Good Companies Employ Institutional Perspective

History provides many examples of industrialists who developed enduring corporations and social institutions. For instance, Andrew Carnegie established Pittsburgh’s Carnegie Steel Company and the Carnegie Hall performing art center. However, this form of private-social good dwindled over time as wealth became less concentrated at the top of the social heap and ideas about stockholder capitalism came to dominate corporate behavior. In a write-up in the Harvard Business Review, Rosabeth Moss Kanter talks about the modern day relationship between business and society and how good companies adopt an “institutional perspective”, meaning they combine financial and social logic to build enduring success.

Kanter has seen that good companies “undertake actions that produce societal value –whether or not those actions are tied to the core functions of making and selling goods and services.” Good companies zag away from the traditional business behaviors of the old economy. Rather than disconnecting business from society and posing conflicts between them, they believe that business is an intrinsic part of society, and like family, government, and religion, has been one of its pillars for centuries.

Good companies work to make money, but in their choices of how to do so, they consider whether they are building enduring institutions. They accomplish this by adhering to the six principals of institutional logic identified by Kanter: a common purpose; a long-term view; emotional engagement; community building; innovation; and self-organization. As a result of focusing a company around these principals, businesses reach a sustained level of success.

Whole Foods Market is a prime example of a good company with institutional perspective.  From 2006 to 2010, their business has expanded, seeing their store count nearly double from 186 to 299 and company sales rise from 5.6B to 9B. This success came while adhering to core values like promoting the health of stakeholders through healthy eating education; supporting sustainable agriculture; reducing, reusing, and recycling waste; and giving five percent of profits back to community and non-profit organizations.

Kanter believes, “if companies are to serve a purpose beyond their business portfolios, CEOs must expand their investments to include employee empowerment, emotional engagement, values-based leadership, and related societal contributions.” Good companies are purpose driven. They have values and priorities that reach beyond responsibility to stockholders and place importance on society as the larger stakeholder.

Price Matching: the Bane of Retailers

Price match guarantees are not good for brand building. These policies at stores like Staples, Best Buy, Wal-Mart and Home Depot work to commoditize their brands, not build them.

Last week I went shopping for a DVD player. I had a $10 gift card to Best Buy, so I committed myself to that store. I compared the DVD players on the shelf, picked my favorite and then took out my smartphone to get a quick price comparison. Scanning the barcode of the Samsung DVD player with the ShopSavvy app instantly brought up other stores’ prices for the same product. It even showed what the DVD player was going for on Amazon and eBay. In less than 30 seconds I learned that Sears carried the same DVD player for 40% less. Once I had the Sears price, I was able to get Best Buy to match it. At this point, I was no longer shopping at a branded store, paying a premium for the Best Buy brand. I was at a commodity electronics shop. Without ShopSavvy or the price match guarantee I would have purchased the DVD player at BestBuy’s asking price. But, my smartphone enabled me to get information from competitors and I saved money that I would have spent at Best Buy regardless.

Brands exist to differentiate products beyond mere price. A likable and clearly differentiated brand is a powerful emotional reason to purchase one product over another. Price match guarantees are not a good strategy for retail stores because they create parity, not difference. In the past, few people took stores up on price matching policies; however, with today’s technologically empowered consumers, the need for powerful branding and smart retail strategy is essential to profitability.

Why the Crowd-Sourcing of Advertising Does Not Work

When agencies like Victors & Spoils mention the phrase “crowd-sourcing” what they’re getting at is the idea to freelance the work out to the masses.  To give anyone the opportunity to put their advertising ideas out there and let a curator select the winner. For this approach to work well three things must be true: rapid communications must cover a wide span of geography, technology must be inexpensive enough to democratize to the crowd and a network of people willing to submit ideas must exist. While these criteria are met in today’s world, the system is nonetheless tragically flawed. The fact is, there are many things networks of people don’t do well. And, creating advertising is one of them.

Take car companies for example. GM sensibly uses a network to organize their hundreds of suppliers, but not to design their cars. No one believes that the articulation of a coherent design philosophy is best handled by a sprawling, leaderless organizational system. Because networks don’t have a centralized leadership structure and clear lines of authority, they have real difficulty reaching consensus and setting goals. The crowd, acting as a network of individuals, each operating in its own silo can’t think strategically; they’re chronically prone to conflict and error. How can they make difficult choices about strategy or tactics or philosophical direction when everyone in the crowd has an equal say?