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Business models with a social purpose

There is a lot to be said for families. Families look after each other. They support the young and the old; they take a long-term view on decisions. There are some great family names still evident in corporate life today although the influence of the family may be long gone or much diluted. Think Cadbury, Walmart, Phillips, Ford, Rowntree. The backbone of German industry is still made up of Mittelstand (translates to medium estate) family businesses. It is often suggested that these companies are responsible for the success of German industry over the last few decades.

Family businesses think differently to listed companies – ie those that are quoted on a stock exchange. Listed companies are principally driven by earnings. This was epitomised by GE under the leadership of Jack Welch. He had the single-minded pursuit of shareholder value. All that mattered was an increase in GE's share price and the only way that could be achieved was by ruthlessly increasing profits. If that meant ditching 10% of staff every year, so be it.

Times are changing. Even Mr Welch has changed his view. He now describes his pursuit of profits as "the dumbest idea in the world". Today's chief executives are turning to a wider more social purpose for their companies. They recognise that in today's society there are many stakeholders including employees, customers, politicians and investors. Disenchantment by any of these groups could lead to a serious breach of trust.

Only the other day, State Street Global Advisors, the world's third largest asset manager, wrote to directors of more than 1100 companies quoted in the stock markets of the US, UK, Germany, France, Japan and Australia. The letter asked the directors to set out how they match their company's culture with their company strategy. The request was in recognition that intangibles drive the bottom line and brands are carrying more weight than hard assets.

What matters nowadays is trust. When stakeholders in a company lose its trust, it is almost certainly on the road to decline. Somebody will abandon it and if it is customers, the decline will be very rapid indeed. Restoring trust is one of the most important issues in corporate life today.

It is worth thinking about. What is your business model and is it moving with the times?

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