Rosabeth Moss Kanter, a Professor of Business Administration at Harvard Business School believes that the traditional objective of business, which is profit-making, doesn’t reflect the way how great companies work toward success. Through her research on the most successful companies situated across more than 20 countries on 4 continents, she proves that an institutional logic lies behind the successful practices of great companies. Alongside a financial logic, these great companies hold an institutional logic by undertaking actions that add value to the society. The author, in this article, also describes SIX facets of institutional logic that change corporate leadership for the better.
The SIX facets of institutional logic that give great companies a competitive advantage are: a common purpose; a long-term view; emotional engagement; community building; innovation; and self-organization. The institutional perspective held by the great companies is powerful enough to change leadership and corporate behavior for the better.
Knowledge Nugget #1: A Common Purpose
The basic foundation of institutional logic is a common purpose and a set of institutional values; this purpose and values serve as a buffer against business uncertainties and changes brought about by globalization. That is, a common purpose and a set of values lie at the heart of every successful organization. In today’s increased globalization, organizations are not oriented towards a particular society only but they are aware of the needs of multiple societies.
Establishing a common purpose and a set of common institutional values help leaders provide a common platform for addressing business uncertainties through institutional grounding, i.e. making the organization an intrinsic part of a complex society. Institutional grounding reinforces the need of an organizational culture based on a common purpose and values.
Knowledge Nugget #2: A Long-Term Focus
Viewing an organization as a social institution gives a long-term focus to the business and short-term financial sacrifices pave way for sustainable success. Since a great company thinks of the organization as a part of the society with social responsibilities, a long-term focus justifies the organization’s short-term financial investments in building society. A great company is ready to forsake short-term benefits for achieving long-term institutional goals.
Knowledge Nugget #3: Emotional Engagement
Well-defined institutional values evoke positive emotions, stimulate motivation and thus increase employee engagement. Perhaps, that is why the leaders of great companies allocate considerable organizational resources and their own time to nurture institutional values in their organizations. In such organizations, every employee becomes emotionally engaged in his/her work and this emotional engagement of the employees gradually translates into organizational success.
Knowledge Nugget #4: Partnering with the Public
Globalization has made it impossible to tap new business opportunities existing in other countries without a genuine concern for public issues prevalent there. Since great companies view business as a part of society, one way to address the societal needs of local societies is through the formation of public-private partnerships. Cross-border and cross sector partnering is actually essential to tap potential global opportunities.
There are different forms of partnerships; these are,
- International projects with the collaboration of global organizations
- National/domestic projects with the collaboration of local government authorities
- Product or service development to address those societal needs that remain unfulfilled
- Short-term volunteer efforts in times of natural calamities
Knowledge Nugget #5: Innovation
By allocating their own time, talents, and other resources to the domestic projects of a country, without expecting anything in return, the leaders of the great companies encourage the people to work toward the fulfillment of their unmet social needs. This focus on social conditions generates valuable experiences and innovative ideas that lead to innovation in products/services, and business models. It will also connect all the partners involved in the project paving way to an institution-building process. When all the partners work together, ideas that lead to business innovations are generated.
Knowledge Nugget #6: Self-Organization
Great companies that hold an institutional logic treat their employees as self-determining professionals capable of coordinating and integrating business activities, and generating business innovation models through self-organization in addition to formal business assignments. Leaders with an institutional perspective of business encourage this self-organization of employees. Self-organization helps employees at all levels to create closely-knit networks in order to share information and innovations associated with their projects.
They are capable of making their own decisions and hence resources are allocated not only by formal organizational processes but also by the choices of these people. Such self-organizing temporary employee-networks are more flexible in making right connections and in making use of their networks to gather resources required for the projects.
All SIX facets of institutional logic- a common purpose; a long-term view; emotional engagement; community building; innovation; and self-organization are interrelated and hence must be used to reinforce one another. The great companies already use all SIX principles of institutional logic to supplement financial logic in growing their businesses. They know that institutional logic is actually a key driver of successful financial performance.
The CEO Magazine Review
Rosabeth Moss Kanter’s article on ‘institutional logic’ is relevant to these times of increasing globalization. In fact, this topic is now widely-discussed in corporate circles as ‘Corporate Social Responsibility’ (CSR) and some organizations already have separate business divisions that take care of their CSR initiatives. Globalization has made it mandatory for every corporate firm to think deeply and differently about CSR. Great companies that have already made a mark on the social landscape with their commitment to build enduring institutions serve as a role model for today’s multinational corporations aspiring for global reach. Balancing institutional logic with financial logic is the only solution for such companies to build trusting local community-networks and to empower local societies.
Rosabeth Moss Kanter is the Ernest L. Arbuckle professor of business at Harvard Business School. She is also director and chair of the Harvard University Advanced Leadership Initiative.