Profitability, Productivity, and Sustainability

Organizational Behavior and Strategic Alignment

Dennis Onyama

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000402803
• Edition: 1
• Topic: Business
• Subtopic: Organisational Development
• Index: Business

This book presents an in-depth study of how the drive to optimize organizational performance can be significantly improved by investigating the causal relationships between profitability, productivity, and sustainability (PPS). This is presented through an assessment of a triple combined therapy that studies the interplay between Organizational DNA, Strategic Alignments for Value, and their implications for Sustainability. Through this approach, this volume seeks to answer critical mind-searching questions and provide useful guides as to how some firms are able to sustainably create higher value or wealth, especially through corporate entrepreneurship, or via the creation of new business models than others.

In tackling the three elements of profitability, productivity, and sustainability, this book also provides greater insight through an in-depth study of the pervasively unresolved and disturbing issues surrounding the prospects of increasing the chances of success for entrepreneurial start-off ventures, making it of value to researchers, academics, and students in the fields of organizational studies, strategy, and sustainability.

1 Introduction

Introduction

This chapter identifies, introduces, and clarifies critical factors and processes that subtly impair a comprehensive understanding of the relationships between profitability, productivity, and sustainability (PPS) in their interplay with critical elements that underpin organizational behavior and strategic alignment. This is, indeed, a complex relationship that is least understood in the business world and beyond. That being said, while the focal points of many “bestselling management books of all time” emphasize one or two of the three things – namely, PPS – as constituting a driving force for optimizing organizational performance, this chapter presents these three elements not only as individual forces that drive organizational performance but also as triple combined forces that influence organizational performance concurrently.

The aforementioned polemic is exceedingly subtle as just a few company and industry leaders or pioneers get it right. Among them are those who constantly thrive to master the art of preparing their organizations as a learning hub for radical and disruptive change. However, a critical majority of those who get it right, get it most often by gambling their way through. But this latter approach would imply that such organizations have not grasped a foothold of the situation; as a result, the challenges of sustaining these gains gradually disappear over time. This is true because most of these companies find it extremely difficult to align sustainability with the changing landscape of productivity and profitability in the long run.

Essentially, this chapter also points to the argument that a successful relationship between PPS – as applicable within the framework of organizational behavior and strategic alignment – follows recurrent cycles.

From the foregoing, it reasons that each of these elements – PPS – does not work in isolation. At any point in time, an organization is confronted by one of these three problems – although at varying degrees of complexity when compared to other organizations in the same industry and sometimes across different industries. In more complicated scenarios, some entities are confronted with two of these problems at a time, and, in worse scenarios, other entities are afflicted by all three of the aforementioned problems at the same time. These problems are extremely time-sensitive and contagious. In the sense that, if a firm, for example, is confronted by, say, profitability problems and it does not resolve the issue within a reasonable time, it tends to produce a viral effect that naturally contaminates the elements of productivity and sustainability. This makes it imperatively critical for organizations to retain strategic control over these kinds of scenarios by taking into consideration both the combined and individual effects of each of these elements – PPS – on organizational performance, as well as the dynamics of the interactions between them. Let’s throw some light on these three elements.

Productivity has been defined as the efficient use of resources, labor, capital, land, materials, energy, and information in the production of various goods and services. Higher productivity means accomplishing more with the same amount of resources or achieving higher output in terms of volume and quality from the same input.¹ In short, productivity is about doing more with the same.² The formula for measuring productivity is

$\mathrm{Productivity}=\frac{UnitsofOutput}{UnitsofInputs}.$

In this regard, Chew (1988) argues that the central mission of a productivity index is to illuminate how a business can get more units of output per labor hour, per machine, or per pound of materials than its competitors.³ This means that productivity is about expanding the numerator – that is, the output – in order to deliver greater top-line growth from the same workforce.⁴ On the other hand, efficiency is about doing the same with less. Arguably so, because companies, most often, improve labor efficiency by finding ways to reduce the number of labor hours required to produce the same level of output. Consequently, efficiency is about shrinking the denominator – that is, inputs (reducing labor hours, producing high-quality low-cost materials, etc.) – in an effort to improve profitability.⁵

Profitability is the ability of a business to earn a profit. A profit is what is left of the revenue a business generates after it pays all expenses directly related to the generation of the revenue, such as producing a product and other expenses related to the conduct of the business activities.⁶ Simply put, profitability is the ability of a company to use its resources to generate revenues in excess of its expenses.⁷

Sustainability is often defined as meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars – economic, environment, and society. It is also known informally as profits, planet, and people, respectively. According to Grant (2020), encouraging businesses to frame decisions in terms of environmental, social, and human impact for the long term, rather than for the short term, influences them to consider more factors than simply the immediate profit or loss involved.⁸ To concur, Rosenberg (2015) argues that sustainability often requires short-term costs to secure a, sometimes uncertain, long-term benefit.

But in the context of this volume, the focus is on organizational sustainability. According to Action Inclusion (2020), unlike environmental sustainability, which is about the environment, organizational sustainability is about equipping organizations with the people and structures necessary for success in the global marketplace of the 21st century.⁹ By implication, therefore, organizational sustainability means having the leadership, talent, global insights, and change strategies necessary to rise to the unique challenges facing organizations today.¹⁰ Consequently, all businesses must have a strategy to deal with sustainability, and like any strategy, this involves making choices (Rosenberg, 2015).

Understanding the individual and tripled combined effects of PPS in a holistic way, in the lifecycle of a venture, is an art that requires careful and critical observation as well as successful strategy execution, among other things.

In relation to successful strategy execution, Neilson, Martin, and Powers (2008) identified four organizational fundamental building blocks that executives can use to influence successful execution of strategy. These are: clarifying decision rights, designing information flows, aligning motivators, and where applicable, making structural changes that naturally or organically evolves from the combined effects of decision rights, information flows, and motivators. In this regard, Neilson et al. (2008) define execution as the result of thousands of decisions made every day by employees acting according to the information they have and their self-interest.¹¹ Organizational fundamental building blocks are of two strands. The first strand is the Organizational DNA (OrgDNA) formal building blocks or common bases. We can simply refer to them as decision rights, information flow, motivators, and structure. The second strand is the OrgDNA informal building blocks, which are the synthesized templates of the OrgDNA formal building blocks. These synthesized templates include norms, mindset, commitments, and networks. Put together, both the formal building blocks and the informal building blocks make up what we can refer to as the organization’s genetic material.

In addition, Neilson et al. (2008) found that the fundamentals of good execution start with clarifying decision rights and...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• 1 Introduction
• 2 OrgDNA, System Elements, and the Logic of Effective Strategic Alignment: Sustainability Perspective
• 3 Entrepreneurship, Management, and Their Strategic Organizational Value Creation Imperatives: Profitability Perspective
• 4 Organizational Dynamics of Global Manufacturing, Innovation, and the New Game of Product Design: Productivity Perspective
• 5 Organizing Beyond the Frontiers of Competition and Disruptive Change: Profitability, Productivity, and Sustainability Perspectives
• 6 Conclusions and Suggestions
• List of Abbreviations
• Index