THE BLOG
07/02/2010 05:12 am ET | Updated May 25, 2011

Disruptively Good and the Need for Profits

I recently read an interesting article by Umair Haque called "The Case for Being Disruptively Good." He's a leading blogger about competition and global business for the Harvard Business Review. The author argues that in a highly connected world companies will experience the amplification of any good or evil that they do so that businesses that do more "good" will excel and those that do "bad" will fall.

This is an interesting premise. After all, we know that companies that survive and thrive are those that continue to generate profits. This requires them to provide goods or services that customers are willing to pay a premium to purchase. Companies values can lead, lag or reflect the values of society. As America developed, the society forced the elimination of the evils of slavery, reduced child labor, created safer working conditions, reduced corporate pollution. Companies that refused to move with the changing moral demands of society lost out but companies were often laggards not leaders in driving the changes.

Companies sometimes settle into a mode of profitability where they generate minimal good for their client but rather succeed through industry collusion, leveraging dominant industry positions and quashing competition. These companies usually eventually lose their dominant positions not because they are doing evil, but more simply because they are failing to provide value to their customers.

I recall during my time in the corporate world a primary focus on short term profitability and a general look towards longer term profitability. We tried developing financial products that would be profitable and have some appeal to the customer but I don't recall challenging ourselves as to whether our products were "good" or "evil" though the cost of capital certainly seemed less than altruistic as the most profitable customers were those that teetered on the edge of bankruptcy.

Let's starting with a fun example of doing good, Ben and Jerry's Ice Cream. They are well known for being an early mover in the world of corporate responsibility. Their company has a three-part mission, one dedicated to social responsibility, one dedicated to product quality and one dedicated to profitability. Why all three? If the company puts out mediocre ice cream then they will soon become unprofitable and eventually struggle to continue functioning. Social responsibility is a worthy goal but the company exists to generate profits first and foremost, without the profits the company and its social vision will disappear. The customer enjoys the "good" from the product while the company is able to provide social value.

Moving on to one that is near and dear to anyone with a PC's heart, Microsoft. Microsoft certainly has been accused of doing plenty of "evil" in the past, most notably in their browser war with Netscape. While they certainly pushed the bounds of ethics and the law in bundling their products, Microsoft eventually developed their browser to the point where it was a superior product. When Microsoft released Vista, a relatively unpopular product, and announced the impending retirement of XP, customers were displeased. Microsoft released Windows 7, a much more popular operating system in late 2009. A typical Microsoft customer cares little of the corporate good or evil Microsoft does, but rather cares about the product they provide and how they feel about the products/services. If Microsoft continues to try forcing unpopular products, the users will look to its competitors thus damaging Microsoft's profitability.

Lastly, let's look at Walmart. Mr. Haque argues that they are at the top of the rung, "rule making" due to its Sustainability Index being pushed on its suppliers. Walmart is the certainly the 800 pound gorilla, crushing competition while creating millions of jobs and enabling millions to purchase inexpensive products, whether they need them or not. Along the way it has definitely created its detractors due to its weak health care package, antiunion policies, supplier manipulation and other issues. The good Walmart has created in the past has been focused on low prices to its customers but Mr. Haque is correct that Walmart is better positioned than most countries to impact the environment in a positive way, creating good for the world. Let's hope he is right because if the world waits for Nopenhagen agreements to make a difference we'll be enjoying oceanfront property in Arizona.