Strategy in a business or organizational sense is highly material. It is all about generating and utilizing resources, and equally about creating and deploying wealth. All factor resources, natural or synthetic, are utilized to advance businesses in pursuit of growth. Over time, a highly capitalistic approach was proven to be a more efficient creator of wealth but a less effective enabler of social activity. While alternate forms of public ownership (Russia), mixed socialist economy (India) and totalitarian (China) have differentially influenced resource and wealth generation paradigms, strategy has evolved as an instrument that transcends ownership and influences resource and wealth in societies and economies. Many times, these economic systems exist and evolve in combination with political systems such as controlled elections, total democracy and command & control administration to deliver relevant results.
Societies and governments have recognized that societies must get back certain portion of wealth generated through successful strategies; so have highly successful entrepreneurs and businessmen. Bill Gates and Warren Buffet have been the leading business lights in US who channeled a large proportion of their wealth into charitable and philanthropic activities. In India, founders of a few major groups such as Wipro, HCL, GMR and more recently Vedanta have pledged 12 to 75 percent of their wealth philanthropic and charitable activities. While such acts are dependent on voluntary commitments by such successful leaders, the legal framework of Corporate Social Responsibility (CSR) developed in India under the new Companies Act 2013 signifies the desire of regulators to somewhat compulsorily channel business profits (based on certain criteria) into acts of development for the underprivileged sections of the society.
Many approaches, one source
There are, as summarized above, many approaches, ranging from voluntary to compulsory, that may channel pre-existing and created wealth to causes of social equity. The source for all the approaches, however, is profitability. That said, higher profitability does not necessarily mean higher social contribution. Profitability that arises from usurious squeezing of factor resources or excessive skimming of consumer surplus may be seen to be socially exploitative. Any social investments that are made from such unnatural profitability may be seen to be a distorted form of social contribution. The policy of contribution after substantial generation places the choice and discretion in the hands of businesses in that profits are earned first and deployment is considered next (if at all). The much repeated saying of businesses that they must give back to society what they take from society arises from the first principle of earning allocable profits first, before any deployment can be made.
More fundamental than profitability is strategy that generates profitability. A smart strategy identifies and fulfills latent and established (and even hitherto unknown) consumer needs through efficient design, manufacture and delivery of products or services and in the process optimizes investment-expenditure-cost-profit relationship. There is a view that there can be no right or wrong strategy but only right or wrong execution. This is an oversimplification of the strategic process. For example, it is not appropriate to hypothesize that being the 100th firm in a million unit market is a right strategy and execution will take good care of such a pedestrian strategy of market and resource fragmentation. Right strategic process involves an inventive mind, prudent resource management and revenue generation without compromise to profitability. For businesses and organizations to be socially responsible they must first be economically responsible.
Economic responsibility is a less understood concept. While the old adage says that time and money once spent cannot be got back, there is a reluctance to accept money as a factor that is as valuable as time is. Such reluctance is due to the popular perception that money always buys something in exchange, and often generates more money. That said, few realize that money, though a manmade currency, is a finite amount that has a relationship with the overall efficiency of a national economy. Living beyond means or means that trail the living aspirations lead to a negative spiral of deficit financing and inflation. Like nations, businesses and organizations must live within means or expand the means at unit level. Concepts of globalization and cross-border pooling of costs and profits have impacted the ability to incisively track economic responsibility at unit levels.
Growth in population and aspirations requires more products and services, the inputs for all which come from nature. In such a context, economic responsibility can be best expressed in terms of three basic concepts. The first is doing more with less, both in terms of natural and synthetic resources. The second is to conserve natural resources by prudent utilization and efficient exploitation. The third is to renew the natural resources by recycling. An economically optimized society would follow a normal distribution where poverty and luxury, by value, are both minimized and the core of the society has the maximal coverage of value. In normal distribution mean, median and mode (of incomes) converge. A true egalitarian society is one in which the standard deviation of the incomes is such that 68.2 percent is within one standard deviation of the set, 95.4 percent is within two standard deviations of the mean and 99.7 percent is within three standard deviations. Egalitarianism is hard to get in human societies which require materialism and capitalism to crate productive economic activity in increasing measure.
Concentration of wealth is a concomitant of capitalist and free market economies. Even controlled economies that have injected a measure of capitalism have experienced concentration of wealth. While creation of jobs and improvement of economic conditions is one way of economic development, voluntary de-concentration of wealth provides periodic trigger and sustainable stimulus for efforts aimed at economic egalitarianism. Azim Premzi of Wipro has pledged 25 percent of his wealth of USD 16 billion. Shiv Nadar of HCL has pledged 10 percent of his USD 11 billion wealth while GM Rao of GMR has pledged 12.5% of its wealth of USD 2.6 billion. Today, Vedanta group chairman, Anil Agarwal is reported to have stated that he would give away 75 percent of his wealth of USD 3.5 billion to charity. Globally, Bill Gates and Warren Buffet together donated USD 69 billion to Bill and Melinda Gates Foundation. Such initiatives help in de-concentration and diffusion of wealth for social good.
De-concentration helps kick-start major philanthropic and charitable initiatives. WHO in the past and the Gates Foundation in recent times have contributed to eradication of multiple diseases, including polio. There is no doubt that periodic availability of billions of dollars helps the governments, private organizations and public-private partnerships take up transformative measures in the social arena. Eradication of poverty, disease and squalor, including national transformative programmes like Swach Bharat, require massive allocation of funds. Voluntary measures of de-concentration and diffusion of wealth, without doubt, are vital elements of social equity. Given that strategy is the key driver of wealth generation (or wealth erosion), strategy needs to be viewed an important component of de-concentration.
Given that ‘earn and distribute’ of the above type takes years, and even decades, of industrialization and business growth to happen, development of nano, micro, small and medium industries (together micro industries) in an aggressive manner is a strategy to distribute wealth ab initio. Such enterprises create greater employment opportunities and thus contribute to income redistribution. In a similar manner, proliferation of service activities helps self-employment of a large proportion of population. Infrastructure and transportation provide major avenues for employment. Here again, diversification of infrastructure across the nation (for example, developing 12 ports along a State coastal line rather than I mega port) helps in enhanced and diversified economic activity and consequent employment generation. Transportation services are also some of the biggest generators of employment.
Micro-businesses require micro-technologies, standardization and ancillary networks to succeed. An automobile typically comprises thousands of components. Of these, at least a few hundred components lend themselves to micro-enterprises. For example, nuts, bolts, washers can be standardized in design to be of universal design. Micro-technologies can focus on standardized designs and support manufacture with compact and high technology machine tools. Well developed ancillary networks can help micro enterprises cater to mega automobile makers. Electronics, electrical and telecommunication industries constitute another example of the pyramid of manufacture with micro enterprises supporting mega electronic products. This kind of industrial and economic development may be characterized as development with soul. Soulful development, which is development that reflects the inner good qualities of human life, requires a spirit of strategy that is unique and different from the one that is deployed solely for commercial purposes.Strategic spirituality
Spirituality has many definitions and interpretations. For the purpose of this blog post, spirituality is the quality of being connected with humanism and human spirit. Humanism is a system of thought that seeks to solve human problems with the help of reason. Spirit is a state of mind that reflects courage, determination to progress. Strategic spirituality integrates the human dimension in every aspect of the corporate, business and functional strategies. From defining the industrial structure of development and manufacture of a product (huge integrated monolithic structure versus diffused multi-tier diversified structure) to calibrating functional strategies in line with socio-commercial considerations (products as revenue generators versus products as social instruments), strategic spirituality adds a distinctive humanistic face to commercial strategies.
A leading manufacturer of personal hygiene products has interest in promoting product sales. By undertaking a massive programme for girl child education (which will improve perceptions on personal hygiene), the company can combine social and commercial purposes. Leading manufacturers of sanitary hardware (companies such as Cera) which have seen multi-fold increases in their market capitalization in anticipation of Swach Bharat mission would do well to develop a range of customized products to provide affordable solutions to the national mission. Leading manufacturers and marketers of food products can leverage diversified culinary skills of housewives to develop portfolios of low volume-unique taste products. Possibilities are endless; chief executives and strategists must embrace strategic spirituality as a larger professional purpose in life. Strategic spirituality leads to soulful development; development that blends economic growth with social equity.
Posted by Dr CB Rao on September 27, 2014