Transformational times call for transformational change

Business of today

Since the Second World War, the West has witnessed unprecedented economic growth. Emerging economies too have followed suit, some now ranked as the top economic powers of the world. Industrialisation, technological advancement, economies of scale and increasingly efficient approaches to profit maximisation have led to what we see today – the good and the not so good.

We live in a world of paradoxes. While the drive for economic growth is often rooted in a desire to improve the well-being of the stakeholders that the organisation or economy seeks to serve, there have been winners and losers. There have been great benefits and also great costs.

The currently prevailing view of the purpose of business is this: to provide goods and services to meet the perceived needs of the customer in order to generate profit for shareholders. The more the customer consumes, the better, as more goods and services are sold, and hence more profit gained. This is what we refer to today as ‘consumerism’. Consumption-based growth has become the driving force of economic growth, which in turn provides employment, providing income for consumers to consume more, in turn fuelling more economic growth. This prevailing business view is incomplete in at least two aspects.

First, business is primarily focused on providing ever more goods and services to generate more profit. This profit is determined by an economic value (and cost), disconnected from social and environmental value (and cost), incurred through sourcing, production and consumption. There are a number of ‘externalities’ that are not incorporated within the economic value and cost (the organisation’s balance sheet does not include a wide range of social and environmental costs and benefits). In other words, social and environmental value (the benefits and costs to all stakeholders) are not included within the current prevailing measurement of economic value. The consumer’s price paid does not reflect true, complete value. Nor do the producer’s costs incurred reflect true, complete cost. Hence, the prevailing approach to value, cost and profit is incomplete.

Second, the goal of business is to satisfy the needs of the customer. In so doing, the clever business mind seeks to encourage the desires of the customer so that their needs best align to the products and services of that business. This would seem sensible business. Hence, business invests in marketing, communications, media and advertising to help generate a demand for the goods and services it produces. In turn, the needs of the customer (the human) become influenced and encouraged by business. Does it matter if the influenced needs of the human no longer contribute to their present and future well-being? If the human consumes the product or service due to a perceived need and feels satisfied for a short period, then is it good business? Alas, we develop an economy that encourages human needs that are not always (perhaps seldom) aligned to the real well-being of the human. More sobering is that this can affect social and cultural norms by encouraging the pursuit of perceived needs and desires over the pursuit of betterment through values, character and wisdom. Hence, the prevailing approach to need (and well-being) is incomplete.

The vast majority of global human ingenuity is currently focused on generating incomplete value for incomplete needs. This incompleteness, I would argue, greatly contributes to the amount of trouble and strife in the world today.

The firm of the past

The firm of the past is resolute in its goal – ‘to maximise shareholder return’. Over the last few decades, shareholders (and the investment market) have in the main become more interested in short-term returns. The goal of the firm of the past has thus increasingly become one of short-term profit, utilising two main levers: cost reduction (bottom-line management) and value enhancement (top-line growth).

Values and behaviours that assist the goal are encouraged; ones that do not are eliminated. The firm of the past is based on a ‘command and control’ philosophy. Management and governance is fundamental to ensuring effective operations within the firm of the past. Without such ‘carrot and stick’ management structures (with all the ‘tricks of the trade’ that are used to influence), people and processes could not be driven continuously towards ever-increasing short-term profits.

In the firm of the past, questions like ‘whom is this organisation serving?’ are met with rolling eyes and responses of ‘it’s the shareholders, of course!’. Dare one ask who the shareholders are, or what their underlying motive for the long-term success of the organisation is? It is this ‘short-term shareholder return is king’ mentality, reinforced by a fixation with ‘numbers, numbers, numbers’, that typifies the firm of the past. Business needs to rationalise and quantify, while also qualifying and contextualising. Focusing on one at the expense of the other is not a recipe for success.

Reductionism and systems thinking

Systems thinking is thinking in terms of interconnections, patterns and processes rather than stove-pipes and separate units. It recognises the interconnected nature of business and wider life, and views the whole system as greater than the sum of its parts. While reductionism helps the understanding of isolated parts, systems thinking helps understand and deal with complexity and change.

In these ever-complex and interconnected times, systems thinking is increasingly being applied to business challenges such as strategy development, process re-engineering, team dynamics and organisational learning.

It is our prevailing reductionist approach to science, technology and business that has encouraged us to see ourselves as separate from nature, and to view the world around us as something to be analysed and over-exploited for our own wants and needs, with scant regard for the consequences. Here lies insight into some of the root causes of our problems facing us today in business and beyond: an imbalanced approach to quantifying without also qualifying, and reducing without also understanding the whole and interconnected parts.

Time to transform

As a result of its focus on operational excellence, economies of scale and predictable returns on investment, the firm of the past is a well-managed organisation, with many attributes that business minds can be proud of. The firm of the past is independent, stable, efficient, risk-aware, controlled, self-focused, competitive, driven and quantifiable. Alas, these attributes are no longer ‘good enough’ on their own for an organisation operating in a business environment that is increasingly volatile, impossible to predict or control, complex, open and interconnected. These are the times within which we now operate, and the level of volatility is only set to increase for the foreseeable future. The firm of the past, with all its strengths, is no longer fit for purpose.

In the words of Dawn Vance, Director of Global Logistics at Nike:

Organisations have 3 options:

1. Hit the wall
2. Optimise and delay hitting the wall
3. Redesign for resilience.

Organisations, executives, employees and investors who hold on tightly to these out-dated business approaches that served us well in the past will find life harder and harder, swimming against an ever-increasing torrent of dynamic change. It is organisations and individuals that recognise the need to adapt and transform that shall flourish by pursuing opportunities within turbulence.

“Seeing a turbulent world through threat-tinted glasses invites the dysfunctions of threat rigidity – centralized control, limited experimentation, and focus on existing resources – that stymies the pursuit of opportunity.”
Donald Sull

Business has learned a considerable amount from the past, with the positive attributes of the firm of the past remaining important as we shift forward to a new paradigm that balances quantity with quality, operational excellence with value creation, the short term with the long term, self-focus with system-focus, and stability with dynamism.

Our current prevailing approach to business has led us into the current reality of a debt-laden society, debt-laden economy and debt-laden environment. Business is part of the problem, yet business is also most definitely part of the solution.

Business is a powerful force for transformation; it is now time to make it a force for good. Each and every one of us in business has the potential to be a change agent for the positive adaptation that helps us as individuals, as organisations, as economies and as a global species. Each of us can freely choose to be part of the problem or part of the solution.