Peter Fisk

A gentle breeze cools the hot sunshine. The cypress trees sway, but the blue sky looks serene. In the distance, the volcanic cone of Vesuvius looms mistakenly beautiful.

This week I’m in Italy, and taking a few days off to explore the incredible Roman city of Pompeii.

We are all familiar with the story. Indeed, as a child I always thought of it as one of those classical legends, but as I grew older I realised it was real.

Largely preserved under the 4-5m of volcanic ash, the excavated city offers a unique snapshot of Roman life, frozen at the moment it was buried. It was a wealthy town, with a population of 11,000 in AD 79, enjoying many fine public buildings and luxurious private villas with lavish decorations, furnishings and works of art. Beautiful courtyards at the heart of wealthy family homes, fast-food stalls serving the many sea-faring visitors, even a brothel with a graphical menu of services.

Organic remains, including wooden objects and human bodies, were interred in the ash. Over time, they decayed, leaving voids that archaeologists found could be used as moulds to make plaster casts of unique, and often gruesome, figures in their final moments of life. The numerous graffiti carved on the walls and inside rooms provide a wealth of examples of the largely lost “vulgar” latin spoken colloquially at the time, contrasting with the formal language of the classical writers.

As you explore the endless stone-cobbled, well-preserved streets, it is obvious that there was great opulence in the city. The city’s people clearly took pride in showing off their immense wealth. The prosperity of Pompeii was a key reason for its prominence back in the day, built on a strong economic foundation that was served by fertile grounds and an excellent geographical location. The lava terracing around the city gave it a security advantage, and the volcanic soil allowed flourishing agriculture.

As I walked around the deserted, but largely intact streets, I couldn’t help think about that day. When the volcano erupted. And within hours, the city was no more.

In spite of its desirable position, and great wealth, the city was engulfed by a massive volcanic explosion. One fateful morning, in 79 AD, the population met a tragic end in just a few hours. As lava ashes fell on the city, the population perished. Some were running away from the ashes while others were buried in their own homes. None of the great wealth, opulence, and superior vantage point could prevent the tragedy that stuck them.

Pompeii is a tragic reminder of the ephemeral nature of life.

In today’s business world, companies are not supposed to be transitory. They are expected to outlast the mortals that build them. When Tom Peters wrote In Search Of Excellence, he sang the praises of companies like Atari and GE. Where are they today? Remember MySpace or SecondLife? These organisations prided themselves on their quality of management, how they were shaping the future of markets, and should be worthy investments.

Or consider the threat of tsunamis across the vulnerable Pacific rim? Or the rising oceans threatening the Maldives?

Was the outcome in Pompeii ever preventable or should we just accept death as a part of natural events? Did the city’s leaders consider the risks of the nearby mountain, even in the days before, as smoke billowed out of the summit?  Did they consider the risks? Did they have early warning systems, and escape plans? Or did they live in ignorance?

The challenge for every organisation today is, however prosperous their current environment might seem, there is always a Vesuvius on the horizon. Maybe a new entrant, a disruptive technology, or changing regulation. Something that can fundamentally transform the current world. Most often it will be visible but not directly threatening, coming from an adjacent or emerging market for example, already embraced by early adopters or extreme users, perhaps.

I work with many organisations – their boards, their exec teams, their strategists – on making sense of their future direction. How will they continue to innovate, to create and sustain profitable growth? How do they address the changing nature of markets, from climate change to digital platforms, changing consumers and new competition?

Most of the time, they are fixed within the mindset of optimising performance within their currently defined markets. It’s not easy to imagine how markets themselves will change, could be disrupted from beyond the current paradigms, or indeed how the companies themselves could proactively reshape markets, the nature of their business, and sources of value and advantage.

“S Curves” are a simple visualisation of these changing environments, and how companies can both create and respond to the relentless macro-waves of change. Consider the history of Dutch life sciences business DSM, or Japan’s Fujifilm, that have evolved far beyond their respective worlds of coal mining and camera film. Every market is constantly evolving, every company is constantly riding an S curve of change.

 

 

The challenge is then to change before you have to. Get to the top of the S curve and decline will probably already have set in – Vesuvius is already exploding – and it might be too late to change, as customers have already deserted you, and alternatives have already grabbed the future. The time to change is when times are still good, from a position of strength – part way up the curve – and when you still have time to move to your future market space, to create your future business.

It’s not easy, of course. Few of the Kodaks, Intels and GEs of the world were able to reinvent themselves. Largely because their mindset was locked into enjoying their current successes, and a mistaken belief that what got them this far, will take them further. But it rarely does. And so a new generation of companies like Spotify and Tesla reinvented their worlds.

As I walked around those Pompeii streets. A historic civilisation frozen in time. How good is your early warning system? As markets will inevitably change, how will you change before you have to?

 

In 2022, the Crocs Classic Clog was the best-selling item of clothing on Amazon, the brand was one of the fastest growing brands in the USA, and global net revenues had grown to $3.6 billion. Crocs were spotted on high-fashion runways, collaborating with luxury brands like Balenciaga, and on the feet of  celebrities such as Justin Bieber. GenZ, in particular, loved Crocs.

Compare that to the brand just 10 years earlier. Crocs shoes were endlessly mocked for their ugly appearance, and the company was on the brink of bankruptcy.

So how did Crocs revitalise itself? Through the power of community. Tapping into what made it distinctive, in some ways its ugliness, using the power of social platforms to become the brand of choice for many different tribes – whether you’re on the beach, or loving sports, working in hospitals, or gone fishing. Being relevant, and being “one of a kind“.

Networks Effects:

From brand communities to retail franchises and business ecosystems

“Network effects” typically account for 70% of the value of digitally-related companies. And for the speed of their growth.

But they are not just about technology, digital platforms and social media. The value of networks is not in how many store you have, or partners you have, or customers you have. But in how well you connect them.

Building and unlocking the value of these connections is the real secret.

Network effects were popularised by Robert Metcalfe, the co-founder of 3Com which created networking cards that plugged into a computer giving it access to the Ethernet, a local network of shared resources like printers, storage and the Internet.

Metcalfe explained that whilst the cost of the network was directly proportional to the number of cards, the value of the network was proportional to the square of the number of users. Or in other words, the value was due to the connectivity between users, enabling them to work together and achieve more than they could alone.

“Metcalfe’s Law” says that a network’s value is proportional to the square of the number of nodes in the network. The end nodes can be computers, servers and simply users. For example, if a network has 10 nodes, its inherent value is 100 (10×10=100). Add one more node, and the value is 121. Add another and the value jumps to 144. Non-linear, exponential, growth.

Network effects have become an essential component of a successful digital businesses. First, the Internet itself has become a facilitator for network effects. As it becomes less and less expensive to connect users on platforms, those able to attract them in mass become extremely valuable over time. Also, network effects facilitate scale. As digital businesses and platforms scale, they gain a competitive advantage, as they control more of a market. Third, network effects create a competitive advantage.

This is not about the technology itself, it is about how the technology enables networks to work – how they enable people to connect with each other, to collaborate and influence, to build mutual affinity and trust. Communities emerge and where the power of peer to peer influence is the primary source of trust, recommendation and sales.

Movements are a step even further in making networks work, giving them purpose, values and momentum. This might sound obvious. But think how many retailers do nothing to connect their consumers, particularly those with similar interests. Even telecom brands, with billions of users, do almost nothing to add value beyond the basic connections it provides.

In 2015, three Chinese academics – Zhang, Liu and Xu – tested Metcalfe’s Law based on data from Tencent and Facebook. Their work showed that Metcalfe’s law held for both, despite the difference in audiences and services. They also look at every $1 billion “unicorn” business that has grown over the last 25 years. They estimated that 35% of the companies had network effects at their core, however these network effects typically added up to 68% of the total value.

Linear business vs. network business

Linear businesses traditionally gained a competitive advantage by buying assets, controlling supply chains, and driving transactions.

Network business gain competitive advantages through the multiplying effect of the networks, and crucially what happens within its connections, relationships and interactions. Network-based business typically work much more collaboratively with customers and business partners, evolving into ecosystems that reach across traditional sector boundaries and can do much more.

As the network grows, its value multiplies. Think of a dating app. Initially a few users is very limiting, but as soon as the network grows, the opportunities to find a suitable match grow much faster. The value of the network to the user is in the number of connections possible, and for the business, the commercial value becomes the data that is generated through user to user interactions. This data can be captured and analysed, to drive more interactions between people, and becomes the real advantage. Jim Collins famously termed this the “flywheel effect”, for example, where more customers creates a better experience, whose reviews attract more customers, who reduce costs or increase advertising incomes, which enables lowers costs which attracts more customers.

Network effects, relationships and data, become the assets of a network-based business. They are “light” assets, typically in the form of intellectual property (compared to primarily heavy assets of linear companies), and drive “intangible” value financially.

There is a downside to network effects, in that exponentially growing networks become harder to control, coordinate or curate. The rise of unsolicited emails, fraudsters and fake news is one obvious consequence. And whilst Facebook and other networks employ huge armies of people to try to eliminate such factors, this is probably an old way of thinking. In reality it needs to leverage network-based solutions, such as peer to peer accreditation, as in the trust profiles which users give each other on platforms such as Airbnb, eBay and Uber.

15 types of network effects

As a starting point, network effects can be direct or indirect.

• Direct (same-side, or symmetric) network effects happen when an increase in users directly creates more utility for all of the users, that is, a better product or service. Consider, for example Facebook or Tinder.
• Indirect (cross-side, or asymmetric) network effects happen when an increase in users indirectly create more utility for other types of users. Airbnb and Uber, where more hosts and drivers creates more utility for guests and passengers.

Different business models encourage different network effects. Dynamic pricing, for example, is used by Uber to encourage more drivers to join the network when demand is high, or more passengers when demand is low.

Many varieties of network effects emerge, depending on the types of business, each with strengths and weaknesses. Here is are 15 types, where the first 5 of direct effects, the others indirect:

• Physical – infrastructure, typically utilities (eg roads, landlines, electricity)
• Protocol – a common standard for operating (eg Ethernet, Bitcoin, VHS)
• Personal Utility – built on personal identities (eg WhatsApp, Slack, WeChat)
• Personal – built on personal reputation (eg Facebook, Instagram, Twitter)
• Market Network – adds purpose and transactions (eg Houzz, AngelList)
• Marketplace – enables exchanges between buyers and sellers (eg eBay, Visa, Etsy)
• Platform – adds value to the exchange of a marketplace (eg iOS, Nintendo, Twitch)
• Asymptotic Marketplace – effect depends on scale (eg Uber, OpenTable)
• Data – data generated through use enhances utility (eg Google, Waze, IMDB)
• Tech Performance … service gets better with more users (eg BitTorrent, Skype)
• Language … a brand name defines a market or activity (eg Google, Uber, Xerox)
• Belief … network grows based on a shared belief (eg stock market, religions)
• Bandwagon … driven by social pressure of fear of missing out (eg Apple, Slack)
• Community … driven by shared passion and activity (eg ParkRun, Harley Owners)
• Movement … driven by shared purpose or protest (eg Occupy, Black Lives Matter)

Most iPhone apps rely heavily on the existence of strong network effects. This enables the software to grow in popularity very quickly and spread to a large userbase with very limited marketing. The “freemium” business model has evolved to take advantage of these network effects by releasing a free version that affects many users and then charges for “premium” features as the primary source of revenue.

eBay would not be a particularly useful site if auctions were not competitive. As the number of users grows on eBay, auctions grow more competitive, pushing up the prices of bids on items. This makes it more worthwhile to sell on eBay and brings more sellers onto eBay, which drives prices down again as this increases supply, while bringing more people onto eBay because there are more things being sold that people want. Essentially, as the number of users of eBay grows, prices fall and supply increases, and more and more people find the site to be useful.

Stock exchanges feature a network effect. Market liquidity is a major determinant of transaction cost in the sale or purchase of a stock, as a bid–ask spread exists between the price at which a purchase can be done versus the price at which the sale of the same security can be done. As the number of buyers and sellers on an exchange increases, liquidity increases, and transaction costs decrease. This then attracts a larger number of buyers and sellers to the exchange.

© Peter Fisk 2023. Excerpt from his book Business Recoded.

Ingenuity is the quality of being clever, original, and inventive. Popular in the 1800s, and less so today, it also has a sense of nobility, of ingeniousness. It comes the French ingenieux or Latin ingenium referring to the mind or intellect.

Takashi Murakami is often called the next Andy Warhol, fusing high and low art, combining ideas from both Japan’s rich artistic heritage, and its vibrant consumer culture. But whilst the American icon created multi-million dollar works of art, Murakami is much more interested in creating everyday objects for everyone, from bubble gum and t-shirts to phone covers and limited-edition Louis Vuitton handbags.

He started in the traditions of Japan, then studied “Nihonga” art which is a combination of 19th century eastern and western styles but became distracted by the rise of anime and manga in Japanese eighties culture. He loved the modern styles which connected with people, and the issues and aspirations of today’s society. He was fascinated by what made iconic characters such as Hello Kitty and Mickey Mouse so popular and enduring.

Japan has a centuries long tradition of “flat” art, achieved with bold outlines, flat colouring, and a disregard for perspective, depth, and three-dimensionality. “Superflat” was a term Murakami started to use in 2001 and has evolved into one of modern art’s most active movements, combining the traditions flat art with anime and manga, taking components of high and low culture to defy categorisation. He says that he uses the style to also reflect what he sees as the flat, shallowness of consumer culture.

Today Murakami is a rock-star artist, highly aware of his image and brand, and an avid user of social media. He loves fame and commercialism. His business has been helped by collaborations with celebrities, creating animated music videos for Kanye West and designing sculptures with Pharrell Williams.

If “ingenuity” is about thinking and performing in a way that is original and inventive, it is a good descriptor of Murakami. He is inspired by both the past and the future create his own distinctive presence, to connect with and challenges his environment, embrace personal insight and opinion to defy conventions, and them his audience with him.

Imagination, creativity and innovation.

Imagination is often called the primary gift of human consciousness.

In a world of ubiquitous technology which challenges our humanity, a world of infinite yet largely derivative choices, and a world of noise and uncertainty, there is nothing quite like being human.

Imagination move us forwards. It allows us to leap beyond the conventions, the limits of our current world. It takes us beyond the algorithms of AI-enabled robots who can create perfection out of the world which they know, but struggle beyond it. It inspires us to think in new ways, to shape hypotheses to test, and aesthetic designs to enjoy.

Sir Ken Robinson is probably best known for his self-deprecating sense of humour with which he delivers a very important message: “Imagination is the source of all human achievement.” The Times said of his UK government report on creativity, education and the economy that “it raises some of the most important issues facing business in the 21st century. It should have every CEO thumping the table and demanding action.”

His book “Out of Our Minds: Learning to be Creative” argues that our world is the product of the ideas, beliefs and values of human imagination that have shaped it over centuries. He says, “the human mind is profoundly and uniquely creative, but too many people have no sense of their true talents.”

• Imagination explores new possibilities and captures them as new ideas
• Creativity shapes and stretches the potential of existing ideas
• Innovation takes existing ideas and makes them practical

Creativity is applied imagination, innovation is applied creativity, you could say.

I remember back to when my two daughters were young, the pictures they drew and models they built, the questions they asked and answers they imagined. There’s was a world unlimited by experience, by prejudice or conformity. Their brush strokes were simple, their colours bold, their questions were simple but disturbingly difficult.

As adults we shift to a productivity mindset, preferring to get things done, rather than explore possibilities. We seek to reduce complexity to its simplest form and describe ideas in the context of what we already know, squeezing out any nuggets of newness.

We are all born creative, but somehow lose that spark, or at the confidence to allow it out. Some people, we say, are creative, and others not. Yet we all have the same neurons and synapses which drive the process. The reality is that no individual is as creative as even the dullest people once they start working together. If we could reclaim our creativity, we could discover our passion, allowing us to feel more alive, and do so much more.

Harvard professor Howard Gardner identified 8 “intelligences” or ways to solve problems. They range from linguistics (limited only by the words you use), logical (mainly through mathematics), spatial (as used by designers), musical, physical (like athletes), natural (like farmers), intrapersonal (within yourself), and interpersonal (with others).

The point is that we have many ways to be creative, or even combinations of our mental and physical capabilities. As Leonardo da Vinci loved to say, inspired by his own polymath life as artist and musician, anatomist and sculptor, architect and engineer, creativity is ultimately about making new connections.

Innovation makes life better

The purpose of any business, and therefore any innovation, is to make life better. It drives human and social progress, as well as seizing new opportunities for business growth. Whilst it is a practical, technical and process-based challenge, it is also human and philosophical, strategic and futuristic.

The Royal Society of Arts recently published a document “How to be Ingenious” starting with a definition of ingenuity as having three components:

• an inclination to work with the resources easily to hand
• a knack for combining these resources in a surprising way
• and in doing so, an ability to solve some practical problem

Another way to describe it is the ability to do unexpectedly more for less in the face of constrained resources. Given the social and environmental challenges facing every business today, that might be a useful addition.

The Huit Denim Company is a great innovator for social good. Cardigan, a small town on the west coast of Wales, used to have Britain’s biggest jeans factory. It employed 400 people in a town of 4,000 people, making 35,000 pairs a week, but it closed suddenly in 2001. It had a huge effect on employment, but also on confidence in the town. David and Claire Hieatt responded by deciding that they would to try to get 400 people their jobs back. Huit Denim Co was born, and now with a cult global following. Their semi-automated, hand-stitched process still takes 5 times as long as most jeans factories, but they can then sell them online direct to consumer for $300 a pair, securing a profit margin that keeps the town in work again.

Navi Radjou, the French-Indian author of Frugal Innovation likes to remind me that some of the most ingenious ideas comes from emerging markets, where people improvise to solve problems. He tells the story of Kenyan villager Peter Kahugu, for example, who used a set of pulleys, a sharpening stone and an inner tube to modify his bicycle. Re-using the inner tube as a rubber belt, he created a pedal-powered knife-sharpening service and earns about $10 a day.

A more inspired approach to innovation

Innovation demands human ingenuity.

It is exciting, it is about people, about the future, with limitless possibilities.

It is an essential role of every business leader, every business function. Whilst innovation has long centred around the tangible, technical icon of the product, organisations have finally opened their minds to many more forms of innovation.

Innovation used to be associated with long, disciplined, stage-gated processes by which ideas were productised and taken to market. Today’s innovators, in small and large businesses, get excited by design thinking and lean development. These are useful tools to create more insightful and faster solutions, but there is much more to innovation.

A more inspired approach to innovation has 9 dimensions

• Human-centred rather than driven by products
• Problem-solving rather than limited by capability
• Future shaping rather than aligning with today
• Whole business rather than functionally isolated
• Fast and experimental rather than slow and perfect
• Sustainable impact rather than profit obsessed
• Active adaptation rather than launch and forgotten
• Growth driving rather than unaligned commercially
• Portfolio building rather than isolated innovations

Innovation is not like most other business functions and activities. There is no department or VP of innovation in most companies. There is rarely even an innovation strategy or budget. There are few standard templates, rules, processes, or consistent measures of success. In a sense, each act of innovation is a unique feat, a leap of imagination that can be neither predicted nor replicated. It is certainly not business as usual.

That’s also the beauty. Innovation is pervasive, a challenge for every function and person across the business. It can have process, but it can also break all the rules, and sometimes needs to. By being rooted in every part of the business, and drawing on budgets from each, it can be a more collaborative, integrated and formidable approach.

Leaders are the ultimate innovators in companies, not necessarily entrepreneurs as in the founders of start-ups, but setting the agenda, ensuring that it has the resources and space to thrive, and that the business delivers today, but also creates a better tomorrow.

© Peter Fisk 2023.

Excerpt from “Business Recoded” by Peter Fisk

Markus Villig was a teen-tech entrepreneur, launching his startup as a 19 year old, in the same year he graduated from his Tallinn high school. He went on to become the youngest founder of a European billion-dollar company.

Bolt, then known as Taxify, launched in the Estonian capital promising to take lower commissions – which meant higher net wages for drivers, and lower fares for passengers, compared with other ride-hailing apps, like Uber. In fact I remember landing on an Air Baltic flight in Tallinn, and all business travellers had a direct connection to the Taxify cars waiting outside.

In 2019, Taxify rebranded as Bolt and is now one of the world’s fastest-growing mobility platforms, offering ride-hailing, car-sharing, food-delivery, and electric-scooter services to more than 100 million customers in over 45 countries.

While Uber, the world’s leading ride-sharing business, was blowing billions of dollars trying to buy global domination, Markus Villig was busy doing the opposite with Bolt. The Estonian, working on a relatively small budget, has built a $8.4 billion business, and an $700 million personal fortune, by focusing on overlooked markets in Africa and Europe.

Between 2015 and 2019, Villig scaled up Bolt from $730,000 sales to $142 million. He couldn’t afford big losses, so he operated the company close to break-even.  Uber, by contrast, burned through $19.8 billion, almost $6.3 million a day, before going public in 2019.

Villig’s careful approach has paid off. The business now has more than 3 million drivers, operates in 45 countries and generated $570 million in 2021 sales revenue. At its latest valuation, in January 2022, the company was said to be worth $8.4 billion. Of course, startup values have since tumbled, and with a 20% stake, the 29-year-old Villig is now Europe’s youngest billionaire.

 

Villig knew he wanted to start a tech company when he was as young as 12, according to a recent CNBC profile

At age 19, Villig dropped out of college after just one semester studying computer science at the University of Tartu, in Estonia, as his ride-hailing app, Taxify, began to take off. and the 25-year-old is the youngest founder of a billion-dollar company in Europe, according to research by Estonian start-up network Lift99.

Villig started the business with a 5,000 euro loan from his family to build a prototype of the app, the summer after graduating from high school. He was inspired by Skype, which was founded in his home country of Estonia in 2004, showing a technology business “could be launched from anywhere.”

“I realized that tech is one of those industries where you can have huge leverage in the fact that you can accomplish big things with a very small team,” he told CNBC. And even as interest in the app started to pick up, Villig said he remained disciplined with business costs by avoiding “hiring loads of people or doing expensive marketing campaigns.”

In fact, Villig took to the streets himself in Estonia’s capital Tallinn to recruit taxi drivers in the early days of the business “Ultimately it comes down to being extremely customer focused and frugal,” he said. “This is an industry where customers really care if they get good value for their money,” he adds. “So if you can offer customers 20% better pricing or you can make sure the drivers take 20% more on every ride then that really pays.”

Bolt drivers can earn over 10% more on average compared to other ride-hailing platforms, as it takes 15% commission from them per ride, compared to the 25% Uber charges it “partners” on each fare.

 

Yancey Strickler, the Kickstarter founder, makes a passionate argument that we can, and must, redefine the measures of success if we want a stronger society than the one we have today.

He describes today’s business world as one of “crumbling infrastructure, the dominance of mega companies, and the rise of offshore tax havens.” He isn’t opposed to money, or even wealth. “If businesses were optimised for the community or sustainability” he says, “the rich would still be rich, just not as rich,” whilst the vast majority of people would be wealthier and happier.

In the global pandemic of 2020, the impact of a single-minded pursuit of profit was brought into sharp relief as the business world shut down and huge numbers of people lost jobs. The lack of healthcare provision and social safety nets plunged workers of all levels into turmoil. Similarly, hospitals lacked essential equipment because of a relentless drive for efficiency. As stock markets plunged, and trillions of dollars of value were wiped out, businesses started to realise the folly of their frugality and lack of compassion.

Business has sought to maximise financial performance for so long that it’s hard to imagine another reason for companies to exist.

Profitability and value creation.

Profits have become the predominant metric of success. Many people in business still think that market share and sales revenues are the goals, yet for some time we have seen that big is not always better. As customers and products have become less equal in their relative profitability, it is often more profitable to focus on less rather than more. Similarly, multiple channels with different efficiencies, and a drive to discounting, means that more sales don’t always convert into more profits.

The notion of “value” us important. Businesses are often defined as value exchanges, creating value for customers and capturing value for the business.

Economists evaluate businesses based on the sum of future profits, adjusted for how likely these profits are to emerge. Strong brands, relationships and innovation pipelines make future profits more certain. Their sum is known as the enterprise value, reflected externally on stock markets, based on the judgement of analysts and behaviours of investors, as market value. Executives are incentivised to deliver profits, however more thoughtful incentives will encourage their preference to sustain profits over time, often based around total shareholder return, the growth in market value plus a share of dividends.

Business leaders can decide how to design their value creation machine, in particular how to share value between all stakeholders over time.

As profits emerge each year, leaders decide how much to allocate to employees in salaries and bonuses or as improved conditions, how much to allocate to customers through innovative products and services or better prices, how much to allocate to investors in dividends or cash, and how much to share with society through social initiatives or more generally through taxation. The relative allocations, and for what, determine how effectively the business invests for its future, to sustain the creation of value – or in other words, to grow a larger “value pie”, from which everyone can enjoy a healthy share.

However, that ideology gets disrupted by greed, particularly by owners who are more interested in making a quick return, rather than seeing a sustainable long-term business.

James O’Toole is his book “The Enlightened Capitalists” explores the history of business leaders who have tried to combine the pursuit of profits with virtuous organisational practices – people like jeans maker Levi Strauss and the Body Shop’s Anita Roddick.

He tells the story of William Lever, the inventor of the Sunlight soap bar who created the most profitable company in Britain, the origins of today’s Unilever, and used his money to greatly improve the lives of his workers. In 1884 he bought 56 acres of land on the Wirral, near Liverpool, and built a new town for his workers, known as Port Sunlight, where workers and their families could live healthier and happier lives.  Eventually, he lost control of the company to creditors who promptly terminated the enlightened practices he had initiated. The fate of many idealistic capitalists.

From shareholders to stakeholders

In recent years the relationship between business and society has become increasingly fractured. Whilst there is nothing wrong with shareholders, and nothing wrong with profits, the culture of capitalism seemed increasingly out of sync with the world. A series of economic, social and environmental crises made it all the more obvious.

Of course, most businesses have woken up to the importance of sustainable issues, and their responsibilities to society over recent years, but they have largely seen them as a new component of capitalism.

10 years ago, I wrote the book “People Planet Profit: How to embrace sustainability for innovation and growth” which sold many copies, but little seemed to change. Yes, we got the sustainability report as an appendix to the annual report, the foundation that operates at arms’ length from the core business, and a host of initiatives to reduce emissions and waste. At the same time, social enterprises emerged – indeed, I was a CEO of a $50 million non-profit business myself – but such organisations were still seen as a different breed from commercial businesses. Core business didn’t change.

And then three things happened.

• In January 2018, BlackRock’s Larry Fink wrote a letter to the CEOs of all the companies who he invests in, saying that he would not continue unless they could demonstrate that they will delivering on a significant “purpose before profit”. BlackRock is the world’s largest investment firm, a $6 trillion asset manager. This was seismic.
• In August 2019, The Business Roundtable, the most influential group of US business leaders said they would formally embrace stakeholder capitalism, built on “a broader, more complete view of corporate purpose, boards can focus on creating long-term value, better serving everyone – investors, employees, communities, suppliers and customers.”
• In January 2020, the World Economic Forum launched the Davos Manifesto for “a better kind of capitalism” saying “the purpose of a company is to engage all its stakeholders in shared and sustained value creation” with “a shared commitment to policies and decisions that strengthen the long-term prosperity of a company.”

Klaus Schwab, founder of WEF, called it “the funeral of shareholder capitalism”, but also as the bold and brave birth of stakeholder capitalism.

Marc Benioff of Salesforce added that “Capitalism as we know it is dead. This obsession with the pursuit of profits just for shareholders does not work”. IBM’s Gina Rometty said that there are now two types of business “good and bad”.

Jim Snabe of Maersk said, “companies need to start making the change right now, to the way they work, the resources they use, the taxes they pay, and the decisions they make.”

Smarter choices, positive impact.

The ideology sounds compelling. The challenge is to ensure that it changes how businesses work, the choices we make, and the impacts we have.

“Smarter choices” is the first challenge. A key role for the business leader is to make decision, yet this has become much harder of a complex world of many trade-offs. Strategy is also about choices, the directions and priorities for the business, short and long-term.

“Smart” lies in the ability to align the business purpose with all its stakeholders, and to find an effective way in which together they can sustain enlightened value creation.

“Positive impact” is the second challenge. Long have we heard the mantra, “what gets measured gets done”. Therefore, leaders need to underpin their stakeholder ideology with a new set of performance metrics, which drive behaviours, define progress, and rewards.

“Positive” lies in the ability for the business to create a “net positive” contribution to the world in which it exists, some of which will be financial, but also non-financial.

In particular, I get frustrated when people get excited about new zero. Yes of course, we want and need to dramatically reduce the carbon emissions of business. But net zero sounds like a terrible compromise, and indeed we see many carbon emitters still seeking to offset their badness by planting forests of trees, and claiming net zero as a success.

Positive impact is therefore about value creation. Creating more value for all stakeholders.

Not as a compromise or trade-off. Not the short-termist mindset that will seek more value for shareholders at the expense of customers (less innovation) or employees (lower salaries) or society (negative impacts).

This is not utopia. It comes by creating that bigger “value pie” and then each taking a fairer, larger slices of a bigger whole.

It comes through a long-term perspective – how business wins through amazing and well rewarded people, who develop and deliver incredible products and services for customers, who are happy to pay more for them and stay loyal, with less harm to the environment and more good for society, all producing more and more sustained returns for shareholders too.

And as a results a sustainable, virtuous circle of value creation emerges. Sustained, shared, superior value.

Performance metrics, making it happen.

All this sounds great. But what gets measured gets done.

Stakeholder capitalism desperately needs a set of metrics for sustainable value creation.

To seek a coherent model for this across the business and investment communities, the WEF brought 140 of the world’s largest companies together, supported by the four largest accounting firms – Deloitte, EY, KPMG and PwC.

Their starting point was to align the existing approaches to measuring Environmental, Social, and Governance (ESG) performance and the Sustainable Development Goals (SDGs). They agreed to seek common metrics for greenhouse gas emissions and strategies, diversity, employee health and well-being as factors to publish in annual reports alongside financial metrics.

The proposed metrics and recommended disclosures have been organised into four pillars that are aligned with the SDGs and ESG domains. They are

• Principles of Governance, aligned with SDGs 12, 16 and 17, and focusing on a company’s commitment to ethics and societal benefit
• Planet, aligned with SDGs 6, 7, 12, 13, 14 and 15, and focusing on climate sustainability and environmental responsibility
• People, aligned with SDGs 1,3, 4, 5 and 10, and focusing on the roles human and social capital play in business
• Prosperity, aligned with SDGs 1, 8, 9 and 10, and focusing on business contributions to equitable, innovative growth.

There is some way to go in getting close to “integrated reporting”, and in particular connecting financial and non-financial metrics which enable the more difficult trade-off decisions, and to understand the genuine long-term health of an organisation.

One approach, developed by BCG, is Total Societal Impact (TSI) which is a defined basket of financial metrics and non-financial assessments, brought together as one overall score. This enables leaders to consider the relative overall impact of different strategic options.

The challenge of course, is that any private company’s total value will always be financial, as long as it is possible for a buyer to come along and pay a certain price for it.

A new value map for business

Airbus is today the world’s largest manufacturer of airport – and seeks to shape the future, as a global pioneer in the aerospace – operating in the commercial aircraft, helicopters, defence and space sectors.

The Toulouse-based organisation has always been at the forefront of innovating new technologies, with a pioneering spirit that has redefined the aerospace industry. Airbus has a purpose defined as to “pioneer sustainable aerospace for a safe and united world.”

It’s a great aspiration, not just a responsibility, but inspiring too. It’s about “bringing people closer together, helping them unite and progress”. It’s about striving to “continually push the boundaries on what is possible to safeguard our world for future generations.”

• Download Peter Fisk’s Airbus strategy keynote “Pioneers and Transformers“.  
• Read more from Peter Fisk on “Corporate Pioneers“.

Airbus is a leader in designing, manufacturing and delivering aerospace products, services and solutions to customers on a worldwide scale. With around 130,000 employees and as the largest aeronautics and space company in Europe and a worldwide leader, Airbus is at the forefront of the aviation industry.

It builds the most innovative commercial aircraft and consistently capture about half of all commercial airliner orders. This is built on a deep understanding of changing market needs, customer focus and technological innovation, to offer products that connect people and places via air and space.

Zero emission hydrogen-fuelled aircraft by 2035.

Cut to the chase. Air travel is one of the world’s largest contributors to carbon emissions. Every flight we add to our guilt, but continue to seek to stay physically connected in a changing world. Like driving our cars, not doing it feels unrealistic, let alone commercially disastrous to the leading commercial players. Instead every traveller, every airline company, every government, seeks a rapid reinvention of the industry.

We now see the rapid shift to electric cars, initially incentivised by government incentives, but now by a whole new generation of sexy EVs, plus the improving battery range and charging networks to support them. Similarly we see the shift in fashion, every store now packed with clothing from responsible or recycling materials. Or in food, the shift to organic, plant-based or eco-packaged products.

Not just to reduce our negative impacts, but to find new positive impacts too – to boost our wellbeing, to feel and look good, to be cool. Airbus, and indeed the entire air travel industry has a similar challenge. Yes to decarbonise, to find guilt free ways in which we can travel, but also to live better, to connect, to protect, and commercially to thrive in a world of change.

Creating a roadmap to a better future.

Spending some time with the strategy teams of Airbus in Toulouse this week, I started to appreciate the broad range of investments and initiatives not just to survive as an industry, but to create a better future too. While decarbonisation is essential, exploring and connecting the world is our choice. While purpose articulates a well-meaning intent, a roadmap of practical innovations makes it real, believable, and also exciting.

Wings are a great source of innovation. One recent prototype “bird of prey” design is a hybrid-electric, turbo-propeller aircraft for regional air transportation. It mimics the eagle’s wing and tail structure, and features individually controlled feathers that provide active flight control. In another project vertical wing-tip extensions resemble a shark’s dorsal fin significantly reduce the size of the wingtip vortex, thus reducing induced drag. Today, all members of the A320neo Family are fitted with sharklets as a standard.

Glenn Llewellyn is one of Airbus’ many hidden pioneers, creating the future of air travel. As vice president of the manufacturer’s ZEROe flight project – which Airbus says will get zero-emission hybrid-hydrogen aircraft to the market by 2035 – there’s a lot riding on his success. The aviation industry’s decarbonization roadmap reckons that more efficient, low- and zero-emission planes could account for 37 percent of the sector’s carbon emission reductions by 2050.  He’s an inspiring, laid back guy, but with a passion to create a better future, for Airbus and all of us.

Cycling is a sport of connoisseurs. They love their coffee, in France they love their pastis, and they love their bikes and gear.

Riding at the heart of a Sunday morning peloton is as much social as physical, and so Rapha designed to create premium cycling gear, and coffee shops – or Cycle Clubs – where enthusiasts can meet.

Walk into a Rapha Cycle Clubs – in London or New York, Sydney or Osaka – and you can see, smell and touch a love of cycling. Rapha, founded in London’s Covent Garden by Simon Mottram in 2004, has grown rapidly, building a direct relationship with consumers, through events and online community, as well as its coffee-shop stores. There are also line extensions into luggage, skincare, books and travel, plus a co-branded range with designer and cycling enthusiast Paul Smith.

Rapha is a brand that polarises opinion. For some it has created the ultimate in high performance equipment, dedicated to a sport that breeds passion and perspiration. For others, it is over-priced and over-designed vanity wear for middle-aged men who squeeze into their posh lycra for a weekend ride. Whichever your view, it gets talked about. Especially items such as the $450 pair of yak-leather cycling shoes, or the $150 pro-glide coffee tamper, to flatten your coffee like the best baristas after your run.

Enabling more

 Microsoft seeks to “empower every person and every organisation on the planet to achieve more”, or as Satya Nadella says, “to make other people cool, not ourselves”.

I worked with Microsoft to help them achieve this with business customers. Traditionally sales and technology experts had gone out to clients seeking to sell products, or in today’s model, subscriptions. It was largely product push, with diminishing returns. We stepped back and asked how can we help clients to achieve more?

The transformation was to help them do what they want to do – to reach new markets, innovate new solutions, transform their own businesses. Instead of a relationship starting with a list of product options, we started by listening, and then together using the combined expertise and ideas of what is possible, to develop a new plan for growth.

If a brand is about what it enables people to do, rather than what it does, then it follows that a great brand enables people to achieve even more than they could imagine, or to do so in a better way, with greater success.

Enablement has become a key word in branding. Brands do more for their customers in three primary ways

• Educating people: helping customers to learn how to use and apply their products and services in better ways, to get the best out of them.
• Enabling people: collaborating with customers to achieve more, using products better, changing how they work, to do more.
• Enhancing people: adding to the solution of customers, adding new ideas from other places, and transforming their own performance levels.

 Apple stores are busier with education workshops – how to create better sales presentation, build a better website for your business, do your tax return correctly – than people seeking to buy or repair their devices. Lululemon yoga wear stores are transformed into yoga studios at regular intervals during the day, a place to do what you love, not just to prepare for it. M&C Saatchi ad agency has rooms for each of its clients, dedicated to their brands and campaigns, where they can work together as joint teams.

Building a brand community

A brand community is a group of consumers who invest in a brand beyond what is being sold.

Think about some of the great examples of brand communities through which people engage with brands and businesses today, influencing what they buy, who they trust, and how they achieve more. From Lego Ideas to TED Talks, Xbox Ambassadors to Nike’s Run Club, Disney’s D23 Fans to Bayern Munich’s supporter’s club.

Here are some of the most famous:

• Harley Owners Group: recognised that owners loved much more than the bike, it was the freedom to ride the roads, the thrill to ride together, to hang out at Ace Cafes, to share their passion for life.
• Glossier: became the world’s fastest growing beauty business, emerging out of a Vogue editor’s blog followers, to become a community where consumers share ideas and advice, but also co-create their products.
• Lego Ideas: about more than colourful plastic blocks, Lego is derived from the Danish for “creative play”. It is about creative development and expression, which is why its online community is a vibrant space for contests, photos and new ideas.
• Behance: Adobe’s platform for showcasing and discovering great creative work now has over 10 million participants, both professional designers and amateurs, including exclusive tools and project collaboration spaces.
• Spotify Rockstars: bringing together people who love music, encouraging discussion and recommendations, rewarding and ranking the most active, and also a platform for discovering new talent.

Communities built on passions

From meaningful consumer retention to new sources of revenue, unfiltered consumer insight and predictable cashflows, branded communities offer many opportunities for a business to drive growth:

• Enhance consumer experiences – how people achieve more, collaborate and recommend, and create new content together.
• Ongoing engagement – how people engage with brands continuously, not just at moments of promotion or purchase.
• Know consumers better – 67% of businesses use communities to gain deeper insights to drive better focus and innovation.
• Increase brand exposure and credibility, making it easier to sell without selling – typically 35% increase in brand awareness.
• Reduce consumer support costs – 49% of businesses with online communities report cost savings of around 25% annually.
• Improve retention and advocacy – improving retention by 42%, tripling cross-selling, and people pay more too.

Building a great brand community has three foundations:

• Consumer: starting with your target audience, with a captivating reason for members to join the “tribe”, be it a shared cause or interest, from hip-hop music, to a love of science fiction novels, or a desire to get fit.
• Collaboration: engaging with other people, facilitated by the brand and its community platform, which might take the form of discussions, co-creation and recommendations. 
• Content: the glue that makes the community work beyond products. These might take the form of newsletters, events, videos, other products, discussion boards, merchandise, exclusive offers, and much more.

Underpinning this is a business model that ensures that the community adds real value to its members, but also commercially works for the organisation. For members, this means it adds value beyond the brand’s conventional products and services, typically enabling them to use them better, and get more from them. For business, this means having a business model that drives incremental revenue growth. This might be in the form of consumer retention, selling more or different products, but also other types of content, and potentially a subscription to belong.

Communities are one of the most powerful ways a brand can grow, often exponentially.

© Peter Fisk 2023.

Excerpt from “Business Recoded” by Peter Fisk