Principle 10: Value for All Stakeholders (Item 2)
Sustainability is determined by an organization's ability to create
and deliver value for all stakeholders.
You must invest (funds and effort) to meet the needs of each major
stakeholder group. These should be deliberate investment decisions in
which you apportion the potential retained earnings to the six major
stakeholder group to reach your Goals and objectives and to meet their
needs.
- So much for owners in the form of dividends.
- So much for customers in the form of product development and improvement
- So much put back into the company in the form of maintenance, risk
protection, growth, innovation, research and diversification
- So much for employees in the form of increased payments, development,
education and training, working conditions
- So much for the community in the form of taxes, environmental and
community programs and helping others
- So much towards alliance partnerships
Owners require dividends. Customers will not buy unless the company
invests in providing products and services they value. The company invest
in its own maintenance and growth. Employees will not contribute their
enthusiasm, resourcefulness and innovation unless they get value (or
are valued and trusted) in return. The community will withdraw the company's
right to operate or impose restrictive regulations if it thinks the
company is doing harm or taking more than it should from the community.
Alliance partners will stop being partners if they are not getting value
from the partnership.
For each stakeholder group, the company foregoes money now for increased
value later – an investment.
Companies are used to making capital investment decisions. These are
cost-benefit, capital-rationing decisions.
The Goal of the company is to make money now and in the future. Because
owners and shareholders put up the money and take the risk, they have
the main call on the money generated by the company. However, the company
must balance the owners' call on the money generated now against
money to be generated in the future and against the demands by
the others stakeholders.
The owners take their value from the company in the form of dividends.
The size of the dividend stream is an indicator of company health.
However, to keep the dividend stream healthy, some of the owners' equity
must be diverted away from the dividend stream. That is, it is in the
best interest of the owners to give up some of the dividend stream now
in order for the dividend stream continue and possibly increase in the
future. An investment decision.
This particular investment decision is at the heart of the long-term
success of the company.
If the owners do not get enough `value', they withdraw their support
and funds, causing the company to have difficulty in reaching its Goal
and possibly causing it to collapse.
If owners take too much money out now, and do not re-invest it into
the company, the company also has difficulties in reaching its Goal
and the owners may get reduced value in the future.
Owners should be suspicious of companies that do not invest in the
other stakeholders. If companies do not invest in the other stakeholders,
the future dividend stream is seriously under threat.
Many companies appear to think that these Business Excellence Principles
do not apply to them because they have removed the owner from a position
of total control. However, it is clear that the owners did not have
total control anyway, and that when the company fully adopts this particular
Business Excellence Principle, the owners (and all the other stakeholders)
get more value.
The company's money mainly comes from its customers. It is the customers
who actually provide money (in the form of revenue) and they want value
for that money. You have to satisfy your customers – to provide
what they value – Principle 3 (`Customers'). The more you
do that, the more they buy and the more money you make.
It takes money (and effort) to provide what your customers' value.
You must work out what they value (and do not value) and continue to
improve and modify your products to provide it. You must spend the money
and effort now to get more revenue later – an investment. A sharing
of value between stakeholders. The company gives value to the customers
now, in order to get more money later.
Good owners have always known that there is a very definite limit to
what they can take out of the company. If you want to be sustainable,
every year you must plug a goodly part of the profits back in. This
use of funds takes several forms. You must constantly be diversifying
(to protect yourself against a calamity in your market). You must be
conducting maintenance by improving what you do well (to build your
core competency) — and trying to improve (or dropping) what you
do less well. You must protect yourself against risk, you should innovate
and do research. If you decide to grow, you must invest money in it.
These all take funds. If the company chooses not to make these investments,
sustainability is compromised.
Home ownership is a useful analogy. To keep your home sustainable
as a place you wish to inhabit, you need occasional investments in furniture,
landscaping in the garden, an extension, a pool, a major redecoration.
These are infrequent but all take effort, funds and planning. You also
need to do maintenance chores, sometimes daily – washing up, cleaning
the bathroom, the kitchen and the pool, clearing away odds and ends,
vacuuming, mowing the lawn, weeding the garden. These maintenance tasks
are done frequently. They also need effort, funds and planning. Although
less than the major investments, they are still investments.
If you decide not to make these investments and use your efforts
and funds elsewhere, the value of your home declines.
The company's employees are the ones who provide the products and services
to the customers. If your employees are not fully enabled, then they
will not be able to do their jobs properly. If they are not resourceful
or enthusiastic, they will not do all the things necessary to make the
company's products and services more exactly what the customers need
or value. For employees to be enthusiastic about the company's business,
the employees themselves must feel valued.
These are investments. The company must invest in enabling its employees
and providing what its employees value in order for the employees to
provide what its customer value – Principle 7 (`Enthusiastic
People'). Another sharing of value between stakeholders. The company
gives value to the employees now, in order to get more money later.
The community expects the company to contribute to its infrastructure.
The most obvious way is by paying tax – which is a direct payment
by the company to the community for infrastructure.
The community also expects the company to spend (or forego) funds in
order to meet its expectation of clean, safe and prosperous environment.
As we discussed in Principle 9 (`Value to the Community'), the
community has begun to have more of a voice (via the media and courts)
in calling to account companies that behaved unethically, or broken
social and environmental mores considered important. Providing work
practices and processes that are safe and clean, may add additional
costs.
Once again, an investment. This time an investment made now so as to
be allowed to keep operating in the long term.
This is in two parts. The first is an old one. Most companies take
an input of some form and do something to it to turn it into something
more valuable. This is not just manufacturing companies. Most companies
have suppliers. In non-manufacturing companies, the input is often information.
As you get better and better at running you processes, it soon becomes
very apparent that the quality of the goods and services provided by
your suppliers is crucial to your ability to make money. If you get
junk from your supplier, it costs you more to produce a product or service
that is valuable to your customers.
Companies found it was to their advantage to establish win-win partnerships
with their suppliers in order to help them improve their quality of
goods and services.
Secondly, just as you are courting your customers, your suppliers are
courting you. You are their customer. You have and must demand all the
rights and claims for value that your customers make on you.
Because almost every company is in the middle of someone's supply chain,
when company A was establishing partnerships with its suppliers, company
A's customers were establishing supplier partnerships with it. You might
not seek out an alliance partnership with your customer. However, from
your customer's viewpoint, you are a supplier. If you are important
enough to that customer, he (or she) will want to establish an alliance
partnership with you.
Another type of alliance partnership occurs when two (or more) companies
form an alliance to do something together.
You probably have partnerships everywhere. All established for mutual
benefit.
However, each partnership has a cost even if it only means having to
do things in a different way from the company's preferred way. Partnerships
are often dissolved if one of the partners is not satisfied with the
benefits obtained from the partnership – compared with the cost
of being in the partnership.
Therefore, when it has alliance partnerships, the company is in part
working with the outside company. All `working' involves some form of
investment. Establishing alliance partnerships means that the company
is investing some of its funds in those partnerships (so that the company
benefits in the end). However, the money generated by the company is
spread a little thinner.
|