Model for Sustainable Business

Use the word "sustainable" in a business environment and don't be surprised to see some eyeball rolling. The concept of business sustainability for some conjures up images of "tree-hugging dirt lovers," as one bumper sticker proclaims. Yet in the end, sustainability -- not growth for growth's sake -- is the optimal model for long-term business and stakeholder success.

When Businesses Focus on Growth for Growth's Sake

What you usually see in businesses with a great idea and solid footing is an initial phase of rapid growth. Investors get in on the feeding frenzy and become accustomed to taking big profits. Growth continues over time, but it eventually levels out for a variety of natural reasons. Trouble is, the sharks are still hungry.

And the pounding begins. A sort of pounding for which many business executives are completely unprepared. The pressure from investors -- and even from the board of directors -- grows, and executives begin to look for ways to bring back the good old days of big gains and large profits. They look for ideas that sound good, rather than ones that are aligned with their founding principles and what they do consistently well.

The real trouble begins when a business takes liberties with its principles and competencies. To justify going after a profitable market niche, it's easy to generalize principles and competencies until they become so fuzzy that any opportunity looks achievable.

Engineering companies, for example, can fall into the trap of believing they can solve ANY problem -- even one outside their core area of expertise -- because they redefine what they do consistently well as solving problems. Sorry, folks, but the world does not that way. Such a mistake has destroyed many a technology company.

Once a company gets fuzzy about its principles and competencies, bad things happen. Companies often go out of business because their desperation to satisfy investors leads them to venture into markets for which they are grossly unsuited.

Definitions of Sustainability

A sustainable business is in which organizational leaders focus on delivering long-term value to all stakeholders. From a stakeholder perspective, sustainability means different things:

• Employees: I can count on being meaningfully employed with a company that has a plan for the future. I'm not only included in that plan, I'm a part of the planning and implementation process. I'm not human capital, I'm a business partner.
• Customers: This company will be around for awhile. I can trust that they'll stand by their products and services for the long term. I can make my own plans accordingly.
• Investors: This company gives me a long-term reliable return on my investment dollar. I'm interested in more than a fast buck -- I want to build my portfolio for years to come.
• Community: This company is a steward. It will do what's right by our community and act with our interests in mind. It will contribute to our long-term sustainability, too.

The Importance of Staying on Course

The most important thing business founders can do is take the time early on to clarify what their principles are and what their business does consistently well. A focus on principles and competencies creates the compass that always points toward True North for business sustainability.

We call that the Step Zero effect, and we see it working in successful businesses every day.

Rather than look for big profits, leaders of sustainable businesses take great pains to practice their founding principles and ensure that all stakeholders know what the company does consistently well. They focus on building long-term stakeholder relationships. When the initial growth spurt levels off, the company doesn't ignore investors -- it works with stakeholders in collaboration to bring about the best of all long-term possible
worlds for everyone involved.

Obviously a shift in some investment practices will have to happen before all companies will work toward sustainability. The lure of big profits is difficult to resist. But by looking to the long term, we can create a business ecosystem that serves the best interests of all stakeholders. And perhaps that is the greatest good for each of us.

Is Competition Really the Problem

The undercurrent in U.S. business today may well be one of fear and even desperation. It would be easy to make such an assessment based on the number of words that have been written on the subject of competition. Businesses in the United States have lost their edge, if the flood of articles and reports on the subject are to be believed.

But is the problem really competition for customers or a share of the marketplace? Or is it something else?

A Focus on Scarcity

We could make a case that the real enemy of any business today is the focus on scarcity driven by fear. Fear of losing "the edge," of losing perceived global leadership, of losing profits.

Of losing the business entirely.

When fear is our focus and scarcity our attitude, our perceptions of the world around us are skewed. We gather incomplete data about conditions because we have conditioned ourselves to see only a small part of the total picture. Poor decisions are the result, diverting our attention from the business's right and proper focus.

"But what ABOUT the competition? Those people are really out there, you know, and they are stealing our customers!" I actually heard someone use these very words just last week. Yes, what about the competition?

If we focus on what our "competitors" are doing, we shift our attention from the real work and service of our businesses. In reality, incorrect focus causes us to lose more customers to those we label as our competitors.

So...

What Is Right Focus?

We define right focus as:

• Attention to the needs of those you serve.
• Being clear about why you're in business to begin with and about your business principles.
• Knowing and practicing what you do best every day.
• Devotion to customer relationships and delivering value.

By focusing on strong relationships with those we serve, we understand the problems they face that require solution. We listen and hear the needs of our stakeholders. Not just our investors, but the investors attended to in collaboration with our customers, employees, and the community in which we work.

Another Look at Solutions

There's no question that U.S. businesses need the sorts of skills that well-educated people deliver. So, yes, let's inspire more students to study the sciences and technology. And while we're at it, let's ensure they receive the sort of well-rounded education that helps them focus understanding problems and being of service to others.

For service is, in the end, what business is all about.

Exercise in Creating Your Future

There are two kinds of people: Those who wait for events to carry them along, and those who take what comes and with it design
their own futures.

One of the most powerful success factors in life is envisioning a future. You cannot reach what you cannot imagine. Envisioning a
state of affairs of your own desire is the first step in making the future happen.

A Simple Exercise

Consider a project you are working on today. Perhaps it's starting your own business, building a tool shed, creating a
quilt, or taking an adventure vacation in Cambodia. Pick any goal so long as it has deep significance for you.

Now...let your imagination roam for a minute. What does the successful outcome of your project look like? How do you think
you will feel once you've achieved it?

Let your mind stay in that vision a little longer, then take a pen and paper -- or sit down at the keyboard -- and finish the
following sentence:

On the day my project sees success, I awake in the morning and...

Describe what that day is like for you. How is your life different? What are the significant others in your life doing?
Where do you go? What can you see yourself doing?

Your Successful Outcome

There is no secret to why the act of envisioning a successful outcome is so important. The act of imagining the thing as
complete sets off a complex sequence of thinking.

Envisioning stimulates a natural process that gets you brainstorming about the next actions you can take to reach that
vision. As David Allen, author of Getting Things Done, says, "You won't see how to do it until you see yourself doing it."

Using your imagination in this way triggers action. When you imagine obstacles in the path to your dreams, you'll find
obstacles. Giving the mind a positive goal sets events in motion and generates an enthusiasm that pulls you forward. The more
clearly you can imagine the future, the greater the likelihood that you'll get the results you want.

Starting today, begin every project by clarifying its purpose and imagining what a successful outcome looks like. You will be
astounded at the results!

Come Home Corporate America

Hollow Industrial Base

During the last decade, a hot topic in Japan and America has been the "hollowing out" of their industrial bases. The share of Japanese-owned productive capacity located abroad has grown from 8% in 1994 to 40% today. The United States currently has just over 50% of its manufacturing base located offshore. For both Japan and America, the large outflows of direct investment, especially to China, have caused an uneasy feeling that both countries had bleak futures as manufacturing centers.

Surprisingly, in Japan the pendulum is now moving back as large Japanese multinationals are busy investing in manufacturing plants at home. Here are just a few examples of this trend. Canon is building a large digital camera facility and plans to spend 80% of its $7.2 billion capital budget in Japan over the next three years. This is a reversal from the past ten years when 80% of its capital budget was spent overseas.

Toshiba is building a $2 billion semiconductor facility. Sharp, Matsushita and Nippon Steel are also building major plants in Japan. Overall, spending on plants and equipment in Japan is rising at a 10% clip.

It's not that China is not important to Japan's economic growth. China has passed America to become Japan's largest export market. In addition, it needs a strong presence in China to tap its rapidly growing consumer market as well as a low cost base to manufacture lower tech products. For certain products like cars it is also likely to keep large manufacturing bases in countries like America. For example, Toyota produces more than 1 million cars annually at eight manufacturing plants in America and has two plants under construction in Texas and Tennessee.

But for the more advanced capital-intensive products, the investment is clearly coming home. How can we account for this surprising turnaround and what are the lessons for America?

Lose Now, Lose Big Later

First, Japanese firms have learned the drawbacks of outsourcing. Supply bottlenecks, poor infrastructure, power shortages, uneven quality, difficult inventory management and high employee turnover are just some of the problems. Secondly, even though China's wages are about 5% of Japan's, its increasingly sophisticated factory automation has lessened the importance of labor costs. For advanced high tech products it accounts for only 10-15% of total costs. Having manufacturing closer to home also shortens new product lead times and increases cooperation between R&D and production teams leading to a crucial edge in staying ahead of its nimble competitors. Supply lines of 2,000 miles can be problematic.

Finally, and perhaps most importantly, there is the critical issue of protecting intellectual capital. Having research, development and production closer to headquarters better protects proprietary technologies. Unfortunately, here in America the outsourcing trend does not appear to be reversing even in capital-intensive products. Many of the new high tech jobs are for managers to manage the outsourcing process. Microsoft, Intel, IBM and Motorola all have large and growing R&D centers in China to take advantage of Beijing's cheaper pool of talent. Given China's disregard for intellectual property rights, perhaps American executives should pause and reconsider the long-term costs of growing outsourcing programs.

Their offshore R&D staff may very well walk off with proprietary knowledge and the company's future. Many Americans believe the loss of manufacturing jobs is just about lower wage rates in other countries but this is not always the case. One example is Whirlpool which makes its high-end front loading washing machines in Germany ($32/hour labor) and ships them to US ($23/hour labor). The reason given by Whirlpool: trained German workforce, available capacity, and necessary technology. Whirlpool could have produced these washing machines at their Ohio plant and saved the $50 per unit shipping costs while creating high wage American jobs.

Leverage Our Strengths

Then there is America's growing annual trade deficit that exceeds $600 billion a year with $200 billion attributable to our trade gap with China. You have to admit that it is harder to make a strong case against Chinese trading practices when 40% or more of American imports from China come from American multinationals with China-based manufacturing plants. Why not sell more of the stuff we make in China to China's 1.3 billion consumers? If these markets are not open to American companies, let's use the leverage of access to America's vast consumer market to bust them open.

There are some economists and policymakers who claim a strong manufacturing base is not important. I beg to disagree. History shows that manufacturing is the foundation of all wealth and that research and development follows manufacturing rather than the other way around. There are now more American workers in state and local government then in the manufacturing sector, and manufacturing as a percentage of GDP has fallen from 20% in 1980 to less than 10% today. This is not a call for isolationism or rolling back globalization, just a reminder that outsourcing has its downside. How about a little common sense and balancing short-term cost savings against long-term strategic risks?

Stop Accepting the Risk for Short Term Benefits

Instead of just taking the comparatively easy step of lowering labor costs by outsourcing, let's roll up our sleeves like the Japanese, improve manufacturing techniques and reap the benefits of keeping more production and technology closer to home.