Is Preaching Social Purposes the Second Dumbest Idea in the World?
Among business stakeholders, customers must be the absolute №1?
For the past few years, we have finally observed with great pleasure some progress in organization fundamentals across the world, in terms of what purposes a business serves.
Most agile pioneers, public and private sector leaders, and economists agree that a business needs to create values for all stakeholders — not just shareholders! Maximizing shareholders’ value is neither the only, nor the most important purpose of a business, not anymore. It has been a wrong idea since its emergence and its decades’ prevalence has led to large scale stock manipulations typically in the form of corporate share buybacks, which only enriched corrupted senior executives (whose exorbitant bonus is directly linked to stock price) and their accomplices at the grim cost of the corporates’ long-term development capability and the society’s economic well-being. As declared by Jack Welch in as early as 2009 — deeming maximizing shareholder value as the highest purpose of a company is “the dumbest idea in the world.”
The contentious part, however, of the business purpose discussion is: whom — first and foremost — among all the stakeholders should an organization create value for?
Steven Denning, author of the famous book The Age of Agile argued repeatedly that “there is only one valid definition of business purpose: to create a customer,” a citation from Peter F. Drucker in The Practice of Management (published in 1954), and avowed that “grafting a preachy social purpose” on top of a firm’s profit is “the second dumbest idea in the world.”
He is also keen on making a strict order of importance among the stakeholders as revealed in his statement: “Making great workplaces is a secondary goal and avoiding social harm is a tertiary goal, but the only valid primary goal of a corporation is creating customers through continuous innovation.” Although the stakeholders of suppliers, partners, and communities, etc. are not mentioned at all, we can probably assume that they are in the same department of social purposes, and in combination they constitute the lowest rank in the business purpose ladder in Mr. Denning’s mind.
Customers are a business’s very source of profit, so how can they not be the legitimate top priority? It’s so common sense that people without a clue of agile movement can appreciate the idea. It’s more so for ardent agile practitioners who are well trained to memorize by rote the customer-centric value and principles stipulated in agile manifesto.
However, this idea lacks system thinking — a key element featuring agile leadership.
All stakeholders are part of the business ecosystem
Digital technologies are transforming the way we live, the way we view the world and the way we want to re-shape it. Consequently, we are witnessing that the old world is evolving progressively into a new one where walls between various industries are being broken down, boundaries of public and private sectors are being left behind, borders of countries are being made of signs of “Welcome Home” (to Mr. Trump’s astonishment), gaps between peoples of different colors, languages and cultures, ages and genders are losing prominence.
Paradoxically, this intimately connected new world is also dominated by newfangled forces threatening to tear the world apart, including international trade wars, humanity crises, terrorists and dictators, Brexit and Wexit, global warming and generational warfare.
Facing unprecedented challenges from unpredictable changes, simply surviving is becoming an increasingly daunting task for organizations across the universe, let alone thriving. That’s the very reason why agile transformation is becoming the new business trend, with its promise of shifting the organizations into nimble and flexible networks that are capable of quickly adapting to (or even leading) the market changes to prosper with sustainability.
What’s worth clarifying here is the evolution of “market”. Nowadays, market is as much online as offline; changes in market are no longer instigated by customers alone as was the case before, but also by employees, suppliers, other partners, and communities, because the different stakeholders of all businesses are tightly interconnected, as are the different parts of the world.
Customers can be part of communities, which is clearly demonstrated by the retail businesses for whom the customers are from the very same communities where the companies operate; customers must be regarded as business partners, which is well confirmed in all the agile methodologies where customer representatives’ participation in product development is common practice; customers have been long standing on the same side of suppliers, proven by the fair trade movement that’s expanded into today’s global phenomenon; customers sympathize more with employees than with employers and judge companies righteously when their employees’ welfare is brought into question.
In short, customers are not only not in conflict with any other stakeholder, but form a dynamic ecosystem together with them in which the organization is born and evolving. The customers’ inseparable relationship with the other stakeholders makes it impossible for a business to solely focus on its customers or pursue maximizing customer value as its only primary goal.
If a business really wants to serve its customers well, it has to serve all the other stakeholders as well as social purposes with equal passion and assiduity, because as a matter of fact, the widespread recognition of corporate social responsibilities makes it more crucial than ever for businesses to succeed today.
The key findings of 2017 Cone Communications CSR Study have shed light on how essential (if not obligatory yet) social responsibilities have become for businesses:
63% of Americans are hopeful businesses will take the lead to drive social and environmental change moving forward, in the absence of government regulation
78% want companies to address important social justice issues
87% will purchase a product because a company advocated for an issue they cared about and 76% will refuse to purchase a company’s products or services upon learning it supported an issue contrary to their beliefs
That’s why so many organizations worldwide are “preaching” social purposes in earnest and competing to take a firm ethical stance in social, economic, and political warfare. They’ve all been aware that the business world today is a giant network in which the interconnected players are collaborating to optimize the whole system with the purpose of creating sustainable value for everyone in the society.
Therefore, to serve social purposes and the interest of all stakeholders is not to be distracted, but to adopt system thinking in a business’s strategic design and in its agile way of working.
Trade-offs have to be made to reach equilibrium in the stakeholder ecosystem
It’s undeniable that this stakeholder ecosystem cannot always reach its prime equilibrium. Very often the business has to make trade-offs between different types of values it creates for different stakeholders. Take, for instance, a coffee house’s dilemma in the choice of coffee containers. Should it provide the customers with disposable coffee cups as they do now or replace them with real coffee mugs for less ecological footprint? Each option comes with pros and cons, inviting diverse opinions from various groups of people. What is the best option for the coffee house, taking into consideration the interests of all stakeholders, including its fickle customers, suppliers, community, the required cost and future benefit that can be both tangible and intangible? Would the best solution be to continue using the disposable cups if a survey shows that more than 60% of the current customers prefer the convenience of one-time cups to the environment-friendly alternative?
Another example, when a customer unreasonably insults an employee who is indisputably a victim of the aggressiveness of that customer, is it right for the company to keep silent, cajole the customer, or even force the poor employee to apologize? In this case, the company has to balance between the relationship with the customer and the relationship with the employee — the former can lead to customer satisfaction, loyalty and financial value from the customer’s purchases; the latter may result in employee satisfaction, retention, and potential value the employee can create in the future. Let’s not forget the story telling effect when this incident is spread out by its witnesses, which concerns not only whether the company holds true the rule of “customer first”, but also the doubt of whether this rule is unexceptionally valid in all situations, or whether the company should also apply the principle of “being fair and respectful” to its employees.
There are no absolutely right or wrong answers in those scenarios. It’s all about striking the right balance in that delicately fabricated ecosystem to reach maximum long-term interest for all. When a business isolates its stakeholders into silos and measures their values separately, it’s easy to give priority to customers alone, keeping profit in mind.
But think twice, today’s customers care a great deal about everything, not just the products they buy. They are interested in the wellbeing of the whole society, including the environment, the interest of the farmers in less privileged regions, and the work conditions of the very people who produce the products for them. They read Google news, listen to podcasts, watch TedTalks, tweet, and blog. They connect themselves physically and digitally across all life spheres, from entertainment to politics, from vegan diet to global warming, from start-ups’ emergence to global supply chain disruption… with all those information and knowledge at hand, they think twice when they choose what to buy and where to buy. They, too, have to juggle different types of interest in different aspects of life, so as to reach the optimal balance among the diverse roles they assume.
The same applies to businesses when it comes to their stakeholders. Albeit a demanding, sometimes painful endeavour to make trade-offs, it is definitely worth the effort. When a business ecosystem reaches its optimal equilibrium, the organization will enjoy sustainable prosperity with abundant new opportunities coming from the harmonious collaboration among all stakeholders!
It is not so dumb an idea to preach social purposes
It’s true that some organizations are preaching social purposes as a new PR model and advertisement tool, often referred to by critics as “greenwash”. It could be certain oil and gas supermajor, such as Shell, who has been, for the past two decades, the constant spotlight of scandals and subject of lawsuits related to environment, human rights, and safety and health, all falling into the range of social purposes. When Shell continues to reap huge profit in the very industry against global warming, it’s hard to convince the world that such a business is sincerely serving its newly recognized social purposes.
But that is hardly the point. The real point is, without the “preachy” social purposes that call for principled leadership underpinned by ethical values, those superpowers wouldn’t have bothered to make any effort in serving any social purpose at all, be it about reducing greenhouse gas emission, eliminating labor exploitation, curtailing corporate corruption, or providing safe and healthy work conditions. Not only are these social purposes meaningful and valuable when they are truly given priority to in a company’s operation list, preaching them with vigor can also be a potent way to foster a society-wide positive business culture that emphasizes principles and ethics. At the minimum, they serve as a reminder to corporate evil-doers: you are being watched!
In this age of agile, information technology has amplified the power anyone possesses, customers and businesses alike. While customers do enjoy more influences thanks to the abundance of information and the efficiency of communication tools online, businesses in the meantime have also obtained unmatched power through relentless leverage of technologies, as exemplified by tech monopolists, oil and gas supermajors, retail and wholesale conglomerates. They are not just nimble, adaptable, and flourishing, they are also “eating the world”! In a sense, they are wreaking havoc on the whole society. As described by David Dayen in his article condemning the predatory nature of the tech giants: Inconsistent with their declaration of “We are making the world a better place,” these firms have “crippled entrepreneurship” by using their market dominance to either acquire or destroy smaller competitors; they intimidate or bribe public officials to “avoid taxes and cut special deals”; they sell their customers’ every piece of personal and private information to “advertisers and behaviorists to exploit”; “their drive for profits ignores how their platforms can be weaponized, scarring millions and undermining democracy.”
All these exceedingly profitable businesses are unanimously considered as agile epitomes, but by stricter definition, none of them is truly agile, because they are fundamentally profit-oriented and not being led by a moral compass. Going agile doesn’t just involve adopting agile methodologies to gain agility and thus more customers and more profit, the equally (if not more) essential part of going agile is to do business under strong ethical values, with the ultimate common vision of making the world a better place, which is in every way dependant on social purposes that we have to “preach” whenever we can and wherever we go, and hold all businesses accountable for their fulfillment.
To succeed, the whole society need to undertake the important role of “preacher”, not just the public sector, who is considered by Mr. Denning as the only one that “takes steps to rein any abuses of monopolistic power.” In fact, if the public sector had been effective in reining in any outsized corporation in the past, there wouldn’t exist monopolistic power wreaking havoc on our society today. The irony is that our public sector doesn’t always represent our best interest, and it, too, needs some “reining in” on the one hand, and some social purpose “preaching” on the other hand.
At the end of the day, there’s no point in tilting at windmills regarding who is the absolute №1 among the business stakeholders. Even if there are some who have to insist that it’s the customers, fine, because they will be surprised to learn that it is the customers themselves who are apparently more and more in favor of (and thus will buy from) collaborative and principled businesses who are preaching and fulfilling their social purposes with maximum diligence and sincerity, which is in the best interest of all stakeholders.