It’s Time to Define Your Company’s Principles

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Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 324 | November 25-30 2023

It’s Time to Define Your Company’s Principles

By Jack Fuchs et al.,  | Harvard Business Review Magazine | November–December 2023 Issue

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When companies face difficult decisions, well-articulated principles can help them make better choices. Principles are distinct from corporate values or mission statements, though they are often inspired by them. They provide guideposts—and sometimes even memorable rules—for how an organization should pursue its strategy.  Well-written principles are clear and actionable.

The power of principles is most evident during crucible moments, when employees are faced with tough choices without explicit direction from leadership. If principles conflict, employees can wrestle with and prioritize them in the context of a decision. 

What Makes a Good Principle.  Values communicate aspirations, not strategies. Principles are more instructive. “Product excellence” is a value. “We won’t release a product until we would use it ourselves” is a principle.  In their work the authors have found that strong principles share five critical attributes. They are:

1. Distinctive.  Principles are often unique to a particular organization and usually quite different from those of competitors. 
2. Debatable.  Principles may reasonably, and in good conscience, be disagreed with.
3. Transferable.  Principles are articulated in such a way that they can be applied to multiple scenarios across business units and roles.
4. Integral.  Principles are core to what an organization does and necessary to meet the challenges it faces within its industry.
5. Company-defining.  Principles establish norms that will come to the forefront in crucible moments.

In addition to improving organizational decision-making by offering employees guideposts at crucial turning points, principles help management communicate the rationale behind difficult choices to customers, employees, investors, and other stakeholders.  Poorly thought-out, narrowly defined principles can tie leaders’ hands, nevertheless.

Principles come in three types:

1. Stakeholder.  Principles convey best practices for relating to customers, employees, and investors, and can provide clarity about how to prioritize stakeholders when their interests are in conflict.
2. Operational.  Provide guidance on day-to-day activities across the business, from R&D to customer support. They often empower employees to make decisions independently while staying aligned with the organization’s mission.
3. Organizational.  Principles help shape the culture, processes, and structure of an organization, including how information flows and how decisions are made.

Creating and Instilling Principles can be a daunting task. The following approaches can help:  Start with what distinguishes you from your competitors; reflect on company inflection points; bring employees together to formulate and revise principles; give a written list of the company’s values and principles to each employee and new hire; align goals, key metrics, and budgets with values and principles; refer to principles while making decisions; and mention your company’s principles when communicating decisions. 

3 key takeaways from the article

1. When companies face difficult decisions, well-articulated principles can help them make better choices. Principles are distinct from corporate values or mission statements, though they are often inspired by them. They provide guideposts—and sometimes even memorable rules—for how an organization should pursue its strategy.  Well-written principles are clear and actionable.
2. Strong principles share five critical attributes. They are:  distinctive, debatable, transferable, integral and company-defining.  Principles come in three types: stakeholder, operational, and organizational.
3. Principles are more than an abstract organizational concept. They are practical beacons for decision-making, they aid in effective communication, and they help activate a company’s strategy. As the world faces an array of challenges, from geopolitical shifts to digital disruptions, companies that articulate and adhere to robust principles will be better equipped to navigate the hard choices they will inevitably face.

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Topics:  Strategy, Principles, Teams, Communication