SYSCO, based in Houston, Texas, is the largest food marketing and distribution company in North America. SYSCO sells annually over $30 billion of food, related products, and services to over 400,000 customers through 157 separate profit centers which employ in total 46,000 employees. The magnitude of SYSCO's operations is mind-boggling. It sells over 300,000 products to over 400,000 customers and on a daily basis delivers almost 4 million cases of food and related foodservice products to 360,000 customers, 99% on-time and defect-free. Over one-half of SYSCO's 46,000 employees are hourly warehouse and delivery people, and it employs 12,000 sales and business development employees.

SYSCO's industry – food distribution – is a low-margin industry. None the less, SYSCO's financial statistics are impressive. Historically, SYSCO's annual sales growth has outpaced the foodservice industry growth by two to three times. The company's twenty-year compounded annual growth rate through 2004 was 14.6%. Fiscal year 2004 sales increased 12%, while net earnings were up 17%. The company has consistently paid a dividend since its inception and has increased the quarterly cash dividend thirty-six times in thirty-five years. Return on equity, which was 22.2% in fiscal 1998, reached 38.7% in fiscal 2004, while return on average capital steadily grew from 15.0% to 24.9% over the same time period. During the last six fiscal years, SYSCO returned approximately $3.6 billion to shareholders via dividends and share repurchases.

This is UPS's growth story from its birth in 1907 in Seattle, Washington when nineteen-year-old Jim Casey started a messenger and home delivery service for city department stores. Today UPS is a global public company with more than $36 billion of revenue, and operations in over 200 countries and territories.

This chapter will discuss how UPS grew organically and explain how UPS's culture and internal processes have relentlessly focused the company on growing organically. We will attempt to answer the following questions: How does UPS keep evolving? Why has it not become arrogant, complacent, or insular? How has UPS institutionalized organic growth into its culture, processes, and business model?

What is UPS?

UPS is headquartered in Atlanta, Georgia and employs 384,000 employees worldwide. Of these, approximately 40,000 work in countries other than the United States and fewer than 40 of those 40,000 employees are US expatriates. UPS is the fourth largest employer in the United States.

UPS's worldwide revenues of $36 billion are derived primarily from the delivery of packages and documents. In the last five years, UPS has expanded the scope of its services to provide freight forwarding, customs clearance, inventory management, pick and pack, export financing, and customer returns and repairs so as to be a service provider along the entire supply and distribution chain.

UPS is a vertically integrated company. For example, it operates the world's eleventh largest airline, maintaining its own air fleet of 569 jets and employing over 2,500 pilots.

As we contemplated hosting the “Hitting the Growth Wall” conference at the Goizueta Business School of Emory University, and editing this book, we observed that little had actually been written about organic growth in recent years. Work by Penrose (1995) and Chandler (1962) had set the stage for viewing growth from an evolutionary economics perspective. Much of the work that followed then shifted into research on organizational resources and the linkage between strategy and structure. However, the most dominant growth-related theme that exercised researchers and practitioners alike was the study of innovation processes and outcomes. Our understanding of innovation grew dramatically from the 1980s as the topic took on increasing practical and theoretical significance. This literature covered a broad range of topics and concepts, extending from paradigm shifts (Anderson & Tushman, 1990), to corporate entrepreneurship (Hitt, Ireland, & Tuggle, this volume, ch. ; Stopford & Baden-Fuller, 1994), intelligent organizations (Quinn, 1992), mastering change (Kanter, 1983), and time-based competition (Eisenhardt, 1989). Most of these were ideas in good currency, enjoying unparalleled popularity among managers and envious citation rates among scholars. Surely such a wealth of information signaled the arrival of a dominant theoretical model for the role of organizations in creating innovation. But what about growth?

Whereas each book or journal article provided its own valuable contribution, we were disappointed to discover that no dominant theoretical perspective had emerged to integrate the multiple streams of innovation into a more comprehensive and substantive view of growth.

What is organic growth? Why is it important? How has the academic world defined organic growth? How has the business world looked at organic growth?

The interest and focus on organic growth in a meaningful way is a recent phenomenon, which grew out of the financial scandals of the late 1990s and early years of the following decade. What the public learned from these scandals was that (1) there are different types of earnings; (2) companies can create earnings in different ways; (3) earnings can be created by accounting recognition, accounting policies, accounting adjustments, accounting elections, and valuations; (4) earnings can be created by financially engineered transactions, pension fund gains, related party transactions, currency gains, cookie jar reserves, classification of investment transactions, channel stuffing, etc.; (5) earnings management is more widespread than many thought; and (6) yes, earnings management can turn into earnings manipulation A good summary of earnings management techniques can be found in Nelson, Elliott, and Tarply (2003).

Fundamentally, we learned that companies frequently produce non-operating or non-core earnings in order to meet Wall Street's expectations of consistent quarterly earnings growth. Certain types of earnings are derived from one-time non-recurring transactions. Should that type of earnings be valued in the same manner as earnings from the operating business? Should companies be required to disclose the types, character, or quality of their earnings? Which is a more valuable predictor of future business operations and their sustainability – cashflow operating results or the non-operating earnings?

Through much of the 1990s, corporations realized extraordinary growth in revenues and earnings. As this trend unfolded, senior executives began to experience significant pressure from financial analysts, shareholders, and others for continued growth as measured by quarterly reports of performance against forecasts. In the aftermath of the technology bubble, and as the accounting and financial scandals of 2001 and 2002 surfaced, it was apparent that a portion of the earlier reported growth was the product of a mix of widespread earnings management and financial engineering, serial acquisitions, and the utilization of accounting and tax manipulations to create specific financial results. The vitality and substance of those results are now being questioned in various regulatory, legal, and legislative forums. In other cases, firms may have developed innovative strategies or products that led to high growth, but as the firm matured or approached market saturation, growth slowed. For a range of reasons, then, many firms have “hit the wall,” experiencing flat revenues after an extended period of high growth.

As a result, executives in many companies now struggle with an increased emphasis on internally generated, or organic, growth, which is qualitatively different in the substance and character of the key tasks central to success, from growth via acquisition. As Rita McGrath notes in Chapter 9, with a sample of over 900 large companies she examined, approximately 6% of all companies who were growing at even a modest rate overall could be accurately described as growing organically.

This is not a standard book introduction. Usually co-editors produce an integrated explanation of the contents and the key lessons contained in the book. We have chosen to take another approach. We have written separately to introduce the book – not because we don't get along, and not because we have difficulty writing with one another. We have enjoyed many exchanges and have offered one another much editorial assistance in producing these chapters. We have written separately to illustrate the two kinds of stories and principles that you will experience as you read the chapters. One focuses on the practical lessons of leadership – how to be a better leader and how great leaders lead with values. The other focuses on an explanation of why the outcomes occurred, what might explain the success being described, and what key concepts must be kept in mind. That is, the book tells engaging and interesting stories, but it also adds substantively to our understanding of leadership, organizational success, and how they are related through values. We begin with Ed.

From Ed

This book is a symphony of wonderful stories about leaders and leadership. A particular brand of leadership – Values-Based Leadership – based upon certain universal, fundamental values, such as honesty, respect, trust, and the dignity and worth of every individual as a human being.

A values-based leader serves others in a positive way. A positive way includes the manner in which he or she leads; the way he or she treats his or her followers; and the ultimate morality of the objectives or results.

HomeBanc Mortgage Corporation (“HomeBanc”) is a residential mortgage lender headquartered in Atlanta, Georgia. HomeBanc went public in July of 2004 and is one of the Southeast's largest home mortgage originators, employing over 1,300 associates. HomeBanc closes about $6 billion in loans a year and services a mortgage portfolio in excess of $3 billion. HomeBanc originates its business primarily through retail outlets and commissioned sales people who are among the most productive in the industry. HomeBanc's “corporate scorecard” places employee satisfaction first, believing all other important business metrics – customer satisfaction, market share, and profitability in that order – will follow from building a workplace to which employees are thrilled to come to every day.

This chapter will strive to explain the special features of HomeBanc, its values-based leadership, and what employees think of the firm – that is, how HomeBanc has captured the hearts of its employees. To this end, I will include many illustrative quotes taken from their 2003 Employee Survey:

Introduction

The Synovus Financial Services Corporation uses an extensive systems-wide approach to values-based leadership. By system-wide, we mean that values-based leadership permeates the entire company. Values are the basis for leadership, culture, selection, training and executive development. Values are used to shape the firm's strategy, its relationship to customers and to community. Senior executives consistently talk about values and culture among themselves and with employees at all levels. Values-based leadership is tangible – it is part of evaluation and promotion systems. Values are transformed into practices. While core values stay the same, senior managers are consistently updating practices. Values are discussed as much as strategy.

Our purpose in this chapter is to chronicle how these values extend back in history, what the values are now and how Synovus implements practices to support or operationalize its values. Synovus is an example of the founding families' values surviving four leadership successions, and a company flourishing financially because of its values-based people-centric culture. Some of the lessons to focus on while reading this chapter are: (1) you can achieve great financial results, create substantial shareholder value AND be an employee-centric company with values; (2) maintaining a values-based culture is hard work and can never be taken for granted; (3) senior leadership must live daily the values they want emulated and be role models for all levels of leadership; and (4) you have to back up the words by rewarding good values and recognizing cultural deviations.