The economist Umair Haque, who writes prolifically and provocatively on economic and business issues in his Edge Economy blog for the Harvard Business Review and in his own blog, Bubblegeneration, thinks that many companies just don’t get it when it comes to creating sustainable profitability and value.
With the near collapse of the financial system and the current stagnant state of economic affairs created by the Great Recession, he asks pointed questions about the profit motive, such as when to strive for it and when not to.
“Is profit a ‘good’ thing—or isn’t it?” he asked during the height of the recession in a blog post on the “value that every business needs to create now.”
His point is that there are good and ethical ways to make a profit, which he calls “thick value,” and there are bad and harmful ways to grab for profit, which he terms “thin value.”
“Profit through economic harm to others” results in thin value, he says. “Thin value is an economic illusion: profit that is economically meaningless, because it leaves others worse off, or, at best, no one better off.” Thin value is what the “zombieconomy” creates, he continues. “The healthcare industry profits, but Americans get poor healthcare. Automakers fought tooth and nail against making sustainably powered cars. Manufacturers of all stripes stay mum about environmental costs. Clothing companies can’t break up with sweatshop labor. The clearest example of thin value, is, of course, banks: they invested our national wealth in assets that turned out to be literally worthless.”
Haque says the fundamental challenge then for 21st Century businesses and economies “is learning to create thick value. We’re seeing the endgame of a global economy built to create thin value: collapse. Why? Simple: thin value is a mirage — and like all mirages, it ultimately evaporates.
“In the 21st Century, we’ve got to reconceive value creation.” The company that beats up its suppliers on price every year may make some short term gains, but is it creating long-term value and valued partners?
He’s coined the term Constructive Capitalism. Constructive Capitalists are “disrupting their rivals by creating thicker value” and employing ethical values.
Haque defines thick value as “sustainable, meaningful value — and a new generation of radical innovators is wielding it like a strategic superweapon.
“Are your profits, like mobile operators, built on hidden costs, surcharges, and monopoly power — or on awesome stuff that makes people meaningfully better off?”
A deeper discussion on the economics of thin and thick value was presented by Haque at the BRITE ’09 conference.
Haque is the director of the Havas Media Lab and he founded Bubblegeneration, an advisory boutique that helps shape strategies across media and consumer industries.
Lesson for outsource practitioners: “Not all profit is created equal,” as Haque says, and neither is outsourcing. He challenges the conventional one-sided profit-at-all-cost attitude of many businesses and their partnerships. In the same vein Vested Outsourcing and the Five Rules challenges traditional transaction-based, cheapest-cost relationships in favor of a collaborative, flexible, mutually beneficial approach in which all share the rewards of working together to create the bigger pie, the thick value.
Economic recovery hinges on values and the proper allocation of capital, he says. How thick is the value you are creating in your outsourcing arrangements? Are you Getting to We, and bringing new thinking and value to life?