Value-based management

Alibaba, Samsung shows how to preserve values, gain market confidence

By Kim Jae-kyoung

Business leaders and CEOs of global companies all dream of making their organizations the world’s top enterprises. To that end, they always strive to recruit the most talented people and overhaul internal processes to prevent corruption.

Despite all those efforts, things do not always go smoothly. Talented employees move to rival companies. Irregular activities continue to take place regardless of organizations’ efforts to strengthen internal regulations.

For some reasons, only a few business leaders make their dream come true. Why are some companies flourishing while others are struggling to stay afloat?

Junn Sung-chul, chairman and CEO of the Institute of Global Management (IGM), says that firms should try to find the answer in corporate value. He explains that what leaders should do is not offer bigger bonuses or create new rules, but establish values that all members, including the CEO, executives and employees can share, which is what he calls “value-based management.”

“People are motivated by values. People are only animals that are willing to sacrifice their lives to preserve values they pursue. In that regard, you have to help them find values they can gain from their work,” Junn said in a recent interview with Business Focus at his office in Jangchung-dong, Seoul.

“A good leader arouses people’s internal motive. People are affected by both external and internal motives. You have to focus on touching internal values to encourage people to move voluntarily rather than rely on external factors, such as monetary compensation.”

Value of ‘foot massage’

The 62-year-old chief executive, who founded IGM, the nation’s first CEO education institute, introduced an interesting episode to illustrate the importance of value-based management.

“There are two foot massage parlors in the same neighborhood in Shanghai, China. One is flourishing, while the other is slumping. The reason is simple. The way the employees at the two salons see foot massage is totally different,” he said.

“The owner of the store full of customers makes their employees feel proud of their work by creating value for their jobs,” he added. “As a result, his employees believe that what they do is not just massaging customers’ feet but generating energy and creating happiness by relaxing tired people.”

This is a good example of how corporate value can bring about different outcome, according to Junn, who served as vice chancellor of Sejong University from 2001 to 2002.

“I believe that value-based management has become a must for companies to achieve success in the 21st century. In the past, what made money for you were machines but now humans do,” he said.

“Creativity makes money for you. If you suggest values that all company members can share, it can be a starting point that encourages them to show their creativity and make money in the process.”

Alibaba vs. Busan Savings Bank

In February, Alibaba, the Chinese Amazon or an online B2B ecommerce company, fired CEO David Wei and COO Elvis Lee. It took the market by surprise as the company then proceeded to enjoy robust performances.

What made the firm’s management fire the key executives was that some suppliers on its Alibaba.com website were known as fraudsters to sales staff who kept quiet in order to pocket commission.

The firm’s board held the executives accountable for the employees’ inappropriate activities damaging its core corporate value of trust. Despite the dismissal of the talented executives, Alibaba is performing well, suggesting that it sustained confidence in the market for its efforts to maintain its core value.

The recent corporate corruption case associated with Samsung Techwin is another good example. After group Chairman Lee Kun-hee called for a crackdown on corruption, Oh Chang-suk, CEO of Samsung Techwin, stepped down. Oh was not directly involved, but took responsibility for irregularities. Samsung also overhauled its auditing team.

After such measures, the stock price of Samsung Techwin jumped, which suggests that the market weighs more on Samsung’s self-regulating efforts than on the fact that there were irregular activities.

On the other hand, the Busan Savings Bank corruption scandal, which has swept through Korea’s political and financial circles, is typical of how a company with no corporate value and culture ends up in failure.

Even if corruption was rampant in the financial firm before it was revealed, no one inside raised questions about the wrongdoings, meaning that there was no value that bank members shared and sought to preserve.

Global standards

The former chairman of the International Trade Commission of the government said that many Korean companies have been emerging as global players over the past decade but only a few of them have reached global standards.

“Global standards can be defined as the world’s most acknowledged and respected sets of systems and values. They focus mainly on transparency, diversity, and cultural relevancy,” he said.

Transparency, in Junn’s words, allows employees to better achieve company goals while allowing external clients to gain a better understanding of the firm’s aims. Diversity helps take a more open-minded approach to business, and cultural relevancy adopts a global mindset, according to him.

He pointed out that Korean firms lag behind in transparency and diversity.

“Korean firms are well aware of the importance of transparency and diversity. The problem is that they consider them as ethical issues, which make them believe that it is optional whether or not to ensure those key values in management,” he said.

“For example, you should not judge people by gender and race, which are naturally endowed at birth. I think IBM and GE are companies that you can take after in this regard.”

Era of software

Junn, who also served as secretary to the president for policy development under the Kim Young-sam administration, said that in order to become a global force in the 21st century, major Korean manufacturers, such as Samsung Electronics, should shift their focus to software from hardware.

“First of all, they have to change their mindset. Over the past decades, Korea has placed top priority on developing hardware to boost the manufacturing industry. However, in the long term, the manufacturing industry cannot be sustainable unless the services industry grows together,” he said.

“In the case of hardware, it is easy to copy if you buy machines. However, software assets, such as design and technology, are hard to copy, and you can hardly achieve success without them.”