Design Thinking June 11, 2008, 2:55PM EST

Peter Senge's Necessary Revolution

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Peter Senge, author of the new book, The Necessary Revolution Barry Hetherington

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The shareholder had to be protected. But it makes no sense any more. We live in a world that has a surplus of financial capital, and great shortages of natural capital, human capital, and, in some places, social capital. We're optimizing around one input!

How else does the corporation need to change?

You go to any MBA program, and you will be taught the theory of the firm, that the purpose of the firm is the maximization of return on invested capital. I always thought this was a kind of lunacy. A well-managed business will have a high return on invested capital. But that's a consequence. It's not a way to manage a business. I remember a great quote of Peter Drucker. He said: "Profit for a company is like oxygen for a person. If you don't have enough of it, you're out of the game. But if you think your life is about breathing, you're really missing something." The purpose [of an enterprise] is never making money. And I think a lot of the best innovators inside big companies, the reason they succeed is that they really understand the theory of their business.

Costco is about long-term, reliable, quality supply. It's the key to the business. When the woman who got the Food Lab work embedded in Costco first started talking about the predicament of farmers, people were a little suspicious. They thought the predicament of farmers is a big problem in the world. That's why there are charities, and that's why we give money to charities. They couldn't see the connection to their business until she got them to see that they wouldn't have long-term quality supply if farming communities were destroyed. So she connected the issue to the theory of their business—but not the economic theory of the firm. Well-managed businesses could not possibly have gotten where they are believing this [economic theory of the firm] nonsense.

Where are we in the adoption of the Necessary Revolution?

We're pretty much in the beginning. I can certainly say that from the 10 years since we organized this network, the people who joined were small bands of radicals in their companies, even if they were senior. But in virtually all of those companies, those people aren't radicals anymore. There are wild cards obviously: major economic decline. Innovation requires resources to invest, and you can see many companies pulling back and going into an intense protective mode in a major extended period of financial distress.

What role can governments play?

If you are realistic about how our present society works, the economic clout—and a lot of the political clout, frankly—is in the business sector. And it's the locus of innovation. But you've got to build these networks. I think Paul Hawken's recent book, Blessed Unrest: How the Largest Movement in the World Came into Being and Why No One Saw It Coming (Viking Press, 2007) was on the money. The growth of the civil society is historic, and in some ways it's a response to the inability of government to deal with these kind of issues. Governments, especially democratic ones, are short-term and nationalistic. These problems are long-term and global.

And businesses are inherently more global?

Yes, they're global, and because they're global they've begun to build partnerships across their value chains. But I don't think business is sufficient. We're going to see a lot of partnerships, as companies partner with global organizations like the World Wildlife Fund and Oxfam and, eventually, with governments.

Business Exchange related topics:
Sustainable Business Practices
Leadership
Globalization
Organizational Practices