I wrote in an earlier blog that the choice between ‘head’ and ‘heart’ in business management is false. A linear, narrow, short-term focus on maximising profits – prioritising ‘the head’ – is often bad for business, as well as society.
If we reorient our understanding of ‘the company’ away from command and control of a set of structures and resources, towards a concept of a network of teams, this becomes more obvious. The question of values, purpose and engagement become central.
Commercial success tends to be most lasting when considered a by-product of the timeless maxim of Peter Drucker in 1973 that the purpose of a business is to create a customer. When highly engaged, innovative teams are energised to create, sustain and delight customers, then as a by-product they achieve great financial results – and the returns tend to be higher and more sustainable.
This phenomenon is well understood by many successful entrepreneurial business leaders. John Mackey, founder of the ethical supermarket chain Whole Foods, coined the term ‘the paradox of profits’ to describe how commercial success is not best achieved by aiming directly for it. He wrote:
“Just as happiness is best experienced by not aiming for it directly, profits are best achieved by not making them the primary goal of the business. They are the outcome when companies do business with a sense of higher purpose, build their businesses on love and caring instead of fear and stress.”
Summarising much of the recent evidence, I co-wrote an article for the European Drucker Society blog in November 2013, noting the principle of ‘obliquity’ – how companies that invested in their employees and their relationships with stakeholders outperformed those with a more narrow target on financial returns.
Values have a major impact in a negative way, also. The late Sumantra Ghoshal wisely warned us of this in an eloquent essay a decade ago, titled: ‘Bad Management Theories are Destroying Good Management Practices:
“Why … do we feel surprised by the fact that executives in Enron, Global Crossing, Tyco and scores of other companies granted themselves excessive stock options, treated their employees very badly, and took their customers for a ride when they could?”
The importance of values may help explain the long-term success of many family-owned firms. There is strong evidence that an emphasis on long-term well-being, rather than short-term profits, helps, as this report in the Harvard Business Review in 2012 recorded:
“Family businesses focus on resilience more than performance. They forgo the excess returns available during good times in order to increase their odds of survival during bad times.”
It doesn’t follow that good values are an absolute guarantee of success. Actually, no single discipline or dimension guarantees success, which is why I emphasise six broad categories in the 6 Box Leadership model. The point is different: it is that you cannot escape values, so it helps to have the right ones, and to understand your own beliefs.