Most mutual and employee-owned organisations are flourishing. The mutual Co-operative group, for example, delivered record profits for 2009 and employee-owned John Lewis recently handed out record bonuses to staff, whilst competing retailers continued to struggle. Which begs the question could their ownership model have something to do with their success and agility in a difficult market?

Recent research carried out by the Cass Business School at City University London, confirms that these business models are, in fact, more agile. The report, entitled “Model Growth: Do employee-owned businesses deliver sustainable performance? (January 2010),” indicates that they create jobs faster; are significantly more resilient in an economic downturn; deliver far better customer satisfaction; boast substantially higher value added per employee; and, depending on the sector and size of the business, can deliver markedly higher profits. According to the report, co-owned businesses that operate in the knowledge- or skill-intensive sectors with less than 75 staff tend to be more successful.

Employee-owned companies currently contribute some £25bn to the British economy. In fact, they outperform the FTSE All Share Companies Index by roughly 10% each year – a trend that began in the early 1990s. The success of co-owned organisations boils down to the fact that they appear to be more trusted than shareholder-owned companies and protect public interests more. As a result, organisations like the Co-operative and John Lewis appear to be better able to defend themselves against the shockwaves of the current crisis.

No wonder there’s huge interest in mutual and employee-owned models. Just last December (2009), Tessa Jowell announced the establishment of an independent commission on ownership to explore some overarching questions such as, how much does ownership matter, and the link between fairness and ownership, as well as how ownership affects accountability, staff participation, customer service, staff engagement and entrepreneurialism.

What then, may we speculate, is the power of ownership?
We know from personal experience that when we own something, we take care of it, and we put that extra effort in and use our own initiative more to look after it – also known as ‘discretionary effort’. Visionaries such as John Spedan Lewis who have understood the power of ownership and the link to discretionary effort, have sought to harness that power for the benefit of their business. The Constitution of the John Lewis Partnership “is intended to secure that all of the members will share as fairly as possible gain, knowledge and power, that is to say all of the advantages of owning a business.”

Clearly the purpose was to create a sense of ownership in the hope that employees would respond to issues at work with the same enthusiasm, energy, flexibility, adaptability, resilience and agility in the form of discretionary effort that they displayed in situations where they were the actual owners. The results over the years speak for themselves. This year John Lewis staff shared a £151m bonus – equivalent to 15 per cent of workers' annual salary, or nearly 8 weeks' pay, up from 13 per cent the year before – thanks to strong profits, whilst their competitors struggled.

In contrast to seeking to engage employees for the enhancement of business performance, others have sought to involve customers for the same purpose. The traditional Co-operative movement is testament to this. The mutual, co-operative model has also been applied in more modern settings. The Reddish Vale Co-operative Trust have taken ownership of their school, and the staff at Leicester City PCT have taken over general medical and substance misuse services for homeless people. The combination of ownership and participatory involvement ensures that stakeholders feel that they are leading the reform processes, which enhance performance, rather than having them imposed upon them.

Of course, it’s not possible for all businesses and public sector organisations to change their ownership model or hand over ownership to employees/customers. Nor is it always advisable as these models also have their limitations and downsides, such as a reduced ability to raise funds or directly influence the level of public spending. However, it is possible to create a sense of ownership which will unlock discretionary effort to gain some of the performance advantages described above in organisations with more conventional ownership structures.

Creating a sense of ownership
ER Consultants believe there are four steps that lead to the creation of this sense of ownership, which releases the discretionary effort pent up within organisations;

1. Create a vision that all stakeholders can embrace and which, underpinned by commitment and leadership, can create the energy and enthusiasm to power an agile and adaptable business;
2. Build on the vision and develop strategies for the engagement of employees and other stakeholders in the business;
3. Develop enhanced strategies for the involvement and participation of employees in the business and also share the gains of that participation and involvement through imaginative approaches to pay and reward;
4. Enjoy the aggregated benefits of full employee ownership – enhanced organisational performance based on agility and adaptability and the rewards commensurate with that performance.

ER Consultants has worked with many organisations, such as Tesco Distribution, Aquila Networks (now part of E.ON), to develop this sense of ownership which leads to improved performance, through tailor-made solutions such as innovative reward and recognition mechanisms (see box below). Such tailor-made solutions will create that sense of ownership and achievement required to release discretionary effort, so staff can share the victory, without actually handing over complete ownership of your business.

Releasing Discretionary Effort
ER Consultants can help to create tailor made solutions that will work for your organisation. How? We provide both expert and facilitative support in designing and introducing ‘owned’ reward and performance pay arrangements through a positive working ethos, which we describe as the three “Es” – Employer, Employee and Employee Representatives.

In collaboratively delivering and owning the activities and interventions that improve customer service, quality of services, products, and ongoing efficiency, the resulting organisational benefits provide the basis on which financial benefits can be awarded to staff. Whilst the name may be arguably outdated the concept behind gain-sharing is very relevant – perhaps re-naming it ‘recognition dividends’ would be a suitable alternative. We recognise that merely adopting a formulaic approach is too rigid, however, giving managers and employees the framework – owning the process to determine and align objectives sufficiently, minimising the array of metrics, finding the ‘meeting’ points in making operational decisions, coupled with influencing discretionary behaviour, does deliver real tangible benefits.

If you would like to discuss developing a partnership approach towards harnessing the power of ownership and evolving a more agile environment in order to realise the consequent business benefits then please contact Chris.Legge@erconsultants.co.uk