Business Sutra |1.2 | Purpose of a Corporation

business-sutra-1Business Sutra |1| Corporations

In the opening part of the first episode of his TV serial, Business Sutra, Devdutt Pattanaik dwelt upon the subject of the Indian way of doing the business.

In our present post, we will have a detailed look at the second of the three parts of this episode.

Business Sutra |1.2 | Purpose of a Corporation

500 corporations control about seventy percent of world trade and each year approximately 3 million new limited liability companies are registered. The way these corporations are managed can therefore affect the potential for either positive or negative change, depending on the chosen stewardship. The biggest question we face goes to the very core of business: What is the purpose of these corporations?

However, the subject has ever remained any simple either in tone or in its content. Depending on the context, the related discussions have remained as much exhaustive as hotly debated.

The most discussed and debated view – The Social Responsibility of Business is to Increase its Profits -is attributed to Milton Friedman. The core of of Milton Friedman was: There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

One of the strongest rejoinder, and by now a fairly widely accepted view, is that of Peter Drucker. In his book The Practice of Management, Peter Drucker declares -“The purpose of a company is to create a customer” and “a business….is defined by the want the customer satisfies when he or she buys a product or a service. To satisfy the customer is the mission and purpose of every business.”

purpose-of-business-peter-drucker

The views expressed by our own Gandhiji also echo a similar sentiment.

purpose-of-business-mahatma-gandhi

Let us look at several other points of views so as to gather a wider perspective of the discussion:

In The meaning of Bill Gates has been discussed Bill Gates interpretation of the direction that Microsoft should take up on the basis of what was his understanding the then purpose of the organization.  As with many great innovations, Bill Gates’s vision has come to seem so obvious that it is hard to imagine the world any other way. Yet, early on, he grasped two things that were far from obvious at the time, and he grasped them more clearly and pursued them more fiercely than his rivals did at Commodore, MITS or even Apple.

The first was that computing could be a high-volume, low-margin business. Until Microsoft came along, the big money was in maintaining a select family of very grand mainframes. Gates realised that falling hardware costs, combined with the negligible expense of making extra copies of standard software, would turn the computer business on its head. Personal computers could be “on every desk and in every home”. Profit would come from selling a lot of them cheaply, not servicing a few at a great price. And the company that won a large market share at the start would prevail later on.

Gates also realized that making hardware and writing software could be stronger as separate businesses. Even as firms like Apple clung on to both the computer operating system and the hardware—just as mainframe companies had—Microsoft and Intel, which designed the PC’s microprocessors, blew computing’s business model apart. Hardware and software companies innovated in an ecosystem that the Wintel duopoly tightly controlled and—in spite of the bugs and crashes—used to reap vast economies of scale and profits. When mighty IBM unwittingly granted Microsoft the right to sell its PC operating system to other hardware firms, it did not see that it was creating legions of rivals for itself. Bill Gates did.

Noel Tichy and Ram Charan have unraveled Jack Welsh’s the then interpretation of GE’s purpose and the consequent direction GE ought to chart in Speed, Simplicity, Self-confidence: an interview with Jack Welsh: In 1981, Welch declared that the company would focus its operations on three “strategic circles”—core manufacturing units such as lighting and locomotives, technology-intensive businesses, and services—and that each of its businesses would rank first or second in its global market.

GE’s strategic redirection had essentially taken shape by the end of 1986. By then, Welch has embarked on a more imposing challenge: building a revitalized “human engine” to animate GE’s formidable “business engine.”

His program had two central objectives. First, he championed a company-wide drive to identify and eliminate unproductive work in order to energize GE’s employees. Second, and perhaps of even greater significance, Welch lead a transformation of attitudes at GE—struggling, in his words, to release “emotional energy” at all levels of the organization and encourage creativity and feelings of ownership and self-worth. His ultimate goal was to create an enterprise that can tap the benefits of global scale and diversity without the stifling costs of bureaucratic controls and hierarchical authority and without a managerial focus on personal power and self-perpetuation. This requires a transformation not only of systems and procedures, but also of people themselves.

In an HBR article, Ben W Heineman, Jr. presents Steve Jobs and the Purpose of the Corporation : His deep commitment was to make innovative, robust and beautiful products that delighted customers. There can also be no question that Jobs was not focused on shareholders or taking short-cuts or short-term actions to maximize shareholder value.

In a TED Talk, Profit is not always the point, Harish Manwani while presenting the Unilever Sustainable Living Plan, which said, “Our purpose is to make sustainable living commonplace, and we are going to change the lives of one billion people over 2020”, traces his own career of how this was and is being done.

In a paper published in 2011 – The Purpose of the Corporation in Business and Law School Curricula – Darrell West examines law and business school curricula to determine which perspectives are taught in professional education, and student perceptions about business schools based on surveys at leading business programs over the past decade. The paper concludes that having broader conceptions of corporate purpose is necessary to effectively address the ways in which corporations impact life in contemporary society.

Firms of Endearment: How World-Class Companies Profit from Passion and Purpose: Rajendra S. Sisodia, David B. Wolfe, Jagdish N. Sheth, Pearson Education, February 2014, Second Edition : Today’s greatest companies are fueled by passion and purpose, not cash. They earn large profits by helping all their stakeholders thrive: customers, investors, employees, partners, communities, and society. These rare, authentic firms of endearment act in powerfully positive ways that stakeholders recognize, value, admire, and even love. They make the world better by the way they do business-and the world responds. They had created radically new rules:

  • Build a high-performance business on love (It can be done. We’ll prove it.)
  • Help people find the self-actualization they’re so desperately seeking
  • Join capitalism’s radical social transformation—or fall by the wayside
  • Don’t just talk about creating a happy, productive workplace: DO IT!
  • Honor the unspoken emotional contract you share with your stakeholders
  • Create partner relationships that really are mutually beneficial
  • Build a company that communities welcome enthusiastically
  • Help all your stakeholders win, including your investors

Chris MacDonald proposes that it really is foolish to think that the purpose of a corporation is to make money. But that’s only because it’s foolish to think that corporations have purposes at all. That is, it’s foolish to think of a large, multifaceted organization as having a single, unitary “purpose” in the universe, rather than thinking of it as serving many purposes for many interested parties. Arguing over what a corporation is “really for” — building shareholder value? making products to make people happy? Providing jobs? etc. — is a fool’s errand. He poses a question: How you should behave yourself in the course of your job, in pursuit of your goals? This is a question of ethics. And that question is much more enlightening than some grand question about purposes.

The Purpose of the Corporation project has released a video animation to review the purpose of the corporation and the myths of the shareholder value maximisation model. A backgrounder is also available online offering further information and data studies.

The Project launched a global roundtable series on corporate governance that brought together experts from business, academia, regulators and civil society to discuss the future of big business. Events were held in London (September 2015), New York (June 2015), Zurich (October 2015) and Breukelen (The Netherlands – February 2016). Paris (April 2016), Oslo (August 2016). The results of the global roundtable series were presented at a high-level conference in September 2016.

The report is available here: http://www.purposeofcorporation.org/corporate-governance-for-a-changing-world_report.pdf

In his talk, Start With Why, Simon Sinek, consultant and author, explain the emergency for companies and organizations to wonder “why”: why, fundamentally, did they build up themselves, why do they exist and which are the values in which they believe? Each company owns a combination of three strategic components: why they exist (“Why”), how they to business (“How”) and what are its products and services (“What”). The specificity of this mix, if the company succeeds in expressing it, becomes its strength. Companies that understood this approach of leadership are more innovative and more long-lasting than the others.

How to Identify Your Team or Organization’s Purpose – Jesse Lyn Stoner seeks replies to these three questions

  1. What business are you really in? Who are your customers and what do they really need from you? Knowing “what business you’re really in” informs strategic decisions.
  2. What is the real value you offer? How do people benefit from what you offer? How does your service or product benefit society at large?  A significant and valuable purpose inspires commitment and provides meaning to daily activities.
  3. What is the end-result that you offer? Focusing on the end-result you create is engaging and energizing.

The Power of Purpose for Innovation and Transformation – Cheryl J Grise and Vallerie Keller – Successful companies embed purpose at the heart of their strategy. But how do you identify and articulate a company’s purpose? And, having done so, how do you translate it into successful innovation and strategic transformation? This article provides important insight into purpose-led transformation and how it can help build a better working world.

Thus far, we have had representative samples of what the West has to say on the subject of the purpose of the corporation.

Let us now look at what Devdutt Pattanaik has to say in Segment 2: Purpose of a Corporation.

The purpose of the organization can be represented in the form of concept of happiness or LSD.

Here are the key points from his present discourse:

In India the belief is also wealth and not the only wealth. The core question that most of us are faced with in our daily existence is that what is the purpose of a corporation? What is the motivation that should ideally drive a corporation?

Typically it should not be profitability because profitability is also equal to a certain efficient way of running a certain distribution of wealth. The profits can only come if you produce goods and products that consumers wanted, in the best most efficient manner.  Is the profitability the generosity, is it ambition, is it agreed.

lsdThe motivation of corporation is to create happiness. In India currency is of three types and it was represented using the three goddesses – one goddess who is sort of famous for sitting on a lotus everywhere in India, holding an pot overflowing with wealth. Another goddess is famous because she holds a veena in one hand and scriptures in the other hand.  She is he goddess of knowledge. There is a third goddess. She has a trident in her hand.  The first one is called Lakshmi[L], second one is Saraswati [S] and the third one is Durga[D].

One represents material wealth, the second represents the intellectual wealth and the third one is emotional wealth. These are the three things that human beings transact each other.  This also represents material needs, intellectual needs and the emotional needs of a human being. The organizations have to work at all three levels,

The question is of striking a balance somewhere along the line.

If you closely look at the balanced scored, it is about LSD.

“The number of people who are really motivated by money is very small,” Drucker once remarked. “Most people need to feel that they are here for a purpose, and unless an organization can connect to this need to leave something behind that makes this a better world, or at least a different one, it won’t be successful over time.”

Follow Drucker’s lead and change work from being transactional to transformative. Productivity will go up, and so will joy at work. We may call that positive business.

We will take up discussion of Short-term or long-term thinking (professionalism or family business), as presented in the Segment 3 of the first episode of Devdutt Pattanaik’s TV serial Business Sutra in our next episode.

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Carnival of Quality Management Articles and Blogs – February, 2017

Welcome to February, 2017 edition of Carnival of Quality Management Articles and Blogs.

We will commence our episode with a few articles on Quality in our daily life.

We will now turn to our regular sections:

I have picked up the question Using the 10:1 ratio rule and the 4:1 ratio rule from the section Ask The Experts, ASQ, for our current episode. The question deals with the field of confidence in the results of calibration employed in the metrological and statistical practices recommended for Measurement and Monitoring Equipment.

ASQ CEO, Bill Troy has presented Chris Moustakas ‘s guest article – Quality Management, Continuous Improvement, and Their Relation to the Golden Circle. Chris Quotes: “ In his famous Ted talk, Simon Sinek argues that if you look at the world through the simple concentric layers of why-how-what (the Golden Circle), and push yourself as close as possible to the center circle, “why,” you position yourself to be more of a visionary than a doer. “What” we do to accomplish a goal is tactical, bland, and uninspiring. “How” we set ourselves up to accomplish that goal is strategic and implies direction. “Why” we do what we do is the million-dollar question, and where true inspiration originates.”

The subject of Golden Circle is so engrossing that I plan to devote the rest of our present episode to a few more articles on the topic.

First things first. Let us look at Executive Summary: The Golden Circle with Simon Sinek  by: Andy Partridge. When most organisations or people think, act or communicate they do so from the outside in, from WHAT to WHY. And for good reason – they go from the tangible to the intangible. We say WHAT we do, we sometimes say HOW we do it, but rarely say WHY we do WHAT we do….But not the inspired leaders and companies. Every single one of them, regardless of their size or industry thinks, acts and communicates from the inside out.

simon-sinek-quote-hire-people-for-money

How Would Simon Sinek Use The Golden Circle Rules to Explain Account-Based Marketing? – Sangram Vajre proposes a similar model for B2B Marketing:

b2b-golden-circle-model

Intrapreneurship starts with a WHY – This is part of the series of posts talking about Ecosystem Design – We fancy a good revolution where there is not difference between a customer and a worker. The employees believe in our Why and because of this choose to work in the company, and the customer believes in our Why and choose to buy in our stores. One of our goals is to find customer who believe what we believe and work together so that we can all succeed.

The Golden Circle of Innovation” – Though not focusing on the why, how and what, Crossan and Apaydin have generated an overview of all relevant theories on innovation, resulting in a framework for innovation, as depicted below….They mention two ‘dimensions of innovation’, both focusing on innovation itself and they mention several ‘determinants of innovation’, focusing on the way that innovation is accelerated and managed within organizations.

framework-for-innovation

We now watch two of the latest ASQ TV  episode:

  • Using Quality Tools at Work and Home – Yvonne Howze describes how she successfully uses quality tools in her professional and personal life, often with amusing consequences.
  • SR Offers Opportunities for Quality Professionals – “Sustainability is the goal,” says Andrea Hoffmeier in this ASQTV interview. Hoffmeier, explains how quality professionals can play a role in helping their organizations and clients reach the goal of sustainability through social responsibility. She also discusses how DMAIC can be adapted for the SR audiences.
  • Sherlock Holmes and the Case of Quality Methods – Matthew Barsalou, Statistical Problem Resolution Master Black Belt at BorgWarner Turbo Systems Engineering GmbH, discusses Sherlock Holmes, hypotheses, and root cause.
  • Becoming—and Remaining—An Engaged Company – Alyce Nelson, Executive Coach & Quality Principal, FAS. Inc., discusses how to keep staff engaged and how to keep from derailing organizational engagement.

Jim L. Smith’s Jim’s Gems for the month of January,2017:

Quality at the Source : QATS can produce dramatic quality improvements: Jim's GemsIn its purest form QATS defines that quality output is not only measured at the end of the production line but at every step of the manufacturing process and being the responsibility of each individual who contributes to the production of on-time delivery of a product or service…There are simple techniques for QATS to work effectively:

  • No-fault forward
  • Standardized work
  • Prepare the most important resource
  • Self-checks
  • Successive checks
  • Mistake-proof

Get In Sync : How do you reach the highest level of willingness, the level at which you boldly step forward? Bottom line, make sure you’re in sync by doing what really matters…to you.

I look forward to your active participation in enriching the blog carnival as we pursue our journey in exploring the happenings across quality management blogs…………

Note: The images depicted here above are through courtesy of respective websites who have the copyrights for the respective images.