There are many conversations going on about the purpose of firms. Should it be the single-minded pursuit of shareholder value, as Milton Friedman is adjudged to have advised? Is it to create value for all stakeholders, including employees, neighbors, and lobbyists for the natural environment? Or is it solely to create customers by bringing them value, especially through innovation, as Peter Drucker famously proposed?
There is another entirely different point of view, and it comes from environmental economics, looking at business as a component of the great ecosystem we call the economy. The purpose of a firm is to survive, just as the purpose of any species in the great ecosystem we call nature is to survive. Survival can sound like a mundane and unambitious goal when we evaluate it in the hyperbolic language of business literature. Business should be about achieving great and altruistic things to change the world or save the world, eliminate poverty, reverse climate change and elevate the quality of life.
In fact, survival in any ecosystem is brilliant and rare. When we look at species over the long time frames employed in anthropology, we find that very few survive. To do so, they must evolve better. They must innovate and improve continuously to achieve greater fitness to operate and thrive in a rapidly changing ecosystem in which many competing species are also aiming to survive and thrive. Competition generates greater fitness. Some succeed, most fail. Those who survive contribute more to the overall good of the ecosystem as well as finding sustainable niches for themselves. It’s a great achievement to survive, and it requires making a great contribution.
We can confirm that survival is rare for firms, too. In the original Forbes Top 50 corporations from 1917, only 2 have survived under their own name or largely their own name: American Telephone And Telegraph, and General Electric. No-one would argue that these two companies, now better known as AT&T and GE, look anything like they did in 2017. But they survived. The other 96% did not.
Survival, therefore, is a great achievement, especially over an extended period of time. Why is it so disdained? Because it does not fit the modern business mold of the inspirational CEO. Modern business literature does not contemplate survival and all the adaptations and innovations and systematic explorations of possibilities and competitive fitness trials it entails. Today’s commentators prefer the metaphor of the inspirational talk of the sports coach at half-time to the losing team that has fallen behind but is eager to turn things around. They don’t know how, but the coach knows: it’s about emotion, not content. The team must be inspired. He or she gives the inspirational talk. Reach for the stars! Now is your time! You can do it if only you recognize your own powers!
Systems thinking, it is said, can’t achieve this emotional inspiration. Mere survival can’t compete with the inspirational comeback against all odds. It lacks spirit. It’s not elevating enough.
Survival in evolution is an algorithm: differentiate, select, amplify. Different species emerge through genetic mutation and development, they are selected by their environment via their greater or lesser fitness, the less fit ones die off and the more fit ones learn from the outcome and replicate and innovate. It’s the same for corporations: they differentiate via their business models, products and services and brands; the selection process of consumer selection (buying or not buying) and competitive striving weeds out those that are less fit, and the strong ones find ways to grow and improve and earn profits.
Uninspiring? I think not. In fact, a CEO could even turn the evolutionary algorithm into an inspiring speech at the annual conference.
I believe deeply in capitalism, and I believe you do, too. Capitalism is the human system that has proven to improve all lives, to deliver prosperity, comfort, and peace; to enable individual and shared achievement; to produce great industries and great art, great and sustaining infrastructures of transportation and production and supply; to facilitate great art; to advance great technologies and produce great cultures; to elevate families, communities and civilizations.
Corporations play a vital contributive role in this system. They make it work, by transforming human knowledge and research and curiosity and drive into outputs of goods and services and innovations that are the substance of capitalism and of civilization. The great buildings, the great cities, the great networks, the great machines, the great discoveries of healthcare, the great institutions of learning, the great books, the great scientific achievements are all – directly and indirectly, and mostly directly – the outputs of corporations. The human mind developed corporations to do the job of production.
To earn a lasting position in the system of capitalism, a corporation must meet great demands and sustain high – indeed increasingly high – standards. First, it must be different and better in serving its customers. In the system of capitalism, customers are given the privilege and the power of choice. They have many products and services to choose from, and many corporations to choose as providers. They choose those that serve them best, and a corporation must meet that standard. And it must meet the standard not just today, but tomorrow and far into the future. Because of the nature of competition – where many corporations strive to meet the customer’s standard better – every corporation must improve its service every day. To sustain a shared future, it must improve continuously not just day after day, but year after year, and decade after decade.
Your corporation – and therefore, you, since you are this corporation – chooses to meet this ever-rising standard. We choose to compete by being better at serving customers in our chosen field, a field that they originally designate for us by expressing their desires, and in which we co-create a better future together.
It is the nature of things that we can’t perfectly forecast this future. So, in collaboration with our customers, we employ your creativity in devising and running experiments in improving lives even further than they have been improved to date. The purpose of these experiments is discovery, to find out new paths to prosperity and, in the spirit of differentiation, to go where no corporation has gone before. How will we know if we have cut a worthwhile path – customers will tell us, they will celebrate and reward our creativity, and they will enjoy the new place we have discovered together. We in the corporation will feel fulfilled when they do.
When we – jointly with our customers – identify that rewarding new place, we will enhance it, build further, strengthen it and adorn it and develop it and make it even more attractive. The genius of our customers is that they point the way, always encouraging us to be better, to do more, to find new creativity. We will never cease in our efforts to live up to their genius.
I am delighted that all of us in this corporation are united and aligned in this great journey to the future and I believe that, if we continue to meet the customers’ highest standards, we can continue the journey for decades, and for generations.
Uninspiring? I think not. Capitalism is the ecosystem. The corporation is a species. Meeting great demands and raising standards is survival. Differentiating and innovating and improving is the strategy. Customers are the judge. Creativity is exploration. Multi-generational success is the goal. It’s systems thinking. Survival is the rare and brilliant outcome, cheered on by customers and continuously stimulated by competition.