[Publishedin Chartered Secretary, Journal of Institute of Company Secretaries of India, Feb 2011]
A paradigm, defined in simple terms, is a way of thinking or doing things based on a particular vision of reality. When we examine the evolution of business we may discern six paradigms of business that shaped the modern corporate world. This article examines these paradigms in a holistic perspective, bringing out their advantages and drawbacks and with an indication of future possibilities.
Wall street Capitalist; growth maniac; humanist; customer driven; knowledge-intensive; society- builder; paradigm of the future.
Wall street Capitalist
he first paradigm belongs to the most orthodox and traditional form of Wall street capitalism. In this paradigm the main focus is on shareholder values or to maximize the wealth of shareholders. The primary attention of management revolves around shares, dividends, market-capitalisation, stock-market manipulations. All other things like employee development or wellbeing or customer satisfaction are either secondary or only a means to fatten the purse of the shareholder. The limitations of this paradigm are obvious. In a just and fare perspective of business the wealth that is created has to be shared equally with those who create and sustain the organisation. Shareholders are only one among these stakeholders. Other stakeholders like customers and employees are atleast as important as shareholders. But still, there are a considerable number of entrepreneurs who consider enhancing shareholder value as the main aim of business.
The Growth Maniac
The second paradigm is based on the idea of growth. The main objective of this paradigm is constant growth in terms of size, marketshare, profitability or productivity. All other objectives are secondary or subordinate or only a means to this incessant growth. The companies, that pursue this paradigm, seek for two forms of growth. First is in terms of size through diversification, expansion, mergers and acquisitions or in terms of market-share through an aggressive marketing strategy or creating new marketspace or industry through breakthrough innovations. The other form of growth is in terms continuous improvement in operational efficiency, productivity or cost-reduction. As Aditya Vikram Birla of Birla group explains: “To keep on modernizing updating, debottlenecking, cost cutting, increasing productivity (including capacities) by technological improvement, this is what we enjoy.” (1)
The most successful and well-managed companies like for example like Birla or Reliance group are able to pursue these two aspects of growth simultaneously. But in most companies there is a trade-off. For example those companies, which pursue growth interms of size or market-share, tend to loose on profitability. As the eminent strategy guru Michael Potter points out: “there are many companies with small market-share that are more profitable.” (2) Secondly size and growth are not always the sign of a great company. As Peter Drucker puts it bluntly: “The idea that growth is by itself a goal is a delusion. There is no value in a company getting bigger.” (3) So getting bigger or growing faster does not always lead to a better company. Some of the latest research and studies on corporate growth shows that growth-maniacs get into many difficulties like loss of profitability, saturated market, shortage of resources, loss of customer satisfaction. The other more crucial loss is in the realm of motivation and human growth. The company becomes a growth engine with nothing inspiring, meaningful or fulfilling to the human soul.
This is not to deny or belittle the need for growth. We are part of a changing and evolving world and any human organism, which doesn’t progress, tends to disintegrate. But for an effective, sustainable growth it has to be a balanced progress with an emphasis on human, qualitative growth that brings or leads to greater human creativity, well-being, fulfillment and a better quality of life for people. It must also be a more inclusive growth which goes beyond the organization to embrace other stakeholders like customer and the community, sharing resources, wealth, expertise and growth opportunities with them and helping them also to grow.
The third paradigm is based on the idea that people are the most important resource of an organization. In this paradigm the predominant emphasis would be on human factors like employee development and wellbeing, caring for people, teamwork, interpersonal harmony, good labour-management relation. The other aspects of the humanist paradigm are ethics and values. The true humanist is always honest and ethical and committed to enduring human values like truth, liberty, equality, justice, fareness, kindness and compassion. The humanist paradigm, when it is put into practice with sufficient sincerity and effectiveness leads to a great workplace where people love to work. Among business leaders J.R.D. Tata is an archetypal humanist entrepreneur. And in the Tata group, Tata Steel with its motto, “we make human growth opportunities, we also make steel” is making an honest attempt to live the humanist vision of its founders.
However for a business organization operating in a fiercely competitive corporate environment, creating a great and humane workplace cannot be an end in itself. The humanist paradigm in business has to ensure that human growth is channelised properly towards the realization of business goals like profitability, productivity, quality and customer satisfaction, which lead to success in the market-place.
This paradigm recognizes the fact that serving the needs of the customer and not fattening the purse of the shareholders is the main purpose of a business organization. However the present corporate manthra, “Customer is the king” is not entirely the result of this recognition of the intrinsic worth of the customer. The emerging corporate world is moving form a seller to a buyer’s market. In a fiercely competitive environment where customer has many choices focusing on the customer needs has become a pragmatic necessity for survival.
But in a truly customer-centric paradigm the customer focus is based on an existential and intrinsic worth of serving the customer as the main purpose of the organization and not merely a competitive strategy for survival or success in the market place. In a customer-driven organization customer-service is not the exclusive function of sales and marketing. The entire organizations, its every function and activity, including those related to technology or manufacturing or research and development, are oriented towards “customer delight,” which means understanding the actual needs of the customer and fulfilling it in such a way that it exceeds the expectation of the customer.
In a customer-centric company, quality, technology and innovation are measured in terms of customer satisfaction. Quality is what the customer wants. And technology or innovation is not for its own sake but has to serve the customer needs. As Michael Dell, the founder of Dell Computer once said that in his company technology is not technology’s sake but for customer sake. The “Saturn Project” of Ford is a classic example of a customer-focused project management. In the traditional business models, the price of the product is fixed by adding profit to the cost of production. But in Saturn Project, price is determined after an extensive research and analysis of customer perceptions of what they are willing to pay for a product. From this customer perception the product is reverse engineered with the entire project and every functions like design, manufacturing, quality, costing, marketing, vendor-development, working in close collaboration to produce and sell the product at the customer-driven pricing.
However customer driven paradigms has to understand that the responsibility of a business organization is not confined to the customer alone but includes the employee and the society. So the customer cannot always be the “king” because a customer needs which goes against the wellbeing of the employee and society is not worth satisfying. For example the average customer in general prefers products that are cheaper and easy to use even though they may be harmful to the environment or to their own health in the long-term. If an organization sells such products because customers wants it, knowing fully well the harmful consequences of the product for the customer or environment, then the company is doing disservice to the society as well as the customer. The other important factor, which is beginning to be recognized in modern management thought, is that customer satisfaction depends very much on employee satisfaction. Unhappy and dissatisfied employees, especially if they are front-end workers who are in direct contact with the customers, cannot bring customer delight. So the customer satisfaction has to be viewed in a more holistic perspective, including the satisfaction and wellbeing of other stakeholders of the organization like employees and the community.
Much has been said and written about the “knowledge-economy” and “knowledge-society”. We are constantly told by management pundits that in the emerging world “knowledge” and not capital or “labour” will be the primary resource. With the advent of industrial revolution, which brought modern technology to business, the corporate world is becoming increasingly knowledge-intensive. The dawn of scientific management, emergence of management as an academic and professional discipline, mushrooming of consultancy firms, rapid growth of electronic, computer and information technology industries, these are some of the major landmarks in the evolution of knowledge-economy and the emergence of knowledge-intensive industries. Most of the high-tech firms in computer, electronics, software, aerospace or pharmaceuticals pursue a predominantly knowledge intensive paradigm.
In a knowledge-intensive paradigm the predominant values are technological leadership, constant innovation, research and development, knowledge-management, talent retention. Here again whatever we have said on customer-centric paradigm applies equally to knowledge-intensive industries. The success of knowledge-intensive paradigm depends on the quality of its knowledge-workers. So the primary emphasis of the “knowledge corporation” has to be not on developing the external infrastructure or machinery of knowledge generation or management but on attracting and retaining top-class knowledge-workers and enhancing their motivation and productivity. Similarly, as a business paradigm knowledge cannot be pursued for its own sake but has to be applied for fulfilling customer needs.
There are a few firms founded by technical experts which pursued technological excellence for its own sake like for example Cray Research Inc. founded by a computer wizard, Saymour Cray, with a mission, “To design and build a larger and more powerful computer than anyone now has.” But most of them including Cray, failed in the market-place and disappeared because, as we have said earlier, a business organization cannot become commercially viable without a clear and strong focus on fulfilling the needs of the customer.
The Society- builder
A business organization is not an island floating in vacuum; it is part of the larger economic and social environment and draws its resources from Nature. So the corporation has a social responsibility not only for creating wealth but also for equitable distribution of wealth in the society. Similarly, an organization, which draws energy and resources from Nature, has an ecological responsibility to ensure that resources are used prudently according to the limits and laws of Nature with minimum damage to the natural environment. This is the rationale behind the concept of Corporate Social Responsibility (CSR), which is gaining increasing acceptance among corporate leaders.
However the concept of CSR must go beyond sharing wealth or isolated “projects” towards an active and creative participation of the corporate in building the community. This means not only wealth in the form of charity but also the skill and expertise of the company have to be shared with the community. Among corporate leaders J.R.D. Tata had this more dynamic vision of CSR. He said,
“Every company has a special continuing responsibility towards people of the area in which it is located. The company should spare its engineers, doctors, managers to advise the people of the villages and supervise new developments undertaken by cooperative effort between them and the company.” (4)
In other words, the company must not only create economic wealth and be a source of prosperity to the community but also provide active and continuous help in the social ecological and cultural development of the community. Tex Gunning, a vice-president of Unilever Group made the following interesting observation which sums up the credo of the society-builder paradigm:
“Earning money was essential but it was not the essence of life. Companies have to create social capital, economic capital, spiritual capital and intellectual capital. Companies that don’t create this kind of wealth would be dissolved or swept away.” (5)
This is the paradigm of the society-builder, which views a business organization as an integral part of the larger community and a steward of society’s resources. The society-builder shares its wealth, resources, knowledge, expertise and skill on a continous on-going basis for the progress, well being and development of the larger community of which it is a part.
The society-builder paradigm has not been implemented in its fullness in the corporate world. However there is a company, which has built a successful business model around the core values of ethics, corporate social responsibility and sustainability. It is The Body Shop of Anita Roddick with the following mission-statement:
- dedicate our business to the pursuit of social and environmental change
- creatively balance the financial and human needs of our stakeholders: employees, customers, franchisees, suppliers and shareholders
- courageously ensure that our business is ecologically sustainable: meeting the needs of the present without compromising the future
- meaningfully contribute to local, national and international communities in which we trade, by adopting a code of conduct which ensures care, honesty, fairness and respect
- passionately campaign for the protection of the environment, human and civil rights, and against animal testing within the cosmetics and toiletries industry
- tirelessly work to narrow the gap between principle and practice, whilst making fun, passion and social care part of our daily lives. (6)
Paradigm of the Future
This brings us to the question, which among the paradigms we have discussed belongs to the future, or could it be that future holds something, which is beyond all these paradigms.
All the six paradigms we have discussed so far corresponds either to some of the basic dharma of business or to some of the present or future needs of the corporate world. To create wealth for the society with the most efficient, productive and innovative utilization of available resources is the first dharma or bottomline of business. To produce goods and services at the highest quality, lowest cost and to the greatest satisfaction of the customer is the second bottomline. All these bottom lines have to be achieved by human being or to be more precise by harnessing the innovative and productive capacities of human beings. And the corporate world of the future is going to be increasingly knowledge-intensive. Quality, customer-service, innovation will remain as key result areas of success. The concepts of ethics, values, corporate social responsibility and sustainability are most likely to be some of the shaping values of the future of business. As Fritjof Capra and Guntur Pauli points out:
“On the basis of thorough market analysis in Europe, Japan and the US it has been concluded that during the next few years, ethical standards, a moral commitment and high environmental performance will not only become an integral part of corporate strategy, these will become the way to outperform the industry and establish the unique marketing position so badly desired. It will be the only way to develop sustainable advantage.” (7)
So in the future none of the principles or values related to the six paradigms can be entirely ignored or neglected. But the main emphasis will be on an inclusive, qualitative growth, which aims at providing a better quality of life or experience or growth opportunities to the Employee, Customer and the Community.
There is one more factor, which is beginning to be recognized but not yet fully understood and explored. It is the new evolutionary imperative pressing on the human and planetary consciousness. We are at present in a crucial transitional stage of evolution where our civilization as a whole is moving from a predominantly external, economic and material growth to a more inward growth in consciousness, in the moral, psychological and spiritual realms. Those groups who make this inner and higher evolution the central thrust of their growth will gain advantage over others in the future world. This requires a quest and discovery of the inner psychological and spiritual sources of all our motives, ideals and activities and a conscious effort towards a moral, aesthetic and spiritual refinement and elevation of our individual and corporate life.
This brings us to the question how to integrate and harmonise the ideals of all the six paradigms we have discussed earlier with the evolutionary and spiritual imperatives of the future. Obviously the problem is too complex to be tackled by reason. It requires higher intuitive faculties beyond reason. Here comes the importance of the Indian science of yoga. The path of yoga provides the principles and methods for systematically and consciously pursuing the higher evolution in the realm of consciousness. The intuitive faculties beyond reason may develop spontaneously in the path of yoga. These higher faculties can also be systematically and consciously awakened by following the methods of yoga.
(M.S. Srinivasan is a Research Associate at Sri Aurobindo Foundation for Integral Management, Puducherry, India.)
Gita Piramal, (1996) Business Maharajas, Penguin Books, New Delhi, Introduction, pp. xvii
- Michael Porter, (1998) Creating Tomorrow’s advantage, Rethinking the Future, ed. Rowan Gibson, Nicholas Brealey, London, pp.48-61.
- Peter Drucker www.peterfdrucker.com
- R.M. Lala (1993), Beyond the Last Blue Mountain, Penguin Books, New Delhi, pp.386
- Tex Gunning, ‘Corporates Should Have a Conscience, The Hindu, June 16, 2007.
- Anita Roddick, (2005) Business Unusual , Anita Toddick Books, Chishester, pp. 258-59.
- Fritjof Capra and Gunthur Pauli (1995) Steering Business Towards Sustainability, Response Books, New Delhi, pp.12
Published in Chartered Secretary, Journal of Institute of Company Secretaries of India