Tuesday, October 27, 2015

When business soars

A salute to the real spirit of free enterprise

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It’s become quite fashionable to bash business. This is not only because of the often irrational adherence to, and in some cases the revival of outdated ideologies, but the perceived transgressions of companies in customer service, approach to labour, and often anti-social behaviour such as price and supply collusion, corruption, environmental pollution and many others. As we saw with the recent Volkswagen emissions scandal, even the most trusted brands are capable of breaking that trust.

Then there’s the business environment itself, which has changed dramatically in the past four decades to become increasingly shorter term in thinking; profit maximising; shareholder value focused; inordinate and arguably unjustifiable executive reward systems; income disparities and inequality; declining labour participation and centralisation and growth of global capital and financial instruments.

It must be difficult to throw the business laundry in this murky water and expect it to emerge unstained. Those are the things that pre-occupy popular news headlines. They also completely overwhelm and distort the true spirit of free enterprise. But occasionally some do break the mould and serve as a reminder what business is about; that they indeed come from the real and original mould.

That original mould is confusing for ideologists who claim that they have been produced by a particular economic system or theory. In fact, for the most part they stand apart from systems and yet are crucial to them. It also leads to some comical assumptions by organisational theorists who believe that these majestic giants can be replicated through structure, strategic templates and reward systems pandering to the material self-gain of those involved.

There are three forces that account for entrepreneurial genius and they seldom exist in one person.

Discovery.

This is the real creative power of humanity. It can happen at any level, sometimes by accident and sometimes dating back years, even centuries, More often than not discoveries come from the unrecognised, unsung, often unrewarded and yet the true heroes of innovation – scientists, researchers, backroom developers and even the average Joe or Jane. Discoveries are independent of systems or social constructs. They are nurtured through curiosity, and reinforced by education and knowledge.

Innovation.

This takes discovery and converts it into practical application. It changes form into meaning. Again, this is aloof to economic systems and is also the outcome of curiosity as well as the core of all successful and sustainable ventures – usefulness to others.

Commercialisation.

This is crucial to the sustainability, development and growth of what has been discovered and invented. Without commercialisation the first two will either die or lie dormant. Its critical contribution is in attracting resources such as skills, capital and labour, ensuring a sustainable equilibrium in their distribution in production.

It is clear that economic systems play a critical role in this phase which can only be nurtured and sustained in an environment of individual freedom guided by the forces of legitimate transaction of supply, demand, price and competition. But it also has a few flaws.

One is the belief that the system alone creates the whole majestic process, to the extent of attributing it exclusively to the application and rewarding of capital, sometimes at the expense of other contributors. In the process, weight is giving to institutionalised abstracts such as capital or labour, as if they have a singular thought, motive or predictable behaviour. In truth they are an imperfect abstract of a multiplicity of constituent forces.

Another is the inordinate recognition both publically and materially, that it gives to a specific person or people involved in this phase and failing to recognise fully other contributors. Yet, one has to concede that true entrepreneurial flair lies largely in commercialisation.

The best example we have of this process has been space exploration. The first discovery that led ultimately to propulsion in space was the use of steam in the last century AD and then by the accidental use of gun-powder in China in the first century. Many steps followed, with one of the more significant being the development of the V2 rocket in Germany during the 2nd World War. Then came the “space race” which saw the Soviet Union launching first a satellite and then a manned craft into orbit, and later came America’s first moon landing. The development of space exploration up to that point was clearly independent of systems and regimes – from individual experimentation to large scale government involvement.

Today we are still in the early stages of full commercialisation of space activity, primarily through the use of satellite communication and exploring space travel. There is little doubt that private enterprise is going to play a leading role in the final conquest of space, especially with the entrepreneurial genius of people like Elon Musk.

The most fascinating part of all is what motivates the great minds and actors that have made such a difference to our lives. Our singular obsession with capital, specifically the profit motive, denigrates and demeans these contributions. It taints them with a brush of material self-gain which simply does not give credit to the real essence of their achievements – their ability to look way beyond self-gain, often to the extent of ignoring the accounting spreadsheets. (See what motivates Elon Musk here and others here)

Yet we try and replicate that genius in a collective called companies or “business”, subjecting them to a completely different, arguably very narrow, focus of return on capital. It leads to the kind of confusion the huge battery of organisational theorists now display – trying to define “purpose” and “profit” as separate, and yet insisting that they are the same; purpose simply being a means to a profit end. This eventually leads to semantic gobbledygook. (For latest example see Moneyweb article here).

Ultimately you can never buy entrepreneurial genius, only reward it.

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