It was said that people paid retainer fees to their doctors in ancient China for maintaining good health. The payments would be stopped if a patient fell ill. This approach might seem unusual to Western consumers of healthcare. Each paradigm is unique and each has its merits. Perhaps the lessons learned from healthcare can be applied to business strategy.
An important part of corporate Engish speaking doctors in China is often entrusted to external-affairs teams. McKinsey recently examined how this function could be reinvented. The majority of executives understood the importance and necessity of stakeholder engagement, which is the core mandate of the function. However, the CEOs surveyed said that their organizations lack the capabilities to handle external affairs.
Although external affairs are also known as Corporate Affairs, they are not uniformly organized. Usually, there is a range of departments that deal with public relations, regulatory affairs and corporate social responsibility. What is the role of the function in keeping the business agile and competitive? One could draw on ancient Chinese wisdom to argue that the key for corporate longevity and health is preventing problems from arising, not fighting them.
Executives could use the following ideas to evaluate this premise:
1. Maintain strong advocacy skills to protect and advance business interests. Expand the scope of the function to consider the future and to allocate resources at least equal to the current challenges.
2. Allow the external affairs department to take a leadership role in some aspects of business strategy. Execution and formulation of strategy are two different things. Until the external affairs department has the right to be at the table when this is being decided, the function of business strategy will be reduced to focusing on the past and future rather than creating new opportunities.
3. Restructure incentives to reflect the achievements, breadth and strength of the corporate-affairs group, as well as the problems they have solved. A corporation must first be part of such networks to maximize the potential value of network, which experts believe will become an organizing principle for future economy.
4. Recognize that it is nearly impossible to quantify the economic impact of external-affairs efforts (as McKinsey suggests), and the easiest solution is to admit that this function is crucial to value creation. It should therefore be staffed with highly skilled specialists, well-resourced and represented in all management processes. This proposal is unacceptable in the age of data-driven decision-making. However, the alternatives are worse. It is not a better choice to deprioritize and underfund the function, as the results it produces are hard to link with quarterly results.
Companies that are more mission-driven may have a greater impact than the practical consideration. The above adjustments may be made naturally, and not have to come from the top.
It is important to consider the changing nature and dynamics of competition in order to gain a better perspective on how external affairs can be reinvented. The focus of enterprises has shifted from product differentiation to process optimization to customer-experience design. Dov Seidman believes that the future will be dominated by the question of how corporations do business, and not what they do. Seidman argues in his book, “How” that corporate behavior will determine the future of competition. Seidman describes a world where all business transactions are transparent, thanks to the abundance of information. Proactive engagement with external stakeholders is key to sustainable competitive advantage in this context.
