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Sustainable Means More Than Recycling

Posted by Mark Bennett on March 13, 2012

In a world where almost everyone is considering the question of whether the notion of capitalism is obsolete, if you do think it’s still the right notion, then what is it that needs to change?

Part of the answer has been touched upon in whether profit should be the object of single-minded focus. Profit is of course a big factor in investor decisions, but every investor doesn’t think the same way. Some investors value the vision or purpose of a venture in combination with return on their investment, and to varying degrees. The bigger picture of profit is that it enables the continued existence of the venture to pursue its broader goals and the various investors have different perspectives on profit and those goals.

But there are also more than just capital investors.

More than one kind of investor

Society is also an investor in just about every capitalist endeavor, either directly or indirectly, either actively or passively. This might be through government activities such as taxes and tax breaks, subsidized loans, and contracts.

Consumers are investors as well, through the decisions they make on whether to buy a product or service that entails an ongoing relationship with a firm in order to get the most value out of the purchase.

Employees are also investors, through their commitment to see projects through tough times, to forego another job offer (even taking into account innate risk aversion), and investing their time into gaining experience and development in areas related to their organization’s vision or purpose.

Each of these investors has a stake in the organization just as much as the capital investor. So what happens when management loses sight of the bigger picture of the whole range of investors that exist and thinks only in terms of “increase shareholder value”?

Capital investors who were initially attracted to the vision and purpose of the venture start to see it fade and become muddled in a “race to the bottom” for profit or lost in generic, “be the best” platitudes.

Customers start to see no reason to keep buying the product or service. There’s no value in the brand and if switching costs are high for now, it just builds resentment, further reducing the value the customer sees.

Employees not only start to see all the previous things happening, and how it affects their future prospects in staying with that organization, but they are very likely on the receiving end of a poor work environment. In addition to long hours and low pay, the lack of vision and purpose take away even the semblance that their sacrifices might have some meaning to them.

Looking at all the investors, together

So, what to do? What’s key is to see that when all the different kinds of investors are considered together, the organization’s ability to deliver value to each is improved.

Think in terms that go beyond simply making your organization “a great place to work”, or “an environmentally friendly company”, or “good for society”, or “making the best product or service” – those can be just as narrow as “best risk/return record in the industry” if viewed as siloed, separate things.

Think instead about how all the pieces do fit together – how customers value your products/services is affected by your impact on the earth’s resources and environment, what your employees think about what their work means affects delivering a superior return to your investors across all that they value. These factors all interact in the outside world, as more people are beginning to understand, so your organization must also determine how it fits into that web of interaction.

An excellent book that focuses on the “how” with well-researched examples, is “Management Reset” by Ed Lawler and Chris Worley. It describes what the authors refer to as “Sustainably Managed Organizations”, in contrast to the long-standing “Command and Control Organizations” and the more recent “High Involvement Organization.”

Sustainably Managed Organizations (SMOs) weave together all the aspects of the organizations relationships with economic, social, and environmental stakeholders (not just “shareholders.”) They break out their approach to how SMOs operate into the major components that every organization must attend to if it really wants to achieve any meaningful change: Strategy, Structure, Talent, and Culture.

Leadership impact

Leadership is needed in all four of these components if the change effort is to have a chance of success. Most of all, leadership can have the largest positive impact through talent – the way people are treated, and culture – how behavior is guided…if it would only put the needed focus there.

Think about it – the places where organizations have gone off the rails and landed in the headlines on topics such as corruption, environmental disaster, and financial collapse of outrageous origin have been due in large part to culture and how certain behaviors were encouraged, tolerated, or rationalized.

Now think about how those negative outcomes affected the broader set of investors and their future decisions regarding those organizations.

We’re way past getting by with “Our people are our most important asset.” Organizations must now be able to explain how they manage their talent to generate value and create superior business performance – most of all to their people. Executives must be the primary talent managers, understanding how the workforce capabilities enable/constrain strategic options and impact execution.

Think what can happen when leadership is focused on how they manage talent and shape behaviors to the same extent it is focused on strategy and structure.

Photo by nickwheeleroz

5 Responses to “Sustainable Means More Than Recycling”

  1. […] Bennett outlines why ‘Sustainable Means More Than Recycling’. He responds by saying: “Today’s world calls for a new kind of organization that addresses […]

  2. What you write in this posting makes a lot of sense – I would even say it is common sense (which is a compliment).
    A good leader would think this way as this is the best way to maximize the result of all the input the organization gets from all of its participants.

    But to me this IS capitalism!
    Capitalism is not only thinking about money – as this is not the best way of maximizing your investment.
    By taking all aspects and all participants into consideration you are doing the best possible job as leader and investor.

    … and to me this is the genius of capitalism: It promotes the behaviour that is giving the best return on investment in the long run.
    (of course there are individuals who are aiming for a short term profit – but the really successful capitalists think long term 🙂

    • You are absolutely right, Anders. I was just reminded of what you said when I saw one of my favorite quotes from Drucker:

      “Companies don’t make money. Companies make shoes.”

      That is, companies create value through goods and services and in the process of doing so, generate a profit that can be used to continue operations and/or be returned to investors.

      Your point about long run thinking is at the crux of the problems we see with the way many companies are organized and how incentives are structured. I think that this ultimately falls on the shoulders of the board of directors (as do the authors of Management Reset.)

  3. […] his post, Sustainable Means More Than Recycling, Mark Bennet nudges us to think what can happen when leadership is focused on how they manage […]

  4. […] his post, Sustainable Means More Than Recycling, Mark Bennet nudges us to think what can happen when leadership is focused on how they manage […]

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