Beyond exploitation – an alternative business system
Some events have the power to change the way we see the world. In recent weeks, the tragic killing of George Floyd in Minneapolis has galvanized the “Black Lives Matter” movement, with protests erupting across the globe. Here in the United Kingdom, protesters threw the statue of slave trader Edward Colston into Bristol harbour in a powerful and symbolic gesture.
These events have highlighted how the industrial revolution in Britain (and later in the United States) was built on the profits of the slave trade and of the plantations on which slaves worked. The British were not initially involved in the Atlantic slave trade, but as they “industrialized,” they ended up shipping 11 million people from Africa to the Caribbean and to the then American colonies (which would later form the Confederate States of America) before the slave trade was banned in the British Empire in 1807. Slavery was only finally abolished in the Caribbean in 1838 and in 1865 in the United States.
One hundred and fifty-five years later, we still live with the false myths about Black people created by those who fought to prevent the abolition of slavery.
Around the same time, the British East India Company raised a private army twice the size of the British army to invade the Mughal empire and eventually turn India into the Empire's highly profitable “Jewel in the Crown” in 1803. This was a key step in creating the protected imperial market for goods and services from which Britain benefited until World War II.
You may be wondering why I am talking about this. What can we learn from these stories today? Are they only of historical interest? One thing is certain: they are about the exploitation of human beings, of resources and of markets. But doesn't that happen in every era? And in economic and business life in general? Perhaps, but that does not mean that exploitation should still be a business model in our rapidly changing world. It is high time we looked for an alternative.
Exploitation has never disappeared from the treatment of labor. Of course, it has changed a great deal since the days of slavery, for example, passing through the dark satanic mills of the Industrial Revolution and Henry Ford's decision to double wages and institute the 8-hour day to secure jobs for life in the era of mass production. Even so, automation, globalization and individual contracts expose the fact that labor is still thought of as a commodity to be discarded. It is not surprising that employee satisfaction and commitment to employers have fallen to record lows.
The exploitation of resources and of the knowledge needed to process and use them has been the central engine of modern economies – from sugar, tobacco and cotton on the plantations to steel, coal and oil (and computers, medicines and Artificial Intelligence today). For a long time, companies largely ignored the externalities of their actions, which were left as the responsibility of governments. However, the world is now reaching limits that force us to reduce carbon emissions to slow climate change, tackle rising levels of pollution of the air, the land and the seas, and safeguard the health of the natural world on which we all depend.
The control and exploitation of markets are the foundations of modern business. Examples include the British government granting trade monopoly rights to the East India Company (including banning Indian workshops from designing and building railway engines and competing with engines built in Britain) and the antitrust laws introduced in the US in 1860 and 1914 to curb the dominance of the oil, railroad and steel barons. More recently, we have seen governments struggling to resist well-funded lobbying by the tech giants (their exploitation is subtler and invisible, as their power and profits derive from algorithms that steer their users' social media feeds ).
So, can anything be done about this? Corrective actions – such as tighter antitrust regulation of the tech giants, redistributive taxes to deal with growing inequalities and determined global collaboration to tackle climate change – would make a significant difference. But they are unlikely to be enough, because they rely on companies and non-profit organizations to carry out the actions on the ground, with their customers and local communities. I believe the prevailing business model is no longer fit for purpose when it comes to responding to these challenges.
Lean as an alternative
The business model for the era of mass production, developed in the 1930s by Alfred Sloan at General Motors, was built to manage departmental performance “by the numbers,” achieved through “command” and “control” exercised through the allocation of resources. The influential economist Milton Friedman later declared that the sole focus of business should be “making a profit.”
This American shareholder-first business model led executives at companies such as GE to concentrate increasingly on profits from financial transactions rather than on making products. It led others to become more dependent on lenders, as they borrowed large sums to finance share buybacks and to boost their share prices and executive pay. This focus on profit limits their ability to do the right things to respond to the challenges we face today.
Fortunately, there is a proven alternative we can learn from: the lean business system, which has been evolving at Toyota over the last 60 years. Toyota has shown that superior profits come from consistently providing better, affordable products and services to users that help them meet their needs and requirements better than the competition, and from continuously improving them as those needs change. This unwavering commitment to observing users closely, rather than relying on sophisticated marketing to persuade them, lays the foundation for exploring innovative new ways of helping them, rather than protecting legacy products and assets.
What makes this possible is treating employees with respect, mobilizing every team member for the continuous improvement of their work in exchange for a commitment to developing their skills. Leaders articulate the performance gaps to be closed, guide the projects and create a learning culture. Growing experience in problem solving creates dynamic performance gains, streamlines processes without waste, and builds the capability to respond to changes in demand and the knowledge to introduce new technologies successfully.
Toyota has also set an example in the industry by taking responsibility for its impact on the environment and on society, leading the development of alternative technologies such as hybrids and hydrogen fuel cells (and now as a provider of mobility services). It also has a more comprehensive environmental program to achieve zero carbon emissions in its production, in its supply chains, in its distribution and over the product life cycle, as well as to minimize water use and pollution and to rely on sustainable resources.
The reason Toyota has been able to follow this different path and keep doing the right things as the world changes is its resilience. From the start, they resisted pressure from the Japanese government to license technologies from foreign automakers, in order to invest in developing their own technology. And after nearly going bankrupt, they decided not to depend on bank loans and to build up enough reserves to respond to crises and new challenges. Later, they had the courage to lead the industry in developing alternatives to gasoline and diesel engines.
Exploitation for profit has never been the strategic focus for Toyota's leaders. Because of their resilience, they have been able to concentrate on anticipating and meeting the needs and requirements of their customers and of society and on building the capabilities to do so, engaging and respecting all their employees and taking responsibility for the sustainable use of resources.
Recognizing and committing to ambitious goals for customer trust, respect for employees and carbon footprints (as well as profitability, debt levels and investment requirements) is a big step. But tracking the progress made along the way toward these goals is even more important. The goals themselves will evolve as circumstances change, and the capability to improve is the key to meeting these moving targets – for customers, for employees and for society at large.
