January 27, 2015 – by Jeroen Geelhoed &samhoud consultancy
Good companies create value for all stakeholders: employees, customers, investors and society. This way of thinking makes more and more sense over time. But it is not easy to realise that ideal. In this interview with Babson College professor Raj Sisodia we talk about how to create value for all and why we need to break the trade-off paradigm.
What is value?
Value is multi-dimensional. Companies create but also destroy many kinds of wealth. And I use value and wealth as equivalents. For me, wealth is not just financial wealth. There are other kinds of wealth, for example: my health is my wealth. My relationships are wealth. But over the past decades, we have tended to focus only on the financial. However, you also have social capital or wealth. You have intellectual wealth. You have emotional, cultural, spiritual, ecological and also physical wealth. And if you are looking at the impact of many businesses in the world, health is getting worse in many societies. Think about the increase in diabetes, cancer, obesity and so forth. That is one of the consequences of the way we have been living, working and organizing over the past few decades. We have an impact in all of these areas. But it is possible to create more types of value at the same time. The traditional way of thinking was: we have trade-off s. That is a common mental model that needs to change dramatically. We think that we create value, but actually we extract value: from nature, from resources and from human beings. We even call them human resources! Human beings are not a resource. They are a source. A source of energy, inspiration, love and care. But we don’t use them like that, we use them as a resource. A resource returns to ashes, but a source keeps on going, just like the sun keeps on shining. So traditional business thinks in terms of trade-offs, zero sum. In order to make money, we have to make sacrifices. The reality is that if you look for trade-off s, you will always find them. So when I have to increase margins, I have to squeeze my employees and cut back on customer service, for example. That is logical, isn’t it? You can’t create something out of nothing. The fact is that if you reject the idea of trade-offs and you want to find win-win-win solutions, you will find them as well. But that requires you to be creative. That means we need an environment in which people can be creative. This implies that you need a climate built on love and trust. After all, people cannot be creative if they operate out of fear. When we do this in business, this is the ultimate form of value creation in this world. We can create an extraordinary amount of value if we have the right mindset. That is the mindset of positive-sum, not zero-sum. There is no fixed pie, we want to enlarge the pie. This will be required to deal with the 7 billion people on the planet.
Do you have an example of breaking the ‘trade-off paradigm’?
Whole Foods faced that kind of challenge when they were looking at rising healthcare costs. A huge challenge. And the trade-off response to that would be: your premiums will go up as an employee and we as a company will absorb some of the pain. You will absorb some of the pain because that is the way it is. But that is almost a lose-lose situation. Health-care spending is related to preventable problems. And Whole Foods asked themselves: “How can we be active in the health food business as a company with some employees who are unhealthy?”. They were in a unique position to do something more about this. They created wellness programs for their people. Employees receive 30% discount if they buy healthy food and improve their health. The discount percentage increases if they reduce their blood pressure and cholesterol levels, and avoid smoking. This is a positive kind of feedback loop in such a situation. Employees who become healthier are given a gold card as their health improves. Whole Foods also created a one-week immersive health program for employees who already had problems. This costs the company 2,500 dollars per employee, which it pays in full. Employees learn about the relationship between food and nutrition all over again, and have changed their lifestyles. Some lost up 100 pounds (45 kg) in 7 months. Others who used to be on 12 types of medication are now down to 1 or even 0. They have reversed heart disease and diabetes. After investing in this program, the company is now discovering that healthcare costs are down, overall employee wellness is up, employees are more energetic and have more passion for their jobs. Their absentee rate is down. Employees are better off, the company is better off, investors are better off and customers are better off. They are saving money and have healthier employees. So once again, it is a win-win win-win situation. They took a situation that looked like a lose-lose-lose and turned it into the opposite.
This article is an abstract of an article published in &samhoud review #7.