Much has been written and
discussed the last several years about disruptive technology and disruptive
ideas. Of course the astounding information and communication changes brought
on in great part by the internet qualify as disruptive. The discussion and
writing about transformational changes (disruptive changes) in the leadership,
management and pursuit of excellence in and by companies and all organizations,
though, has been greatly overstated. This paper presents our idea about this
subject. We believe there is an absolute need for organizations to move toward
and adopt the paradigm we present.
We admit at the start, though,
that the ideas in this post qualify as letting the excellent be the enemy of
the good!
Preface.
Unleashing the local and global potential of
organizations (for profit companies, non profits, governments, etc.) will
create value. Fully unleashing this potential will create ultimate long term
value – for each organization and the global population. There is a functional relationship between
self-interest value and other (stakeholder)-interest value. This relationship is grounded in the highest
characteristics of human nature. And properly understood and acted on, it
will unleash this ultimate potential. It is philosophically sound, practically
actionable and economically (commercially) optimal. Importantly, capitalism’s
highest catalytic effects on value are also unleashed through this concept as
capitalism’s own grounding.
Such globally respected
authorities as Professor Jeffrey Sachs of Columbia University have addressed the
relationship. Professors John Kotter and James Heskett of Harvard have
addressed part of it. Adam Smith, in fact, clearly identified it and connected
the functional relationship to the best of our human nature. So, this paper
explains an idea that is the ultimate way to create value in society, locally
and globally. Others have generally
touched on this idea and perhaps would agree with it, but no one has completed the concept and put it into action.
First, A Few Brief Comments About Some Understandable But Only
Partial Efforts.
In a Harvard Business Review (HBR)
article in the Jan.-Feb. 2011 issue, Professors Mark Kramer and Michael Porter
of Harvard claimed that their concept of creating shared value (CSV) for
business and society is or could be the next transformational idea for business
in society. The concept simply says that there is much that business can do
that will raise the value of the business itself by engaging in activity that
also raises societal value – that many values are indeed shared.
Their idea and others mentioned
below is good as far as it goes, but:
1. It does not go far enough,
2. It
is instrumental, meaning its purpose is to expand the value pie and raise the
economic value of the business while
also adding specific value to society,
3. It
is not new. Harvard colleagues, like Rosabeth Moss Kanter, have articulated
similar concepts in different words, as have others: Jim Collins in Colorado, Jerry Porras at
Stanford and John Mackey and Rajendra Sisodia, the authors of Conscious Capitalism.
4. When
the Porter/Kramer idea is presented to business leaders and others at
conferences and in other forums, it creates the possibility that some will
embrace and adopt their idea – allowing them to raise their firms’ value by
some amount, and to participate in creating a specific value for society. But,
by falling short of the truly “transformational and big idea,” there will be
remaining opportunity costs that should not remain. Why? Because Professors Porter
and Kramer, like so many others through the years, do a great job suggesting ways
to raise the level of value from business performance in and with society - but
only incrementally. And, their focus remains inward. These world class
professors could embrace our concept, which would increase its likelihood of
acceptance.
5. The
Conscious Capitalism and Vanguard Company concepts also go quite far in the
direction of the complete idea we will present here. Our belief is that even
the commendably enlightened thinking of Professor Kanter (Vanguard Companies)
and of John Mackey and Professor Raj Sisodia (Conscious Capitalism) do not
complete the big idea. They do not present the complete, stand-alone
transformational paradigm idea. We do.
6. Two
grounding observations are important here: a. Capitalism, as we describe it
here, is indeed the economic engagement model necessary for the future, and it
has been widely and chronically under-utilized and misapplied; and b. Contrary
to standard thinking and observation when organizational culture change is
being discussed - that it is extremely difficult and takes a long time to
achieve - cultures are relatively easy to change with our idea because the
culture we present with our big idea is in fact an integral part of the best of
human nature (seek the good, happiness, shared virtues, etc.). The cultural
dimension of the idea we present includes these ubiquitous elements of our
human DNA – similar to unalienable rights.
Ironically, Adam Smith seemed to
understand and briefly explained, in his terminology, our truly big idea more
than 200 years ago. Even Milton Friedman appears to have understood it a bit.
However, self-focus on profit, the more the better, and focus on nothing else
as long as one stays within the law (the rules), sometimes even being ethically
correct if necessary, has been widely seen as not only enough over the years
but more has been viewed as inappropriate. Capitalism can do so much better.
So, Professors Porter and Kramer
stop short, even if they each might think they have discovered the new
transformational idea. From their HBR article:
“The solution lies in the principle of shared value, which involves
creating economic value in a way that also
creates value for society by addressing its needs and challenges. Businesses
must reconnect company success with social progress. Shared value is not social
responsibility, philanthropy, or even sustainability, but a new way to achieve
economic success. It is not on the margin of what companies do but at the
center. We believe that it can give rise to the next major transformation of
business thinking.”
They do have company. Such ideas
as conscious capitalism and vanguard companies also stop short. Like CSV, each
of these ideas has some merit and is directionally correct, but neither makes
the natural jump to the breakthrough big idea. Other ideas stop short by
design. They are aimed at improving processes, productivity, efficiency and
effectiveness, and for achieving measurable and quantifiable results. For
example, the balanced scorecard (BSC) was conceived in 1992 by Harvard
professors Robert Kaplan and David Norton. It is basically an excellent
measuring, motivating and unifying system. Total quality management (TQM), lean
management and six sigma are other examples. These ideas each would take much
more explanation to describe. They each are intended to help companies create
incremental value.
Professor Robert Kaplan, for example,
summarized the balanced scorecard’s evolved purpose this way in 2010:
“After publication of the 1992 HBR article, several
companies quickly adopted the
Balanced Scorecard giving us deeper and broader insights
into its power and potential. During the next 15 years, as it was adopted by
thousands of private, public, and nonprofit enterprises around the world, we extended and broadened the concept
into a management tool for describing, communicating and implementing
strategy.”
Another example of research and
comment on the subject of businesses (organizations) pursuing excellence is the
work of Professor Michael Jensen of Harvard University and the Monitor Group (a
consulting firm). He addresses, in a thorough manner, the idea of “stakeholder
theory” and concludes that it is flawed. He then goes on to offer his
“enlightened stakeholder theory” and “enlightened value maximization” concept.
Without addressing his work in detail, he simply seems not to recognize the
both simple and complex functional relationship between self-interest and
other-interest.
Nevertheless, let’s assume that
Professor Jensen was correct about the necessity for a single value objective
function. We do in fact recognize his single value objective function
principle. The explanation below explicitly presents it. The decision(s) about
maximum value for owners, though, is made by the owners. It might, for example,
be broader for some owners than the value Jensen presents. Our idea, in
addition though, recognizes the critical responsibility to know, understand and
fully serve the primary valued things of each major stakeholder group. This is
wonderfully doable and essential. It can be thought of, using business
terminology, as breathing full life into marketing, innovation, productivity, etc.
That is, the fundamentals of businesses – high quality, low prices,
productivity, efficiency and yes, innovation will all be raised to their
highest levels through full living of our idea in organizations.
What about family life, leisure
and all other aspects of life outside the organization? That is an excellent
question. With individual and organizational focus on optimizing value for
primary stakeholder groups, all aspects of an individual’s life and of an
organization’s life in will be at their highest levels.
For organizational long term value
maximization (net present value of future cash flows for example), the “what”
question is best answered through the optimization functional relationship we
present here. This obvious answer
requires the synthesizing and creative mind to be fully engaged. This paper
will explain the human nature “dna” reasons that underly the axiomatically
correct self-interest, other-interest transformational paradigm change that is
now ready to bring us into the future.
So, there are many competent
perspectives that are brought to bear on the question of maximizing
organizational value, and certainly a tremendous amount of value has been
created – particularly over the last 250 years. However, we still fall short of
shooting our individual and collective moons.
J.
What, then, is the idea that
actually does unveil the transformational paradigm change for business, all
organizations and societies - local and global?
The truly transformational,
paradigm-changing “big idea.”
It is presented here in brief and
with dogmatic confidence. Upon reading and reflecting on it, though, one might
consider it either; 1. Simply naïve, pollyanna-ish and dismissible, or 2. Too
hard to attempt – even if one understood it.
In fact, it is just the opposite.
Our big idea is elegantly straight-forward, easily understood and simple to put
into practice, especially with the 21st century electronic
(Internet, etc.) information and relationship models catalytically in place
locally and globally. And it is morally imperative that we get on with it. Of
course, the passion and aptitudes for each organization’s purpose must be in
place, a need right from the start.
Here it is:
The
real breakthrough "big idea" is that self-interest value maximization
is a direct function of optimization of the value provided by an organization
to each of that organization's major stakeholder groups – each relative to the
others. That is, when a business devotes its time, talent and treasure to doing
its best to optimize the value it
provides to its major stakeholder groups (customers, employees, [and investors
as a stakeholder group], suppliers, communities in which it has a presence and
society [the general public interest]), it will maximize its own long-term
value as an outcome (a by-product) - measured in appropriate financial terms as
well as the other value measures it holds dear. This is not a belief; it is a
self-evident axiom.
It can be expressed
as an equation:
IVM= f (S1VO, S2VO,..… SNVO),
where “I” is “institution” (any organization), “f” is “function of,” “S” is
“stakeholder,” “V” is “value” and “O” is “optimization.”
This idea is the foundation axiom that can guide every organization that
truly wants to maximize its value in and for society. It is philosophically precise,
uniting self interest and other interest, and commercially excellent, ensuring
that, with the corollaries below, it earns its opportunity to delight its
stakeholders over the long run.
Note: This big (transformational) idea can,
for ultimate organizational excellence purposes, be thought of as analogous to
the physical “theory of everything” sought by Professor Stephen Hawking and
others over the last several decades.
The corollaries for our big
idea are:
1. Universal unalienable rights (including life,
liberty and the pursuit of happiness) are possessed (or yearned for) by all
people everywhere.
2.
Ubiquitous
global virtues, traits leading to these virtues and valued matters exist and
are held dear by virtually all people around the globe. The virtues and traits
(aptitudes leading to these virtues) are: Wisdom and Knowledge –
curiosity, love of learning, judgment, ingenuity, social intelligence and
perspective; Courage – valor, perseverance and integrity; Humanity
and Love – kindness and loving, Justice; – citizenship, fairness and
leadership, Temperance; – self-control, prudence and humility, Transcendence;
– appreciation of beauty, gratitude, hope, spirituality, forgiveness, humor,
and zest.
3. Happiness, “the good” and the “full life well
lived” are all treasured by individuals and societies – local and global.
a.
These
corollaries mean that people, in their roles as markets and as stakeholders in
general will be attracted to and embrace every organization that provides them
with what they value as they pursue happiness. Of course, the organizations in
each space that do it best will rise to the top (market share, etc.), again as
a by-product.
b.
When an
organization’s stakeholders see that the organization is focused on providing
them the things that matter to them (their valued things), they will tend to be
attracted to that organization – buy from it, sell to it, have it as a member
of their community, work for it, invest in it and treasure it as in their own
interest and the public interest.
4. Fiduciary
obligations exist for organizations for each of their primary stakeholder
groups. That is, the fiduciary obligation is not limited to the financial
dimension of an organization. To optimize the value provided to each
stakeholder group relative to the others is to be fiduciarily responsible – to
be an excellent steward.
5. This
functional relationship between self interest and other interest is the
ultimate commercial or economic value creation axiom. It is not just a
philosophical, societally nice axiom. It can result in a. the maximization of
local and global economic value over the long run; and b. the basis for the
good life well lived for individuals and organizations and c. the movement
toward zero of local and global opportunity costs.
Opportunity Costs.
It is important
here to discuss the opportunity cost concept in the context of our message.
The entire globe
is virtually one marketplace now. The way a company does business certainly
affects its local community and market. Now, though, it increasingly affects
people and places beyond the local community and market.
The notion of
opportunity costs is underappreciated in economies and societies. Simply put,
if one organization or more (or most)
organizations do good or even very good at providing products or services but
do not fully actualize their potential for excellence, then some value is lost
to society – and to the organization itself. This part that is lost can be
called an opportunity cost – a value not created and received.
NOTE: Of course, there are larger opportunity costs
being incurred globally and locally. Without expanding on the matter, it is
enough to mention here that national sovereignty can be retained even as our
model for excellence is embraced by all organizations, including nations. Think
of famine, wars, widespread disease, etc. that exist because our idea is not
yet the paradigm of choice for organizations of all kinds. That is, this idea
enables actualization of the potential of virtually all 7 billion people (and
rising) on the planet. It can and must be pursued and achieved in order to: a.
maximize local and global value; b. minimize local and global opportunity
costs: and c. create the opportunity for all people to live the happy life –
the full life well lived.
Moral Imperative.
If we believe
there is a model for excellence in organizational behavior, as we do in this
paper, then we have a moral imperative, an obligation, facing us. It is to
communicate and explain the model, and help all raise their games to their
highest level. By definition, the model we explain here, when fully acted out,
brings us to that full actualization. So, with the “what” question being
answered, the “why” question follows.
Why focus on stakeholder group value
optimization? The answer is, succinctly put, when we know, without question,
what to do to maximize our organization’s long term value, we have a broad
fiduciary obligation, a moral imperative, to get on with it. And, the
delightful reality is that our organization and each of its members fully
actualize our own potential as an outcome, a proper and necessary outcome.
The other main characteristics of our big idea are:
1. The
connection of self interest and other interest: Just to reinforce this part
of the axiom, while it might be obvious when discussed as we do here, this
functional connection is nothing more or less than putting the golden rule into
robust action and following Adam Smith’s two part idea on capitalism. I am
maximizing my value by optimizing the value I provide to those main persons and
groups whose lives I most affect. Happiness and self-actualization are
integrally related here. Note: Even if Adam Smith did not intend this
connection, he should have – and I think he did.
2. Happiness:
Briefly, Aristotle’s four kinds or levels of happiness, H1 through H4 are so
obviously explaining that a dominant H3 life, the happiness that flows from
contributing to the happiness of and creating value for others, is ultimately
the best way for one to fully actualize one’s own potential in life. It is
servant existence and servant leadership in action. Our big idea is grounded in
this reality – we just breathe commercial and economic meaningfulness into the
idea. It fits.
3. Mindset:
Companies have mindsets – ways of looking at the best way to conduct
themselves as entities, in pursuit of
their purposes. The primary mindsets are: a. the short-term, inward-focused and
win-lose mindset; and b. the long-term, outward-focused and optimizing mindset.
Unfortunately,
businesses and other organizations usually choose the former. Or, they are forced into it. Unfortunately,
this choice has been the norm over the years. It has been guided by the idea that the organization exists
because of its owners and, therefore, primary focus should be on rewarding the
owners. One example is the SEC quarterly report requirement for publicly held
companies in the United States. Wall Street uses these reports , much of the
time, as a hammer to pressure companies to behave in short term ways, and
solely to reward the owners.
Our big idea is
unambiguously dogmatic that the mindset must be long term, the focus must be
outward and that optimizing value for stakeholders is the purpose of the
organization. One outcome, in fact the fortuitous and yet necessary and natural
outcome will be that the owners’ long term value will be maximized.
The Nexus between This Truly Big Value Creation Idea and Strategic
Playbooks (Multi-year or Strategic Planning).
Our big idea is the prescription for how
to pursue ultimate business or organizational excellence at the philosophical
and long term level. It is in perfect harmony, though, with the best practical,
specific and near-term leadership, management and cultural characteristics of
organizations. In fact, it creates the basis for excellence in these aspects of
organizational excellence. It is in these aspects that such well known and
widely adopted performance frameworks like the balanced scorecard are most
helpful – they complement our value creation idea.
Here are the 21st century characteristics we mean when we
discuss pursuit of organizational excellence:
1.
Threading from the organization’s charter
purpose through its annual budgets exists - core ideology (purpose & beliefs), vision, mission multi-year adaptive goals, organizational
goals and goals for serving each stakeholder group, strategies for achievement
of each goal, annual budgets (objectives, tactics and financials), gold standard leadership characteristics
and gold standard cultural
characteristics.
a.
Gold Standard Leadership Characteristics – establish
direction, (vision, personal humility and professional will), modest and
fearless, inclusive, enabling, inspirational, a listener, stakeholder focused –
in a maniacally profound way, heart of a servant, ethical, courageous
and just, and fun.
b.
Gold Standard Cultural Characteristics - adaptive, with a
core ideology (purpose and values), risk taking, trusting, proactive, one in
which all are heard and the truth is heard, reflective, humble, anticipatory
and involved, rational and respectful, a
conscientious mindset, quietly confident, unassuming while maniacally pursuing
the organization’s vision and mission with prudence, perseverance, humor and
zest, disciplined people, thoughts and actions in a fun and dynamic
environment, open, supportive and enthusiastic, happy, in a stakeholder-centered
(H3) way, and fun.
These all fit with and are
integrally related to the organizational excellence elements described above. Organizations
must: a. have a core ideology (purpose and values/beliefs); b. have the correct
dominant mindset (long term, outward-focused and optimizing); c. appreciate
that “fiduciary” means an obligation to
excellently care for that which each of its main stakeholder groups entrust to
it; d. embrace the ubiquitous human characteristics people around the globe
share (unalienable rights, virtues and traits, and valued things); and e. know
that the ultimate achievement of maximum value for every institution
(organization) reflects the fact that virtually all people also seek the good
and happiness.
Where Do We
Go From Here?
We cannot help but notice that the CSV concept is being presented at
conferences and related forums around the world, at a substantial fee for
participants. That is fine. The Conscious Capitalism concept is available in
books for interested leaders, managers and others to purchase, consider and go
from there. The other concepts we mentioned are being made available as well,
and it is all good and fine.
However, because we contend that, as meritorious and well intended as
they each might be, they are only partial loaves, they stop short, or at best
are narrowly focused. They do not pierce the membrane that leads to ultimate
organizational excellence and highest value creation.
We believe we do, with our idea.
Through the 21st century transformational, paradigm-changing
actionable big idea we present here, organizations of all kinds can embrace the
full-life-well-lived, fully actualized potential they each and all really
should want to pursue and achieve. To strive for less is to fail – no matter
how well they might believe they have done.
The gigantic but tragic irony is that by not embracing and acting out
our big idea, each organization, local and global economies, nations and the
entire globe will fail to maximize the likelihood that the stakeholders they
each serve will receive optimal value and that the organizations themselves
will maximize their own long term value as well.
So, this big idea must be embraced and acted out. It is a societal and
economic moral imperative for the new millennium.
