House of Futures Talk Copenhagen, DK 21 September 2011 The Emerging Corporate Renaissance In companies that mimic life Intro: My message today is one of hope. It is based on the strength of the human spirit, our survival instinct and our capacity to alter mindsets when faced with imminent danger. This is not to say I see an easy road ahead. As we look over the world economy and ecosystems today, we see a planet at grave risk. Humanity uses the equivalent of 1.5 planet earths to provide the resources we use and to absorb our waste. To the detriment of future generations, this overstep has been growing at an accelerating pace, causing life-threatening ecological degradation and economic catastrophe beyond normal comprehension. We know this. We see it every day. And we want to stop it. That’s why we’re here. To get out of this mess, I believe, we need to know how we got into it in the first place. Although some will disagree, I submit it’s not because humanity has become more greedy or immoral, but because we are trapped in mental models of reality that have led us in the wrong direction. If I can digress a moment: The mindsets that lured us into our present overstep were formed hundreds of years ago when natural resources seemed limitless and capital scarce. Because capital could leverage returns on land and labor, capitalists began to assume that capital took precedence over people and Nature – a dangerous thought that still carries influence today because it is so deeply rooted. Nevertheless, to our credit as an adaptive species, starting nearly a century ago, an alternative worldview began to coalesce that today holds great promise. Its early roots were in complexity theory and ecology, which caused us to think more holistically about the world we live in and how deeply interconnected we are with the rest of life. These notions later became incorporated into systems thinking and modeling and into the ways some leadership companies are organized and managed today. The companies leading today’s corporate renaissance operate from this holistic worldview. Rather than modeling themselves on mechanical systems – a machine-like behavior that emerged from the industrial revolution – they mimic living systems. They are acutely aware that their primary assets (people and Nature) are alive. Beyond that they know all value ultimately emanates from life. It is an integrative, harmonic way of thinking that inspires great insight and accomplishments. In this disruptively creative sense it echoes the earlier European renaissance. 2. Focus of this Presentation 1
Transcript
House of Futures TalkCopenhagen, DK
21 September 2011
The Emerging Corporate RenaissanceIn companies that mimic life
Intro:
My message today is one of hope. It is based on the strength of the human spirit, oursurvival instinct and our capacity to alter mindsets when faced with imminent danger.
This is not to say I see an easy road ahead. As we look over the world economy andecosystems today, we see a planet at grave risk. Humanity uses the equivalent of 1.5planet earths to provide the resources we use and to absorb our waste. To the detrimentof future generations, this overstep has been growing at an accelerating pace, causinglife-threatening ecological degradation and economic catastrophe beyond normalcomprehension. We know this. We see it every day. And we want to stop it. That’s whywe’re here.
To get out of this mess, I believe, we need to know how we got into it in the first place.Although some will disagree, I submit it’s not because humanity has become moregreedy or immoral, but because we are trapped in mental models of reality that have ledus in the wrong direction.
If I can digress a moment: The mindsets that lured us into our present overstep wereformed hundreds of years ago when natural resources seemed limitless and capitalscarce. Because capital could leverage returns on land and labor, capitalists began toassume that capital took precedence over people and Nature – a dangerous thought thatstill carries influence today because it is so deeply rooted.
Nevertheless, to our credit as an adaptive species, starting nearly a century ago, analternative worldview began to coalesce that today holds great promise. Its early rootswere in complexity theory and ecology, which caused us to think more holistically aboutthe world we live in and how deeply interconnected we are with the rest of life. Thesenotions later became incorporated into systems thinking and modeling and into the wayssome leadership companies are organized and managed today.
The companies leading today’s corporate renaissance operate from this holisticworldview. Rather than modeling themselves on mechanical systems – a machine-likebehavior that emerged from the industrial revolution – they mimic living systems. Theyare acutely aware that their primary assets (people and Nature) are alive. Beyond thatthey know all value ultimately emanates from life. It is an integrative, harmonic way ofthinking that inspires great insight and accomplishments. In this disruptively creativesense it echoes the earlier European renaissance.
2. Focus of this Presentation
1
To understand the gathering energy of today’s corporate renaissance, and to assess itsfuture potential, I’d like to do three things:
(1) Create a framework for understanding the underlying beliefs and force of therenaissance;
(2) Summarize common attributes of companies leading this change so we, as changeagents, can be more aware of their interests; and
(3) Discuss what we can do to accelerate the renaissance in this time of deep economicand ecological crisis.
3. How Transformative Change Occurs
To historian Thomas Kuhn, what ultimately causes a system to change is theaccumulation of anomalies – observations that can’t be explained by the prevailingparadigm of beliefs and mindsets.
In the next few slides I’ll try to summarize how the anomalies we’re seeing today – theecosystem and financial distress – emerged from well-intended visions that were built onfalse assumptions.
Following that we’ll look at the promise of the renaissance model. And for the sake ofclarity, we’ll frame these alternative systems in a metaphor familiar to us all.
4. Systemic transformation
To understand the dynamics of a system of human enterprise, such as our globaleconomy, think of an iceberg. What we see at the top is only 10% of its mass. Thelargest part, as we see here, lies beneath the surface invisible to the naked eye.
The things we see above the surface are quantifiable results – things such as GDP,profit, ecological impacts and public health. But most important, as suggested here, arethe behaviors, organizational structures, visions, values and beliefs that ultimatelyproduce those results.
Think of it this way. Beliefs frame our concepts of how the world works. Our worldview, inturn, frames our visions of what is possible. Those visions then affect how we organizeourselves and behave in pursuit of our goals. Therefore, the deeper we go towards thebeliefs, assumptions and mindsets that govern our behaviors, the greater our potentialfor effecting transformative change.
5. Traditional model of the firm
The traditional model of the firm is premised on beliefs we now know to be erroneous:that earth’s geological and biological resources are limitless; that perpetual consumptiongrowth is good; that technology is universally beneficial; and that non-living capitalassets are worth more than people and Nature, which I describe as living assets.2
This distinction between non-living capital and living assets is worth repeatingbecause it frames a fundamental difference between traditionally managedcompanies and those that mimic life. Traditionalists tend to place a higher valueon capital than on people and Nature, while life-mimicking companies do the exactopposite.
In any event, as we move up through this iceberg diagram, we see how widely-sharedbeliefs inform visions, values, structures, behaviors and results at the tip of the iceberg.And on the next slide we’ll see how these beliefs have led us unwittingly into theunsustainable bubble we’re now trying to escape.
6. Effects of the traditional model
In the far right column of this image we see how the systemic failures we’re experiencingtoday emanate from systemic stress and the dehumanizing, disconnected structuresproducing that stress, much of which arises when we put a higher value on non-livingcapital than we do on life.
This is not the outcome that traditional capitalists envisioned. Their ethos, described byJeremy Bentham, was the utilitarian ideal of “the greatest good for the greatest number.”This ideal looked to rising living standards – later defined as per capita consumption –and doing it quickly with machine-like efficiency.
The tragic flaw of this approach, as we now know, is its shortsighted dismissal of socialand ecological costs that exist outside the process of commercial value creation – coststhat mainstream economists call “externalities.” The sheer weight of these external costsis today crippling the world economy and devastating earth’s biological carrying capacityupon which all species depend.
This is not new news. Our most progressive companies saw the approach of thistsunami decades ago and began taking corrective action.
7. Organic model of the firm
The emerging organic model of the firm couldn’t be more different than the industrialcapitalist model. As earlier suggested, companies that mimic life reverse the practices oftraditionally managed ones by placing a higher value on living assets than on capitalassets. They understand at a basic level that living assets are the source of capitalassets and that capital assets can’t function without living ones.
In similar fashion, the value systems of these life-mimicking companies are bio-centricrather than anthropocentric. That is to say they’re concerned with total systemic health –the possibilities of long-term ecological and economic wellbeing – rather than thequickest shortcuts to GDP growth and profit.
These distinctions are hugely important. They lead us to think more deeply about life,our innate connections to the biospheric web-of-life and our ethical urge to live inharmony with life – an urge the eminent Harvard biologist, Edward O. Wilson, calls3
“biophilia.”
As summarized on this slide, life-mimicking companies seek harmony with the largerweb-of-life by becoming more life-like themselves. Their visions are fittingly morepositive and inspiring, their structures more synergistic, their behaviors moreconstructive and their results more sustainably prosperous. Companies that operate thisway practice what I call living asset stewardship (LAS).
About 16 years ago, I created a learning lab of these exemplary firms called the GlobalLiving Asset Management Performance (LAMP) Index. Its constituent companies werethose I believed to be best-of-breed living asset stewards in their industry/sectors.
As you will see in the next two slides, these LAMP companies became prodigiousinnovators and creators of value because their life-mimicking qualities inspiredemployees to work with their hearts as well as their minds.
8. The Reinforcing Cycle
The secret to success of LAMP companies resides in their spirit, which catalyzes thereinforcing cycle shown on this slide.
Here is how it works. We become inspired when corporate cultures affiliate with ourbiophilic (life affirming) instincts. In companies that practice living asset stewardship(LAS), we’re more likely to find meaning in what we do. This makes us more eager tolearn and more likely to access our higher thinking capacities. Our eagerness forlearning and deeper understanding ignites our capacities to innovate. And visionaryinnovation increases the odds of turning a profit. The cycle repeats as profit reinforcesLAS.
It’s important to note here that Global LAMP companies approach LAS with the sameprofessional competence they bring to other critical disciplines such as finance,marketing and product design. And they do this with carefully constructed metric andaudit systems, which continually assess the strength of their relationships withemployees, customers and other key stakeholders.
The strength of those relationships defines a firm’s relational equity. And this is acritical point: Relational equity is the best leading indicator of financial equity I know.
9. Global LAMP Index® Performance
The chart you see here reflects the value of relational equity through the results of ourGlobal LAMP Index relative to three commonly used peer indices. And it illustrates theeffects of compounding consistently advantageous returns.
To grasp the importance of compounding, consider this. The average annual return ofthe Global LAMP Index over this 15-year period was not quite double the return of itspeer indices. However, because it consistently made more in up years and lost less indown years, the compounded result of the LAMP Index was 4 to 5 times better.
4
Some have asked if this result was the product of frequently changing LAMP Indexcomposition – and the answer is no. LAMP results were achieved with less than 1%one-way annual turnover since 2002, when the Index became the research source formy book, Profit For Life. (Results prior to 2002 were on the same 60 companies, whichwere selected with some benefit of hindsight.)
Also significant, the risk profile of the LAMP Index is comparable to peer global indices –a finding that has been validated by the global investment consultancy NorthfieldInformation Services. So what we see here are above average returns achieved withaverage risk – a result that strongly suggests Global LAMP companies are betterorganized and managed.
To people schooled in traditional economic and investment theory, these results defylogic. Performance advantages, such as those we see here, are supposed to be quicklyarbitraged away as the successes of leadership companies are copied.
While I agree that such copying will take place and that the advantages of LAMPcompanies will eventually be arbitraged away, I doubt that this will happen quickly forone simple reason. What needs to be copied here is not a technology or amanufacturing process, but a corporate culture … and that culture runs counter toconventional practice.
To achieve the requisite cultural shift, traditionally managed companies must dive to thebottom of the iceberg where our beliefs, mindsets and assumptions reside. This takestime – especially for companies that are accustomed to command-and-controlhierarchies and linear mechanistic reasoning.
Before leaving this slide, I should note that much of the profit growth of LAMP companiesis derived from rolling up market share against traditionally managed competitors. Thiswill not go on forever because eventually LAS cultures will prevail everywhere. Fromthat point forward, profit growth must depend upon service and intelligent value added –not on using up scarce earth resources.
So, what are we talking about here? If we could define a framework for companies thatmimic life, what would it look like?
10. How to identify Leadership companies
The broadly shared attributes of life-mimicking companies are easy to understand onceyou get inside their beliefs and mindsets. Each of the attributes I shall mention in thenext slide have been extensively researched and described in books and professionaljournals. This, however, is likely the first time you will see them presented as a coherentwhole.
And that brings me to another important point about life-mimicking companies relative totraditionally managed ones. The defining properties of life are properties of the wholewhereas those of machines can be reduced to the sum of their parts. If we wantcompanies to exceed the sum of their parts, to be highly conscious and self-sustaining,they must become more life-like.
5
11. Global LAMP Companies have six life-mimicking attributes.
Some of you may remember that my first description of LAMP companies’ life-mimickingattributes listed only the first five you see on this slide. Later on I added a sixth one –consciousness – believing it to be an emergent quality that stems from the original five.
The first attribute you see here concerns networking. Companies that mimic life areorganized as radically decentralized networks, much like the organization of our bodies.While they maintain some degree of hierarchy for structure, they localizedecision-making just as our sense of touch is localized. They also foster thedevelopment of informal collegial networks linking experts within the firm to thoseoutside the firm, including suppliers, universities, key customers and the like. Thissensing capacity greatly accelerates knowledge acquisition – a huge advantage as wetransition from the industrial age into the age of knowledge.
The second attribute you see here concerns the self-organizing, self-renewing andultimately self-making – “autopoietic” – attributes that are unique to life. To achieve thesequalities LAMP companies serve the professional growth of employees by a processcalled servant leadership. Their goal is to increase the capacity of individuals and workteams to spontaneously adapt as market conditions change by making decisions on thefront lines. In the most advanced LAMP companies, these autopoietic attributescontinually refresh product offers and enable firms to reinvent themselves from within.
The third attribute is frugality. Companies that mimic life are frugal in the ways theymanage energy and resources because wastefulness makes them vulnerable topredators or early death. Frugality is a survival instinct common to all species.
The fourth attribute looks to the synergies achieved when we are exposed to diversesources of information and feedback. To optimize such synergies, life-mimickingcompanies openly share and exchange information within their market ecosystems.Such transparency invites diverse stakeholder feedback, which greatly increases thefirm’s capacity to learn, adapt and innovate. Just as in Nature, LAMP companies derivegreat strength from their diversity of perspective and experience.
The fifth attribute is a symbiotic mindset. Companies that mimic life give back to thelarger living systems that support them – a behavior we see in all ecosystems. Thissense of higher purpose is typically expressed in their values, visions and missions andin the respect they show to their employees, host communities and Nature. It is a sourceof great inspiration to employees and creates bonds of trust and loyalty amongcustomers.
Finally, companies that mimic life are highly conscious. This attribute covers a spectrumfrom their self-image as a living system to their awareness of the larger web-of-life. Theconsciousness of LAMP companies arises from their earlier noted self-organizingnetworks, which function much like the brain in assimilating information, and from theirsymbiotic sense of caring. This duality simulates the heart-brain connection that links ouremotions and desire to learn, which activate our higher (quantum) thinking capacities. Inthe best LAMP companies this heightened awareness becomes so integral to employee
6
thinking that it’s like a second nature.
Once we understand these attributes and how they are interconnected we begin to seecompanies in a different light. Reflecting back on the earlier iceberg metaphor, we nowhave a conceptual framework and a vocabulary to understand the renaissance nowtaking place in corporate management.
1. To see how these processes work, let’s look at three exemplary LAMPcompanies.
The three companies on this slide are interesting because they come from industrysectors with very different economic sensitivities and behaviors and because they comefrom parts of the world with different cultures. Nevertheless, each one affirms the coremessage of the Global LAMP Index: that living asset stewardship and respect for liferesonate everywhere.
In the next three slides we’ll look at the qualities of life-mimicking companies in pairs insuch a way that we cover all six attributes. My purpose here is to focus on importantstructural elements and how they relate to one another so the whole becomes more thanthe sum of its parts. For lack of time this can’t be a detailed discussion. But I hope it willcreate a context that leads to greater understanding.
2. Nucor – a model of networking with an open, synergistic culture
In Nucor we find a model of decentralization and deep networking – a web of networkswithin networks – from the corporate level to individual business units and down into theinformal communications among work teams at the mill level. The strength of thesenetworks is defined by the strength of the individuals and trusting relationships that existwithin them. (Trust, I might add, is the utility through which information flows.)
A close reading of the Nucor story will show how it reinvented the steel industry in threedistinct ways. First, and most important in the company’s mind, it put its workers at thecenter of its universe rather than on the outer fringes – a Copernican revolution ofindustry practice Nucor put into effect more than 40 years ago. In a second point ofdeparture, Nucor created a decentralized web of mini-mills that reprocess locallysourced recycled steel – a radical change from the mammoth integrated mills thatdominated the industry for most of the past century. Its third innovation was to become anindustry leader in industrial ecology with a vision of closed loop manufacturing – an ideathat still eludes its primary competitors.
Nucor’s culture is one where mill workers write their own job descriptions, manage theirwork schedules, teach one another and freely share ideas as they work together. Theimpetus to excel in each facility comes from within the team and it is so strong that Nucorhas become the steel industry’s innovation leader with no R&D department. In fact, thefirm’s capacity to learn is such we could call it an idea mill that happens to make steel.And the extraordinary thing is: most of its mill workers have no more than a high schooleducation.
Today Nucor is the largest steelmaker in the US and by far the most productive – a7
radical change from its status at the time of its cultural transformation, when it would nothave made the top ten.
3. Canon – a model of self-directed symbiotic behavior
Canon, like Nucor, is a highly networked generator of ideas and for decades it’s beenthe global leader in imaging technologies. I feature it here because of its self-generatingenergy and symbiotic vision.
Canon’s San-ji spirit is a model of autopoietic self-making and self-organizing corporateenergy and it has been a core value since the company’s founding 75 years ago. Inessence, San-ji asks employees to be conscious of their roles in the larger web of socialand environmental life and to take responsibility for their actions and impacts.
Together with its corporate philosophy of kyosei, which envisions living and workingtogether for the common good, Canon appeals to the spirit of employees. They areasked to imagine a better world and to collaborate in making this happen, setting inmotion the reinforcing cycle of learning, innovation and profit that energizes all LAMPcompanies.
Canon’s long-term vision, summarized in its recent Sustainability Report, gives furtherdefinition to its mission. It looks to a balance between social prosperity andenvironmental sustainability that will be a standard of excellence for the next 100 to 200years – a rare exercise in foresight for any organization.
What we see in this culture is a call to innovate towards a transcendent life-affirminggoal in ways that balance individual freedom and responsibility. It’s a powerful mixturebecause it engages people’s hearts as well as their minds: their longing to create ameaningful legacy for future generations.
4. Novo Nordisk – a model of frugality and ecological consciousness
Novo is perhaps the best example of LAS I have yet seen. Like a living eco-system, itworks to conserve energy and the resources it needs to function. And it does this throughan inclusive culture of high ideals and prolific idea sharing.
Last year Novo’s Danish operations became fully converted to renewable enrgy. Theextra cost of this conversion was almost entirely offset by energy savings that Novoemployees found in their individual workplaces.
Novo accomplished this extraordinary feat because the firm uses all its intellectualresources. With four employees represented on the board, front line knowledge andexperience gets blended into strategic thinking and visioning. Employees know what theboard is thinking, and vice versa. Further, through regular inclusive dialogue, Novo findsit easier to form a common sense of purpose and to implement strategy.
As a healthcare company with a holistic sense of mission, Novo derives much of itsenergy from giving employees big intellectual challenges. One such is its concern withbio-ethics – an issue that connects its work in human health to the biological health of8
the planet. Another is its goal of “positive net impact” wherein it seeks to return morevalue to the earth than it takes in, creating value for its customers.
Novo’s over-arching goal of systemic health is also reflected in its frugal financialmanagement. To honor company commitments to employees, customers, suppliers, hostcommunities and investors, Novo consistently holds more cash than debt on its balancesheet. This cash cushion enables the company to thrive and innovate through difficulttimes, such as the one we’re now in, while less prepared competitors must cut back inways that compromise their stakeholder relationships.
So how have these corporate practices worked in the marketplace?
1. Nucor Total Investment Return
Over the 20 years ending September 1, Nucor stock has had a total return from sharesand reinvested dividends of 925 percent – more than 13 times the return of US Steel,which was formerly the largest steel company in North America.
During this same period Bethlehem Steel and Republic Steel – formerly the second andthird largest steel companies in North America – entered bankruptcy in large partbecause of their inability to compete with Nucor.
2. Canon Total Investment Return
Over the past 20 years Canon stock has risen 682% while key competitors Kodak andXerox either lost value or were marginally profitable. Because of its productivity, Canontoday is worth more than 5X Kodak and Xerox combined. This is quite a change from 30years ago when Canon was smaller than either of these once dominant competitors.
3. Novo Nordisk Total Investment Return
Finally, Novo’s total return to investors over the past 20 years has been more than3,700% – far above industry competitors Eli Lilly and Pfizer. If we were to add the valueof the Novozyme and ZymoGenetics spin-offs to these results, I believe Novo Nordisk’stotal return to shareholders would have been closer to 6,000%.
19. These companies are leading a renaissance in systems thinking
These companies, and others in the LAMP Index, are on the leading edge of theemerging corporate renaissance. Rather than trying to dominate and control people andNature, they are learning how to nurture and affiliate with these living assets.
To paraphrase historian James Carse, LAMP companies are on a learning journey fromthe finite game of growth for its own sake towards the infinite game of life, wherebio-ethics and LAS are central to the enterprise.
This journey, this existential awakening, is not an abstraction. It is real. And the results of9
its leading exemplars cannot be ignored.
19. Companies that mimic life reverse the errors of industrial capitalism
To step back and look at the big picture unfolding before us, we now see whycompanies that mimic life accrue advantages over their traditionally managed peers.
By placing a higher value on life than on capital in their quest for value, they inspiredeep stakeholder loyalty and trust. This feeds back into exceptional employeecommitment and innovation, repeat business and referrals from happy customers,patient long-term investors and well-intended advice from other stakeholders.
The growing systems thinking capacities of life mimicking companies convey anotherimportant advantage. Because they are more adept at seeing the diverse interconnectsand feedbacks in natural and social systems, and understanding the limits of thosesystems, they are more skilled at dealing with complexity.
The operating leverage of life-mimicking companies, then, is in their reach to humanheart and spirit, which are links to our higher (quantum) thinking capacities.
4. What we can do?
Now we come to the core question of this conference. What can we do to support thisemerging corporate renaissance, to create a sustainable path into the next century?
5. How can we accelerate the reformation process?
As systems thinker Dana Meadows once said, “Challenging a paradigm is not part-timework. It is not sufficient to make your point once and then blame the world for not gettingit.” In fact, those in power often have a vested interest in resisting change, no matter howbeneficial it may be.
So we must be strategic, knowing our leverage resides in shifting beliefs and mentalmodels and in reawakening humanity’s biophilic instincts, which have been wired intoour genes for thousands of generations.
People today are hungry for change, desperate for solutions. They are also deeplyperplexed by the adverse impacts of an industrial system that once carried such greatpromise.
Yet, few know the story I’m telling today because it’s foreign to their belief systems andexcluded from the evening news. Although some may like the sound of it, most don’ttrust that respect for life will work in this hyper-competitive world of industrial capitalism.
I, however, am more optimistic because I can see the important changes taking placebeneath the surface of events, at the bottom of our metaphorical iceberg. The mind shiftsoccurring in this important space have major implications for our future. And these, likereturns on the Global LAMP Index, have a way of compounding. Success breedssuccess.
10
My principal concern is that defenders of the traditional industrial capitalist system willprevail on governments to keep bailing them out and that this will compound error uponerror. That is why it is important that we become proactive in demanding change in ourcapacities as voters, consumers, employees, investors, educators, systems analysts andthe like.
Juxtaposed against the failures of industrial capitalism, demonstrated success storiescan change fundamental belief systems.
6. Powerful leverage in those most committed to learning
In conclusion, I believe brain rich companies have a huge role to play in our economicand ecological future. Within this realm, the most powerful leverage for transformativechange resides in companies that mimic life because they are the most open andcommitted to learning.
We, as change agents, must know how these life-mimicking companies think andoperate both in order to work with them and so we can explain to others the sources oftheir success.
People are attracted to success stories. Success overcomes fear and kindles hope. Andin hope resides the possibilities of transformative change so beautifully captured inCanon’s kyosei philosophy, Nucor’s employee-centric culture and Novo’s desire for netpositive impact. This is how success compounds.
Although much of my case this morning is built on systemic thinking and bio-mimicry,there is yet a more important catalyst to the change we seek. I believe that impetusresides in our spirit, our love of life, our biophilic instinct because these impel us to lookever deeper into the systems that impact our lives.
It is my hope that we all embrace that spirit, that love, and so become full partners inco-creating and expanding today’s renaissance. Thank you very much.
7. Dana quote
11
The Emerging Corporate Renaissance
In companies that mimic life
Friday, October 7, 2011
Understanding the renaissance in terms of:
• How transformative change occurs• How to identify leadership companies• What we can do to accelerate its development
