This is part-three of a four-part series of blogs by our January Guest Blogger, Paul Barnett, that will be followed by a live event to further explore and discuss the issues raised. Part one explored the problems associated with how we think, define, measure and account for value, plus some of the consequences. In Part two he explained in more detail the impact of Valueism in relation to innovation. This third part will focus on the question of Value for Who?
Earlier in this series I stated my belief that the purpose of all businesses and organisation of all types, and in all sectors, should be the creation of value, where value is measured in terms of contribution to prosperity, and where prosperity is defined in terms of human flourishing. I explained the limitations of monetary value, and the inadequacy of price as measure of value, referencing Financial Times Columnist Martin Wolf and citing quotes about the limitations of Gross Domestic Product or Gross National Product that illustrated just how crude such measures of ‘prosperity’ are. I suggested profit should be seen as the means to an end, but it has become an end in itself with misuse of ideas such as maximising shareholder value. Finally, I argued that value is a judgement made by a customer, not something offered by a business or organisation.
Perhaps the biggest false assumption associated with the economic ideas that dominate today is found in the idea there is a fixed amount of value in a value chain to be competed for, as I explained in the second part in this series. The truth is, there are endless possibilities for creating value by collaborating and co-creating it with partners in value creation systems. In management speak the term stakeholders is usually used to describe those whom the firm both relies on yet completes with. I chose to call them partners instead. Better still, I think we would be wise to regard them as investors, since they all have a vested interest in their dealings with the firm or organisation – as employees, suppliers, distributors, customers, tax payers, citizens or communities, for example.
If we stop seeing them as stakeholders, and start seeing them as investors, we can begin to recognise the need to understand what return on investment they hope to earn. And, if measured, that in broader terms than monetary value, we can start to get a much more clearly defined picture of what value really means to each party. Then we can find ways to satisfy the return on investment requirements of each group with reduced conflicts of interests. To map the various interests, I like to use the term Value Scheme. It can be thought of as the design or blueprint that defines the value creation model of a business or organisation, or of a particular major project.
It is normal to think competing or conflicting stakeholder interests should be resolved by managing the trade-offs or through compromise. Where interests are thought of in only financial terms, and where the amount of value is thought to be limited, these two options seem to be inevitable. But, if we take Valueism’s broader definition of value when developing a value scheme, it is often possible to find a way to satisfy all parties.
As early as 1925 Mary Parker-Follett spoke of Constructive Conflict and Integrative Thinking. She saw conflict as being something that we can put to work since it stems from differences that need to be clearly defined and understood in order to conceive of creative solutions that integrate the interests of both, or multiple, positions to realise “plus-value” for all. This, she believed, is the unrealised potential in all except the most irreconcilable circumstances, which she accepted were possible, but much rarer than we might imagine.
More recently Prof. Roger Martin explored the idea of Integrative Thinking as a skill he detected in many great leaders. In his book, The Opposable Mind, he defined it as, “The ability to face constructively the tension of opposing ideas and, instead of choosing one at the expense of the other, generate a creative resolution of the tension in the form of a new idea that contains elements of the opposing ideas but is superior to each”. In truth, integrative thinking as Martin defines it, is a set of skills that help leaders find creative resolutions rather than accept trade-offs.
When combined with another leadership skill identified in successful executives by Parker-Follet, I believe Integrative thinking is can have a transformational impact. She referred to the other skills as exercising “power with”, rather than “power over”, employees. I suggest these concepts could be extended with great effectiveness to the management of relationships with all stakeholders, leading to collaboration in the co-creation of solutions that deliver greater value to all.
Let me explain the transformational impact by referring to the ideas in, The Design of Business: Why Design Thinking is the Next Competitive Advantage, Martin’s later book. He suggests the speed with which firms can take an innovative concept from being a mystery (something we can’t explain) to heuristic (a rule of thumb that guides us toward solution) to algorithm (a predictable formula for producing an answer), can massively enhance the performance of the organisation and is a great source of competitive advantage. I suggest that the speed will be determined by the degree to which employees and other stakeholders can be fully engaged in the process. And that will depend on the extent to which the solutions they seek will serve their own interest and the collective interests of them all.
The opposite is also true. By that I mean businesses and organisations will suffer a great disadvantage if they are unable to serve the interest of all stakeholders in an integrative way. But this is the fate of most businesses and organisations today, based on the myths that have been well defined in Economyths, and in the past two parts of this series of articles.
The bottom line is this, we need to re-frame the way we think, which is largely driven by the false ideas promoted by economists. We especially need to move beyond the neo-liberal economic ideas that still dominate. We need to adopt more civil economics to achieve a more civil economy which is driven by a set of principles that focus on collaboration in the co-creation of sustainable widely shared value. In other words, for the common good – the prosperity of all and human flourishing. The concept of the civil economy, and how if compares to today’s uncivil economy, are well summarised by Luigino Bruni of LUMSA University in Rome and Stefano Zamagni of the university of Bologna in their book, Civil Economics.
To summarise, Valueism is focused on the creation of value for all stakeholders, those with a vested interest in an enterprise. This requires new approaches to the way we think about value, and new tools such as the Value Scheme that help us map, articulate and integrate interests in mutually beneficial ways that generates greater total value, and greater value for each stakeholder group in all but the most intractable of circumstances. The result will be less trade-offs and a more civil economy.
In the next part of this series of blogs I will explore the question of “Value focused leadership”.
Paul Barnett is Founder & CEO of the Strategic Management Forum and will be delivering a series of Value Creation Masterclasses during 2019. The Strategic Management Forum is also hosting Scenario-based Strategy Masterclasses by Paul de Ruijters.
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