Change Lives, Make Money

Management titan Peter Drucker has passed on, and we are all fortunate for having shared space and time with him. There are many concepts that Drucker promoted when they seemed downright radical but are now accepted as conventional wisdom—like decentralization, knowledge work, empowerment, and the fact that companies exist for customers. In this week’s blog I want to discuss another point he raised that is less well-known but just as profound. And one which I take some issue with.

During the last segment of his illustrious career, Drucker worked extensively with non-profit organizations. He advised groups like the Girl Scouts and American Red Cross to run themselves like a business, albeit a business that strives to "change lives" rather than maximize profits.

Let me humbly suggest that this is a spurious "either-or" distinction, for two reasons. First, in order to achieve their missions, even nonprofits must maximize revenues over expenditures. I remember a tough nun who ran a nonprofit hospital I once worked with, who repeatedly told her people: “We must do well in order to do good!”

Second, the distinction is spurious even with for-profit organizations. “Maximizing profits" in a vacuum often leads to myopic decisions, where the quest for short-term results trumps long-term competitive positioning. Likewise, it often leads to a culture where entrepreneurialism and innovation are aimed at “creative financing” rather than on developing more imaginative products and services. Both consequences weaken any company, and the latter tendency taken to an extreme gives us an Enron and Worldcom.

I’m a big believer in profits. In fact, I believe that profit metrics are far more predictive of competitive advantage than are revenues, market share, and balance sheets (if that wasn’t the case, companies like GM, Kodak, and United Airlines would be the healthiest companies in their industries). However, in today’s economy, I propose that Drucker’s "either-or" ought to be a "Both-And": Those companies which seek sustained competitive success will aim to maximize profits by changing peoples' lives.

Changing peoples’ lives for the better is the ultimate value creator. Whole Foods aims to “change the way America eats” (their words). Apple aims to provide people with the means to create their own multimedia wherever they are. Harley Davidson aims to make your average meek middle class customer feel like a strong “badass” (their words). Google aims to allow the individual to harness all the information on the planet. Atlanticare aims to create an “epidemic of health” (their words) by helping their health care plan members prevent illness. Each of these organizations boasts financial metrics (including profits) and growth rates that humble their competitors who are simply trying to “make a profit”.

I’m not talking about attaching simplistic slogans to your current business. In my upcoming book Break From the Pack, I talk about re-thinking your business to create a “higher cause” that will go well beyond providing “good products and services”. A higher cause, like that of Whole Foods and Harley Davidson, aspires to change customers’ lives, drive all strategic and operational decisions, and leave a positive, lasting legacy. Microsoft’s Steve Ballmer once said that the key questions for any executive to ask are: “Are we working on something important? Are we changing the world? Those are the kinds of things that make a difference to people.”

So think “Both-And”. Develop a unique, compelling, inspiring “higher cause” for your organization or business unit. Then figure out how you’ll manage your business to efficiently attain it and by doing so, make a lot more profit in the process.