Ethics and innovation

Benito Teehankee
May 24, 2006

Is there a trade-off between ethics and making money?  We often think so.  Therefore, unless there is enough fear that legal punishment or negative public opinion cannot be avoided, decisions will likely favor the financially rewarding, even if ethically dubious, course of action.

False trade-off thinking is the enemy of innovation.  Before the 80s, most managers wrongly believed there was a trade-off between improving quality and lowering cost.   The root of the fallacy was the assumption that the organization, its product designs and the processes that delivered these products were fixed.   The Japanese blew this thinking out of the water by showing that once quality was properly defined in terms of meeting customer requirements, innovative changes in product design and processes led to better quality and lower cost products.

Thus, the notion that commitment to product and process innovation in order to better serve the needs of customers has shattered the false trade-off of low cost vs. high quality.  Today’s progressive managers recognize this as the central principle of total quality management.

A false trade-off also rears its ugly head in the area of managing for social responsibility.  The thinking goes this way:  being concerned about people and the community costs more.  We must contain our costs to be competitive.  Ergo, we can’t afford to be concerned about people and the community.  Does this seeming forced-choice have a familiar ring?  

It should because the thinking has always been around.   In the 80s, I used to wonder why many cafeterias and fast food restaurants didn’t serve salads to give their customers healthy choices.  One cafeteria owner I spoke to said it would be too costly and, besides, customers didn’t really want it.  The private joke among my friends who frequented that cafeteria was that if we could find a way to sell back to him the lard we were accumulating in our blood streams we would be very rich.

Nowadays, thank God, it’s difficult to find a fast food restaurant that does not offer salads and other healthier choices.  What’s more, some of the most interesting fast food ads have created demand for these companies’ innovative salad offerings.  This trend proves what we knew all along in the 80s:  it was possible to offer salads despite its initial costliness and customers can be influenced to want it, just as advertising has influenced them to want everything else.

What about making a positive social impact and enhancing one’s ability to create business value?  Is this a trade-off?  Hardly.  Cisco Systems’ Networking Academy Program is a good example of seamlessly achieving both.  While Cisco is best known for producing networking equipment and routers used to connect computers to the Internet,  it leveraged on its unique assets and expertise to create an educational program which supports the training and certification of  disadvantaged youth in network administration and related IT skills.   Cisco has established academies in some of the most economically challenged communities around the world – even in the Philippines.  The employability this provides the youth while enhancing Cisco’s competitive capability is an excellent example of what is possible when no-nonsense business thinking meets social commitment.

Good management achieves financial success together with ethical standards through value-creating innovations in products, services, processes and stakeholder relationships.   Good management recognizes the often-conflicting demands of multiple stakeholders and uses these as stimuli to achieving win-win solutions which satisfy such conflicting demands.  Good management is committed to integrating business and ethics instead of treating them as separate considerations.   By weaving ethical thinking into the very fabric of doing business, it harnesses the creative energies of the company, in its totality,  towards creating real and long-term value for consumers, employees, investors, the community and society as a whole.

Since innovative thinking is at the core of good management, it’s natural to ask whether there is enough of it among managers.   I’m not sure there is.   For one thing, business schools do not systematically teach creativity and innovation as an approach to management, focusing instead on pro-forma approaches to business planning and financial viability.  Still, business history assures us that there will always be managers and entrepreneurs who will persevere with innovative thinking despite overwhelming odds.  As Thomas Edison once said, invention is 1% inspiration and 99% perspiration.  Managers committed to managing ethically and innovatively will convert seeming trade-offs from ready-made excuses to worthwhile business challenges.

Dr. Benito L. Teehankee is an associate professor at the Graduate School of Business of De La Salle Professional Schools.  He can be emailed at teehankeeb@dlsu.edu.ph.