Does the employee ownership model work?
In one of my first lectures, we touched upon the employee ownership model. It's something that I had never really heard much about so it seems like the perfect topic to begin with. Hopefully, there will be a range of positive and negatives to this business model that will allow for a good debate.
So, what is an employee owned company?
Employeeownership.co.uk states that employee ownership is a sector in the UK economy worth over £30billion per annum. On this site, it is defined as, 'Companies where employees own a significant stake in the company they work for' (Employee ownership, 2010).
Professer Joseph Lampel states that a key growth incentive for employee owned companies (EOC's) is by adding to their customer base and that this requires higher levels of employee commitment. He states that this is especially important during difficult economic conditions, in which we currently find ourselves in. Another positive is that it encourages both internal and external growth. Here internal growth is defined as creating and developing new products, where external growth is quicker, however, offers more risk as it depends on acquirers obtaining the cooperation of employees within the business unit. A third benefit to this is that provides a positive media image, which Lampel states can be especially helpful in obtaining new and maintaining relationships with customers. Looking at these benefits, it seems that it brings improvements to public perceptions of a companies values, along with commercial improvements. However, given the size of the sector, I feel these are very broad benefits that can not be sustained by all companies in this sector, therefore, we will look at a particular example.
John lewis: The employee owned company success story?
The employee ownership model has it seems, been successfully employed by John Lewis. (Peter Cunliffe, 2014) reports that John Lewis are currently moving from strength to strength and have recently made 'baby steps' to expand and move into an international market, and compares this too the member owned Cooperative Group, who are currently struggling. To further promote the success of John Lewis, Employee Ownership stated in a recent blog on their website that this year John Lewis paid out £210m in bonuses, which is staggering a 27% increase on last year, which they say is a result of a 9.3% increase in sales. In the article, Simon Fowler, the managing director for John Lewis states that this success is due to shared drive and commitment throughout its workforce. It seems that Simon Fowler's statement has proved the above benefits by directly crediting this model for the success of John Lewis.
Is this always successful?
When Patrick Burns carried out research into this topic, he found that many companies chose not to report any disadvantages, and those who did, did not feel strongly about them (Burns, 2006). Of those that were citied, slower decision making, a tendency to avoid unpopular decisions and slower implementation were the most common. Further to Burns's findings, Lampel found that small to medium sized employee owned companies found it much more difficult to obtain financing from a bank (Joseph Lampel, 2010). They also found it more challenging to gain help from the government, they experienced tax issues and found there was a lack of specialist help available to them.
To summarise, it appears that while there are many benefits to employee owned companies, as demonstrated by the recent success of John Lewis, it can be a stubble and thus is less beneficial to follow this system as a small to medium sized company.
Conclusion
This model allows companies to meet their key growth incentives, encourages internal and external growth and can also promote a positive media image, however, I have not been convinced that customers will spend in a particular shop purely based on the knowledge that it is an employee owned company and thus it seems unlikely that this model is as effective in attracting customers as other factors such as logistics or brand quality. John Lewis has proved this to be an effective and successful model, however, taking Lampel's negatives into account, it does not appear to be a suitable model for smaller companies given the lack of advice or support.
Thank you for reading and any further discussion or advice to this will be greatly appreciated. I've also included the list of references used below for anyone looking for further information.
References
| Burns, P. (2006). The employee ownership experience. Employee ownership, Retrieved from employeeownership.co.uk/download/NzE=. |
Cunliffe, P. (2014). Employee ownership is key to John Lewis success story. Retrieved from http://www.express.co.uk/finance/city/471308/Employee-ownership-is-key-to-John-Lewis-success-story.
Employeeownership.co.uk, (2010). About Employee Ownership. [online] Available at: http://employeeownership.co.uk/employee-ownership/about-employee-ownership/ [Accessed 12 Oct. 2014].
Employee Ownership. (2014). John Lewis Partnership. Retrieved 05/10/2014, from http://employeeownership.co.uk/news/guest-blogs/john-lewis-partnership-march/ - See more at: http://reffor.us/index.php#sthash.wRu3UTFd.dpuf
Lampel, J., Bhalla, A., & Jha, P. (2012). Findings and Implications, Benefits of Employee owned companies, In The Employee Ownership Advantage (pp. 8-9). London: Cass Business School.
Lampel, Joseph, Bhalla, Ajay and Jha, Pushkar (2010) Model Growth: Do employee-owned businesses deliver sustainable performance? Project Report. Employee Ownership Association.
