Sunday, April 3, 2011

The Ultimate Big Idea That Unveils Capitalism’s Highest Value Creation Role - Locally and Globally

It has been a couple months since our last post. We have been engaged in sessions with clients, and comments from our clients will be added as a page on, our website.
We continue to check our thinking, to check the principles that are the foundation for the consultative advice and mutual learning we engage in with clients. At the same time, new information comes our way that, thankfully, reinforces our beliefs. This post shares an important affirmation of our beliefs. It is a bit long, but we believe the subject matter is extremely important. We hope you agree.
Rather Than Being Under Siege, The Capitalist System Should Be At A Moment Of Value Creation Breakthrough.
A significant and serendipitous piece of information came our way recently in a Harvard Business Review (HBR) article written by Michael Porter and Mark Kramer, both professors at Harvard. The article includes a video interview with Professor Porter. Porter is one of only a handful of Harvard professors to carry the distinguished title of university professor. It is reserved for those who make not only a significant contribution to knowledge in their field but who “are individuals of distinction….working on the frontiers of knowledge, and in such a way as to cross the conventional boundaries of the specialties.” The HBR January - February issue includes an article about their big idea – creating shared value. Their article begins with the words “The capitalist system is under siege.” Professors Kramer and Porter then go on to present the idea of corporations creating shared value with society. They believe this idea might be the next major transformational breakthrough in understanding the real value of capitalism.
They have recognized and explained, in clear language, part of the underlying and ultimate truism about the elegant beauty of capitalism. It is a good step forward in understanding the exquisite interrelationship of organizations and society in terms of value creation. They include Johnson & Johnson and IBM in a list of companies that are creating shared value – companies that do have this deeper understanding of how to reset the boundaries of capitalism. We too see these companies as having this necessarily broad view of value creation. Johnson & Johnson is a particularly good example of a company whose history, leadership and cultural characteristics have enabled them to maximize their own value in the long term by focusing on doing their very best for their stakeholders ( customers, employees, communities, suppliers and society in general).
We applaud their work. When Professor Porter speaks, the business world listens – heads of state listen.
However, Professors Porter and Kramer have not brought the thoughts to completion, in our view. That is, they have stopped short of the almost self-evident and truly Big Idea. We are confident they understand what this elegant beauty is when expressed in full. It might be that, in some part, they view the shared value concept in an instrumental way. That is, they describe the principle of creating shared value as a new way of creating economic success for the corporation. It is, to be sure, but that is really just the natural by-product of connecting self-interest and other-interest. And, it stops short of its logical completion.
• We are quite confident they know the rational, logical extension of the concept of creating shared value that they describe. Adam Smith certainly did, though he did not expand on his firm belief regarding this clear connection between self-interest and other or societal interest. What is this rational and logical extension? It is that organizations thrive when they focus on all their stakeholder groups instead of just their bottom line. Maximizing net global and local organizational and societal welfare (value) flows directly from this other, stakeholder-centered, long term value optimization mindset.
• The beauty is that self-interest is best maximized as an outcome of focus on serving others (stakeholders). An organization must be almost maniacally dedicated to optimizing value for each of its stakeholder groups. Optimizing is kind of like making music in an orchestra. The organization must strive to harmonize everything for its stakeholders, as a result maximizing its own long term value. At bottom, it is simply a mindset and focus matter, one that will unveil the real potential value of capitalism and of organizational value to society in general.
• Professor Porter’s five forces of competition, of course, remain centrally important in this expanded understanding of value creation. In fact, they take on an even deeper multi-dimensional nature when stakeholder (other) focus is dominant, and self-interest value maximization is the by-product.

Just as Professor Stephen Hawking and others have focused on finding a “theory of everything” to explain the physical world (quantum mechanics and general relativity in a unified way), leading thinkers observing the world of organizations - for profit, non profit, large and small (including but not limited to those fully engaged in free market capitalism) - should focus on finding and articulating an “organizational excellence theory of everything.” To qualify as a truly big idea or rather The Big Idea it is necessary to do just that – and Professors Porter and Kramer appear to be on the right path. At Jack Haffey & Associates (JH&A), we believe we have in fact identified and presented this theory, as briefly summarized above. It might need a bit of fine tuning, as much as we hesitate to admit it, but we were heartened to read the HBS article precisely because it looks like these two world class professors might “get it,” at least directionally they certainly appear to get it - in part. There is more to do, of course. And certainly Professor Porter’s five forces of competition do fit firmly in the mix – as a means to the end.
While the HBS article does not address it explicitly, we believe it is axiomatically true that until we move toward and get closer and closer to having all organizations behave as described here, organizations and society, globally, will continue to incur significant, harmful and avoidable near and long term opportunity costs as they individually and collectively fall short of actualizing their individual and our collective global value potential. Behavior in accordance with our ideas presented here, on the other hand, will tend to produce just the opposite – full actualization of long term organizational and societal value. That is capitalism’s potential – its elegant beauty actualized.