Positive emotions drive better performance
I often hear from leaders I work with that you can’t account for or measure intangibles like employee emotions. How do you do that? Yet all the research shows that positive emotions are much more prevalent in higher-performing workplaces. Where people have a strong emotional connection with their workplace, where they feel valued, empowered, encouraged and supported, they are more likely to be cheerful, proud and high performing. Workplaces that don’t do so well are characterized by more negative emotions and have higher levels of depression, anxiety and lack of trust.
So, in the new economy, value isn’t where it used to be. Those solid, quantifiable assets like plant and equipment are now often far less indicative of a company’s value – or even its future performance – than intangibles like ideas, relationships and knowledge. Because intangibles are so hard to measure, they’re rarely managed with the same rigour. Yet the return on investment in these areas is likely to pay significantly higher dividends.
Very few executives would say their companies are proficient at monitoring critical non-financial indicators of performance, let alone managing them effectively. In my experience management and boards have tended to focus their energy on budgets and operational performance, taking the value of intangibles like brands, relationships and human knowledge and talent for granted.
Increasingly, however, leaders are recognizing that intangibles may be hidden gold. And that the most valuable intangible of all is the talent in their own organizations. They talk about how people are their only asset, but it’s a glib line that makes a terrible mistake. Not everybody in your organization is an asset. Time wasters, work shirkers, toxic colleagues and active resistors of change are most certainly not assets. Committed, passionate people who give of their discretionary effort to help achieve goals are the real assets.
When leaders create an environment where those people can flourish, they can impact competitive edge in a thousand different ways – by being much more productive, by being more efficient and by delighting customers, for example.
Reputation is increasingly acknowledged as not only a crucial intangible asset but also a wealth generator. Total shareholder returns of the most admired companies tend to greatly exceed those of competitors that are less well thought of. A positive reputation generates higher sales, more referrals, key relationships with suppliers and partners, and the ability to attract the best people. Positive relationships with government and regulators can have a huge impact on business, and on its costs.
The reason is that a strong brand or reputation, allied to positive and supportive relationships, greatly improves your operating environment and your chances of success (see Figure 2.1). That translates into better performance, which delivers higher financial returns and better growth potential. In turn, that improves reputation, which improves valuation – particularly of your intangible assets. This leads to greater financial value, better shareholder returns and the Holy Grail: sustainable success. A very virtuous circle.