Home > Faculty > Business of Humanity
Professors Look to Bring the Human Element into Business Models
John Camillus and Bopaya Bidanda are intrigued by the likelihood that, of the "big three" automakers, Ford Motor Company appears to be the one most able to survive the economic recession intact.
If you ask them, they'll tell you it is due significantly to the humane ideals that Ford has embraced in recent years: making quality "job 1," giving mission-critical importance to sustainability, and emphasizing diversity and gender equality among employees. Ford's cars today match the reliability of those produced by Japanese automakers. It has created what is acknowledged to be by far the best midsized hybrid car on the market. Its female car designers were the first to develop adjustable foot pedals to keep women from pulling their seats dangerously close to the steering wheel. And Ford's workers in rural Brazil, many of whom have no previous industrial experience and half of whom are female, run one of the most advanced, flexible, and productive car manufacturing operations in the world.
"Ford's humanity-oriented decisions have helped them get into the relatively positive situation they are in now," says Camillus, Donald R. Beall Professor of Strategic Management at the Joseph M. Katz Graduate School of Business.
Camillus believes Ford and other companies have demonstrated what he expects the rest of the business world eventually will recognize: that accounting for human factors such as safety, quality, employee satisfaction, diversity, social sustainability, and environmental impact will have an immediate positive effect on the bottom line as well as enhance long-term viability and naturally create a more robust company.
A multidisciplinary team of researchers at the University of Pittsburgh, led by Camillus and Bidanda, industrial engineering department chair and Ernest E. Roth Professor at the Swanson School of Engineering, are looking to shift the primary focus of business decisions from short-term accounting profits to a set of criteria they have assembled under a rubric labeled the Business of Humanity. They hope to demonstrate that their approach effectively addresses some of the most complex problems companies are facing today-and that it is better for business as well as humanity.
Significant Social Institutions
Throughout his career in both academia and consulting, Camillus has acted on the belief that a company's health and fortunes cannot help but be influenced by the way it relates to each of its key stakeholders: employees, customers, shareholders, and surrounding communities. He feels the most successful enterprises see these as symbiotic relationships and recognize that they are significant social institutions-not just engines of profit. "Profits are a consequence of creating and offering value to individuals and society, and businesses must recognize this hierarchy," he says.
For too long, companies around the world have acted as though they function in a vacuum, without influence on or interest in the problems around them. To tackle such issues, some would argue, would draw attention away from return on investment (ROI), profit margin, and other traditional measures of a company's economic health.
In their research, Camillus and Bidanda have found evidence suggesting that, in reality, a company's future is inextricably tied to that of its multiple stakeholders. "One of the things we want to do," Bidanda says, "is share with industry [that] putting the person back into the equation makes a huge difference."
Twenty years ago, investing in quality was seen as detracting from immediate profits. The shift in thinking "went from quality as a cost to quality is free," says Camillus. "It doesn't cost you anything [to improve quality]. It actually enhances profits."
Companies that invest in quality improve their processes and products, Camillus says, and this means there are fewer rejections in the manufacturing process, production costs decrease, fewer warranty services are required, customers are happier and loyal, and products can be priced higher because customers will pay a premium for a superior product.
He cites Apple Inc. as one example: The iPod can command a higher retail price than an off-name MP3 player due to its perceived higher quality in addition to the value it provides because of its link with iTunes.
Defining Humanity
Camillus and Bidanda define "humanity" in two ways: humaneness, which covers issues such as ergonomics, safety, and good design, and humankind, meaning that businesses recognize the value of serving a range of economic strata and respond to the global nature of the economy.
The humankind concept suggests there is value in serving the large populations of low-income families and individuals that exist throughout the world, particularly in developing countries. Camillus cites the cell phone market in India as an example. Every month, 9 million cell phones are sold in India-a staggering number that rivals the entire population of small countries. The reason is that companies are producing inexpensive, functional phones that can be sold to poor people. Airtime in India is the cheapest in the world, so now the rural farmer, when negotiating with a middleman, can call to find out what price his crops should bring in distant markets and the housewife can rent her phone to neighbors, which increases her family's income and their ability to buy more goods to improve their lives.
By serving the needs of an often-forgot-ten population, businesses are making billions, says Camillus. And case studies show that the technological innovations that enable companies to serve these markets at very low price points stimulate new and better products that then can be targeted to higher-income segments.
To illustrate humaneness, Camillus talks about designing assembly lines that are worker friendly and improve productivity. Bidanda points to the embedded communications solutions and research and development company Sasken Communication Technologies, Ltd., which is headquartered in India, for another example: Before employees take pay cuts, executives reduce their own salaries. Before employees are laid off, management thins its own ranks.
"That would be unheard of in the United States," says Bidanda.
When organizations put the rank and file first, employees are more likely to act in the company's best interest, because they see it as inextricably tied to their own, says Camillus. These companies earn the hearts and minds of their employees instead of just buying their time; they recognize employees possess critical knowledge that is the source of continuing competitive advantage.
To build their case, Camillus, Bidanda, and the rest of their research team are taking a multipronged approach. The team is preparing a series of case studies on companies from around the world, with two or three each from the Czech Republic, Brazil, the United States, and India already under way. Case study leads also have been identified in Russia and China.
"Companies outside the United States have long studied the United States as a role model," explains Bidanda. "But now what we'd like to do is study best practices around the world and bring that to bear here." The companies studied employ the Business of Humanity principles, and the professors plan to study the approach to and effects of the business decisions in each case. In addition to the case studies, the team will conduct empirical analyses employing classical event study methodology with large sample sizes.
Team members also plan to employ Web 2.0 approaches to enrich their studies with input from a worldwide network, and, in 2010, they intend to hold a conference at Pitt and invite academics and business practitioners to share progress and shape future efforts.
Untangling 'Wicked Problems'
One of the concepts about which Camillus has written is that of "wicked problems," a term that describes complex issues with multiple causes and no correct answers. The wicked problem, he writes in Harvard Business Review (May 2008), involves multiple stakeholders who have different and conflicting priorities.
"If you look at the notion of humanity, we are talking about multiple stakeholders," he says. "Managers have, in a sense, ignored the complexities of business decisions and applied traditional problem-solving methods more suitable to well-defined problems with clear-cut alternative solutions.
"Business decision making that focuses on singular measures such as profits and ROI fails to recognize the intrinsic inadequacies of such measures. They are susceptible to manipulation in a variety of ways. And accounting profits based on historical costs do not necessarily map well onto economic profits, which are based on opportunity costs. Beyond that, they do not reflect the goals of a variety of stakeholders. This is where the criteria suggested by the Business of Humanity and the processes suited to wicked problems come into play."
It's not that the Business of Humanity disregards profits, he continues. In fact, the contrary is true. Camillus believes this project is different from those that stress the importance of corporate social responsibility on moral bases and as a social imperative, as it is intended to demonstrate that employing humanity as the basis for decision making grows profits and makes good business sense.
Ripe for New Thinking?
Though Camillus recognizes that getting the business world to embrace the concept of humanity-centered thinking as the basis for profitability would represent a major culture shift, he believes the time is right to begin what he describes as "a continuing effort," particularly because of the stresses that businesses currently are experiencing.
When businesses are struggling, some will be more open to new concepts and alternative approaches as a means of curing what ails them, he points out. And if that's the case, it is the particular responsibility of universities to show how to make better approaches work. He notes: "I don't think in a professional school you can forget your responsibility to positively impact business." Toward this end, the project seeks to describe how best-practice companies make humanity-based decisions and identify and estimate the economic effects of these decisions.
Without putting workable theories into practice, "it's like a tree falling in the forest with nobody there to hear it."
