The year 2020 is likely to turn out to be the most disruptive year of my life—and likely of many others, too. It promised a new transformative decade, but little did the world know that what was just around the corner would compound the need to transform to an infinite degree. Focusing anew on ways to measure and demonstrate long-term value, looking beyond traditional financial metrics to the human factor and all of the ways in which we interact as employees, customers and members of society, is no longer something we should just consider to thrive. It’s essential in order for businesses to survive.
As this new decade unfolds, we will all continue to experience transformations of leadership and management styles that acknowledge and celebrate the power of the human element to accomplish desired strategy and outcomes. A strong culture of mutual trust and support will be what sustains the workforce through the coming months and years. As business leaders look for ways in which they can safely return their workforce to physical environments, the ability to simultaneously think and act for the longer-term is also imperative.
As we all reflect on the impact that the COVID-19 pandemic has had—and will continue to have—companies and individuals are asking: What is our place and role in the world? Businesses need to be a force for good to secure longevity in global economies. Driving this change necessarily requires a human-first approach, recognizing that accountability to people, employees and customers is a fundamental tenet of building trust in businesses and their leaders.
For over half a century, companies around the world have diligently followed Milton Friedman’s economic theory that “… there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits.”
Under Friedman’s economic model, companies have primarily demonstrated their value in terms of profits and shareholder returns. While I agree that profits and shareholder returns are important, the strategy and tactics on how you arrive at the profits and shareholder returns are even more important.
Across the globe, the world already was experiencing widening income inequality and fraying social safety nets, technology-driven income insecurity and climate change-driven displacement. The coming economic challenges have heightened a nascent uncertainty. The impact: Companies that used financial returns as their sole measure of value have reached a reckoning.
Reflecting on his life, we can look at Jack Welch who, one could argue, largely followed Friedman’s theory of shareholder value. However, if you’d asked him about his view on Friedman’s theory toward the end of his career, you might have received a different answer. In March 2009, Welch was interviewed by the Financial Times as saying: “Shareholder value is a result, not a strategy … your main constituencies are your employees, your customers and your products … short-term profits should be allied with an increase in the long-term value of a company.”
But there is a basic principle that in one sense seems so obvious that it gets forgotten: Creating a customer requires employees.
Management consultant Peter Drucker’s work was in direct conflict with Friedman’s shareholder value concepts, whereby Drucker focused on the power of the customer. He counseled that the customer should be the primary focus and that the creation of a customer defines the business and keeps the business in existence.
I agree with Welch’s point that the main constituencies of a company are its employees, customers and products—in that order. Employees are the primer that activates the assets of a company, enhances the dynamic of a company product and delights the customer. Companies that solve the equation for optimizing employee experience, health and wellness have a better chance at optimizing customer value, which has a corresponding positive impact on company performance.
Arianna Huffington amplified the importance of the employee—and human livingness—in her profound leadership book entitled Thrive, where she portends human success through a prism of well-being, wisdom and wonder. In the book, Huffington states that “we see an increasing recognition of the effects workplace stress can have on the well-being of employees—and on a company’s bottom line.” She adds, “there is growing evidence that the long-term health of a company’s bottom line and the health of its employees are, in fact, very much aligned, and that when we treat them as separate, we pay a heavy price …”
While I also agree with Drucker regarding the importance of customer, there is a strong correlation between enhanced employee experience to enhanced customer experience. Happy employees usually create happy customers, which leads to enhanced company brand and performance. Unleashing the power of the human to accomplish the extraordinary must now be a top priority for corporate boards, because we will all need to be extraordinary to work through the current crisis and its ongoing impact.
As societal trust has devolved to new lows, the voices of business leaders calling for a focus on inclusive growth and long-term value creation that looks beyond shareholders have multiplied exponentially. Though talking the talk is a good start, to walk the talk, the business world needs a standard means by which to more comprehensively measure value.
In 2017, EY joined forces with the Coalition for Inclusive Capitalism to create the Embankment Project for Inclusive Capitalism (EPIC). EPIC brought leaders from across business, government and civil society together to help make capitalism more sustainable and inclusive. Their overarching goal was to develop new, more holistic metrics to measure long-term value to financial markets.
What has emerged from this project, among many outcomes, is a long-term value framework that businesses can use to measure and demonstrate their long-term performance. Specifically, the framework breaks value down into four categories: financial, consumer, human and societal.
What excites me is that three of these four categories focus on people and if you get the human, consumer and societal equation right, the financial outcome usually follows suit and is optimized accordingly. What also excites me is the new global strategy EY is pursuing – NextWave – which is based on EPIC’s long-term value framework for creating and demonstrating our own long-term value as a trusted and distinctive professional services organization.
Within the four value dimensions by which EY has chosen to pursue its ambition, there are 10 measures of progress: client experience and account teaming as measures of customer value, employee experience and favored employer to measure people value, trust and lives impacted to measure social value, and revenue growth and income growth to reflect financial value. Across all four categories, EY has also developed metrics to measure diversity and inclusiveness and our brand.
Read more: Diversity and inclusion from HRE
And when it comes to measuring and demonstrating long-term value, we also practice what we preach.
In the same way we guide clients to adopt this approach, we continuously look at the actions we are taking within our own organization, in our founding relationship with EPIC, and in the journeys we are helping our clients navigate as they seek to measure their performance around inclusive growth and deliver long-term value to their constituents.
Organizations stand at the tipping point of great transformation for good by taking a holistic view of the businesses they lead and creating a world of work where people sit truly at the center. As we leap into a new decade, this is an opportunity for all organizations to take the “transformative ’20s” by storm and explore ways for our people to help build a better working world.