Businesses focus on their internal operations to improve their bottom line, but in many cases too much internal focus creates an awareness vacuum that limits perspective and growth. Institutional logic holds that businesses are part of a larger context where they influence and are influenced by the non-business world. By engaging and embracing the community, a business can improve its bottom line.
In her article, “How Great Companies Think Differently” (Harvard Business Review), Rosabeth Moss Kanter states:
Institutional logic holds that companies are more than instruments for generating money; they are also vehicles for accomplishing societal purposes and for providing meaningful livelihoods for those who work in them. According to this school of thought, the value that a company creates should be measured not just in terms of short-term profits or paychecks but also in terms of how it sustains the conditions that allow it to flourish over time. These corporate leaders deliver more than just financial returns; they also build enduring institutions.
Institutional logic essentially holds that a business can brand itself as a vital player in a healthy community through processes that incorporate non-bottom line thinking. Not just in terms of corporate giving programs or charity partnerships, businesses can become institutions in themselves as champions of community-centered thinking expressed in everything from the vision statement to daily operations.
Incidentally, how can a business’ community awareness impact its bottom line? Take for example a business’ struggle to retain or find qualified employees. Factors to consider are: 1) Availability of quality and/or types of educational/training programs; 2) access to housing, transportation, and childcare; 3) cost of living; and 4) personal challenges, such as substance abuse and/or health problems. Programs that focus on workforce training can only help develop a more qualified applicant pool if prospective candidates are able to take advantage of those programs. Failure to address why people are either unable or unwilling to enter training programs or succeed after completing a program presumes a balance in the non-business world that meaningfully impacts business growth. One must look outward to the systemic issues and barriers that impact the supply of workers in order to truly understand and adequately address an applicant shortage.
Community dynamics not only affect workforce development – they impact daily operations and profitability. Increased poverty typically leads to increased crime. Businesses that find themselves in a high crime area are subject to higher costs, e.g., insurance rates, security system investments, and reduced foot traffic. Higher poverty also means less spending capacity, which means less purchasing that reverberates throughout the economic ecosystem from retailers to manufacturers.
Echoing Kanter’s position, Lindsay Lavine’s, “The Power of Giving Back: How Community Involvement Can Boost Your Bottom Line,” states customers appreciate businesses’ commitment to community engagement. First, employees don’t exist in a vacuum. Their conditions and treatment are part of a context that touches their families and friends, and to an even greater extent, the wider public that can learn about what goes on behind closed doors. Internal operations are the first step in establishing commitment to social engagement with healthy employee relationships. On another level, brand loyalty is often based on a business’ values expressed through social awareness and commitment to the community’s well-being vis-a-vis engagement.
Suffice to say the bottom line involves financial gain; however, gains can be undermined when they’re defined only in terms of profits. Reputation and social engagement & influence are deeply tied to long term viability.
In short, focus on internal operations is essential; however, a broader focus on relationships, community dynamics, and systemic factors improves perspective, which in turn leads to more resources and choices that also impact a business’ financial bottom line.