I want to talk to you about two things that are very close to my heart: making the world a better place, and business. Two fellows you don’t often see in the same room, or even the same street. And I’m not talking about Corporate Social Responsibility.
Here’s a quote: “CSR is like a tax that businesses pay in order to be seen as the good guys.”
“It’s a truce – creating a zero-sum relationship between business and society, not a joint- value one”
“For too long, business has been profiting from the needs of society without asking ‘are our products good for our customers?’ ”
This sounds like pretty standard stuff from an anti-capitalist, right?
Well, this stuff came from Michael Porter. Yes – the same Michael Porter who invented the five forces theory of marketing, who is a Professor at Harvard Business School, and who is probably the closest thing to the inventor of business strategy we’ll ever find.
He says that businesses are stuck in a definition of value-creation that is around a narrowing economic definition i.e. making money. Not just more money, but more money pretty much regardless of the consequences, because what matters is shareholder value. And, given that most of our shareholders aren’t shareholders for very long, shareholder value means delivering profits this quarter, regardless of the long-term.
But external and societal factors have a profound effect on productivity and efficiency – and on the long-term game when it comes to profitability.
This idea, he calls Shared Value.
Porter says “Business has been so blind to these needs. We’re seeing social entrepreneurs coming up with ‘business models’ for self-sustainability through generating revenue, and people saying ‘they’re doing it better than companies’ – well, they are businesses!”
Meanwhile ‘companies’ are missing out.
Let me give you an example: globalisation. We leaped in there and assumed logistics were free, that we could source from wherever, and ship to wherever. Aside from the environmental impact, companies are starting to realise that this isn’t true – the cost of transportation is something they’ve not thought about before. So the place where stuff is made, matters. It matters too because that’s where a lot of your customers live nowadays.
If we want people to carry on living and engaging with our products, we ultimately have to be doing things that are good for them.
We need to be creating profit through satisfying social need.
So Porter, one of the most respected thinkers in the business world, is saying it’s time for a re-think. He says there’s a “hunger for purpose” in the business community that we need to find within the institution itself (not by legislation).
Within the institution itself.
And that means you guys.
Let me tell you about someone else with some interesting thoughts on this. Dan Pink. American author. Very interested in motivation theory. And he says the science is freaky.
Traditional thinking says if you want a certain thing, then using reward you’ll get you more of the behaviour you want, and by using punishment you’ll get less of the stuff you don’t.
Let’s ask some scientists – at MIT, Chicago and Carnegie Mellon. They did an experiment where they set people some mini challenges – memorising digits, solving puzzles, throwing a ball through a hoop and that sort of stuff. And they used a three-tier reward model. The guys that did ok, they got a small reward. The guys who did well got a slightly bigger reward, and the guys who did really well – well, they got a big reward.
For mechanical tasks, the higher the pay, the better the performance.
But – and this is the freaky bit – once a task called for even modest cognitive skill, larger rewards led to poorer performance.
This sounds vaguely socialist… But these are eminent professors from respected institutions… and this research was funded by the Federal Reserve Bank!
The trick, says Pink, is to pay people enough money to make them not worry about it. Take it off the table, so they can get on with their work. Then the things that matter are three things:
Autonomy – the ability to be self-directed, lead our own lives
Mastery – having the satisfaction of getting better at something
Purpose – contributing to society.
So inside this big structure of performance-based incentives, within an organisation that’s only looking as far as its next quarter’s reports, we find that all the people have more or less one thing in common: the fact that they perform better when they have autonomy, mastery and purpose.
So here we have a situation where companies could be massively under-performing. Not only because their customers want them to have more of a stake in society, but because their staff actually perform better when they have purpose too.
And how could you possibly lead a more purposeful professional life than by working for a company with a strong social purpose at its core?
A purpose like “be disruptive but in the cause of making the world a better place” – Skype.
The effect is that the smart people go where they CAN get this, and everyone else who could be performing really well but perhaps they’re not so into social theory – they stay put but consistently underperform their potential. Even – and especially – when they’re financially incentivised.
The solution to these problems is that companies have got to start investing in shared value.
They need corporate cultures that encourage autonomy, mastery and purpose.
And they need to seize the opportunity to create profit through satisfying social need.
When you understand how the long-term interests of your customers matter – AND that the core productivity driver for people in your organisation is not money but PURPOSE, then you see how this idea of shared value changes the argument.
It changes the argument from being the whining protest of liberals to being “the biggest driver of innovation and growth opportunities in the economy” – and it was Porter – the guy who invented marketing – who said that.
References and fantastic further reading/watching: http://www.bbc.co.uk/iplayer/episode/b00xj0r4/In_Business_A_New_Capitalism/ (Porter) and http://www.youtube.com/watch?v=u6XAPnuFjJc (Pink)