It is easy to become cynical when you write about business. The professional world contains mediocre people who get by on connections and charm. Global capitalism's daily grind can often destroy people as it makes decisions in amoral and bureaucratic ways. A cynic or nihilist would snidely chuckle at these realities and say that nothing can be changed and we must accept this adverse situation.
I come from a pragmatic point of view. Business is also a tremendous engine for wealth and good. Under the correct management, I have seen businesses transform communities and improve countless people's living standards. One of those people was me, and I dedicated my career to making business more sustainable, satisfying, and sane. It is a mission of mine. Today, I want to continue my series on changing our perspective on business transformation.
Since the founding of the Chicago School of Economics, a dominant theory has overcome business leadership. The approach is called the shareholder value hypothesis. It says that the only purpose of a business, especially a multinational corporation, is to generate profit and provide it to the shareholders who pay for the business. In its most simple formulation, the demands of customers, employees, the community surrounding the company, and the environment are less critical than shareholders.
It created plenty of wealth but was not shared equally, leading to the migration of manufacturing jobs to countries with lower wages. It also put power in the hands of people who knew accounting and sales. With a few changes in the accounts receivable report, or a budget cut, share prices would improve without a significant improvement in sales or customer satisfaction. It explains why Southwest Airlines neglected its primitive flight scheduling system until it failed and why a company like iHeart Media is canceling its 401k match. None of these things improved the business of helping customers; instead, they saved money to pay more significant dividends or buy back company stock to juice the share price.
We find ourselves amid an economy in recession and still generating record profits. The COVID-19 pandemic showed the bankruptcy of this approach because as the world slowed down, thanks to people getting sick and dying, the ultra-efficient networks of supply chains sputtered, and the economic principle of supply and demand began to drive up prices. These efficient systems could not handle disruption, and soon businesses are scrambling to find the raw materials they need to keep operating. People who warned that something like this might happen were shunned in plenty of corporate boardrooms because they were right. After all, there is nothing a potential master of the universe wants to hear less than they were wrong.
Consultants see this situation, and it is evident that we need to focus on making businesses more resilient and responsive to customers. Supply chains need to be more redundant so they can handle disruptions. Information Technology systems need less technical debt and better reliability. The decision-making process must focus on what suits customers and revenue so shareholders get paid with real profits instead of Two Olive solutions. Customer delivery will help fix many self-inflicted wounds that business has created over the last thirty years.
Agile plays a role by allowing people to measure more than dollars and cents. It holds a mirror up to the business; their leaders must be wise and humble enough to act on what they see. Resilience is a verb, and the professional class must practice it. It requires discipline and a sense of hard work, but it is possible.
Until next time.
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