How do you recognize a successful company?

A conversation with economist Michael Fallgatter from the Chair of Human Resource Management and Organization about management success and its development.

Mr. Fallgatter, one of the topics you deal with at your chair is corporate success. How can you recognize a successful company?

Fallgatter: In business administration, the question of corporate success is usually answered with financial indicators. Turnover, profit or profitability are thus at the center of attention. But where is the responsibility for the workforce, which is so important for family businesses, or the sustainability contributions pursued by many companies? In other words, financial indicators in themselves paint a truncated picture of entrepreneurial reality. They must be interpreted against the backdrop of other goals.

In addition, a successful company will be measured not only by its past business activities, but also by its potential for success. Analysis, forecasting and shaping of value creation are the keywords here. But how can positive future prospects be measured? The analysis of relevant and sustainable resources contributes to this. Such resources are, for example, human resources, capital or preliminary products. It is recognized that other persons and institutions can shape and withdraw access to resources. Accordingly, it is justified to speak of stakeholders. If they have positive expectations, they will continue to provide resources. Future corporate success thus presupposes the satisfaction of stakeholders.

However, this does not allow any statement to be made about competitive strength and future success. Success potentials result from the combination of different resources. Human resources and the associated knowledge always form the starting point. In addition, there is the development of company-specific values which define, for example, service qualities or ideas about cooperation between departments. Experience, reputation and proven organizational solutions can also be classified as relevant resources. Ideally, core competencies emerge that represent a quality of their own and, in the best case, a unique quality. Some companies are particularly fast at ensuring service quality, others are strong at creating ever new and high-quality products, and others are masters at optimizing processes. The road to such core competencies is a long one. They are best captured by three characteristics. They have grown historically, are socially complex and are often causally misunderstood. In other words, it is impossible to say exactly which people contribute to such forces and in what way. Accordingly, they are competitive advantages because they are difficult to copy, at least not in the short term.

As you can see, corporate success and its development are not easy to determine.

In 2020, you published a book on this subject entitled "Management and Management Success," in which you also deal with management errors. What, for example, can get companies into trouble?

Fallgatter: You read a lot about management mistakes. In retrospect, such statements are always easy. If you look at the uncertainty of business decisions, management errors are no longer so easy to determine. Was it a mistake a few years ago to trust in the stability of supply chains or to calculate with a moderate gas price? The situation is different when, for example, corporate takeovers fail because of the difficulty of reconciling corporate cultures or because of inappropriate personnel management structures. These are not rare cases. My textbook offers solutions for them.

Rather, I see typical management errors in the fundamental attitudes of managers. They often lead to the fact that potentials of employees remain unused. Ultimately, this is not only to the detriment of the company, but also of the employees. Basic human constants, such as the desire to contribute, to be heard and to take responsibility, are pushed into the background. If individuals are classified as "low performers," then I always ask the question, are people like that or are they the result of a constricting structure? Once mistrust structures are established in companies, they produce poor performance and thus what they are supposed to limit. To me, these kinds of attitudes on the part of managers are the real management failures.

They say that "management is directed toward company-specific value creation," i.e., the transformation of resources into products or services. And that, in addition to the use of machines or software, is done primarily by managers and employees. Now, however, we are reading more and more frequently that employees no longer identify with their companies and employers have to rethink. Has the issue of employee care been neglected too much?

Fallgatter: Job satisfaction and organizational self-bonding - in other words, what we call commitment - are very well researched constructs. There is no evidence that identification and commitment are systematically declining. However, these issues are not self-evident either. The motivating design of workplaces, individual freedoms, and affectionate leadership styles are of enormous importance. Procedural and distributive justice also have a strong impact on identification. The former focuses on consistent and transparent decision-making about salaries, interesting projects and development prospects. Distributive justice is present when the distribution of such decisions among different individuals is perceived as appropriate.

What kind of motivation can employers offer employees?

Fallgatter: Motivation describes the intensity and permanence with which company-related goals are pursued. We distinguish between extrinsic and intrinsic motivation. The former is added to individuals by other people. Recognition from superiors and colleagues, compensation or communicated perspectives are good examples. In contrast, intrinsic motivation stems from the activity itself. If tasks are varied, completed, and have great significance for others, then this is a solid basis. If, in addition, activities are structured in such a way that they feedback work progress and allow autonomy, then there is a good probability of triggering intrinsic motivation. This can be well described and even predicted on a job-specific basis. One more point seems very important to me: It is common to equate employee performance with motivation. But this is a reduction. Motivation is always based on attitudes such as job satisfaction, commitment and trust. If these attitudes are only weakly developed, motivation can only be triggered in the short term at best. New and expensive extrinsic incentives are then needed again and again. Equally important for performance and productivity are shared values. These fill those gaps that cannot be formally clarified in task assignments.

The shortage of skilled workers is an ongoing issue and young people often only want a 30-hour week, which is difficult for many companies. How do successful companies deal with this?

Fallgatter: There are recent studies from Great Britain and Scandinavia that analyze a four-day week as beneficial. Positive effects resulted from increased job satisfaction and better compatibility with private concerns. However, this was primarily examined in niche companies that are predominantly active in the service sector and deal with new media. I consider a transfer to the majority of companies to be problematic. Behind the demand for reductions in working hours is the discussion about the work/life balance, which is so prevalent. I consider this to be exaggerated, because I rate the importance of work for a fulfilled life as high. Accordingly, I don't understand why "work" is positioned as the opposite of "life" and why the whole thing should boil down to 30 hours.

You also describe many practical examples in your book.

Fallgatter: Yes, because if you have a lively and multifaceted field of research, then practical examples are almost a given. The world of companies is made up of opportunities to influence individual actions. Accordingly, it is not at all possible that the configurations of organizational structures, human resource management, emergent phenomena, as well as organizational change that I have described are not observable. The world is full of them.

You have been at Bergische Universität for 19 years now and know many companies in the Bergisches Land region. How successful are the region's management companies?

Fallgatter: For students who are at the end of their bachelor's or master's studies, I regularly recommend medium-sized companies in the region as their first choice of employer. Where can you get to know a comparable variety of exciting topics and gain experience so quickly? In my opinion, the many companies in our region that are so well positioned are excellent employers. Many graduates of ours then also take this path. When I hear that they work with enthusiasm and then also five days a week, I am very pleased.

Uwe Blass

Prof. Dr. Michael Fallgatter holds the Chair of Human Resource Management and Organization at the Faculty of Business and Economics at the University of Wuppertal, the Schumpeter School of Business and Economics.