For the leader in business this fourth principle - Responsibility - is in practice quite complex. But all too often this principle is simply taken to mean that the executive leader, and management generally, has but one responsibility (frequently termed as one purpose) and that is to create shareholder value. The debate then devolves around reconciling that responsibility with the interests of employees, customers and communities.
When it comes to leading innovation and in particular realizing the economic value of innovation, all these things come together in a very focused way. Innovation means finding a way to meet some need in a novel way. So the leader whose task it is not only to either personally fashion that solution or to nurture the team that will do so, is by the very nature of the process focused on the people whose need will be better served (the “customer”) and the team that will make it happen (the “employees”). The leader is by definition an entrepreneur and the reward of successful entrepreneurship is economic return. The remaining responsibility, that to the community, is a matter of assuring that the innovation is used ethically and is “resource friendly,” e.g. environmentally acceptable . So this fourth principle is the most natural one of all for the leader of innovation. That does not mean it is easy.
What’s interesting is why this straightforward proposition becomes so warped and entangled when applied to large or mature enterprises. At the root of that problem is the failure to understand the difference between creating value and realizing value. At the innovating and entrepreneurial stage of things these two concepts are fused into one and it is a fact of economic existence that one must “create” value (wealth) before one can “realize” value (wealth).
With larger and more mature enterprises the two concepts diverge. “Creating value” or “creating wealth” means building competitively advantaged businesses and, over time, generate superior financial performance. Creating wealth is a relatively long-term process. “Realizing wealth” means to rearrange, or broker a portfolio of businesses or properties so that the underlying values become more immediately evident. In the case of publicly-owned companies, this leads to a higher stock price. Realizing wealth is a relatively short-term process.
Clearly a business and its managers have the responsibility to both create wealth and realize wealth for its stockholders. And I assure you that while realizing wealth primarily involves analysis and paper, creating wealth is much tougher and is impossible, as the entrepreneur instinctively knows, without an intense focus on customers and employees. Furthermore social change can just as surely threaten business as can technological change or change in its financial health. Remember Strategic Space!
The challenge to the manager is to correctly sense and appraise the environment and its changes and establish strategies to both create wealth and realize wealth. Without exception, change will present market opportunity. The degree of health of the organization in its multiple dimensions - stockholders, employees, customer base and community relations - determines its ability to grasp those opportunities.