We are productive because of an internal urge to grow and a need to be admired by others. We build institutions, from corporations to nonprofits, to aid in our journey towards attaining our goals. But what are our goals and how can we obtain them through our institutions and as individuals?
As the Harvard Business Review states, it’s the combination of mental, business, and measurement that allows real transformation to occur for businesses. Through understanding how these businesses can grow, we become stronger investors, employees and can transform ourselves – as we our the managers of our lives.
For a corporation focused solely on profit, the goal is straightforward: make money as cheaply as possible. Michael Porter, the father of strategic management, distinguishes between operational effectiveness (OE) and strategic positioning. OE is the process of optimizing operations while positioning is the art of differentiating from the competition.
While OE is necessary to effectively compete, it is not sufficient for success. Companies can copy one another through benchmarking, outsourcing, and other methods thereby leading to absolute improvement but to stagnation within the industry relative to competitors. This copying leads to convergence, price wars and falling profitability. Limiting competition, through M&A or anticompetitive actions, is pretty much the only way forward without positional differentiation.
Competitive strategy is about being different. Activities are the building blocks of organizations and tradeoffs exist at every turn. Decisions need to be made at many places, but when chosen activities mutually reinforce one another, competitors cannot imitate one without rebuilding the entire, interlocking system. By fitting these activities to reinforce one another, an organization can differentiate itself form the competition and deepen its strategic position. Positioning that incorporates relevant OE drives competitive advantage and sustainable profitability.
Another way of looking at this is through Blue Oceans Strategy. As a growing shark, would you rather swim in a red ocean – full of hungry, aggressive competitors – or an uncharted, blue ocean of your own? By focusing on unique positioning, an organization has its right of way.
The measurement of performance, through financial accounting and reporting – while imperfect – is standardized and widely understood. For other organizations, however, the goals and measurement are cloudier.
Nonprofits are organizations that are driven by motives other than profits, including philanthropies, campaigns, governments, NGOs and others. A philanthropic charity, for example, may ostensibly focus on providing welfare to beneficiaries, but needs to find a balance between impacting one person a lot and many people very little. On the other hand, a political action committee may want a particular piece of legislation enacted and cease to have any purpose after.
Like corporations, nonprofits can benefit from strategic positioning and OE. Using new approaches to solve old problems can accomplish new heights, while operating efficiently frees resources for increased scale. Yet, it the very prospect of measuring impact is much more difficult than simply counting profits.
Monitoring and evaluation (M&E) is the process of using quantifiable metrics to set strategy, assess performance, and make. It establishes links between the past, present and future actions as well as benchmarking to competitors. M&E for nonprofits what profits are for for-profits.
The M&E process accounts for a nonprofit’s success and structures strategy refinement. The indicators chosen to quantify, follow and report explain the strategic positioning of the company (i.e. what the goals are) and speaks to the performance of the venture, especially when contrasted with benchmarks.
Most institutions – as well as people – are driven by a mixture of financial and non-financial goals as focus on either extreme alone is not sustainable. A company that does not focus on the interests of stakeholders, including employees, customers, suppliers, and the environment, faces increased risks such as poor retention and expensive turnover, fewer interested counterparts, and increased litigation. Likewise, a charity that mismanages cash flows and overspends would require ever increased fundraising – and even if it does great work would not be able to provide consistent service or compensation to employees and suppliers. To continue operations sustainably – be a going concern – every institution and individual needs to be cognizant of monetary and community value they produce and consume.
While corporations officially focus on financial returns when issuing debt (bonds) and equity (stocks), they differ in terms of sustainability profiles. ‘ESG’ is a paradigm that measures a broad array of Environmental, Social, and Governance standards and criteria of corporate sustainability. Investors interested in diversified portfolios have a range of options available.
Institutions are just groups of people with a core mission. Just like some nonprofits, we can get mismanage our self-evaluation. Just like some corporations, we can get lost in an endless rat race trying to be everything for everyone.
Self-evaluation can be difficult. Through negative self-judgement and criticism, you can be your harshest critic and seek out confirmation to support this view. No matter how accomplished you are or what your actual problems is, it is easy to frame your world in someone else’s narrow version of attractiveness, success, or happiness. On the other hand, you can reject constructive criticism from others and double down on negative habits and, with growing distrust of others, frame a darker world.
Through introspection one can gain self-awareness, and through exploration discover where you contribute best as a unique individual. Practices such as mindfulness, journals, and therapeutic dialogue, can reframe how you see the world and center your emotions. Resolving inner conflicts can renew your sense of gratitude and help you recognize what matters to you. Keeping track of your progress, requesting constructive criticism openly, and finding mentors that care about your development is akin to instituting a personal M&E system.
Peter Drucker, the father of management, believed that we live in an age of unprecedented opportunity but that it is your responsibility to manage yourself in order to achieve your goals. By identifying your strengths, preferred work styles, and values you can identify where you belong. Belonging, however, is not about fitting in as acceptable but standing out as a star performer by making the greatest contribution.
What do you think?