Note: this piece is for my colleagues, Economics of Mutuality Practitioners, all, at Saïd Business School, Oxford University, UK.

——————

About five years ago, I and my good friend, Founding Dean Emeritus Shyam Kamath of Cal State University Monterey Bay, College of Business, wrote a piece called "What is Responsible Business." In it, we vilified U.S. Economist Milton Friedman for articulating in a 1970 essay in the New York Times the permission for corporations to focus on purely on profit as its only social responsibility.

While I've held up the Friedman Doctrine numerous times in contrast to Stakeholder Capitalism, I often thought, "The guy is not around to defend himself. What would he say if he were still alive and writing, in today's economy?"

——————

The McKinsey 7S Model is a framework developed by McKinsey & Company to analyze an organization's effectiveness and guide strategic change. The model delivers an holistic view of a firm and clarifies how coordinated and aligned it is toward achieving its purpose. The idea is that a thoughtful strategy will succeed if the organizational structure and culture support its implementation..

Companies often use other so-called "human resource" guidelines to make hires. When hiring for synergy - the notion that the whole is greater than the sum of its parts - then the McKinsey 7s model might be just what's needed to bring in talent that fits Purpose, Mission, Vision, and Values.

There are enough acronyms tossed around in the strategic management of business to make your head explode. And worse, there are at least as many opinions about what they mean. The truth is that for most businesses, just a few are useful.

In episode eight, we discussed two valuable tools for any business, especially a responsible business: the goal-setting framework called Objectives and Key Results, or OKRs, popularized by John Doerr and Key Performance Indicators or KPIs, well-known metrics for tracking day-to-day operational and financial performance.

KPIs and OKRs complement business strategy and performance management. While OKRs are potent tools for setting, coordinating, and achieving goals, KPIs add value by providing ongoing metrics that help monitor the steady state of the business.

Here's why both are beneficial:

• KPIs reflect the performance and health of the business in critical areas, like sales, new customers, customer satisfaction, and the like. KPIs help monitor continuous operations and ensure the company meets its fundamental goals, the things that keep the business running.

• OKRs, on the other hand, are goal-setting frameworks that help businesses set ambitious objectives and measure progress - Key Results along the way - toward meeting goals. OKRs are often change-oriented and focus on driving improvement in strategic areas.

Sometimes, KPIs are Key Results within an OKR framework. They provide the measurable outcomes needed to track the achievement of the Objectives.

In his book "'Measure What Matters," John Doerr provides the example of a museum. If the museum's Objective is to become more relevant to the community, a Key Result could be to increase the number of local visitors, which is also a KPI.

So, KPIs and OKRs may complement each other. While KPIs are essential for day-to-day business performance measurement, OKRs are indispensible for company-wide direction setting, taking ownership, and continuously pursuing and improving strategic initiatives.

The strength of OKRs made available openly is that they involve and inform everyone, from the CEO to Production Line team members and vice-versa, about who is working on what. The idea is to avoid duplication of effort and to have everyone pulling in the same direction. On-the-fly revision of OKRs is encouraged if necessary. Self-assessment of an OKR's relevance and success is also a must. No secrets, no blame.

OKRs, when applied skillfully, are like lighting off a rocket on the launchpad. Stand back and let the fun begin.

KPIs and OKRs allow a business to ensure that core operations remain solid and reliable while aiming for effective, sustainable growth and technical and social innovation.

A dual approach can lead to a well-rounded and robust strategy for Responsible Business or any business's success.

In an earlier episode of the Cookbook, we discussed the idea of Impact. Creating a Positive Impact for all stakeholders is the point of Responsible Business.

We also discussed a couple of new terms. The first is the Hierarchy of Strategic Intent, which some call "Strategic Pillars." The second is the Circle of Strategic Management, which is the tactical application of the Hierarchy of Strategic Intent.

In this episode, we'll discuss the jet fuel of Responsible Business, Objectives, and Key Results, or OKRs. OKRs produce Impact and remind us that the Purpose isn't the Plan. The Purpose is the Purpose.

Objectives and Key Results is a framework in which you set goals, align your organization, fuel performance, and cultivate agency, ownership, accountability, and continuous improvement. In other words, using OKRs supports the growth of a learning organization.

OKRs can apply to every aspect of responsible business, from people, planet, profit ethics, and equity, and they are the engine of the Circle of Strategic Management. Recall that Mission aligns with Vision and that Vision reflects Purpose. It follows that Objectives align with the Hierarchy of Strategic Management.

John Doerr, a former Intel employee and venture capitalist, introduced the framework to Google management. Google wanted to scale but maintain focus and agility. The company took on the OKR framework passionately and set ambitious goals to drive innovation and align teams at every level. Since then, OKRs have gained popularity with companies like Spotify, LinkedIn, AirBnB, and others, thanks in part to Doerr's book "Measure What Matters."

Objectives should be ambitious – in fact, they should be a stretch – and inspirational and measurable, and Objectives require Tactics to produce Key Results. Let's say your Objective is to see Shakespeare's Othello at the Globe Theatre in London, where Snoop Dogg and Martha Stewart will play the lead roles. You live in San Jose, California. What Key Results would you need to realize your Objective? You'd need a ticket to the play, a plane ticket, and a Bed and Breakfast in London. Tactics is how you'd make those key results happen.

Key Results are specific, achievable, and time-bound metrics. Metrics – standards against which measurements indicate progress – are the path to achieving Objectives. Metrics can be percentages, numerical targets, or milestones.

The magic of OKRs is that they are applicable throughout the organization. When OKRs "cascade" (in OKR parlance) through an organization, top-level strategic, team, and individual employee objectives align. Periodic reviews are vital for reporting and monitoring progress, discussing challenges and opportunities, and changing course if necessary. The cadence of periodic reviews can be every Monday morning, monthly, or quarterly.

Implementing OKRs takes understanding, time, effort, patience, and collaboration. But once you initiate the practice and get the cadence down, the framework promises tangible results and Impact.

OKRs serve as the basis of the Circle of Strategic Management. OKRs fuel performance, empower teams and foster organizational accountability. OKRs, through regular reviews and reflection, encourage a culture of learning and continuous improvement.

Let's review what we've covered in the past six episodes.

When adopting Responsible Business, we suggested some foundational, essential, and valuable concepts.

Becoming a Purpose-driven organization is primary because Purpose is a big idea, a moonshot, why the firm exists, and that which gets people out of bed in the morning to come to work.

Hiring for synergy means hiring talent with hard skills, like computing and engineering, which enhance your core competence. But soft skills, like collegiality, attitude, and alignment with a company's Purpose, are at least equally important. The idea is that every new or seasoned employee creates a whole greater than the sum of its parts.

Creating a Learning Organization involves mutual respect and the ability to point out issues without blame. As Toyota points out, "No Problem is a Problem." If you think you have no problems, you have a problem. To be effective, everyone must understand the business to improve it.

Dynamic Strategy, also called Emergent Strategy, involves being attentive to the business ecosystem to make incremental strategic decisions in response to developing changes rather than relying on a strictly planned, static strategy.

Systems Thinking – understanding systems and the potential consequences of applying changes – can reveal the root cause of problems and pave the way for intelligent adjustments.

Continuous Improvement, the engine of a Learning Organization, is an upward spiral of planning actions, testing them, implementing changes, reviewing impact, tweaking if necessary, and looking out for problems in the future. In this way, transformation becomes everyone's job.

We also introduced two concepts that, admittedly, are not broadly used by Responsible Business proponents. That's because I made them up. But you may find the concepts useful.

The first concept is called the Hierarchy of Strategic Intent. The term describes the result of an organization's concisely written Purpose, Mission, Vision, and Ethics statements. The four statements are a reference for anyone in an organization needing a reminder when decision-making gets tough. The Hierarchy of Strategic Intent tells stakeholders what the firm is up to and what to expect from the company as a "good citizen."

The second term is called the Circle of Responsible Management, and it's the umbrella of day-to-day operations management informed by the Hierarchy of Strategic Intent. The idea of circularity implies that the two concepts are interdependent, linking the tenets for which the firm stands with responsibility for and pride in "how we do things around here" daily.

A quote I find inspiring comes from W. Edwards Deming, an American engineer and management theorist who introduced statistical quality management to post-war Japan.

Deming said, "People are entitled to joy in their work and a sense of ownership." I'd say that the Japanese Auto Industry learned that lesson well!

Purpose is the reason for a Responsible Business's existence and guides its choices. A firm’s Mission statement talks about what a company does to fulfill its Purpose while the Visions statement projects what the firm might look like in the not-too-distant future.

To illustrate what we mean by Mission and Vision, let’s invent a mythical company, Transnuclear Power Corporation, or TPC, to illustrate.

TPC’s Purpose is to "free the world from nuclear waste and dependence on fossil fuels." OK, so that’s it’s North Star, it’s Moonshot. TPC’s Purpose is short, memorable and it’s a big idea!

A Mission Statement tells the world what a company is currently doing to fulfill its Purpose,

TPC's Mission Statement is, "We make inexpensive and safe small modular nuclear reactors – SMRs - that burn spent nuclear fuel to make electrical energy."

TPC's Mission is easily remembered and understood, reflects the firm's core competency, is actionable daily, and presents a metric for each part of the statement. All good. TPC's Mission is on target.

There’s an adage that goes something like, “A goal without a date is just a dream.” Thus, the company’s Vision Statement differs from its Purpose or Mission Statement. The Vision Statement projects what the company aims to accomplish in fulfilling its Purpose within a specific time frame, usually five to ten years - sometimes longer.

TPC's Vision Statement is "Within fifteen years, we aim to be the leading provider of cost-effective, reliable, and safe electric power sources throughout the world." The Vision Statement sets a defined direction for planning and executing corporate-level strategies informed by the company’s Purpose and made real through its Mission.

It’s ea1sy to see that Mission and Vision may change and be revised over time, as a company moves closer to fulfilling its Purpose.

Ethics is a system of moral principles a person or group holds that may influence decision-making and behavior. Someone once said that the measure of a person is not what they do when everyone is looking but what they do when no one is looking. Ethical behavior is the result of acting according to one's Ethics.

The principles of behavior in a corporate Ethics Statement create expectations for which an organization may be held accountable by its stakeholders as a good “citizen,” including trustworthiness, responsibility, caring, and fairness in equal opportunity.

A firm’s Hierarchy of Strategic Intent starts with Purpose. Purpose informs Mission and Vision. Ethics make up that for which a firm can be counted on while reaching for its Purpose. That said, Strategic Intent becomes tangible when it permeates a firm’s culture and transforms into a Circle of Responsible Management..

The Importance of a Purpose Statement

A business that uses a Purpose to guide it could be any business. It needn't bear the label "Social Enterprise."

Purpose is a target, a goal that's bigger than just the company. Some people describe it as a North Star or a Moon Shot. And, like continuous improvement, it may be an inspiring and never-ending quest.

The Purpose Statement is the reference point, the light in which a company stands and weighs decisions against. It is why the company exists and what gets people out of bed in the morning with enthusiasm for the task.

Ashley Bright, CEO of GCG Brighthouse, describes Purpose as a statement intended "to be generative… so that the benefits reach beyond the business."

Dr. Colin Mayer of Saïd Business School at the University of Oxford says that a Purpose statement should express a firm's desire "to solve the problems of people and planet profitably, and not profit from causing problems."

Zein Abdalla, a Director at Cognizant, observes, "In elevating Purpose, we must not lose sight of the fact that it is only powerful when (it is) part of an integrated ecosystem of vision, strategy, and values. Purpose as a standalone statement goes nowhere; only when it comes to life through vision, strategy, and execution is it sustainable over time."

A Purpose Statement should be short, easy to remember, chosen carefully, and in conjunction with stakeholders.

Here are some examples of compelling Purpose Statements.

Patagonia, the clothing manufacturer, says:

• "We're in business to save our home planet."

From REI Outdoor Equipment:

• "Inspire, educate, and outfit for a lifetime of outdoor adventure and stewardship."

This one from LEGO is an example of a wordy, hard-to-remember Purpose Statement:

• "to inspire and develop children to think creatively, reason systematically, and release their potential to shape their future - experiencing the endless human possibility."

Edifying but not mentally manageable.

Country Music singer Willie Nelson covers a song called "We Are The Cowboys." The song offers some good advice.

––––

Music

We Are The Cowboys, sung by Willie Nelson, written by Billy Joe Shaver, Legacy Recordings.

References

• Mayer, C., Eccles, R., & Younger, R. (2020, September 2). Enacting Purpose within the Modern Corporation. The Harvard Law School Forum on Corporate Governance. https://corpgov.law.harvard.edu/2020/09/02/enacting-purpose-within-the-modern-corporation/
• Miazad, Amelia, et al. EPI the Enacting Purpose Initiative Report # 2 Directors & Investors: Building on Common Ground to Advance Sustainable Capitalism 0 7 . 2 0 2 1. July 2021.
• The Purpose Project. "22 Inspiring Business Purpose Statements." Purpose Project, 15 April 2018, www.thepurposeprojectinc.com/blog/2018/4/25/22-inspiring-business-purpose-statements.
• Younger, Rupert, et al. Enacting Purpose within the Modern Corporation: a Framework for Boards of Directors. Aug. 2020.

In an earlier episode of the Responsible Business Cookbook, I offered the concept of systems thinking. There's another tool that, like Systems Thinking, is a worthy prerequisite for any business venture. It's called Continuous Improvement. Continuous Improvement can be applied to any business, regardless of sector.

Welcome to Episode Four!

Early in my career, I had the good fortune as employee 104 to serve as an environmental engineer for the now-dissolved General Motors and Toyota joint venture, called New United Motor Manufacturing Incorporated, or NUMMI, the plant now occupied by Tesla in Fremont, California.

When I arrived, the 5.5 square-mile plant was virtually empty. General Motors had abandoned it. But just about 18 months later, NUMMI produced one car every 52 seconds with the fewest defects of any General Motors-affiliated plant in the country.

How did it happen? Toyota managed production and applied the principles of the Toyota Production System, or TPS, for which the company was renowned.

Kaizen, a Japanese word meaning "good change," is at the heart of the TPS. It reminds everyone to continuously improve every aspect of work, eliminate waste, and optimize efficiency to create an even, stress-free workflow. Kaizen gives voice to all employees, empowering individuals to find areas for Improvement and suggest practical solutions.

Kaizen follows an upward-spiraling process of Improvement, characterized by the words plan, do, check, act, and start again. One of the underpinnings of the process is "no blame," that mistakes happen, and that finding the root cause of a problem and proposing a solution is best done by a team.

Beyond the company's "four walls," it respects partners and suppliers as an extension – stakeholders - of the business and helps them improve their processes and products.

A few of the fourteen tenets researcher Jeffery Liker mentions in his book, The Toyota Way, directly pertain to Responsible Business.

For example, people who believe in a corporate purpose create a foundation for the company.

Toyota suggests managing with a long-term view, even if it means sacrificing short-term financial goals.

The company looks to create and maintain a robust and stable culture in which company purpose, values, and beliefs are widely shared and lived out over many years.

Hiring exceptional individuals who can work in and with teams to achieve superior results is vital. This way, when it comes to advancement, rather than hiring people from outside the organization, Toyota strives to grow leaders from within who thoroughly understand the work, live the philosophy, and teach it to others.

Finally, the TPS encourages development as a learning organization through relentless self-evaluation and Continuous Improvement.

If you'd like to know more about Continuous Improvement and the TPS, check the references in the podcast notes.

______

Music

Walking on a Dream (Treasure Fingers Remix) - Empire of the Sun

__________

References

Liker, J. K. (2020). TOYOTA WAY: 14 management principles from the world’s greatest manufacturer. (2nd ed.). Mcgraw-Hill Education.