New business models are emerging that challenge the old assumptions about how to operate a business for profitability.
In the book “Firms of Endearment – How World Class Companies Profit from Passion and Purpose” (Wharton School Publishing), the authors, Sisodia, Sheth and Wolfe, provide many examples of how companies that take care of all the stakeholders – not just the shareholders – achieve significantly higher profits.
SPICE is their acronym for all the stakeholders:
They challenge the accounting dogma about cutting costs to improve profits. They show that companies that behave as responsible citizens, treat their partners (vendors and suppliers) fairly, and pay their employees fairly, have happier customers and better returns for investors. “Firms of endearment” inspire great customer and employee loyalty and are welcomed into the communities in which they locate.
For example, they compare the financial performance of COSTCO with Wal-Mart (and its Sam’s Club). COSTCO pays above average wages and benefits, provides more extensive employee training, and has much higher employee retention than Wal-Mart. Wal-Mart, on the other hand, pays below average wages, has massive annual turnover and is generally hated by suppliers and vendors for its ruthless demands for price reductions. Even with its higher cost structure, COSTCO has significantly outperformed Wal-Mart over the past 10 years. Wal-Mart has recently showed signs of improving its treatment of employees (after many lawsuits) and its image in the community.
Trader Joes, Whole Foods and Wegmans are examples of food businesses that are much more profitable than traditional grocery stores. They are distinguished by their commitment to quality, to their employees and their suppliers in delivering a better experience to customers. They have figured out that happy employees and positive business practices (fair treatment of suppliers) results in happy customers who are willing to pay a premium for great products.
LL Bean and Patagonia are examples of outdoor clothing suppliers with high value reputations, premium prices and loyal customers.
IKEA is known for its wide array of products and its requirement that all vendors meet environmental standards.
Southwest is a “Firm of Endearment” or “FOE” in the airline industry. For example, Southwest did not furlough employees following the September 11 attacks. They carried the additional cost to take care of their employees. In contrast to most airline employees, Southwest employees radiate a positive attitude, take care of customers, and have some “fun” at work ― and Southwest is consistently profitable in an industry that is overwhelmed with losses.
I highly recommend reading “Firms of Endearment” to clearly see the data that supports the connection between doing business in a way that makes the world better, and enhanced profits.
Have you read any good books lately?