(December, 2006)

Management titan Peter Drucker has passed on, and we are all fortunate for having shared space and time with him. There are many concepts that Drucker promoted when they seemed downright radical but are now accepted as conventional wisdom—like decentralization, knowledge work, empowerment, and the fact that companies exist for customers. In this article, however, I want to discuss another point he raised that is less well-known but just as profound, and it’s one which I take some issue with.

During the last segment of his illustrious career, Drucker worked extensively with non-profit organizations. He advised groups like the Girl Scouts and American Red Cross to run themselves like a business, albeit a business that strives to "change lives" rather than maximize profits.

Let me humbly suggest that for any nonprofit, this is a spurious "Either-Or" (either “change lives” or “maximize profits”) distinction, for two reasons. First, in order to achieve their missions and change lives, even nonprofits must maximize revenues over expenditures. I remember a tough nun who ran a nonprofit hospital I once worked with, who repeatedly told her people: “We must do well in order to do good!”

Second, the distinction is spurious even with for-profit organizations. “Maximizing profits" in a mission-vacuum often leads to myopic decisions, where management’s quest for short-term results trumps long-term competitive positioning. Likewise, a “maximizing profits at all costs” mindset often leads to a culture where the organization’s entrepreneurialism and innovation get channeled into “creative financing and accounting” rather than on developing more imaginative products and services. Both consequences weaken any company and the latter tendency taken to an extreme gives us the legacy of an Enron or WorldCom.

I’m a big believer in profits. The research data show that in any business, metrics that reflect profit are far more predictive of competitive advantage than are metrics that reflect the size of revenues, market share, and balance sheets. (If that wasn’t the case, companies like GM and United Airlines would be the healthiest companies in their industries). However—and here’s where I differ with Drucker-- in today’s economy, I propose that Drucker’s "Either-Or" perspective---maximizing profit or changing lives---ought to be a "Both-And" perspective: Those companies which will attain sustained competitive success will maximize financial returns by changing peoples' lives.

If we’re honest with ourselves, the discrete products and services which companies provide their customers are steadily becoming commodities that are readily replicable by competitors. But changing customers’ lives through a unique and imaginative bundle of products, services, technologies and experiences—ah, now there’s a non-commodity that’s not so easily imitated.

Changing peoples’ lives for the better is the ultimate value creator. That’s why companies that have broken away from the pack have a track record of seeking to change peoples’ lives—and that mission is what drives their innovation in products, services and value propositions. Whole Foods Market aims to “change the way America eats” Harley Davidson aims to make your average meek middle class customer feel like a powerful “badass”. Google's mission is “to organize the world's information and make it universally accessible and useful”. Atlanticare aims to create an “epidemic of health” by helping their health care plan members prevent illness. Jamba Juice aims to help us live a “healthier balanced life”, a “more natural life”, a “fruitful life”. A Samsung Electronics executive says that his company’s mission is “to make the Jetsons a reality” by combining the company’s resources in mobile phones, flash memory, screen technology, chips, kitchen appliances, and digital media to fully network the home, all controlled by cellphones and in-house monitors—thereby making the home a more joyful experience. ING Direct aims “to lead Americans back to savings” by passing its considerable savings (no branches, limited products, all transactions via Web, phone, or mail) to customers in the form of higher interest rates (four times the industry average on deposits), thus encouraging savings.

Each of these organizations boasts financial metrics (including profits) and growth rates that humble their competitors whose primary goal is simply to “sell products or services at a fair price”, or simply “grow”, or simply “make a profit”.

As you can guess, I’m not talking about attaching simplistic slogans to your current business, nor am I talking about writing bland, vacuous mission statements that clarify little and excite only a few. In my most recent book Break From the Pack: How to Compete in a Copycat Economy , I talk about the power of re-thinking your business to create a “higher cause” that will go well beyond providing “good products and services at a fair price”. A higher cause, like that of Whole Foods and Harley Davidson and the other exemplars listed above, aspires to change customers’ lives in a unique and special way. A higher cause, therefore, helps brand the entire organization with uniqueness. It pushes people to make constant innovation in products and customer service. It demands excellence in performance. It requires and enables people to continually reinvent the experience of the customer. It concentrates on leaving a positive, lasting legacy in the industry and the world. Leaders who are really serious about articulating and living higher causes wind up shaping organizations which successfully differentiate themselves from competitors, inspire employee and customer loyalty, and generate a nice heap of money in the process.

To maximize the “Both-And” returns on investment, your higher cause has to be coherent (clear, simple, succinct, edgy, easy to brag about), authentic (genuine; all key strategic, budgeting, staffing, and operational decisions aligned to it), revolutionary (breaks new ground, violates conventional wisdom) and evolutionary (constantly adapting and improving). Starbucks’ phenomenal track record is in no small part due to its higher cause, which meets the above criteria and, you may be surprised to learn, is not about coffee. Starbucks wants to create a place of “refuge” for people, where they can escape the woes and tribulations of the chaotic world outside, a place that is so safe and calming that it becomes the “third place” a customer spends time in (the first two places being home and office, though if a customer’s priorities are screwed up and he or she wants to make Starbucks the first place, Starbucks is happy to oblige!). It is this higher cause—a refuge, a third place--that drives the ambience, the smells, the placement of furniture, the newspapers and accessories, the innovations like WiFi accessibility, the unique Starbucks home music, and the CD burning--and of course, the rich menu of constantly evolving drinks and foods.

As your business becomes more fragmented and competitive, you will seek a unique weapon to “break from the pack”. If you can develop a powerful, executable “higher cause”, you have a greater chance of achieving the huge potential of a “Both-And” competitive strategy which will yield substantial financial returns for changing peoples’ lives. Microsoft CEO Steve Ballmer once said that the key questions for any executive to ask are: “Are we working on something important? Are we changing the world? Is that an opportunity to benefit financially? Those are the kinds of things that make a difference to people.” I believe that savvy leaders of any organization would be wise to take that message to heart.