Here in New England we lived the Market Basket saga a couple years ago. It was an unforgettable cautionary tale for all businesses. And a guide for modern management. If you’re not from around here, you can live it through the great book We Are Market Basket by Daniel Korschun or at his appearance at the XPX Boston Summit next week.
These deep lessons on business come from an unlikely source: a regional grocery store chain that doesn’t even have a website. Here’s the abridged version of the story. The grocery chain was founded in 1917 in Lowell, MA, a struggling mill town. From its first store to its 75th, the chain kept a strong focus on providing high quality products at low prices to its customers who live on limited or fixed incomes.
The story behind the scenes involves the family that owns the chain. The original founder had two sons. These two sides of the family continued to own the company. But only one side, headed by Arthur T. Demoulas (the company CEO) was closely involved in the business. The other side, headed by Arthur S. Demoulas controlled the board.
Artie S’s side of the family wasn’t happy with Artie T’s management practices. Under Artie T, the company offered a 4% discount to every customer on every purchase during the recession. They support local farmers and food suppliers (Ken’s Salad Dressings and Cape Cod Potato Chips both got their start with MB). They promoted from within and created a culture of “community, feeling of family, empowerment and originality—that is, valuing innovation over imitation.”
Artie S had received his MBA from Babson College. He knew that these weren’t mainstream business practices—and that they were limiting the cash to shareholders, including his side of the family. So, through a series of changes, the board that he controlled fired his cousin Artie T. (I’m simplifying a very complicated story that’s fun to read if you have the time—it’s as good as any novel!)
What happened then was unprecedented and fascinating. Many of the long-time employees who valued the great treatment they received from Artie T’s company walked off the job. So did many of the suppliers. The customers stopped going to the stores, except to sometimes tape their register receipts from other stores to the front door of their local Market Basket. The stores stood empty for a few months before Artie T was given the chance to buy out his cousins. Within a few months things were back to normal.
This story is a great illustration of the concept of sustainable value creation:
Using the capital available to a business in a way that creates value and profit today while still preserving or building capital for tomorrow.
This concept is at the root of integrated thinking. This view of business sees people, knowledge and the environment as “capitals” with as much or more value to a business than financial capital and fixed assets. The Market Basket story shows the power of this thinking. When the Artie S side of the family chose to maximize profits today at the cost of the relationships with employees (human capital), vendors and customers (relationship capital), they lost their access to these critical resources. And the company was no longer sustainable.
Your first reaction to this story may be that it is an extreme case. But I’d advise you to think twice. The tools that the employees used (Facebook, email and social media) are available to everyone. We live in a time of growing stakeholder empowerment. They don’t demand that companies lose money or go out of business—quite the contrary—they ask that companies build value in a sustainable way that ensures the continued well-being of both shareholders and stakeholders.
Interested in the Sustainable Value Creation concept and how it might help your company build lasting performance and realizable value? Check our our new paper called The Three Big Ideas behind Integrated Thinking and Reporting.