Here is an excerpt from an article written by Marya Besharov, Wendy K. Smith and Michael L. Tushman for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
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It’s notoriously difficult for organizations to keep faith with two equally important goals. A lot try. For-profit companies make grand pronouncements about social responsibility, but their resolve nearly always weakens when shareholder earnings are threatened. “Social” businesses and nonprofits often go in the opposite direction, privileging mission over financial viability.
Something similar often happens when companies try to invent new businesses while keeping the old ones going. They try to support both businesses, but when money’s tight, one of the two nearly always wins out.
We call these sorts of tradeoffs “strategic paradoxes.” To manage them effectively, leaders need more than just resolve. They also need a carefully designed framework of support. Our research suggests that this framework should include three important elements: organizational guardrails, dynamic decision making, and what we call both/and leadership.
Organizational guardrails are designed to ensure that, if one party has more power, the weaker party gets some extra protection. They can help in many different situations.
Consider what happened at Digital Divide Data (DDD), a social business that trains and hires underprivileged workers to do outsourced IT work. DDD’s founder and initial management team knew that they focused more energy on their mission than on making money, so they made sure that their board included some tough-minded, business-savvy members. That decision helped save the company. When one of those board members noticed some troubling patterns, he dug into the books and discovered that unless DDD got serious about making money, it would have to shut down in a matter of months. Senior leaders then made some tough but essential changes and turned DDD around.
Similarly, but at the opposite end of the spectrum, when Unilever approached Ben Cohen and Jerry Greenfield about acquiring Ben and Jerry’s, the two worried that the acquisition would compromise their company’s social-responsibility mission. So they negotiated for an independent board of directors that would keep an eye on their mission and think beyond just profits and growth.
The senior team at Corning, for its part, creates guardrails of a different kind. Aware that product groups have a tendency to kill innovations that they feel will cannibalize existing revenue streams, the senior team puts the most promising innovation projects under the protection of a general manager in a separate part of the company.
Organizational guardrails alone won’t do the trick. A springtime decision that pushes resources in one direction may need to be revised in the fall, when the context has changed. This requires dynamic decision making. The best leaders in dual-purpose organizations consider their high-level principles sacrosanct but their ground-level decisions provisional. This is especially important in organizations with social-vs-financial tradeoffs to make. DDD’s leaders initially hired profoundly disadvantaged people in Cambodia without much concern for their professional qualifications – women rescued from sex trafficking, for example, and people with serious physical disabilities. Great for the mission, but not the most efficient way to optimize profits. Since then, the company has modified its practices to better meet its financial objectives: it has stuck to its mission of hiring underprivileged workers, but now it also screens them for analytical skills and learning capacity. DDD also engages in dynamic decision making when selecting new work locations, with an eye to keeping the company both mission-driven and financially sustainable.
For-profit companies also find it essential to revise decisions as new opportunities arise and new problems emerge. Lululemon, the yoga apparel manufacturer, initially grew based on a decentralized, employee-centric culture. When a new CEO wanted to grow faster and take the company public, he brought in leaders with marketing and operations expertise, but their focus on growth and efficiency trampled on some of the firm’s core strengths. Eventually the firm changed direction again, recommitting to employee development and pulling back on the aggressive growth goals. In short, the company shifted dynamically over time—emphasizing first culture and then the business before ultimately finding a way to manage both.
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Here is a direct link to the complete article.
Marya Besharov is an Associate Professor of Organizational Behavior at the ILR School at Cornell University.
Wendy K. Smith is a professor at the University of Delaware’s Alfred Lerner College of Business and Economics. Her Twitter account is @profwendysmith.
Michael L. Tushman is the Paul R. Lawrence MBA Class of 1942 Professor of Business Administration at Harvard Business School and director of Change Logic, a Boston-based consulting firm specializing in innovation, leadership, and change. He is the co-author, with Charles O’Reilly, of of Lead and Disrupt, (Stanford University Press, 2016). You can follow him on Twitter at @MichaelTushman.