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Is it Possible to be Incorruptible?

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Is it Possible to be Incorruptible?

Exclusive Interview with Eric Ries

This candid, wide-ranging Q&A dives deep into what Eric Ries calls the “physics of organizations” — the hidden structural and financial forces that dictate whether a company thrives or decays over time. Moving past superficial business trends, the conversation tackles the intense psychological toll of entrepreneurship, the systemic flaws of shareholder primacy, and the historical reality of alternative corporate governance.

Over the last two decades, Eric Ries’ ideas about continuous innovation, long-term thinking, governance, and market reform have reshaped company building and management practices. He is the creator of the Lean Startup method, and the author of the New York Times bestseller The Lean Startup; The Leader’s Guide; and The Startup Way.

Eric RiesAs a founder, he has put his own ideas into practice with The Long-Term Stock Exchange (LTSE); Answer.AI, an AI R&D lab; Virgil, a legal services startup; and IMVU. On The Eric Ries Show, he talks with world-class technologists, thought leaders, and executives building for the long-term. He lives in the San Francisco Bay Area with his wife and three children. He is excited to announce his latest book Incorruptible: Why Good Companies Go Bad… and How Great Companies Stay Great.

Ries offers a provocative look at how truly resilient, mission-driven institutions can protect themselves from the gravitational pull of short-term financial systems to prioritize long-term human flourishing.

Below is the text of my interview with Eric and a preview of the kinds of insights you’ll find in Incorruptible presented in a Q&A format:

1. Why do purpose-driven companies create so much value for society?

The evidence shows that purpose driven companies outperform conventional companies financially as well as in almost any other dimension you care to measure, including the social dimension. Intuitively, this makes a lot of sense, because entrepreneurship is very difficult. Everyone says they know this, but I don’t think we really grapple with this fact nearly enough. If you just want to make money, there simply are better, more convenient ways than entrepreneurship. So to get not just the founder, but the early team, the early investors, all these people to take a risk to do this crazy thing generally requires some kind of extra-financial purpose or goal. Sometimes we call that vision, sometimes we call that, in a more demeaning way, strategy. But it’s also fine to call it purpose, which is really what intuitively makes the most sense to people that do this. This is one of those cases where intuition and the evidence agree, yet it is somehow still considered a controversial fact.

2. What were some of the most important lessons you absorbed during your time on the bathroom floor?

As I’ve been going around talking about the book, this is one of the stories that actually gets a very different reaction depending on whether I’m talking to an entrepreneur or somebody else. Entrepreneurs all recognize this moment, where I really thought my company was going to fail and I couldn’t handle it. A lot of non-entrepreneurs don’t get it. They’re like, “Why? It seems like a bit of an overreaction. Okay, you had a business setback. We’ve all had career setbacks — what’s the big deal?” But what you don’t realize until you’re in it is how much, especially if you’re doing something out of a sense of purpose or passion that’s personally meaningful to you, you start to identify with it and start to become inseparable from it. So that story is very important in the book because I learned a lot of important business lessons. I thought the company was going to die, but it didn’t. It survived precisely because of its mission, not in spite of it. I learned, in a very visceral way, about the forces, that prevent reform from coming to fruition in so many areas of our life, not just financial. And of course I learned a personal lesson about the importance of equanimity and the need to tackle the psychological and even spiritual dimensions of entrepreneurship if we’re going to create real change in the world.

3. How much chance is there of us getting companies to more broadly redefine profit to include elements of maximizing human flourishing?

This question reminds me of a of an incredible video of the great Steve Jobs before he died. He’s being interviewed at an industry conference at the time of the launch of the iPhone, when the Blackberry was the dominant smartphone in the world. It had something like 80 or 90% market share. A journalist asks this question something like, “Do you really think realistically you can take share from this dominant player?” And you can tell Steve is irked by this question, and I’m expecting because we all know his famous temper, that he’s going to lash out at the person. But he doesn’t. Instead, he says, “You know, that’s not really up to me. My job, our job at Apple, is to make the best phone we can, the one that we’re proud of. Market share is up to the customer. That’s their decision, their choice. We don’t think about that, we don’t know, and we don’t need to know in order to do our best work.” I’m paraphrasing because I haven’t seen this video in a long time, but that’s how I feel about this, too. I get this question a lot because people want to feel like, if I’m going to jump on the bandwagon, I want to know that it’s going to work. But the truth is none of us know what’s going to work, even those of us who advocate for these ideas. You, who’s reading this, are the only one who gets to decide if this is likely or unlikely. This is not what the economist John Maynard Keyes called a beauty contest. You don’t have to worry about what everyone else is going to do. You only have to decide for yourself if you think this makes sense to you. And if it does, well, like I said — like Steve said — it’s up to you.

4. As America becomes more capitalist and less of a free market economy, what steps can we take to reverse the regulatory capture, lawfare and other methods that degrade competition, purchasing power, class mobility and the American dream? Do we need a pCombinator? (purpose-driven company accelerator)

You’re asking questions about words that we no longer have consensus about what they mean. What is a free market economy? What is capitalism? What is regulatory capture? The very definition of these words is what’s under threat. If you look at the broader media landscape, the political landscape, in many, many pockets of our society now the very idea of a for-profit company is being attacked as inherently exploitative or extractive. The consensus that we used to have that we can be working commercially to improve the world and make it a better place, that used to be seen as quite obvious and now that whole idea is under threat. I don’t blame the people doing the attacking, especially the young people who have, after all, lived their whole lives, under this regime of a very extractive flavor of capitalism that goes by the anodyne-sounding name “shareholder primacy”. This is the simple idea that customers, employees, communities all exist as resources to be mined for the benefit of shareholders. But this question is also loaded with so many other political issues of our time that we are going to have to tackle if we’re going to come out of this darkness, as our grandparents who battled fascism once had to do. So, I don’t think it’s going to be as simple as fixing one thing. But I think that one of the things we have to do, among many, is build a power base, an economic gravity pulling towards the values aligned with human flourishing. And many of the political, economic, and social challenges of our time are downstream of this action in the same way that the catastrophes that we’re currently living through are downstream of what seem like very simple and relatively benign policy changes from the past century.

5. What should purpose-driven companies look for in a CEO as the company outgrows or outlives the founder(s)?

IncorruptibleThis is a really important part of the architecture of institutional longevity. Most companies fail the test of succession. The evidence seems to suggest that people who train and hire from within have a big advantage here. I think that is something we don’t even really teach anymore as a corporate value, but that is actually super valuable. There’s a reason why that old story of the employee that worked their way up from the mail room was such an important legend in the previous century. Now we hardly tell stories like that anymore. We tend to want the big fancy turnaround, the bold new strategy, the external CEO, which for companies that are in crisis makes sense. And since our modern best practices tend to ruin companies, they tend to be in crisis quite a lot. But what we want to do is we want to find a CEO who combines two really important elements. One, they personally, deeply and profoundly reflect the ethos of the company. This is why a company that doesn’t have an ethos can never pass this test because they don’t even know who to pick. But you don’t want someone who, who apes the values of the past, or is slavishly loyal to the specific things that worked in the past. You need someone who is both deeply aligned to the ethos, and who nonetheless is very performance oriented, meaning they see that when the ethos is working, it should generate long-term performance. They can’t get distracted by short-term blips but they have to have the adaptability to realize when sacred cows need to be challenged. Now, it’s commonly said that only a founder can have the moral authority to do this unique combination of things I’m describing, only they can go into founder mode, as it’s called. But I don’t think that is supported by the evidence. When companies have the right structure, they actually can imbue subsequent generations of managers with this moral authority.

6. Why is magnetic alignment so important for purpose-driven organizations and their survival?

I conceived of this book as a look into the physical forces, the underlying forces, that affect organizations. So not the surface level characteristics that we spill so much ink about, org chart, culture, business model strategy, even vision, things we can touch and taste and control. Those things are important, don’t get me wrong. But there is a deeper layer to this, like a physics of organizations. In the book, I explore very dominant force that I call financial gravity. This is the gravity that pulls companies down into mediocrity or worse and is exacerbated by our heavily financialized economy. So to build an organization that is going to endure and is going to maintain its distinctiveness or its sovereignty over time, we have to have a force that is stronger than gravity with which we can power both the alignment that we need of people, and the structural integrity to resist outside pressure. And I call that the force of magnetic alignment. This is the mechanism by which companies gain that most valuable and underrated asset: trustworthiness. And the evidence shows that companies that have this asset, that activate this force, have numerous superpowers that conventional companies simply cannot touch.

7. Is super voting stock the silver bullet for purpose driven companies or are their other possibly better or complementary ways for purpose-driven companies to protect themselves?

It’s funny because the simple answer to your question is no. And yet I advocate for super voting shares all the time. I may be the most negative advocate of super voting shares! To understand, you have to see it this way: Imagine I went to a political science professor, an expert in political philosophy and I said, “I’m thinking of setting up a new city state, a new polis. I want your advice about what kind of governance it should have.” The professor’s going to be really excited. “Oh, great. What are you considering?” And I’ll say, “Well, I’ve only got two options. Option one is a situation in which whoever borrows the most money gets the most votes. Also, the tourists can vote, and you only have to borrow the money or be a tourist on election day, after which you can release your loans or leave the country and your vote is still binding on the whole polity.” The professor’s going to look at me and be like, “That’s pretty terrible. What else you got?” So, I’ll say, “Okay, option two is despotic emperor for life and my heirs and assigns.” The professor is going to say, “That’s all you got? Those are the only two options you can think of, really? You know, in the political science department, we’ve been working on this problem for a couple hundred years. We could maybe suggest a few other things!” That is the state of corporate governance today. It is such a paucity of thinking and originality. It is so bare of our human birthright, which is to imagine different ways that power can be shared amongst people. Human beings have been experimenting with this question since there have been human beings. So, the fact that companies are choosing despotic emperor for life to me should be read not as an endorsement of autocracy, but rather as an indictment of standard governance. Standard governance is so bad that emperor for life looks like an improvement. So yes, I do think it is an improvement. I do think there are times when that’s the best we can do, but we know from the research that it is not really the best long-term solution. We know that having too much power centralized in too few people leads to what psychologists called hubris syndrome, and many other problems besides. On top of being, ultimately not that long-term, since it’s limited by the human lifespan, this also puts a lot of founders into really an untenable and very undesirable psychological situation, where they are basically indentured servants and can never leave, for fear that their creation will be destroyed. So, maybe it’s the least bad of the current available options. But of course, we can think of far better ideas. In the book I argue for what I call “constitutional governance”, which is a set of concepts that take us beyond this false dichotomy.

8. How do you think we escape the big food doom loop? (healthy food company starts, wins customers, seeks an exit to get paid, big food makes it unhealthy and lower quality – i.e. Naked, Ben ‘n’ Jerry’s, Breyer’s, etc.)

This question is not really about food, so I’m not going to address big food. What does that even mean? Because we have a tendency to want to personalize these dramas, looking for villains. I understand that there are some villains out there. I get it. But this phenomenon that you’re describing, where someone figures out a more enlightened way to create any kind of product — doesn’t matter if it’s a food product or a tech product or a product design to bring a little beauty into people’s lives — it doesn’t matter what it is. The more successful it becomes, the more valuable it is as a target. And the more of a premium someone bigger will pay to acquire it. On this book tour, I have encountered many people who’ve told me their horror stories. They tend to want to tell food stories. That’s why I like this question. They’ll be like, look, private equity took over my favorite restaurant. Now the food is disgusting. Someone said to me a couple of weeks ago about a certain brand, “I hope they’re really successful,” and then they had to amend their statement to “Well, actually, I hope they’re somewhat successful. Successful enough to keep going, but not so successful that they get bought out by private equity.” That’s how much this idea that when things become successful, they get ruined has passed into the mainstream culture. So this is not about food. In the book, I describe this phenomenon, dating back at least two hundred years, and give the mechanics of how it happens and why. Why are we so conditioned to reenact the parable of the killing of the golden goose? And more importantly, what we can do to stop it?

9. Is it time to change the ‘corporations number one duty is to its shareholders’ narrative (aka shareholder primacy)? Is that part of what you’re trying to do with this book?

Yes. I believe that the era of shareholder primacy is actually already over, for two reasons. One is, this is an idea that has proved to be self-defeating. It was originally enacted — not in ancient times, but in the 1980s, at least in Delaware — to be beneficial to shareholders, but that is not how it has proved. We’ve actually metastasized into what I would call “extraction primacy”, in which investors themselves are now locked in a zero sum prisoner’s dilemma struggle where each has to try to squeeze as much out of everything they invest in lest someone else beat them to it. I think even investors are ready for change. The second reason I think it’s already over, and that we’re like the road runner having run off this cliff and haven’t looked down yet, is there’s a massive generational shift underway. As I mentioned before, the younger generation who has lived their whole lives under the hegemony of this idea, increasingly find it absolutely repugnant. They may not know to call it shareholder primacy, they may not realize that this is an idea that, by the way, has never been democratically enacted ever in history and therefore has no democratic legitimacy. But they are hungry for something new. And so I think our energy needs to be spent not on complaining about shareholder privacy anymore. It’s over. The question needs to be, what should the successor idea be? In the book I suggest mission primacy as one alternative.

10. You mention Novo Nordisk and its foundation in the book, which apparently is about to be passed by the OpenAI foundation for the mantle of the largest foundation (much bigger than the Bill & Melinda Gates Foundation) through their 26% ownership of OpenAI shares. Is this a model that we should encourage more startups to embrace from the outset?

I’d be very careful drawing lessons from the OpenAI experience because that company is quite singular and there’s a lot of stuff going on there quite unusual, a lot of big ego people like Elon and Sam. But interestingly, people often claim that the foundation ownership of OpenAI is unusual, and that’s not true. The idea that a for-profit company can be governed by a nonprofit foundation is an old one. The German optics company Zeiss had the structure in the 1880s. And as the question asked, Novo Nordisk has had it since the 1920s. In fact there are so many of these companies in the world that they have been studied and found to be dramatically more stable. Companies that have this structure are simply more likely to invest counter-cyclically. They are more likely to invest more in R&D. They have better financial performance and they are something like five or six times more likely to live to year fifty than conventional companies. Now the key to the structure’s stability is to have a system of checks and balances, which, as far as I understand, OpenAI struggled with for much of its existence. OpenAI had only one board, but what makes companies like Novo Nordisk, Patagonia, and Tony’s Chocolonely distinctive is that they have two entities — a for-profit board of directors who’s held accountable or in some cases even appointed by an outside board of trustees. That checks and balances, two-entity structure seems in the data to the most stable corporate form in the world.

11. As we enter the age of AI and the disruption it is beginning to cause, can the displaced really rely on enlightened capitalism to keep their families from starving?

This is a very grim question, and it presupposes one of the many, many doomsday scenarios about AI that is circulating. In order to think clearly about what it makes sense to do with AI, you have to realize two really interesting facts about this moment. The first is that almost every future scenario about this technology depends on a series of empirical facts that no one on this planet really knows the answer to. And these facts are very strange. Only a few years ago, they would have been considered post-modernist, irrelevant debates in your local philosophy department about questions like, “is there such a thing as reasoning or is it all just language?” And “what is the nature of intelligence and consciousness?” Of course, we as human beings have studied these questions for many generations. But I was on CNBC talking about this the other day — it’s rare that they are of such economic import that stock traders are wondering about them. To give one example, one of the most important questions you have to ask about AI is when or if the scaling laws will ever run out. So far, for quite a number of years,, thanks to pioneering researchers, including many far-sighted ones like my co-founder at Answer.AI Jeremy Howard, have figured out that simply by applying more computation to a very simple learning algorithm, you can create language models that seem quite intelligent, at least at first glance. So far, the more computation we use to train and run these models, the more capable they become. I think most people generally assume that this is some kind of S-curve and that eventually this curve will level off. Some even think that it already has leveled off. Others think we are years, or even decades, away from it leveling off, and of course some people believe it will never level off. This is the law of the universe. Depending on which of those things is true, the future scenarios are almost comically different from each other. A world in which the scaling laws level off next year is almost unimaginably different from one in which we have ten more years of this. And many of the doomsday scenarios, but also many of the utopia scenarios, depend critically on knowing the answer to this fundamental question about the universe that nobody knows. So, back to your question: How do we know what actions to take when the range of possible futures is so wide, so different from each other and so dependent on facts not in evidence. I think there’s only one thing that makes sense, which is to ask ourselves what are actions that would make sense, that you’ll be glad that you did, in a wide variety of potential futures? And I think that takes us out of the job of having to predict the future, which is very difficult, and rather into a more prudence-based mindset of what can be done to prepare for many possible futures. And when you go through that analysis, many of the things that you want to do to protect yourself against future AI scenarios are actually things you probably should be doing anyway. Think about having better mandatory disclosure, hardening our critical infrastructure, making sure that the gains from new technologies are widely distributed, going back to the era of widely shared prosperity. So if people are going to be displaced, should they just sit around and hope that the leaders who do the displacing will wind up being enlightened? Absolutely not. Of course not. In fact, the whole point of this book is to show how unless we make changes, the gravitational field of our financial system will warp and even destroy, turn malignant, any company. But where does the gravitational field come from? I think the most surprising part of the book for many readers is in later chapters when we reveal how the same tools that we’ve been discussing about how to create more resilient companies are also tools that can be wielded by all of us to shape the gravitational field of the future and affect what kinds of companies can and can’t form, how those companies can and cannot behave. And while some of those levers are traditional levers, like policy changes, of course., the book is primarily about the other, more surprising lovers, that I bet most readers have not thought of before.

I hope everyone has enjoyed this peek into the mind of the man behind the insightful new title Incorruptible!

Image credits: Eric Ries, Google Gemini

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Getting Back to Measuring What Matters

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Getting Back to Measuring What Matters

GUEST POST from Greg Satell

“Not everything that can be counted counts and not everything that counts can be counted,” is a quote often attributed to Albert Einstein, which I think aptly sums up the past 40 years. Since the 80s, we’ve been laser-focused on numbers and missed the underlying math. We’ve become finance-obsessed but lost track of economics.

Consider Jack Welch, who Fortune magazine named “Manager of the Century.” In the article explaining why he deserved such an honor, it lauded the CEO’s ability to increase the stock price and deliver consistent earnings growth, but nowhere did it refer to a breakthrough product or impact on society.

There’s a good reason for that. As NY Times columnist David Gelles explains in, The Man Who Broke Capitalism, Welch increased profits largely by firing workers, cutting investment and ‘financializing’ the firm. During his 20 year reign, innovation faltered and the company produced less, not more. Clearly, we need to reevaluate what we consider valuable.

What’s The Purpose Of A Company?

In a famous 1937 paper, Ronald Coase argued that the economic function of a firm was to minimize transaction costs, especially information costs. For example, it makes sense to keep employees on staff, even if you might not need them today, so that you don’t need to search for people tomorrow when important work needs to be done..

In 1976, Michael Jensen and William Meckling built on Coase’s work in their groundbreaking paper entitled The Theory of The Firm, which asserted that the purpose of the firm was to make money for its owners. They further argued that there is a fundamental principal-agency problem between managers and owners because their interests are not perfectly aligned.

These were brilliant works of economic theory, but as reflections of reality they are somewhat absurd. People start businesses for all sorts of reasons, profits being just one motivation. That’s why we have public benefit corporations and socially responsible investment funds. Heirs such as Abigail Disney have spoken out strongly against corporate greed.

There is simply no basis for the notion that owners of businesses care only about profits, much less the stock price over a given period. Yet during the 1970s and 1980s there was a growing conservative intellectual movement that argued that managers had a moral responsibility to increase shareholder value at the expense of pretty much everything else.

Today, many portray the conservative movement behind the nation of shareholder value as evil and greedy. Most of the evidence indicates that its leaders thought they were doing the right thing. It seems that there were more fundamental errors at play.

Management By Algorithm

In the 1920s , a group of intellectuals in Berlin and Vienna, became enamored by an idea that came to be known as logical positivism, that human affairs should be subjected to the same logical rigor as physical sciences. It failed miserably and, when Kurt Gödel published his incompleteness theorems in 1931, it was completely discredited.

Yet the strain of thought that arose in the 1970s that gave rise to Jack Welch’s brand of capitalism was essentially the same thing. It was, in effect, management by algorithm, in which human agency was eschewed and decisions were boiled down to a single variable to be optimized. Pretty much everything else could be blissfully ignored.

Does a particular action further the mission of the enterprise? It doesn’t matter as long as the stock price goes up. Will a merger of two companies undermine market forces and restrain trade? Unless regulators can prove that prices will go up, they have no right to step in. What should govern relations between nations? They should simply pursue their interests.

These ideas failed for the same reason that the original theory of logical positivism did. The world is a messy place, with lots going on. You can’t simply boil complex problems down to a single variable—or even a limited set—and not lose important information in the process. The notion that you could was naive and reckless.

The Cost Of Carelessness

To understand why the Welch era went so badly, let’s look at one common practice that took hold in the 1980s and 90s: Offshoring. From a shareholder value perspective, it has an intuitive logic. You move your factory from high wage countries such as the US to low wage countries such as China and pocket the savings. You lower costs and increase profits, at least in the short-term.

Yet that analysis omits some important factors. First of all, it undermines trust among employees, suppliers and other partners when relationships are treated as purely transactions. Also, a Harvard study found that moving the factory floor thousands of miles away from R&D reduces knowledge transfer and has a negative effect on innovation.

Looking back, it’s easy to see how this played out at GE. The company became more profitable, but less productive. For decades, it failed to innovate. Its last major invention was the CT scanner, which came out in the 1970s, before Jack Welch took the helm. Today the company is worth about $60 billion, roughly the same as back in the 90s.

The results for society are just as clear. Our economy has become markedly less productive, less competitive and less dynamic. Purchasing power for most people has stagnated. Life expectancy in the US has decreased in a number of years over the past decade. Anxiety and depression, which have been rising for a while, accelerated during the pandemic.

Creating Mission-Driven Organizations

The statistician George Box famously said, “All models are wrong, but some are useful” and that’s especially true of economic models. When Ronald Coase argued that the “nature of a firm” was to reduce transaction costs, he didn’t mean that was the only purpose of an enterprise. To argue that there is a principal-agent problem between owners and managers should not imply that it only applies to profits.

In fact, as Andrew Winston and Paul Polman explain in their book Net Positive, many practices that aren’t sustainable depress profits in the long run. Running an enterprise that dismisses the interests of customers, partners and communities is destined for trouble. Sooner or later, there will be a reckoning.

In the final analysis, the purpose of an enterprise is its mission. When we think of great founders such as Henry Ford, Sam Walton and Steve Jobs, they had vastly different purposes in mind, but it was fulfilling that purpose that drove profits. Ford was passionate about the power of transportation. Walton was fanatical about serving the customer. Can you imagine what Steve Jobs would have said about an ugly product that could make him a lot of money?

That’s what we’ve gotten wrong over the last 50 years. We’ve been counting the wrong things. Economics should serve people, not the other way around. The success of a society needs to be measured by the well-being of those who live in it. If companies profit, but our people are impoverished, our air and water are more polluted, our children less educated, we live unhappy lives and die deaths of despair, what have we really gained?

— Article courtesy of the Digital Tonto blog
— Image credit: Unsplash

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Purpose Has Transformative Power

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Purpose Has Transformative Power

GUEST POST from Greg Satell

Wherever I go in the world to speak and advise organizations, I always get the same question: “How can I get people to listen to my ideas?” The truth is that no one wants to listen to your ideas unless they solve a problem that is meaningful to them. So many initiatives fail because leaders get so focused on their passion for an idea that they fail to communicate it effectively.

People already have enough going on in their lives with their own responsibilities, ambitions and dreams. They have families to take care of, friends that they want to spend time with and their own ideas that they want to pursue. The status quo always has inertia on its side and never yields its power gracefully.

The truth is that good ideas fail all the time. In the two decades I have been researching and advising leaders about transformation, what I have found is that few have trouble coming up with new concepts. The hard part is to get others to buy in and work together towards a common purpose. That can only be done in the context of shared sense of values and mission.

Why Occupy Not Only Failed, But Could Never Succeed

On September 17, 2011, #Occupy Wall Street took over Zuccotti Park, in the heart of the financial district in Lower Manhattan. Declaring, “We are the 99%,” they captured the attention of the nation and then the world, eventually growing to encompass protests in 951 cities across 82 countries.

The protesters were angry and rightly so. A global economic elite had bilked us out of trillions and then gotten off scot-free. However, despite all of the self-righteous indignation, they offered no alternate vision of how they wanted things to be. There were no proposals for legislation, alternative business models or anything else really, just anger and frustration.

As Joe Nocera noted in the New York Times, the Occupy movement “had plenty of grievances, aimed mainly at the ‘oppressive’ power of corporations,” but “never got beyond their own slogans.” It’s never enough to merely point out what you don’t like — you need to put forward a clear idea of what you want instead.

When General Stanley McChrystal sought to transform military operations in Iraq, his mantra was “it takes a network to defeat a network” and he built his strategy for change around that one basic principle. Lou Gerstner pulled off one of the most extraordinary turnarounds in history by refocusing his organization from its proprietary “stack” of products to its customers’ “stack” of business processes.

A sense of grievance is never enough to bring change about. You need to put forward an affirmative vision of tomorrow.

How the Mission Drives Your Strategy

We usually think of strategy as a rational, analytic activity, with teams of MBA’s poring over spreadsheets. We often forget that strategy has to have a purpose and that purpose is almost always personal and emotive. Great strategy starts, not with analysis, but from defining and committing to a mission.

Strategy is never created on an empty canvas. While we can make rational assessments about whether we want to pursue a strategy based on low costs, differentiation or an attractive niche. We can, through investments and divestments, fill in missing pieces on a PowerPoint chart, but the fate of a strategy ultimately hinges on personality and ambition.

The success of Apple can’t be separated from Steve Jobs’ ambition to weave technology and design into products that were “insanely great.” Southwest’s dominance in the travel industry is a direct consequence of Herb Kelleher’s mission of being “THE low cost airline,” which drove everything he did from the planes he bought to which routes he competed on.

As Adam Michnik, one of the key intellectual leaders behind the Solidarity movement in Poland, put it, “Start doing the things you think should be done, and start being what you think society should become. Do you believe in free speech? Then speak freely. Do you love the truth? Then tell it. Do you believe in an open society? Then act in the open. Do you believe in a decent and humane society? Then behave decently and humanely.”

Any vision for the future needs to be rooted in desire and desires are essentially personal. They are deeply entrenched in our sense of self.

The Value of Values

The 2008 financial crisis posed serious challenges for every business. With sales taking a nosedive, companies had to make painful cuts to rein in costs. In the vast majority of cases, that meant layoffs and millions lost their jobs. It’s one of those understandable misfortunes.e No one likes it, but few see alternatives.

The steel giant Nucor, however, had pledged never to lay off employees and it cost it dearly. In 2009, the company lost $294 million dollars. At the time, many saw the move as quixotic and impractical. Yet the results speak for themselves. Today the company is valued more than 30% higher than its closest rival ArcelorMittal S.A., with significantly higher profit margins and twice the return on equity.

In The Good Jobs Strategy MIT’s Zeynep Ton tells a similar story about Mercadona, Spain’s leading discount retailer, when it needed to cut costs in 2008. Rather than cut wages or reduce staff, it asked its employees to contribute ideas. The result was that it managed to reduce prices by 10% and increased its market share from 15% in 2008 to 20% in 2012.

Values are how an enterprise honors its purpose. Yet living up to them involves certain costs. You can’t say you value employees and then lay them off at the first sign of trouble, just like you can’t say you value innovation and obsess about quarterly earnings. You can’t commit to a purpose without making hard choices.

We Need to Start Asking Different Questions

When the Business Roundtable issued a statement in 2019 that discarded the old notion that the sole purpose of a business is to provide value to shareholders, many were dismayed. Some thought it was just another example of misguided altruism by “elites.” Others saw it as a cynical and disingenuous ploy.

The truth is that the whole idea of shareholder capitalism was a cop-out. It gave leaders an excuse for not making choices because it implied that whatever the stock market valued was somehow more relevant than human agency. The anonymous collective of the market was primary, while individual choice was considered to be less consequential.

The ascendant concept of “stakeholder capitalism,” unfortunately, isn’t much better. Surely we can’t value all stakeholders equally. So which communities should we choose to serve? Which consumers do we value over others? Which partners do we choose to get in bed with? What standards should we insist that our suppliers meet?

None of these are easy questions. If for instance, we stop working with suppliers who don’t meet certain environmental or governance standards, we take away jobs from certain communities and run the risk of diminishing our ability to serve our customers. So we need to be thoughtful and offer intelligent standards making tough and uncertain choices

The reason so many organizations find themselves unable to pursue a purpose isn’t because they don’t want to, but because it is hard. Purpose doesn’t begin with a single step, but with a diverging path. We must choose one direction at the expense of another, or stay mired and lost, unable to move forward.

— Article courtesy of the Digital Tonto blog
— Image credits: Dall-E

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Focus your Emotional Energy Purposefully

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Focus your Emotional Energy Purposefully

GUEST POST from Janet Sernack

When I exited my corporate career more than thirty-five years ago, I was privileged to be regarded and respected as the Fashion Direction Manager for the Grace Bros Department Store group, one of Australia’s most senior women in retail management. This launched my global reputation as a fashion and lifestyle marketing innovator. In this exciting role, I was responsible for designing and implementing a company-wide fashion information system for apparel, accessories, homeware, merchandising, and advertising.  This required me to focus my emotional energy on researching, analyzing, and conceptualizing global fashion and lifestyle trends and adapting them to suit the Australian consumer lifestyle.

It was a dream role before the invention of the Internet, the implosion of the mass media, and the dominance of fast fashion. It required our team to focus their emotional energy on intensively researching different global and diverse media sources, including yarn, textile, couture, designer, ready-to-wear shows, trade journals, magazines, and seasonal sales data. 

Generating creative thinking

Creativity is about connecting things, and in the fashion world, the best designers make the most unlikely connections to produce novel and wondrous creations. As my professional background included graphic and fashion design and marketing, I could further hone my associative (lateral and connective) thinking skills to think creatively and critically in this role. To focus my emotional energy and attention on guiding my intuition, values, and decisions on the needs and wants of buyers, merchandisers, marketers, and customers. To emerge, diverge and converge the key connections and patterns occurring globally in the fashion world and external complex fashion systems. I also learned the importance of being customer-focused and the value and role of being empathic with customers, manufacturers’ value chains and fashion information system users.

It was an incredibly emotional, physical, and stressful role, which required me to travel overseas four times a year to stay current on the different global fashion streams.

This caused my life to melt into being at work, the gym, or the airport.

Stress-induced exhaustion and burnout

This resulted in my first profound encounter with stress-induced exhaustion and burnout, which hit me right in the face one morning when my body refused to move, and I was unable to get out of bed.

I have also noticed that many of my global coaching clients have faced a similar challenge: stress-induced exhaustion and burnout. Fortunately, they can use the coaching partnership to unearth their particular pattern and unresourceful ways of being and learn how to focus their emotional energy to disrupt, dispute, and deviate from it into a more resourceful way of being and acting. However, it has shifted the coach’s role as a healer, making it even more critical in our current environment.

Focusing emotional energy on pursuing mattering, meaning and purposeful work

This ultimately manifests as a crisis and becomes a defining moment. In my case, I made a fundamental choice to focus emotional energy on pursuing meaning, mattering, and purposeful work, which still focuses my full attention and drives me today.

It created a “crack, “or an opening and threshold for making two fundamental choices: to embark on a healing journey to become the kind of person I wanted to be and to find a way to focus my emotional energy on making the difference I wanted to make in the world. 

This enabled me to use my knowledge, experience, and skills to establish Australia’s first design management consultancy.

What is emotional energy?

Emotional energy is the catalyst that fuels creativity, invention, and innovation.

Understanding and harnessing this energy inspires and motivates individuals to explore and embrace creative and critical thinking strategies, now in partnership with AI.

When a person’s emotional energy has contracted, it results in constrained, negative, pessimistic, and even catastrophic thinking habits, which have a toxic impact on the person’s identity and emotional and physical well-being.

This means there is no space, doorway, or threshold to take on anything new, novel, or different. Nor can they imagine what might be possible to evolve, advance, or transform their personal or professional lives in an uncertain future.

Emotional energy catalyses and directs your intrinsic motivation, conviction, hope, positivity, and optimism to approach your world purposefully, meaningfully, and differently.

When you are true to your calling or purpose, you will make extra efforts to be healthier, positively impact your well-being, and improve your resilience.

How does this apply to leadership in uncertain times?

“I think leaders need to remember that they are in the energy management business,” says Halsey. “Their role is to keep people focused, energized, and positive about themselves and their work. They may be unable to change external circumstances, but they can create a safe, nurturing, and empowering work environment. By setting clear goals, diagnosing individual needs, and providing the right leadership style, leaders can help their teams thrive—even in uncertain times.”

People want work to be less of a job and more of a calling.

According to Martin Seligman and Gabriella Rosen Kellerman in their book Tomorrowmind, a US-based research study that included two thousand employees of all ages, industries, tenures, and incomes, revealed that people craved more meaning at work regardless of sector or position. Everyone wanted work to be less of a job and more of a calling and gave their current jobs a rating of 49, which suggests that their “meaning cups” are only half full.

This search for meaning, mattering, and being of service to humanity in a different and value-adding way enables innovators, entrepreneurs and intrapreneurs to cultivate the emotional energy and develop the agility required to drive their creativity, invention and innovation endeavors. 

It is the most critical ingredient that motivates, empowers, enables, fuels and sustains innovators, entrepreneurs, and intrapreneurs to adapt, survive and thrive on the innovation roller coaster.

Channeling emotional energy meaningfully and purposefully

From my leadership training and coaching experience, I have learned that most people desperately want their lives to make sense and be meaningful and to know that who they are and what they do matters. It is possible to link meaning and mattering to being intentionally motivated and directed by your core values to make a difference and a contribution that provides value and significance to someone, a community, or society.  

  • Being purposeful

Being purposeful focuses your emotional energy, guides your life decisions influences your behaviors, shapes your goals, offers a sense of direction, and creates meaning. Rather than engaging in shallow, empty, or pointless activities, it gives you agency.

In our uncertain, volatile and disruptive world, it is crucial to think about your “purpose in life.” Be like an Entrepreneur and link your purpose as a guidepost to help you deal with uncertainty, navigate it better, mitigate the damaging effects of long-term stress, and become psychologically resilient.

People with a strong sense of purpose direct and focus their emotional energy on what really matters to them. They tend to be more agile and adaptive, hardier and resilient, and more able to refocus and recover quickly from adverse and catastrophic events.

According to McKinsey & Co.’s article “Igniting individual purpose in times of crisis,” purposeful people also live longer and healthier lives and are essential to employee experience. This results in higher levels of employee engagement, more substantial organizational commitment, and increased feelings of well-being. Like many entrepreneurs, people who find their purpose congruent with their jobs tend to get more meaning from their roles, making them more productive and more likely to outperform their peers.

How can you add more meaning, mattering and purpose?

Meaning is an outcome of purpose, and many people, due to their experience of the pandemic and hybrid workplace in a chaotic and uncertain world, are seeking to re-engage with their work and workplaces by focusing their emotional energy on improving their well-being and creating more purposeful, balanced, and meaningful lives.

This is a short section from our new book, “Conscious Innovation – Activating the Heart, Mind and Soul of Innovation”, which will be published in 2025.

Please find out more about our work at ImagineNation™.

Please find out about our collective learning products and tools, including The Coach for Innovators, Leaders, and Teams Certified Program, presented by Janet Sernack. It is a collaborative, intimate, and profoundly personalized innovation coaching and learning program supported by a global group of peers over 9-weeks. It can be customized as a bespoke corporate learning program.

It is a blended and transformational change and learning program that will give you a deep understanding of the language, principles, and applications of an ecosystem-focused, human-centric approach and emergent structure (Theory U) to innovation. It will also up-skill people and teams and develop their future fitness within your unique innovation context. Please find out more about our products and tools.

Image Credit: Unsplash

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Purpose Matters Because …

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Purpose Matters Because ...

GUEST POST from Greg Satell

When the Business Roundtable issued a statement in 2019 that discarded the old notion that the sole purpose of a business is to provide value to shareholders, many were dismayed. Some thought it was just another example of misguided altruism by “elites.” Others saw it as a cynical and disingenuous ploy.

Yet the primacy of shareholder value is hardly a well-established economic principle. The concept does not appear even once in Adam Smith’s seminal treatise, The Wealth of Nations. In fact, it is a relatively recent idea and when the economist Milton Friedman first proposed it in 1970, it was considered radical, even subversive, certainly not to be taken as gospel.

It has also been tremendously unsuccessful. Since Friedman’s essay we have become less productive, not more. One reason for the poor results is that Friedman and others like him failed to recognize that our economy is made up of people, not inanimate pieces of data that make up economic charts, and these people search for meaning and purpose in their lives.

Failed Cartesians

Often regarded as the father of modern philosophy, Rene Descartes was obsessed with human fallibility. Cursed with imperfect senses and emotions that can warp logic, he sought to build a new intellectual foundation based on cool, rational thought. “I think, therefore I am,” he wrote, proving that at least one thing could be known without referring to the use of the senses.

Descartes’ ideas led to the Rationalist school of philosophy as others tried to build on his work. The idea that, through pure reason, we could see truths with greater clarity held enormous attraction for intellectual giants such as Gottfried Leibniz and Baruch Spinoza. Unfortunately, other than in the field of mathematics, little was achieved.

That didn’t stop others from trying though. In the early 20th century, the Vienna Circle arose in response to the work of Ludwig Wittgenstein and others in order to create a logical system to guide human affairs. Wittgenstein himself would later disown it and Gödel’s incompleteness theorems would eventually expose the whole exercise as a failure.

Undeterred by centuries of failure, business consultants have tried to sell the same idea to executives. Yet despite fancy names like scientific management, financial engineering and six sigma, these didn’t fare any better. One study found that of 58 large companies that announced Six Sigma programs, 91 percent trailed the S&P 500 in stock performance.

Still, many remain undeterred. The idea of an infallible technocracy is just too tempting for many to resist.

The End Of History And The Washington Consensus

In 1992, Francis Fukuyama published The End of History to great acclaim. The Cold War had ended and capitalism was triumphant. Communism was shown to be a corrupt system bereft of any real legitimacy. It seemed that, as many philosophers had predicted, we had reached an end point in which human sociocultural evolution was complete.

A new ideology took hold, often referred to as the “Washington Consensus,” that preached fiscal discipline, free trade, privatization and deregulation. The world was going to be remade in capitalism’s image. Countries that hit hard times would be offered aid from multilateral institutions like the IMF and the World Bank in return for favored policy reforms.

Many pointed out that international bureaucrats were mandating policies for developing nations that citizens in their own countries would never accept. Strict austerity programs led to human costs that were both significant and real. In a sense, the Soviet error was being repeated. Ideology was being put before people.

Yet Fukuyama’s message had been misunderstood. His book was not meant as a prophecy, but as a warning. He pointed to the ancient Greek concept of thymos, a spirited blend of dignity and pride, to caution against rationalist explanations for human behavior. Given a choice between a well trod path and one less certain, he predicted that many will “set their eyes on a new and more distant journey.”

The Silicon Valley Myth

I was working on Wall Street in 1995 when the Netscape IPO hit like a bombshell. It was the first big Internet stock and, although originally priced at $14 per share, it opened at double that amount and quickly zoomed to $75. By the end of the day, it had settled back at $58.25 and, just like that, a tiny company with no profits was worth $2.9 billion.

It seemed crazy, but economists soon explained that certain conditions, such as negligible marginal costs and network effects, would lead to “winner take all markets” and increasing returns to investment. Venture capitalists who bet on this logic would, in many cases, become rich beyond their wildest dreams.

The conditions for increasing returns, however, only apply to a narrow swath of businesses, mostly limited to software and electronic gadgets. Nevertheless, entrepreneurs and their investors became convinced that they could apply the Silicon Valley model anywhere, leading to high profile failures like WeWork and Theranos.

That’s the Silicon Valley myth, that the rational logic of code can be applied to any problem. It’s the same fantasy that has been repeated throughout history, handed from Cartesians to logical positivists to “scientific” managers and now to the software engineers, puffed up with stock options who can’t seem to understand why everyone else doesn’t “get it.”

The costs have been substantial. Evidence suggests that the billions wantonly plowed into massive failures are crowding out real businesses. Productivity has been depressed for half a century. The Facebook papers revealed a culture that has lost its way, so single-mindedly focused on optimizing engagement it lost sight of the humanity it was supposed to engage.

Identity, Dignity And Purpose

If you believe in a rational Cartesian universe, a business is little more than a set of transactions. The nature of the firm, in this view, is simply to minimize transaction costs and skilled managers should focus on maximizing bargaining power among stakeholders in order to build a sustainable competitive advantage. Yet the world doesn’t actually work that way.

Consider the ultimatum game. One player is given a dollar and needs to propose how to split it with another player. If it is accepted, both players get the agreed upon shares. If it is not accepted, neither player gets anything. If the world was completely rational, the second player would accept even a single penny. After all, a penny is better than nothing.

Yet decades of experiments across different cultures show that most people do not accept a penny. In fact, offers of less than 30 cents are routinely rejected as unfair. It offends people’s dignity and sense of self. For many of the same reasons, there is increasing evidence that financial targets don’t motivate employees. No one wants to be a cog in someone else’s wheel.

That is the value of purpose. It bolsters, rather than undermines, our identity. When people feel that they are part of a common project, they feel a sense of ownership, that they are ends in themselves rather than means to an end. It uplifts, rather than demeans, us. It fortifies, rather than undermines, our spirit.

What separates great leaders from mediocre managers is that the leaders do more than calculate, they provide meaning to an endeavor that makes it more than merely a common enterprise. It becomes a collective mission.

— Article courtesy of the Digital Tonto blog
— Image credits: Unsplash

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Six Key Habits of Great Leaders

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Six Key Habits of Great Leaders

GUEST POST from David Burkus

In a world of growing complexity and seemingly constant crisis, we need great leaders more than ever. But when you look at the stories in the press or check the staggering numbers of burnout and disengagement in surveys, it seems like fewer and fewer leaders are rising to the challenge. It starts to seem like becoming a great leader is too complicated and nearly impossible.

But when you survey people on what makes them appreciate and follow leaders, it turns out there are just a few simple habits that set great leaders apart. Simple, but not necessarily easy.

In this article, we will explore what great leaders do across six key habits that make them influential and their teams successful.

1. Promote Purpose

The first habit great leaders do is to promote purpose. Great leaders understand the importance of connecting the larger organizational purpose to specific projects and tasks. They are able to do more than regurgitate the mission statement of the organization. They can draw a connection between the organizational purpose and the work of their specific team. In doing so, they inspire their team members to see the bigger picture and understand how their contributions align with the overall goals. Furthermore, great leaders shift the conversation towards “who” benefits from the work and promote pro-social purpose. This helps team members feel a sense of fulfillment and motivation in their work, knowing that they are making a positive impact.

2. Clarify Vision

The second habit great leaders do is to clarify vision. A clear vision is crucial for the success of any organization, and great leaders excel at explaining what success looks like and where the organization is heading. They are able to paint a vivid picture of the world or the specific people the organization serves and what it will look like when the vision is achieved. Even when plans change, great leaders provide a clear vision of what a good job looks like. They use the concept of “commander’s intent” to communicate the vision of a successful mission, ensuring that even in constant turmoil, everyone understands the desired outcome and can align their efforts accordingly.

3. Create Accountability

The third habit great leaders do is to create accountability. Great leaders understand the importance of holding people accountable to their jobs and calling them up to a higher standard. They ensure that individuals are held accountable to the result, not just the tasks. By providing the necessary resources for individuals to achieve their goals, great leaders empower their team members to take ownership of their work and deliver exceptional results. Leaders provide autonomy to team members, allowing them to decide how the work gets done. But they’re also reminding everyone on the team that autonomy means greater accountability to the team, not less. They are leaders who hold their team to a higher standard and encourage them to perform even greater.

4. Provide Fair Feedback

The fourth habit great leaders do is provide fair feedback. Feedback is a crucial tool for growth and development, and great leaders excel at providing fair feedback. They tailor their feedback to the individual’s situation, skills, resources, and accountability goals. Great leaders give feedback that is in equal proportion of positive to negative, focusing on building upon the great things. Poor leaders often spend most of their coaching time on constructive criticism—which can be demotivating and decrease performance. Instead, great leaders create a balance between appreciation and constructive criticism to motivate and improve performance, ensuring that team members feel valued and supported in their professional growth.

5. Build Safety

The fifth habit great leaders do is to build safety, as in psychological safety. A psychologically safe environment is essential for fostering innovation and growth, and great leaders understand this. They provide feedback in a way that does not blame individuals for things outside of their control, encouraging transparent and honest conversations about failures to extract lessons and improve. By establishing a culture of safety, great leaders create an atmosphere where team members feel comfortable taking risks and learning from their mistakes. This leads to increased creativity, collaboration, and ultimately, success.

6. Develop Oneself

The final habit great leaders do is to develop themselves. Great leaders recognize the importance of continuous learning and self-improvement. They take responsibility for developing themselves as well as others. With a growth mindset, they actively seek out new information and skills, constantly striving to become better leaders. Great leaders understand that they need to develop themselves in the areas that their team needs in order to be better leaders. By investing in their own growth, they set an example for their team members and inspire them to also pursue personal and professional development.

The habits discussed in this article are what make great leaders worth following. They’re simple, but not necessarily easy. And they need to be done on a regular basis. But great leaders understand the importance of these habits and strive to incorporate them into their leadership style. By promoting purpose, clarifying vision, creating accountability, providing fair feedback, building safety, and developing oneself, leaders can inspire their teams to do their best work ever.

Image credit: Pixabay

Originally published on DavidBurkus.com on August 21, 2023

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Five Secrets to Being a Great Team Player

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Five Secrets to Being a Great Team Player

GUEST POST from David Burkus

Our world requires collaboration. Just about every job now requires collaborating on teams and every employee’s calendar is full of evidence of collaboration. In one study, up to 85% of participants’ work weeks were spent working in direct collaboration or a result of collaboration with a team.

But it can be difficult to collaborate with people whose perspectives, preferences, and personalities are different from our own. Still, getting what you want from your work and career requires being a great team player. And if you want to be a leader, you’ll need to be a great team player first. (And really…that will never stop…even leaders often lead in teams.)

In this article, we’ll outline the five (5) essential qualities needed to become a great team player—and offer a few ways to develop those qualities and get them noticed.

1. Capable

The first quality is that great team players are capable. This is a fundamental quality of anyone working, really. You must have the necessary knowledge, skills, and abilities to do the tasks being asked of you. But on teams, it’s just as important to be seen as capable by the other members of your team. The team needs to know they can rely on you—and that when you say you’ll have something completed it will be completed on time and as you said.

Working with teams, the way you demonstrate your capability is two-fold: Do what you say you’re going to do, and don’t say something you don’t know to be true. Over time, keeping these two commitments will demonstrate that you can be relied on—because you are capable.

2. Humble

The second quality is that great team players are humble. While great team players are capable, they also don’t think too highly of the skills and knowledge they have. Great team players don’t think little of themselves, they just understand that the needs of the team come before their own. Humble teammates aren’t fighting for their ideas to be heard all the time or seeking to dominate in debates. Instead, they use their voice to amplify others and contribute the bigger, team-wide wins.

Working with teams, humility is often inferred based on behavior in meetings, whether in-person or virtual. Humble teammates aren’t trying to be the lead role in the meeting, instead they’re often acting as a facilitator ensuring every teammate has a chance to speak. And when they do speak, it’s often to build upon others’ ideas instead of constantly insisting on their own.

3. Helpful

The third quality is that great team players are helpful. The best way to put capabilities and humility into practice is by helping others on the team—not constantly trying to convince others to help you. Great team players are the ones in meetings thinking about what they can contribute and how they can help others get unstuck. At the same time, it’s important to be careful not to over-help and lose the needed time to complete your own commitments.

Working with teams, the easiest way to assess your helpfulness is to audit your calendar. Look at everything scheduled on your calendar last week and compared the appointments that furthered your personal goals versus the appointments that helped others hit their goals. You don’t want helpful appointments to dominate, or even be half and half. But if 25 percent of your calendar is spent helping others, then it’s a safe assumption that they see you as helpful.

4. Flexible

The fourth quality is that great team players are flexible. As teams work to complete projects, changes will happen—pivots are required. All work requires flexibility. But often in the face of change many people respond by becoming more stubborn and insisting even more on their original ideas or plan of action. Great team players serve the team by reading the changes in the environment and helping the plan pivot quickly.

Working with teams, the most common changes that require flexibility often happen around priorities. New tasks get added to the team’s list, or environmental changes reshuffle what is urgent. When that happens, taking the lead to check-in with the team and discuss how changes affect priorities can keep the team more productive and keep you seen as a flexible, but high performer.

5. Purposeful

The fifth quality is that great team players are purposeful. All great teams have a sense of purpose behind their work—they know why their work matters and that keeps them bonded together and motivated to achieve more. Great team players amplify this purpose by becoming a source of supporting stories and constant reminders about that purpose. This includes not just talking about why the work that team does matters, but also how it fits into the larger mission or vision of the organization and why that matters.

Working with teams, the easiest way to reinforce purpose is to share gratitude on a regular basis. But not just any old thank you note. Purposeful gratitude expresses appreciation for the effort someone else put in, but also includes a reminder of how that effort helped serve the purpose of the team. Regularly done, it not only builds camaraderie amongst the team, but it also enhances motivation.

As you review this list, one or two qualities probably stood out as ones you already embodied—but one or two probably stood out as ones you need to work on. That’s true for nearly everyone, and it creates a great plan of action. Get started improving where you need to—and get started getting noticed where you already shine. That will help you not only raise your own performance, but help support everyone else on the team as they do their best work ever.

Image credit: Unsplash

Originally published at https://davidburkus.com on April 10, 2023

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The Shareholder Value Myth

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The Shareholder Value Myth

GUEST POST from Greg Satell

The Business Roundtable, an influential group of almost 200 CEOs of America’s largest companies, a few years ago issued a statement that discarded the old notion that the sole purpose of a business is to provide value to shareholders. Instead, it advocated serving a diverse group of stakeholders including customers, employees, suppliers and communities.

The idea is not a new one. In fact, Jack Welch once called shareholder value the dumbest idea in the world. Nevertheless, The Wall Street Journal opinion page immediately pounced, suggesting that the move was just an attempt to “appease the socialists” and that it would undermine financial accountability.

It’s hard to see how acknowledging accountability to stakeholders other than investors would undermine accountability to investors. Shareholders, after all, have the power to fire CEOs. Even more importantly though, the notion that performance can be reduced down to a single metric is foolhardy and dangerous. Managing a business is simply tougher than that.

The Principal-Agent Problem

Every business seeks to make a profit. Ones that do not achieve that basic requirement do not stay in business for long. However, that doesn’t mean that the only reason a business exists is to make money. Clearly, in order to earn a profit over the long term, you need to provide value for others. Anybody who has ever run a business knows this.

Yet a large corporation is very different from an ordinary business in that there is what’s known as a principal-agent problem. The shareholders are a dispersed group that have relatively little information, while the managers of the business are a small group with an asymmetric informational advantage.

So you can see how the concept of shareholder value can be attractive. If you can reduce performance down to a single metric, such as stock performance, then the principal-agent problem is solved. Shareholders, as principal owners of the company, can hold managers, as their agents, accountable.

Yet this is a fantasy. There are many things that a manager can do, such as reducing investment or making a lot of sexy acquisitions, that can increase short-term financial performance, but hurt performance in the long run. So the concept of shareholder value has always been a murky one.

From Value Chains To Ecosystems

For decades, the dominant view of strategy was based on Michael Porter’s ideas about competitive advantage. In essence, he argued that the key to long-term success was to dominate the value chain by maximizing bargaining power among suppliers, customers, new market entrants and substitute goods.

Yet there was a fatal flaw in the notion that wasn’t always obvious. In an industrial economy, where technology is relatively static, value chains are stable. However, in a fast moving information economy, firms increasingly depend on ecosystems to compete. That drastically changes the game.

Ecosystems are nonlinear and complex. Power emanates from the center instead of at the top of a value chain. You move to the center by connecting out. So while an industry giant may possess significant bargaining power, exercising that bargaining power can be problematic, because it can weaken links to other nodes in the ecosystem.

So the increased emphasis on stakeholders is not merely some newfound socialistic altruism, but a realistic strategic shift. In a networked-driven world you need to continually widen and deepen links to other stakeholders within the ecosystem. That’s how you gain access to resources like talent, technology and information.
Building Power Through Gaining Trust

In a famous 1937 paper, Nobel Prize winning economist Ronald Coase argued that the function of a firm was to minimize transaction costs, especially information costs. For example, it makes sense to keep employees on staff, even if you might not need them today, so that you don’t need to search for people tomorrow when a job comes in.

Another way to minimize transaction costs is through building trustful relationships. If the stakeholders within ecosystems that you operate trust you, you gain greater access to information and decrease the amount of resources you need to spend on enforcing formal and informal norms. In fact, a study from Accenture Strategy recently found that building trust with stakeholders is increasingly becoming a competitive advantage.

In The Good Jobs Strategy MIT’s Zeynep Ton found that investing more in well-trained employees can actually lower costs and drive sales in the low-cost retail industry. While the sector is often thought of as highly transactional, her research indicates that a dedicated and skilled workforce results in less turnover, better customer service and greater efficiency.

For example, when the recession hit in 2008, Mercadona, Spain’s leading discount retailer, needed to cut costs. But rather than cutting wages or reducing staff, it asked its employees to contribute ideas. The result was that it managed to reduce prices by 10% and increased its market share from 15% in 2008 to 20% in 2012.

In other cases, competitors collaborate to improve their industrial ecosystems for customers. So it is should not be surprising that firms are increasingly investing in structures that are focused on ecosystems, such as Internet of Things Consortium, Partnership on AI and the Manufacturing Institutes. Again, power in an ecosystem resides at the center, not at the top, so to compete you have to connect.

Clearly, it could be argued that by investing in these partnerships, business are increasing shareholder value. However, to do so would be to essentially argue that investing in stakeholder ecosystems and pursuing shareholder value are equivalent, which reduces the debate to one of semantics rather than substance.

Manage For Mission, Not For Metrics

Perhaps one of the most interesting lines in the Business Roundtable statement was the assertion that “each of our individual companies serves its own corporate purpose,” because it acknowledges that the notion of purpose can’t be reduced to a single concept or metric.

Historically, the lines between industries were fairly clear-cut. Ford competed with GM and Chrysler. Later, foreign competition became more important, but the basic logic of the industry remained fairly stable: you produced cars and sold them to the public through a network of dealers.

Today, however, industry lines have blurred considerably. A company like Amazon competes with Walmart in retail, Microsoft, IBM and Google in cloud computing, and Netflix and Warner Media in entertainment. The company itself is much more than simply a bundle of operations competing in different value chains, but a platform for accessing a variety of ecosystems of talent, technology and information.

In much the same way, automobile manufacturers are making investments to transform themselves into mobility companies. To do so, they are building ecosystems made up of technology giants, startups and others. They are not seeking to “maximize bargaining power,” but rather to prepare for a future that hasn’t taken shape yet.

That’s why today, business leaders need to manage for mission, not for metrics. Building trustful relationships among a diverse set of stakeholders may not be as simple or as clear cut as “maximizing shareholder value,” but it’s increasing what profit-seeking businesses need to do to compete.

— Article courtesy of the Digital Tonto blog
— Image credit: Pixabay

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Leading with Purpose

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Inspiring Your Team to Innovate for a Better World

Leading with Purpose

GUEST POST from Art Inteligencia

In my work driving human-centered change and innovation, I constantly encounter one critical bottleneck: innovation fatigue. Teams are burned out from chasing incremental gains and feature releases that feel meaningless in the grand scheme. The truth is, in an age of perpetual disruption and global challenges, the transactional motivation of a paycheck or a bonus is no longer enough. To unlock true, sustainable, and groundbreaking innovation, leaders must tap into the most potent human fuel available: purpose.

Leading with purpose means defining a company’s existence by the positive impact it makes on the world, not just the profit it generates. This isn’t corporate social responsibility (CSR) as a separate program; it’s embedding a higher mission into the very core of your business model and challenging your teams to innovate against that purpose. When innovation is tied to solving a real-world problem—climate change, inequality, health access—it ceases to be a chore and becomes a moral imperative</ strong>. This transforms employee engagement into a personal crusade and is the engine of exponential change.

The Psychology of Purpose-Driven Innovation

Why does purpose drive better innovation? The answer lies in human psychology and organizational dynamics:

  • Unlocking Intrinsic Motivation: When employees believe their work matters, they shift from external rewards (salary) to internal rewards (meaning and mastery). Intrinsic motivation is the only reliable engine for the sustained, high-quality effort required for breakthrough innovation.
  • Fostering Psychological Safety: Innovating for a better world often requires radical, untested ideas that challenge the status quo. Purpose provides a North Star that justifies the risk. Teams feel safer proposing disruptive concepts if the ultimate goal is clearly noble and aligned with the company’s mission.
  • Attracting and Retaining Top Talent: Today’s most valuable talent—especially Millennials and Gen Z—demand that their employers align with their personal values. Purpose-driven companies don’t just hire employees; they recruit mission partners, dramatically lowering turnover and improving the quality of the talent pipeline.

The Purpose-Led Innovation Playbook for Leaders

Harnessing purpose requires more than a mission statement; it requires concrete organizational action.

1. Define the Problem, Not Just the Product (The North Star)

Your purpose must be defined in terms of a global or societal problem your company is uniquely positioned to solve. For example, a water technology company shouldn’t just focus on selling filtration units; their purpose is “ensuring access to clean, safe drinking water globally.” This shifts the team’s focus from product features to system-level innovation and forces them to explore adjacent, higher-impact solutions.

2. Democratize Impact: Purpose as a Portfolio

Purpose cannot be confined to the executive suite or the CSR department. Leaders must push the challenge down to every team. The accounting department can innovate around reducing energy consumption in data processing. The HR team can innovate around creating a truly equitable hiring system. Every function must be challenged to find their unique contribution to the greater mission, creating a purpose portfolio across the organization.

3. Measure Meaning: Calculate Purpose Return on Investment (P-ROI)

Innovation KPIs must reflect the purpose. Instead of merely measuring Q4 profit, measure the Purpose Return on Investment (P-ROI) — the financial gain achieved per unit of societal good (e.g., revenue generated per gallon of water saved, or profit earned per person positively impacted). This makes the connection between doing good and doing well undeniable and keeps purpose strategically funded.

The Guardrail: Avoiding the Trap of Purpose-Washing

If purpose is merely a marketing slogan and not an operational reality, it leads to cynicism and organizational collapse. Purpose-washing is the biggest threat to this strategy. Authenticity requires three things:

  • Transparency: Publicly reporting failures and challenges, not just successes.
  • Sacrifice: Being willing to exit profitable lines of business that conflict with your purpose (e.g., stopping the use of cheap, non-recyclable materials).
  • Consistency: Ensuring the purpose is reflected in the CEO’s compensation structure, the performance review criteria, and the capital allocation process.

Case Study 1: Patagonia and the Radical Purpose of Longevity

Challenge:

In the apparel industry, the business model is built on high volume and obsolescence. Patagonia’s founder, Yvon Chouinard, saw this as fundamentally at odds with his environmental purpose: “We’re in business to save our home planet.”

Purpose-Driven Innovation:

Patagonia innovated directly against the destructive industry standard by introducing the “Worn Wear” program. This wasn’t marketing; it was a radical business innovation. The company created the largest clothing repair facility in North America, actively encouraging customers not to buy new items but to repair the old ones. They challenged their design teams to innovate using circular economy principles — designing clothes to be easily repairable and, eventually, recyclable. Their famous 2011 “Don’t Buy This Jacket” campaign was an act of purpose-driven marketing that paradoxically drove long-term brand loyalty and sales growth.

The Result:

By innovating for product longevity and reduced consumption, Patagonia turned an environmental constraint into a massive competitive advantage. Customers pay a premium not just for quality, but for the moral alignment, proving that when purpose is real, it fuels a deeply disruptive form of innovation.

Case Study 2: Unilever’s Sustainable Living Plan (USLP)

Challenge:

As a global fast-moving consumer goods (FMCG) giant, Unilever was facing pressure to grow rapidly in emerging markets while simultaneously addressing massive supply chain, water consumption, and public health issues associated with its products.

Purpose-Driven Innovation:

Unilever launched the USLP, committing to decouple growth from its environmental footprint while increasing its positive social impact. This wasn’t a PR move; it was a strategic mandate that forced innovation across every brand. For example, the Lifebuoy soap brand was challenged not just to sell soap, but to promote health and hygiene education globally. The innovation wasn’t just in the product itself, but in the distribution and education models — creating low-cost, high-impact hygiene programs that simultaneously grew market share by building new consumer habits. Similarly, their product teams innovated packaging to reduce plastic use drastically, often finding cheaper, lighter, and more sustainable alternatives.

The Result:

Unilever found that its brands with the clearest social and environmental purpose (like Dove, Lifebuoy, and Ben & Jerry’s) consistently outperformed the rest of the portfolio, growing 50% faster and delivering 60% of the company’s growth. This is the irrefutable evidence that purpose is an innovation growth strategy, not a cost center.

The Agent of Change is no longer the CEO alone; it is the empowered employee, armed with a clear sense of purpose. Leaders must stop demanding innovation and start inspiring it by painting a vivid, compelling picture of the better world their team is building. This is how you move from incremental improvement to exponential, meaningful change. This is the ultimate form of human-centered leadership.

Go Ducks!

Extra Extra: Futurology is not fortune telling. Futurists use a scientific approach to create their deliverables, but a methodology and tools like those in FutureHacking™ can empower anyone to engage in futurology themselves.

Image credit: Unsplash

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Why Consumers Demand Purpose-Led Brands

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Authenticity as a Differentiator

Why Consumers Demand Purpose-Led Brands

GUEST POST from Art Inteligencia

In the past, competitive advantage was primarily defined by two metrics: price and feature set. A better product at a lower cost was the undeniable formula for market dominance. That formula is now obsolete. As a human-centered change and innovation thought leader, I argue that in today’s hyper-transparent, socially conscious economy, the ultimate non-replicable differentiator Authenticity. Consumers — particularly younger generations — are no longer just buying products; they are funding missions, endorsing values, and investing in brands that clearly and consistently demonstrate a purpose beyond profit. They demand purpose-led brands, and they use their purchasing power as a moral compass.

Authenticity is the seamless, genuine alignment between what a brand says, what a brand does, and what a brand believes. It is the absence of the “Purpose Gap” — the space between stated values (on the website) and observable behavior (in the supply chain or corporate policy). In the age of social media, where a single misstep or act of hypocrisy can be exposed globally and lead to immediate reputational crisis (often termed “cancel culture”), this gap is an existential threat. Conversely, a brand that lives its purpose creates an emotional resonance that transcends mere transaction, fostering loyalty that is fiercely resilient to price competition and feature parity.

The Three Pillars of Authentic Differentiation

For organizations to embed authenticity and purpose as strategic differentiators, they must focus on three core pillars:

  • 1. Consistency Across the Human Experience (Internal Alignment): Purpose must be lived first by the people. Employees are the brand’s first and most vocal authenticators. If the purpose doesn’t inform hiring, talent development, and daily operational policies, it fails immediately. This internal alignment is the bedrock of credibility that attracts and retains mission-driven talent, fueling the engine of innovation.
  • 2. Transparency in Action and Failure (Proof, Not Claims): Customers are skeptical of glossy claims. Authenticity requires radical transparency in demonstrating how the purpose is achieved. This means sharing progress metrics, admitting to shortcomings, and disclosing the difficult trade-offs made in pursuit of the mission. Proof of effort and an honest accounting of failure is more valuable than a claim of perfection.
  • 3. Co-Creation of Impact (Customer Empowerment): Purpose-led brands empower consumers to be active participants in the mission, not just passive donors. By allowing consumers to see their purchase directly contribute to the stated purpose, the brand moves from being a seller of goods to a facilitator of shared impact, deepening loyalty and providing critical feedback on how the mission can be innovated.

“Purpose is not a marketing campaign you run. It’s a design constraint you live by. If it doesn’t cost you something, it’s not a real purpose, and your customers know it.”

Case Study 1: TOMS – Institutionalizing Purpose-Driven Giving

The Challenge:

TOMS entered the highly competitive, low-barrier-to-entry footwear market, needing a powerful, unique reason for consumers to choose them over established, cheaper, or more fashionable brands.

The Authenticity Solution:

TOMS institutionalized purpose through its One for One® model. By making a direct, measurable commitment — for every pair of shoes purchased, a pair was given to a person in need — TOMS made its purpose a non-negotiable part of the product’s identity. The purchase wasn’t just acquiring footwear; it was participation in a charitable act. This wasn’t charity tacked on; it was the core business model, creating immediate, powerful differentiation and focusing early innovation efforts on scalable giving logistics.

The Market Impact:

This model created an instant, powerful emotional connection, turning customers into advocates who marketed the mission. While the model itself evolved over time (later shifting to commit one-third of profits to grassroots efforts), the original authenticity established TOMS as a pioneer of the purpose-led business. It proved that purpose, when baked into the economic structure, can justify a price premium and build profound loyalty that traditional advertising simply cannot achieve.

Case Study 2: Patagonia – Consistency and Environmental Advocacy

The Challenge:

Patagonia operates in the apparel industry, notorious for fast fashion, high waste, and opaque supply chains. Their challenge was maintaining authenticity while scaling globally, knowing that every business decision could be viewed as a compromise to their core environmental mission.

The Authenticity Solution:

Patagonia differentiates by making difficult, often counter-intuitive decisions that prove their commitment. Key examples include their infamous “Don’t Buy This Jacket” campaign, which directly challenged consumerism, and their dedication to repairing gear, not just replacing it, demonstrating a commitment to product longevity and the circular economy. Crucially, they use radical transparency regarding their supply chain, disclosing environmental footprints, and actively lobbying for climate policy changes—sometimes even taking political stances that risk short-term sales (e.g., suing federal governments over land protection).

The Market Impact:

Patagonia’s actions consistently reinforce its purpose as an environmental activist disguised as a clothing company. This consistency creates deep trust; consumers know that buying Patagonia is an endorsement of specific, aggressive environmental values. This dedication focuses their innovation on material science and durability, while their authenticity allows them to maintain a premium price point and creates a customer base that views the brand as an ally, not just a vendor. This is anti-fragile loyalty — loyalty that is strengthened, not weakened, by the brand’s ethical stance and political action.

The New Mandate: Purpose as the Core Innovation

The time for Purpose Washing
is over. Today’s consumers have highly sophisticated BS detectors and the digital tools to verify claims. For organizations seeking sustainable innovation, the purpose itself must become the core innovation. This means asking: How can our reason for being create value not just for shareholders, but for the world?

Authenticity is the dividend paid on decades of consistent, purpose-led behavior. It is the only true non-replicable competitive advantage remaining in a world where technology and feature parity are easily achieved. Leaders must stop viewing purpose as a charitable add-on and start treating it as a strategic design constraint for every business decision and innovation cycle. When you integrate your purpose so deeply that removing it would fundamentally destroy your business model, you have achieved authentic differentiation. That is the innovation that wins the future.

Extra Extra: Futurology is not fortune telling. Futurists use a scientific approach to create their deliverables, but a methodology and tools like those in FutureHacking™ can empower anyone to engage in futurology themselves.

Image credit: Pixabay

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