Updated: May 7, 2020
by Ulises Pabon
For years, business owners and managers viewed delivering high quality products and service as a costly proposition. In a world where quality was assured through layers and layers of inspectors, it made sense to equate increasing quality with increasing costs.
It took high-caliber thought leaders such as Edward Deming, Joseph Juran, and Philip Crosby to shatter that notion. They argued the opposite case: high operational costs are a consequence of low quality, not high quality. Businesses that operate in a low quality environment and that deliver products and services that do not conform to customer requirements jeopardize operational effectiveness and blow away productivity and efficiency. The costs of rework, scrap, overtime, managing customer complaints, and ultimately, the costs of losing customers, will drive them out of business.
Today, most business owners acknowledge the fact that delivering high quality products and services is not a matter of a separate line in their cost budget. Far from being a “necessary evil”, quality dictates the relevance of a company’s value proposition and is at the essence of what they do.
It’s important to note that this change in perspective and action took about half a century in the making. While some saw the light earlier than others, the actual transformation of the theory and practice surrounding quality’s role in business did not happen overnight.
Today, a similar thought-revolution is necessary under the topic of sustainability. For sure, we’ve started to notice changes in the discourse of leading-edge business leaders and we applaud the initiatives and actions their companies are taking in the sustainability front. Yet, we are still a far cry away from the paradigm shift we all need to make.
The problem is not that social responsibility and sustainability, for many companies, still fall under the category of lip-service. The problem is that most business leaders currently see sustainability as a necessary evil, as a cost to their business, as a distraction from their core value proposition. Like their predecessors in the realm of quality, these business leaders are blind to how sustainability, business growth, and profitability are intertwined. They don’t see why or how sustainability belongs on their managerial agenda.
Part of the problem lies on their perspective regarding company stakeholders (not stockholders or shareholders, who are the business owners, but stakeholders – anyone with a stake in the business). Managers have always been clear on their obligation to maximize shareholder value. Throughout the latter half of the twentieth century, developments in the quality and in the organizational development fields brought two additional stakeholders to the forefront of management’s attention: the firm’s customers and their employees. Business leaders learned that maximizing shareholder value required a deliberate and intelligent balance in managing the needs and interests of customers, employees, and business owners.
Although a step in the right direction, the above trilogy falls short. Today, more than ever, businesses operate in a socially connected, environmentally conscious, global stage. Cause and effect relationships are amplified in a transparent 24/7 world. Business decisions, as well as their short, medium, and long-term consequences and implications, travel at the speed of light, to informed audiences across the globe.
The two players that are missing in the shareholder-customer-employee trilogy are the environment and the people of this planet. These two stakeholders can no longer be ignored. Business leaders that fail to incorporate these two players in their managerial agenda are doing their company a disservice.
Many critics have blamed capitalism for the environmental damage and social injustices corporations incur in. I don’t agree. Maximizing shareholder value is one thing; maximizing shareholder value at any cost is another. Maximizing shareholder return at the expense of environmental damage, social injustices, or outright illegal behavior is not an unavoidable consequence of capitalism; it’s a consequence of managerial incompetence! The CEO that approves the abuse of child labor in a third world country or that knowingly pollutes the planet in order to increase profitability, is acting against shareholder value, not for it. He or she is destroying the company, not building it. He or she is acting against the principles of capitalism, not within them.
The future of leadership and management needs to rest on a foundation that creates wellness financially, socially, and environmentally. People, planet and profit are interconnected. Just as you can’t divorce quality from the essence of running a business, you can’t divorce social and environmental responsibility from sustainable business growth. They are one.
From the agricultural era, through the industrial revolution, and through the decades that saw the emergence of the service and knowledge economy, management theory has experienced multiple paradigm shifts. These shifts affected work systems, value creation processes, business models, and business strategy. For many business leaders, seeing sustainability and business growth as one will require a corresponding paradigm shift. It may, however, be the most important shift they make, of all.
What we’ve learned working with board members, executive teams, and company staffs on this subject is that once provoked with the idea of viewing businesses growth within a sustainability framework, a diversity of previously unexplored options emerge where sustainability becomes the paradigm for current and future operational excellence and business growth. Because of them, we are optimistic about the future of their businesses, their stakeholders, and the planet.