The Minnesota Way of Doing Business

Friday, October 10, 2008

In recognition of Minnesota's sesquisentennial, the Hill Center for Ethical Business Leadership and the Minnesota Office of the Secretary of State organized The Way of Minnesota Business Symposium. The October 2 event, sponsored by the Opus College of Business' SAIP Institute and St. Paul Travelers convened 150 of the state's business leaders to explore the history, the current state and the future of the "Minnesota Way of Doing Business."

Opus College of Business dean Christopher Puto, Ph.D., was one of the keynote speakers. His speech, "The Minnesota Way of Doing Business: 150 Years of Responsible, Visionary and Community-minded Leadership and the Transformation of Educating Business Leaders," addressed the changing emphasis of business education and its impact on business in the state.


The Minnesota Way of Doing Business:
150 Years of Responsible, Visionary and Community-minded Leadership and the Transformation of Educating Business Leaders
by Christpher Puto, Ph.D.

Business education plays an important role in developing leaders for today’s (and tomorrow’s) economy, but that wasn’t always the case.  In the early years of business education, business professors spent a great deal of time observing and describing the practices of successful businesses of the day.  Advances in business management originated in the real world of business and then migrated into the classroom so that future managers and leaders could learn from the past. Most business improvements resulted from trial and error in the field but were then refined in the classroom and used to accelerate the education of new managers. Today’s business schools have succeeded in reversing that flow, with many new concepts arising first in the laboratory of business education and then migrating through the classroom and the business media into the world of practice. This morning I would like to take you on a quick trip through time to see how today’s business schools are educating tomorrow’s business leaders and how that bodes well for the future of business in our state.

Minnesota citizens are fortunate to have a first rate educational environment, including the University of Minnesota, one of the finest public universities in the nation and arguably the world, the Minnesota State Colleges and Universities, which we often call MNSCU, and a wealth of private colleges and universities whose reputations extend far beyond the borders of the Upper Midwest Region. Not all of these institutions offer business education, but those that do, do it well. Let me briefly describe how we got here and where we are headed.

In the late 19th century, innovators such as Henry Ford and Frederick Winslow Taylor introduced automation and standardized work patterns that helped usher in the industrial age and gave birth to the concept of scientific management—the idea that there was a formulaic, “right” way to do business. An increased desire by organizations to approach business operations in a scientific manner led, around the turn of the century, to the foundation of the first business school at the University of Pennsylvania and the first graduate school of management at Dartmouth. In the intervening years, the M.B.A. degree has achieved worldwide recognition as the premier degree for business professionals.

A classic M.B.A education emphasizes an integrated approach to business and encourages students to be more than functional area managers. A graduate business education provides students with a forum for practical application of theory, giving them hands-on expertise before they even leave the classroom. As a result, M.B.A. alumni are poised to be entrepreneurs (and intrapreneurs), understanding the financial, marketing, management, human resources and production methods necessary for an organization to succeed. So in essence, a good business school functions as an incubator for new technology and entrepreneurial enterprises as well as a facilitator for the continuing success of existing organizations.

Fred Smith, chairman and founder of Federal Express developed his business concept for a project at the Harvard Business School while earning his M.B.A. While legend has it that he received a “C” on the project, Federal Express now has more than 200,000 employees and annual revenues of more than 39 billion dollars. And his innovative application of the “hub and spoke” delivery method has become commonplace in organizations from airlines to computer manufacturers.

In the 1980s, as American manufacturers faced growing competition from other countries, successful corporations led by M.B.A. alumni were able to respond by instituting inventory and quality control methods into their processes. Concepts such as Just-in-Time Inventory and Manufacturing and Total Quality Management reduced costs and allowed manufacturers to compete more successfully while at the same time improving income levels and quality of life among their employees. These concepts now extend to all facets of business, from manufacturing to services to non-profit management.

In those early years, and until recently, most economics and finance textbooks described the goal of business to be one of maximizing shareholder returns—that is, maximizing bottom line profits. Investors, the reasoning goes, are seeking to deploy their capital where it will produce the greatest probable return. It follows logically that business executives who have been entrusted with the management of capital resources must focus their leadership efforts and strategic planning on maximizing profits.

At its best, this philosophy leads to the short-term effort to produce an uninterrupted string of ever-increasing quarterly earnings, all too often used as the measure of an effective CEO. At its worst, this philosophy leads to the corruption that produced the Enron debacle and other recent high profile scandals that have rocked the reputation of corporate America. Too many layers of managers “looked the other way” merely because results were meeting their goals to maximize shareholder returns rather than question poor practices they knew could have detrimental effects for customers, employees and investors. The results of this year’s mortgage meltdown have shown that even presumably good intentions, such as enabling more people than ever to own their own homes, can deliver bad outcomes as weakly collateralized securities collapsed and the resulting defaults brought global credit markets and the economy to its knees.

How many Minnesota businesses are involved in this sub-prime mortgage debacle? Very few. Why? Because the culture of our state breeds a different philosophy of doing business. Minnesota businesses are built on the principle of delivering genuine customer value, not pyramids that siphon profits to fill the coffers of unscrupulous entrepreneurs. Will the occasional bad apple surface? Of course; we are, indeed, human. But this is the land of the 5 percent club and people whose values mandate a respect for and dedication to the common good.

At the University of St. Thomas, and most directly in the Opus College of Business, we embrace a broader perspective on the role of business in today’s complex society. Our students learn that the primary goal of business is to be a good business, and the reward for being a good business is profit. It is a simple transposition of words that makes profit a well-earned reward for achieving a higher order goal rather than the immediate goal, but it completely alters the outlook of everyone in the organization.

So, what is a “good” business? Four characteristics define a good business. First and foremost, a good business provides goods and services that meet or exceed the needs of its customers at a competitive price. A competitive price is not always the lowest price, but it is a price that corresponds favorably to similar quality offerings in the market. Business professionals refer to this aspect of a good business as creating and delivering superior customer value.

The second characteristic of a good business is that it provides a safe, respectful work environment and pays its employees a fair wage for their work. Before workers are empowered, they are carefully developed and trained in the skills needed to perform their jobs. The third characteristic of a good business is sensitivity to and respect for the communities and societies in which it operates. It gives back a portion of the profit to enhance the cultural, educational and social organizations that comprise its greater neighborhood. And fourth, a good business is sensitive to and respectful of the physical environment, going beyond controlling pollutants to including an approach to environmental sustainability.

An effective organization should embody all four of these characteristics, and the reward for achieving this level of performance is sustainable long-run profit.

Look at any successful, longstanding business that you judge as operating with integrity and you will see all four of these characteristics clearly represented. Look at any failed business or businesses that have shown disrespect to their employees or the environment and you will see that at least one of these characteristics is absent. Most of the “dot-com” failures near the end of the 1990s failed because they did not live up to all of the above criteria and could not deliver superior customer value. The rash of corrupt businesses in the early part of this decade failed because senior executives put themselves ahead of the well-being of their customers, employees and investors.

We can take an even closer look at businesses in Minnesota and in the Twin Cities, and we can see that we are fortunate to live in a culture that exemplifies “good business.”  This commitment to superior customer value, to a respected and fairly compensated workforce, to a clean and healthy environment and to standing up for our society is what led the Daytons, the Pillsburys, the McKnights and other business pioneers to create companies that continue to be respected and admired for their ongoing successes. It is the same perspective that leaders such as Bill George and Chuck Denny have repeatedly raised in their frequent commentaries on responsible leadership. It is the same perspective that led Jim Campbell and other leaders to form the Itasca Group, using time and resources from major corporations to address the issues threatening the economic quality of life in our region. And it is the basis, I believe, for why many successful Minnesota businesses are reaping rich rewards today.

Indeed, it is the creation of “the good business” that every shareholder and investor should demand when deciding where to allocate their capital. The creation of good business must be the driver behind every business school as it educates and prepares future generations of business leaders. And it is the creation of good business that everyone in a position of leadership in corporate America today should be seeking to instill throughout their organization.

This commitment must emanate from the top, and it must permeate every level of the organization to its very core. Every employee must know how the company creates and delivers superior customer value. They must be committed to participating in that process through every aspect of their job and, in fact, their participation is vital to its ultimate success. Every employee must play a role in making their workplace a safe environment and ensuring that co-workers are treated fairly. Every employee must know and follow the company’s commitment to protecting and preserving the physical environment and understanding and sharing in their company’s commitment to the community in which it operates.

One of the most critical innovations brought to the world of business by M.B.A. education is the implementation of corporate social responsibility and ethics into the business curriculum. The University of St. Thomas Opus College of Business has integrated ethics throughout its curriculum since our M.B.A. program’s inception in the 1970s. Our emphasis is on educating highly-principled global business leaders and we do this by developing good decision-making skills—teaching our students to look at the organization not only as a business enterprise but as a member of the community in which it operates. Experience has shown that this ethical approach makes good business sense. The companies that contribute the most to our long-term healthy economy are those that value their employees and their partners in the community.

We believe that being an educational leader does not stop at the classroom. A good business school must take its knowledge back to the business community, and in the Opus College of Business at St. Thomas, we bring our ethical research discoveries to the real world of business in two ways. Some of you may remember the Minnesota Center for Corporate Responsibility, founded 30 years ago by David Koch, Tony Anderson, Chuck Denny and other concerned business leaders to enhance the practice of business ethics. The Minnesota Principles for good business emerged from this group and that organization, which today is know as the Center for Ethical Business Cultures, continues that tradition at St. Thomas. With a total of nine professors of business ethics, we have one of, if not the, largest and most prominent contingents of business ethics scholars in the nation. We are regularly exploring new concepts and approaches to business ethics, and we use the Center to bring these developments to the practical world of business.
Finally, a group of St. Thomas scholars and business practitioners collaboratively developed the Self Assessment and Improvement Process (SAIP), a tool for measuring an organization’s ethical climate and then prescribing corrective processes to improve it. The SAIP Institute at St. Thomas is now charged with disseminating and enacting this instrument on a global basis to further improve ethical business practices throughout the world.

It hasn’t been that long for us in business education—barely 100 years— but as the old cigarette commercials used to say, “We have indeed come a long way.”  Like the good farmers before us who learned to rotate their crops to return nutrients to the soil and sustain its viability, we are educating business leaders to replenish their markets and sustain their demand. Someone in here may remember the old movie “Quo Vadis,” one of those biblical epics from the 1950s, whose title meant “Where do we go from here?”  In answering that question for business education, the future is bright, and so is the long run future of business because today’s leaders are entering the managerial ranks with a commitment to and an understanding of what it means to be a “good business.”  That doesn’t mean our future is assured.

If it were easy to do, we would be awash in successful, profitable companies. Since that is not the case in today’s world, we must especially respect and appreciate those who have succeeded and seek to learn from them so that more of us can achieve this level of success. This is the true premise of good business education, and this is the commitment of all of us in business—educators, senior management and aspiring leaders—who strive to make this world a better place in which to live and work.

University of St. Thomas Press Release, 10/10/2008