Sunday, April 29, 2007
The 500 gets religion
Why big companies are in the business of solving the world's woes.
By Geoff Colvin, Fortune senior editor-at-large
April 17 2007: 4:29 PM EDT
(Fortune Magazine) -- What business are you in?" Peter Drucker famously asked his clients. The wisest of all management thinkers knew that fundamental question was most important. If we could ask his question of the entire Fortune 500 today, the answer would be especially important because it isn't what it used to be.
The implications of the change are considerable for all of America's big companies and for the country. Here's the change in a nutshell: Until recent years the Fortune 500 was in the business of solving people's problems. Now, increasingly, it's in the business of solving the world's problems.
A clear example of the old model was the corporate slogan of DuPont (Charts) for 60-plus years: "Better things for better living." It was a simple theory: Because of us you can have nylon stockings and Tyvek housewrap, and your life will be better. To see the new model, check what Ford (Charts) is promoting - not better things for better living, but "Better World."
Ford happens to be playing up its work in hybrid technology and fuel efficiency, but in general the story is similar at many of the other biggest companies. Wal-Mart (Charts) is saying, "Change a light. Change the world," to promote the environmental advantages of fluorescent bulbs. The corporate slogan of Exxon Mobil (Charts) is "Taking on the world's toughest energy challenges." GE (Charts) says it's helping "solve some of the world's toughest problems." Notice a theme?
When business gets personal
What's happening is more than public relations, though it's definitely that. After the business scandals of 2001-03, big companies have been desperate to portray themselves as good citizens. But companies aren't just changing messages; in many cases they're also changing behavior. What's striking is that many large companies are finding it pays to take actions that benefit the customer not at all, but that benefit the environment or the larger society.
Thus Starbucks (Charts) buys "fair trade" coffee at above-market prices not because it tastes better but because it helps poor farmers, which customers seem to appreciate. The millions of dollars that Gap, Nike and others spend monitoring their global supply chains for compliance with labor standards doesn't make the clothing any better. The willingness of Dell, Hewlett-Packard and others to take back their computers for recycling doesn't benefit customers, for whom it would be easier just to dump the PCs in the garbage. Yet such practices are all critical parts of those companies' business strategies.
What's going on? A major part of the explanation is that we're an incredibly rich society. One must never minimize the plight of the poor, but the reality is that on the whole we live amid greater abundance than any nation has ever known, and that changes people's priorities. We can worry more about helping the world to the extent we can worry less about helping ourselves.
Where that leads isn't clear, because this is a new model. Companies definitely aren't solving society's problems by taking care of employees the way they used to; we all know the trends in job security, pay, pensions and health-care coverage. But employers are trying to attract and hold employees in a new way that exactly parallels the change in how they're appealing to consumers: by giving more meaning to their lives.
That's a deep shift in the way companies are managed. GE's Jeffrey Immelt, for example, will tell you that his company's Ecomagination initiative helps the company in all kinds of ways, but its most important effect is what it does for the employees. They're prouder to work for GE. An old-school cynic would respond that such a purpose doesn't put groceries on the table, and that's what employees need. It's certainly what some employees need. But that kind of thinking doesn't apply as broadly as it used to.
Bottom line, we expect much more of the Fortune 500 than ever before, and many people have been happy to pay for it through these past five years of economic expansion.
What happens when the recession arrives, and we aren't quite so rich? Customers may want more tangible benefits, and employees more groceries, yet now that they've been sensitized to Nicaraguan coffee growers and Pakistani labor practices, companies will have a tough time dialing back today's high expectations.
The Fortune 500 is in a new business. It's worth asking whether it knows what it has gotten itself into.
http://money.cnn.com/magazines/fortune/fortune_archive/2007/04/30/8405462/index.htm
accessed 29 april 2007
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Reflections:
It’s easy to blame globalization and the large companies that it brings for all the problems in the world. By setting up factories in other parts of the world, corporations destroy the environment with their factories and pollution, they deplete the resources to fuel their business, workers in foreign countries are exploited as they work for hours for meager wages, etc…… As a result of all the problems that they cause, governments are forced to clean up the messes of the businesses.
However, there is an increasingly popular trend in globalization today. More and more larger corporations want to save the world and help relieve some of the pressing world issues. Companies are now promoting environmentally friendly gadgets and making sure that their labour force has better working conditions.
So while this benefits the environment and the rest of the world, what does this means for governments? Should this trend continue, governments no longer have to impose policies to protect the environment and to protect their workers as the companies will have considered that beforehand. This lightens the governments work load and shortens the list of things that they have to do. However, if companies continue to carry out the good work that they do, the local government will be seen as being incompetent, uncaring and ineffective. Companies who have succeeded where they government failed, for example Gap ensuring that their factories have good working conditions, make it seem like the government does not do anything, does not want to do anything or cannot do anything for their workers.
To take it one step further, companies could interfere with the sovereignty of a nation in their pursuit of making the world a better place. Taking the example of the working conditions in factories again, companies could demand that the government have better guidelines for their factories. This could take place directly or indirectly through other workers wanting the same benefits and protesting against the government to do so. While all this is for the betterment of the labourers, the issue at hand is that companies now have the power to influence policy making. Since the businesses now have a reasonable and commendable rationale behind their demands, there is no reason as to why the government should not give in to the demands and are forced to carry out the plans concocted by the companies. The sovereignty of nations is now hanging by a thin thread.
With businesses solving pressing world concerns, companies appear to be wielding more power over the citizens of a country. They have the means of influencing choices made by the citizens who are their clientele. If Wal-Mart wanted customers to choose fluorescent bulbs, they could sell only fluorescent bulbs and force customers to buy it, saving energy for all. However the government cannot restrict the specific type of goods that is sold. Here businesses have the upper hand with soft power.
That leads us to the question of whether governments have any relevance with this increasingly popular trend. Corporations have more power to influence citizens and now they are doing their part to protect the people’s interest and the environment. Many corporations also have the ability to control the money flow in a country. Recently Starbucks have been wrapped up in a case with Ethiopia about coffee and Starbucks appears to be winning. In a sense, they have more importance then governments and could overtake the governments of tomorrow. Companies are growing in importance because of globalization, some are becoming even more important than countries and governments. Many corporations are already more wealthy than some countries.
While the world is being made a better place by large companies and businesses, governments all over the world have a reason to shudder as the companies become more important. Perhaps with globalization comes the increasing significance of companies and the decline of governments.
-joanne (political expert)
Future Perfect; Political Expert
3:55 AM
