Today’s free enterprise suffers from a serious ailment: lack of freedom. While companies feel restricted due to an array of external regulations, they also tend to impose complex systems of internal checks and controls on their various stakeholders.
Paradoxically, this desire to manage very closely couldn’t be more untimely and unproductive. At a time in which the economy is more and more marked by interdependencies and actors are constantly afforded the powers of new freedoms by innovative technologies, greater mobility, and 360-degree communication, clinging to an old logic of top-down management is at best a recipe for poor growth.
If the 21st century is accelerating the yearning for freedom, how can companies keep their employees inspired, their customers loyal, their supply chain partners engaged, and their other stakeholders invested? Certainly, they won’t be able to do so by persisting on a business approach that is steeped in the desire to control.
While sticking to obsolete power dynamics is unlikely to boost competitiveness and create economic value, simply unbolting old systems of rules will not work either. Instead, a more mature type of freedom—the right balance between creating new opportunities for self-expression, and ensuring that this self-expression is aligned with the organization’s goals—is the best source of differential competitive advantage in this economy.
The perfect balance of freedom can be understood as the synergy between Freedom From—doing away with old systems of rules, top-down power systems, one-way communications, lack of transparency—and Freedom To—the aligning of behavior around a system of shared values, combined with the productive harnessing of newly-liberated human potential toward the achievement of common goals and results.
While ‘Freedom From / Freedom To’ has a natural role to play in the workplace, it has also a role to play in a company’s relationships with its customers, supply chain partners, and community groups. Giving customers the freedom to express themselves, to fulfill their highest needs, or to make purchases aligned with their values is an expression of ‘Freedom From / Freedom To’ that is bound to bolster competitiveness. Similarly, developing transparent partnerships with supply chain partners by dismantling an old logic of oversight is an expression of ‘Freedom From / Freedom To’ that can equip suppliers with the flexibility to respond to risks more effectively and/or unlock network innovation systematically. Finally, establishing a two-way relationship with the community by building up resources and talent rather than simply taking advantage of existing resources and talent, by communicating in a transparent way rather than by being selective about data and facts, and by including community groups in important decision-making processes is a way to leverage ‘Freedom From / Freedom To’ that leads to the creation of new economic value over time.
LRN’s Freedom Report, released today at the World Economic Forum in Davos, addresses the question of the impact of freedom - or lack thereof - on business performance. The study tested a full set of hypotheses on a sample of professionals and executives at Fortune 1,000 companies. These are the key findings:
- Return on Freedom: Companies who build freedom into their relationships are 10 times more likely to outperform traditional organizations in the short-term and more than 20 times more likely to outperform them in the long-term. Freedom translates into more innovation, better financial performance, and long-term success.
- Freedom Doesn’t Come Easily: Only 20% of companies exhibit high levels of freedom in their relationships with all of their stakeholders. Nearly half of all companies still fall in the low-freedom category, making them less equipped to meet growing demands for innovation, new ventures, and global collaboration.
- Human Values Lead to High-Freedom Relationships. Businesses achieve freedom by using values as more than components of a pretty mission statement. But not all values are created equal. The study shows human values (e.g. integrity, purpose, tolerance) are on average 3.7-times more influential in creating freedom for different stakeholders than situational values (efficiency, profit-driven, risk-taking).
- Low-Freedom Companies have Weaker Trust, Values and Mission. The study found that companies that exhibit low freedom in their relationships perform poorly when it comes to trust, values-orientation, and mission (-58%, -48%, and -43%, respectively). Conversely, high-freedom companies score highly across these key dimensions (80%, 77%, 91%, respectively). This is consistent with previous LRN research. In particular, the types of companies found to thrive in the 21st Century, according to LRN’s HOW Report, also tend to be high-freedom companies.