Value creation reimagined

Strategy is about making choices and, in a world of constant change, every organisation must continually evaluate and renew strategic choices about where to focus and how to succeed. But to consistently make great choices, the process of making choices itself must be guided by a set of fundamental principles about what constitutes good or bad choices. If not, decision-making may be arbitrary or subject to biased opinions.

While many organisations lack a clearly articulated ‘theory of decision-making,’ it is evident that even without explicitly discussing and defining those fundamental principles, most organisations are implicitly guided by a very basic idea: “The business of business is business,” as Milton Friedman put it in 1962. For decades, the dominant logic for business leaders has been to maximise profits and increase shareholder value, typically over the relatively short term, as long-term thinking and high-risk bets rarely align with shareholder interests. At least, this is how things used to be.

Putting an end to shareholder primacy

Social inequality, environmental challenges, economic turbulence and geopolitical unrest raise serious questions about this logic. This is further underlined by new generations of customers and employees who have to deal with this for most of their lives and for whom sustainability, purpose, inclusion and diversity are more than just words in an annual report. By focusing narrowly on creating shareholder wealth, businesses all over the world have destroyed massive amounts of value for other stakeholder groups and for society at large.

Of course, shareholders should expect a decent return on their investment, which, after all, helps to build and grow businesses. But they are only one among many stakeholder groups that have a particular interest in, and contribute to, the success of a business. Everyone in the stakeholder landscape – customers, employees, suppliers, partners, investors, regulators, society, and other groups – have legitimate expectations and interests at stake. However, their value drivers are highly diverse, and giving one group full primacy does not adequately capture the complexity of expectations on a modern business.