It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. Adam Smith
Adam Smith was a Scottish philosopher and a pioneer thinker in the area of the relationship between politics and economics. His best known work, The Wealth of Nations (1776) is the first modern work of economics and his theories of how wealth is created and the forces behind economic prosperity are still influential today. His theories and observations were based on a fundamental observation that normal human behaviour is generally self-serving and cooperates only when it is in his/her self-interest. And if all people behave similarly when it comes to business, then there is an “invisible hand” guiding the ups and downs of personal wealth and the prosperity of nations.
The Invisible Hand of the Market: Adam Smith’s term, the Invisible Hand of the Market, refers to the unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically. According to Adam Smith, the process works naturally: Each individual strives to become wealthy attending only to his own gain, but to this end he must exchange what he owns or produces with others who sufficiently value what he has to offer; in this way, by division of labour and a free market, public interest is advanced.
Many of those in today’s modern business world have somehow replaced the impact of human behaviour on business performance with an almost maniacal focus on numbers, budgets, variances, costs, EBITDA and profit margins. We tend to manage with spreadsheets instead of managing and interacting with the people who actually produce the goods, buy the goods, and pay for the goods.
The Invisible Hand of Corporate Culture:
Corporate culture can be defined as the DNA of a company that tends to determine how it works and behaves. Corporate Culture is that unique combination of behaviors, beliefs, assumptions and business processes (formal and informal) that over time have become the “habitual” or “default” approach management and employees use in solving business problems and interacting with each other, customers, clients and suppliers.
And the interesting thing about habitual or default behaviours, in humans and in businesses, is that they are so obvious and ubiquitous as to be nearly invisible. While a newly hired executive or hourly employee can see the culture very clearly since it is new to them (what meetings are like, how decisions get made, who gets promoted, the stories that everyone knows), after a few months of daily work in the company, the newness wears off and now it’s just “the way we do things” and the culture is taken for granted. The expression, “It is what it is!” is a common feeling about how things are taken for granted inside most companies.
And Corporate Culture is the Invisible Hand behind most corporate failures, and successes. Look closely at the global economic meltdown that began in 2007 and you will see cultures of greed within the trading floors of banks and in the investor community at large. Look at the nuclear accident at Three Mile Island or the explosion of the Deepwater Horizon Oil Rig and you will see a culture of giving lip service to safety and teamwork.
On the other hand, look at the phenomenal success of Zappos.com (zero to $1 billion in revenue in less than 10 years) or the longevity of Buffet Holdings and you will see a strong corporate culture based on shared values and daily behaviours that breed further success.
When I was in my college economics class I probably should have paid more attention. It could have helped me avoid some business, behavioural and corporate culture mistakes of my own.
Instead of “it is what it is”; try this, “It is what you make it!”
Written and Posted by: John R. Childress
Senior Executive Advisor on Leadership, Culture and Strategy Execution Issues,
Business Author and Advisor to CEOs
Visiting Professor, IE Business School, Madrid
John also writes thriller novels!