Business performance is often perceived as having no societal impact. It seems to be a strictly financial matter and to concern only its shareholders, and nobody else, and as such is even morally suspect for some. We are happy for the company that has good results, and we may suspect that is at done at the expense of society. Yet, the performance of businesses, and more generally that of organizations, is a major societal issue, an observation made by Peter Drucker, and still relevant today.

The change from pluralism to the state

Drucker observed, for six hundred years, from the thirteenth century, that the political history of the West was largely that of a constant effort to dismantle the pluralism and decentralization inherited from the Middle Ages. By the mid-nineteenth century, this had largely been accomplished. There was then only one center of power in society – the state. But just as pluralism seemed to have been abolished, the large organization, especially large commercial enterprises, emerged as a new and autonomous center of power in society. This challenge to power has been strongly resisted, both intellectually and politically, from Plato’s credo that there should be only one center of power and one organization, rather than a pluralism of competing and autonomous organizations with no need to share a common purpose.

The impact of the organization in society

The large organization has major societal importance. One of the characteristics of modern society is that it affects every aspect of our lives, every day. You buy your bread from a baker, but however small he may be, he supplies himself with flour via a complex organization linking farmers, millers, and distributors, as well as oven manufacturers and so on. The baker’s delivery vehicle is produced by a large multinational. Hence the “small” local trader is a visible node in a huge, largely invisible network, with nodes in other countries. The baker depends on the performance of other large organizations to ensure his own.

The necessary autonomy of the organizations

The organization is the outcome of innovative entrepreneurs who invented new products or services. It is the tool they created to provide products efficiently and sustainably.

Organizations do not exist for themselves. They are means: each one exists to accomplish a social task: producing cars, caring for the sick, etc.

For Drucker, the characteristic that allows organizations to accomplish this social task is that each one is autonomous and specialized, guided only by its own purpose, its own values, and its own objectives. Each one invents a specific way to respond to the challenge that motivated its creation. This specificity produces its unique organizational identity, which becomes the basis from which the company faces the successive challenges it encounters – growth, crises, uncertainty, disruptions, etc.

The organization exists to satisfy the needs of society

Unlike a biological species, an organization does not only wish to survive. It must accomplish its purpose, i.e. a specific contribution to society. The test of its success is therefore always outside, in relation to a third party. An organization that does not satisfy its customers, disappoints its investors or scandalizes citizens, will not succeed. The company is therefore linked to the society in which it exists. Without a societal contribution, the organization has no meaning, or existence.

The success of the organization, therefore, lies in the satisfaction of needs. Drucker observed, that historically, these needs have been satisfied because they were considered not as societal objectives but as entrepreneurial opportunities. Opportunity seeking, in other words, is the ethic of the entrepreneurial organization. According to Drucker, organizations do not act socially responsibly when they deal with social problems outside their field. They act in a socially responsible way when they satisfy identified needs in society by focusing on their own specific work and transform some of society’s needs into their own achievements to satisfy them.

The societal importance of organizations’ performance

For a pluralistic society to function, its autonomous institutions must perform well. For Drucker, the key to the performance of an organization is its focus on a specific task. In the case of private enterprise, performance is typically defined in relation to the cost of capital: if a business generates profits in excess of its cost of capital it creates value. If it does not then it destroys value. It is under this constraint, a survival condition, that the business defines its performance objectives. It will be stronger if it clearly defines its objectives and how to reach them. The more specific an objective, the more easily it can be measured. An organization that defines its objectives in vague terms struggles to measure its performance, which is often the case in the non-profit sector, for example.

For Drucker, contrary to Milton Friedman, economic performance is not the only responsibility of a business, but it is the primary one, and the sine qua non condition of its existence. Through its performance, the business can sustainably provide products and services that meet people’s needs. Performance is therefore ethical: it is the service that the organization renders to society through the achievement of the objectives it has freely set. It is therefore on this achievement that the organization is judged, and it is this achievement that justifies the autonomy granted to it. Performance is therefore the responsibility of the organization, and the key to its legitimacy. There is a sort of “deal” between society and the organization, in the sense that: “I grant you autonomy but there must be results!” In other words, with great power (autonomy), comes great responsibility (performance).

Lack of performance is anti-social

Conversely, a non-performing organization is anti-social; it lives at the expense of society. A business passes on the cost of this non-performance to its shareholders, but also to society as a whole: it pays less social contributions and less taxes. If it must lay off employees, social costs are borne by society. Moreover, it penalizes other organization, by putting its suppliers or competitors in difficulty by cutting prices. Overall, it wastes society’s scarce resources.

Economic performance is not the sole responsibility of a business, any more than educational performance is the sole responsibility of a school or health care the sole responsibility of a hospital. But it is the basis without which it cannot assume any other responsibility, especially social responsibility: without performance, an organization cannot be a good employer, a good citizen, or a good taxpayer. Far from being a strictly economic issue, and in a way secondary, the performance of the organization is therefore essential to the functioning of a pluralist society.

About the Author:

Philippe Silberzahn is a professor at EMLYON Business School in France and a recognized expert in innovation and entrepreneurship. As a consultant, keynote speaker and management educator, he works with the leadership teams of large organizations engaged in transformation efforts when confronted to uncertainty and disruptions in their markets.

After the shock of the first lockdown in 2020, the world has experienced an erratic, difficult and long return to an almost normal situation, with no certainty of being completely out of the crisis. In other words, uncertainty, with its share of surprises, is with us for a long time.

One might have thought that the violence of the shock, which clearly showed the limits of our management tools, would lead to a profound rethink. It did not. After the shock, and despite the persistence of large dark clouds over their heads, organizations and states have gone back to designing action plans on the basis of expert forecasts, without which they seem incapable of conceiving their actions.

Drucker Forum 2021

This article is one in the “shape the debate” series relating to the 13th Global Peter Drucker Forum, under the theme “The Human Imperative” on November 10 + 17 (digital) and 18 + 19 (in person), 2021.
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The persistence of predictive tools despite their limitations

For years, we have been invited to “embrace uncertainty”. Despite this, and the evidence of repeated prediction accidents, successive surprises, and radically unexpected changes, almost all decision-making tools have remained anchored in a positivist and predictive paradigm.

These tools are based on a model that consists in identifying a future issue, defining a goal related to that issue (a vision), and then determining the means to achieve that goal. The underlying mental model is that the more important the identified issue is, the more ambitious the action must be, and the more resources must be used. This model underlies all major plans for transforming organizations and states. Any modest action is considered vain and futile. Faced with the magnitude of certain issues, such as climate change, the dominant thinking is that a revolution is needed, with big ideas, ambitious plans and grandiose gestures. But as history shows, revolutions are usually synonymous with disaster, and more harm than good. The repeated failures of major transformation plans, both corporate and political, confirm this.

The three mistakes of predictive management tools

The “revolutionary” approach is a costly dead-end because it makes three errors :

– An ontological error, concerning the nature of the world: that of thinking that the world is a mechanism whose springs we know, and which evolves in a linear way. It would be enough to press this or that “button” to obtain the desired effect.

– An epistemological error, concerning what we can know: having more and more data allows us to anticipate the evolution of the world. A shot of “big data” or an in-depth survey, and we would know what to do.

– A sociological error, on decision-making: that of conceiving it as a solitary and purely intellectual exercise. Let’s gather very intelligent people around a table and our problems will be solved!

These three errors create a fatal conceit, to use the words of the economist Friedrich Hayek, which translates into an arrogant, even hubristic posture of excessive confidence in our ability to control the world. This posture is the cause of its own failure with its share of human suffering and unsolved problems.

One example among a thousand illustrates the impasse that this posture constitutes: the war on drugs in the United States was launched with great fanfare by President Richard Nixon in 1970. Despite the colossal means, about ten billion dollars a year merely in direct expenses, the UN finally officially recognized in 2016 that this war was a failure with disastrous social consequences. Has it stopped after that? It hasn’t.

An alternative approach: small wins

As Richard Straub, President of the Peter Drucker Forum, reminded recently in Harvard Business Review, rather than this arrogant posture, it is better to adopt a totally different mindset inspired by the thinking of Peter Drucker, the “father” of management thinking – a posture marked by humility, such that change should rather be considered as incremental, anchored in continuity; an observation that the turbulence we are currently experiencing only makes more obvious.

A posture of humility, whereby we accept that we are not able to predict the future and that we cannot change a system in a mechanical and authoritarian way, does not mean giving up on change, quite the contrary. It is even the condition for being able to change.

A rich current in sociology, political science and organizational theory has indeed long defended the idea of an incremental approach to change, by small steps and on a local scale. This current has shown how the most complex problems are best solved by organizing a series of small wins that are accessible to individuals, whoever they are and wherever they are. Their succession constitutes a solid foundation that builds up gradually, limiting risks, dissuading opponents and rallying the undecided in favor of change.

Two imperatives for acting with uncertainty

This alternative requires two imperatives to succeed:

– prudence: first and foremost, one must survive in the face of uncertainty and surprises, and therefore organize oneself to avoid certain undesirable futures. It is also necessary to respect what already exists and to proceed in a humble way by avoiding revolutionary radicalism.

– progress: protection is not enough; we must also prosper thanks to uncertainty and the opportunities it opens. It is a question of creating the future we want, and not simply letting it happen; this is the entrepreneurial dimension of transformation.

There is a tension between the two, but it is a creative tension; it is that of any living organism. It must be constantly recreated: an excessively cautious approach leads to immobility, which means death, while a revolutionary approach leads to excesses, undermining the cause.

Rethinking management tools now

As Peter Drucker said, “it is precisely because change is a constant that its foundations must be particularly solid”. And what this foundation must be based on is people. In an uncertain world, changing profoundly, we must abandon the vision of Plato and Saint-Simon, that of the world as a machine piloted by a few great geniuses and underlings carry out the orders. No, we must start with people, training them to think new things, and showing them that they can change the world around them. We must give them the means to act and transform their environment. This is why the key to transforming the world lies in education, what French philosopher Paul Valéry evoked when he wrote: “…the aim is to make you men ready to face what has never been.”

An uncertain world calls for a rethinking of management tools, and in particular the mental models on which they are built. This is a task for researchers and teachers, of course, but also for managers themselves. We must start this work now, and not wait for the next catastrophe.

This article was first published on HBR France and is part of the blog post series on HBR related to the Drucker Forum: https://www.hbrfrance.fr/chroniques-experts/2021/11/40540-bienvenue-en-incertitude-comment-reinventer-les-outils-du-management-pour-eviter-la-prochaine-catastrophe/

About the Author: Philippe Silberzahn is a professor at EMLYON Business School in France and a recognized expert in innovation and entrepreneurship. As a consultant, keynote speaker and management educator, he works with the leadership teams of large organizations engaged in transformation efforts when confronted to uncertainty and disruptions in their markets.

This article is one in the “shape the debate” series relating to the 13th Global Peter Drucker Forum, under the theme “The Human Imperative” on November 10 + 17 (digital) and 18 + 19 (in person), 2021.
#DruckerForum

Therefore, the question is no longer whether or not we need an entrepreneurial society, or what form this society could take, but how we can get there.

In a way, this question seems paradoxical: the entrepreneurial vocabulary now pervades the world of management. All large organizations want to become more entrepreneurial. They develop their own incubators to exploit the entrepreneurial talent outside, they open “labs” and “co-working spaces” to experiment with new approaches, they adopt new methods such as “lean startup” or “design thinking” and they organize “hackathons” and “startup weekends,” and so on.

At the same time, entrepreneurship has become the preferred career choice for an increasing number of young people, whose generation no longer dreams of joining large companies but wants instead to build its own future. Adds Straub, “young people are legitimizing entrepreneurship with enthusiasm, passion, and drive.”

And yet there is little evidence that this legitimization and eager adoption of new techniques by organizations is significantly changing the entrepreneurial orientation of society. The dawn of the entrepreneurial society seems to be far off.

One reason for this may be that the change of a society requires much more than simply adopting new tools and new methods. As the economist and historian Deirdre McCloskey wrote eloquently, such change is based primarily on the adoption of new values, defined as that by which someone is worthy of esteem. So if we are to build an entrepreneurial society, we must ask the question: on which values and principles should an entrepreneurial society be build?

Academic research has made considerable progress on this issue. Twenty years ago, former Indian entrepreneur Saras Sarasvathy started her PhD with a seemingly modest question: How do entrepreneurs think? In other words, is there a specific logic to their actions?

Up until then, entrepreneurship research had bounced back and forth between two opposite views: one was that entrepreneurship was all about extraordinary individuals, able to have a vision and a capacity of outstanding achievement, while another posited that entrepreneurship was a management problem just like another and was all about careful planning. To quote Stuart Read, professor at IMD and Willamette University and co-author of several articles with Saras Sarasvathy, “Entrepreneurship was then exactly where science was at the dawn of the scientific revolution 400 years ago. It was anecdotal; but without sound principles, it was neither actionable nor teachable.”

It is these principles of entrepreneurial action that Sarasvathy identified in her groundbreaking research. They are five, which are grouped under the name “Effectuation.” The results of this research have had a significant impact on how we understand entrepreneurship.

These principles are:

1. Start with your means. Entrepreneurs start from their available means to figure out what they can do rather than setting a goal and then look for ways to achieve this goal. What are their means? Their personality, their knowledge, and their network. These means are universal. Anybody has them, whether one has a Physics PhD in Silicon Valley or is a street vendor in Mumbai. If all it takes to start is one’s personality, one’s knowledge, and one’s network, so everyone can act entrepreneurially.
2. Decide what to do based on affordable loss, not expected return. Entrepreneurs do not decide on the basis of an expected return, which is often too uncertain, but on what they are willing to lose. Entrepreneurs do not like risk, they agree to take it but want to control their exposure. They reason thus: “I will spend three months and a budget of X to test this idea, and then we’ll see.” The affordable level of loss can be low, which means that one can start with very limited means.
3. Create a crazy quilt. Just like quilting is about creating an object together from pieces of recovered fabric, entrepreneurship is about stitching together resources brought by committed stakeholders. That means that entrepreneurship is an inherently social process. It is less about genius and vision from extraordinary people than about value creating, mutually beneficial cooperation between normal people.
4. Take advantage of surprises. Entrepreneurs are pragmatic about the unpredictable nature of their environment. Rather than spend days developing an ideal vision and build a perfect plan, which would anyway be annihilated at the first encounter with reality, they act in everyday life and take advantage of surprises, good or bad. The certainty of surprises to come does not translate into pessimism but precludes the necessity of vision.
5. Be the pilot in the plane. Beneath effectuation lies a specific view of the future, according to which it is not something that happens and that one can, at best, try to predict, but something that entrepreneurs create. There is nothing deterministic and there are no inevitable trends. The future is the result of the imagination of entrepreneurs and their action combined with those of others. Accordingly, there are virtually no limits to entrepreneurial action. It may start small, but may end up change the world in unpredictable ways.

These principles challenge prevalent misconceptions about entrepreneurship and they explain how the future is created – not as the result of the action of some visionary privileged superhero, but by millions of committed people acting purposefully, and convincing others to help them in their project.

The values of the entrepreneurial society

Strong values underlie these principles of Effectuation, on which the entrepreneurial society that Drucker was calling for can be built. What is worthy of esteem with Effectuation?

• Personality rather than idea;
• Normal, acting individual rather than superhero;
• Patient co-construction of the future with others, rather than prior vision;
• Reflective action of the individual rather than planned social engineering;
• Prudence rather than big bet;
• Control rather than prediction.

These values can be summarized in a simple message: everyone can bring entrepreneurial change, regardless of race, age, sex, level of education, location, or possession tangible resources. Change begins with the individual and is only possible with him. Faced with the proponents of social engineering, Effectuation reaffirms the paramount importance of individual initiative. The advent of entrepreneurial society will thus not only be the purview of responsible groups in society, as Drucker thought, but also and perhaps mainly of individuals themselves, wherever they come from and whatever they are.

Everything that is needed for the individual to begin to change the world is personality, knowledge, and personal network of stakeholders; resources that everyone has immediately and freely.

With Effectuation, we can now abandon both the romantic vision and the mechanical vision of entrepreneurship. We have clear principles, and they are operable and teachable.

We need to teach them to propagate the values that underlie them. This is probably why the key to entrepreneurial society is education and why the big question that comes next is to know what to teach and how to teach it for these values to become embodied in society.

About the author:

Philippe Silberzahn is a former entrepreneur and now professor of innovation and entrepreneurship at EMLYON Business School in France.