In 20 years of working in industry I’ve seen the good, the bad and the ugly, as well as the amazingly brilliant when it comes to business operating models. I have worked in organisations that have practised new models, to different degrees. The results were some of the fastest growing, and most successful, businesses in history. Social media will, and is, making new models of operation mandatory, rather than optional.

Business needs a new model that is better for shareholders, employees, customers and suppliers. We are striving towards that at Redcatco, and helping businesses that want to do the same, restoring the balance between the different stake holders. If your customers genuinely appreciate your business, and your employees act out of community, then the shareholders will receive all the value that they can handle.

Award Winning Business

A business that is a living example of doing things differently is Justgiving.com. I was at the RSA to see Zarine Kharas, the company’s co-founder, receive the 2009  Albert medal, joining holders that include Sir Tim Berners Lee in their number. She gave a lecture about what businesses need to do to create lasting social value: “The New Business of Business” (audio and video on The RSA site). Anne-Marie, Justgiving’s other co-founder was also there.

On a show of hands, around 95% of the audience had sponsored someone through the JustGiving site. That’s a very impressive market penetration for a business that didn’t exist a decade ago. There are over 7 million users on Justgiving now, and they have helped to raise over £400,000,000. Yes, I did get the 0’s right. 0.4 Billion, if that is easier on the eye.

I’ve written about philanthropy, and you might remember that I was Caught by CauseWired. That isn’t the topic here. Zarine was on to broader questions and the nature of business:

“Where are the moral questions in today’s economic dialogue?”

Social Separation

She cited the Archbishop of Canterbury, Rowan Williams’, recent speech in which he  pointed to the downturn as a reality check, but said that we are shrinking away from getting a (much needed) new perspective.

Zarine argued that we separate working and personal lives – Work is what you do to make a living, our good life, our moral life, is lived elsewhere. I would argue that our lives are even more fragmented than that, based on what we see with consumer behaviours.

I find it hard not to observe that social media and the growing popularity of personal-branding is blurring these bounds between work and play. Are you connected to your boss on Facebook? Do you blog at work under your own name? Are you that ‘snowboarding marketing’ person?

“What is needed above all is an understanding of how a variety of institutions can together contribute to producing a more decent economic world.”

Business and ethics are not incompatible, they go in hand in hand. That should be obvious, but has been blurred through recent corporate sagas. Ethics build trust, and, ultimately, business is based upon trust. In the same way, art and profit are also not mutually exclusive. Innovation itself is a creative process, and a markedly profitable one at that.

Corporately Responsible

In Zarine’s view, CSR (Corporate Social Responsibility) is a charade. In the vast majority of cases it ends up so divorced from the core business that it becomes almost meaningless, she says. I would agree. Whilst many businesses are doing some well intentioned things, the danger is that one ends up with a situation where “they, over there” are responsible for the social responsibility and tackling issues to do with sustainability. It is the same danger that businesses face when they create “innovation teams”. These are functions that have to be embedded into the heart of the business, as a shared responsibility.

It is time to relook at the purpose of business itself. Zarine reminded the audience that it is a debate that goes back to the reformation. R H Tawney “Religion And The Rise Of Capitalism” was cited as a must read on the origins of the idea that “The business of business is business, and should be kept separate from the business of society itself.” We haven’t had businesses, as we know them today, forever. There is no reason that they are necessarily part of our long-term future, in their current form.

Business Beyond Profit

The idea of ‘maximising shareholder value’ as the sole objective of the business needs to be thrown out. None other than Jack Welch, famed business champion, himself said that shareholder value is “the dumbest idea in the world“. Profit is a result, an output, not a strategy.

“Your main constituencies are your employees, customers and products.” Jack Welch

It is only when companies move away from the maximisation of profit as their primary goal that lasting value can actually be created. Profit is a by-product of something much greater, argued Zarine, and that is: creating a great product, serving customers, employees and all stakeholders in a balanced way.

“There needs to be a concensus that success is not only measured in profit, not only in growth.”

Perhaps the recent financial crisis can shake us into that? Huge profits. Uncharted risks. Immeasurable destruction of value. I’ve served on audit and disclosure committees of some big businesses. The more deeply I understand modern accounting, the more I see how profit is a short-term variable, manipulable through the magic of accounting, even when that accounting is conducted under strict guidelines. 

“Shareholders need to cease their folly of a relentless quest for growth at unsustainable levels.”

From Business Tactics to Social Strategies

That also means understanding that decisions that have a short term negative inpact on profit can have a long term positive effect. For me this is the essence of strategic thinking: Lose the battle, but win the war. Quarterly profit targets drive behaviours that are focussed on winning every battle. Eventually the company looses the bigger war, with chapter 11 or simple oblivion following shortly afterwards.

“Actions that generate trust generate greater value”

People need to stop seeking the best price, argued Zaraine, but instead start looking a best value, and long term impact. “Cheap” often turns out to be expensive. I know from my experience in running manufacturing functions that this is very true, but little understood.

Where does the change start? Zarine says it must start with companies themselves, and with the behaviour of all employees – how they interact with each other and with others outside the business. That means you and me.

Interestingly, Zarine is unconvinced about the idea of social enterprises. She said, “consider not what a company does, but how it does it,” and was very clear that Justgiving is a business, not a charity. There are profits, which are invested back into  the business, and there is a small profit share for employees.

Profit is a sensible goal, when it is not the only goal. Zarine says what has been lost is the central purpose of a business: a satisfying life for employees and a reasonable (emphasis on REASONABLE) financial return. 

Throw Away the Rules to Get Mores

Justgiving have thrown away the rule book, instead they trust people to do the right thing. I know some other businesses that have done the same, and I’ll be writing about them soon. Imagine no expenses policy. No holiday rules. HR people will faint, but Zarine cites other businesses, including Ricardo Semler of Semco, who also run a very different model. Ricardo says the obsession with control is a delusion, and increasingly a fatal busness error. 

“We reach for rules and controls. We all succumb to the temptation. Companies, charities, on and on… …The idea that we can control these things is a vain hope”

It reminds me of something that I first read in a Covey book: Rules can never make up for mores (social norms). To put it another way, you can never legislate for good behaviour. Good behaviour comes from accountability, and accountability comes from transparency. That is one of the reasons that I believe social media can be so transformative in a business.

Justgiving isn’t perfect, and they know it “we fail at this every day.” – Rules become obsolete almost the moment we write them in today’s fast paced business environment. Rules bring out the worst in us, and to that end Justgiving have one rule: to have as few rules as possible. They have even experimented with letting employees set their own salaries.

What ensures that people do the right things? It isn’t rules, that is for sure. Zarine quoted the UK Home Secretary, Jacqui Smith, who was recently in hot water over her  expenses. When questioned about suspect claims, she said, “I followed the rules. I sought advice. I followed that advice. I have done nothing wrong.”

Because she followed the rules she had done nothing wrong. Imagine that in the context of trying to build a high-risk, innovative business. In an environment based on mores, shared understandings and values, people come to work to do the right thing. Trust, and peer pressure, combine with the desire to do the right things, to provide the glue that holds people together. Rules, argued Zarine, breed mediocrity. She describes the Justgiving environment in this way:

“We aim to have honest conversations with each other – difficult ones, to endlessly debate how to serve customers better.” Far from being a soft environment, it is a tough one, “Decisions are made on facts, not on egos; [it is a place] where innovation happens without fear of failure.”

New Structures – Beyond Command and Control

They don’t have an org chart for the business, they work in project teams which dissolve and reform. People you have relationship with hold you accountable, not distant managers. I would go along with Zarine’s view that the structures of the Victorian age and the production line are not appropriate for the Internet era.

This all sounds simple, but is very difficult in practice. We are educated to be compliant, rather than questioning, but innovation starts with questioning, and compliance does not breed trust. Creating a more ‘open’ organisation is a long journey. It took over seven years for Semco. One audience member asked how this might work in their National Health Service trust. There are definitely challenges.

When people feel themselves to be highly accountable to their peers, when they are motivated by a sense of involvement “That’s when they perform to the best of their abilities, out  of respect for and commitment to their team, to their customers, to their shareholders. Where they have a meaningful say in the business, they do not have to be told what to do.”

Adam Smith, 250 years ago, recognised that an economy requires other values and commitments, such as mutual trust and confidence, in order to work.

“We don’t need ethics workshops or corporate citizenship lectures, just good old fashioned trust and the freedom to do the right thing.”

Get Innovating

Social innovation is open to all businesses that truly want it. Whilst employees might be more geographically dispersed than they once were, the technologies exist to re-integrate them and rebuild the relationships and trust that are so essential to running an effective business. Those relationships can be extended beyond company boundaries, to build effective communities with customers, partners and shareholders. Social media is making businesses more accountable than they have been in living memory. Consumers are becoming activists and campaigners, and what goes on inside of the walls of a company no longer remains there (see Dominos Pizza – Why Everyone is in PR Now and Employee Engagement Matters).

The best way for businesses to respond, is to embrace the new communication media that the Internet has enabled, and use them to build trusted relationships and to transform the business.