Level 0: Zero-Sum Game (1 + 1 = 0)

Without inspiration from outside or deeper introspection from inside, leaders keep doing what they have done before and rarely change their actions. When they are in a smart state of mind, they can be fiercely competitive. Proving that they are smarter than their competitors sometimes dominates all other concerns. When focused on the short term, they may perceive opportunity as a zero-sum game and want to grab and hold on to as much as they can—market share, profits, or something else. Hence their motivation is primarily shaped by their black-and-white thinking, and it results in scorched-earth situations where one or even both sides sustain heavy losses; the larger market or society may lose too.

A grim example of such thinking is the many “vaporware” introductions in Silicon Valley where competing companies announce products that never ship but in the meantime discourage potential customers from buying them from the competition.³¹ In marketing, creating a “FUD factor” (fear, uncertainty, and doubt) in the minds of competition and sometimes customers is a well-known strategy that actually risks frustrating customers, who then lose interest in products from both parties.³²

Level 1: Give and Take (1 + 1 = 2)

Smart leaders shift their perspective when they see that they have more to gain by partnering with others than by competing with them. Role modeling by others and experiencing some empathy is key to softening smart leaders’ competitive stance. At this stage, they are more willing to share knowledge or resources with others as long as their actions are reciprocated and they can benefit from the give-and-take transaction.

For instance, in 1997, Steve Jobs returned to Apple as CEO and convinced Bill Gates to invest $150 million and commit to developing Microsoft Office for the Mac for another five years. Gates saw an opportunity for presenting this investment in Apple as evidence of a noble act—helping a competitor—to the Department of Justice, which had filed an antitrust lawsuit against Microsoft for its aggressive promotion of Internet Explorer. Microsoft would also be able to generate additional revenues for its Office product by selling it to the vast Apple customer base. For Jobs, support by Microsoft would convince Apple customers and developers of the long-term viability of Apple and its platform. In exchange for receiving the investment from Microsoft, Apple dropped a long-standing lawsuit against Microsoft for allegedly copying the look and feel of the Mac operating system for Windows. This deal between Apple and Microsoft is a transactional version of enlightened self-interest or win-win: both parties get what they put in as long as both trust each other and stay in the game.³³

Level 2: Making the Pie Bigger (1 + 1 = 3)

Successful engagement with level 2 of enlightened self-interest means leaders are more open to experiment and more curious about exploring opportunities together, making synergistic partnerships possible. At this level, leaders begin to recognize the unique value of others and seek to amplify them for their collective good. They may begin to cocreate new offerings with others by combining and synergizing their individual capabilities in a way that brings greater value to both of them.

For instance, under Alan Mulally, the 777 program managers shifted the way Boeing collaborated with suppliers: rather than engaging suppliers on a transactional level by telling them what to do, program managers began engaging them as innovation partners and seeking their creative input. An example of how this worked was the Dreamliner or 787 project: over 60 percent of the plane was designed or built by suppliers and also financed by suppliers, so they had a stake in the game (this is the shared-risk/shared-reward model).³⁴ Boeing clearly saw that the Asian countries and airlines are going to be big customers in the future. They found that to receive the orders from China Airlines, Air India, and other such companies from Asia and emerging economies, they had to create jobs and cocreate technology that benefits the local industry in those countries as well. That means that Boeing cocreates the planes and sells them to the customers in countries with reduced trade barriers. It was synergistic, because companies in both countries benefited from this cocreation, and it enlarged the market for Boeing.

In the early 2000s, we consulted with leaders at a large enterprise software vendor—let’s call it BIGSOFT—who were operating in the blue zone. The company leaders, most of them engineers by training, were content developing high-quality software that automated companies’ manufacturing processes. Despite having a high-quality product, BIGSOFT was struggling to make a big dent in that software market because aggressive competitors run by leaders operating in the red zone were investing far more in sales and marketing than BIGSOFT was.

We advised the software vendor to take the higher road: rather than continuing to butt heads with its aggressive rivals in existing niche markets, it needed to create a new market for end-to-end supply chain solutions and paint a larger vision for their corporate clients on how they can benefit from these new solutions. In other words, rather than competing for tiny pieces of an existing small pie, BIGSOFT had to create a much larger pie, of which it can command a bigger slice.

BIGSOFT leaders recognized the need for partners to create a bigger pie and followed our advice. Over three years, BIGSOFT patiently built an ecosystem of software and services partners and cocreated with them a comprehensive solution that optimized the end-to-end supply chains of large manufacturing firms. BIGSOFT kept its partners motivated by forging win-win contractual agreements, such as revenue-sharing deals. This synergistic win-win partnering strategy became a big commercial success and established BIGSOFT as a market leader.

Level 3: The Rising Tide Lifts All Boats (1 + 1 = 11)

When leaders successfully engage with level 3 of enlightened self-interest, they begin to operate from a much broader and wiser perspective. This is the level at which outperformers succeed in partnering with others to do radical innovation, according to the 2012 IBM Global CEO report.³⁵ Instead of being limited by a compartmentalized worldview, these leaders have a systemic view of the world: they recognize that everything is interconnected. They are driven by an urge to tackle big challenges and issues that affect entire industries and even entire societies worldwide. Intrinsically motivated and possessed of a noble purpose that they strive to serve, they don’t worry unduly as to how financial analysts will judge their decisions and actions.

At this level, business leaders make socially conscious decisions and contribute to local communities—no longer as part of a CSR initiative but as a core element of their corporate strategy. Ron Shaich, the cofounder and executive chairman of Panera Bread, a chain of bakery-cafés with over fifteen hundred outlets nationwide, is a wise leader who clearly believes that the rising tide can lift all boats. For him, socially responsible policies make business sense. He is driven by enlightened self-interest in its noblest form. “Corporate America will both serve its shareholders and strengthen its reputation when it finds ways to use its expertise and core competencies, as well as its scale, to be truly conscious citizens,” he says. “Imagine if more large corporations were more active in trying to address social needs locally. Imagine if Wal-Mart ran distribution for food shelters. Or if Gap opened thrift shops. Or if Home Depot rehabilitated housing in underprivileged neighborhoods.”³⁶

Under Shaich’s leadership, Panera has been experimenting with various initiatives that embody the spirit of enlightened self-interest. In 2010, Shaich launched Panera Cares to combat food insecurity in America: nearly 50 million Americans struggle at some time during the year to provide adequate food for all their members due to a lack of money and other resources. According to the U.S. Department of Agriculture, one in seven U.S. households in 2011 was food insecure.³⁷

Panera Cares are cafés that address America’s food insecurity by serving nutritious food without a fixed price: guests pay whatever they can afford.³⁸ After opening its first “pay what you can café” in St. Louis, Missouri, Panera has since added three more; overall it served more than 500,000 people in the first year and 1 million the next year. It’s not about money, Shaich says: “We didn’t launch Panera Cares to improve our balance sheet. And that’s why it’s succeeding. Whatever tangible and intangible benefits accrue to the business, they’re simply by-products of committing to a purpose that goes above and beyond profit and next quarter’s earnings per share.”³⁹

Indra Nooyi, chairman and CEO of PepsiCo, is another leader who believes that the rising tide can indeed lift all boats. Deeply convinced that businesses can do well while doing good Nooyi has fostered a culture of “Performance with Purpose” within her organization. Under her wise leadership, PepsiCo has proactively engaged multiple stakeholders to cocreate value for all stakeholders in a manner that is financially, socially, and environmentally sustainable. (In chapter 3 we discussed how PepsiCo has implemented Performance with Purpose.)