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Why Business Leaders Should Redefine Performance Measures to Include Social Impact

Posted September 5, 2018| Ashley Inman

As businesses enter this pivotal time in the last quarter of the calendar year and start planning for 2019 and beyond, it is critical to look outside the organization to capture, understand and objectively analyze the company’s market position and the external factors influencing its ability to compete and create value. Traditionally, executives measure value creation through growth, profitability and market share numbers, but more recently key industry leaders have indicated a shift in global business performance measures that executives need to adopt if they haven’t already.

How Social Leadership Affects a Company’s Ability to Grow

Earlier this year Larry Fink, CEO of BlackRock, the world’s largest investor, managing $6 trillion in assets globally, issued a call-to-action to all CEOs, prompting them to rethink their definition of creating long-term value. Fink acknowledges that the world is changing and with this change, stakeholders including investors, employees, customers, and communities are expecting more from companies besides strong financial performance—they want assurance that companies are also making a positive contribution to society through their core business strategy. This sentiment is echoed by leaders of top companies like Apple, Unilever, Aetna and PwC which recently acquired Strategy& (formerly Booz & Company) for its proprietary framework that measures a company’s ‘Fit for Growth,’ which includes elements of social leadership.

Fink warns that not unlike the 90% of Fortune 500 companies that were unable to survive economic busts, disruption from newer players, and methodological changes over the past 60 years, leaders that don’t develop their “social license to grow,” risk a similar fate.  He further explains that leaders can adopt this social license through programs that support the rise of digitization, prioritize workplace diversity and inclusion, and ensure environmental sustainability.

The concept of social leadership is not new, but as competition increases across geographies and industry sectors, companies are looking for more ways to differentiate beyond today’s traditional means. The answer is not to launch a slew of offhanded initiatives. To better demonstrate Fink’s argument, we look at considerations in the context of what CEOs care about.

What do CEOs Care About?

In a word, digital. According to Gartner’s 2018 Annual CEO Survey, the top focus areas continue to include: obtaining growth, developing corporate strategies, leveraging Information Technology and managing the workforce, all with a high attention to operating in an increasingly digital world. Further, in comparison with previous studies, the 2018 survey indicates a decreased focus on growth and an increased emphasis on structural development and the workforce. CEOs who took the survey also said, “a lack of talent and workforce capability is the biggest inhibitor of digital business progress.”

In the age of digitization, viewed through a social lens, the questions executives should ask include: is my business adapting to technological change and exploring business models and infrastructure that can support it in a way that will set the business and employees up for success? Is my business providing the re-training and “up-skilling” opportunities that the business will need to adjust to an increasingly automated world? Do we have the proper staffing strategies to support the talent requirements for advanced technology?

What Happens When We Ignore the Social Implications of Business Decisions

A lack of attention to these considerations will translate in the financial reports. It can result in a disconnect in customer service, compromising the delivery of the product, and could decrease productivity if there is a gap between ability and expectations. Ignoring social implications can result in staff attrition while employees look elsewhere for better digital training and a company with a stronger investment in the development of its staff.

According to a McKinsey report, the demand for technological skills will be gathering pace through 2030. What’s more, in the current job market around 60% of companies cannot find qualified candidates to fill open positions, while the global unemployment rate is 30% and over 7.5 million people in the U.S. don’t have jobs. In order to fill this gap and reach full innovation capacity, organizations could focus on up-skilling and re-training current workers to invest in people and mitigate broader social issues.

Taking this a step further, according to a Glassdoor survey two-thirds of people consider diversity important when researching new employment opportunities. If businesses are not proactively thinking about this societal issue, they are losing out on the talent they are already having a tough time finding.

Lastly, are we conscious of the role we play in the community? Do our initiatives to create a more digitized operation affect the constituents of the communities in which we operate? How are we managing our impact on the environment? In the context of digital, there are a surprising number of negative implications that have long-term effects on the community and thus the social license to conduct business.

The Answer is Not to Launch Robust Corporate Social Responsibility Initiatives

The social leadership elements Fink mentions aren’t suggesting robust projects and programs, although in some cases it would be prudent. He is simply elevating the notion that social responsibility is a requirement of the corporate equation and that the world’s leading organizations must acknowledge this fact if they want to sustain growth over time. It’s not just the right the thing to do, it’s better for business. So as organizations enter their planning periods for the new year and consider the business’s digital and non-digital priorities, and look externally at industry trends, consumer behavior and the competition, be sure to include all aspects of value creation in the analysis.

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