A bold vision of 21st Century capitalism

By Steve Denning

In his brilliant new book, ‘The New Capitalist Manifesto,’ Umair Haque gives us a bold and eloquent vision of 21st Century capitalism:

“A capitalism where companies, countries and economies reach a higher apex of advantage — one where bigger purpose rouses untapped human potential of every employee, customer and future customer, instead of deadening it.

One where fiercer passion makes innovation as natural as drawing breath, spontaneously combusting the spark of creativity instead of dousing its flame with lowest common denominators. One where deeper meaning replaces the drab grind of repetition with challenging and compelling work that elevates the soul. Where more authentic power flows from shared principles instead of (yawn) sweeter carrots and heftier sticks. Where greater resourcefulness means being not the natural world’s conqueror, but its champion. Where higher-quality value is created by doing stuff of greater worth. And ultimately where companies compete not just to change the rules, but to change the world.” (p. xxii)

Haque gives us a scathing critique of the economic, moral and social bankruptcy of 20th Century capitalism and its ongoing love affair with things and money. He offers us a brilliant metaphor for our situation:

“Prosperity on an ark differs radically from prosperity in a game reserve. In our metaphor of yesterday’s capitalism as a game reserve, economic institutions were built to organise daily hunting most efficiently. They matched the swiftest, most powerful hunters to the biggest game to generate prosperity. But if the rules of hunting are to manage an ark, the result will be repeated crisis and eventual collapse. In a big, empty, stable world, hunters can borrow benefits and shift costs with abandon, accumulating deep debt. Throw your bones away here. It doesn’t matter… But in a tiny crowded fragile ark, everything counts. There’s no one left to borrow benefits from or shift costs to: the destinies are all inextricably interdependent… Here then is the predicament the global economy is in today. We’re using rules built for hunting to manage an ark…” (p.16)

What’s unique about ‘The New Capitalist Manifesto’ is that it goes beyond a critique of capitalism and tells us what to do about it. In one sense, it’s “a journey of imagination, where we’ll envisage production, consumption and exchange through new eyes”. But Haque also gives remarkably clear guidance as to how this vision can be realised as well as telling examples of organisations that are already doing exactly that.

Haque sees clearly that 21st Century capitalism is not merely about producing better products and services. It’s about institutional innovation, i.e. reinventing management so that the organisation systematically delivers more value sooner, rather than systematically generating products and services of dubious social and ecological value.

Clarifying the goal of the 21st Century firm

‘The New Capitalist Manifesto’ is particularly strong in clarifying the goal of the 21st Century firm, which is to create what he calls thick value — value that matters, value that lasts and value that multiples, not the thin value of the 20th Century firm that is artificial and unsustainable, often gained through harm to or at the expense of people, communities or society. It is about making a positive difference in people’s lives, not merely having a differentiated product.

The book notes that the linear value chains of the 21st Century firm systematically create ecological costs. Instead, the 21st Century firm needs to practice value cycles, as exemplified by Interface (carpets) and Nike (shoes) where manufacturing becomes ecologically neutral, by remarketing (reusing and remanufacturing), reproduction (even using competitors used products), and reverse logistics (to reclaim discarded products).

Haque contrasts the clumsiness and inefficiency of 20th Century firms pushing products towards customers, with firms like Lego (toy bricks) and Threadless (T-shirts) that use the power of pull (or spinning), by incorporating the customers into the very process of decision-making as to what will be produced. As a result, the firms make quantum leaps forward in the agility of decision-making; the firms systematically make better decisions sooner.

Haque is one of the few writers – like Fred Reichheld (The Ultimate Question) – to face up to the issue of “bad profits”. To the 20th Century capitalist, the term, “bad profits,” is an oxymoron: any profits are good. But Haque sees clearly that profits made using unscrupulous or ecologically detrimental methods are incurring costs that will eventually have to be paid, not just by society as a whole, but increasingly by the firm itself.

Haque contrasts competitive advantage (lower costs) of the 20th Century firm with constructive advantage, i.e. an advantage in both the quantity and quality of profit. Constructive capitalists have an advantage in the kind of value they are able to create, not just its amount. Because higher quality value is “less risky, less costly, more defensible, and more enduring, it is usually worth more to stakeholders of every kind: people communities, society, future generations, employees, regulators and investors alike”.

Contd.on page 16

A bold vision of 21st Century capitalism

Contd.from page 13

 Like Ranjay Gulati (‘Reorganise for Resilience’), Haque envisages a fundamental shift from inside-out and top-down monologues (“you take what we make”) to outside-in and bottom up conversations (“let’s discuss how we can understand and solve your problems”). To be real, such conversations need to be participative (a right to take part), deliberative (a right to discuss not just vote), associative (space to conduct the conversation) and consensual (a right to express dissent). He notes that 20th Century “shareholder democracy” has none of these characteristics.

Firms that are already in some ways practicing what he preaches by enabling customers in various ways to call the shots include Threadless (t-shirts), Jelli (radio), PepsiCo’s Frito-Lay (PEP – potato chips), Starbucks (SBUX – coffee) and Wikipedia (encyclopaedia). Even Walmart (WMT) has incorporated environmentalists into its decision-making on environmental matters.

Yet he also notes the constraints on implementing the vision: ...for most industrial age companies, empowering the community equals disempowering layers of managers. Hence, responsiveness is more easily gained for start-ups, where there aren’t layers of middle managers fighting to retain their empires.

Haque believes in firms that have a philosophy, particularly “a philosophy that emphasises the first, fundamental principle of value creation, rather than planning a strategy focused on value extraction.” There is thus a shift from an overriding preoccupation with financial value and costs to instilling real values that create the basis for generating thick value that makes a difference in people’s lives. He cites Google (GOOG) as an example of a principle-driven business with such a philosophy, with its celebrated commitment to do no evil, its preoccupation with speed (fast is better than slow) and its furious experimentation to enable continuous improvement.

How far has the revolution already happened?

“If you look closely and patiently enough, you might not discern full-blown revolution (as in “the successful overthrow of authority”) – yet. But I wager that you’d at least detect, in vivid detail, its prelude…. Examining it carefully, you might see what I see: the first tiny shoots of what scholar Thomas Kuhn called a paradigm shift—not a small step, but a giant leap from one system of thought to its successor, which recasts an art or science in a radical new light.” (p. 2)

Among the many treasures in the book is Professor Gary Hamel’s foreword: “Capitalism is dead. Long live capitalism.” His summary of the matrix of deeply held, and even canonical, beliefs of the Global 1000 companies is a dazzling piece of incisive writing.

‘The New Capitalist Manifesto’ is a short, elegant and readable book. When the book gives us so much, one is tempted to ask for more. Perhaps in subsequent writings, Haque will expand and carry his thinking forward to show us more of the specific management practices that will build “organisations that are less machines and more living networks” (p. 41) and how organisational communications will evolve in the new conversational mode.

We are also eager to learn more about what kind of processes for instance would enable Google, despite rapid and continuous innovation in its core business, to deal with its apparent difficulty in breeding start-ups within the firm or stemming the exodus of its best people.

We are also keen to learn more about how and when that “ultra-mean Deathstar” of the corporate world, Walmart (p. 43), will match the extraordinary progress that it has begun to make in terms of ecological responsibility with comparable progress in its extraordinarily asocial practices in labour relations.

But in a short and wonderful book that gives us so much, we can be thankful for what we already have.

Bottom line

Overall, the book is courageous, thought-provoking, profound, incisive, daring, brilliant, trail-blazing, witty and ethical. In accordance with its own principles, it gives us value that matters, value that will last and value that will multiply. For anyone who cares about the future of the human race, a must read.