Here at the Center for Higher Ambition, Michael Beer and Russell Eisenstat are part of an on-going effort to understand companies that pursue both superior financial returns and social value creation. They call these companies with a “higher ambition” and they have found three dozen that exemplify this ideal. They include companies as diverse as medical technology company Becton Dickinson and food giant Campbell Soup to transportation and logistics firm Con-Way, Inc. and Indian automotive innovator Tata Motors. Recently they sat down to explain what they discovered about what it takes to achieve this dual objective.
What makes higher ambition companies different?
‘They have committed to these two goals of being successful financially and creating social value for all of their stakeholders,” said Beer. He noted that some might see this as unwisely trying to serve two masters but that the leaders of higher ambition companies see the two as intrinsically interwoven; each amplifies the other.
Still, this remains an unconventional approach to corporate management doesn’t it?
“It does but it is becoming more common,” said Eisenstat. “We found higher ambition companies across North America, Europe, and India. I’m sure that when we look in South America, Asia, and Africa we will find them there as well. We would love to learn about higher ambition companies in China.” Beer added that there is an increasing recognition that the full range of stakeholders has an impact on long-term financial performance. “You can’t just worry about shareholders and think that the rest will take care of itself,” he said.
Does it start with the CEO?
“Actually, it starts with the larger business culture,” said Beer. “Where you have a culture that sees a higher purpose for business – improving people’s lives or building a stronger nation, for example – you have the conditions for higher ambition companies to emerge.”
Beer noted that in India there is a general expectation that businesses will contribute to society. He pointed to Tata Motors development of the Nano automobile. It is intended to be a profitable product. However it is also intended to provide a safe, low-cost vehicle superior to the current alternatives and uses distributed manufacturing and post-sale service processes that will broadly foster entrepreneurship and economic development. That, he said, shows higher ambition.
Eisenstat added, “Then, you need a CEO who embraces, embodies, and rewards higher ambition attitudes and skills throughout the organization. We outline five core disciplines. First, instead of simply developing a strategy, higher ambition CEOs create a strategic identity that permeates the organization. IKEA, for example, is committed to the idea that cost-conscious consumers should be able to buy well-designed, quality furniture. That drives decisions about everything from whom to hire, where to source, and what to make. It is deeper than a typical strategy.”
He continued that higher ambition CEOs also insist on shared measures of performance for all stakeholders, not just shareholders. They build diverse communities of meaning within their enterprises so work is more than just work. They develop dispersed leadership throughout the organization to build shared commitment and execution capability. Finally, these CEOs lead with what the Finns call sisu: they are fair, consistent, persistent, and trustworthy.
Does this mean that a Higher Ambition culture depends on the CEO?
“It can,” said Beer. “Higher ambition is a fundamental leadership choice that a CEO makes. It requires a commitment to the disciplines Russ mentioned.” He explained that this commitment should drive cascading decisions about strategy and tactics throughout the firm. Adhering to the disciplines quarter after quarter, year after year, is how companies achieve superior results.
When a new CEO arrives, often the whole cadre of senior managers changes as well. There can be significant shifts in strategy, values, and even the perceived purpose of the company. Higher ambition may be discarded in favor of some other approach. Eisenstat noted that Becton Dickenson (BD) is a firm where higher ambition has transcended a single CEO. Higher ambition has been part of the business model and therefore professional development of a wide swath of managers so it has become the cultural norm. It is supported by the board. Higher ambition is now part of the DNA at BD.
“This is really where the board of directors comes in,” said Beer. “The board is involved in CEO succession. If they make a higher ambition commitment one of the qualifications they require, higher ambition will endure. If they do not, it may pass away. Consider what has happened t Hewlett Packard since the late 1990s when an outsider not socialized in HA values became the CEO. And consider how a poor board made equally poor succession decisions.”
What will it take for Higher Ambition to become mainstream?
Beer noted that three institutions must change: financial markets, business schools, and boards of directors. “So long as each of these adheres to a more shareholder rather than stakeholder view of capitalism, the emphasis will remain on financial returns divorced from social impact,” he said. Until then higher ambition will rely on enlightened executives and boards. He added, however, that the values that emerge from adopting a higher ambition mindset, principally trust and mutual commitment, are essential for the financial success of any global, networked enterprise.
Thinking specifically about China, Eisenstat said that it is important to look at the model of capitalism that China is creating. “What are the underlying expectations of businesses in China? What is the acceptable balance between personal enrichment and social good? What are the requirements for environmental performance or community development? These are questions that individuals must answer, firms must answer, and which China as a nation must answer.”
Business books often trumpet top performers that then fade after publication. How have the firms in your book fared over time?
Beer said that they had not systematically followed up on the firms since the publication of the book in 2011.However, anecdotally, they have performed well relative to their peers. The most prominent of those that have had major issues is Standard Chartered Bank which was accused of money laundering, an activity not consistent with higher ambition principles.
“All companies hit speed bumps,” Eisenstat said. “We remain confident that if companies stick to the disciplines of higher ambition, they will do well over time.”