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I've been reading a fascinating book, which I have found quite inspiring, called The Necessary Revolution, by Peter Senge. You may already be familiar with it, since it was published a year ago, but I've just discovered it. What makes this book important for me is the confluence of two streams of thought that I've been chewing on for some time:

First, Senge and his co-authors weave a coherent and holistic picture out of all the disparate threats to human life and civilization--climate change, waste and toxicity, social and political unrest, and health and nutrition issues--and manage to emerge cautiously optimistic.

Second, The Necessary Revolution looks deeply at the role of commerce, particularly the role of large, global corporations, and finds reason to believe that the companies that succeed during the next phase of capitalism will be precisely those companies that are able to harness their entrepreneurial energy as force for good in the world.

Here's what Peter Senge said in a June 2008 interview with BusinessWeek about what's wrong with focusing on shareholder value as the exclusive guide to strategy:

You go to any MBA program, and you will be taught the theory of the firm, that the purpose of the firm is the maximization of return on invested capital. I always thought this was a kind of lunacy. A well-managed business will have a high return on invested capital. But that's a consequence. It's not a way to manage a business. Peter Drucker said: "Profit for a company is like oxygen for a person. If you don't have enough of it, you're out of the game. But if you think your life is about breathing, you're really missing something." The purpose [of an enterprise] is never making money. And I think a lot of the best innovators inside big companies succeed [because] they really understand the theory of their business.

When the limited liability corporation was created 140 years ago, the shareholder had to be protected. But [the emphasis on shareholder value] makes no sense any more. We live in a world that has a surplus of financial capital, and great shortages of natural capital, human capital, and, in some places, social capital. We're optimizing around one input!

What I really like about this perspective is that it elevates the meaning and purpose of a commercial enterprise to its proper place in the hierarchy of strategic imperatives. We have known for some time that companies that have no purpose over and above making money for their shareholders often do a poor job of making money for their shareholders. This book helps to break down some of the intellectual constraints that have hobbled a lot of executives to limited ways of thinking about business strategy.

If you would like to read the whole interview, here's the link.

And if you would like to check out the book itself, here is the Amazon link.

I'd love to know if this stuff resonates for you, and if you have any stories to share on the subject.

1 Comment

I get this concept absolutely. Without consciously thinking it through, this is what we try to do. I find this approach really challenges and threatens the MBA’s. More conflict!

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