GlaxoSmithKline say that they are “committed to the highest ethical standards” but have a bribery problem. Christine Lagarde of the IMF advises that banks remain unchanged since the financial crisis. The UK National Heath Service would crash planes regularly if it were an airline according to its inquiry chairman. And the FT’s Chief Economics correspondent laments the crisis of capitalism but sees no alternative. All in the same day.
At a London conference for “Inclusive Capitalism”, held within the same 24-hour news period, we also heard the narrative that change is vital for the survival of capitalism in the 21st Century. This is, of course, nothing new. It builds on a much broader movement calling for true purpose in doing business and in running our public service organizations. The problem with this narrative is that there is much rhetoric but little in the way of solutions offered. This is because there are very few who understand how we need to change.
At MI, we spend a lot of time contemplating the value question. Who gets value from our organizations? It is our firmly held view that organizations who focus on, and operate according to, the maximization of societal value, will actually maximize their own long term value. The most mature create the most wealth for the people and by the people.
A key Maturity “pillar” is an organization’s value motive so it is something we also measure – many firms talk about providing value to society, or aspire to it, but often their values may not be truly embedded or their internal systems (e.g. reward) may be geared to conflict with this aim. In both situations behaviour will typically skew firms away from it.
We have talked about societal value before and how our current business paradigm has created damage for us all. Our starting point is to look at value and how we can generate more value in simple terms – output, financials (revenue & cost), and quality. This applies to both private and public service organizations (for example, in a hospital, quality would include safety & standards of care).
There are many drivers of value. For example, innovation can drive these value aspects in a number of ways e.g. within healthcare, new approaches to become more cost efficient (without creating greater damage in quality terms), or using more effective (better quality) wound care. So value creation is framed as an overall increase or improvement in output, revenue/cost, and quality. Cost efficiency, which is often a primary goal of both private firms and government departments, should be considered in terms of total value (e.g. a surgeon can be highly efficient but harm the patient, or perhaps can only work at the highest standards that come at an unaffordable cost). Value therefore incorporates efficiency and effectiveness, doing what is fit for purpose at a price society can afford.
We seek to quantify value (and added value) in monetary terms (or make our best attempt) e.g. an investment in better patient service in a hospital might mean fewer complaints, staff being able to focus more on clinical issues, happier patients (and possibly better patient outcomes) etc. – not easy perhaps, but we can look at cost of investment versus anticipated benefits. We would start with a clear ‘baseline’ (e.g. measure patient outcomes, costs and satisfaction all at the same time) and then agree progress measures before monitoring over a given period (e.g. outcomes and satisfaction will hopefully improve while costs remain constant – exactly what the UK NHS has to do to survive within current budget constraints). And of course, it’s the human element (or in MI terms, the organization & HR maturity) that will be the key to any success (or failure) to create this additional value.
In theory, the public sector will generally look at broader aspects when looking at value for taxpayer money. Unfortunately, in the UK, the public sector has tended to focus more on cost efficiency to the detriment of other aspects of value. Professor Stephen Bach, interviewed by the BBC last year highlighted how this focus was manifesting in terms of societal value deterioration.
In terms of the private sector, there is clear evidence that it is not overly embroiled in wider value discussions (only by the small minority who we would argue are more “mature”). For Lagarde, the Banks remain the same and largely in denial about their responsibility for the GFC. Only last week I had conversations with managers from two major multinationals, who are either cutting staff or freezing permanent employee headcount – they both made it clear that no evaluation of value (other than cost) had been made in respect of this decision making and that they fully expect poor outcomes – e.g. temp workers to increase or former redundant staff to return as consultants, meaning cost efficiencies will not arise in the manner claimed, while output & quality (risk) issues are anticipated to arise as a result.
MI considers that value (& value motive) equates to an organization’s values i.e. those driven by profit without appropriate societal (human) values help to create an environment where ‘Rana Plazas’ can arise; those who are driven by purely ethical values (e.g. diversity advocates around quotas) can lose sight of the need for broader societal outcomes; while those with whole system, societal values get the best outcomes from the best use of human capital.
Our idea is simple. We need to engage more organizations in a discussion about their own maturity, how they can leverage more value and lower operational risk with respect to all human capital, and how this will be of benefit for us all. The solutions are not necessarily easy to implement and will not happen overnight but they are not difficult to understand. Until more firms do this, we will remain on our present course and stuck within our current paradigm.