Sales, Surgeons and Profits

iStock_000002256780XSmallThe NYTimes recently published Salesmen in the Surgical Suite, a look at some questionable sales practices in the US surrounding a robotic surgical technology called the da Vinci Surgical System, a product of Intuitive Surgical Inc. The article cites a case of severe damage to a patient due to inadequate training of surgeons, and a variety of documented practices by Intuitive pushing the limits of proper training and supervision.

My point is not to argue the case for or against the company; that’s being done already in a case filed against them. What I do want to touch on is how we should think about issues like this. In other words – just what kind of a problem do we have here?

Profit vs. Patients?

The ultimate issue, I suggest, is the relationship between a for-profit business and the well-being of the end-user customers. Health care is an extreme case, because of the direct link between the two; but in a sense, this is the same issue we face in a capitalist society for any good or service. Healthcare, and surgery in particular, are extreme cases, thus useful for clarifying issues.

There are three commonly heard points of view:

1. There is an innate conflict between the interests of the profit-seeking business sector and the ultimate good of the patients; this conflict must be regulated by a third party of some sort.

2. There is no innate conflict between business and patients, except insofar as business is regulated by governmental and other third parties, who inevitably just distort the ideal workings of pure markets.

3. There is no innate conflict between business and patients, except insofar as business misreads its own long-term self interest by being addicted to short-term fixes, leading to regulation – a self-inflicted shooting in the foot.

The first two arguments are endlessly hashed over, with much heat and little light, in all the various venues of the day: from Congress to HuffPost to talk radio to coffee shops. (I suspect this debate is largely a US debate, as most other developed economies have tilted toward the first viewpoint, far away from the second). I’m not going to change anyone’s mind about the relative merits of one and two.

But number three is interesting: it suggests that the business-society conflict is unnecessary, and that the solution lies largely within the hands of business itself. All that right vs. left, redneck vs. socialist shouting is nothing more than noise.

Is this a utopian, pollyana-ish view? Or is it very real?

The Best Interests of Business

We can reframe the issue as simply, “Is there or is there not a long-term fit between the interests of business and consumers?” Karl Marx answered in the negative, and claimed that the tension would ultimately result in revolution. I suggest that any right-thinking capitalist must answer in the affirmative – there must be a commonality of interest, else the doctrine of capitalism is of little use or interest.

But if that’s the case in the long run – why then isn’t it in the short run? Why do we see salespeople play with endangering people’s lives in order to get the order in before the end of the quarter? Why do companies fight for less regulation, commit economically foolish acts in order to smooth quarterly earnings, and prefer the net present monetized value of almost anything, rather than the longer-term asset that comes from brand, history and culture?

We live in a very imperfect business world, I suggest. We do not do a good job of assessing economic good, or even of assessing business value. We rely on definitions of value which are narrow, solely financial in nature, and short-term. The tyranny of the discount rate leads us to forego thinking about the next generation – it’s just un-economic to worry about something 40 years out, there’s not enough present value in it to justify it.  The Chinese have a history of looking at hundred-year timeframes; the US struggles to get past quarterly, and three years might as well be a lifetime.

The poverty of our financial calculus can be described several ways. Economists would say we do not take into account externalities, so we delude ourselves about the costs of degrading the environment. Social scientists describe it as resulting in a poverty of the spirit (a tone we hear echoed by those who preach ‘the final days of the empire’).

This poverty of calculus is supported by impoverished thinking. Adam Smith was brilliant; the caricatures of him that came down through Ayn Rand and the Chamber of Commerce retain nothing of his focus on the good of society, much less his work on the moral sentiments. Even business theory is impoverished – NPS and Five Forces just don’t have the sweep that we saw from Peter Drucker or even Sun Tsu.

What I’m suggesting is that business needs to radically re-think itself, across the board, into a long-term partnership with the rest of society. The commercial instinct of mankind ought to be a driver of value and wealth creation for all of society, and not hostage to an ongoing battle between haves and have-nots. Whether we need more or less government, more or less regulation, should not be the issue.  The issue should be how can business and society line up on the same team?

We really should be able to do better.

Buddhist Capitalism

Stones in a Zen Garden iStock_000009090365SHere’s what’s wrong with current business education, indeed current business thinking—in a nutshell.

The current issue of the MIT-Sloan Management Review trumpets the main feature: "Sustainability as Competitive Advantage."

You really don’t have to go any further. The clear implication is in the syntax: do this (little) thing, and you’ll get this (big) thing. Do this (responsibility) thing and you’ll get this (profitability) thing.

Turn the hands over this way, you’ll correct your hook. Sell this way, you’ll make more money. Practice sustainability, you’ll beat your competitors.  Use these means, and you’ll get those ends.

This means-end confusion isn’t just in the headline. One article makes it crystal clear in the opening three sentences:

Many companies are taking the first incremental steps toward sustainability, such as energy conservation and recycling. That’s a good start — but going further can yield significant competitive advantage. The growing movement toward sustainability in business offers companies a powerful lever for creating competitive advantage.

Get the picture?  The ultimate reason to do this ‘good’ stuff is because it’s profitable at the individual company level.   Interesting: it suggests high profitability is the measure of social responsiblity.

MIT Sloan is hardly alone. I’ve taken flak lately for supposedly singling out Harvard. Neither school is unique.

Capitalism-as-competition always implies an end goal–typically shareholder value, or sustainable competitive advantage.  Led by a variety of influences ranging from Milton Friedman to Ayn Rand, the idea of capitalism-as-competition has been transmuted and transmitted by business gurus like Michael Porter, government gurus like Alan Greenspan, and business superstars like Jack Welch.

Note: it hasn’t worked too well. Business has gotten so co-opted by the competitive paradigm that we’ve lost all sense of even the possibility of another view. 

Yet there is another view, and a very obvious one at that. It’s right under our noses. Let’s call it Buddhist Capitalism.

Buddhist Capitalism

I don’t mean this too literally. I am no expert in Buddhist teachings, and not all Buddhist precepts track easily to business.

But one difference between capitalism-as-we’ve-come-to-know it and Buddhism is instructive. One is about vanquishing one’s foes; one is about getting along harmoniously in the world. And we all know which is which.

Business-as-competition is all about linearity: if you do this, you’ll get that. And the more you tighten those links, the more you control them.

Buddhism, on the other hand, embraces paradox. If you let go your attachment to X, you’re more likely to get it. But only if you give it up. The outcome cannot be sought successfully, it can only be received if you stop seeking it.

It isn’t all that alien a concept.  The best salespeople know that success comes to those who give selflessly to their customers. From Dale Carnegie to Zig Ziglar, people have known that you succeed best by getting others what they want.

What I mean by Buddhist Capitalism comes down to doing two things: help others, and stop focusing on  your own immediate ends.

Capitalism-as-competition negates the oncept of ethics, since it subordinates even ‘ethical’ ideas like sustainability to the overarching goal of profits and competitive advantage.  A business school can’t feasibly teach ethics when, down the hall, the strategy course teaches that your ultimate goal is to win battles against your supply chain, customers, unions and employees.  Who’s left to behave ethically towards?

Is Buddhism Profitable? It’s the Wrong Question to Ask

Business (some of it) is more and more focusing on things like ethics, social responsibility, and sustainability. And that is a good thing. But it’s doomed as long as we can’t get past the question: “Can I gain sustainable competitive advantage by doing it?”

Believing that the purpose of business is to make profits is like believing the purpose of living is to eat. The purpose of sustainability is sustainability—not the competitive advantage of those who practice it. As long as we limit our definitions of ‘good,’ ‘social benefit,’ and ‘business ethics’ to definitions couched in competitive advantage, we subordinate them.

We need to make profit a byproduct, not a goal. While it is true, very true, that ethical and customer-focused business focusing on the long-term really are more profitable, that is Not. The. Point.

The point is to make business a full partner in society, not a mad dog following an ‘invisible hand’ that responds only to heavily enforced legal mandates. If business wants a seat at the social family table, it needs to act like it’s a member of the family—not an outsider following its own rules.

In an increasingly interconnected world, it’s Buddhist Capitalism, not Competitive Capitalism, that we need more of.  The fact that it’s also more profitable is a lovely byproduct.  But not a goal.

Success – and Measuring Success

How do you measure how much a loved one loves you?

Maybe by the flowers they send. Or the attention they pay to you. Or the look in their eyes when they talk to you, or their curiosity about what you’re doing lately.

You could, in fact, measure each one of those things. Some are easy, like flowers. Others, like curiosity, need decomposing into second-level indicators – how many questions they ask you, the operative pronoun in those questions. The point is, you could do it.

But would you?

Would you ever mistake the measure itself—roses, say—for the love they purport to measure? Of course not. It seems silly to equate the two; the poor sucker who does so is sadly self-deluded and likely unlucky in love.

Roses may be the measure of love–but are not love itself.

Now switch to business. How do you measure success in business? How about by the profits you make? After all, if you create great products that meet real needs in the marketplace and add real value in a customer-delighting manner—well, you’ll get rewarded for it, in the form of profits.

Profits are to business what roses are to love–measures.

So, would you ever mistake the measure—profits—for the success they purport to measure? Do profits really equal success?

Unlike love-and-roses, all too often our answer is ‘yes.’ Yes, we say, the whole point of business is to make profits. Success consists of making money. It seems silly, we say, to differentiate between the two–the poor sucker who does so is sadly self-deluded and likely to get fleeced by sharper competitors.

In amore, we know the difference between love itself and pale trailing indicators of its recent presence. But in business, we confuse the yardstick with length itself; we’ve lost the ability to distinguish maps from reality.

When did profit move from being a measure of success, to being iconized as success itself?

Thinking that the point of business is to make money is like thinking the point of living is to eat. Profit is a byproduct of doing great business—an indicator. Not a goal.

If all you focus on is roses, you’ll at least have flowers at the end of the day; but you’ll fail at love. In business, if all you focus on is profits, you won’t even get that. Because, simply, we don’t trust people who are only in it for the money.

Does Trust Drive the Dow?

Over at Room 8 , Larry Littlefield suggests that the history of bear and bull markets in the US is the history of consumers’ trust in business. That is, market forces are, at a macro-level, governed by the public’s view of business.

Littlefield walks through eras in US history—the Robber Barons, the Progressives, corporate leadership in WWII, the Great Depression, Reaganism, the dot-com boom and crash—and points out the correlation with public confidence and trust in business.

Now there’s an audacious view for you. Wish I’d thought of it.

Is it true? As with any grand scope theory, the concept of “proof” is not really applicable. The point is to make you think.

With such a sweeping thesis, there are bound to be problems of definition, and problems of cause vs. correlation. What caused what? What what is “confidence” anyway, and how does that relate to trust? And so on.

Still. At a certain macro-level, he is most assuredly right. Markets do depend, at the end of the day, on confidence. Confidence about the prospects of the future relative to the present. Confidence about the economic good that business will bring forth. Or lack thereof.

Confidence at that level is wholly dependent on the belief that things will work out, that people and institutions can be depended on to play certain roles, that their motives will be socially acceptable, that the social fabric will continue to be intact.

You could certainly call that trust.

And from that vantage point, it surely is enough to move markets, both up and down.

Trust isn’t just the stuff of personal relationships and surveys; it has real economic consequences, to societies, economies, pension funds and people. Trust is money.

But its economic currency depends on all the rest. Economic value, for all we in business like to talk about “hard” things, really does depend on mutual trust—the “softest’ of things.

Wall Street and “tough” managers would do well to remember it.