As a leader in the digital era, what is your priority? Of the myriad of things that demand your time, which do you regard as most important? Consider this account:

Chris Simpson went into the CEO’s office with a confident step. Certain he would get the job just vacated by his manager’s promotion, his proof of competence was that people who followed him always turned in weaker bottom lines. The interview, however, took a very different tack. “Name three people”, the CEO asked, “who are your level or higher in this company because of their involvement with you.” After an uncomfortable pause, Chris couldn’t name one. “Chris,” the CEO said, “you’ve done good work for this company. Units you manage have a good record. But they don’t have a good record after you leave. The limiting factor on our company’s growth is talent. No responsibility is more important than finding and developing good people. The numbers follow the people. My key criterion in evaluating managers is their ability to develop and retain talent.”

This is from a book I read over 30 years ago. I can remember neither the title nor the author but the message had a profound effect on me.

I’ve just read Simon Sinek’s ‘The Infinite Game’1 that puts forth the view that there is more to the game of business than tangible – ‘finite’– bottom lines. Buckminster Fuller2 back in the last century challenged finite concepts of value and predicted a time when information would be delivered in a non-physical, connected world. He saw as inevitable a shift from the tangible (finite) to the intangible (infinite).

In business, we seem to be slow learners. Sinek lays out this case compellingly as he tracks the key milestones in economic thinking, pointing out that Milton Friedman’s prioritization of profit3 was formative in Board and C-suite focus on ‘stuff’ (my description) rather than substance (my description).

“Not everything that counts can be counted and not everything that can be counted counts.” –Albert Einstein

In a reputation economy (a digital-era phenomenon), other metrics challenge Friedman’s assertion. “Your reputation is part of what thought leaders often refer to as your intangible value, which, by the way, makes up 81% of market value.”4 The counter argument to Friedman’s is: focus on profit and other things, that materially impact profit, suffer.

I recall being surprised (shortly after I read that book 30 years ago) when I heard a sports coach say: “We focus on performance, not results.” I did a double take. But it is essentially the same argument. The score board is history – make your adjustments while the ball is still alive and you get to control what ends up on the scoreboard. He also made the point that you can get a great result against a sub-standard side that misleads you and sets you up for failure later in the season.

In my experience, leaders are separated along these lines:

  • those who focus on short term, tangible, measurable results
  • those who focus on long term, intangible value – those factors that are not as easy to measure as profit is, but that count more when it comes to achieving potential profit

Let’s consider:

  1. The difference between focusing on the tangible (scoreboard) vs the intangible (performance stats) – consider where you stand
  2. The significance of this choice

 

  1. Tangible vs Intangible value in the digital era

Disruption is not new – technology has disrupted business in different ways over hundreds of years but the race for easy profit is, and so too is consumerism ‘on steroids’. (Some would say THIS is the real environmental challenge – the sheer mountain of discarded consumption.) This race for consumption, in other words, sales, has led inevitably, some would say, to the ‘ethical fading’ that Sinek describes. (Stories have circulated for decades about questionable sales practices within industries as diverse as pharmaceuticals5 and finance.)

Adam Smith6 inspired thinking such as that of Henry Ford: “A business that makes nothing but money is a poor kind of business.” (Buckminster Fuller labelled such production ‘obnoxico’. “You have to decide whether you want to make money or make sense, because the two are mutually exclusive.” 7)

So, where do you stand? With Milton Friedman or Adam Smith? It would appear it is untenable to side with both (even given that I am reducing extensive philosophies to a few sound bites. I can usually tell very quickly which side of this debate a leader is on – what they talk about, their actions and what they measure are very different, so I would argue this simple divide is still useful.)

Sinek states, supporting the Smith view, that business exists to advance something: technology, quality of life – to ease our lives. This view is that as you create money, you are progressing your true reason to be there (which is something other than only that.) This begs the question: What is it that you advance by being there? Then, what is the role of the C-suite, and how will the job descriptions change depending on the philosophical position of the board and/or individuals in the lead jobs?

Friedman’s work focused boards and executives on (swayed them to?) profit. Could one person (as Sinek argues) really have had such a profound impact to have led to what many consider to be an abuse of capitalism (itself a neutral thing, used for either good or bad effect)?

  1. The significance of your choice

Pick your side because that is the side that you will further with your full arsenal of digital tools:

  • The profit motive?
    “In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.” Milton Friedman
  • The consumption motive?
    “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.” Adam Smith

Many now use the term ‘value’ to expand what used to be a focus purely on ‘consumer’: quality, service or both. Today, the nuances of what is valuable, in a broader context of diverse stakeholders, is useful. Some would say this expands the two options into a third option: the ‘value’ motive. Perhaps this is a way out to a happy medium but it doesn’t get away from the fact that customers and their dollars (on which you depend for survival) can leave you in droves overnight; more so in a digital era than ever.

I made my choice when I read that book back during ‘80s that warned of the danger of short-term stripping of expensive (albeit intangible) organization value. The challenge is now to show categorically that such an organization can exceed the profit results of a pure profit business and to establish this as mainstream.

While research companies like Gallup are now prolific in their focus on non-profit drivers of profit, the alternative view seems to prevail. “Organizations that have made a strategic investment in employee development, Gallup finds, report 11% greater profitability and are twice as likely to retain their employees.” 8 There are a growing number of enterprises (not only social enterprises and not-for-loss companies) that align with The B Team9 who invest with motives other than pure profit.

Yet, all too often, short-sighted and (in my view) misguided executives, who live in a finite world, unwittingly squander intangible wealth around them. (Employees look on in bemusement and ponder the waste.)

We started with the question about what’s most important to thrive in the digital era. I would say the answer is: The same as what’s been important to thrive in any era. Focus on substance, no matter how elusive it may sometimes seem, and you will be best positioned for profit – both now and in the future.

Sources:

  1. The Infinite Game. Simon Sinek. Oct 2019. Penguin Random House UK. ISBN: 9780735213500
    https://simonsinek.com/product/the-infinite-game/
  2. Fuller, Buckminster. Critical Path. St Martins Press. 1981. ISBN 0-312-17491-8 https://en.wikipedia.org/wiki/Critical_Path_(book)
  3. “The Social Responsibility of Business is to Increase its Profits” by Milton Friedman. The New York Times Magazine September 13, 1970 http://umich.edu/~thecore/doc/Friedman.pdf
  4. “What is the reputation economy?” Sven Klingemann, PhD, Director of Research
    Reputation Institute https://insights.reputationinstitute.com/blog-ri/what-is-the-reputation-economy
  5. “$168 million pay out to Johnson & Johnson whistle-blowers” by Gregory Wallace. November 4, 2013 https://money.cnn.com/2013/11/04/news/johnson-and-johnson-whistleblower-payout/index.html
  6. “Consumption Is the Purpose of Production” by Sheldon Richman. November 30, 2017. American Institute for Economic Research. https://www.aier.org/research/consumption-is-the-purpose-of-production/
  7. “Buckminster Fuller Obnoxico Provides a Valuable Perspective of ‘Stuff’ for Holiday Shoppers” by Steven Sieden. Huffpost. THE BLOG  11/27/2012
  8. “What High Performance workplaces do differently” by Rob Desimone. Gallup Workplace. December 12, 2019 https://www.gallup.com/workplace/269405/high-performance-workplaces-differently.aspx
  9. The B Team. https://bteam.org/

 

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