Can you grow a business profitably while improving the lives of people?
In today’s post, I am publishing a translated version of the blog post I co-wrote with François Beauregard, President and Founder of Pyxis Technologies. The article is reproduced here with permission.
Quite by chance I came across an article (The Smart Growth Manifesto) that triggered some interesting thoughts in my mind. I immediately sent the article to François asking him about Pyxis’ position compared to what is described in the article as the 21st century capitalism.
Below is the content of our exchange and personal perspectives on this article.
Martin: In recent years, I frequently asked myself “Are we the last generation for whom the standard of living is better than the generation that preceded it? Will our children and our children’s children have an income level lower than ours? Will they be happier? “. The type of organizations described in this article is rare but I believe that Pyxis would qualify as one of these companies. What do you think?
François: In your opinion, how does Pyxis rank compared to other companies?
Martin: I think we are definitely in the “trail blazers” category. Very few organizations have a business model that fits the way of thinking and operating described in the article. I believe we could establish an exciting objective to continue our rapid growth while remaining true to our business model. In fact, the model described in the article is close to the concept of “NPII” (Number of Positively Impacted Individuals) and the concept of welfare which we often referred to at Pyxis – maybe without the negative connotation of the long robes, the sandals and the flowers in our hair! I like the phrase People Outcome used in the article and the definition of smart growth – “smart growth is sustainable, equitable, and resilient“.
Does this speak to you?
François: Of course it speaks to me, it’s screaming in my head! Whether or not we agree with everything stated in this article, it certainly raises several interesting lines of thought and it seems very healthy to ponder about them and identify elements that could lead us to make improvements to our organization. Let’s start with the first pillar Outcomes, not income that translates for me as well-being more than remuneration. I have been repeating for a while now that the fundamental objective of Pyxis is not to generate profit for its shareholders but to achieve its mission, its purpose; to the point that many believe that money has no importance at Pyxis. Money is absolutely essential for a company to function, it is the air and without air the system can not breathe and it dies. In this analogy, participants in the enterprise would be seen as the muscles that allow the company to act, to make things happen.
Having a purpose that is shared by all ensures that the system is geared towards achieving a fundamental objective and avoids wasting energy to move in inconsistent directions. For Pyxis, the reason for being is: Pyxis helps software development organizations to become places where results, quality of life and pleasure coexist in a sustainable way by being first an example of what it proposes to its customers. Having defined a clear future makes it possible to set concrete targets.
To go back to well-being more than remuneration, it is my firm belief that if the employees are also the shareholders of the organisation that points to (but not absolutely) a more responsible (sustainable) and equitable model of redistribution of wealth. This also leads to a better balance between the desire to produce economic benefits in the short term for shareholders, and long-term value creation and welfare for the employees (in fact the shareholders). In our case, we set up a worker-shareholders cooperative (WSC) who now holds 30% of the companies’ share (Class A) and there are efforts underway to significantly increase the percentage of shares held by the WSC of Pyxis.
I’d like to hear you on Connections, not transactions.
Martin: It’s interesting that you translated Outcomes, not income as well-being more than remuneration. At the last Open Space held at Pyxis in April, I frequently used Wellness, rather than ownership. I think it extends the notion of personal happiness to a wider meaning than the simple financial perspective.
On the other hand, I agree with you that some people within our organization incorrectly interpret the message when you state that the main objective of the organization is not to generate profit. I heard some people mention that happiness and pleasure were the fundamental objectives and that money is not a priority. I know you try to correct perceptions whenever you have the opportunity.
On a completely different perspective, the notion of fairness is a concept that is also confusing for some and causes major discrepancies. In my opinion, fairness is a concept that applies to both the opportunities and the results. First, fairness in opportunities means that the largest number – ideally all – have access to participate in the economic process and to benefit from it. I am not talking about charity or social programs, but a true opportunity to be part of the economic process. I like, among other things, the concept of micro-lending such as the Grameen Bank or organizations like Kiva, which allows individuals to participate in the local economy.
On the other hand, fairness in earnings means that individuals are rewarded in proportion to their contributions. Some mistakenly believe that equity in the results means that everyone must have an equal portion of the benefits. Fairness and equality are not the same thing. I think fairness means that the benefits are available to all of those who participated in the achievement of the objectives and the distribution is in proportion to the contribution of the individuals. Recent examples of senior American executives who pocketed large bonuses when their company came close to bankruptcy is quite absurd.
In line with the concept of welfare, Connections, not transactions take us back to a more human perspective of trade and economics. Pre-industrialization commercial transactions were much more collaborative. The local farmer didn’t aim to maximize its revenues at the expense of its customers. Not only did the farmer not have that goal, but the maximization of income was not in his interest since he was himself a client of his customers. If the farmer inflated the price of his eggs to increase his personal wealth, the baker would do the same. The system would balanced itself as short-term profit of the farmer would be quickly eliminated by higher prices for goods purchased from the baker.
What do you think?
François: When I read the previous paragraphs, I can not help but think of Lean and references to the principle of optimizing the whole process and avoid local optimizations. It’s been quite some time that Toyota has understood that the objective is to optimize the supply chain as a whole to create maximum value for all stakeholders. This is quite contrasting with what I saw in North America since the beginning of my career where I feel that the mental model applied to maximize the value received is to keep pressure on the suppliers without considering the value created for them. In other words, in this mental model, if a supplier is successful, it is absolutely necessary to renegotiate their prices downwards to ensure the organization obtains the maximum value for its money. This is the model of the “pressure on the throat” that inevitably leads to sub-optimizations and ultimately to conflicts.
Connections, not transactions in my opinion represents a huge challenge because it forces us to significantly revise the way we do business. When I talk about my perspective of business to customers and suppliers and I sometime have the impression that they take me for an extra-terrestrial.
Let’s now go to People, not product.
Martin: For People, not product, I will tackle this one from a different angle than the one used by Umair Haque. For me, the perspective is less about product and more about humanization of work. For too long, organizational structures assumed that people at the bottom of the pyramid were less competent and less capable to determine for themselves how best to perform their tasks. The methods, processes and outcomes were defined at the top of the hierarchy, while execution was delegated to non-managerial staff.
As the economy turns toward services and knowledge, the role of the managers is losing its importance while advanced technical expertise increases in value. The challenge is therefore to put in place mechanisms – not structures – that maximize cooperation and knowledge sharing to achieve the organizational objectives. Decentralized and non-hierarchical structures set up within Pyxis are a good example, aren’t they?
François: You knew that is a core belief of mine! Let’s begin with People, not product. I was strongly influenced by the work of Peter Block, in particular his book Stewardship. At Pyxis, I tried to create a strong culture focused on individuals and their individual responsibility (not to be confused with individualism). I’m looking for a way to explain it all and I see no other way than to express my vision of the enterprise systems. Here I go.
A company is a human system whose complexity is growing exponentially, a system comprising 100 individuals is much more than 10 times more complex than a system with 10 individuals. For the purpose of this post, let’s imagine for a moment a company called Chaotic Inc. which includes 100 employees. In this organization, there is no structure, no rules, no identified purpose. It is interesting to observe Chaotic Inc. but it is obvious that the system is not optimal for achieving a fundamental objective.
We have discussed above, giving the company a purpose that is understood and shared by all stakeholders to give direction to the system thus avoiding to some extent that stakeholders spend energies tackling fundamentally incompatible goals. Clearly establishing the values for the participants to understand the appropriate behaviors and encouraged those behavior when operating inside the company (the system). In other words, some defining rules for what is in play and what is out of play. So one can imagine that Chaotic Inc. after a collaborative exercise to establish its purpose, its values and vision over several years is significantly more effective then it would have been even if its operations were still relatively chaotic – sort of speak.
To become a successful business and achieve its purpose and its vision, Chaotic Inc. should probably put in place structures. It then becomes quite difficult to adapt from a systemic point of view, since putting structures in place sediments the system because if the structure is inadequate with an evolving system, removing the inappropriate structure in order to replace them for better suites structures requires a substantial quantity of energy. It is therefore essential to establish mechanisms that encourage flexibility and dynamism of the system (more details about this topic in an upcoming blog post). The basic structure most common in our organizations is the hierarchical structure and it is inappropriate to me in a system as complex as a modern business. So then what is the alternative? At Pyxis we adopted a principle of mapping the areas of responsibility without violating the fundamental principle that no individual can be responsible for someone else. This helps to loosen the system by clarifying who is responsible for what, and specifying processes (more specific rules about what is in play and what is out of play) without giving formal authority.
Within Pyxis, we also put structures in place to develop the maturity and competence of all employees. It may be interesting to write a few posts to elaborate on these structures. Much work remains to be done but I think we have in place the foundations of a highly-performing human system. As such, Pyxis’ 2013 vision is: By implementing what we believe, repeatedly obtain extraordinary results in the projects we are involved with.
Whew! You want to initiative Creativity, not productivity.
Martin: There are considerable efforts being invested in achieving maximum productivity, i.e. producing as much as possible at the lowest cost. In my opinion, the perspective of productivity without other consideration is absolutely incorrect. Creativity, not productivity is for me a fair and sustainable productivity, which is different than simple creativity aimed only at improving productivity. In several sectors, the unit production costs are so low that organization come to a complete waste of resources at the end of the cycle – they sell 60% of their production at full price and they discard the remaining 40% since its production cost is not high.
In the context of software development, this is equivalent to writing more lines of code at a lower unit cost. Organizations find ways to ensure that resources produce more (extensions of work hours, outsourcing, time constraints) without wondering if there are better way to achieve results. Using creativity and innovation in production methods, achieves better results and hence gives more value to the organization. I believe that evolutionary processes are not desirable. It takes innovation and revolutions rather than evolution methods.
It is time that organizations begin to think in terms of results rather than accounting costs or productivity as per the Taylorist approach – this is what Pyxis is aiming to do.
At the end of his article, the author raises an interesting question Can you build a business powered by smart growth? I know you would answer yes to this question. The question that applies to Pyxis is rather, how does it happen?
François: It is a difficult question. What comes to mind is how Peter Block discusses this issue in his work where he talks about the role of the social architect, creating space for individuals to act on what is important for them. I take this personal commitment to Pyxis and strongly wishes that others would do the same.
Martin: Finally, our exchange on the theme of 21st century capitalism has raised the following question for me: “For the shareholder-employees, what concrete evidence would show that the business model set forth by Pyxis really works?” Although preliminary, my response would be as follows:
Using varied and innovative approaches Pyxis substantially increases the level of performance of the companies it serves. As such, Pyxis generates a high profitability that it re-distributes to its shareholder-employees and to the community.
To its shareholder-employees:
- By introducing the 80% rule where shareholder-employees receive 100% of their salary while working 80% of the time on an annual basis. Individuals use the remaining 20% to spend more time with their family and their friends, their colleagues and their community;
- By paying annual bonus and dividends in relation to company performance;
- By increasing the capital value of the company.
To the community:
- By allocating financial and human resources to advance social causes.
I’ll leave you the last word.
François: I really enjoyed this collaborative mode of writing and I encourage everyone to try it out. Martin, thank you for having kept our energy level high and helped me write about a topic that is really close to my heart. Fortunately, we both discovered there are plenty of opportunities continue this conversation.
Stay tuned …