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There are systems that are machines; there are systems that are organisms; and there are systems that are social systems. You would be really stupid to treat a machine as an organism. No machine has any goals of survival or growth. But, for some reason, we do treat organisms as machines. Actually, most companies continue to do so. Treating organisms as machines or social systems as machine might be somehow useful. But it doesn’t deliver the multitude of benefits when looking at a social system as a social system.

One of the unintended consequences of this thinking is the tendency to make people behave as though they were machines. Dehumanizing work has led to alienation from institutions, one of the biggest challenges for companies. The reductive doctrine just goes against anything humans believe in: Holistic medicine, the Earth as a global ecosystem, our planet as part of a bigger universe. We’re living in an age of expansion: To understand anything, we have to look at larger systems. Sure, we might never completely understand everything but our understanding increases when we look at the larger picture, reflecting on the largest systems our mind can comprehend.

But, first, let’s have a look how we got here:

From Industrial Revolution to modern corporation

The Industrial Revolution was about the mechanization of work. First thing we did is to take each task apart. Reducing work to elementary tasks. The next step was to mechanize those tasks. We separated tasks into two piles: tasks machines could do and tasks people were assigned to (because it was too complex for machines, human labor was cheaper, etc.). Once we completed the analysis, we aggregated our findings and developed a workflow of elementary tasks performed by men and machines. These are the basics of a modern factory.

In the early stages of industrialization, an enterprise was created to serve an owner. The only reason of existence for the enterprise was to provide the owner with a return on his investment. The worker was a machine: Input equals Output. As the size and complexity of organizations increased, it became less effective to manage them as though they were machines. Decentralizing control became necessary which was incompatible with a mechanistic conception of an organization.

The next step in organization structures was to separate the body (Corpus, meaning body), the operating unit, and the brain, management. This was a fairly easy way to manage an organization’s growth and increase the diversity of its outputs. The body was mindless. It had no choice. It was still a tool, a lever to be pulled.

In the 60’s, various civil movements (civil liberties, environmental, etc.) formed outside of social systems, insisting that their interests be better served by the systems that affected them. Ethics and social responsibility became cornerstones of successful corporations. The command and control management culture changed during that time, focusing more on managing interactions and enabling people to do their jobs better.

While a lot of progress was being made during that time, companies had to react to the advances in information technology and communication. The common belief was (and often is) that people would react mechanistically to information, meaning more and more information and better communication structures would increase the performance of businesses dramatically. As we all experienced during the Great Recession and the demise of various financial models, humans don’t react deterministically to the information they receive.

Shareholder Value vs Stakeholder Value

The main challenge for modern enterprises is to transform from a shareholder-centric to a stakeholder-centric point of view. It’s not enough anymore to create wealth for a limited amount of shareholders; modern enterprises are tasked to create and distribute wealth throughout society. The primary task for each modern enterprise is to provide productive employment with purpose. Companies have to develop communities of purpose focusing on a common cause, which emanates from common values, vision, and passion.

Sharing a common purpose helps companies to deal effectively with increasing information overload and intensifying conflicts. A social enterprise is capable of continuously dissolving conflict while increasing choice. This requires a new organizational concept that sees evolution as its most important objective. Evolution doesn’t always mean growth: Growth may occur without evolution and vice versa. This new organizational model needs to be based on the pillars of democracy, must be multi-dimensional (function, output and stakeholders), agile planning and an optimization system.

In Part 3, we’ll discuss what new forms of management are needed for the social enterprise based on the principles of Human Business Design.

In case you missed it, Part 1 talked about the nature of systems.

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When we started this venture we call BatesHook, I was reflecting on my work life and experience, trying to implement best practices into my own company, hoping to avoid the dreaded pitfalls. And I was trying to find the common thread why I loved working for this company and dreaded working for this one. Why 8 hours at one agency killed my spirit, while 16 hours here made me feel alive. It all came down to one thing: Values. One brand stood for something, the other place shared only one tangible value: shareholder return.

There’s nothing wrong with making money but if that’s the only reason for an organization to be around, you can see it permeating the entire organization, up to the C-Suite where the sound of cash registers drones out any sense of decency and humanity. Layoffs just equal cost savings not human misery. All sorts of shortcuts equal improvement of the short-term bottom line, just to conveniently ignore the long-term costs.

After the multitude of bubbles have burst, shareholder value and making money for the sake of money doesn’t feel that good anymore. And consumers are craving institutions that care and give back. This and the age of product parity lead to an avalanche of brands that suddenly care, that support businesses in making positive change, try to rebrand themselves as green or just transform communities around the world (right after they almost destroyed the whole financial system).

Most of this comes across as advertising, not as a commitment. Because it’s not rooted in real values, we are starting to deal with caring parity: Suddenly everybody cares for the wrong reason. Consumers want us to care, let’s care. Brands purely jumping on the caring bandwagon are missing out on a huge opportunity: Stand for something. Have values. And express yourself as an organization based on these values.

What gets you more excited? The horsepower of the new Accord or the power of dreams outside of Honda’s corporate walls?  What are you talking about more? That Dove has no soap scum or that physical beauty is only skin deep? What’s more interesting? The newest feature on a Dell Computer or their commitment to eliminate the digital divide? (Just an idea, Dell.)

Standing for something that’s rooted in corporate values eliminates the need to spout off undifferentiated messages, bland and politically correct brand communiques and mind-numbing feature lists. Sure, standing for something is not easy. It might offend some. Actually, it better offend some. Not everybody will like it. But real leaders don’t care. Brand leaders. Human leaders.

“The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where stands at tome of challenge and controversy.” –Dr. Martin Luther King Kr.

The values of your brand determines the value of your brand.

So, what’s your brand standing for?

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I like people who forget about safe bets and stick their heads out, risking to have their heads chopped off. I like people who take risks. And I like people who go against the grain.

And, that’s why I like Joseph Jaffe. I especially like to spar with him (We had a few of those exchanges.), hoping I could find more reasons reading his new book “Flip the funnel – How to use existing customers to gain new ones.”

Jaffe’s premise is that companies should reverse their marketing tactics and focus their efforts on customer retention by having the highest quality customer experience. (Reminded me of the Zeus Jones vision of Marketing as a Service.) By focusing on current customers and delighting them with superior service, companies can activate happy customers to become evangelists for the brand. Customer Service, often outsourced and seen as a necessary but unloved cost center, should be at the table with R&D, Marketing and Sales when strategic decisions are being made.

These are not revolutionary thoughts for many of us but rebellious ideas for the majority of companies who are still considering their customer service as a cost center and hide behind the walls of phone trees aka customer avoidance centers. The book appeals less to people knee-deep into the evolving world of Social Marketing but it should be read by anyone starting to understand that we live in a new marketing reality with changed rules.

A few additional thoughts:

- Yes, we all love Zappos. But, we don’t need to hear about them anymore. Using Zappos as the banner child for customer service has been done by too many people too many times.

- Some of the examples (Motrin, United, Obama, etc.) are tired and don’t really need to be repeated over and over again. However, Jaffe provides new case studies that I wasn’t aware of.

- Best Buy: I don’t get the hype about Twelpforce and all these great initiatives that Best Buy is developing and implementing. My problem with all this is that Best Buy offers a horrendous store experience. I just purchased a Mac and the associate asked me at least 10 times if I didn’t want to sign up for their numerous extended warranties. I’m not the only one feeling bullied and Best Buy seems to push their employees extremely hard to make a certain quota. And the results of this bullying are even apparent in Jaffe’s book: While he writes pages lauding Best Buy’s social effort, on page 239 he shares a chart from Forrester Research ranking Customer Experience for major companies. All the tweeting and blogging of Best Buy didn’t make any difference; They are still ranked in the bottom quantile or better: the hall of shame.

Social Marketing doesn’t pack a punch when it’s just used to market to people, when it’s basically masking severe organizational problems.

Social Marketing can pack a Tyson punch when it’s used to transform companies. By focusing on effectiveness of your workforce and less on efficiency. By focusing more on human interactions and less on technology. By making stakeholder value a priority, not shareholder value.

This has to be the focus of our industry in the years to come. It’s interesting to follow the evolution of Jaffe’s thinking: From post-mass media to Conversational Marketing and now the focus on Customer Service. I wonder if the next book will be about Human Business Design? Oh wait, that’s my book.

My point: Everybody involved in Social Media understands that the challenge all of us are facing are institutionalized processes and structures. We experience these challenges each and every day when evangelizing new ways to communicate within and outside of your brand. That’s why people talk about E2.0 and Social Business Design. Jaffe’s book is a good start and should be considered by anyone interested in transforming companies.

However, all of us need to dig much, much deeper. If you thought convincing companies to tweet or blog was hard, don’t bother trying to transform a business. The former is a tiny sandhill, the latter a Mount Everest. Let’s start climbing.

The B2B playbook is well known: B2B don’t focus on selling specific products, they are mostly focused on listening to customers and meeting their needs. Let’s say you are selling Cloud Computing. You have to identify first why a customer would like to switch: Lower computer and/or software costs, improved performance, improved document format compatibility, unlimited capacity, increased data reliability. In addition, sales people need to identify why customers might be hesitant to make the switch: Reliability, specific location of data is unknown, personal identifiable information can be distorted and a switch might disrupt the organization for a specific time. These insights allow you to organize your enterprise and sales organization based on customer needs, fostering long-term relationships by promoting whichever of the company’s products the customers values most at this moment in time.

Compare this customer focus to the current B2C landscape: Most companies still use the top-down method to develop products: Develop a new product based on (often) flawed customer research, such as focus groups or surveys. Hand the new product over to the marketing department which identifies segments to target, sets the price and promotions and develops the communication plan. The whole organization is set up to push products out, transact as much as possible. A short-term strategy that is showing decline in performance due to the need of consumers to develop relationships with brands.

Instead, brand have to focus on building lifetime value by humanizing the brand-people relationship and create a culture (followed by structure) to execute this new strategy.

One of the major changes in human relationship organizations is the elimination of the CMO position and transferring all responsibilities to the Chief Customer Officer. Forrester’s briefing titled “Customer Experience thrives with executive leadership” found that “firms with these leaders view customer experience as more important, have more enterprisewide customer experience efforts, report having fewer obstacles, do more primary customer research, and score better in all three areas of Experience-Based Differentiation.” Executive stewardship is imperative to implement the next steps:

• Move CRM out of IT and into the customer department.
• Use market research throughout the organization to improve customer lifetime value. As an example, R&D needs to work directly with people to develop products that answer emerging needs.
• Sales and Marketing should be merged into one division, reporting to the new Customer Division. Sales needs to step up and help marketing develop communications because they are closer to the ground and understand what consumers desire.
• Let your best sales people (your greatest fans) in and collaborate with them throughout the product development process.
• Suppliers and other stakeholders should not deal primarily with procurement, they are customers as well and should be treated as that.
• Develop new metrics that focus less on short-term goals and more on customer profitability and lifetime value. Extend these new metrics to financial reporting, helping the markets to understand that stock prices should reflect this new model. Focus on market share should be replaced by focus on customer equity value.

Transforming an organization to focus more on customers is a challenging task. However, continuing on the current path is not an option. Unless brands consider extinction an option.