A simple idea but difficult to Implement

As part of the build up to this years Drucker Forum which took place in Vienna recently Steve Denning wrote a column for Forbes magazine which dealt with the question of "how to launch a management movement" - a goal of the Forum for this year which had been called for by Charles Handy the previous year. Charles argued we need a movement for Management in the 21st Century.

In the article Steve provides evidence to suggest all movements are created by a simple idea that is compelling in a given context. He then says, "I believe that such a core idea is already staring us in the face in the works of Peter Drucker, starting with his 1954 dictum, "There is only one valid purpose of a firm, to create a customer." Making money is the result, not the goal"".

Steve adds, "The core idea of 21st-century management is really very simple and beautiful. It’s this. Work, management, organizations are fundamentally about people delighting other people. In its essence, it's as simple as that: human beings creating surprisingly more value for other human beings".

I agree with the idea, and that it is simple. He argues, as I have, that we confuse the means and the ends - that profits which are essential to sustain value creation have become the ends in themselves. And that value creation, with value measured in human-terms, is the only purpose of any business or organisation.

Whilst the idea is simple, the execution of it is far from simple. First, our accounting system measures values in financial terms only, and it is the financial accounts that get used to measure the performance of businesses. The kind of value Steve is talking about, value defined in human terms, requires a much broader definition of value.

Additionally, the firm must create value for a wider range of stakeholders, not only customers. If it focuses only on one stakeholder group, whether customer or investor, it will not be sustainable in the long-term. So, I argue it is better to see all stakeholders as investors.- because they all have a interest vested in the future of the business. They are invested, to varying degrees. And the enterprise depends on them all to varying degrees. And, like investors, they all want a return in investment. They include society and future generations. And, in all cases the return they seek is not only financial.

Management of the 21st Century must understand what value means through the eyes of each group that has a vested interest, both financial and non-financial value, and it must aim to achieve congruence of those interests. That is the only way to achieve and sustain success over the long-term.

This type of thinking is excluded by current accounting practices. It is also ignored by traditional management theory and practice. The latter being concerned with competition for a larger slice of the pie of financial returns, and with the management of trade-offs rather than the congruence of interests which requires collaboration and cooperation.

The Management Thinking for the 21st Century that will achieve what Steve is arguing for I call Valueism. It represents a new way of thinking and a new framework. It represents a deep understanding of what is meant by 'value'. It will not be easily understood by traditionally trained accountants, nor classically trained economists. It will be driven instead by people that I call Valueists. They may be from any profession, but they will have a 21st Century mindset - a post industrial-era mindset. They will understand that value is not tied up in tangible assets, nor limited to financial value.

At the Drucker Forum this year Financial Times Columnist Martin Wolf, made a useful distinction between financial value and economic value. He also defined economic value as, “something that contributes to the economic flourishing of a population……. quite simply, widely shared and sustainable prosperity”. So in this context, I am arguing for Valueism to have a focus on economic value creation, rather than financial value creation. And I am articulating what the difference means in practice when it comes to strategic management as a discipline.

Recently I argued the noble cause of strategic management should be sustainable prosperity, defined in terms of human flourishing - what Martin describes as economic prosperity. And I see Valueism as the way to change the narrative, the mindset, decisions and behaviour. In this way the complex task of achieving Steve's simple idea can be achieved. But it will not be unless we make these changes.

To facilitate the change I believe we must also adopt an additional approach to accounting. What I call Social Contract Accounting must supplement the financial accounts and the two must be directly linked. This will enable executives to make the business case for creating value according to a broader definition of value, and for the shift from competition to cooperation and collaboration to become the dominant management mindset in the pursuit of the co-creation of more value for each and every constituent group involved in the enterprise and its success.

Finally, I coined the term Valueism because I believe any movement also needs a name, so that people can talk about it. And it needs to be supported by new ideas like Social Contract Accounting which also have a name, so that they can also be talked about in the same context and be recognised as the means of achieving change.