Adam Smith and Corporate Culture

adam smith

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.

Dilbert and the MBA Syndrome

Dilbert and the MBA Syndrome

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

e: john@johnrchildress.com
Twitter @bizjrchildress

Read John’s blog,  Business Books Website

On Amazon: LEVERAGE: The CEO’s Guide to Corporate Culture

Read  The Economist review of LEVERAGE
Also on Amazon:   FASTBREAK: The CEO’s Guide to Strategy Execution

John also writes thriller novels!

About johnrchildress

John Childress is currently Visiting Professor in Strategy and Culture at IE Business School in Madrid and a pioneer in the field of strategy execution, culture change, executive leadership and organization effectiveness, author of several books and numerous articles on leadership, an effective public speaker and workshop facilitator for Boards and senior executive teams. In 1978 John co-founded The Senn-Delaney Leadership Consulting Group, the first international consulting firm to focus exclusively on culture change, leadership development and senior team alignment. Between 1978 and 2000 he served as its President and CEO and guided the international expansion of the company. His work with senior leadership teams has included companies in crisis (GPU Nuclear – owner of the Three Mile Island Nuclear Plants following the accident), deregulated industries (natural gas pipelines, telecommunications and the breakup of The Bell Telephone Companies), mergers and acquisitions and classic business turnaround scenarios with global organizations from the Fortune 500 and FTSE 250 ranks. He has designed and conducted consulting engagements in the US, UK, Europe, Middle East, Africa, China and Asia. Currently John is an independent advisor to CEO’s, Boards, management teams and organisations on strategy execution, corporate culture, leadership team effectiveness, business performance and executive development. John was born in the Cascade Mountains of Oregon and eventually moved to Carmel Highlands, California during most of his business career. John is a Phi Beta Kappa scholar with a BA degree (Magna cum Laude) from the University of California, a Masters Degree from Harvard University and was a PhD candidate at the University of Hawaii before deciding on a career as a business entrepreneur in the mid-70s. In 1968-69 he attended the American University of Beirut and it was there that his interest in cultures, leadership and group dynamics began to take shape. John Childress resides in London and the south of France with his family and is an avid flyfisherman, with recent trips to Alaska, the Amazon River, Tierra del Fuego, and Kamchatka in the far east of Russia. He is a trustee for Young Virtuosi, a foundation to support talented young musicians. You can reach John at john@johnrchildress.com or john.childress@theprincipiagroup.com
This entry was posted in corporate culture, Human Psychology, John R Childress, Psychology, the business of business and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

One Response to Adam Smith and Corporate Culture

  1. Frank Tempesta says:

    excellent post, John. >

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s