Meeting only the needs of shareholders can limit an organization. Learn how to shift the nature of your organization to meet the needs of a range of stakeholders, including customers, workers, and communities.
- Traditional organizations usually have a single purpose, to increase shareholder value. But that's strategically limiting for many organizations. Why? If traditional shareholders are the core constituency of a traditional organization to the exclusion of all others, they'll demand that the organization generates a profit. And that's what the organization will do even if it's at the cost of other constituents. The former CEO general elect Jack Welsh called this relentless push for shareholder value at all costs the world's dumbest idea.
That's because if the only stakeholders who matter are shareholders, the organization actually has strong incentives to put other stakeholders at a disadvantage. That's strategically limiting because it narrows the definition of success for the organization and therefore, limits the range of positive outcomes the organization can generate. So let's imagine that the underlying purpose of the organization is actually to meet the needs of a range of stakeholders. Including customers, employees, partners, communities, and even the planet.
How would that change the strategic goals of the organization and make the organization more agile? Let's say that instead of calling workers talent, we thought of the workforce as a portfolio of people with a wide range of unique skills and other attributes. And suppose that we charge those people with the task of each trying to determine how to increase value to stakeholders, including customers, partners, communities, the planet, and yes, shareholders. What would that mean in terms of strategic agility? Now this isn't some theoretical exercise.
An increasing number of organizations are expanding their charters and incorporating a broader view of the stakeholders of the organization. Their mantra, doing well and doing good. Now I became involved in this movement towards businesses that change the calculus of business back in the early 2000s. When I worked at a small partnership called Collective Intelligence. Our group went on to co-found a conference we call SO CAB, which today is the premier gathering for entrepreneurs, investors, and organizations focused on doing well, and doing good.
That mantra is coming to infect the strategic thinking of entrepreneurs, investors, and organizational leaders. So let me give you an example. Suppose a large technology company was about to disintermediate a large group of workers by automation. The tech company could simply accept this impact as collateral damage. What venture capitalists often call negative externalities. But rather than simply accepting that disruption as an inevitable business consequence what if the tech company actually fielded software to help those workers learn the skills the tech company itself was going to need in the future.
Not only would it be good business for the tech company, they'd ensure they have a trained workforce for tomorrow. And along the way they'd be helping to strengthen the communities where those workers live. What's the likely result? Happy customers who want to support an organization that's doing the right thing. Happy employees who are contributing to achieving a positive impact in the world. Happy communities which will continue to have citizens with good jobs. And, happy shareholders who will be invested in an organization that's both doing well, and doing good.
So, probably the best reason to rethink the nature of the organization and to expand that range of stakeholders, customers, employees, and shareholders, they're all going to increasingly require it. Millennials, the generation that will soon run the world, are increasingly voting with their purchasing dollars. Buying from companies who's brands they believe are a positive force. They're coming to work for organizations that have a purpose. And before long, they'll be voting with their investment assets, as well. As literally trillions of dollars are passed down from their baby boomer parents.
As we've come increasingly aware of the interconnected nature of our organizations, and the interdependency we all have in our business ecosystems, we're going to inevitably rethink the very purpose of the organization. And begin to bake the needs of a range of constituents in our strategic goals. Why not start now?
- Strategy and the pace of change
- Becoming an adaptive organization
- Aligning activities with strategic goals
- Embracing a culture of risk
- Modeling adaptive behavior
- Maintaining an adaptive organization
- Streamlining your processes and practices
- Remaining agile over time