Why less bad doesn’t equal good

It’s no longer enough for or­gan­i­sa­tions to sim­ply re­duce the harm they do, writes

Daily News - - VIEWS & ANALYSIS -

WHY does a com­pany ex­ist?

If you’d asked ex­ec­u­tives this in the 1970s, the most com­mon an­swer would have been “to make money”. Con­sumers, em­ploy­ees and the nat­u­ral en­vi­ron­ment didn’t re­ally fig­ure in their busi­ness strate­gies. Prof­itabil­ity was king.

Fast-for­ward a few decades and that nar­row con­cept is be­ing chal­lenged. Gen­eral Elec­tric chief ex­ec­u­tive Jack Welch said in 2009: “On the face of it, share­holder value is the dumb­est idea in the world. Share­holder value is a re­sult, not a strat­egy. Your main con­stituen­cies are your em­ploy­ees, your cus­tomers and your prod­ucts.

“Man­agers and in­vestors should not have share price in­creases as an over­ar­ch­ing goal. Short-term prof­its should be al­lied with an in­crease in the long-term value of a com­pany.”

The think­ing has evolved, but in prac­tice, or­gan­i­sa­tions are tak­ing a while to catch up. Many are still guided by the bot­tom line, which is not a smart way of deal­ing with the chal­lenges of the 21st cen­tury. Now busi­nesses must deal with re­source scarcity, food se­cu­rity, cli­mate change and the ur­gent need for an en­ergy tran­si­tion to sur­vive the long term.

Th­ese chal­lenges there­fore have an im­pact on the way we do busi­ness.

Com­pa­nies need to think “for­ward and out­ward”. “Think­ing for­ward” means plan­ning busi­ness mod­els and strate­gies ac­cord­ing to global trends. “Think­ing out­ward” is about manag­ing in­ter­nal and ex­ter­nal ac­tors, and is­sues that af­fect busi­ness, con­sumers and so­ci­ety in gen­eral.

Over the past 25 years, as so­ci­ety’s sus­tain­abil­ity chal­lenges have in­creased in ur­gency, many or­gan­i­sa­tions have adopted a triple bot­tom-line ap­proach, mea­sur­ing their per­for­mance along eco­nomic, so­cial, and en­vi­ron­men­tal criteria. This fo­cuses on min­imis­ing harm, while gen­er­at­ing max­i­mum prof­its.

But to­day, re­duc­ing your foot­print is not enough. Less harm­ful does not equal good. What does “good” mean? This ques­tion raises fur­ther dilem­mas. What does “good” look like? And “good” for whom? The an­swer lies in stake­holder value cre­ation. Or­gan­i­sa­tions must fo­cus on cre­at­ing value not only for share­hold­ers but for stake­hold­ers too. And that in­cludes the big­gest, most silent stake­holder of all – the nat­u­ral en­vi­ron­ment.

Some or­gan­i­sa­tions are start­ing to shift their fo­cus from “less bad” to “good” and their jour­ney gen­er­ally fol­lows four stages. Take, for ex­am­ple, a house­hold goods man­u­fac­turer: Stage 1: Sur­vival The fo­cus of the com­pany is to foster in­no­va­tion to cre­ate qual­ity con­sumer goods at af­ford­able prices with fair re­turn for in­vestors. The crit­i­cal stake- hold­ers here are cus­tomers and in­vestors. Stage 2: En­vi­ron­men­tal­ism The pri­or­ity is now to cre­ate en­vi­ron­men­tally friendly prod­ucts, while meet­ing the needs of the cus­tomer. Here the com­pany fo­cuses be­yond its bound­aries and tries to in­flu­ence the be­hav­iour of its sup­ply chain. Stage 3: So­cial re­spon­si­bil­ity Now the com­pany tries to pro­mote healthy homes and happy com­mu­ni­ties through a restora­tive eco­nomic sys­tem. The or­gan­i­sa­tion be­gins to move to­wards the stake­holder sys­tem per­spec­tive, view­ing it­self as part of a broader ecosys­tem. Stage 4: Sus­tain­abil­ity The fo­cus has shifted to im­prov­ing the lives of all its stake­hold­ers, the health of their environments and qual­ity of com­mu­ni­ties through trans­for­ma­tive house­hold so­lu­tions. In this stage, rather than sur­viv­ing or main­tain­ing the sta­tus quo, the or­gan­i­sa­tion strives to im­prove so­ci­ety and the nat­u­ral en­vi­ron­ment.

Some com­pa­nies are a long way along this jour­ney. The house­hold goods com­pany Sev­enth Gen­er­a­tion, for ex­am­ple, co-founded by Jef­frey Hol­len­der in 1988, started in stage two. Its found­ing mis­sion was “to pro­vide high-qual­ity, en­vi­ron­men­tally re­spon­si­ble prod­ucts that work as well or bet­ter than tra­di­tional brands”.

Dur­ing the 2000s, how­ever, the com­pany made a pro­found change to its mis­sion, mov­ing from selling all-nat­u­ral clean­ing prod­ucts to cre­at­ing healthy homes – a shift from stage two to stage three. The or­gan­i­sa­tion launched an in­ter­nal think­ing process to an­swer the ques­tions: “What is a healthy home?”, “How can we con­trib­ute to build one?” and “Who should be our part­ner in this en­deav­our?”

Then there’s the car­pet com­pany, In­ter­face. By 2016, it was the one of the largest car­pet man­u­fac­tur­ers in the world, with net sales of al­most $1 bil­lion. Now the com­pany is striv­ing to­wards what its late founder Ray An­der­son called “mis­sion zero”.

This in­volves a com­mit­ment to elim­i­nate all waste gen­er­ated by their prod­ucts and max­imis­ing the com­pany’s pos­i­tive im­pact on con­sumers, so­ci­ety, the gov­ern­ment and fu­ture gen­er­a­tions. An­der­son did not de­cide to sim­ply re­duce waste by a cer­tain per­cent­age; he in­stead de­cided to solve 100 per­cent of the prob­lem and de­sign prod­ucts that would cre­ate value for share­hold­ers and all stake­hold­ers – in­clud­ing the en­vi­ron­ment.

Sus­tain­able in­no­va­tion is at the heart of value cre­ation. We’ll talk more about this in a fu­ture ar­ti­cle.

Fran­cisco Szekely is ad­junct pro­fes­sor of lead­er­ship and sus­tain­abil­ity at IMD.

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