In Today’s episode, Kristian explores the work of Rosabeth Moss Kanter on how great companies think differently.

Last weeks episode I wrapped up with the six facets of institutional logic which radically alter leadership and corporate behaviour. These facets underpin the research of Rosabeth Moss Kanter and today we will explore them together in more detail.

Instead of being mere money-generating machines, great companies combine financial and social logic to build enduring success.

How Great Companies Think Differently: Understanding Institutional Logic

The traditional view that a business exists solely to make money is being challenged by a new paradigm. Based on the groundbreaking research of Professor Rosabeth Moss Kanter, Harvard Business School’s Ernest L. Arbuckle professor of Business Administration, we explore how great companies think and operate differently through institutional logic.

Beyond Profit: A New Business Paradigm

The landscape of business thinking has been dominated for decades by Milton Friedman’s 1970 assertion that a company’s sole social responsibility is to increase profits. However, great companies are proving there’s a better way. These organisations demonstrate that combining financial and social logic creates more enduring success, leading to sustainable growth and stronger stakeholder relationships.

Institutional logic defines successful companies as vehicles for enhancing social welfare rather than mere money-making machines. This approach recognises business as an intrinsic part of society, alongside family, government, and religion. While great companies certainly work to make money, they do so by building enduring institutions that create value for all stakeholders, fostering innovation and maintaining strong community connections.

The Six Facets of Institutional Logic

Professor Kanter’s research identifies six key ways that great companies implement institutional logic to gain competitive advantage. Each facet contributes uniquely to building lasting institutional success while maintaining strong financial performance.

1. Common Purpose

Great companies understand that purpose forms the foundation of their identity. This goes far beyond simple mission statements or corporate values posted on office walls. Purpose must permeate every aspect of the organisation, providing clear strategic direction and motivation for diverse business lines. During times of uncertainty, this strong sense of purpose serves as an anchor, helping companies maintain their course while reinforcing organisational culture.

Leaders in these organisations actively work to communicate their purpose through products and services, making it an integral part of the company’s identity. This commitment to purpose shapes decision-making at all levels, influencing everything from product development to customer service approaches.

2. Long-term Focus

The ability to think long-term fundamentally changes how companies operate and make decisions. Institutional thinking enables organisations to justify short-term financial sacrifices for long-term gains, viewing these not as costs but as investments in their future success. This perspective influences everything from talent development to sustainability initiatives.

Companies embracing institutional logic create frameworks that consider societal and human values alongside financial metrics. This balanced approach leads to more resilient organisations capable of weathering economic uncertainties while maintaining their commitment to stakeholder value creation.

3. Emotional Engagement

Key elements of emotional engagement include:

• Evoking positive emotions through shared values
• Stimulating motivation across all levels
• Encouraging self-regulation and peer regulation
• Creating meaningful connections with stakeholders
• Influencing corporate performance through cultural alignment

4. Community Building

Successful community building requires organisations to:

• Form strategic public-private partnerships
• Engage meaningfully with local communities
• Address pressing societal needs
• Create sustainable public projects
• Build lasting relationships beyond traditional business boundaries

5. Innovation Through Purpose

Innovation in great companies emerges through a broader understanding of their role in society. When organisations focus on purpose beyond profit, they naturally discover new opportunities for innovation through diversity and inclusion. This approach enables stakeholders to express their values through daily work, leading to organic business model innovations and stronger community connections.

Cross-ecosystem partnerships form more naturally when companies operate with this mindset, creating opportunities for collaboration that might otherwise be overlooked. The focus on purpose-driven innovation also helps organisations identify and address unmet needs in their communities, leading to both social impact and business growth.

6. Self-organisation

The concept of self-organisation represents a fundamental shift in how companies view their workforce. Great companies trust their employees as self-determining professionals, moving beyond traditional command-and-control structures to create environments where innovation can flourish naturally. This trust-based approach enables the formation of informal networks and encourages spontaneous innovation, leading to more agile and responsive organisations.

Implementing Institutional Logic

The journey to implementing institutional logic requires a thoughtful and systematic approach. Organisations must first assess their current state, examining existing purpose and values while reviewing stakeholder relationships and community engagement levels. This evaluation provides the foundation for developing a clear purpose that aligns business objectives with societal values.

Building a strong culture becomes possible when companies focus on fostering emotional connections and supporting innovation initiatives. Success in this area requires consistent effort and dedication from leadership, along with a willingness to measure impact across both social and financial metrics.

The future of business lies in combining social purpose with financial success. By implementing Professor Kanter’s six facets of institutional logic, companies can build lasting institutions that create value for all stakeholders while maintaining strong financial performance. This transformation requires dedication and consistent effort, but the rewards—both social and financial—make it a worthwhile journey for any organisation committed to lasting success.

Live with purpose,

Kristian Livolsi