Why How we Measure Impact is, Mostly, Wrong


How we measure impact is  mostly  wrong

When Clayton Christensen took the podium to give the commencement speech at Western Governor University in 2017, he told students that companies that fail have a small view of humankind. In their attempt to emulate successful companies, he explained, people forget that they all started with solving a small problem.

Then he talked about a similar idea, this time using numbers. Because we have limited minds, he explained, we aggregate the world in a hierarchical way, with the people who aspire to bigger numbers higher up in companies. His theory, which he introduced in the Harvard Business Review in 1995, became known as disruptive innovation.

The point Christensen was making is that by having a dynamic view of mankind, what we may deem as small potatoes can change the big picture. Yet, many executives and decision markers have failed to learn this important element of the business model.

Why a Big Business View of the World is Flawed

In 2010, I was researching how influence moves through relationships for a solo talk I was to give at SxSW in Austin the following March. I presented my ideas again at other conferences. What struck me was the timelessness of what I'd found. Over and over again, I would find examples of the same principles in different scenarios.

That's when I started the journey that would lead me to the work of understanding what creates impact. How some companies and people end up having an apparent disproportionate effect on others.

I found that participating in a network of skilled practitioners raised the bar for everyone. In my research, I also noticed how regions of the world with a concentration of companies of comparable size thrived. Not only that, each company in the network thrived, as individuals do in a network of practitioners.

When we think about spheres of influence, we neglect to take into account variances based upon peer network access over time. As we grow, and our influence and access grow so do those of our peers.

What if there was a way to ensure that the same happened with smaller and mid-sized companies? To ensure that when they collaborate, each company receives more. As individual companies grow, the entire network grows as well. A network of companies could lift an entire economy.

This has been happening consistently in one region of the world since World War II. In 2019, Emilia-Romagna had the highest exports of Italy, ahead of Lombardy and Veneto, an advantage the region has carried for the past five years#. The region's 400,000 companies saw an increase in size per company#.

Regions with just a handful big businesses are at risk. For one, we've seen companies are not too big to fail. Big companies could also choose to relocate and leave the region barren. Professor Stefano Zamagni gives the example of South Korea.

In 2012, the international economics professor at the University of Bologna and his research partner and wife Vera were invited to South Korea. Adapting Italian and Canadian legislation, the country had just passed a law authorizing the creation of cooperatives for the first time in their history and the Zamagni are world experts on the topic.

“Why did you decide to pass such a law?” asked Zamagni. Why did the at the time 9th industrial power in the world decide to open the market to cooperative structures? The answer was very instructive. Dozens of big corporations like Samsung, Hyndai, SK Group, and LG generate almost 80 percent of the total GDP. In other words, they wanted to diversify the country's economy.

South Korea saw cooperatives as an element to counterbalance the economy, while respecting the laws of the market. Zamagni explains cooperatives are democratic firms. The simplest way to define a cooperative is, an enterprise that is democratic: One head, one vote is the operating principle.

In fact, the Zamagni maintain that there is a plurality of forms of enterprises and no one of them is optimal under all conditions. Cooperatives are best in fields with a high concentration of relationships and in sectors were traditions and differentiation are critical. It's also a good structure for fragmented ownership where joint processing is a must as is the case in agriculture and with utilities.

Cooperatives tend to humanize the market. Their rules of functioning, explains Vera Zamagni, is the person. The member is at the center, not capital. In regions where they're present, capitalist enterprises pay more attention to the welfare of workers and customers.

“Jobs to be Done” Theory

Big companies also promote a view of the world of work that is still organized around a “spare parts” mindset. In this world, short-term thinking still dictates priorities and promotes a scarcity mindset. Business growth is the goal, but how we go about it matters.

Christensen's Jobs to be Done Theory is a group of principles whose aim it to make marketing more effective and innovation more predictable. People buy products and services to get a job done, it says. Rather than focusing on the product/service, or the customer, we should focus on the process.

A process is a good starting point, because growth is often the product of transformation. We go from one state to another. A broader definition of growth beyond economic value—revenue and profit—includes things like increased opportunity and options for individuals and groups.

With his theories, Christensen created new ways of thinking that gave us tools and frameworks to discover new ways of doing things. He started with questions. Why do leading companies fail to stay on top of their industries when technologies and markets change?

Today we're still asking: Why is transformation so hard to do? In recent years, Christensen came to see the term disruption as problematic. To innovate, companies focused too much on the new and overlooked simpler data points about value. Things like better access, for example. 

Successful companies often overlook their origin story. How they started with a simple problem to solve. The biggest problem with any theory is that its conception happens at a specific point in time. It starts with an observation about what's happening then.

But context changes, and we forget to update our thinking accordingly. Companies that become very good at one thing may miss the next innovation cycle due to being optimized for that process.

Investing in the long term

In 2012, Christensen published the results of applying his “jobs to be done” theory to a different context: Being a good spouse and parent. How will you Measure your Life? began as a speech to the Class of 2010 at the Harvard Business School.

Comparing the self-destruction of successful companies and successful individuals is an understandable but often fatal focus on short-term achievement and a consequent failure to invest in what truly creates value in the long term. He says:

“Typically, the way you calculate profitability, investments that pay off tomorrow go to the bottom line and are much more tangible than investments that pay off 10 years from now.

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When you have an extra ounce of energy or 30 minutes of time, instinctively and unconsciously you'll allocate it to whatever activities in your life give you the most immediate evidence of achievement, and our careers provide that immediate evidence of achievement. In contrast, investments in our families don't pay off for a very long time.”

The problem with short-term thinking is that it may create the wrong incentives. We could cut corners, rather than take the pain of looking at the impact of our decisions in the mid- and long-term. Business habits transfer to the social sphere.

Americans are working themselves to death, and sacrificing family and friends in the process. Symptoms like depression and anxiety are clues. We yield to extenuating circumstances too often. Small decisions that seem tactical, end up creating large trade-offs.

But when we start asking broader questions: How do I find satisfaction in work? How do I create a family with relationships that are meaningful and fulfilling? How do I raise kids who are responsible, kind and make good choices? As Christensen does in the book, we broaden impact.

In business we over-value experience. We don't ask what we've cultivated and harvested from that experience. This leads to over-valuing case studies and scale over scope, for example. We don't ask: How do we create a regional alternative to big companies? How do we find a mode flexible model for the increasingly complex business environment of the future?

Clayton Christensen died on January 23, 2020. He was a professor, author, and co-founder of Rose Park Advisors, a venture capital firm, and Innosight, a management consulting and investment firm specializing in innovation.

But the most impact he could have on our thinking is what he said in his later years, “Don’t worry about the level of individual prominence you have achieved; worry about the individuals you have helped become better people.” It's a scope that can scale.

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The Harvard Business Review collected his essential articles here.

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