Is it Time to Consider Societal Gain as a Business Performance Measurement?

12/17/2019

“The only constant in life is change”- Heraclitus

Early in the introduction of Lean in the United States we measured the performance of work cells through the lens of Cycle Time, Takt Time, Travel Distance, and Inventory. From this evolved visual boards tracking performance in the areas of Quality, Delivery, and Cost, with Safety added soon after as crosses to the visual boards next to each work cell. This eventually evolved into People, Quality, Delivery, Cost, and Continuous Improvement (CI). Regardless of the performance measurement suite we settle on, what we clearly understood from the beginning was that it’s all too easy to focus improvement efforts on one measurement while creating problems elsewhere. A focus on productivity leads to quality and safety problems, a focus on earned hours creates waste in the form of inventory, a focus on order fill rates creates problems for our smaller prospective customers, a focus on defects found at inspection leads to hidden rework processes and excess labor cost, and so on. We learned that “squeezing the balloon” does not improve overall business performance. Only true process improvements that maximize total value-added performance will yield improvements across a comprehensive set of measurements. While different organizations each have their own spin on what constitutes a balanced scorecard, to a large degree we have settled on the following areas of measurement: 

While these measurements have served us well and have driven some iconic companies to grow beyond their wildest dreams, maybe more is needed in this day and age. As the song goes, “The Times They Are A-Changin”.  Each generation i.e. “The Greatest Generation, Boomers, Gen-X, Gen-Y, Millennials, and now Gen-Z”, is a product of the environment in which they were brought up and entered the workforce, and more to the point, is now a large part of the buying public.  They have become customers! In short, they are making their own choices on how to earn their income and how to spend their resources based on their own motivations, not what prior generations viewed as important.

Proposal

So what does this mean for those of us interested in running successful businesses and the use of Lean Management Systems? We are talking about observed behavior patterns changing dramatically at the two most important points in this Value Stream, those who make the products and those who buy the products we sell, i.e. the producer and the customer. It’s changed on both ends in a significant, but common, way- a pull for social responsibility. So let’s examine the need for and the feasibility of using one more category of performance measurements- Societal Gain (SG).   

 

While doing social good should be its own reward, let’s face it, most businesses don’t do things for altruistic reasons unless it aligns with a benefit to those owning the company. We all know that there are more than enough regulations that have been written with the intent of forcing companies to do social good. We also know that there are highly trained professionals in most large companies who are responsible for ensuring that the company complies with the law at the lowest possible overall cost to the company. Meeting the intent of those regulations is generally incidental to the process. This tug of war has been going on since the earliest days of antitrust legislation, work place safety requirements, and environmental regulation. But how do we respond to a situation where it’s not the government requiring us to do social good, but rather it’s the customer wanting to buy from socially responsible companies? Or an applicant from a pool of scarce skilled workers who now have plenty of choices on where to work?  What happens when your customer chooses to buy from another company because they are morally aligned with what they stand for?

You don’t need to change- survival is not a requirement! W. Edwards Deming

As you ponder this now ubiquitous quote from Deming, consider as supporting evidence that only 60 companies that entered the Fortune 500 rankings in 1955 are alive today, and only ten of those companies have remained on the list the entire time. Most of the goods and services the former industry leaders provided are still being produced today, but the industry giants were replaced by former upstarts.

So what do we change? How do we avoid being the wooly mammoths of our time? Waiting for the ice to gather around our feet has absolutely proven to be the wrong strategy for survival, as evidenced by many of those industry leaders from 1955. There are many sources of information and support services for developing and executing long term strategy. This is not intended to be a comprehensive treatment of all we need to do to survive. But, for the purposes of this paper, we’re going to focus on just one element of running a business- what do we measure and therefore manage? Are People/Quality/Service/Cost/CI enough anymore? Do we need to change something to do business in today’s world? Or to put it in more specific terms, how do we keep pace with an evolving customer base and the workforce that supports it?  Sure, there are many other factors to consider as well, but for the moment let’s think about how to get this part right before going on to everything else. The hypothesis to consider in this paper is pure and simple:  Is it becoming more necessary in today’s culture to integrate measuring the Societal Gain coming out of how we run our operations in order to help the bottom line for the shareholders? I make no claim that this is a hard and fast fact, but only want to present it to the business community for collective consideration and reflection in order to get the conversation rolling among Lean thinkers.  First, two key points, and then let’s look at some successful companies that are focusing on increasing societal gain as a key measure of success in their businesses.

The workforce

With today’s employment rates at a high point, it has become harder and harder to develop enough capacity for growing businesses to keep up with demand. The relief valve has been offshoring and automation. Both avenues have their issues. Even when unemployment rates were higher, most business leaders would comment that they had difficulty hiring the right person for the job. This has become especially difficult as recent generations of workforce entrants are motivated by different factors than the Boomers had when they entered the workforce. People are much more attuned to what the company represents in society as well as the development opportunities for themselves.  It’s not just about pay, benefits, and security any more. In 2018 Forbes wrote in an article titled What Employees Really Want at Work, “Perhaps the most underrated desire of modern-day employees is the desire to work with a purpose. Many employees would be willing to give up fancy nap pods or office game rooms in exchange for fulfilling work.” 

The customer

People are more conscious than ever about the social responsibility of the companies from which they buy. NYU conducted a recent study indicating that 50% of the growth in consumer-packaged goods from 2013-2018 came from sustainability marketed products. We are starting to see more and more companies either build their public persona around social responsibility or make it an important part of how they present themselves to the world.

Some examples

These companies are not the cheapest in their categories but they represent something to their customers that is important to them. In return, they are also financially successful. 

  • In 1984 Pillsbury’s Haagen Dazs ice cream brand was losing market share to an upstart company called Ben & Jerry’s. As a tactical move Pillsbury pressured major supermarket chains to stop carrying Ben & Jerry’s product in their freezer cases. Ben &Jerry’s fought back with a low-cost grass roots campaign titled “What’s the dough boy afraid of?”. When consumers figured out what was going on, they insisted that their stores put the product back on their shelves or they would drive the extra distance to stores that still carried the product. Today the Ben & Jerry’s brand is owned by Unilever, has largely maintained its corporate persona, and is a top seller in the premium ice cream category.
  • From the beginning Lego was founded on wholesome play and their mission was to “inspire and develop the builders of tomorrow”.  In fact, the name Lego comes from the Danish words “Leg Got” literally meaning to “play well”. Some years back, as the toy industry evolved into more and more sophisticated electronic toys, Lego followed suit and found itself in desperate trouble as a result. In 1998 they faced their first deficit year and cut 1,000 jobs and in 2003 net sales fell by 23%. Lego corporation made an important adjustment in their strategies by focusing on “The power of play, sustainability, and people” and at the same time reconnected to their mission statement. They brought their product offerings back in line with what they represented to the families that purchase their products. They committed $150 million in addressing climate change and reducing waste. They are actively working to reduce their negative environmental impact through the introduction of plastic blocks made from recycled and plant-based products which are currently being introduced in selected toy sets. This re-focusing on Societal Gain and return to their noble mission led to a recovery and today they are larger than ever.
  • Warby-Parker is disrupting the eyeglass industry once dominated by groups holding pricing to artificially high levels. Today they provide the buyer 5 pairs of glasses (of the buyer’s choice) from which to choose, and for every pair that is bought, they provide monthly donations to charitable organizations that provide eyeglasses to those who can’t afford them. To date they have provided over five million pairs of glasses to those in need.
  • Patagonia was established in 1973 based on a mission to be “in business to save our home planet”. Their values are based on building the best product available, cause no unnecessary harm to the planet, use business to protect nature, and not be bound by conventional business practices. They relentlessly work on improving the quality of their products while simultaneously reducing the environmental impacts of their operations and those of their suppliers. They fund research in pursuit of this vision, such as natural rubber and regenerative organic cotton farming techniques, and gift the technology to the industry at large. Their strategic and financial practices are decidedly focused on long term growth rather than quarter to quarter profitability. This privately held company is said to have grown to $1 billion in revenue in 2018.
  • Bombas has built a reputation for making very high-quality socks with a corporate focus on social responsibility. They were founded in 2013 through a crowd funding effort with a goal to raise $15,000 in 30 days. Instead they raised $25,000 in their first day and a total of $140,000 in that first round! Subsequently they went on Shark Tank where John, the founder of FABU, invested in the company. In his words “…They’ve also taught me about the value of when a consumer feels that you have a social cause that is really amazing and they believe in you, how they will support you.”  Imagine a “shark” making a statement like that! The company name was derived from the Latin word for bumblebee. According to their website, “Bees live in a hive and work together to make their world a better place. We exist to help support the homeless community, and to bring awareness to an under-publicized problem in the United States.” For every clothing item purchased, they donate one to the homeless. At the time of this writing (there is a real time tote board on their website), they have donated 29,262,675 clothing items to needy people. Their revenue in 2017 was $46.6 million. Not a bad trajectory for a startup clothing company.

This is only a small sampling of successful companies that have based a significant part of their corporate strategy on providing Societal Gain while also running profitable companies.   While strategy is critical to ongoing success, aligning the entire workforce and the processes they use to carry out their day to day work towards those strategies is also required in order to create a line of site for the workforce. For example, Patagonia’s dedication to sustainable manufacturing could be complemented by work centers measuring energy usage, air, water, and ground waste stream outputs, and climate controlled work space volumes. Companies like Warby-Parker and Bombas that are dedicated to donating products to the needy can track their SQDC metrics in a manner that connects to enabling further charitable contributions. Companies such as Lego, dedicated to “inspire and develop the builders of tomorrow”, can track standard work items that have been improved to allow those with disabilities to carry them out successfully, enabling more people to become successful builders.  

Hypothesis

The businesses of today and tomorrow have a new set of problems that really didn’t exist to large degree in our history. Both customers and workers are more committed to societal issues in the world within which we live than ever before. More and more companies are presenting truly viable alternative choices for both parties. Customers are proving, that given a viable choice, they would prefer to buy from companies that are responsible and contribute something back to society. Workers, especially hard to find skilled workers, are seeking jobs that represent a greater purpose. So as we plan and carry out our kaizen activities, build our work cells, hold our stopwatches to measure cycle time, measure walk distances, and scrub out every last molecule of the 8 Wastes, I propose that we also measure those elements that lead to the larger aspects of Societal Gain. Our Visual Process Performance boards would have an additional section with metrics dedicated to tracking the social contribution made by the work cell, rolled up layer by layer all the way to the corporate level, and ultimately to the annual stockholders’ report. I would suggest that the following list be considered as a starting point for this newly added section:  

Societal Gain potential metrics:

  • Job Accommodations- Inclusive/Accessible work content?
  • Free time for social good work?
  • Elimination of polluting waste?
  • Carbon footprint? (including total transportation chain)
  • Percent local content?
  • Percent fair trade input materials?
  • Compensation relative to cost of living?
  • Green product development?

Does the new Visual Process Performance board look like this? 

A recent survey by Clutch that included 420 consumers found that 75% responded that they are likely to start shopping at a company that supports an issue with which they agree.  Only 44% said that price was the most important attribute, while 68% indicated social responsibility as an important factor. A recent article in Fast Company indicated that “…nearly 40% of (millennials surveyed) said that they’ve chosen a job in the past because the company performed better on sustainability than the alternative.

I don’t suspect that we are ready for a drastic revolution in how business performance is measured. But rather, I ask that we all take a moment to think deeply about the potential impact from seriously broadening our perspectives on managing what amounts to leading and lagging business performance metrics. Does measuring, and therefore managing, Societal Gain lead to improved profitability and likelihood of survival in today’s economy?  How would this change the attitudes and problem-solving capabilities of your workforce? How would this change the buying behaviors of your customers? How would this impact the bottom line of profitability?   How would this expand the power of Lean thinking in your businesses? If you don’t embrace the concept of managing Societal Gain along with all your other metrics right down to the cell level, will you survive?

What do you think? Let’s get a discussion going.

 

Comments:

by Steve L Brenneman on 12/17/2019 at 4:17:33 PM
This is really great Joe! It is challenging to add this as a new piece to measure but one that I think Toyota has had in their DNA from the beginning. I think for our organizations to be part of the greater systems change, Social Good has to be part of our measurements!

by Joe Murli on 1/3/2020 at 2:07:45 PM
Thanks for the feedback, Steve. Doing good is always good for its own sake but we're starting to see that doing good is profitable too!


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