
This requirement of stakeholders with high levels of engagement is a cornerstone that characterizes a mature organization and, in particular, a successful and sustainable organization over time. There are two main features here:
• be efficient enough to compete today
• maintain your competitive advantage over time
The first characteristic is essential to survive today; the second, to survive over time.
Efficiency and, therefore, the current competitive advantage, depend on many factors such as technology, process, quality and infrastructure. All these factors are relatively easy to replicate. However, the only capital that can be nurtured, which can contribute to the creation of value, and expect a fair reward for their efforts, are the people and other stakeholders.
But if achieving current competitiveness is difficult, preserving a competitive advantage is much more complex, requiring constant adaptation to an uncertain constantly changing environment. It requires, in essence, an organizational culture that encourages learning and rewards innovation, and that consistently creates value, both through more efficient processes and the delivery of better products.
From this perspective, organizations that want to be profitable and successful in time should focus their efforts on increasing the level of engagement of all stakeholders. This necessitates continuously reviewing how they are being fair with their stakeholders. It also requires regular reviews of its corporate governance, human capital management and relationship with society at large. In short, it should maintain a clear and determined focus on increasing its level of organizational maturity.
Chairman, OMR Group
CEO, Feller Rate Credit Ratings
www.hrmaturity.com and www.omratings.com
Kim, W. C., & Mauborgne, R. A. (1997). Fair Process: Managing in the Knowledge Economy. Harvard Business Review, July–August, 65