Who is Actually Serving Whom? – From Profit Focus to Mutual Value Maximization
If a survey were conducted to find out which purpose is most likely attributed to a company, the result would probably be quite clear: earn money, generate revenue, maximize profits.
What may sound plausible at first turns out, upon closer inspection, to be a widespread and problematic misconception.
Not only is it wrong to reduce the purpose of a company to the financial part of value creation, it is also too short-sighted to assume there is only a single purpose that an organization has to serve.
In reality, organizations consist of a "confusing and contradictory web of purposes, goals, and interests" [2]. It is not optimization with regard to a singular purpose, but the ability to cope with contradictions and integrate them that makes organizations high-performing and sustainable.
The underlying paradigm dictates behavior, and our behavior, in turn, ensures the persistence of the paradigm. If companies see their purpose as maximizing profit and all participants adopt, live out, and pass on this paradigm, everything else will inevitably have to subordinate itself to this purpose. We have been able to observe where this leads over the last 20 years: greedy (monetary) consumption regardless of losses, with unforeseeable consequences for the future.
Taylorism – For Better or Worse?
The current excesses of the consumer society could not have happened without an enormous and sustained increase in productivity and prosperity. Taylorism had an enormous influence on the growth of the 20th century. Through centralization, standardization, and hierarchy, unprecedented levels of efficiency and effectiveness were achieved, from which the West still benefits today. On the one hand, we have a lot to thank Taylorism for.
Companies...
- learned to use their resources much more efficiently
- were able to market and distribute their offers worldwide
- were able to record enormous increases in productivity and returns
Employees...
- received higher salaries
- had more breaks and more vacation time
- had to work fewer total hours
- were able to develop relationships at work and be part of a community
Society...
- provided more leisure time for most people alongside work
- offered countless opportunities for consumption: unprecedented products and services in many different forms and colors from all over the world
- thrived through the growth of health, productivity, and prosperity
"Hardly any entrepreneur, employee, or citizen would have wanted to trade the conditions before Taylor for those after."
– Mark Poppenborg
It is a law of nature and a result of entropy: that which brings success will sooner or later become a downfall if one fails to prevent exaggeration and adapt in time to dynamic environmental conditions. Yesterday's solutions sooner or later create tomorrow's problems.
Nowadays, Taylorism generally gets a bad rap. Mostly for good reason: the mechanistic view of organizations and employees does not correspond to the dynamics and complexity we encounter externally and which we rely on to manage it. Centralization, standardization, and hierarchy are diametrically opposed to the central paradigms of the future: decentralization, individualization, and democratization. The paradigms of Taylorism are associated with many negative aspects today:
- Dehumanization: The human aspect of work is neglected due to the focus on efficiency and productivity.
- Standardization: Standardized processes limit the creativity and flexibility of employees and disrupt the flow of ideas.
- Hierarchy: Authoritarian leadership, incentive systems, and "motivation" demotivate employees and limit their opportunities to contribute.
- Reduced Autonomy: Strict control of work processes restricts employees and gives them the feeling of being an exchangeable part of a machine.
- Reduced Flexibility: An excessive fixation on processes makes it difficult to adapt to changes in the environment.
- Conflict with Employee Interests: A focus on efficiency and profit leads to conflicts with the interests of employees, particularly their health and their opportunities for self-determination and self-actualization.
- Lack of Customer Centricity: Too much focus on optimization (efficiency) leads to a neglect of customer needs and low innovative strength.
- Social Impact: Taylorism contributes, among other things, to the emergence of class differences and the decrease in the sense of community.
In addition to its advantages, Taylorism brings with it diverse problems that are becoming increasingly noticeable for companies, employees, and society. But what has changed such that the premises and strategies that were successful yesterday are increasingly reaching their limits?
From the Blue World to the Red World – Complicated or Complex?
Increasing complexity and dynamics are the driving forces of change. The transition from the industrial to the information and knowledge age is accompanied by Taylorism being replaced by a new paradigm: the network economy. This "Big Shift" is based on increasing connectivity and changed ways of communicating—phenomena largely attributable to digital technologies and their proliferation.
Complexity
- Complexity increases when connectivity and the emergence of non-linear effects increase.
- On one hand, complexity leads to overwhelm and the stress collapse of systems.
- On the other hand, complexity leads to the generation of creative ideas and innovations.
Dynamics
- Dynamics are created by the innovations of competitors.
- Dynamics must be endured and generated by oneself in order to survive.
- Dynamics cannot be met with knowledge, but only with ideas.
Put simply, for people and organizations, complexity and dynamics mean they are constantly confronted with surprises that cannot be managed with knowledge alone. This is what distinguishes complex and complicated problems:
- Complicated problems (blue) can be reliably solved with the right knowledge. Every surprise is due to a lack of knowledge. Both humans and machines can serve with knowledge.
- Complex problems (red), on the other hand, rely on ideas. Ideas are generated by (living) people in the right contexts, not by (dead) machines.
Complicated and complex problems are two sides of the same coin: they do not exist separately from one another and alternate constantly within the framework of value creation. This is precisely why the distinction is so valuable. It allows companies to check whether different problems are being met with the correct methods.
The decisive difference between the times of Taylorism and those of the network economy is that the ratio between complicated and complex problem components is shifting drastically in favor of complex components. This means that the ability to deal with uncertainty and learn new things becomes increasingly important when overwhelm is the normal state.
Many of our crises and conflicts are due to the fact that the systems in which we live and work are geared towards solving complicated problems. Since an extremely successful solution for managing complicated problems was found in standardization, hierarchy, and centralization, many people and organizations find it difficult to break away from exactly these methods and patterns.
To do this, previous decision premises and coping strategies must first be recognized and reviewed for their functional and dysfunctional components.
From Theory X to Theory Y – Reviving People and Organizations
Taylorism understands humans as always thinking rationally and acting selfishly. The human being is seen as a cheap factor of production and thus degraded to a small cog in a profit-generating machine. Since the division of labor, central steering, and control were characterized by enormous success, many companies today find it difficult to break away from proven patterns of thought and action, let alone recognize them in the first place. The associated image of the 'homo oeconomicus' is still stuck deep in the bones of people and organizations.
As long as selfishness and mistrust shape the image of humanity, the creative potential inherent in every human being is undermined and its development systematically prevented. Valuable ideas that have the potential to grow into relevant innovations remain hidden. Weak but significant signals pointing to opportunities and risks are overlooked or ignored.
Douglas McGregor gets to the point in ‘The Human Side of Enterprise’ (1960) with his comparison of Theory X and Theory Y. In the book ’Komplexithoden – Clever Ways to (Re)Vitalize Companies and Work in Complexity’ by Niels Pflaeging and Silke Hermann, one finds the following summary:
Theory X: describes prejudices about people
- People do not like to work, try to avoid work, must be extrinsically motivated, seduced, or forced
- „Leadership“ degrades to instruction and control
- Leads to behavioral control, behaviorism
- Justifies authoritarian claims of power over others
- Small-scale requirements and controls lead to passive working behavior and demotivation
Theory Y: describes humans in their true nature
- People have to work, but strive for self-development, are intrinsically motivated, and want to perform
- Enables leadership – as the creation of the right conditions
- Humanistic-enlightened image of humanity
- Always adult interaction with one another
- Self-determined work and space for self-actualization lead to commitment, creativity, and willingness to take responsibility
This comparison leads us to an alternative paradigm: not the maximization of profit, but the maximization of utility with a view to all participants (stakeholders instead of shareholders) becomes the overarching purpose of every company.
Integrative Value Creation: Room for Meaning and Contradictory Purposes
The overarching purpose of a company is therefore to be found in providing the greatest possible benefit for paying customers today and tomorrow, in order to make a contribution to the supply of society. In this way, the value creation cycle between owner, employee, customer, and society can be maintained and all purposes can be served in the best possible way.
The challenge of organizing lies in the integration of the unavoidable contradictions, paradoxes, and dilemmas that naturally arise from the fact that different purposes, goals, and interests are pursued.
If the owner is aware of this central purpose of a company, they will ensure that employees can contribute as much as possible in the sense of customer benefit. If employees are provided with such an environment, they unfold their natural strengths and use their resources willfully to serve the common purpose. Everyone is intrinsically motivated and ready to learn and perform together.
But it is only through appreciative customers who take advantage of the offer and are willing to pay for it that value creation becomes possible and a meaningful matter for all participants and thus for society. Therefore, customer centricity is of high importance. Only solving relevant problems or fulfilling human needs sets the cycle in motion. Without an owner, there would be no company, and without employees, customers could not be served. But only when the customer decides to express their trust through a purchase decision is the value creation legitimized.
"It takes [...] the harmony of meaning, purpose, and means so that a 'good' company can emerge." – Jan-Erik Baars
Subordinating everything to return and efficiency thinking was a reliable success strategy for a long time. In times of high complexity and dynamics, singular and under-complex competitive thinking is no longer sufficient to operate value creation.
Those who want to be successful today and continue to exist tomorrow will not get far alone. Complexity can only be met with complexity. In order to deal with dynamics and be able to use complexity, it is therefore necessary to move from individual intelligence via team intelligence to network intelligence. This requires practice in dealing with complexity.
The whole matters. For the whole, cooperation and the assumption of social responsibility are needed more than competition and greed for profit.
What Does This Mean for Your Company?
- Check the paradigms underlying the organization and your own behavior and recognize the importance of intangible values. A one-sided focus on financial profit or other purely material values will prove to be increasingly problematic. Our suggestion for an alternative paradigm is: human and customer centricity with the goal of increasing value creation.
- Integrate employees, customers, and partners more strongly into value creation to capture weak signals and to master the handling of contradictions and paradoxes. How can ideas from employees, customers, and partners flow into value creation and grow into innovations?
- Constant negotiation of goals, purposes, and interests is crucial to establish a common focus. Promote and challenge the communication and conflict-resolution skills of everyone involved so that problems become solutions through constructive dialogues and discussions. What stands in the way of value creation and where do recurring conflicts occur?
- Ensure a balance between short-term and long-term goals. As an entrepreneur, you are often caught up in day-to-day business. Long-term considerations then often fall short. A strategy that takes into account both short-term success and long-term perspectives leads to a sustainable increase in the company's value. What is important today to continue being successful tomorrow and the day after?
- Become aware of the needs of employees, partners, and customers by regularly exchanging ideas with them (Listen!) and condensing observations into insights. To what extent are needs reliably met through product, service, and communication?
- A shared vision and mission can serve as a common reference point and provide meaning, orientation, and trust amidst all the contradictions. The prerequisite is that everyone can identify with the vision of today and tomorrow. Therefore, ensure regular exchange with a view to possible futures, shared ambitions, and potential concernsto create clarity, activate resources, and awaken motivation. Which common purposes are being pursued and what meaning is attributed to the whole?
