Emerging Management Paradigms

This story highlights the diverging opinions on what Fair Trade is. The traditional intention of  fair trade is to allow smaller farmers access to large US and European markets that they’d normally be priced out of. Fair Trade USA, the largest fair trade certifier in the country, believes that definition should be changed to include coffee from large farms and products with only 10% fair trade ingredients, half as much as allowed in most countries.

Critics believe that this practice of extending the certificate beyond small farmers who use 20% or more fair trade ingredients dilutes the meaning of “Fair Trade” and should be considered to be the less specific “Socially Responsible Business”. Over the past decade, the concept of Fair Trade  has become increasingly confusing for consumers and highlights a critical problem around legitimizing certifications in the marketplace as consumers become more conscious of global health, social, and environmental problems.

http://www.npr.org/blogs/thesalt/2011/11/30/142935891/is-fair-trade-coffee-still-fair-if-it-comes-from-a-big-farm

Natalie

Check out Information Week’s top 15 apps for virtual collaboration. Information week points out that ‘Certainly, businesses are investigating — and investing in — tools that help employees brainstorm, locate each other, schedule meetings, and communicate via social networks’. ‘AtTask’ beats out Webex and Chatter for #1. The list has a few interesting familiar and not so familiar applications further down.

http://www.informationweek.com/thebrainyard/slideshows/view/229300480/top-15-cloud-collaboration-app

Ariel

I heard about Warbly Parker through a friend who had used their services. It is a small company, started by a group of college friends, that make and sell eyewear.

Further the company incorporates shared value into its core business, donating a pair of glasses to a person in need for each pair sold. While the company has been billing itself as a “humanitarian eyewear company”, which no doubt has an appeal to the more financially sound, their glasses are also extremely affordable and fashionable and thus more accessible for a broader financial demographic.

This article talks about how Warbly Parker arrived at their business model, which was an inspired mash up of elements from Apple, Zappos, Patagonia, Nike, and Methods. Their competitive edge is afforded through their cost cutting measures go hand in hand– an online based venture, ordering from the manufacturer and selling directly to the customer, bypassing retail chains. Lenses are included with the flat rate of the glasses and shipping and returns are free.

The company really utilizes the Internet beyond is use as a transactional method. Customers can upload photos of themselves and virtually try on glasses. Or the company sends out 5 loaner pairs, and also maintains some real estate in department stores of large cities. Like Zappos, shipping is free and all eyewear may be returned.

http://thenextweb.com/insider/2011/10/10/warby-parkers-do-good-vision-for-humanitarian-eye-wear-comes-into-focus/

– Jen W.

Crowdfunding offer a way for ‘do well, do good’ organizations to raise capital from those that they are ‘doing good’ for.  In other words, it gives them the possibility of getting a return on the shared value they produce.  The new SEC crowdfunding law should make this easier.

On the topic of technology in the workplace, heres a great example. The CEO of a tech company, Atos, found that only 10 % of email in the workplace is actually useful while the rest is spam. He decided to ban email in the company and replace it with instant messaging and collaboration software. This CEO has not sent an email in 3 years!

Article can be found at: http://news.yahoo.com/tech-firm-implements-employee-zero-email-policy-165311050.html

Naila

An article that relates to the last class discussion on sustainability, with environmental rankings of major corporations. While governments are stalling at the notion of regulating carbon foot prints, corporations are motivated to reduce waste since that entails a drastic reduction in costs. Reducing waste is done through improving operational aspects and making more efficient products. Companies across the world are coming to the conclusion that long-term sustainability is more crucial then ever before. 

“We’ve been presented with a false choice: either great economic performance or great environmental performance,” says GE’s Vachon. “But through innovation, we can solve both challenges.”

http://www.thedailybeast.com/newsweek/2011/10/16/green-rankings-2011.html

Naila

In the below article,  Jerry Greesnfield who is the co founder of Ben and Jerry’s talks about how Ben and Jerry has been doing well by doing good

Some important points

1) Purchasing chocolate brownies from a non profit which trains and hires out of job workers

2) Ben and Jerry Foundation which donates to non profits

3) “In state” public offering in Vermont

http://www.jta.org/news/article/2011/11/22/3090403/ben-jerrys-co-founder-explains-how-to-do-well-by-doing-good

Cradle to Cradle by William McDonough and Michael Braungart, lays out the framework for designing a “New Industrial Revolution,” which shifts industrial design to intentional design. The cradle to cradle design philosophy was born out of a collaboration between architect, William McDonough and chemist Michael Braungart, each working on solving sustainability and health challenges in their respective fields. Built on the philosophy that we must take care of ourselves by taking care of the Earth, their work focuses on unifying industry and environmentalism, historically opposed to one another, to create a world that leaves an “ecological footprint to delight in, not lament.” As leaders in their fields since the 1970’s, they have experience working on these issues since they arose, and each have lived and worked in densely-populated countries such as Japan and Germany that have more elegant and ecologically responsible solutions than the US for how to design buildings, housing, and products.

The unintended effects of the Industrial Revolution have had devastating effects on human and environmental health. With this knowledge, they argue that we are at a turning point in history where designers and businesses must make sustainability a priority. They suggest that designers can use the wisdom of nature as a template for creating products, industrial systems, and regional plans that provide an alternative to the wasteful and damaging items that currently exist. They explain that key components of a truly sustainable design are diversity, locality, using natural energy flows such as solar, wind, and water power, explain how to transition to diverse and renewable energy flows, and a willingness to work with every sector of the economy and avoid “isms” or extreme and narrow lenses to see the world through. They call the last point “eco-effectiveness” which sees commerce, committed to environmental, social, and cultural concerns, as the vehicle for change. They explain that ecology, equity, and economy, three abstract components, must be in place for this to work and consider different aspects of each fractal when designing products, buildings, and factories. When analyzing clients from each perspective, suggestions for how the other two fractals can be considered in the business plan to round out the process into a more sustainable design model. For example, if a company is solely interested in making a profit, a suggestion to balance that out by looking at the social and environmental factors such as employee wages.

They describe an “Industrial Re-Evolution” as design that is diverse and most resembles the living world. It is foundational to use natural mechanisms that work on the premise of taking but also giving back, which creates a cycle of regrowth and redistribution of resources. For example: building factories whose products nourish the ecosystem with biodegradable material and recirculate technical materials instead of dumping, burning, or burying them and creating self-regulating systems and strive to serve nature as well as our own needs.

This holistic design framework is highly adaptable and works with people and businesses where they are. There are five steps that reflect five principles guiding the process. Step 1 is to Get “free of” known culprits or harmful substances. Step 2 is to Follow informed personal preferences, such as respect, celebration, “ecological intelligence”, etc. to allow for integration between design and culture. Step 3: Creating a “passive positive” list where they take inventory of the contents of a given product and the substances it “gives off” in the course of its manufacture and use. This is the most ecologically comprehensive step as it takes into consideration not only what the end state of the product is, but what effects it has on the local and global communities. Step 4 is to activate the “positive list” of substances to be used in the design. Step 5 is to reinvent the product. Even huge, established companies like Nike and Ford were able to integrate the framework into their traditional buildings. In Ford’s case, they redesigned their manufacturing facility to not only collect storm water, clean the air, beautify the landscape, but the plan actually saved the company $35 million in what would have been costs to upgrade the pipes to satisfy the Clean Water Act.

McDonough and Braungart’s focus on tangible solutions for design that strike at the root of our sustainability problems, rather than merely treating the symptoms, is impressive. They are answering the question of how to support and perpetuate a world that both promotes human health and is full of abundance, which hopefully more designers and business leaders will be doing in years to come.

– Natalie

“The future belongs to constructive capitalists. Here’s how to become one.”

Umair Haque – The New Capitalist Manifesto

The twentieth century saw the establishment of industrial era capitalism as a game of cost cutting and rapid growth. Companies achieved competetive advantage by shifting costs and borrowing benefits from society (deep debt). The price of a hamburger is artificially set at $3 because so much of the real cost to society has been hidden. As Ankita points out below, the actual cost of a juicy Big Mac is closer to $30 after counting the harm it will do to society and the environment. “The real debt crisis isn’t what America owes to China, or what Europe owes to Germany. It’s the deep, ever-mounting, unpaid debt of harm that business as usual owes people, communities, society, the natural world, and future generations, whether denominated in oil spills, banking meltdowns, or carbon emissions. Today, countries, companies, and people are struggling to repay the deep debt incurred by yesterday’s harm. The result is the slow, steady diminishment of prosperity.”

The twentieth century industrial model of growth through cost shifting is dead. We can even see it happening in the market via Haque’s list of 200 constuctive capitalist companies. Since the turn of the century those value of those companies has tripled, while the value of the S&P has actually dropped. How could this happen? How could companies that avoid shifting costs onto society compete with others, let alone grow during an economic crisis? Haque argues that the link between constructive capitalism and success are the adoption of 5 new institutional cornerstones. Adopting these new cornerstones produces advantages that stem from the creation of authentic economic value as opposed to thin value based on deep debt. The 5 ways a constructive capitalist gains his advantage is by utilizing Value Cycles instead of Value Chains, Value Conversations instead of Value Propositions, Philosophies instead of Strategies, Market Completion instead of Protection, products that are “betters” instead of “goods”.

By incorporating these 5 cornerstones “insurgents” (Constructive Capitalist Companies) have the power to attain next generation efficiency, productivity, effectiveness and agility, while “incumbents” (Industrial Capitalist Companies) can only drive down costs so much by borrow marginally more benefits. Some examples are Apple’s socio-productivity leaving it miles ahead of Sony, Google’s evolvability letting it create new services so quickly that it left Yahoo! in the dust, Walmart’s socio-efficiency compared to Target, Nike’s socio-effectiveness helping it outcompete Adidas and Puma, Lego to Mattel, Nintendo to Sega, Tata to GM, and Threadless to the Gap, the list goes on.

The moral of the story? There are real advantages to insurgency. “Constructive capitalists are able to turn thin value on its head and create thick value instead—value that matters, value that lasts, and value that multiplies.” Industrial capitalists are relegated to cost cutting and benefit borrowing, and society will come knocking looking to collect on its debts sooner rather than later.

Prosperity on an ark differs from prosperity on a game reserve. During the reign of industrial capitalism the fiercer hunter (the one who shifts more costs onto society) engendered the most prosperity, now that society has realized that the world is something more like a fragile ark the fiercer hunter becomes obsolete, even punished. It is the radical insurgent who will be rewarded for creating authentic value. The example of Walmart highlights this shift.

Once the “Death Star of companies: ultra-lean, ultra-mean, and the size of a planet,” Walmart became the biggest company in the world by exploiting natural resources, squeezing suppliers, and crushing communities. It also became public enemy number one for a generation of activists and reformers. While still not perfect, even “Walmart is learning that, as the world shifts from the economics of a game reserve to those of an ark, competitive advantage is just table stakes. It is constructive advantage that fuels twenty-first-century outperformance.” It has since adopted three constructive capitalist goals, “to use 100 percent renewable energy, to achieve zero waste, and to sell only products that benefit the environment.” Walmart’s goal here isn’t so much altruistic as it is likely still to reduce cost through increased efficiency, but that is exactly the point. The new capitalist world that Haque lays out is one where even the largest company’s have to realize that costs cannot be infinitely shifted in a finite world, and they will be forced to adapt, forced to forget about cost advantage and focus on constructive advantage, forced to think of authentic value creating instead of thin value and deep debt.

Want to become a constructive capitalist? Now is your chance says Haque. Beat the big guys to a constructive advantage, don’t do it out of necessity but rather as a purpose and you will be rewarded in a big way.

Ariel

This book about the story of Tony Hseih and Zappos, which was later sold to Amazon.com for around $1.2 billion. Tony initially takes us through the story of his first startup LinkExchange and how he sold it to Miscrosoft for $265 million. He was particularly unsatisfied by the culture and people they hired in rapid growth period, which eventually led him and his partner to sell the business to Microsoft. This experience eventually helped him designing better hiring process and also unparalleled culture at Zappos.

Tony also tells us one of experiences at the rave parties he attended, how he was mesmerized by the laser lights, fog and especially how everyone was dancing together with no self-conscientiousness as if individual consciousness had disappeared and been replaced by a single unifying group consciousness. He quotes,

“I didn’t know it at the time, but ten years later I would learn that research from the field of the science of happiness would confirm that the combination of physical synchrony with other humans and being part of something bigger than oneself (and thus losing momentarily a sense of self) leads to a greater sense of happiness, and that the rave scene was simply the modern-day version of similar experiences that humans have been having for tens of thousands of years.”

This experience was profound and inspirational in shaping Zappos culture.

Zappos was facing major financial difficulties in the initial phases. Tony even had to scarifies most of his property in funding the company. In the midst of such situation they had to make strategic decision core to their business between choosing drop shipping which was easy money, and managing inventory by themselves, which was cumbersome but allowed them better customer service. They chose to the higher road and decided to manage inventory by themselves making customer satisfaction their ultimate goal than just making profits. Tony recalls the core takeaway from the book Good to Great by Jim Collins,

“Yeah, you should definitely read it,” I replied. “He talks about what separates the great companies from just the good ones over the long term. One of the things that he found from his research was that great companies have a greater purpose and bigger vision beyond just making money or being number one in a market. A lot of companies fall into the trap of just focusing on making money, and then they never become a great company.”       

In this process they also decide to burn their option of drop shipping immediately to completely focus on managing inventory themselves as a business. I think this level commitment helped them create a far greater company than mere profitable business.

Moving Zappos entire business from San Francisco to Las Vegas and not outsourcing their core competency allowed them to create better company culture and focus on the customer service. Zappos on focused three main things in their company to achieve the success they had, customer service (which would build their brand and drive word of mouth), culture (which would lead to the formation of their core values), and employee training and development (which would eventually lead to the creation of our Pipeline Team).

– Kuldeep