Tuesday 2 February 2010

Rethinking purpose and performance

THERE was certainly a lot of rethinking done on fundamental concepts at the World Economic Forum annual meeting in Davos last week. Themed "Improve the State of the World: Rethink, Redesign, Rebuild", the annual pilgrimage of world leaders, corporate captains, community leaders and other global movers and shakers took the opportunity on the world recovering from one of the most severe economic and financial catastrophes to shape a better tomorrow.

Not even capitalism was spared from being scrutinised, although the conclusion seems to be pointing not towards making any fundamental changes to the philosophy but more towards how capitalism should be applied to benefit the global society at large.

The key messages from the conversations at the annual meeting were pointed towards aligning purposes of organisations in the interest of society whilst at the same time not denying the rights of investors to create and receive value from their investments.

Despite the aggressive theme, the outcome could be viewed as basic.

It is a generally-accepted proposition that businesses are allowed to operate out of the licence provided by the society. Therefore, the behaviours of business and the outcome of their ventures should be aligned with the society's interest. Perhaps such simple principles have been forgotten by many industrialists, entrepreneurs and corporate captains in the pursuit of "success" — however, it was defined by these very people. The last global financial and economic crisis is a clear example.

In the session on Business Leadership for the 21st Century, Rosabeth Kanter from Harvard Business School shared her observations from research over five years on companies that had outperformed their peers during the crisis.

She articulated that these companies define their corporate purpose from the perspective of how they could serve the society, following which they developed business models from the defined purpose.

Agreeing with Kanter, Indra Nooyi — chairman and CEO of PepsiCo — provided insights on how her company integrated purpose into performance and stating that performance could only be delivered by ensuring the purpose is delivered at the same time.

By hardwiring incentive systems to purpose and performance, people in the company would work towards objectives which serve both the enterprise and society.

Other attributes of companies which have a fair level of sustainability, according to Kanter, were that they are involved in innovation, operate in sync with other stakeholders in the ecosystem and attract the best people.

According to Google CEO Eric Schmidt, innovation — apart from providing enterprises with competitive edge — serves the society as it transforms the world into a better place through the use of technology. Innovation also drives change and empowers people to shape their life.

This is also how real growth is generated: by bringing solutions to problems. People in companies need to be encouraged to look further than the needs of the enterprises to get the inspiration for innovation.

Engaging others in the ecosystem — such as community organisations and other stakeholders — would enable enterprises to have access to other competencies as well as developing understanding the real needs of the ecosystem. In fact, enterprises do not only create jobs on their own but through their network partners and supply chain, argues Kanter.

People are core to business sustainability, and the best people prefer to be more engaged and want to add value and contribute to problem solving. Competitive companies expect their people to be good at their jobs, while at the same time are excited and involved in issues of the communities around them.

Wang Jianzhou, chairman and CEO of China Mobile Communications, challenges the practice of analysts who focus on the short term and act on rumours. According to Jianzhou, management should focus on creating long term value and act based on realities on the ground rather than theoretical models.

In essence, the captains of industry who participated in the discussion agreed that enterprises need to align their purposes with interests of the society and develop business models on that premise. Off course, boards and management would continue to be challenged on short term performance.

This is where clarity in purpose and leadership would come into play. Boards and management should be able to demonstrate that the long term sustainability of business also means reasonable returns to shareholders in the immediate terms. The challenge is, of course, to balance between now and tomorrow, which is a dilemma in other aspects of life as well.

There is a similar discussion in Malaysia on how to ensure the corporate sector acts and behaves with high integrity and adds value to the society.

Under the National Integrity Plan, corporate integrity is the accumulation of the outcome from corporate governance, ethics and corporate social responsibility.

The conversation at Davos could certainly bring some ideas which we could emulate and adapt here. Certainly the "purpose and performance" approach as practiced by PepsiCo could be a model that we need to understand further and consider.

Combined with the experience of our home-grown institutions such as Petroliam Nasional Bhd (Petronas), we could certainly re-energise the essence of humanities into our corporations and enterprises in Malaysia.

This article was also published at the Edge Malaysia website here:


Christina Foo said...

Nik - I agree with you. There are a growing number of successful businesses, big and small who have found their purpose and are able to perform and satisfy the 3 Ps. Profits, people & planet. More Malaysian businesses should get into the act.

Careware-erp said...

In a nutshell : Profits by serving society with a social concience.