Towards a more enlightened kind of capitalism: The emergence of the Impact Organization*
We all hold assumptions about the world. Often they are misguided, or they miss parts of the puzzle.
We might have gotten Adam Smith all wrong; we focused on his Wealth of Nations, and forgot his in many ways more important book on Moral Sentiments. For-profit companies focus on salaries and career development. Their CSR programmes don’t do justice to people’s intuitive need to do something purposeful. Social enterprises might give people meaning, but often lack career structures and financial sustainability.
In a way, we somehow implicitly accepted to walk up (or down) Maslow’s hierarchy of needs: first make money and gain status, and if there’s still time, one day, we can find a sense of purpose. First doing well, then (sometimes) doing good — a very linear approach to life. In this current model, individuals and organizations create a profit, often at the expense of society, and are not held accountable for negative externalities. Government then creates regulations to limit the harm done. A vicious cycle of self-interest-based capitalism that has led societies into social upheavals and inequality, and individuals into depression. Is there a better path?
A new interpretation of capitalism
It’s time to move on from our limited interpretation of capitalism. We are at a unique point in history where we can make this move. A new sense of urgency, combined with the technological advancements of the Fourth Industrial Revolution, provide a unique opportunity for enlightened leaders to develop 21st century organizations.
The expectations of future generations that will dominate much of our economy and society are distinctive. They long to for a sense of identity, authenticity and connection — while desiring financial success. They realize that in a networked economy, everything becomes relational: how well I can fulfil my own needs depends on how well I can cater to the needs of others. It is thus in my enlightened self-interest not to be too self-interested — a shift towards an “enlightened circle of needs”.
This thinking does not only apply to people in affluent areas in the West. When working in the poorest areas of Nairobi or Cape Town, in Mexico City or Santiago de Chile, I have noticed the same trend. In South Africa’s Cape Flats, for example, the social enterprise RLabs gives former drug addicts the opportunity to teach social media skills to their neighbors. Teaching others gives them a deepened purpose — to many at least as valuable as an increased income. Many NGOs have got this wrong, focusing too narrowly on resources rather than the opportunity to live a dignified life.
People seek meaningful jobs where they can give as much as they take. Consumers want products that are produced ethically. More and more high net worth individuals seek to invest with purpose. But leaders are often lost when trying to find a way to build businesses that do well and do good.
3 steps to building an organization with impact
Based on my work with companies and entrepreneurs around the world, research at the LSE and interviews with some of the world’s most successful CEOs, three steps emerged that allow responsible leaders to reconcile financial and social impact:
1) Action-driven purpose: Formulating an organization’s ‘theory of change’, and translating it into actionable values. People nowadays are sick of inauthentic value statements. Genuine, shared values need to be integrated into recruitment, promotion, and sales processes. Making values tangible, and thus creating something that ultimately binds people together. The digital print company Holstee’s manifestowas downloaded over 100 million times because it resonated deeply.
2) Accountability: In a time where organizational boundaries are becoming more and more fluid, democratization is not only about flattening structures, but also processes: More and more companies use simple internal WIKI-pages to hold everyone accountable for their goals — including the CEO. This transparency avoids the “outsourcing of accountability” to superiors or subordinates, and builds trust.
3) Technology: Very basic technologies can serve as platforms for low-cost innovation. RLabs has used simple mobile phones and computers to engage local communities, who often move on to develop their own products and companies. RLabs, with almost no central resources, managed to scale into over 15 countries within five years — not because of a fancy technology, but because they enhanced, rather than substituted, local social and human capital. This is a shift from “managing” to “inspiring” (networked) structures, an approach that larger companies such as the consumer electronics group Haier are now implementing as well.
Leaders that tackle these three areas can create more impactful companies, and increase employee morale. Goethe said that “if you take man as he is, you make him worse; but if you take man as what he could be, you make him capable of becoming who he can be”.
I believe that companies can be powerful vehicles to enable people to become who they are truly capable of becoming. And thus become more productive and happier beings. It is up to us now to facilitate a movement around a new articulation of how organizations should and can work. To avoid an organizational and societal car crash — and to build the type of organizations that we can be proud of.
* I define the ‘Impact Organization’ as an organization that reconciles financial, social, and environmental impact on the same strategic level. Rather than (ab-) using social and environmental impact as a means to an end (more profit), this approach focuses on developing an action-driven purpose, genuine values, innovative governance approaches, embedded technology, and impact measurement tools to combine money and meaning at scale. https://www.youtube.com/watch?v=mfGb1qZ7bW0
This article was originally published on World Economic Forum.