In his article on the future chapter of capitalism Steve Denning articulates several important implications as we move from shareholder to customer driven companies.
He starts of reminding us that the idea driving business today – which is short term shareholder value – is merely 40 years old. And is destroying the company’s long term value, customer, community and employer worth.
Denning goes on to note how the Internet has affected the established traditional economic thinking and demonstrates how the new trends, topics and question we all battle with are a part of a new way of thinking – challenging the traditional mindset.
The article is ripe with evidence and examples pushing Denning’s point across and in my case helping me tie up some loose ends when it comes to the questions I’m asking at the moment which is how important will the trend in customer centricity become?
“Milton Friedmans article shocked the sensibilities of many who worried about rising corporate power in the world, but for many executives struggling to chart courses through the chaos of newly globalized and deregulated markets, it offered an irresistible clarity: one need only focus on owners’ interests
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. In 1976, Professors Meckling and Jensen put a finer point on things with their economic rationale for maximizing shareholder value. Ronald Reagan and Margaret Thatcher gave the idea political cover. Very quickly, shareholder value became the gospel of capitalism.”
“Incentives to maximize shareholder value pushed managers toward decisions that paid off in the short term but were devastating to the long term viability of firms:
- Pervasive short-termism hampered the United States’ capacity to compete in international markets.
- Encouraged a massive trend of offshoring that destroyed major segments of the US economy.
- Generated “bad profits” that undermined customer loyalty.
- “Financialized” the economy, making it vulnerable to increasingly severe financial crashes.
- Undermined economic recoveries.
- And drastically reduced rates of return on assets and on invested capital of US firms.”
“The other economy—the Creative Economy—is an economy of continuous innovation and transformation. This is the economy of firms and entrepreneurs that are delivering to customers what they are coming to expect, namely, “better, faster, cheaper, smaller, lighter, more convenient, and more personalized.” The Creative Economy is still relatively small but it is growing rapidly and, when implemented well, is highly profitable. It is the economy of the future. It doesn’t have to be invented: it’s already under way. Its practices represent a paradigm shift in the strict sense laid down by Thomas Kuhn: it’s a different way of thinking, speaking, and acting in the world.”