The Responsible Business Cookbook

Revisiting the Friedman Doctrine

Note: this piece is for my colleagues, Economics of Mutuality Practitioners, all, at Saïd Business School, Oxford University, UK. —————— About five years ago, I and my good friend, Founding Dean Emeritus Shyam Kamath of Cal State University Monterey Bay, College of Business, wrote a piece called "What is Responsible Business." In it, we vilified U.S. Economist Milton Friedman for articulating in a 1970 essay in the New York Times the permission for corporations to focus on purely on profit as its only social responsibility. While I've held up the Friedman Doctrine numerous times in contrast to Stakeholder Capitalism, I often thought, "The guy is not around to defend himself. What would he say if he were still alive and writing, in today's economy?" ——————

Hiring for Synergy

The McKinsey 7S Model is a framework developed by McKinsey & Company to analyze an organization's effectiveness and guide strategic change. The model delivers an holistic view of a firm and clarifies how coordinated and aligned it is toward achieving its purpose. The idea is that a thoughtful strategy will succeed if the organizational structure and culture support its implementation.. Companies often use other so-called "human resource" guidelines to make hires. When hiring for synergy - the notion that the whole is greater than the sum of its parts - then the McKinsey 7s model might be just what's needed to bring in talent that fits Purpose, Mission, Vision, and Values.

Measure What Matters

There are enough acronyms tossed around in the strategic management of business to make your head explode. And worse, there are at least as many opinions about what they mean. The truth is that for most businesses, just a few are useful. In episode eight, we discussed two valuable tools for any business, especially a responsible business: the goal-setting framework called Objectives and Key Results, or OKRs, popularized by John Doerr and Key Performance Indicators or KPIs, well-known metrics for tracking day-to-day operational and financial performance. KPIs and OKRs complement business strategy and performance management. While OKRs are potent tools for setting, coordinating, and achieving goals, KPIs add value by providing ongoing metrics that help monitor the steady state of the business. Here's why both are beneficial: • KPIs reflect the performance and health of the business in critical areas, like sales, new customers, customer satisfaction, and the like. KPIs help monitor continuous operations and ensure the company meets its fundamental goals, the things that keep the business running. • OKRs, on the other hand, are goal-setting frameworks that help businesses set ambitious objectives and measure progress - Key Results along the way - toward meeting goals. OKRs are often change-oriented and focus on driving improvement in strategic areas. Sometimes, KPIs are Key Results within an OKR framework. They provide the measurable outcomes needed to track the achievement of the Objectives. In his book "'Measure What Matters," John Doerr provides the example of a museum. If the museum's Objective is to become more relevant to the community, a Key Result could be to increase the number of local visitors, which is also a KPI. So, KPIs and OKRs may complement each other. While KPIs are essential for day-to-day business performance measurement, OKRs are indispensible for company-wide direction setting, taking ownership, and continuously pursuing and improving strategic initiatives. The strength of OKRs made available openly is that they involve and inform everyone, from the CEO to Production Line team members and vice-versa, about who is working on what. The idea is to avoid duplication of effort and to have everyone pulling in the same direction. On-the-fly revision of OKRs is encouraged if necessary. Self-assessment of an OKR's relevance and success is also a must. No secrets, no blame. OKRs, when applied skillfully, are like lighting off a rocket on the launchpad. Stand back and let the fun begin. KPIs and OKRs allow a business to ensure that core operations remain solid and reliable while aiming for effective, sustainable growth and technical and social innovation. A dual approach can lead to a well-rounded and robust strategy for Responsible Business or any business's success.

Systems Thinking

Say what you like about Tesla and the firm's eccentric CEO, Elon Musk, but the company created a successful path to electric vehicle acceptance. Are Elon and Tesla engineering demigods? Or did they see and act upon something that few others could? One phrase describes Tesla's perception of how to make EVs practical: Thinking in Systems.  Systems can be simple, extremely complex, and all points in between. They're all around us, yet we don't often recognize them. As a result, we tend to see the parts of a system as the cause of problems rather than viewing the entire system and how it behaves. A system isn't just any old collection of things. A system is a set of elements - or parts - such as people, cars, molecules, data, or whatever, coherently organized and interconnected to accomplish some function. Thus, a system is synergistic. So, as if to say two plus two equals five, a system is greater than the sum of its parts. Natural systems are resilient, self-organizing, self-preserving, and constantly changing. To understand how a system works, identify the system's boundaries and then explore the system's stocks and flows. Stocks are elements or parts in a system, while flows are materials entering or leaving a stock over time, like water flowing through a reservoir. A system's stocks change due to control signals from the system's feedback loops. But you don't have to be a systems scientist to create or modify systems that make a visionary and competitive difference in business. You must know an ideal system's purpose, envision its boundaries, and build it to behave as expected. Tesla saw that making a compelling vehicle wasn't enough to reach the company's goal to "accelerate the advent of sustainable transport…" (Musk, 2013). What WOULD create the most significant possibility of mass-market adoption was advanced battery technology coupled with a nationwide network of fast-charging stations available to Tesla owners. Those who bought a Tesla early got free charging for the rest of their ownership. Tesla's Energy Division offers rooftop solar and battery storage modules as clean energy home power solutions. Naturally, other factors complete the picture of Tesla's success. But, systems thinking and Elon Musk's appetite for risk-taking played a decisive role in making the company's goal a reality. If you'd like to know more about Systems Thinking, check the references at the end of the notes accompanying this episode.

OKRs and Impact

In an earlier episode of the Cookbook, we discussed the idea of Impact. Creating a Positive Impact for all stakeholders is the point of Responsible Business. We also discussed a couple of new terms. The first is the Hierarchy of Strategic Intent, which some call "Strategic Pillars." The second is the Circle of Strategic Management, which is the tactical application of the Hierarchy of Strategic Intent. In this episode, we'll discuss the jet fuel of Responsible Business, Objectives, and Key Results, or OKRs. OKRs produce Impact and remind us that the Purpose isn't the Plan. The Purpose is the Purpose.  Objectives and Key Results is a framework in which you set goals, align your organization, fuel performance, and cultivate agency, ownership, accountability, and continuous improvement. In other words, using OKRs supports the growth of a learning organization. OKRs can apply to every aspect of responsible business, from people, planet, profit ethics, and equity, and they are the engine of the Circle of Strategic Management. Recall that Mission aligns with Vision and that Vision reflects Purpose. It follows that Objectives align with the Hierarchy of Strategic Management. John Doerr, a former Intel employee and venture capitalist, introduced the framework to Google management. Google wanted to scale but maintain focus and agility. The company took on the OKR framework passionately and set ambitious goals to drive innovation and align teams at every level. Since then, OKRs have gained popularity with companies like Spotify, LinkedIn, AirBnB, and others, thanks in part to Doerr's book "Measure What Matters." Objectives should be ambitious – in fact, they should be a stretch – and inspirational and measurable, and Objectives require Tactics to produce Key Results. Let's say your Objective is to see Shakespeare's Othello at the Globe Theatre in London, where Snoop Dogg and Martha Stewart will play the lead roles. You live in San Jose, California. What Key Results would you need to realize your Objective? You'd need a ticket to the play, a plane ticket, and a Bed and Breakfast in London. Tactics is how you'd make those key results happen. Key Results are specific, achievable, and time-bound metrics. Metrics – standards against which measurements indicate progress – are the path to achieving Objectives. Metrics can be percentages, numerical targets, or milestones. The magic of OKRs is that they are applicable throughout the organization. When OKRs "cascade" (in OKR parlance) through an organization, top-level strategic, team, and individual employee objectives align. Periodic reviews are vital for reporting and monitoring progress, discussing challenges and opportunities, and changing course if necessary. The cadence of periodic reviews can be every Monday morning, monthly, or quarterly. Implementing OKRs takes understanding, time, effort, patience, and collaboration. But once you initiate the practice and get the cadence down, the framework promises tangible results and Impact. OKRs serve as the basis of the Circle of Strategic Management. OKRs fuel performance, empower teams and foster organizational accountability. OKRs, through regular reviews and reflection, encourage a culture of learning and continuous improvement.