Many mature industries are being disrupted by new agile companies that lack respect for the old and well established rules. The incumbent players have a very difficult time to analyse and respond with effective countermeasures against these disruptors. The disruptors often use new technology to their advantage: The cloud, mobile devices, social networking, sensors and big data are some of the tools. None of these technologies are really based on proprietary technology and could be deployed by the incumbents – this is not the real threat against them. The real threat to the established businesses from the new players is that they think differently about business and leadership.
To understand the difference it is necessary to review the current narrative that exists about the business world and capitalism. According to Edward Freeman, Professor at Darden Business School, the old business paradigm is based on a number of assumptions:
- Business is primarily about making money
- The only constituency that really matters is the shareholder
- There does not need to be a concern for the environment, because we live in a world of limitless resources
- Capitalism works because people are self-interested
- Given the opportunity, business people will cheat or cut corners.
- Business works because people are competitive and greedy.
These assumptions show themselves in a lot of both internal and external communication from large corporations – focus is on the shareholder. The assumptions are also confirmed when legislators make new laws –business and banks in particular has seen tighter regulations based on distrust from the regulators. This is not without merit – Quartz.com shows the top 9 banks have used more than 15B$ in litigation charges in just one quarter. Dissatisfied customers are faced with endless pages of legal T&C’s, rules and inflexibility all designed to protect the shareholders. Employees are faced with HR departments not designed to enable people but to limit them with endless conduct manuals written by legal department. Also NGO’s has been battling with business based on a basic distrust in their intentions.
Many new companies do not follow this logic – largely because it is based on the business logic of Generation X and the Baby Boomers. The new business logic is the logic of generation Y – Capitalism 2.0.
It might not be obvious to everybody but some visionary business leaders have identified the shift:
“On the face of it, shareholder value is the dumbest idea in the world”
Jack Welsh, exCEO GE
“Pure focus on shareholders alienates the employee,
the customer the supplier and everybody else”
Kip Tindell, CEO The Container Store
“We’re not going into the three-month rat-races. We’re not working for our shareholders. We’re working for the consumer,
we are focused and the shareholder gets rewarded.”
Paul Polman, CEO Unilever
“We prefer to forgo revenue, rather than bring a product to market that does not delight customers. Doing so negatively affects the short term, but positively affects the long term. There are many other companies that do not follow this philosophy that may be a more attractive home for investor capital.
Tesla is not going to change.”
Elon Musk, CEO Tesla
Driven by Generation Y, the paradigm of Capitalism 2.0 is based on value creation for all stakeholders (defined as groups that are affected by the actions of the corporation or that can affect it). In Edward Freeman’s definition:
- Business is primarily about purpose – revenue and profit follows
- Any business creates and destroys value for stakeholders – Leading a business involves getting these interests going in the same direction
- Capitalism works because we are complex creatures with many needs and wants. People can act in multiple ways: selfish, cooperative and altruistic. Incentives are important but so are values
- Most people tell the truth, keep their promises and act responsibly most of the time and we expect that.
- Business and capitalism is the greatest system of Social Corporation ever invented. Competition is important in free society as it ensures options but value creation is the engine of capitalism
No doubt capitalism 2.0 will require leaders to deal with much more complex and conflict interests but there is a lot to be gained. In leadership circles it is understood that satisfied employees and customers does not lead to financial results as it used to – satisfaction is not sufficient anymore. To create great results you need engaged employees creating engaged customers and that needs more than a good product and a service.
“Customers will never love a company until the employees love it first”
Simon Sinek
What is needed is a high level purpose that engages, followed by actions that demonstrate commitment to that purpose even when in trouble.
Ed Freeman outlines three main principles that need to be followed when creating business strategies according to the new paradigm:
- Interconnection – Because stakeholder interests go together over time, we need solutions that satisfy multiple stakeholders simultaneously.
- No Trade-offs – We try never to trade off the interests of one versus the other continuously over time
- The principle of friction: It is not just who agree with you - sometime your opponents are helping you create value. We want friction to go away but understanding friction can be a source of value. Critics are telling you something about your business. How can we use this critique to become better at what we do? Meet with critics ahead of time - you can improve before implementations.
Not trying to give the impression that this will be easy, Ed Freeman suggests that business leaders should utilise the only free resource available to them – creativity of their people. Involve many stakeholders and allow them to think and explore freely about value creation according to the principles and wonders might happen.
One of the fastest growing companies of the new economy is Facebook. Their commitment to Capitalism 2.0 is very visible in Mark Zuckerberg’s letter to the shareholders prior to their IPO:
"Facebook was not originally created to be a company.
It was built to accomplish a social mission — to make the world more open and connected. We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and
why we do the things we do”
Mark Zuckerberg, CEO Facebook
If your company is struggling with flat or declining revenue in mature markets that are being attacked by innovative disruptive start-ups, maybe it is time to rethink your purpose.
“When is now a good time”
No comments:
Post a Comment