At the heart of business — 3 ironies

Being fascinated by business I have spent some time studying the specific toxic natures of the machine. And as any good engineer is taught to proceed, I have deconstructed the machine to try to better understand how and why it operates the way it does. And as that has proceeded, I have formulated some ideas about what specifically we need to do to re-engineer it to operate more in line with what might be defined to be “socially responsible” and much less toxic in its nature.

This examination has led me to identify that much of the source of the current toxic performances of businesses and their mismatches with societal expectations comes down to three factors, best expressed as ironies at the heart of the intersection of business and society:

Irony #1:  If you really believe something is priceless, you need to put a price on it.

ü     Civil society has long lived with the concept of “the commons”, a common resource that the whole community benefits from and owns, and one which by virtue of being public property has no price assigned and is often considered priceless;

ü     Business, as a profit seeking machine, automatically assigns a value to every input and output. If no price is assigned, then the machine assumes a null price (zero) and operates accordingly. Thus, businesses have strong incentives to externalize costs to reduce their own cost structure and export all costs to the public commons.

ü     Moral posturing and concepts of “corporate social responsibility” (CSR) notwithstanding, corporations have a strong profit incentive to support cost-externalizing behavior and any other approach goes against the grain of today’s profit seeking make-up.

Irony #2:  The only true work security is self-security.

ü     Employees today seek meaningful employment with some expectations that the work will be ongoing, that appropriate benefits will be included in the employment contract, and that a reasonable level of security is provided within the company. However we are more and more aware that this situation can change with little or no warning, and that there are “no guarantees” where employment is concerned.

ü     From a business perspective, long term employment implies a level of incurred cost structure involving physical space requirements, ongoing compensation and benefits cost, future pension liabilities, and other associated costs that add to the fixed cost base of the company. In return, the company has continuing access to those employees’ skills which may – or may not – continue to be valuable as the business evolves.

ü     Legal jurisdictions typically have no requirement on businesses to guarantee employment security and they generally provide the company with the ability to terminate employment under some severance payment terms.

ü     The end result is that the relationship only works for both parties during times of reasonable certainty for both parties. It breaks down completely when skills development ceases on the part of the employee, or sustained profitability becomes uncertain on the part of the company, both of which are increasingly frequent occurrences in the modern business cycle.

Irony #3: Just because your brand name is on the packaging doesn’t mean you really know what is in the package.

ü     When consumers engage in commerce with a company, they have some awareness of your brand promise and its over-riding attributes of importance to them, and make decisions accordingly. They are generally unaware and uncaring about internal business trade-offs and cost-performance-quality challenges of the modern corporation.

ü     You are outsourcing to reduce costs, focus on your core competence, and increase flexibility. Your suppliers are doing the same, and so are their suppliers. So despite your best efforts at articulating codes of ethics and business standards, developing contractual clauses and legal assurances, and auditing against those statements, you really don’t know for sure what is happening in your supply chain. You have to trust someone.

ü     The further away – both geographically and in value terms –you are from your inputs the more trust you must put in your ecosystem partners to operate in a way that aligns with your own values. Your assurances about the integrity of your supply chain are based entirely on your active choices in your global ecosystem partners.

ü     Ultimately the consumer holds you – the brand owner – accountable for all the things associated with your brand, your product, and your company.

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