Wednesday, October 6, 2010 Interview: The Evolution of Business

Below I am sharing the written answers from my interview with Not all of the questions made it into the interview or the final edit, so I have decided to share them here. When you have a moment, check out the interview on Because of the length of these answers, I have decided to post each separately.

2. I read in one of you essays about an idea called the “hierarchical line of business development.” Can you talk a little about what you mean by this?

It’s a confusing term – I need to find another way to talk about this, as most assume it’s about business growth in the traditional sense: finding new clients/customers and creating more revenue. Of course, I am all for new clients, customers and more revenue. And, in this circumstance, I am talking about something much bigger and ultimately, in the long term and high level perspective, something much more important.

I am talking about the way businesses grow through systematic perspectives and expressions of operations. One way we look at development is through outcomes or value measurements. One way we look at human development is through the lens of value measurement: what is an individual expressing in the world? We can do the same with business too.

Traditionally, businesses had a singular focus: profit for the owner (the bottom line). And, traditionally, businesses had just one owner (or a small group of partners), and this owner typically ran the business. As the business system has developed over time (due to human evolution), the measurement of value from and through business has also grown. One significant shift happened in the 1800s to the framing of the bottom line: the bottom line profit share grew as stock markets (buying share in companies) become more common. Instead of just one or a small amount of people sharing in a company’s success, a larger number of people could.

This economic shift created a shift in the way business was viewed. In the late 1800s, the Supreme Court decided that corporations were actual entities with the same rights of individuals (an early awareness that corporations is something unto itself affecting and being affected by the world around it – more on this later). In 1932 Adolf A. Berle and Gardiner C. Means published their treaty The Modern Corporation instigating the idea that business should not be run by owners but by professional managers creating a shift from owner operators to professional managers. These shifts paved the way for business evolution that we have seen through the 1900s and early 2000s.

In 1976, Michael C. Jensen and William H. Meckling published “Theory of the Firm: Managerial Behavior, Agency Costs, and Owner Structure” in the Journal of Financial Economics which built a case that a business’ sole purpose was maximizing shareholder value. Many then (and now) saw this as a mistake, and in certain terms it was. Companies that have focused on and made decisions to maximize shareholder have underperformed companies that have focused on other things, for example, maximizing customer experience. This shift, however, created an important definition, which spurred both push back and evolution.

We saw inklings of the next major stage of business evolution during the cultural revolution of the 1960s but did not really see the full expression of the next major stage development until the late 1990s. This next stage was primarily expressed through triple bottom and LOHAS oriented businesses. With this, businesses began to open and expand the way value was measured. The impact of business created in the world was clear and the impact of a single bottom line profit driven company was clear – other things are affect and other things are at stake that affect both revenue and the world. This awareness also considered great spans of time (something we see in personal development too); a good single bottom line decision is not always a good triple bottom line decision and is not always a good revenue decision for long-term sustainability.

I believe the next stage in business evolution will be integral businesses that measure value through a penta bottom line lens: Profit, People, Planet, Principles and Progress. I won’t go into detail about this post, but you can read about it here.

Kristoffer Nelson | Krama Consulting & Development, Inc. |

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