Value creation isn’t exclusively financial.  McKinsey Quarterly released last week featured an interactive tutorial on “Creating Value.”1  Beautifully choreographed (if that’s possible in financial tutorials) and animated with spot-on analysis of financial metrics.  Not a mention of creating value for society or the environment.  McKinsey missed the point or is so old school that they haven’t yet jumped on the sustainability train.  I couldn’t restrain myself so I responded to the editor in a blatantly sustainable fashion and darned if they didn’t post it.  The next day! 

The point is this, value creation must be considered from a systems perspective NOT the exclusive terrain of traditional capitalism.  We MUST start measuring meaningful impact on society and the environment as consumers in all the products and services we buy and demand that the companies we support do the same (through purchases and investment).  Ironically, it’s just this kind of old school thinking, a focus on financials exclusively as preached by McKinsey, that will keep you among the most mediocre performers in your industry segment. 

It shouldn’t be a surprise that the most profitable institutions (in terms of shareholder ROI) over the short, medium and long term (10 years) are those that focus on employees, customers, community, vendors, distributors and other stakeholder interests (including social and environmental special interest groups) as well as stockholders and the board of directors. In Firms of Endearment: the pursuit of purpose and profit (Wharton School Publishing, 2007) Sisodia, Sheth and Wolfe introduce the concept of stakeholder resource management (SRM) wherein an organization addresses the specific needs of each stakeholder group and tracks their progress against desired outcomes.  Brilliant!

Think about it.  Every organization has at least 6-8 (sometimes disparate) stakeholder groups that they impact:

1.     Employees

2.     Customers

3.     Supply Chain

4.     Social Justice Interest Groups

5.     Environmental Groups

6.     Community

7.     Shareholders

8.     Board of Directors

9.     …other special interests

 

So what’s a CEO to do?  Start making the rounds, building relationships, learning the objectives/desires of the different stakeholder groups you impact and put together strategies to address the needs of each.  Then make sure you are tracking progress against desired outcomes.  Sounds expensive; apparently not. At least if you look at the 21 companies profiled in Firms of Endearment.  Some endearingly refer to them as FoE’s. These are the companies that lead their industry in creating value for shareholders over a 3, 5, and 10 year period.  Compared to the S&P 500, they outperform the market 10:1.  Even compared to Jim Collins’ Great Companies (as profiled in Good to Great), they generated 3 times their return. 

Seems hard to argue to me.  What I can’t understand is why more companies, organizations, governments and other institutions aren’t already on board.  OK, so it’s going to be more work, a lot of delegation, coordination, measuring/monitoring… what a distraction from your real job.  Or, is this your real job?  And, if it really does help you create more value for shareholders, even Milton Friedman couldn’t chastise you. 

So get on board and start measuring, or at least start the conversation and you might be surprised to see how many others around you admire your wisdom.  I couldn’t help but be tickled by this retort to my McKinsey post:

“@ Don Piper, I couldn’t agree more. This is brilliant but so old school!”   Youssef Rahoui, CEO, Madmagz.com, Paris, France

What an interesting twist.

1See https://www.mckinseyquarterly.com/Creating_value_An_interactive_tutorial...