What Can We Learn From the World’s Most Admired Companies?

Here’s a guest post from Jeff Shiraki, Vice President at Hay Group.  You can follow Jeff and his colleagues on Twitter @ Hay Group.

FORTUNE magazine recently released its annual list of the World’s Most Admired Companies and as we do every year, my colleagues and I at Hay Group took a deep look at the companies that made the list to determine what makes them “tick,” how they earn the admiration of their peers, and what organizations and leaders can learn from the practices of the “Most Admired” companies.

This year, three key leadership principles emerged that can be learned from these first in class organizations:

– Executing the ‘basics’ is critical – but today, the ‘basics’ include identifying and addressing problems before they occur and fixing things that aren’t yet broken
– Efficiency is important, but in order to increase productivity over the long-term, you must involve your employees in the effort
– Investing in employee development isn’t a “one and done” process. Organizations must focus on the growth of their employees as an ongoing process

Executing the ‘basics’ is still critical

When I talk to leaders from the Most Admired, what I often hear is that great leadership is not about doing extraordinary things. Instead, great leadership is about executing the ‘basics’ very well. This is backed up by the practices of the Most Admired: Apple, Google, Southwest Airlines, FedEx, McDonald’s – different companies in different industries, ‘old economy’ businesses and ‘new economy’ businesses that all have learned to focus their attention on executing some core business practices very well.

Our research found that the World’s Most Admired Companies do a better job than their peers of ‘addressing problems before they occur’ and ‘fixing things that aren’t broken.’ While you may think all companies should have learned that the best way to solve a problem is to prevent it in the first place, this is apparently still easier said than done. Most leaders I talk to say that great leadership isn’t about discovering ‘the next big thing’ – it is about executing the ‘small things’ consistently every day.

Increasing efficiency is important, but you must involve your employees in the effort

Surprisingly, the Most Admired actually rate simplifying work processes to increase efficiency as a slightly lower priority than their peers. However, there is a lesson to be learned from ‘how’ the Most Admired companies go about squeezing more productivity out of their operations. For example, the Most Admired are more likely to solicit ideas from their employees than their peers. When I talk to leaders in the Most Admired, they really do see people as their most important asset, and they leverage their human capital to get the most from their fixed capital.

One of the biggest differences identified in the research is that the Most Admired companies report that they are more likely than their peers to encourage managers and employees to take reasonable risks to increase effectiveness. That is not to say that companies are ignoring safety, security, quality, and other important risk management activities. Rather, as one executive said it, “My primary goal is to teach my employees to understand what a ‘reasonable risk’ is and to empower them to act in the best interests of their customers, fellow employees, and the company.”

Investing in the development of your people should be an ongoing process

It looks like people still do matter – and not only to the Most Admired. Almost all companies believe they are doing a good job hiring and placing employees. However, there is a big difference when it comes to ongoing training and development. The Most Admired place more emphasis on ensuring employee skills keep up with changing job demands. That’s because the Most Admired see their workers as assets worth investing in, and are paying more attention to the continuous improvement in the skills and capabilities of their employees. As one executive I know says, “We weathered the downturn not by slashing and burning our workforce, but by figuring out what skill sets we needed for the long term and continued to invest in building the skills of our employees to position us for greater strength as we exited the recession.”

So what did we learn?

Well, you can be encouraged to know that what it takes to make a company a Most Admired one is not ‘rocket science.’ Executing the basics, involving your employees in improving the efficiency of their work, and investing in training and development are concepts that have been around for a long, long time.

You don’t have to be a large, global company to implement these practices – the principles are equally applicable to small, family-owned businesses, non-profits and government agencies. However, what might be discouraging is that so many companies still struggle with getting these practices right. That said, we should be encouraged that many leaders have figured this out, are willing to share the secrets of their success, and continue to put competitive pressure on other companies to catch up.

To learn more about the Most Admired companies and how they stand out from their peers, you can visit Hay Group’s microsite on the study at http://bit.ly/hFy2d0.