Monday, June 6, 2011

The reality of perceptions.

090507_CB_WorfTN If some Klingons were sent to earth to determine how human business works they would most likely agree on one basic observation – it’s about people serving people.

Knowledge of any business has to start by answering three questions: what; how: and why?

What I found in working with many groups from various levels of awareness over a number of years is that the “what”, (product or service) of their companies was fairly well understood and endorsed at most levels. The “how” (method of production or delivery) was not always understood by all, but it seldom led to conflicting views. Responses to “why” the company existed invariably gave three answers: the majority would say “for profit”. Some would say “to create employment” and a small residue would argue “to serve customers”.

The “service” response was often based on either the company’s high level of customer focus where the company had such a practice, or mainly on some lofty mission, vision, or purpose statement that had been repeatedly rehearsed.

From a perceptions point of view we can identify three basic models plus one which we may have forgotten as our memory of the cold war fades:


The more popularly understood profit driven model assumes that the formation of companies is sourced from capital. Its purpose or motive is to make a profit or generate a return on the investment. In the process it “uses” means such as the market, labour, state services and outside suppliers.

clip_image004The wage driven model assumes that companies exist to employ people. The end purpose is wages and the means are the market, capital, state services and outside suppliers. On the surface, such a model would appear attractive, and indeed many in my workshops expressed some preference for it in an environment of high unemployment.

There is an assumption that the wage model simply won’t work because labour cannot ensure the same efficiencies as capital does. I’m not sure if this is true. The Mondragon labour co-operative in Spain is just one example of a highly successful and competitive labour driven model. Post war Japan saw its biggest growth when employment was a high priority and companies and government made that their focus. Of course, a competitive wage driven model has to adopt the same flexibility in wages as capital does in profits, which makes it a virtual non starter in the South African environment.

clip_image006The state or public sourced model with wages as its purpose has arguably been consigned to the trash heap. It lacks competitiveness and is hugely inefficient. But of course, it continues to exist in various forms such as in state owned enterprises, government and municipal services and NGO’s. The danger is that they can readily accommodate inefficiencies by easy access to taxpayers’ money and too often those that should be purely service driven become wage and employment driven. NGO’s such as charities are of course purely service driven with stringent disciplines imposed by scarcity of funds.


The market driven model assumes that companies exist to serve their customers. My illustration shows perhaps an idealistic sourcing of common intent and effort from the three main actors involved: capital, labour and state. But it need not depend on this categorisation. Indeed, any of the three could stand alone as the source, and view the others as “means”.

But this is the beauty of the market or service driven model. It evolves virtually naturally into a state of partnership because the end purpose is common, not self interest driven and not in conflict with the interests of another party. It is usually one that can be shared by all -- unless you are an anti-smoker working for a tobacco company!

The most important consideration with the market driven model is that it is not a “charity”. It has a contributory approach to society but does not and need not break the fundamental principles of sound business. It must adhere to the rules of legitimate transaction; ensure sustainability through healthy profitability, prudence and maximum efficiencies throughout the value-adding chain.

One could argue that any of the models shown can achieve competitiveness and viability if it sticks to those fundamental principles. It is just harder with some than with others.

These are not my own scientifically designed models: merely a reflection of how people perceive company behaviour. The conclusion that business is about people serving people can apply to any model. But I would argue that the one that best reflects this is the market driven model.

The philosopher Bertrand Russell once concluded that “there is no reality but our perception of it.” Perceptions create behaviour. We have for too long perceived the primary purpose of business as being about maximisation of profit. This automatic assumption has encouraged many sins. It is outdated but still firmly and broadly entrenched. But if it were authentic, then most company mission or purpose statements would simply be lying. The volumes of research that has shown that not all of the great entrepreneurs past and present were driven purely by the need to make a profit would also be false.

But that tide has been turning for quite a while now with international business trust research showing that the sound modern business is more likely than before to compromise share value if it were in the interest of broader society to do so. Latest voices to emphasise this point came from Bank of England Governor, Mervyn King who lambasted British Banks for “putting profits before customers”; and from our own Mervyn King (the governance expert) who recently argued that the exclusive focus on profit was outdated.

A shift away from the profit convention is not going to be easy while the raison d’être of business rests on an understanding that the human being is purely selfish and materialist by nature. This is the underpinning premise of Milton Friedman followers which in turn has condoned, cemented and encouraged ever increasing levels of greed-driven behaviour. Friedman’s understanding of psychology can be questioned. There are many more fundamental works in psychology, including those of Frankl and Jung, which argue that man’s search for meaning is mostly found in generous and outgoing behaviour. Then there’s social scientist Robert Winston’s postulate that caring for others is as basic and as strong a human instinct as survival is.

For decades we have allowed our understanding of economics to rely on the worst in the human spirit, culminating these past ten years in a period which our Mervyn King has described as “madness”. This can only be broken by a more generally held view that the real purpose of business is to serve, and profits, wages and taxes are merely the means to sustain it. Who knows? When that era dawns, public condemnation and consumer response to inappropriate behaviour will be a far greater punishment and deterrent than laws could ever be.

The service driven model has long been a reality for a number businesses and the people who run them – enough to show that it does not detract from profit, but indeed enhances tangible wealth creation upon which profit should be based. It does much, much more: it gives authenticity to the things business likes to say about itself.

Our business life will reach its ultimate desired state and maturity when it becomes the instrument for individual meaning rather than means. It is simply a matter of changing perceptions.

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