Succes | Growth

The only way a business can be successful is if they are clear on how they measure success.

Traditionally, success is measure financially and to gain more success businesses typically need to grow more. When you dig into that definition a little deeper you find that it is not as simple. Different industries use different financial measurements of success. Some look at financial ratios, others look at market penetration and still others look at the bottom line. Financial measurements of success have the luxury of working with numbers, but it still isn’t straight-forward.

Companies that tackle social and environmental problems don’t always have clear-cut definitions of success. In fact, for some businesses success might mean shrinking in size rather than growing.  

A recent article in Stanford Social Innovation Review explored the relationship between success and growth. The website DoSomething.org decided to cut back on their programing in an effort to grow.

They recognize the importance in being hyper-focused on the desired impact of their work. Many of the programs they cut were “successful”. These programs received media praise, funding, and high number of participants, but they did not directly contribute to the overall mission of motivating 100,000+ people to participate in campaigns for change. What DoSomething.org did is an excellent example of a focused definition of success that is de-coupled from monetary growth.

Corporate Structure

I love structure. It is like poetry in the way that it distills intent, worldview, and hope for the future in a deceivingly simple set of rules, processes or physical forms. Structure manifests in many ways - from the physical structures of buildings, to intangible concepts like rules in a game.

Corporate structures are no different. They embody intent and hope for the way an organization will operate in the world, within the body of rules/laws created by government. For example, a sole proprietorship lays the groundwork for a small business. It is very personal - revenue, liability, and funding are all personally tied to the owner. As a result it is the easiest business entity to start with little paperwork to file. A limited liability takes more paperwork and requires more fees to set-up, but it protects the owner from personal liabilities, provides different taxation and funding options. For me, a LLC is more optimistic about the future growth of the business and takes into account the “what-ifs”.

There are several new types of corporate structures that have sprung up recently.  They fill the arbitrary void between non-profit and for-profit businesses. These new businesses are called social benefit corporations or benefit corporations depending on which state the business has incorporated in, but they mean similar things. Instead of only providing financial value to stakeholders they also commit to provided additional environmental and/or social value to the stakeholders that they serve. 

Thinking about the future of a business and the impacts it will have on the world is a great place to start when exploring corporate structures for your business. What's most important? Who will your business serve? What impact do you want to have on the world?

Why is it "Valuable"?

To continue the conversation from the last post, what is value and how is it interpreted? Through out the quarter we have learned about several models to help determine value of enterprises -  five types of capital, discounted free cash flow, various valuation ratios. They all seem to be tied one way or another to a common denominator, which is often money.

We have read a number of theorists this year that explore value and its relationship to money. In David Korten’s article, “Defining a New Development Paradigm”, he says that the current way of measuring value is through money and that making more money is the sole purpose of firms and economies. Korten suggests that we instead use life as the definition of value and that the purpose of the economy and markets is to secure happiness and well-being for all.

Charles Eisenstein’s book Sacred Economics: Money, Gift and Society in the Age of Transition sees money as both a store of value and as a medium of exchange. Because money is both a store of value and a medium of exchange it can be hoarded (store of value), which makes it less available and then it loses it’s ability to be a medium of exchange (because the money is in a bank and not circulating).

Both these theorists (and many more) suggest that that money, in its current form, is not the best measure of value. Instead they suggest tying value to natural capital, or happiness. They want value to measure something that is intrinsically valuable to humans without the need to exchange it for something else. So when we decide to build up reserves of something we are actually building up reserves of something with intrinsic value, rather than simply a medium of exchange. The question is, what is a good universal indicator of value?

Should we look to various types of capital and use them to measure value - social capital, natural capital, or human capital? If we do that then we come up against further questions. What are universal elements of nature or society that we intrinsically value? Let’s take trees. Do trees have the same value in the Pacific Northwest, where they grew plentifully as they do in Iceland, where the growth is slow? What would happen if people bought and sold living trees? Who would manage the forests? What would happen during a forest fire?

When I apply these questions to an enterprise I find that things get very complicated when trying to determine the value of an enterprise in a global economy. Within a local economy where production, jobs, consumption and disposal occur within close proximity alternative forms of valuation could work. For example, a local Portland grocery store isn’t just creating a financial return for its investors, it is providing a marketplace for local organic farmers to sell their produce. Employees of the store are given excellent benefits and treated as co-creators rather than robots. These and many more elements of the business create value.

Yet, when we talk about assigning value to an enterprise that inherently means reducing it to a common denominator. And that means making assumptions and creating commonalities between businesses and wealth (social, environmental, financial) that they create or destroy.   As Bert said during week 4 collaborate, the hard part about modeling the value of the company isn’t the modeling part it’s the assumption part. The assumptions that we select have a huge impact on how an enterprise is valued.

At this point in time, we assume that money is the best form of value because it is the most widely used. Until there is another widely accepted form of capital that people all people value, or can convert use to translate between values (much like currency exchanges) I think that the capacity for financial return will continue to be the major element in enterprise valuation.

Capital and Sustainability

In the article The Five Capital Model - a framework for sustainability Jonathon Porritt simply defines capital as “wealth creation” and he shows us 5 ways in which capital can be both created and destroyed.

Each of the 5 types of capital are created in various ways. Natural Capital is created by the earth. With or without humans, Natural Capital will exist and create value for other organisms and the planet. In fact, without humans extracting Natural Capital it probably would create even more value for other organisms. Human Capital is created by humans for humans. Social Capital is also created by humans for humans. However, unlike Human Capital, Social Capital is created by many people for the enjoyment and use of many people. Manufactured Capital is create by humans to do specific work. The last form of capital in this model is the first form of capital that we often think of - Financial Capital. Both Manufactured Capital and Financial Capital are created as a means to an end, unlike Natural, Human and Social Capital which all have value independent of the others.  

I enjoyed reading the examples that Porritt shared for practical ways to incorporate and understanding of different forms of capital into a businesses. I imagine there are many companies, managers, investors, and leaders that want to incorporate sustainability into their product and services, but they don’t know what that really means or how to make that happen. By expanding the idea of what constitutes capital businesses leaders and companies can use their knowledge about increasing manufacturing and financial capital to the other forms of capital. This framework makes it easier to begin thinking about sustainability and it’s everyday impact into every organizational action and decision, like ordering recycled paper, offering family friendly HR policies, or reducing sugar from a product.

For the businesses already working on sustainable policies, I think this framework adds depth beyond a “triple-bottom-line” approach. It provides a framework that integrates sustainability into every business action rather than cordoning it off into philanthropic or environment ideas. It also looks beyond “doing less harm” and into the ways that we create and destroy value beyond money.

What I like about the 5 model framework is that it reminds us that our economy is not separate from society and the environment. There are many ways to create wealth and there are many ways in which we can lose value through exploitation. It seems that the difficulty lies in measuring the value that is created when it wasn’t created explicitly to generate money.

This brings the question of, how do you measure it? We have been exploiting 3 forms of capital to increase Manufacturing Capital and Financial Capital for centuries and we have good ways to measure how that value is created. How do we measure value (and destruction) of the other forms of capital?

I look forward to learning more about that in the coming term.

How to get involved

There are many fun ways to get involved with design. Check out some of the cool companies highlighted in earlier posts like Blue Earth Network and D-Rev, or check out IDEO which pioneered HCD. Their free toolkit on HCD is a great place to start. There are some other great west coast firms – Frog, Catapult Design, XPLANE, and Ziba - that also do interesting work and use design and design thinking to solve a number of problems. XPLANE in particular has a great blog that demonstrates innovative ways to use design principles beyond Buchanan first 2 levels of design.  

If classes are more your style, check out the class IDEO and +Acumen created. They offer it twice a year and the next one starts March 31st (next week!). It is a free, online 7-week course that involves lectures as well as design challenges to perform with a team. You can learn more about it here and sign up with a team in your area.

Another great way to get involved is through weekend long design events. Service Jam is an event where teams of people think creatively about a theme and build a service to satisfy a need around that theme in 48-hours. Sustainability Jam is a similar 48-hour event with an explicit focus on sustainability. Both of these event occur yearly all over the world.

In fact, design is such a hot topic right now that there are lots of organization to explore like Design for America or community events like design meet-ups, free lectures, and open houses are happening all the time.

I also love exploring blogs. There are some great examples of the 4 orders of design out there. My favorites are: Always with Honor, a graphic design firm in Portland; Design*Sponge, an interior design and product review site; Work|Play|Experience, a German service design firm; and Stanford’s Social Innovation Review.

What are your favorite ways to engage with design?

Design Thinking | Systems Thinking

During the February  intensive I had the pleasure of talking with Nina Serpiello, a professor at BGI. She worked at IDEO for years and has been a major proponent and teacher of design principles. We talked about the role of the designer, where “design” happens, and what systems thinking can bring to the design process.

Nina talked about how design springs from process. Once we are able to move through the awkwardness of a wild idea new pathways to solutions emerge. To get to that place we need permission to play, explore and to trust one another and the process. We need the capacity to tolerate ambiguity and engage with juxtapositions. The design process can create content, but really it is about building relationships and developing creativity.  Organizations can use the design process to solve large problems and include many stakeholders rather than just a small team or one person to solve a problem.

An example of this process at work involved redesigning a key service within a hospital. During the research the designers found that the nurses, doctors and other staff had forgotten what it felt like to be a patient in the hospital system. To remind them the designers set up a restaurant that offered the same customer experience as a hospital. The nurses and doctors entered the restaurant. Some were sat at a table immediately, other were told to wait for an hour, while still others were told to remove some of their clothing and then wear a bib while they waited. The food arrived at different times and at different qualities. Basically, it was not the customer experience that anyone expects from a viable business.

This experience reminded hospital staff what it is like to be patient within the hospital. Through play they experienced the problem that their customers faced in a new light. With this new empathy the hospital staff was able to think about the problems with a different mind set and new solutions emerged. Empathy is a key piece of Human Centered Design.

When looking at problems in big systems the design process can create space to dream up new solutions. However, those solutions might not work if designers don’t understand the system at play. Nina also talked about the importance of systems thinking when looking at wicked problems. Designers dig into a problem with the end user, understand their need, and co-create the perfect solution. But, often times if you don't understand the system in which the solution will operate the idea won't work.

I found an example of the interaction between design thinking and systems thinking with a recent product developed by D-Rev [1]. Their new energy efficient affordable light-therapy unit that treats jaundice had much lower than projected adoption rates in India. This was confusing to D-Rev as they had conducted many field interviews with doctors and hospitals to pin-point the need. They partnered with a local manufacture that already had the infrastructure to distribute the light-therapy unit.

The light-therapy unit from D-Rev

Once their product hit the market they found that hospitals, the core customers of the unit, were buying their unit. Instead, they were buying more expensive units. They found that this happened for two reasons. D-Rev’s revolutionary design was such a departure from what already existed that the buyers didn’t understand the new technology. The second reason had to do with the system of medial purchasing. In India, there are kickbacks to the hospital buyers if they purchase specific devices, typically more expensive devices. Even though D-Rev had interviewed a number of end users about their needs and they created a product that was superior at a much lower purchase and operational price, they came up against a system that did not support the distribution [2].

This highlights what Nina was talking about regarding the interplay between design thinking and system thinking. I think that this is particularly important when designers are developing something for communities other than their own. We all have an intuition on how our communities and cultures work, but not all communities and cultures work the same way. When working on any problem, but particularly problems outside your community it is essential that you explore not just the end-user’s need, but also the system that has created the need. Without that knowledge many great ideas, products, and services are doomed to fail.

Who Designs What?

There are many ways to think about and define “design”. In the last post I discussed the history of design and the emerging idea of “design thinking.” These discussions can quickly morph into abstract concepts, so I’d like to shift gears a bit and talk about what design is and highlight some innovative practitioners.

When describing design as a discipline I look to Richard Buchanan’s “four orders of design”: communication design, artifact design, interaction design, and environment and system design (1). Buchanan is a designer, theorist, and professor at Weatherhead School of Management at Case Western Reserve University where he currently teaches design to MBA students.

Communication Design includes graphic design and information visualization. It focuses on how we design symbols, signs, images and words to communicate meaning to one another.

Design Action Collective is a graphic design and communication agency out of Oakland, California. They collaborate with “progressive, non-profit, and social change organizations” to create visually engaging messages for social justice. 
     

Image from Design Action Collective

Artifact Design refers to industrial designers, architects, and engineers. The “product” created are physical like iPads or buildings.

D-Rev, a product development organization in San Francisco, designs products to, “improve the health and incomes of people living on less than $4 per day.” (2) Most recently they developed a low-cost prosthetic knee that has similar features of a prosthetic knee that would cost several thousand US Dollars. Their motto is that everyone deserves products that are well designed.     
       

Image from D-Rev

 
Interaction Design is a new type of design that recently emerged as we began to think wholistically about people’s experience with services and products. Interaction design includes human-computer interaction, experience design, and service design, and looks at ways that humans interact with one another through process, activities, and services.

Udaiyan Jatar’s Blue Earth Network lead a redesign of the Atlanta Center for Self-Sufficiency (ACSS) job placement for members of Atlanta’s homeless population.  Instead of placing ACSS’s clients into any available job, they asked the job seeker what work they were interested in and worked to find a good match. As a result of changing the service that ACSS provided their clients the 90-day job retention rate increased by 32% (3)

Environment and System design create organizations, systems, and environments (physical and nonphysical) that all the other orders of design exist in. Buchanan sees this as creating ideas and values that are core to how systems and environments operate.

Maren shared a great article about innovative CEOs. Tony Hsieh, CEO of Zappos, is re-designing the way work hierarchy is thought about. He recently removed job titles and managers in an effort to increase accountability and transparency (4). Instead employees will participate in holacracy, a series of overlapping circles of roles. 
    

Diagram from TalentRocket

While Bachanan’s four order framework is helpful in understanding the far reaching impact of design methodology he is quick to caution us not to see these orders as defining strict boundaries of design (5). Graphic designers are instrumental in describing how new systems will work (like in the image above). Industrial designers need to know about services that will partner with their product designs so that both product and service are effective. But it is helpful to broaden our understanding of design practitioners, which brings us full circle back to what is design thinking and who practices it. 

In the end, we are all designing something. As MBA students studying systems thinking and ecology we will be designing services and systems that affect thousands if not millions of people. Understanding the tools at our disposal is critical to our success. 

As Bachanan eloquently said,  "design is a discipline that everybody can participate in. Everyone is affected by [it], and if we do it right, we increase human’s access to their own rights. Economic, cultural and social rights." (5)