Steve Bambury offers a precis from John Mackey and Raj Sisodia’s seminal book “Conscious Capitalism“.
Business leaders and marketers would have to have their head firmly in the sand not to see that today’s consumers are increasingly voting with their wallets, and choosing where possible to support brands operating with a higher purpose.
But aside from just doing the right thing, it’s good to know that for the number-cruncher’s out there, doing conscious business is not just good for the planet, but also great for shareholder returns.
If you haven’t yet read John Mackey and Raj Sisodia’s book “Conscious Capitalism”, or are unaware of the conscious movement I can’t recommend you get your hands on a copy fast enough, as this movement is here, it’s real and it’s quite frankly well overdue.
Short of sitting down with you and reading it aloud to you cover to cover, I have selected what I believe are the key points summarising the business case for conscious business and offer them here in a precis of sorts. I hope it strikes a chord with you just as it has done for so many others.
For far too long now business has put profit at the heart of its measurement of success and, in many cases, made this the single determinant of a company’s success. Although this is an important aspect for the longevity and sustainability of a commercial enterprise it is not the only one, and there are many other factors that determine overall “success”.
Businesses need to consider a wider range of criteria rather than purely financial performance and a business that operates with a higher level of consciousness will consider other aspects of wealth creation including intellectual, social, emotional, cultural, physical, spiritual and environmental.
Companies that operate with these broader elements in mind recognise that whilst financial performance is important, it is not the be all and end all of success, and that there does not need to be a “sacrifice” but rather a balance that considers these other aspects and acts accordingly.
Although not surprising to those that truly understand this approach it is fascinating to others that those companies that operate with this broader mandate have proven to significantly outperform traditionally operating businesses from a financial perspective.
The logic of superior financial performance
The two aspects of financial performance are based on the company’s ability to grow revenues and reduce costs through increased efficiency. Consciously operating businesses excel on both fronts.
They grow faster than their competitors by aligning better with the needs of their customers who grow to become ‘raving fans’ who continue to spread the word. As a result they are typically spend less on promotional activities and also grow market share. At the same time they invest into areas that have a big impact on productivity and both staff and customer retention (such as team happiness and the customer experience) and this creates significantly less on things like staff recruitment.
Direct evidence of superior financial performance
In his book “Firms of Endearment, How World-Class Companies Profit from Purpose and Passion”, Raj Sisodia selected companies based on what they called humanistic profiles rather than purely financial performance. They considered companies that created value to all stakeholders – including customers, employees, suppliers, investors, society and the environment – and success was determined by factors such as how well-loved they were by team members, customers, suppliers and communities; their culture and their leadership.
Eighteen publicly listed and ten privately held companies were selected and their financial performance was compared with both the S&P 500 and Jim Collins’ Good to Great Companies (that analyses eleven companies that went from average to over performance over an extended period of time). Over a period of 15 years the “firms of endearment” that are featured in the book outperformed the S&P 500 by over 14 times, and Good to Great companies by over 6 times as can be seen in the table below:
|Cumulative Performance||15 years %||10 years %||5 years %||3 years %|
|US Firms of Endearment||1681||410||151||83|
|Good to Great companies||263||176||158||222|
Source: Raj Sisodia
In their book “Conscious Capitalism”, authors Raj Sisodia and John Mackay also provide anecdotal evidence of superior financial performance for companies that are measured in what could be considered ‘consciously aligned’ businesses. This includes the comparative annualised performance of Fortune’s 100 best companies to work for, compared with the S&P 500 over the same period of time, and shows an over performance of almost three times!
Explaining superior performance
Consciously operating businesses achieve their superior performance by:
- Generating high sales revenues by creating higher value for their customers.
- Achieving higher net margins than their counterparts, despite willingly sacrificing gross margins through investment into areas such as their people and environment.
Here’s how it works:
- Higher sales are achieved based on greater acceptance by customers who in turn become ardent fans and advocates. These companies consistently outperform industry averages on metrics such as revenue per team member thus generating more revenue on a comparable asset base than their competitors. As such they can afford to pay better wages and create a virtuous cycle of well-paid team members with a true passion for their work and for serving customers that in turn creates a superior customer experience. Their people are more productive, consistently creating excellence with greater innovation and love for what they do that clearly becomes contagious all round.
- Lower marketing costs are possible thanks to a large number of ‘raving fans’, delighted customers and staff who love their work. Customer retention is high as is word-of-mouth advertising from the many loyal and passionate advocates for the company. Many conscious businesses spend as little as 10 to 25% of the industry average on marketing with huge cost savings on traditional marketing strategies.
- Staff happiness + higher engagement = much lower staff turnover. This equation says it all as most people will be familiar with the high cost of recruitment and training for new employees. When a company takes care to hire those with passion that aligns with the company purpose and truly values its people they simply stay longer, love their work and are more productive. The significant savings that this creates are then re-invested into their people providing benefits that in turn enhance loyalty, passion and longevity.
- Lower administration costs are achieved through higher staff engagement, less bureaucracy and greater trust between all stakeholders. As a result traditional cost centres such as legal and health care are also greatly reduced.