Creative Destruction: A New Model for a Post-Pandemic Economy
Joseph Schumpeter, a global economist of the mid-20th century, proffered a provocative economic theory, creative destruction, to describe the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Schumpeter's theory presents economics as an organic and dynamic process—an evolution whereby long-held structures, organizational models, and assumptions must be destroyed in order for innovation and sustainable evolution to occur.
Schumpeter's creative destruction theory stands in stark contrast with static mathematical models of traditional economics that rely upon legacy structures and short-term compensation cycles. These more traditional models that uphold shareholder primacy have been championed by economic luminaries such as Milton Friedman, who said 50 years ago, "There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game."
This tendency to elevate shareholder value and quarterly returns over stakeholder value and long-term, sustained profitability remains ubiquitous today and is a limiting factor for ongoing innovation and progressive evolution. Many economists counter that Schumpeter's theory is best embraced, if at all, only during periods of stability, not crisis. But in reality, "creative destruction" needs to happen not just in times of stability, but always—as a north star and a new economic model for thriving businesses.
In the midst of our current crisis—a pandemic, ideological tumult, and a national reckoning of systemic social injustice—this new economic model is rapidly taking shape. A model that urgently acknowledges there are ethical, philosophical, and cultural implications to economic and societal advancement. One that acknowledges such advancement can come only with an entirely different definition of a business's social responsibility. One that acknowledges that the status quo, which subjugates purpose to profit, will falter in this new world order heralded almost exclusively by millennial leaders and Gen Z consumers.
This would imply that in order for our economy to meet the expectations and actions of future generations, especially in a time of crisis, we must destroy conventional thinking and look beyond the shareholder primacy model. Enter Schumpeter and "creative destruction."
Enduring brands must adjust staid strategies to look beyond shareholder-first mindsets, rigid economic models, and a myopic focus on quarterly earnings that do little to drive meaningful, enduring innovation. Instead, the brands that embrace an entrepreneurial, inclusive mindset, more qualitative, non-linear economic models, and a long-term view that values stakeholders over shareholders will become formidable leaders in this new purpose-led economy.
We are seeing this perspective take hold. At Atlantic 57, our new proprietary study and service offering, Brand Prism, which defines the specific points across the brand experience where values matter most for audiences, and helps brands improve their performance, found that 73 percent of U.S. consumers say it's more important that they purchase products from brands with strong values than it was six months ago. So, most business leaders may not dispute the importance of being a purpose-led brand that lives by its values. But making that shift is the real challenge.
Unquestionably, embracing a long-term view over short-term gains will be the hardest obstacle for even the most agile and enterprising brands. Most businesses can't take their foot off the pedal for one minute without risking financial decline or competitive disruption. However, taking the long-term view does not mean abandoning short-term goals. Rather, it can be a "yes, and" scenario.
The first order of business for any brand hopeful to thrive in this new era, embracing both the long-term view while achieving short-term success, is to acutely focus on brand values. Not just what your brand values are, but how they show up. It's no longer enough to just define your "why." Brands must now deeply understand and demonstrate "why they matter."
Indeed, our Brand Prism research found that 60 percent of consumers are seeking out information on a company's values more frequently today than six months ago. The youngest generations are even more enthusiastic about tracking brand reporting with 71 percent of Gen Z placing a high value on, well, values. And not just in lip service, but in practice. It is with this increasingly urgent backdrop in mind that brands need to position their evolution toward a values-driven economic model that begins by internalizing two fundamental truths.
From macro to micro values application
We found that 60 percent of consumers report it's most important right now for a brand to demonstrate its values in its products and services while 87 percent of consumers consider a brand's values when purchasing a product. Among Gen Z and millennial consumers, a company's products are the No. 1 place for brands to demonstrate their values in order for consumers to feel comfortable making a purchase.
Though brands typically define purpose at a macro level across the enterprise, our research indicates it is with your products where you truly demonstrate why your brand matters to your consumers, their communities, the environment, and the broader, evolving economic ecosystem. Our research found that "according to consumers, a brand's values can influence its products and services in a number of ways. Chief among these are creating products that benefit society and the environment directly, or that contribute to consumers living healthier lives."
Further, our research uncovered that "younger consumers are more likely to also want to see a brand's commitment to values extend to how its products are sourced and marketed. More than one-third of Gen Z and millennial consumers ranked "changing the types of partners or suppliers they work with" among the top three ways brands can demonstrate their values in their products and services. And Gen Z consumers in particular want to see products marketed through more diverse voices and through special editions of products that align with issues they care about."
And while products and services should be introduced to the market with speed and agility, demonstrating your values within those products and services takes time, intention and conviction. It requires holding firm on a long-term view while still delivering the business of today—making haste, slowly.
The most valuable shareholder, your employees
We also find that values-driven brands not only experience an increased sentiment of credibility, reputation, and trust with consumers, but also with their most important asset: employees. Employees expectations, too, have changed. A values-driven approach attracts high-quality talent, engenders deep commitment, keeps attrition at bay, and encourages consumer loyalty. Our research supports this: 74 percent of consumers say that, compared to six months ago, it's more important that they work for a brand that has strong values. For consumers, they make purchase decisions, in part, by "judging the degree to which brands have infused their values into their culture by the benefits and support brands offer employees as well as how they invest in diversity and inclusion."
However, this is where most brands are falling short of their ambition to make values-driven thinking a core part of their business. According to our research, there's a chasm between what brands say they want to do and the reality of what's happening. While a majority of consumers expect brands to take proactive steps to have a positive impact on the world, our research of select Fortune 500 brands showed a majority of them underperform in taking such proactive steps. And consumers have precious little patience for brands that are touting values they can't back up with actions.
"[Values have] to come to life in behaviors," says Jim Stengel, former CMO at P&G and CEO of the Jim Stengel Company, who participated in our research. "So it has to be activated. It has to affect daily work. It has to be in companies' processes, it has to be in people's work plans. It has to be in performance reviews."
For many brands, the intention may be there, but the lack of conviction and implementation of core values throughout the entire brand experience can have severe consequences.
Our research among readers of The Atlantic is also consistent with the idea that values alignment and purchase intent go hand-in-hand. Among respondents in an Atlantic reader poll, 56 percent said they wouldn't consider purchasing from a brand if its values didn't align with their own. This trend line is rapidly charting upward.
As we fast approach the post-pandemic era, capitalism will be defined by a broader ecosystem designed to promote demonstrable values, ethics, inclusion, sustainability, and ultimately, collective societal advancement. In this watershed moment, brands have a clear role to play: It starts by "creatively destroying" pre-pandemic conventional thinking to create a modern, purpose-led economy. To get there, brands need to recognize their values must become the core beliefs that guide how they conduct every aspect of their business.