Why the Bottom Line Isn't!: How to Build Value Through People and Organization

307 Pages·2003·1.06 MB·English

by  Dave Ulrich

Why the Bottom
Line Isn’t!
How to Build Value Through
People and Organization
Dave Ulrich
Norm Smallwood
John Wiley & Sons, Inc.

More Praise for Why the Bottom Line Isn’t!
Dave Ulrich and Norm Smallwood lend great insights about what cre-
ates value. Executives should find it an enormous help in developing
their organizations and their leadership styles. It’s also a terrific source
of analytic tools and how-to advice.
—Ed Lawler, professor of Management and Organization,
the Marshall School of Business, USC, and a founding director
of USC’s Center for Effective Organizations
Why The Bottom Line Isn’t! is inspirational for every executive, as in-
creasingly intangibles are the drivers of sustainable value creation. Ulrich
and Smallwood demystify the management of what we usually call the
“soft stuff.” They provide clear and practical ways for thinking through
the issues around your company’s intangibles, and help you find out
how the firm is actually dealing with them and what you can do to
improve your company’s ability to generate value from them. A must
read for aspiring and seasoned leaders in meeting their most important
challenges.
—Rolf Huppi, former CEO of Zurich Financial Services
Investors, employees, and customers have intertwined the worlds of in-
vesting and stock prices with the psychological world of expectation
and confidence. More specifically, how the world judges the value of an
organization’s intangible qualities—its leadership, teamwork, ability to
learn, innovate, and develop strategy—is key to a willingness to buy
shares or make a commitment to any organization. In this masterful
and groundbreaking work, Ulrich and Smallwood have made these
critically important intangibles so specific that leaders can develop and
use them to create ever increasing levels of success.
—Judith Bardwick, author of Seeking the Calm in the Storm:
Managing Chaos in Your Business Life
We tend to spend our time worrying about the financial statements
when, in many cases, our best opportunity to improve results is work-
ing on the intangible value of our organization, such as improving dis-
tribution, brand, and talent. Anyone who wants to know about how
the overall value of a business is derived should read this book from
cover to cover. Many of the ideas and observations have already worked
their way into my day-to-day business activities. I don’t mind if you
don’t read and apply the concepts; I’ll have that much more of a head
start on you and your company.
—Jerry J. Carnahan, chief marketing officer, Farmers
Insurance Group, Inc.
Why the Bottom
Line Isn’t!
How to Build Value Through
People and Organization
Dave Ulrich
Norm Smallwood
John Wiley & Sons, Inc.
Copyright © 2003 by Dave Ulrich and Norman Smallwood. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Ulrich, David, 1953–
Why the bottom line isn’t! : how to build value through people
and organization / Dave Ulrich, Norman Smallwood.
p. cm.
ISBN 0-471-44510-X (cloth)
1. Organizational effectiveness. 2. Value added. 3. Corpora-
tions—Valuation. 4. Business enterprises—Valuation. 5. Intangi-
ble property. I. Smallwood, W.Norman. II. Title.
HD58.9.U474 2003
658.4—dc21
2002156192
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
For our wives—Wendy and Tricia

Preface
Thisbook began in what now seems like another time and another place.
We did much of the thinking and work for this book in the late 1990s
and into the early 2000s. We were curious as to why one firm’s stock
prices went sky high and another’s stayed unchanged in the same indus-
try with the same earnings. Our simple assumption was that two firms in
the same industry with the same earnings should have had the same mar-
ket value. It was just not so. In the rising market, some firms’ stock
prices went crazy while others did not. We were seeking a more rational
explanation of this phenomenon as we worked to define the intangible
attributes (or qualities) that communicated value to an investment com-
munity. In this era, leaders of large, global companies were bigger than
life and were trusted to continue doing what they were doing, reaping
unheard of market value for themselves and their firms. Our initial work
on intangibles showed that investor confidence in leadership, employees,
and the firm’s culture increased market value as much as or more than fi-
nancial performance.
In this era of positive intangibles, we often heard how helpful our
concepts were for understanding the bull market. We remember meet-
ing with the leadership development staff at Cisco when their price-
to-earnings multiple was 150+while the average in their industry was
in the high 30s. Clearly, Cisco had built a reputation for knowing
how to build market value by moving fast and learning how to do ac-
quisitions the right way. It didn’t hurt them that John Chambers,
vii