Pi-Squared Part 3: Excelling in Value Creation
by Anita McGahan
October 29, 2024
Welcome to the third post in the five-part series on insights that are emerging from my conversations with thought leaders about supporting companies and other private-sector innovators that want to contribute in a sustainable way to the public interest. This week, I focus on what the conversations with thought leaders emphasize about achieving excellence in value creation. (The two prior posts in this series were on the challenges of creating a compelling aspiration and of engaging stakeholders.) Creating value for stakeholders is at the very heart of Strategy. Achieving excellence in the creation of value is what makes an organization relevant and worthwhile as a partner. The conversations that I had with friends on this topic raised ideas that are far-ranging and yet remarkably consistent. As I thought about what I learned, I found the content almost overwhelming in its significance and implications. There’s enough here to keep us going for a long time. The four conversations that I’m featuring on this topic are with Witold Henisz, Dovev Lavie, Thomaz Teodorovicz, and Sergio Lazzarini. Several ideas from other contributors are also important. Here are themes that came up repeatedly:
1.The CSR and ESG movements threaten and/or frustrate just about all involved. The very first question that I asked Witold Henisz was why the ESG and CSR movements are controversial given how simple they are. Shouldn’t companies be creating social value as a matter of course? His response was enormously enlightening, and basically ran along the lines of “nobody likes it anymore.” Investors and the financial-services industry find CSR and ESG threatening to capitalism and to the systems that have created prosperity. Advocacy groups and the progressive left find CSR and ESG insufficiently strong to prevent socially adverse corporate behaviour, and call for stronger regulation. Nobody likes greenwashing and socialwashing. These reminded me of the insightful points that Olga Hawn made on how out-of-favor CSR has become among her students, and on how she is no longer optimistic about whether large companies can.
2. Measuring the social impact of companies has complicated consequences. One of the reasons that the financial-services community responds unfavorably to CSR/ESG, suggested Witold Henisz, is that measurement has improved, which amplifies the threat to a company of a less-than-perfect score. In other words, poor performance on CSR and ESG is threatening, and the threat is in part what creates a backlash. Olga Hawn also shared concerns along these lines. Issues of measurement also came up in my conversation with Dovev Lavie, but with a different lens. He described how the design of our economic system was shaped in part by principles of economics that incorporate the idea of utility as a proxy for happiness. By reducing so much of interactions into monetary terms – and then build a culture around that – we cultivate self-interested behavior well beyond the scope of what we might otherwise choose (more on this below). Witold Henisz’s suggestion to attach a monetary value to tradeoffs seemed to me to run in a very different direction motivated by his observation that there is just so much opportunity to allocate resources better by building comparability across tradeoffs. You’ll hear in my questions to him that I was worried that more monetization carries the kinds of risks that concern Dovev Lavie, and yet it’s clear that we don’t have much time particularly on tradeoffs involving the environment and biodiversity, and money grabs our attention. It’s complicated.
3. Tradeoffs between ESG goals makes measurement both urgently needed and even more complicated. Tradeoffs between profits and social goals have long been discussed, and yet the bigger challenge for companies may be in tradeoffs between different social objectives. Sarah Kaplan raised this point in a conversation that I profiled in an earlier post on this blog. These types of tradeoffs were central in the ideas of Thomaz Teodorovicz and Sergio Lazzarini, both of whom saw unexpected relationships between different social objectives as a major issue in revitalizing support for executives that want to contribute to the public interest. The emphasis in Sergio Lazzarini’s thinking is on meeting a benchmark of justice as the first step in dealing with tradeoffs effectively. He suggested that, for example, a company that engaged in some environmentally destructive behavior should expect to remediate its reputation by donating to charity. Above a floor on acceptable behavior, what leads executives to better decisions is an understanding of what stakeholders say they want – and when. He described the temptation to drive engagement from capabilities rather than from what stakeholders really need, which can lead to inefficient and ineffective interventions. Thomaz Teodorovicz’s ideas ran along the same lines. He raised points about the relationships between technology, human actualization, and social relationships that I will be thinking about for a long time. Both scholars talked about the importance of bringing the right tools to the right place at the right time – and gave examples from the educational sector, which got me to thinking about Samina Karim’s fieldwork as well.
4. These tradeoffs raise ethical questions and, at the same time, practical opportunities. Everyone seemed to agree about how important it is that executives take action right now – first to learn and then to scale. Sergio Lazzarini described how his work at INSPER Metrics supports executives in testing theories about what matters in the short run – often with surprising results. Sequencing interventions right is a big deal. Henri Hammond-Paul described the great scope of opportunities for making a difference right now by improving productivity through AI. Thomaz Teodorovicz, holding a copy of Sarah Kaplan’s book, sees the frontier of innovation to break tradeoffs as critical to the future of work itself. I found fascinating his insights about the relationships between remote work, AI-based work, and the building of social relationships and communities.
5. The ways that societies deal with tradeoffs cut deep into our culture. Nobody emphasized the importance of culture more than Dovev Lavie. We spent most of our time discussing how his idea of changing norms toward pro-social collaboration can reshape business, make us happier, improve our culture, and solve global challenges. He sees platform-based business models as potential vehicles for direct cross-subsidization of those in need by those who have enough. The resulting “cooperative economy,” which is the title of his recent book, operates on different principles than those that create the tradeoffs we now face. The idea that companies can contribute to more vibrant, socially rich communities is at the heart of Thomaz Teodorovicz’s and Leo Pongeluppe’s research on overcoming tradeoffs through investments in ways that initially might seem paradoxical.
6. Our theories about how companies can contribute to the public interest are often out of sync with what communities need. Thomaz Teodorovicz’s work on Tulsa demonstrated how workers, companies, and the city itself benefited from a program attracting remote workers. The paradox? By bringing together workers working remotely, you can create community. A similar theme arose in the ideas that Sergio Lazzarini offered about the social impact that companies can have when they listen – really listen – to what stakeholders need, and then deliver on what they hear. Recipients of microfinance, for example, may be harmed by the receiving loans if they are unsupported and uninformed on how to invest money wisely. Sergio Lazzarini described how counterintuitive he and his colleagues found the results of the studies they have done on what works and what doesn’t in social-impact work.
7. The fabric of societies – including the nature of work and of social challenges – depends on the resolution of the paradoxes that are raised by CSR issues. What can arise from full-scale commitment to stakeholders can be transformative at an almost unforeseeable level. This is the promise of Sarah Kaplan’s “Mode Four” model of the 360’ Corporation, and of Dovev Lavie’s Cooperative Economy. Sergio Lazzarini sees this as emanating from a sense of overall justice in a community – a perspective that is also evident in Leo Pongeluppe’s studies of favellas, the Amazon rainforest, and HIV clinics in Malawi. Both Sergio Lazzarini and Thomaz Teodorovicz frame relationship-building as a practical, actionable result of thoughtful, evidence-based experimentation in which theories about what will work are validated.
8. The governance arrangements through which interventions occur are important and yet should be secondary to the opportunities. All the profiled conversations this week covered questions about what really matters in getting organized for impact. Olga Hawn’s excitement about small firms and lack of excitement about large firms as social-impact engines raised the question about how organizations can be designed for impact. Sandro Cabral and Sarah Kaplan both described how the nature of the organization as for-profit, governmental, entrepreneurial, or another form is secondary to the thoughtful definition of the value-creating opportunity itself. Design the organization to solve the problem, not the other way around!
9. Focalizing around a new cooperative equilibrium may be easier as technological platforms and AI spread. I found counterintuitive the idea that platforms, AI, digitization, and remote work can foster social relationships, and yet Thomaz Teodorovicz and Dovev Lavie both made persuasive cases that this is precisely what can happen. A critical factor is what Subi Rangan brought up, which is your intentions. If the innovations that you seek through the application of technology are brought into a situation with a clarity of purpose, then you have amped up your chances of making a real difference in the lives of the stakeholders you seek to serve.
Next week, you will hear from me about what Im learning about getting a hold of the resources and capabilities necessary for private innovation in the public interest. Please stay connected with us! Sign-up for updates and visit our website.