Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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Comprehensive value defines broader goals for organizational leadership and management

by Mark P. McDonald  |  November 9, 2011  |  3 Comments

Occupy Wall Street is just the latest in a series of protests against the idea that businesses exist only to create economic returns for their shareholders. The idea that business should do more for society is appealing and requires more than light current forms of corporate charity.  Two articles this year in the Harvard Business Review highlight the need for organizations to do more than generate a profit.

In January Michael Porter and Mark Cramer published “Creating Shared Value” that looked at creating value beyond financial returns.  This month Rosabeth Moss Kanter published “How Great Companies Think Differently?”  Both articles discuss a view of the organization as more than an engine for generating financial returns to shareholders.

Both articles are recommended reading for considering the ways in which business can create value beyond profits and market value.    Creating value requires defining a broader set of values for organizations.  In April of this year, Jeff Cole and myself authored and EXP report entitled “A different theory of the Firm and IT: comprehensive value and capabilities.” In that report, we defined a collection of value that we called comprehensive value shown in the figure below.

Creating comprehensive value does not involve trading one form of value against another. Rather it is about how we design ways of working that achieve positive results in each of these areas. For example, firms creating jobs that build the local skill base and support development of other companies and opportunities. Firms need the capacity to generate these forms of value in order to retain public trust, confidence and support their own economic viability.

Expanding the definition of value has been done before. Consider Henry Ford who decided to pay the exorbitant wage of $5.00 per hour to his workers to attract the best workforce and give them the economic means to buy his cars. Other social-capitalism practitioners like, George F. Johnson created entire communities, provided free healthcare and education all to secure the best workforce. Firms in the future will be judged and judge their success by more than bottom line. The challenge is how?

The challenge facing organizations is not one of how we add a sustainability dimension to our company.  Creating a sustainability ombudsman is no solution to sustainability.  It only provides a paper response for a pervasive issue. Rather it is how we incorporate values that go beyond financial value into our strategies, plans, and recognition of value.  The debate of an organizations role in society is interesting, but the reality is organizations exist, they are real and they are part of the social fabric.  The assumption that organizational success and societal success go hand in hand is true, but that relationship cannot be the only definition.  Creating financial returns for shareholders is not the only societal impact.  An organization’s impact is more than financial.  It is comprehensive and hence the need for comprehensive value.

3 Comments »

Category: Economy Innovation Leadership Management Personal Observation Strategic planning Strategy     Tags: , , , , , , ,

3 responses so far ↓

  • 1 Kevin Moss   November 9, 2011 at 4:03 pm

    Mark, great post and great to hear it from someone at a commercial organisation and one as influencial as Gartner. To me, the crux is achieving ‘recognition of value’ as you mention. Working out how we incorporate these societal and sustainability values in a way that they are recognised by stakeholders and the business “rewarded” in some way, so that it is incented to repeat.

  • 2 Ian   November 9, 2011 at 11:24 pm

    This is a really interesting area and one critical to everyone. Whilst sustainability is often characterised as being the domain of academics or the environmentalists, what sustainability means is exactly what it is called: The planet’s carrying capacity cannot sustain current (let alone projected) human activity. Without action to resolve this issue, we have no long-term future.

    So what do we do? Whether Elkington’s triple bottom line model can be reduced to an economic base when considered long-term is something I have been grappling with for a while. There is growing power amongst an ever broader range of stakeholders able to affect business objectives. Political pressure (lobby groups and protests), consumer awareness (movements such as Fair Trade) and social impact (businesses needing a ‘license to operate’ in their community) can all impact the economic bottom line. Further, the cost of mitigating externalities continues to increase through offset programs (including corporate philanthropy and direct action) and marketing, combined with increased legislation such as carbon taxes and environmental levies. All this impacts the long-term viability of organisations, with companies who are more effective at minimising the risk posed from these negative externalities clearly having an advantage over their competitors.

    By recognising these risks as real and deciding to factor them in valuation models, financial analysts are in a powerful position to have a major influence on driving sustainability: Hopefully shareholder financial interests can be reconciled with a sustainable future. We are starting to see this, with Sustainability Reports becoming a standard component of corporate reporting and Boards recognising their responsibility to consider non-shareholding stakeholders in governance decisions.

  • 3 Mark P. McDonald   November 10, 2011 at 9:22 am

    Jeff and Ian

    Thanks for your comments and I believe that leaders need a new way of thinking and a’counting for broader measures of value before widespread change replaces marketing cover. Comprehensive value or some other idea is a start and thanks for your comments.

    Future posts will offer difference ways of thinking and managing that may lead to change, or at least broaden the considerations executives face.

    Thanks again

    mark