HBR On Strategy: How to Build Long-Term Social Value

Episode Release Date: December 11, 2024
Host: Harvard Business Review
Guest: Mike Beer, Harvard Business School Professor Emeritus

Introduction

In the latest episode of HBR On Strategy, Harvard Business Review delves into the intricate balance between achieving financial success and fostering long-term social value within businesses. Hosted by Sarah Greene, the conversation features insights from Mike Beer, Professor Emeritus at Harvard Business School and co-author of the book Higher: How Great Leaders Create Economic and Social Value. The episode explores how forward-thinking companies strategically align their operations and culture to serve both their stakeholders and the broader community.

Can Businesses Do Well While Doing Good?

Mike Beer opens the discussion by affirming that businesses can indeed thrive financially while contributing positively to society. Drawing from his extensive research, Beer highlights that although such firms are relatively rare, they demonstrate that it is feasible to excel economically without compromising ethical standards.

Mike Beer [02:50]: “There's evidence in many firms, although they're in the minority, that they are able to run their firms over long periods of time by doing good and doing well.”

A prime example cited is Southwest Airlines, renowned for maintaining minimal debt and a conservative growth strategy. This approach allows Southwest to promise job security to its employees, fostering a loyal and motivated workforce even during economic downturns. By limiting expansion to two new cities per year and rigorously selecting top talent, Southwest ensures that its organizational culture remains strong and its employees are highly engaged.

Strategic Identity: Building Long-Term Social Value

A central theme of the conversation is the concept of strategic identity—the deliberate process by which a company defines its core values, mission, and long-term objectives before making strategic decisions. This inward-focused approach prioritizes the company’s identity over immediate profit motives, ensuring that all actions align with its foundational principles.

Mike Beer [04:52]: “They start by saying, who are we? What are the capabilities we have? ... what do we care about?”

By understanding their own strengths, passions, and values, these companies identify market opportunities that resonate with their strategic identity. This alignment not only supports sustainable growth but also builds robust human and social capital, as employees are more committed and aligned with the company’s mission.

Managing Short-Term Pressures

Despite a strong long-term orientation, companies face significant short-term pressures from stakeholders, particularly Wall Street analysts and investors who often demand immediate financial returns. Mike Beer explains that successful firms navigate these pressures by effectively communicating their long-term vision and demonstrating consistent progress toward their strategic goals.

Mike Beer [09:15]: “They tell Wall street the long story, not the short story.”

By fostering a performance-driven culture, these companies encourage innovation and problem-solving, especially during challenging times. Employees are motivated by a higher purpose, which translates into increased effort and creativity to meet both short-term financial targets and long-term strategic objectives.

An illustrative case is United Stationers, a company that prioritizes the success of its partners, suppliers, and customers over mere profit generation. This broader focus on community service creates a mutually beneficial environment where all stakeholders are invested in the company’s longevity and success.

Overcoming the Paradox of Short-Termism

While exemplary companies demonstrate the viability of high ambition strategies, the majority of businesses remain entrenched in short-termism, often viewing ethical practices and financial success as mutually exclusive. Mike Beer discusses the challenges of shifting this paradigm and making high ambition mainstream.

Mike Beer [11:50]: “It's a long term proposition of changing the mindset of business, the mindset of business leaders.”

To foster this shift, Beer advocates for creating movements among like-minded CEOs, implementing policy reforms that encourage long-term investment over short-term speculation, and reimagining business education to emphasize integrity and institutional legacy. By addressing these areas, the goal is to cultivate a business environment where building enduring value becomes the norm rather than the exception.

Leadership and Personal Change

At the heart of this transformation lies leadership. Beer emphasizes that higher ambition must be championed by individual leaders who are willing to integrate personal values with their professional strategies. When engaging with skeptical CEOs, the focus should be on presenting compelling evidence of the long-term performance benefits associated with high ambition practices.

Mike Beer [15:11]: “The first thing you do is you talk at the level of performance.”

Change is incremental and requires leaders to embrace a mindset that prioritizes sustainable growth and ethical responsibility. By doing so, leaders can inspire their organizations to pursue excellence in all facets, ultimately creating a lasting positive impact on both the company and society.

Conclusion

The episode of HBR On Strategy featuring Mike Beer provides a comprehensive exploration of how businesses can harmonize financial success with social responsibility. Through strategic identity, effective management of short-term pressures, and visionary leadership, companies can build long-term social value that benefits all stakeholders. As the business landscape continues to evolve, the insights shared offer a valuable roadmap for organizations aspiring to achieve both economic and social excellence.

Notable Quotes:

• “There's evidence in many firms, although they're in the minority, that they are able to run their firms over long periods of time by doing good and doing well.” — Mike Beer [02:50]

• “They start by saying, who are we? What are the capabilities we have? ... what do we care about?” — Mike Beer [04:52]

• “They tell Wall street the long story, not the short story.” — Mike Beer [09:15]

• “It's a long term proposition of changing the mindset of business, the mindset of business leaders.” — Mike Beer [11:50]

• “The first thing you do is you talk at the level of performance.” — Mike Beer [15:11]

For more insights and discussions on business strategy and innovation, visit HBR.org.