5 Characteristic That Will Make Businesses Virtuous

  • Post author By Jaimi Mueller
  • Post date October 14, 2020
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what is the virtuous business model

When customers, employees, and shareholders interact with your business, they want to know that your business is good. Not just good at making money, but actually good . Good as in virtuous. Good as in a way that makes people proud to be associated with you. 

People often associate the virtue of a business with the virtue of its leaders. So business leaders’ individual virtue is a big part of how a whole company is perceived. Studies show that good leadership in business has a positive effect on the company as a whole. 

Every employee also plays a role in the virtue of a company. Businesses that have a positive company culture that supports moral integrity, must be supported by the people who make up that company. 

Understanding how to make your business virtuous is the key to continued growth, and has been found to lead to financial success as well . If your business can create a culture where each person is encouraged to exemplify the shared values of your business, then the practices of the organization as a whole are also more likely to be virtuous. 

Based on a synthesis of research and work done by the Brigham Young University team; Creating a Virtuous Organization, here are  5 characteristics that each business should strive to consistently practice to increase both individual and business virtue: integrity, equality, responsibility, accountability and humility. 

It starts with you. Integrity is a state of being morally upright and honest with ourselves and others. We as people are a product of our thoughts. What we think about ourselves, others and the world shape the way we act and treat others. Let your own personal thoughts and actions be devoted to good. If you have integrity then you can build trust with your employees and it will motivate them to work harder and to be honest. 

Businesses are successful because of the collective efforts of groups of people. Whether you are a business leader in an established company or an entrepreneur starting your own business, you shape the ethical culture of the company you lead. A study suggests that businesses with high levels of trust in their leadership are more successful: They generate more profit, make more sales, and retain their employees for longer. Companies with strong cultures of integrity are also more likely to engage in successful corporate responsibility efforts. This means that valuing and really engaging the virtue of integrity can create a business culture that will help the company to thrive. Here are some things you can do at the individual level and at the organization level to help you start to build a culture of integrity today.

Individual level:

  • Create a personal mission statement that aligns you with our moral virtues.
  • Before making a commitment, make sure you know that you can 100% deliver.
  • Be on time and keep your appointments.

Business level: 

  • Evaluate your company mission statement assuring it is morally sound.
  • Talk about it- make sure to speak openly and honestly about company ethics and have training that emphasize building company integrity. 

Creating a culture of equality means that everyone, employees, recruits, customers even stakeholders, has access to the same opportunities and fair treatment. Studies show that diversity in the workplace helps you to reach more customers and attract workers. If your job applications are open to everyone you will be able to recruit the top talent, and your business will see an increase in creativity because people with new perspectives will be contributing their ideas. There are many companies who are great examples of equality. The software company Salesforce is a great example. They make it their mission to create a safe and equal workplace for women advancing their tech careers. To see more examples of how Salesforce does what they do visit their website.  

Individual  level: 

  • Mind your language- be aware of the things you say and how you say it
  • Revaluate past encounters: take a look at your past experiences to discover any bias’ you may have and if needed work to overcome them. 
  • Put equality policies in place
  • Have objective criteria: when recruiting or promoting make sure to make group decisions based on objective criteria so things are based on merit
  • Be aware of an indirect discrimination: review your company policies to make sure there isnt anything that limits your employees from being free to focus on their jobs. 
  • Responsibility

People who are responsible are dependable, keep their promises and honest. Responsible business looks the same; honors commitments and is a reliable source for customers. It is important to take responsibility and be quick to act if there are mistakes made. Inevitably people will make mistakes. You cannot perform perfectly all the time. When you falter, take responsibility and move quickly to fix the problem. Take for example Starbucks’ response to the Philadelphia incident . They responded quickly to a situation in which two black men were unlawfully arrested in one of their stores and made company wide adjustments to policies that would correct some unacceptable behaviors. When customers see these kinds of quick responses, they are more likely to return to your business and you will gain the reputation of a trustworthy organization.

Individual level: 

  • Do not make excuses for yourself 
  • Avoid procrastination 
  • Stop complaining
  • Respond quickly and humbly when complaints are made against your company
  • Do not push back deadlines of jobs that you agree to complete
  • Own up when your business has made a mistake and admit fault and commit to improvement. 

4. Accountability

To create a virtuous prosperous organization, you need more than just executive accountability, you must be socially accountable as well. Accountability is an assurance that an individual or an organization will be evaluated based on their performance or behaviors, where corporate accountability entails being answerable to shareholders and the public for actions or results. Social accountability helps keep businesses accountable to helping build a healthy future for its employees, community or the world in general. 

Virtuous organizations will always acknowledge and be accountable to the potential risk of their product or service. They will actively educate their customers of those risks while working to mitigate or remove them. Businesses that do not learn, grow, adapt and change are likely to face irrelevance and obsolescence as the rapidly changing social and technological organization can learn. A good source for a self evaluation could be based on the B-corp assessment or the ESG model. You should look often and critically at your organization and find areas of improvement based on these assessments.  

  • Take a self evaluation assessment as an employee or leader frequently 
  • Set personal goals for yourself and hold yourself to them 
  • Clearly communicate what you are doing and what you need from other people. 
  • Have a 3rd party come into your organization to run an evaluation and give you feedback on areas to improve. 
  • Identify areas you provide needs in, and elevate your practices to better fulfill those needs for your employees. 

In business humility is not a virtue that is praised often, however, it is critical to creating a virtuous organization. Humility in business would be the ability to listen to other people and to think of yourself less; while still being able to celebrate success. It is easy to become very focused on your business and make sure it is growing and being successful. This focus could cause you to develop blinders and overtime become less likely to think of others. 

Brad Owens of the Marriott School of Business at Brigham Young University studied the power of leadership humility . In one of his published articles , Owen’s found that when leaders display humility, studies have found employees have higher job satisfaction and are more likely to be engaged. It will take courage and strength to be humble and admit faults or listen to opposing opinions, but ultimately your business will be strengthened and more profitable.  

  • Listen to other in your company, and ask for people’s opinions
  • When giving corrections, show humility and identify your own shortcomings as well. 
  • Be willing to ask for help. 

Business Level: 

  • Practice accurate awareness; be conscious of where your companies strength actually lie and where you have areas to improve
  • Develop a culture of openness, taking in suggestions and being open and transparent with employees. 

Businesses are a reflection of the people who work at them. The values of the employees become the values of a business. Businesses are an integral part of the communities they are in, meaning that company values become a reflection of community values. If entrepreneurs or executives want to create a positive culture in their community they need to start with themselves and their companies. Even a non-c-suite employee can spark positive change in the culture of a business by reflecting virtue themselves. By taking the time to self reflect and work on improving your individual virtue you will help your business and ultimately your community become better.

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what is the virtuous business model

Client spotlight: Valesco Industries

Tips to achieve growth through the virtuous cycle business model.

Valesco Industries, a private equity fund and client of Baker Tilly, recently released an insightful article, titled " The Virtuous Cycle Business Model: A Path to Accelerated Growth. " This article emphasizes the crucial role of establishing a virtuous cycle, which acts as a self-amplifying mechanism driving consistent and sustained growth for a business.

Implementing a virtuous cycle can have a profound impact on the financial success of a business, but it requires careful planning and execution. Here are a few tips to help ensure your virtuous cycle is a financially successful one:

  • Create a budget and stick to it. Establishing a budget will help you stay focused on your core objectives, and tracking your spending will keep you on track to meet those goals.
  • Identify key performance indicators (KPIs) and measure your progress. It is important to conduct a thorough analysis of your business processes, strategy, and key value proposition to understand which KPI (or KPIs) really move the needle on your business’s cash flow and growth.  With that metric or metrics established, put in place initiatives and programs to improve on those KPIs, constantly tracking and measuring the changes. This way, you can make informed decisions and effectively track the effectiveness of your virtuous cycle.
  • Monitor cash flow . Cash flow is critical to the success of any business, and monitoring your cash flow will help you make informed decisions about how to allocate your resources.
  • Be mindful of taxes. As your business grows, you may be faced with increased tax obligations. Make sure you have a tax plan in place to help minimize your tax liability and maximize your profits.
  • Seek professional advice. Implementing a virtuous cycle can be complex, and seeking the advice of a financial professional, such as a CPA, can help you navigate the process and ensure your financial success.
"A virtuous cycle is the cornerstone of any successful business. It's not just about creating a self-reinforcing feedback loop, but also about having the foresight and discipline to plan and execute it effectively. By following best practices and seeking experienced guidance, businesses can turn the virtuous cycle into a driving force behind their continued growth and prosperity."

In conclusion, the virtuous cycle business model can be a powerful tool for business owners looking to accelerate growth. But, like any business strategy, it requires careful planning and execution to be successful. By following these tips, you can help ensure your virtuous cycle is a financially successful one.

To learn more about Baker Tilly’s strategy and management consulting services or to discuss your specific situation, contact us.

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virtuous-cycle

Virtuous Cycle: The Core Growth Model For Platforms

The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth . Indeed, in the context of digital platforms , virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth . The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth .

Table of Contents

  • Amazon Flywheel

amazon-flywheel

  • Epic Games Flywheel

epic-games-flywheel

  • Etsy Flywheel

etsy-flywheel

  • Uber Flywheel

liquidity-network-effects

  • DoorDash Flywheel

doordash-flywheel

  • Ethereum Flywheel

blockchain-flywheel

  • WordPress Flywheel

wordpress-flywheel

Additional Case Studies

  • Cycle Description: Netflix’s flywheel revolves around content creation and subscriber growth . As Netflix produces compelling original content, it attracts more subscribers to its platform. This increased subscriber base provides more revenue for content creation, enabling the company to produce even more high-quality shows and movies. This cycle of content creation and subscriber growth drives Netflix’s non-linear expansion.
  • Cycle Description: Google’s flywheel centers around its search engine. As more users conduct searches on Google, it gathers more data and insights about user behavior and preferences. This data, in turn, improves its search algorithms and personalized recommendations, making the search results more relevant. This enhanced user experience encourages even more users to choose Google as their primary search engine, thus perpetuating the cycle of data-driven improvements and user acquisition.
  • Cycle Description: Facebook’s flywheel focuses on user engagement and content creation. More user engagement generates more data for personalization and targeted advertising. As the platform offers a tailored experience, users spend more time on it. This increased engagement attracts more advertisers, who, in turn, provide resources for further content creation and platform improvements. This cycle strengthens user engagement and drives the company’s growth .
  • Cycle Description: Twitter’s flywheel centers around user-generated content and audience engagement. When users create engaging and relevant tweets, it attracts more followers and increases the overall user base. As the platform grows, advertisers are more interested in reaching this larger audience, leading to ad revenue. The revenue allows Twitter to invest in improving the user experience and providing better tools for content creators, fostering a self-reinforcing loop of user growth and engagement.
  • Cycle Description: Spotify’s flywheel revolves around music streaming and content discovery. As users listen to music and create playlists, Spotify gathers data on their music preferences. This data is used to enhance personalized playlists and recommendations, making the listening experience better. Satisfied users spend more time on the platform, increasing their loyalty and attracting more users to discover new music. This cycle drives Spotify’s growth in the competitive music streaming industry.
  • Cycle Description: Microsoft’s flywheel focuses on software and cloud services. As businesses and individuals adopt Microsoft’s software products and cloud services, they become part of the Microsoft ecosystem. This ecosystem provides valuable data and insights, enabling Microsoft to improve its offerings and tailor solutions to user needs. Enhanced products and services attract more customers, leading to further ecosystem expansion. This cycle reinforces Microsoft’s position in the tech industry.

Key Takeaways

  • Amazon Flywheel : The Amazon Flywheel, also known as the Amazon Virtuous Cycle, leverages customer experience to drive traffic to the platform and attract third-party sellers. This leads to an improved selection of goods and enables Amazon to lower prices, thus creating a cycle of accelerated growth .
  • Epic Games Flywheel : The Epic Games Flywheel likely revolves around offering compelling gaming experiences and exclusive content on their platform. As more gamers join, the demand for content increases, attracting more developers and publishers to create games for the platform, which in turn draws in more users.
  • Etsy Flywheel : The Etsy Flywheel relies on a strong community of artists and sellers offering unique and handmade products. As more sellers join, the platform gains a wider variety of products, attracting more buyers. The increased buyer activity further encourages sellers to join, creating a self-reinforcing loop of growth.
  • Uber Flywheel : The Uber Flywheel centers around providing convenient and affordable ridesharing services. As more drivers join the platform, wait times for riders decrease, attracting more riders. Increased rider demand then leads to more drivers signing up, resulting in a virtuous cycle of growth.
  • DoorDash Flywheel : The DoorDash Flywheel is likely driven by offering a wide selection of restaurants and fast delivery options. As more customers use the service, more restaurants join the platform to reach a larger audience, leading to increased customer satisfaction and attracting even more customers.
  • Ethereum Flywheel : In an imaginary flywheel of the Ethereum ecosystem, developers joining the platform contribute to building more use cases. This attracts more users to adopt the platform, leading businesses to invest more resources into the ecosystem. These investments improve the protocol’s scalability, making it more attractive for developers and users, further fostering adoption and growth.
  • WordPress Flywheel : The WordPress Flywheel likely revolves around offering a user-friendly and customizable website-building platform. As more users adopt WordPress for their websites, it attracts more developers to create themes and plugins, enriching the platform’s offerings and attracting even more users.

Related Growth Concepts

Business Development

business-development

Market Development

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TAM, SAM, and SOM

total-addressable-market

Growth Engineering

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  • Blitzscaling

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Engines of Growth

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Growth Mindset vs. Fixed Mindset

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Sales vs. Marketing

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STP Marketing

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Bootstrapping

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Sales Cycle

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Distribution

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Zero to One

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Digital Marketing Channels

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Logrolling Negotiation

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Win-Win Negotiation

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Revenue Modeling

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Customer Experience Map

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Social Selling

social-selling

CHAMP Methodology

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BANT Sales Process

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MEDDIC Sales Process

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Virtuous Cycles

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Sales Storytelling

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Enterprise Sales

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Outside Sales

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Palantir Acquire, Expand, Scale Framework

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Read: product development frameworks here.

Read Next:  SWOT Analysis ,  Personal SWOT Analysis ,  TOWS Matrix ,  PESTEL Analysis ,  Porter’s Five Forces ,  TOWS Matrix ,  SOAR Analysis .

What is a virtuous cycle?

A virtuous cycle is a positive feedback loop that aligns with a company’s long-term strategy . The virtuous cycle, over time, builds momentum and enables compounded growth for the organization carrying it. For example, Amazon’s virtuous cycle starts with a wide selection at a low price, driven by customer experience. This drives more sellers on the platform, thus enabling more variety and convenience. In turn, Amazon re-invests these resources to further lower customer costs and increase variety, further enhancing this positive feedback loop.

What are some examples of virtuous cycle?

Some examples of virtuous cycles or flywheels are:

Read next: 

  • Platform Business Models In A Nutshell
  • Network Effects In A Nutshell
  • What Are Diseconomies Of Scale And Why They Matter

Other resources for your business:

Amazon Business Model , Epic Games Business Model , Etsy Business Model , Uber Business Model , Uber Eats Business Model , DoorDash Business Model .

  • Business Strategy Examples
  • Business Models
  • What Is a Value Proposition?
  • Business Model Innovation
  • Platform Business Models
  • Digital Business Models

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The Implication of the Virtuous Business Model to the Knowledge Creation Process

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Related Papers

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what is the virtuous business model

International Journal of Management, Technology and Engineering

Prof. Dr. Satya Subrahmanyam

The purpose of this research article is to contribute to the scholarly field of corporate leadership development in connection to virtues, by mapping a concrete initiative that seeks to develop a virtuous aspect of corporate leadership. This article postulates that the view of human nature must be a fundamental part of any discourse on the nature, purpose and development of corporate leadership and offers one perspective of the view of human nature, as a contribution to this discourse. The view of human nature that this article observed on is that humans have the virtues in potential and the purpose in life is to develop these virtues and to contribute to the welfare of the environment.

Stephen G . Parker

What relevance has Virtue Ethics got to exploring the notion of ethical leadership. This paper outlines Virtue Ethics, focusing particularly upon the virtues of courage and integrity, asking 'how can the character of ethical leaders be formed?'.

Abbie Russell

Prof. Dr. Valliappan Raju

The aim of this paper is to unlocking the concept of virtue leadership functional framework encapsulates the critical dimension that captures the diversity of research in the leadership field. In meticulous, previous studies have not detailed out the virtues leadership in a transcendental perspective, and there is not yet an exact body of research and pragmatic studies that focus on organizational effectiveness. This paper begins by defining virtues leadership, and then links the definition of virtual leadership, proponents of virtue leadership. The results show that great virtual leaders are possible to help or teach people to become virtuous leader and affect the outcome of effectives of organizational performance. This conceptual paper contributes to the conceptual framework of virtual leadership characteristic in leading an organization of the Industrial 4.0. Implications of the model add to the body of knowledge and leadership management practices.

Lina Toth (Andronoviene)

In Baptistic Theologies 5, No. 1 (2013), 119-132.

Clinics in Colon and Rectal Surgery

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Leaders are held to the highest of standards in both performance and ethics. The same is true for leaders in medicine. Thus, medical leaders must give attention to ethical development as well as performance development. Virtue ethics provide a way for the leader to develop ethically. Virtue ethics is the oldest form of ethics. Although other ethical approaches focus on external considerations, virtue ethics focuses on the inward development of character. Following the examples of virtuous people and developing habits of virtue are critical with this approach. The cardinal virtues of prudence, courage, temperance, and justice are considered the most important. Specific virtue lists have also been developed for medical practitioners. All of these virtues can contribute to the enhancement of leadership skills. The virtue approach is especially helpful for leaders because it motivates one to excel in whatever endeavor pursued, whether medicine, leadership, relationships, or life.

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Mathematics to "read" art, openmind books, scientific anniversaries, clair patterson, the hero who got the lead out of gasoline, featured author, latest book, business models for the companies of the future.

The business models for the companies of the future are in the making today. A company that cannot reinvent itself and develop a workable business model has no future at all: it will fade and die. We are in the midst of change and, as Peter Drucker said, where there is change, there is opportunity. Those unable to see opportunity see only threats. The future starts now.

A Connected World

Every generation believes itself the witness of the greatest upheavals in history. But this belief is questionable. How can we compare the invention of the printing press to the Industrial Revolution or the emergence of the internet? We can’t. What we can do is pinpoint some of the features of the changes taking place now, and think about how and why they shape business, government, and society.

The forces driving change today are tied to technology, particularly information and communication technologies (ICTs), as discussed in earlier chapters. Even at the expense of repetition, it is vital to discern the lineaments of this change—because today change itself is different from the ICT-led developments seen in earlier years.

Technological change is driven by four forces. First, mobility: an explosion in the number of points of contact with the internet. Everyone is connected, anywhere, any time. The connected world embraces not just people but things. All sorts of devices in all manner of places “talk” to each other.

The ease of connectivity multiplies in the “cloud.” Information no longer rests at a single place (although there is a physical sense in which it still does): it is accessible everywhere. Any data you might need is available at any point of contact. You are always connected and have a way in to the information.

This force might seem sufficiently powerful in itself. But, what’s more, it enables different uses of connectivity. People are social beings, and develop their connections across social networks. They do not just connect: they communicate, interact, influence one another. Social media and broadband connections let us share pictures and videos, chat with our friends, engage in debate—collectivity is experienced as another form of natural human interaction. One of the hallmarks of collectivity is its social angle.

Technological change is driven by four forces. First, mobility: an explosion in the number of points of contact with the internet. The ease of connectivity multiplies in the “cloud”

And the weave of connections, interactions, and information brings forth vast amounts of data in an unstructured form. This information lets us find out what consumers want, what they buy, what they do. There’s a lot we can learn about how to improve our performance, provide services, and interact with users. This is the world of Big Data—the analytical study of huge amounts of information so as to improve the way we live.

When we view these four elements in combination, what we see is not just a connected or “hyper-connected” world: we also find that increased connection enhances interaction. The information we share exponentially drives up “digital density.”1 As the creators of the concept would have it, “digital density” requires both an increase in the number of connections among agents, and a rise in the degree of interaction and the volume of information they share. When these elements come together, “digital density” grows, setting off the potential for change. The impact of digital density encompasses all sectors of activity. Yet that impact can be dampened by the specific regulatory environment. The fewer the regulatory constraints on the network of connections, the higher the impact. Increased digital density opens the door to innovation in business models. This is an emerging battleground in a competitive world.

The Business Model (2)

Let’s start from the beginning. What is a “business model,” and why has it become more important nowadays? Every enterprise has a business model, and always has. A business model is the logic of the enterprise, the way in which it creates and captures value for its stakeholders.3 So business models have always existed and always will.

An example drawn from a bygone era may help us understand this concept—the underlying logic by which an enterprise “makes money.” Think of the early days of photography, and, specifically, the Kodak company. At one time photography was in the hands of professionals who created black-and-white images on a glass surface. In 1883 George Eastman invented a new process which, he believed, was revolutionary: transferring the complex chemical process of photography to a less delicate, more easily handled medium: roll film, first made of paper and soon to be made of plastic. This marked the emergence of the photographic film reel as we knew it until the digital revolution. But Eastman’s invention, great though it was, failed to take off. The quality was not quite as good as that obtained by the conventional method, so professionals gave the new technology a miss.

But Eastman persevered. He realised that, while his innovation was of little use to established photographers, it might be of interest to a different, so far unheeded category of consumers. Many households would be keen, he thought, to memorialize family events by their own hand, easily and cheaply; recourse to a professional photographer would become the exception. But selling this idea to the public demanded a different business model. First, Eastman had to make available a cheap, easy-to-use camera that used the new reel-based technology. This was something he proved able to develop. Secondly, there had to be a chain of stores where people could buy the camera and photographic reels, and get their photographs developed. To put these ideas into practice, in 1888 Eastman founded Kodak, and created a wide-reaching service chain which over the years spread around the world. Film reels and development services became available all over the planet.

Kodak developed the first digital cameras and invested heavily in digital for many years. The real difficulty was that digital photography was consigning Kodak’s business model—which was hard to change—to obsolescence

Based on this new business model, Eastman’s invention changed the world of photography. Later, Kodak developed serious capabilities in the fields of chemistry, optics, and services. Then digital photography made its appearance. Many mistakenly believe that Kodak dragged its feet in the digital age and failed to develop digital technology, but this is far from the truth. In fact, Kodak developed the first digital cameras and invested heavily in digital for many years. The real difficulty was that digital photography was consigning Kodak’s business model—which was hard to change—to obsolescence. In the digital world, chemistry is irrelevant. There is no film, no developing. These were the mainstays of Kodak’s business model. In digital photography, revenue is generated not by the film, but by the device itself—because film and developing are unnecessary. So all those service centres, all the chemical technology … dropped off the radar. And the change went even further. Today, a camera is a relatively rare purchase. Mass photography has shifted to mobile phones and tablets—which also let you share your pictures with other people. The change Kodak needed to make was not a technological one, but a change of business model. In this, Kodak failed. The winners in the world of digital photography are those that help people share their pictures (social networks and mobility) and sell and distribute images. These are business models where Kodak’s capabilities were of little use.

While Kodak, at one time, represented the future, the future was wrested from it by technological change. But while some entrepreneurs let the future slip from their grasp, others see it coming. For instance, Zara

The Kodak example shows what a business model is, and why it is important; it also reveals the impact of technology on how we use things. Photography used to be a handmaiden of remembrance. Images became available only some time after the event (a trip abroad, a celebration); they were shared among narrowly selected circles; they came at a considerable cost. Now it is instantaneous. It is easily distributed anywhere in the world, to anyone, almost at the same time as the event being recorded. Pictures can be posted to open social networks or circulated across large groups of viewers. Quite a different world.

While Kodak, at one time, represented the future, the future was wrested from it by technological change. But while some entrepreneurs let the future slip from their grasp, others see it coming. For instance, Zara (the Inditex group) emerged in the 1970s, when the textile industry in Spain was in decline, having been hit hard by manufacturing in low-cost countries. Amancio Ortega formed a new vision. His insight was that the answer was not to produce large volumes in countries where labour was cheap. It was a matter of quickly making available what women wanted—even if this meant higher production costs, because the net price would be higher.4 This idea enabled him to build an empire of labels and establishments all over the world.

While the end product is still just a garment, the business model is radically different. The key is to be sensitive to which specific garment is desired, and then to design, manufacture and distribute it so that as quickly as possible it can be in the hands of a buyer whose choice is already known to us. Today, given the group’s sales volume, international expansion, and vast number of points of sale, a lot of skill is needed to do what Zara does: to deliver what a woman wants two to four weeks after her buying preference is detected. Speed allows for minimizing advertising or dispensing with it entirely; this means the net price is higher; and increased margins more than make up for higher manufacturing costs. Zara’s business model is now a case study in all the world’s business schools: the “fast fashion” model.

So a business model is important: it is the underlying logic whereby we create and capture value for our stakeholders. There always have been opportunities to create new and disruptive business models that change the ground rules of an industry—like Kodak, like Zara. Today, however, technological progress, globalization, deregulation, demographic shifts, and the behavioral changes driven by technology enable us to do things in radically different ways. Not just a little bit better, not just a little bit more efficiently: in a way that is completely different. The opportunities for innovation in business models, and the threats posed by innovations in our competitors’ business models, have both increased exponentially. A revolution is under way.

Business Model Innovation

Technological change and its related developments allow for far-reaching innovation in business models. The companies of the future will surprise us with novel and original business models. In this new world, opportunities are on the rise. It is by definition impossible to predict what will take us by surprise or what will prove innovative. But we can to some extent cast our gaze over the businesses that are now emerging—because, as we have said, the future starts today.

One strongly rising trend in business models might be dubbed “cost obsession.” The paradigm is perhaps the low-cost airline, based on the scheme developed by Southwest Airlines in the United States—the only American airline that has never failed to turn a profit. Southwest decided to fly point-to-point using smaller, less crowded airports, and used a range of operational measures to make sure its aircraft spent more time in the air and carried more passengers on each flight. Costs came down hugely, flights could be sold more cheaply, more passengers became willing to buy—this made routes more profitable, and a virtuous circle took care of the rest. With variations, this is the business model of Ryanair in Europe, Air Asia in Asia, and any number of other carriers that operate this same model today. Cost obsession has emerged in many other industries. It is present in retail, for instance, Walmart being a prime example. The cost obsession philosophy—developed with care by Sam Walton at Walmart—has spread to an increasing number of sectors. The idea is to get rid of frills and make use of economies of scale, scope, utilization, experience and other factors for the benefit of consumers. Anything that does not create value for the consumer is stripped out.

Another business model category that is powerfully on the rise is the “platform.” This term refers to a business model that supports two or more markets at the same time. A conventional market attracts buyers by providing a venue that supports the presence of sellers, and attracts sellers by the promise of the presence of buyers, all for a specific domain of goods or services. Modern technology, however, removes barriers of time (accessible 24 hours a day) and place (accessible from almost anywhere). Platforms spring up in increasing numbers and compete with one another. One fascinating feature of inter-platform competition is that each platform seeks to achieve network externalities5 leading to a “winner takes all” outcome. Another feature is that competitors put a lot of effort into raising the costs for the weaker party to switch platforms in a bid to keep members captive. A well-known example is eBay. This platform started out auctioning second-hand goods, then grew into a third-party market where businesses of all kinds sold all sorts of products, creating a huge online bazaar.

Other examples of platforms include game consoles, operating systems, and smartphones. The key variable is the “installed base.” If a video game platform—Nintendo, say—makes big sales, it achieves a large installed base. This makes it attractive to game developers, seeking to reach a wide range of potential buyers. A continued influx of more and (one hopes) better games in turn enhances the attractiveness of the platform, further aiding the growth of the installed base. This entrenches the virtuous circle of this network externality.

A third category of business model is the “global business” that opens up to the world in a brief lapse of time. Take Mango. Unlike Zara, Mango creates its own fashions. The firm designs collections and places them on the market at affordable prices, driven by manufacturing in low-cost countries and the flexibility to produce goods that get sold rather than selling goods that get produced. From the outset, Mango focused on urban, modern, professional, relatively young women.6 So the target segment was not particularly large, and required operating in fairly big cities. International growth was crucial to achieving economies of scale and attaining the mass that would enable the firm to develop and manage its production and logistics efficiently. Swift globalization was key. An apposite supporting example is Desigual: though targeting a different segment, its strategy is analogous to Mango’s, and its inter-nationalization was even quicker.

A third category of business model is the “global business” that opens up to the world in a brief lapse of time. Swift globalization is key

Elsewhere, we can look at Metalquimia, a small company in Girona, Spain, which makes machinery for the meat processing industry in a highly specialized niche. Because each individual country’s market is so small, internationalization is essential. This enables Metalquimia to learn from its most demanding customers, wherever they may be based, and apply this learning to create an effective innovation process that makes the firm the spearhead of its niche, while lending it the scale for its innovation costs to pay for themselves.

The example of Metalquimia brings us to a fourth business model category which one might classify as “seeking excellence.” These companies focus on innovation, surprise their customers with new features, and satisfy needs which weren’t even there when the product comes out. The paradigm is Apple. After inventing the personal computer and almost the battle against the Wintel alliance, Apple revolutionized the world of media players with the iPod and the world of telephony with the iPhone—then it created the entirely new world of the tablet, with the iPad. In its own niche, Metalquimia has made analogous breakthroughs.

Irizar, originally a family-owned firm in the Spanish Basque Country, became a cooperative partnership within the Mondragón group, then went its own way in 2005. It makes vehicle bodywork for upmarket buses for a worldwide client base. Its highly distinctive management model is based on independently led teams and on giving everyone who works for the company an ownership stake. This approach enables Irizar to achieve an unsurpassed standard of innovative excellence in the niche market of bodywork for high-end buses.

Each of the businesses mentioned so far operates a distinct business model that supports the specific way in which it seeks to develop its capabilities. However, they all share a continuing pursuit of excellence, distinctiveness of goods and services, and an ongoing bid to innovate.

Distinctiveness of goods and services is achievable through innovation, but can also be the outcome of other factors. Some business models, for instance, are based on “speed”: adapting quickly to customer requirements, as seen in the paradigm case of Zara. Other enterprises find distinctiveness in their quality—whether intrinsic (Rolls-Royce), or linked to a highly characteristic market segment or “tribe” of buyers (Ducati). Still other firms adapt to local tastes or cater to relatively uninformed customers. The common denominator of these business models underpins a fifth category, “distinctive/adapted.” In the digital world, what’s more, distinctiveness can be taken to an extreme, where the relationship is one-on-one. This model has earned itself the name “long tail.” The concept flourishes on online sales platforms, which might take the form of a “store”—Amazon in its beginnings—or a “bazaar”—eBay. The crux is that drastically lowered transaction costs enable sellers to approach tiny market segments—sometimes comprising a single buyer—almost as efficiently as wide swathes of the market.

These five categories of business models are not exhaustive. There must be others that are unclassifiable now, and still less so in the future—innovation being unpredictable by definition. What’s more, the categories overlap. A case study illustrating one category could just as easily illustrate another. So this outline, rather than providing a taxonomy, merely points out features that make a business model “good” at creating and capturing value. These business model features set in motion virtuous circles7 and bring about a positive dynamic. The robustness of a given business model is determined by the number of positive dynamics it is capable of enlisting, so lending it the ability to survive competition with other models, both present and potential.

The robustness of a given business model is determined by the number of positive dynamics it is capable of enlisting, so lending it the ability to survive competition with other models, both present and potential

For further insight into these categories of business model, we can look at the virtuous circles that each of them entails. “Cost obsession” business models generate virtuous circles that gradually bring down the cost of manufacturing goods or providing services. The model might be driven by economies of scale (costs decrease as manufacturing volume increases), economies of learning (costs decrease as production accumulates), economies of capacity use (costs decrease as utilized capacity increases), or any combination of these elements and factors relating to scarce resources, such as location, techno-logy or knowledge. To generalize, all these virtuous circles lie on the supply side. We should be aware that the behavior of these costs in the tangible world, which is subject to physical limits, is not the same as in the online world, where scalability may be unlimited.

By way of contrast, the virtuous circles garnered by “platform” models arise from network externalities and the “switch” costs accepted by the customer (“lock-in”)—here, the onus lies on the demand side of the market. These powerful virtuous circles sometimes enable the “winner” to corner most of the demand; but they are fragile, being easily transformed into vicious circles when another firm grabs the “winner” spot.

“Global businesses” also depend on demand-linked virtuous circles, but usually require interaction with a key variable on the supply side. Swift internationalization captures the volume to achieve economies of scale, cover overheads, and reach innovation and brand-value milestones that would be otherwise unthinkable.

The other two business model categories also depend on supply/demand interactions. In the “seeking excellence” model, the key is innovation. Triggering a cycle of innovation is tough, because it requires you to outdo your competitors in several different ways at once to keep ahead. You need to implement best practices, secure employee commitment and attract the best talent—this is hard to keep up sustainably over time.

“Distinctive/adapted” models impose the tough challenge of maintaining a sufficient standard of distinctiveness. Speed of adaptation is the key to winning the ongoing race to be first with what the consumer wants at the given time—the best she can get at that moment, because there is no other comparable choice. There is a constant struggle against the swift “commoditization” of the product or service.

A good business model is one capable of keeping alive a virtuous circle, or a combination of them. And in the competitive setting of the twenty-first century, strength lies in developing better and more innovative business models.

A New Overarching Objective: Reinventing the Business Model

Information and communication technologies let us address all these five dimensions at once. But whether our intended market is new or already out there, we need to give careful thought to designing a business model capable of triggering virtuous circles. The design-based approach that this requires is something of a newcomer to the field of strategy studies. We need to revive our “design thinking” skills—how to solve problems, how to bring out the strengths of the intended model, how to overcome the barriers thrown up by our environment.

These are the skills that the executives of the company of the future are called upon to develop. First, they must understand the nature of technological change and its implications. Secondly, they must go a step further, and apply their insights to designing a self-consistent entrepreneurial logic that reinforces and protects the targeted virtuous circles more effectively than the alternative approaches to the given market. Because these business models are both complex and holistic, the process of design entails experiment, trial and error, ongoing revision, and learning on the fly. We finally put together a model, but must immediately start to think about how it can be improved and upgraded—because any competitive edge is increasingly transitory and unsustainable.

And, while design is a tough challenge in itself, when we look at the demands of a model equipped with the internal dynamics capable of supporting the logic of the business, we face the further difficulty of remaining strong against the competition. It sometimes happens that a model that is objectively superior when considered in isolation loses the battle against inferior alternatives that enjoy entrenchment, as often happens in the sphere of “platforms.” The older platforms outdo us in terms of user interaction. The installed base of an entrenched platform may prove too powerful an obstacle for an objectively more effective business model starting out with an installed base of zero.

The executives of the company of the future need to revive their “design thinking” skills—how to solve problems, how to bring out the strengths of the intended model, how to overcome the barriers thrown up by our environment

So business model design does not take place in a vacuum but in a setting where our competitors are also making decisions and creating their own business models. This interaction is a key element we need to incorporate to the design process. We must look to both existing and potential alternatives. We must bear in mind the significance of timing. If we move too slowly, we may find our intended space is already taken, and we now need to do something different. Or we might run ahead of ourselves without developing the capabilities needed for the next step. Managing the design process against a background of dynamic interactions is a tough and complex challenge: all the same, it is of the essence of the company of the future.

Developing a novel, innovative business model that is capable of rising to future challenges in an uncertain and connected high digital density environment requires the talent of an entrepreneur. This means the executive of the future must be good at design and strategically shrewd, and also a talented venturer. She must see where opportunity lies, how to ride the wave of change, how to reinvent oneself. We all too often think of a CEO as the steward of an existing state of affairs rather than as the shaper of a new reality. But the lever of change cannot be left in the hands of startups alone—we also need entrepreneurial executives in large, established companies.

The skills of design, strategy, and enterprise will lead to new business models which will change (and already are changing) both companies and whole industries, bringing about new ground rules and new ways of sharing out created value. We need the vision and leadership to transform entire industries from end to end, but we must see that this is done in a way that brings us a meaningful portion of the value thus created. There lies ahead a tough “game” for senior executives in our century, the leaders of the companies of the future.

Business Models in the Company of the Future

In this chapter, we referred early on to technological change and the disruptive influence of emerging information and communication technologies. Significant though they are, however, these technologies are merely a medium of support. We must focus on the overarching business model: throughout the business transformation leading to the company of the future, the business model is the driving force. While making use of new technologies, in the awareness of the changes they entail and the swift developments they are still to bring, our real goal is to reinvent business models.

To achieve this we need business leaders with design talent, a flair for strategy, and the courage of the venturer. And even this is only the beginning, because the new era of design will no doubt demand new forms of leadership, a new organizational balance, and new skills in our employees and executives. Execution will be by no means easy.

Building the companies of the future will be tough. Business-building always has been tough. Overcoming difficulty is the calling of the effective leader. And today this role inevitably entails reinventing business models so that our business of the present is also the company of the future. The future starts now. We must not tarry in getting ready for it. It is upon our success in this challenge that the well-being of society depends. With leadership comes responsibility. Let’s rise to the challenge today and reinvent the business model.

  • This concept was coined in the paper by E. Káganer, J. Zamora, and S. Sieber, “The Digital Mind-Set: 5 Skills Every Leader Needs to Succeed in the Digital World”, IESE Insight, issue 18, 3rd quarter, 2013.
  • See also, on business models, the following by R. Casadesus-Masanell and J.E. Ricart: “Competing Through Business Models (A). Business Model Essentials,” Harvard Business School, note 708452 (2008); “Competing Through Business Models (B). Competitive Strategy vs. Business Models,” Harvard Business School, note 708475 (2008); “Competing Through Business Models (C). Interdependence, Tactical & Strategic Interaction”, Harvard Business School, note 708476 (2008); “From Strategy to Business Models and Onto Tactics,” Long Range Planning, 43 (2010), pp.195-215; “How to Design a Winning Business Model,” Harvard Business Review, January 2011, 100-07. A summary is provided in J.E. Ricart, “Strategy in the 21st Century: Business Models in Action,” IESE Technical Note SMN-685-E, 2013.
  • “Stakeholder” is a commonly accepted term meaning any party involved in the future of the organization, whether as a shareholder, employee, supplier, customer, government entity, society at large, etc.
  • The net price is the sale price adjusted by the effect of discounts and advertising and promotion costs. The resulting price is known as the “net price.”
  • A network externality arises when the addition of an additional consumer is of benefit to all the consumers already present. This is a natural occurrence in a network setting. For instance, the value of having a telephone connection rises each time a new user joins the network. The same sort of externality arises indirectly on multi-market platforms —when one side of the market grows, value is increased for the other side, and vice versa.
  • After a few failed attempts, Mango recently branched out into collections such as HE by Mango (menswear), Mango Kids, Violeta, etc.
  • A business model can be formally defined as a set of choices and their respective consequences (see the references indicated at note 2). Choices lead to consequences, which in turn form the basis of further choices. Within this dynamic process the interconnectedness of choices and consequences brings about positive feedback loops, which can be either “virtuous” or “vicious.” The emergence of a virtuous circle is a hallmark of a successful business model.

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Mid-sized Manufacturing Companies: The New Driver of Italian Competitiveness pp 75–136 Cite as

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For a more detailed review of the panel’s competitive model, see ( Varaldo et al. 2009 ).

The topic must naturally be understood in relative terms, without ignoring the close link between “product” and “core competence” represented by the “core products” concept (Prahalad, Hamel, 1990).

The literature on resources, competences and capabilities is endless: see ( Wernerfelt, 1984 , 1995; Barney, 1991 , 2001; Grant, 1991 ; Peteraf, 1993 ; Hamel, Prahalad, 1994 ; Eisenhardt, Martin, 2001).

We will return to this in Chap. 5.

It is well-known that the sustainability of differentiation focus strategies is based on the differences between segments and on the ability to build a value chain that is very distinct from the competitors’ value chain. This allows you to be more efficient and effective than sector leaders that are simultaneously involved in several sectors. Nevertheless, there is the risk of depending on only one type of market and having high production costs, which doesn’t allow economies of scale per se.

Concerning the district model and its needed evolution, see ( Varaldo 1988; 2006 ; 2007) and (Varaldo, Ferrucci 1993).

Indeed, the panel companies are on average less technologically intense: about two-thirds of the aggregated revenue is reached by low technology firms, while, if we take into account the total number of mid-sized firms surveyed by Mediobanca, they obtain about 40% of that reached by low technology firms.

Of the 23 companies, 3 reveal their research costs; 17 do research but do not reveal costs; 3 declare they do not do research, but this is doubtful because they have new product samples (which contain “new” items). Of the 12 benchmark companies, 2 reveal costs and 10 declare that they do research but do not reveal costs.

Moreover, in the perspective of “open innovation” the costs do not represent a clear-cut measure of innovation orientation, because “openness” seeks to reduce innovation costs, increase business potential and share the risks of new products and processes with all the actors. Nevertheless, investments in research and development are mentioned in the book when they are considerable and they are a proxy for the degree of structuring.

This includes headquarters in Beijing’s Technological Park, which is reviewed in the internationalization section.

Innovation orientation is enhanced through ongoing investments in “intangibles”, such as a dynamic research culture, non-stop training, the empowerment of human resources and social responsibility.

These heating and air-conditioning pumps have a single methane-powered system which obtains heat from natural sources such as water, air and soil. The basic principle is that when cold air is produced it generates a higher amount of heat, hence the idea to exploit the technology of refrigerators to build lowenergy heaters.

The company came with more than 2000 patents, which were carefully examined by Robur’s research teams. They included patents drawn from several studies by Albert Einstein on absorption technology, which were used to create GAHP.

These partner firms are from a production hub specialized in wood technology that Margaritelli helped set up.

That which prevails is trust in factors such as: a) the external economies that the firms have in their districts (lower resources, work and services costs), b) the natural ability of a district organization to evolve and choose efficient firm structures, c) the country of origin effect tied to a too optimistic view of the “Made in Italy” effect ( Varaldo, Dalli, Resciniti 2006 ).

According to International Monetary Fund estimates, the U.S. market will grow by 2.5% in 2012, which will mean an increase of almost 2 thousand billion dollars in GDP and, in proportion, an increase in imports and purchases in the U.S. (Daveri 2011). The increase estimated for Russia in 2012 is almost double (+4.5%) but Russian incomes will only grow by 400 billion dollars, a fifth of the increase registered in the U.S.A.

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Resciniti, R., Tunisini, A. (2013). Virtuous business models for international competitiveness. In: Coltorti, F., Resciniti, R., Tunisini, A., Varaldo, R. (eds) Mid-sized Manufacturing Companies: The New Driver of Italian Competitiveness. Sxi — Springer per l’Innovazione / Sxi — Springer for Innovation. Springer, Milano. https://doi.org/10.1007/978-88-470-2589-9_4

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The Virtue of Business: How Markets Encourage Ethical Behavior

IFWE September 12, 2012

This paper was authored by Rachel Kotkin ( Beloit College), Joshua Hall ( Beloit College) and Scott Beaulier* (Mercer University)

**The following paper is reprinted with permission of Acton Institute and was originally published in the Journal of Markets & Morality .**

Introduction

Newspapers, the media, the cinema, and the pulpit are filled with claims about the immorality and corruption inherent in market economies. Since the end of the Cold War, American businessmen have displaced the Russians as the primary bad guys in action films (Formaini 2001). Beliefs hostile to capitalism are troubling because they threaten the moral foundations of market economies and, in so doing, often distort the truth about market outcomes.

Market economies are supported by ethical presuppositions, and these basic presuppositions, such as the “right to self-ownership,” play an essential role in the overall workings of the entire system. The simple principles of a market economy help to maintain the universal order of the system, and they guide policymakers and judges when disputes must be resolved. Economists and many philosophers understand and recognize the important role ethics and morality play in the market economy. Interest in the interaction between ethics and markets goes back at least to Adam Smith (1759 [repr., 1976], 215) when in The Theory of Moral Sentiments he discussed the “impartial spectator” and said, “He cannot therefore but approve, and even applaud, that proper exertion of self-command, which enables them to act as if their present and their future situation affected them nearly in the same manner in which they affect him.”

Smith’s impartial spectator carries over to the capitalistic market. Good ethical behavior is not only encouraged and rewarded, but according to Smith, it is part of human nature to act justly, and humans are encouraged by sentiment to do so rather than to act on that which solely benefits their own accord.

Even though ethical parameters are placed on people’s behavior in capitalist systems, many critics of capitalism describe free societies as societies where “anything goes” (Hill 1988). Rather than encourage ethical behavior, free societies are said to encourage vice and the abandonment of an ethical standard; according to critics, capitalism does not discriminate when it comes to the types of goods and services being produced. If life-saving medicines are profitable, markets will provide them; if land mines and prostitution services are valuable, markets will provide these goods and service too. Because markets do not discern between desirable and undesirable products, they can be thought of as either amoral or immoral.

In this article, we will argue against the amorality and immorality of markets. Rather than encouraging cheating, market economies often encourage ethical behavior. While the market economy will sometimes produce goods and services offensive to some people, there are strong forms of social ostracism and persuasion that help to discourage consumption of undesirable goods. Ultimately, though, for a business to be prosperous in the long run, they must maintain general standards in their business, such as trust, stewardship, investment, and attention to consumer satisfaction (Wilson 1990).

The only way to make a profit in a free market is by providing a product people value enough to pay a price higher than the opportunity cost of the resources used to produce the goods. The threat of competition and availability of substitutes makes it necessary for firms to constantly evaluate whether their product or service is more appealing than the competition’s. Sometimes the firm must push down the costs of production while keeping the product quality the same; other times, they must increase quality while keeping costs constant; or, they must pursue a combination of cost reductions and quality improvements. Without instilling a sense of value in their product, a business will not be successful over time.

The way in which a business goes about demonstrating to customers the value of their product or service is important. Businesses can convey information to customers and potential customers in either an ethical or an unethical manner. For example, a company could lie about the quality of its product. While such a strategy might work in the short run, in the long run unethical behavior typically gets punished and does not pay off. One example is Enron. In the short run, Enron executives and shareholders enjoyed enormous increases in their net worth from the increase in Enron’s stock price. However, once their accounting irregularities were discovered, Enron’s stock quickly crashed, and executives were eventually fined and imprisoned. When defrauded consumers and shareholders begin to discover the unethical actions of a business, they eventually stop buying from them because of their personal moral code, concern about the product’s overall reliability, or fear of legal action. In economies with greater competition, consumer wants are more likely to be satisfied by the abundance of alternatives available, and the healthy competition of the marketplace requires businesses to maintain a solid reputation if long-term success is desired.

In this article, we provide further discussion of why markets reward virtuous behavior and punish unethical behavior and the role of “ethical entrepreneurs.” We also illustrate our discussion with examples from three successful companies. Each of the companies selected prospered because their managers believed in one important idea: Ethical behavior is good for long-run profitability . The three case studies are Barnum & Bailey’s Circus, Whole Foods, and BB&T Bank. We use the aforementioned cases to illustrate how the market rewards virtuous behavior even without individual consumers consciously trying to do so.

Ethical Entrepreneurs

What does it take to be a successful entrepreneur in the ethical realm? In the next few sections, we offer cases of entrepreneurs, such as Barnum and Bailey, John Mackey, and John Allison, who have made profits for their companies while also promoting virtue. As entrepreneurs, Barnum and Bailey, Mackey, and Allison recognized the value of running their companies ethically at a time when most people saw the marketplace as an environment in which quick, short-term profits could be made. Both Mackey and Allison saw the importance of linking ethics to entrepreneurship, knowing full well the pitfalls and potential criticism awaiting them for linking ethics and profits together.

Ethical entrepreneurs differentiate their goods and services in the marketplace by first figuring out ways in which current markets are frustrating consumers and then by finding ways to respond to customer dissatisfaction by “selling” honesty, virtue, and quality. Ethical entrepreneurs use business tools to help customers make decisions consistent with the customer’s best long-term interest; the ethical entrepreneur thus helps to improve the overall business environment.

The ethical entrepreneurs are meeting the growing demand for honesty in the marketplace. To provide honesty and integrity, they have to invent new products, differentiate their products, and market the ethical aspects of their business. In serving the market for honest information, ethical entrepreneurs are not engaging in altruistic activity, but, rather, are helping to better serve and coordinate the market economy.

The following stories support the growing conviction among many social scientists and philosophers that markets can be a powerful force for good in the realm of morality. Ethical entrepreneurship should not be thought of as a magical cure-all for every business problem but, rather, as an approach; in the absence of the stick of government regulation, ethical entrepreneurship solves some of the trickier problems confronting businesses and consumers in the marketplace. Depending on their mission and the reason for their existence, businesses can be like any other social organization and provide goods that markets do not provide. Through their success, businesses, such as the three we discuss here, improve the lives of not only their customers and employees but also of the greater community.

With rising incomes and technological advancements, the demand for ethical behavior in the marketplace will continue to grow. One possible promoter of ethical behavior is government. Time and again, however, we have seen government efforts aiming to establish minimal standards of decency act as blunt instruments, which stifle creativity and discourage ethical behavior. Ethical entrepreneurship stands as an alternative to government managed business decency, and it goes about promoting the good by harnessing the incentives of the marketplace.

Barnum & Bailey Circus

The notion that virtue is its own reward and leads to long-term business success is not a recent or isolated phenomenon. For example, political scientist John Mueller details in his 1999 book Capitalism, Democracy and Ralph’s Pretty Good Grocery how the link between ethical behavior by businessmen became widespread in the United States over a century ago. According to Mueller, ethical and virtuous treatment of customers and employees gave honest companies a competitive advantage, and the practice of being honest to customers was quickly copied by others in the economy. His primary example of an ethical entrepreneurial innovation is the Barnum & Bailey Circus.

Prior to the formation of the Greatest Show on Earth (as the Barnum & Bailey Circus billed itself), circuses were primarily run in an underhanded manner. From the moment a customer entered the circus until his or her return home, they ran a high risk of being cheated. Ticket takers would short-change customers when they were entering the events; pick pockets were paid on commission to roam the grounds; shows were tacky; and games were impossible to win (Mueller 1999). So-called Monday Men stole from nearby clotheslines and houses while homeowners attended the shows and circus parades (Tully 1927 [repr., 2005]). Longtime Hollywood columnist Jim Tully relates from firsthand experience how circuses pretend to be honest in order to take advantage of rubes in his book Circus Parade (1927 [repr., 2005], 44–45):

Whenever a large group of rustics would assemble the spieler would say, “Now Ladies and Gentlemen, we aim to run an honest show—but as you perhaps know there are thieves in high and low places—and dishonest people may follow us—just as you may have dishonest people right here in your own fair city. Hence and therefore—I warn you to watch out for your valuables.” Immediately rustic hands would feel for purses. The pickpockets would watch where the hands went and follow after.

The deception, lying, and theft embraced by circus managers led to quick short-term profits, but the dishonest firms did not survive long because of competition and innovation in the circus industry. Eventually, customers stopped attending the circus because they were disappointed with the experience. With customers disappointed with circuses, the Barnum & Bailey Circus emerged in the 1880s and set in motion a variety of changes to the circus industry. Unlike earlier circus shows, Barnum & Bailey ran a successful circus by creating value for the customer. To overcome the bad impression people had about circuses, Barnum & Bailey had to work extra hard for customers. They had to market the circus as an honest source of entertainment for families. In addition to promising honest ticket takers, Barnum & Bailey had to monitor their workers’ behavior and make it costly to be dishonest. They also hired private detectives to catch and scare off the pickpockets.

Barnum & Bailey made their business a more ethical and honest one because it was the right thing to do and because it was profitable to do so. Whether they achieved their goal of creating the greatest show on earth is debatable, but they were able to convince crowds about the value and enjoyment of attending the circus (Mueller 2001).

By 1910, Barnum & Bailey, as well as other “clean” circuses such as the Ringling Brothers, had moved to the top of the industry and continued to profit from their honest business methods. More importantly, because their more honest and virtuous behavior was profitable, their business practices began to dominate the industry. While a few circuses continued to try to operate using the old methods of taking advantage of the rubes, the dominant business model became the so-called Sunday-school approach of Barnum & Bailey (Mueller 2001).

The case of Barnum & Bailey illustrates a key point about how markets reward firms when the firms try to do the right thing. While some customers attended Barnum & Bailey circuses because of their desire to reward a company for trying to be honest in what was a dishonest and unethical business, many customers did not know or care about the business strategy of Barnum & Bailey. All they needed to know to reward P. T. Barnum and his successors for their behavior was that attending the circus was more valuable to them than the expected cost (which includes prices paid for entry, shows, and so forth, and possible costs from theft). Based on their experiences and word of mouth about the good experience being had at circuses, customers expected circuses to be worth the money. The reputation of ethical circuses continued to improve and so, too, did firm profits. Thus, it is typically not out of conscious action on the part of consumers that ethical and virtuous companies are rewarded. Instead, companies focused on creating long-term relationships with customers are most likely to engage in honest and ethical behavior.

In some sense, the emergence of virtue in the marketplace can be thought of as a beneficial spontaneous order. It was not the original intention of P. T. Barnum and James Bailey to reform the circus industry and get everyone to adopt the Sunday-School approach to circuses. Their intent was to be profitable in the long-term. In order to do so, they had to create value for the customer in what was, essentially, a repeated game. The unintended beneficial result of their actions is that other individuals ended up having to copy their behavior in order to be successful. As we can see from the evolution in the way customers were treated at the circus, unethical behavior in the free market fails in the long run when customers care about unethical behavior and competitive alternatives exist. When the unethical business is trying to prosper in a market where good ethics are the norm, it becomes nearly impossible for such businesses to be successful.

Whole Foods

As we saw in the previous section, people are attracted to ethical business practices and moral behavior. Some of the most successful businesses in the market today put the consumer first, and they subscribe to the theory that if the customer is happy, then the business will be more profitable (Friedman, Mackey, and Rodgers 2005).

Whole Foods Market is a recent example of a company committed to the customer-first model. Whole Foods was founded in 1980 as a single store in Austin, Texas. Today, with more than 270 stores in North America and the United Kingdom, it is the world’s largest retailer of both natural and organic foods (Whole Foods Market 2009a). John Mackey (Friedman, Mackey, and Rodgers 2005), the founder and current CEO of Whole Foods explains his corporate philosophy when he says:

We want to improve the health and well-being of everyone on the planet through higher-quality foods and better nutrition, and we can’t fulfill this mission unless we are highly profitable. High profits are necessary to fuel our growth across the United States and the world. Just as people cannot live without eating, so a business cannot live without profits. But most people don’t live to eat, and neither must a business live to just make profits.

Whole Foods Market is a prime example of a large business committed to high ethical standards. The motto of the company is Whole Foods, Whole People, Whole Planet, and the management encourages doing more than just selling food. They encourage employees to strive for customer satisfaction by supplying high-quality products in a manner that creates value for third-parties in the community and worldwide (Whole Foods 1997).

While the idea of consumer surplus is not new, Whole Foods explicitly commits to creating consumer surplus and positive external effects through its entire approach to business. Along with the company motto, Whole Foods Market embraces a set of core values through which the structure of the business is based (Whole Foods 2009d):

  • Selling the highest quality natural and organic products available
  • Satisfying and delighting our customers
  • Supporting team member happiness and excellence
  • Creating wealth through profits and growth
  • Caring about our communities and our environment
  • Creating ongoing win-win partnerships with our suppliers

It is through an understanding of these principles that no matter how large the business grows it will be able to preserve what has helped them become what they are today. The company feels as if they have a responsibility to provide the highest quality product possible to all involved and associated with the business; shareholders and customers, as well as the team members (employees), suppliers, local communities and the environment, are all considered in decisions (Whole Foods 2009d).

To cite but one example, in an effort to become more in touch with the local community, Whole Foods has created what they call the Whole Trade Guarantee. These are products that provide more money to the producers, ensure better wages and working conditions for the workers, and assure that environmentally sound practices are being carried out. When consumers buy these products, one percent of the retail value goes to the Whole Planet Foundation, a foundation that has worked to create an economic partnership with developing communities that supply the stores with their products. The Whole Planet Foundation provides microlending in rural communities around the world, as well as funding for loans and guaranteeing financial support for the administrative costs so that every dollar donated goes directly to those in need. The various support projects relate directly to organics and environmentally friendly production methods, animal welfare, sustainable seafood, and nutrition and healthy families.

In addition to the Whole Trade Guarantee and the Whole Planet Foundation, each store donates food to local food banks and shelters. During community giving days, what they call “5% Days,” 5 percent of the days’ net sales are donated to a local nonprofit educational organization. The Local Producer Loan Program (LPLP) is a program that provides up to $10 million in low-interest loans to small local producers. The program allows them to more easily grow their business and in turn, bring more locally grown products to the Whole Foods Market. The loans range from $1,000 to $100,000 and can be put toward various things such as purchasing more animals, investing in new up-to-date equipment, or converting to organic production. Various businesses are eligible for these loans, including rangers, beekeepers, ice cream makers, and bakers. Each year, overall community giving exceeds 5 percent of the total net profits (Whole Foods 2009c).

In debates over the social responsibility of businesses, free-market economists sometimes argue that the only responsibility of business should be to shareholders (Friedman 1970). John Mackey feels otherwise and argues, “I believe the entrepreneurs, not the current investors in a company’s stock, have the right and responsibility to define the purpose of the company” (Friedman, Mackey, and Rodgers 2005). Allowing entrepreneurs to define company vision is important because it is the purpose and mission of an organization that drives the type of change we are discussing.

While Milton Friedman is correct to note that there exists a principal-agent problem when corporate executives engage in socially responsible behavior because that behavior might not be consistent with the goals of all the shareholders. What Friedman does not emphasize, however, is that the principal-agent problem exists in all organizations. For example, an astronomy club president who votes to donate some of the club’s dues to help pay for an Earth Day rally might be acting against the wishes of some of her principals, but organizations set up internal rules and procedures for dealing with such behavior. If a majority of members agree with the president’s actions, then the troubled members can always leave and form another organization. The fact that corporations are voluntary is an important one; it is voluntary organizations that fill in the gaps in civil society. Civic organizations have traditionally been understood to encompass solely social organizations such as the Red Cross or fraternal order societies, but we suggest that businesses can also play that role to the extent that their pursuit of profit also advances social change. Whole Foods is clearly an example of a company that advances social change while earning a significant profit.

BB&T Bank

Throughout history, money and banking practices have been a constant source of scrutiny and skepticism. The Bible and much of Shakespeare’s work paint a dark picture of lenders. According to Thomas Jefferson (1816), “banking establishments are more dangerous than standing armies.” More recently, the U.S. financial and housing crises of 2008 have spawned another round of vitriolic rhetoric against bankers and calls for greater regulation of banking are a recurring theme of the crisis.

The hostility toward bankers ultimately comes from a belief that bankers do not have the self-interest of their clients in mind. Instead, bankers aim to maximize short-term profits, and, in so doing, they often leave their clients worse off in the long run. To some extent, the argument has a certain amount of plausibility and appeal. In the pursuit of quick profits, bankers overextended credit to questionable borrowers during the housing crisis, knowing (1) that borrowers were often confused about the product being sold, and (2) that the mortgage would be sold and soon become someone else’s problem.

Like our previous examples, when the market seems to be filled with dishonesty and uncertainty, there is an opportunity for a firm to enter and provide honesty. BB&T Corporation of Winston-Salem has been one of the firms providing honesty to its banking clients. The company focuses on what is best for the client and emphasizes the importance of individualism and responsibility in its mission statement. As the company’s information page states (BB&T 2007a),

At BB&T we recognize that you’re an individual, with a unique set of financial goals and ambitions. We also know that what you need from us will change as you go through your life. That’s why we believe in building strong relationships, and that complete financial security comes from making one good decision at a time. We can offer solutions to all your financial needs, and the accounts, tools, and services to help you meet your goals.

For BB&T, the mission statement and discussions of the company’s core values matter. The company wants all workers to embrace the culture of always asking, “What’s in my client’s long-term interest?” They emphasize the importance of establishing win-win relationships with their clients, and, if they make their client’s lives better, they believe they are making both the company and the world better.

The desire to improve client well-being can clearly be seen in their mission statement, which focuses on how making sure customers, employees, and the greater community are better off and ultimately maximizing the return for shareholders (BB&T 2007b). Their purpose statement provides perhaps the clearest statement of why a focus on creating long-term value for all stakeholders is in everyone’s best interest.

Our ultimate purpose is to create superior long-term economic rewards for our shareholders. However, our purpose, to create superior long-term economic rewards for our shareholders, can only be accomplished by providing excellent service to our clients, as our Clients are our source of revenues. To have excellent client relations, we must have outstanding Employees to serve our clients. To attract and retain outstanding employees, we must reward them financially and create an environment where they can learn and grow. Our economic results are significantly impacted by the success of our Communities. The community’s “quality of life” impacts its ability to attract industry for growth. Therefore, we manage our business in a long-term context, as an integrated whole, with the ultimate objective of rewarding the Shareholders for their investment, while realizing that the cause of this result is quality client service.

BB&T’s emphasis on values and long-term thinking has resulted in consistently high levels of customer satisfaction (J.D. Power and Associates 2008). In addition, the company was able to avoid many of the sub-prime problems plaguing many other large U.S. banks during the current crisis. BB&T viewed many of the introductory and zero interest rate mortgage offerings of the housing boom as financial products not beneficial to their client’s long-term interest and therefore avoided them. By being honest and encouraging their clients to avoid confusing products to a far greater extent than their rivals’ clients, BB&T weathered the financial crisis far more effectively than its peers. When “stress tests” of banks were recently performed, BB&T emerged as one of the healthiest banks among the nineteen largest financial institutions in the country (Craver 2009). BB&T’s CEO through 2008, John A. Allison, was also named runner-up to Warren Buffet for CEO of the Year in 2008 by independent research provider Morningstar. As the press release announcing the finalists noted (Morningstar 2009):

It may seem odd to nominate a bank CEO after all the trouble that imprudent lending has caused to our financial system, but John Allison, BB&T’s retiring CEO, is a worthy candidate. During his tenure, he has used the combination of conservative underwriting with timely expansion to create a Southeast banking giant. With an intense focus on culture, Allison’s personality and ethics are ingrained throughout the organization. The bank’s resilience has largely come from Allison’s ability to portray BB&T as a safe haven for its customers, helping the bank to soak up deposits and profitable small and mid-sized business clients from its troubled peers at a rapid rate.… Most important of all, Allison’s focus on the company’s culture and his close relationship with his fellow managers have assured us that even though he will retire at the end of the year, BB&T’s conservatism will remain its backbone and, we believe, will help reward shareholders for years to come.

It remains to be seen if BB&T’s approach to the business of banking will be adopted as a model by other banks in the way that Barnum and Bailey’s circus became the standard by which other circuses would be judged. It is important to note, however, that many of the sub-prime mortgage lenders such as Fremont General Corporation that were not focused on creating long-term value for their customers have gone out of business (Fu and Hall forthcoming). Thus, even if BB&T’s actions do not directly influence other financial institutions to adopt more ethical behaviors, the relationship between ethical behavior and long-term success makes it more likely that ethical behavior will thrive in the industry.

Concluding Remarks

The three examples discussed illustrate how ethical entrepreneurs can improve their own businesses and make the overall capitalist system a more moral one. In each case, an ethical entrepreneur recognized the value in doing something differently. As circus show producers, Barnum and Bailey made their shows a form of weekend fun by making their employees and managers an asset instead of a liability. Changes in the way employees were monitored, changes in incentives, and an emphasis on honesty all led to a superior circus show. To bring back jaded customers, Barnum and Bailey had to market their product as an honest one, form new relationships with customers, and wait for word of mouth to spread. Their task was greatly complicated by the nature of the circus industry, which is an industry that constantly changes locations, but their efforts in providing a superior circus show paid off and helped them maintain their image as the greatest show on earth until the Great Depression. In short, Barnum and Bailey took existing resources and combined them in a new way to produce a better product, which is the essence of entrepreneurship.

In the case of Whole Foods, the desire for profit and the desire to do good go hand in hand, recognizing that profit will come when people see that what is being done can benefit themselves and their communities. Those behind Whole Foods understand that large companies can greatly impact the environment— either positively or negatively. Whole Foods was the first major retailer, worldwide, to offset 100 percent of their energy uses with wind energy credits. Other environmental steps they have taken are the use of solar power, company-wide recycling programs, green buildings, and a strong support for organic products (Whole Foods 2009b). Because Whole Foods is focused on creating value for all stakeholders, it has made the world a better place while remaining profitable.

Making money as a banker always requires risk, but taking on risk and also serving clients in an honest way is something BB&T and John Allison have been doing for more than thirty years. BB&T’s commitment to constantly asking the question, “Does this product benefit my client in the long-run?” has, from time to time, constrained them from making a quick buck. Their integrity, however, has led to long-term growth in the company and satisfaction for consumers. Their prudent and long-term approach has analysts considering them poised for considerable growth in the future (Boye 2008).

Entrepreneurial approaches where profits come, in part, from running a business ethically present an important alternative for producing good and ethical outcomes in a world where rancor about business and talk of social justice dominates. By harnessing consumer demands for integrity and by contracting with their workers to meet those demands, ethical entrepreneurs can supplement and, perhaps, substitute for government solutions. While we rely on markets for many goods, a rich and complex network of voluntary organizations (including corporations) helps us provide for the rest.

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* Corresponding author. This research was conducted in part while Joshua Hall was a Visiting Scholar at the Social Philosophy and Policy Center at Bowling Green State University.

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Virtuous leadership: a source of employee well-being and trust

Management Research Review

ISSN : 2040-8269

Article publication date: 13 February 2020

Issue publication date: 18 June 2020

The purpose of this paper is to examine how a supervisor’s virtuous leadership as perceived by subordinates influences subordinates’ work-related well-being and to examine the mediating role of trust in the leader and the moderating roles of individual leader virtues and various characteristics of subordinates and organizations.

Design/methodology/approach

An online survey was conducted through Prolific among a self-selected sample of 1,237 employees who worked with an immediate supervisor across various industries in primarily the UK and the USA. Structural equation modeling was used to test the hypotheses.

The empirical results indicate that an immediate supervisor’s virtuous leadership as evaluated by the subordinate positively influences all three considered dimensions of work-related well-being – job satisfaction, work-related affect and work engagement – for a wide variety of employees in different industries and countries. A subordinate’s greater trust in the supervisor fully mediates this positive influence for job satisfaction and work engagement and partially for work-related affect. All five individual core leader virtues – prudence, temperance, justice, courage and humanity – positively influence work-related well-being.

Practical implications

The findings underscore that promoting virtuous leadership is a promising pathway for improved employee well-being, which may ultimately benefit individual and organizational performance.

Originality/value

Despite an age-old interest in leader virtues, the lack of consensus on the defining elements of virtuous leadership has limited the understanding of its consequences. Building on recent advances in the conceptualization and measurement of virtuous leadership and leader character, this paper addresses this void by exploring how virtuous leadership relates to employees’ well-being and trust.

  • Work engagement
  • Trust in leader
  • Job satisfaction
  • Business ethics and sustainability
  • Leader character
  • Leader virtues
  • Work-related affect

Hendriks, M. , Burger, M. , Rijsenbilt, A. , Pleeging, E. and Commandeur, H. (2020), "Virtuous leadership: a source of employee well-being and trust", Management Research Review , Vol. 43 No. 8, pp. 951-970. https://doi.org/10.1108/MRR-07-2019-0326

Emerald Publishing Limited

Copyright © 2020, Martijn Hendriks, Martijn Burger, Antoinette Rijsenbilt, Emma Pleeging and Harry Commandeur.

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Introduction

A leader’s character shapes his or her goals and behavior, which can have a profound impact on organizational outcomes, including the outcomes and behaviors of subordinates. As a result, leader character is considered “an indispensable component” of leadership performance in the contemporary business world ( Hannah and Avolio, 2011 , p. 979). Character is inextricably linked with virtue because good character is built through the practice and habituation of virtues ( Newstead et al. , 2020a , 2020b ; Sison and Ferrero, 2015 ). Virtues are acquired and socially valued dispositions that are voluntarily exhibited in the person’s habitual behavior in context-relevant situations ( Newstead et al. , 2018 ). Given their importance, character and the related virtues play roles in various leadership styles, such as ethical leadership, servant leadership and transformational leadership. However, these leadership styles do not comprehensively address the core defining characteristics of a virtuous leader, as they do not consider a coherent set of pre-eminent leader virtues and do not center on the character but, additionally, have a deontological focus on obligations to act or a teleological focus on the consequences of actions ( Hackett and Wang, 2012 ; Lemoine et al. , 2019 ).

Despite the role of leader virtues in various leadership styles, limited evidence exists on the isolated influence of virtuous leadership within organizations as assessed by a coherent measure of a leader’s virtuousness that centers on character ( Crossan et al. , 2017 ). This longstanding lack of attention to and knowledge regarding virtuous character may explain why many managers attempt to get ahead by “doing wrong” and why virtuous character traits often do not play a prominent role in the training and evaluation of managers ( Seijts et al. , 2019 ). A possible reason for the paucity of studies on the virtuous character of leaders is the traditional lack of definitional clarity; moreover, some scholars have considered virtues – and by extension virtuous character – “too abstract and general” to be measured ( Peterson and Seligman, 2004 , p. 31).

These concerns have been convincingly dispelled by the emerging literature on virtuous leadership and leader character with the development of more parsimonious, coherent and philosophically grounded conceptual frameworks of virtuous leadership and leader character ( Hackett and Wang, 2012 ; Crossan et al. , 2017 ; Adewale, 2020 ; Riggio et al. , 2010 ; Peterson and Seligman, 2004 ) and the development of sound measures of virtuous leadership that are empirically distinct from other leadership concepts such as ethical leadership and charismatic leadership ( Wang and Hackett, 2016 ; Thun and Kelloway, 2011 ; Riggio et al. , 2010 ). There is consensus in this emerging virtuous leadership literature that a virtuous leader can be regarded as a leader whose character and voluntary (i.e. intrinsically motivated and intentional) behavior consistently exhibited in context-relevant situations align with the prevailing pre-eminent leader virtues, as detailed below ( Newstead et al. , 2020a , 2020b ). By considering a more coherent and parsimonious set of virtues and by centering on character, virtuous leadership can uniquely contribute to stakeholder outcomes and the social environment in organizations compared with other leadership styles, such as ethical and transformational leadership.

Encouragingly, Wang and Hackett (2016) demonstrated that subordinates’ perceptions of a supervisor’s virtuous leadership relate positively to their overall happiness and life satisfaction, even after accounting for the supervisor’s charismatic leadership. The work-related well-being of employees or components thereof is also positively associated with organizational virtuousness ( Nikandrou and Tsachouridi, 2015 ) and specific virtues such as a manager’s behavioral integrity ( Prottas, 2013 ). However, the role of the virtuous leadership of individual leaders as determined by a coherent set of leader virtues for the work-related well-being of subordinates has remained unexplored.

This study aims to address the shortage of research on the role of a supervisor’s virtuous leadership for employee well-being and to advance current leadership and employee well-being research through three core contributions. First, this study offers theoretical refinement and empirical evidence of the link between virtuous leadership and employees’ work-related well-being. This link is pertinent given that employee well-being is important in itself for employees and instrumentally important in promoting individual and organizational performance ( Krekel et al. , 2019 ). Increasing employee well-being has therefore become a strategic priority in many organizations. Second, by outlining and testing the mediating role of trust in the leader, this study contributes to a better understanding of why employees with more virtuous supervisors may feel better at work. Third, this study contributes to an understanding of the conditions under which employees with more virtuous supervisors have higher well-being by exploring which leader virtues are particularly strongly related to work-related well-being and the extent to which the relationship depends on various organizational and employee characteristics. On a more general level, insights into how a supervisor’s virtuous leadership relates to a subordinate’s trust in the leader and work-related well-being can provide the basis for more detailed theorizing on the consequences of virtuous leadership, for example by helping explain why virtuous leadership tends to be positively related to the broader well-being and performance of individual employees and organizational performance ( Cameron and Winn, 2012 ; Wang and Hackett, 2016 ).

Theoretical framework and hypotheses

Virtuous leadership.

Hackett and Wang (2012) identified more than 60 virtues that have been associated with good leadership in their review of the leadership literature. Different studies emphasize the roles of different virtues in each leadership style. For instance, twenty-nine of those virtues have been explicitly linked to ethical leadership, and 32 have been linked to servant leadership. Various frameworks of virtuous leadership have been proposed to develop a more coherent, parsimonious, and philosophically grounded framework of the pre-eminent virtues of virtuous leaders, i.e. the virtues on which all other virtues hinge. Riggio et al. (2010) operationalized virtue-based ethical leadership in Western societies based on the cardinal virtues articulated first by Plato in the Republic and discussed in more detail by Aristotle – prudence, fortitude (courage), temperance, and justice. These four cardinal virtues have played a prominent role in the Western philosophical and Judeo-Christian traditions, along with a virtue ethics perspective derived from Aristotle’s understanding of a virtuous person ( Zeuschner, 2014 ). Taking a more global perspective, Peterson and Seligman (2004) reviewed the virtues identified in the major philosophical and spiritual traditions worldwide and identified six core leader virtues – wisdom (prudence), courage, humanity, justice, temperance and transcendence ( Thun and Kelloway, 2011 ). In Chinese Confucian philosophy, concepts closely associated with humanity, justice, wisdom, truthfulness and propriety are considered core virtues ( Huang, 1997 ). Combining Aristotelian and Confucian literatures on virtue ethics, Hackett and Wang (2012) developed a framework of virtuous leadership in which five of the six virtues overlap with those of Peterson and Seligman (2004) – humanity, courage, justice, temperance and prudence – and in which truthfulness is added as a sixth virtue. Crossan et al. (2017) developed a leader character framework that was validated with practitioners from five organizations from North and Latin America. This framework includes 11 virtues, with judgment (prudence) as the central dimension of character and most of the virtues of the aforementioned frameworks (justice, courage, temperance, humanity and transcendence) and some additional virtues mentioned by practitioners as fundamental for effective leadership (drive, collaboration, humility, integrity and accountability) as other core virtues. Addressing the African leadership challenge, Adewale (2020) introduced a virtuous leadership model underpinned by four primary virtues in African cultures – truthfulness, courage, humility and humanity. The virtues considered in the frameworks discussed above are to some extent inconsistent with related but distinct concepts considered in the more pragmatically oriented, less theoretically grounded, and less virtue ethics-oriented positive organizational inquiries (e.g. positive organizational scholarship) ( Meyer, 2018 ; Sison and Ferrero, 2015 ). For instance, Cameron et al. (2004) considers forgiveness, trust, integrity, optimism and compassion as core elements of organizational virtuousness.

The discussion above shows that there is no full consensus on the conceptualization of virtuous leadership. A primary reason is that the list of core leader virtues as well as their interpretations, enactments, and relative levels of importance vary somewhat between major philosophical and spiritual traditions globally ( Hursthouse, 1999 ). Nevertheless, the set of core leader virtues strongly overlaps between contemporary frameworks of virtuous leadership. More specifically, the following five empirically distinctive leader virtues emerge as pre-eminent or at least critical in nearly all philosophical and theological traditions, and there is consensus among contemporary leader character frameworks that these should be considered core and globally applicable – though, depending on context, not necessarily exhaustive – ingredients of virtuous leadership: being disposed to make the right judgments to achieve virtuous goals using appropriate means in a given situation (i.e. prudence or practical wisdom); controlling emotional reactions and desires for self-gratification (i.e. temperance ); giving others what they deserve (i.e. justice ); persevering in doing what is “right” despite the risk of unpleasant consequences (i.e. courage or fortitude); and treating others with love, care and respect (i.e. humanity ).

To encourage global discourse on the link between virtuous leadership and work-related well-being and to align the focus of the current study with the five virtues captured by Wang and Hackett’s (2016) validated measure of virtuous leadership, the current study focuses on these five pre-eminent leader virtues. Leader virtues for which there is less consensus about whether they should be considered core virtues are not considered here because they have not been shown to be empirically distinctive or highly correlated with at least one of these five core virtues, including transcendence ( Thun and Kelloway, 2011 ), truthfulness ( Wang and Hackett, 2016 ), drive, collaboration, humility, integrity and accountability ( Crossan et al. , 2017 ). That is, these additional virtues are, to a large extent, captured empirically by these five virtues. For this reason, Wang and Hackett (2016) excluded truthfulness from their measure of virtuous leadership. Another reason that some character traits, such as drive, are not considered here is that they lack a strong moral component but are included by Crossan et al. (2017) for their importance in leader effectiveness. The authors of the current study concur with the dominant virtue ethics perspective in the literature that virtuous leadership does not require an instrumental outcome to be of worth but requires leaders to engage in virtuous behaviors exactly because those behaviors are inherently moral ( Newstead et al. , 2018 ; Hackett and Wang, 2012 ; Flynn, 2008 ). However, it must be acknowledged that this list of five virtues is not exhaustive and optimal in each specific local context. In sum, virtuous leadership is defined here on a global level as a leadership style where the leader’s voluntary (i.e. intrinsically motivated and intentional) behavior consistently exhibited in context-relevant situations aligns with the virtues of prudence, temperance, humanity, courage, and justice.

Work-related well-being

Work-related well-being refers to good experiences and evaluations relating to one’s working life. In line with broader subjective well-being frameworks, the most traditionally considered positive forms of work-related well-being are job satisfaction and work-related affect ( Page and Vella-Brodrick, 2009 ). While job satisfaction refers to an employee’s cognitive evaluations about one’s work, work-related affect refers to the frequent experience of pleasant emotions (e.g. enthusiasm, contentment) as opposed to unpleasant emotions at work (e.g. worry, depression). Although related, experiences of negative and positive affect are not orthogonal ( Watson et al. , 1988 ). Inspired by Aristotle’s notion of eudaimonia , recent employee well-being frameworks additionally include eudaimonic well-being-related concepts ( Page and Vella-Brodrick, 2009 ; Fisher, 2010 ). One popular concept in this regard is work engagement, defined as “a positive, fulfilling work-related state of mind that is characterized by vigor, dedication, and absorption” ( Bakker and Oerlemans, 2011 , p. 180). Work engagement taps eudaimonic well-being because of its strong association with using one’s character strengths and its focus on purpose, intrinsic motivation, and flow experiences ( Bakker and Oerlemans, 2011 ; Fisher, 2010 ). Therefore, this study follows the employee well-being framework of Bakker and Oerlemans (2011) by focusing on job satisfaction, work-related affect, and work engagement as the three main positive forms of work-related well-being.

Virtuous leadership, work-related well-being and trust

The virtuous leadership of supervisors can influence the work-related well-being of subordinates through several mechanisms. A relatively indirect mechanism is by exemplifying virtuousness. Leaders can influence, through internalization, the virtuous behavior of other people in the organization, thereby stimulating a more virtuous organizational climate ( Cameron and Winn, 2012 ). In turn, perceptions of organizational virtuousness contribute to the work-related well-being of subordinates through, for instance, enhanced trust and stronger relationships between employees ( Nikandrou and Tsachouridi, 2015 ). Virtuous leader behaviors can also affect subordinates in more ways that are direct. One way is through the leader’s influence on the objective job characteristics and outcomes of subordinates that are known predictors of work-related well-being. For instance, giving subordinates credit where credit is due can enhance subordinates’ career progress and job security, the fair and considerate allocation of work tasks can positively influence subordinates’ job content, and caring for the subordinate’s well-being can result in more suitable work hours.

Notwithstanding the abovementioned mechanisms, the thesis of this article is that a particularly influential way in which virtuous leaders have a direct influence on the long-term work-related well-being of followers is through a subjective process with trust in the leader at its center. There is clear consensus that trust within organizations and between supervisors and subordinates specifically is essential for the flourishing of organizations ( De Jong et al. , 2016 ). Trust refers to “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another” ( Rousseau et al. , 1998 , p. 395). Based on this definition, Gillespie (2003) identified two main forms in which a subordinate’s trust in a leader can manifest: reliance-based trust, which refers to being willing to rely on the leader’s skills, knowledge, judgments, or actions, and disclosure-based trust, which refers to being willing to share work-related or personal information of a sensitive nature with the leader.

Leader character is considered a primary source of trust in leaders because trust is particularly built when moral behavior is intrinsically motivated, intentional, and consistently displayed in context-relevant situations ( Dirks and Ferrin, 2002 ). These conditions are essential for building trust because a leader’s consistent moral behavior under these conditions signals to employees that the leader will also behave morally in the future, particularly when the leader favors moral behavior over maximizing personal gain. By contrast, less trust is built when moral behavior is extrinsically motivated, unintentional, or inconsistent because it is less evident that the leader will act virtuously in future situations ( Dirks and Ferrin, 2002 ). This perspective suggests that the character-based concept of virtuous leadership may enhance trust even more than related leadership styles traditionally associated with trust, such as ethical leadership and transformational leadership, because those leadership styles do not fully center on character but also focus on behaviors that may generate less trust, such as conforming to rules or moral duties (a deontological focus) and goal-oriented behavior (a teleological focus).

In turn, trust is the catalyst of various follower attitudes and behaviors that contribute to work-related well-being, including those directly related to the leader, such as satisfaction with the leader and leader–member exchange ( Dirks and Ferrin, 2002 ), organization-related attitudes and behaviors, such as organizational identification ( Schaubroeck et al. , 2013 ), and broader psychological aspects such as reduced work stress ( Liu et al. , 2010 ). Together, these processes make trusting one’s leader essential for the well-being of employees. Trust strongly affects people because it is directly related to basic human needs, particularly safety and health aspects such as psychological distress ( Hardin, 2002 ). Many potential mechanisms linking (perceived) leader virtuousness and work-related well-being can thus be expected to be conditional on trust in the leader. One example is that virtuous leader behaviors from a trusted leader will more effectively influence the internalization and eventually the practicing of intrinsically rewarding moral behaviors ( Bass and Riggio, 2006 ).

Subordinates’ perceptions of their supervisor’s virtuous leadership positively influence their work-related well-being.

Higher trust in the supervisor mediates the influence of a subordinate’s perceptions of the supervisor’s virtuous leadership on the subordinate’s work-related well-being.

Contextual factors

Subordinates’ perceptions of their supervisor’s virtuous leadership positively influence the work-related well-being of subordinates regardless of the sector, industry, organizational size or the subordinate’s age, gender, education level or position in the organizational hierarchy.

The role of individual core virtues

All five individual core leader virtues positively influence subordinates’ work-related well-being and trust in the supervisor.

Methodology

A self-selected sample of 1,237 employees who were registered as having an immediate supervisor was recruited in January 2019 through the online crowdsourcing platform Prolific. Prolific has been used in many empirical studies in the social sciences and is generally of good quality ( Peer et al. , 2017 ). Nonnative speakers who were registered on Prolific as having fluent English language proficiency could participate in the survey only after passing a language test. The socio-demographic composition of the sample is summarized in Table I . The analysis sample comprises people working in a multitude of organizations across various sectors in primarily the UK and the USA, with relatively high proportions of employees who are young, highly educated and working full-time[ 1 ].

The respondents were instructed to answer the measures below in relation to their main job and their immediate supervisor within this job. The item scores of each scale were coded such that high values represent high levels of the constructs.

Virtuous leadership. The 18-item Virtuous Leadership Questionnaire developed by Wang and Hackett (2016) was used ( ɑ = 0.95) to measure leader character through one’s behaviors using three or four items for each core leader virtue, including courage (e.g. “My supervisor acts with sustained initiative, even in the face of incurring personal risk”), temperance (e.g. “My supervisor prioritizes organizational interests over self-interests”), justice (e.g. “My supervisor allocates valued resources in a fair manner”), prudence (e.g. “My supervisor exercises sound reasoning in deciding on the optimal courses of action”) and humanity (e.g. “My supervisor shows concerns for subordinates’ needs”).

Trust in leader. Trust in one’s supervisor was assessed with the ten-item behavioral trust inventory (ɑ = 0.95) developed by Gillespie (2003) . These items capture behavioral intentions and are split evenly into the two components of trust identified by Gillespie (2003) : reliance-based trust (e.g. “How willing are you to follow your supervisor’s advice on important issues?”) and disclosure-based trust (e.g. “How willing are you to share your personal feelings with your leader?”).

Work-related well-being. Job satisfaction was assessed by using the Michigan Organizational Assessment Questionnaire ( Cammann et al. , 1983 ). The three items are “All in all, I am satisfied with my job”, “In general, I don’t like my job” (reverse coded) and “In general, I like working here” ( α = 0.92). Work-related affect was assessed using Warr’s (1990) 12‐item measure that asks about the frequency of experiencing positive emotions (e.g. enthusiasm and contentment) and negative emotions (e.g. worry and depression) at work in the last month. Work engagement is measured using the UWES-3 developed by Schaufeli et al. (2017) . The UWES-3 ( ɑ = 0.86) includes one item for each dimension of engagement: “At my work, I feel bursting with energy” (vigor), “I am enthusiastic about my job” (dedication) and “I am immersed in my work” (absorption).

Control variables. Perceptions of virtuous leadership, trust, and work-related well-being may be affected by a variety of personal and organizational characteristics. Therefore, information was collected about the respondent’s age, gender, education level, country of residence, number of weekly work hours, supervisory responsibilities, position in the organizational hierarchy, and tenure with the supervisor and organization as well as the supervisor’s age and gender and the sector and industry in which the organization is active. “External” job liking was controlled for by the question “How much do you like your job regarding aspects that are outside of your immediate supervisor’s influence?” (1 = dislike a great deal; 7 = like a great deal). This question sought to alleviate the concern that reverse causality may be introduced if companies with cultures of employee well-being and trust hire or attract more virtuous leaders or if employee well-being shaped by causes other than the supervisor’s virtuousness and trustworthiness may drive perceptions of the leader’s virtuousness and trustworthiness. To isolate the specific role of trust in the supervisor, a subordinate’s general propensity to trust was controlled for using the 4-item propensity to trust scale developed by Frazier et al. (2013) . External job liking and propensity to trust can also capture social desirability bias that remains uncaptured by the marker variable discussed below.

Response bias

Several measures were taken to limit response bias. First, the main variables of interest were measured through validated scales to ensure content validity. Second, to encourage honest answers, the respondents were assured of anonymity and confidentiality, and they were not informed beforehand about the goal of the survey. To further detect and correct for possible common method variance, a marker variable deliberately developed for use as a marker variable was used: attitude toward the color blue ( Simmering et al. , 2015 ). The three items are “I like the color blue”, “I prefer blue to other colors” and “I like blue clothes” ( α = 0.79). This marker variable effectively, though not necessarily exhaustively, detects common method bias, as it is influenced by some of the same causes of common method variance (e.g. affectivity and acquiescence) as the substantive variables but is not theoretically related to those substantive variables.

Descriptive statistics, average variance extracted (AVE) and bivariate correlations among the variables studied are shown in Table II . As expected, the correlations among the three variables of interest are positive and significant.

Scale analysis

Prior to testing the hypotheses, a confirmatory factor analysis of the variables of interest was conducted to test the validity of the proposed model. As recommended by Wang and Hackett (2016) , virtuous leadership was modeled as a five-correlated-factor model, with each virtue representing a first-order factor. Two items were excluded from the model because their factor loadings were below 0.60[ 2 ]. Similarly, work-related affect was modeled as a second-order factor with positive and negative affect as first-order factors, and trust in leader was modeled as a second-order factor with reliance and disclosure as first-order factors. The five-factor measurement model – including virtuous leadership, trust in leader, job satisfaction, work-related affect and work engagement – fits the data well ( χ 2 (880) = 3359, p < 0.01; CFI = 0.95; RMSEA = 0.05; SRMR = 0.04). Two tests confirmed that the six-factor model has adequate discriminant validity. First, a χ 2 -test showed that the proposed model fits the data significantly better than alternative models with five or fewer factors (all p -values <0.001). Second, as can be derived from Table II , the square roots of the AVEs are greater than the interconstruct correlations. The model also has good convergent validity because all factor loadings exceed 0.60 and all AVEs exceed 0.50.

To test the presence of common method bias, blue attitude was added to the model, and the procedure outlined by Williams et al. (2010) was followed. A χ 2 -test showed that the unconstrained model has a significantly better fit than the zero-constrained model (Δ χ 2 = 79, Δdf = 44; p < 0.01), which signals shared variance between the constructs. A bias distribution test in which the unconstrained model was compared to an equal constrained model demonstrated that the common method bias is unevenly distributed across items (Δ χ 2 = 79, Δdf = 42; p < 0.01). The model in which the marked variable is allowed to load on every item of the main variables has an acceptable fit ( χ 2 (969) = 3513, p < 0.01; CFI = 0.95; RMSEA = 0.05; SRMR = 0.04). Therefore, blue attitude was retained in the model to test the hypotheses using common method bias-corrected measures.

Hypothesis testing

Structural equation modeling was used to test the hypotheses. The results of the unmediated model are presented in Figure 1 [ 3 ]. The estimated results show that subordinates’ perceptions of their supervisor’s virtuous leadership positively influence subordinates’ work engagement, work-related affect, and job satisfaction at the 99.9 per cent confidence level. This finding supports H1 .

The results of the best-fitting mediated model with trust in the leader as a mediating variable are presented in Figure 2 .[ 4 ] In this model:

subordinates’ perceptions of their supervisor’s virtuous leadership positively influence subordinates’ trust in their supervisor;

subordinates’ trust in their supervisor positively influences all three components of work-related well-being; and

subordinates’ perceptions of their supervisor’s virtuous leadership influence their work-related affect but not their job satisfaction and work engagement, independent of their trust in the supervisor.

The mediating role of trust in the supervisor was tested more rigorously using bias-corrected confidence intervals by means of the bootstrapped estimates from 2,000 samples. As shown in Table III , this test confirmed that trust in the supervisor significantly mediates the influence of subordinates’ perceptions of their supervisor’s virtuous leadership on their work-related well-being at the 99.9 per cent significance level. The proportion of the variance in work-related affect explained by virtuous leadership indirectly via trust in the mediator is 63 per cent, which is in the range of partial mediation (0.20 to 0.80) ( Hair et al. , 2014 ). Alternative models without a direct path between virtuous leadership and work-related affect or with direct effect paths between virtuous leadership and job satisfaction or work engagement fail to improve the model fit significantly (all p -values > 0.05), and the direct paths from virtuous leadership to job satisfaction ( β = 0.10; p = 0.17) and from virtuous leadership to work engagement ( β = 0.08; p = 0.30) are not statistically significant. This indicates that trust in the leader fully mediates the influence of virtuous leadership on job satisfaction and work engagement.

In sum, the results indicate that greater trust in the supervisor fully mediates the influence of perceived virtuous leadership on work engagement and job satisfaction and partially mediates this influence for work-related affect, thereby supporting H2 .

Multigroup analysis was employed to test whether a positive influence of subordinates’ perceptions of virtuous leadership on their work-related well-being holds for various subgroups. The model in Figure 1 including the control variables was used for this purpose. The results, presented in Figure 3 , indicate that the influence of subordinates’ perceptions of their supervisor’s virtuous leadership on their work-related well-being is positive and statistically significant at the 5 per cent significance level regardless of the subordinate’s gender, age group, educational background, position in the organizational hierarchy, organizational size, or sector, and this positive influence holds across the various industries and cultures considered here. These findings support H3 and provide evidence for the prevalence of a positive influence of the perceived virtuous leadership of a supervisor on subordinate’ work-related well-being in the countries considered here.

To examine whether each core leader virtue positively influences subordinates’ trust in the leader and work-related well-being, the model was re-estimated after excluding all virtues other than the virtue of interest from the model. This procedure was repeated five times, once for each virtue. The results, presented in Table IV , indicate that each core leader virtue positively influences subordinates’ trust in the supervisor and their work-related well-being, and the degree of influence of the individual virtues is very similar. This large overlap is not surprising when considering that, in line with previous research, all correlations between individual virtues are between 0.69 and 0.85 in the data[ 5 ].

Leadership styles in which leader virtues play a significant role, such as ethical, servant, and transformational leadership, do not comprehensively address the core defining characteristics of a virtuous leader, as they do not consider a coherent set of core leader virtues and do not center on character ( Hackett and Wang, 2012 ; Lemoine et al. , 2019 ). Little is known about the isolated influence of virtuous leadership within organizations as assessed by a coherent measure of a leader’s virtuousness that centers on character ( Crossan et al. , 2017 ). Notably, despite the importance of employee well-being for firm performance ( Krekel et al. , 2019 ), the isolated influence of virtuous leadership on employee well-being has remained unexplored. The current study addresses this void in the literature by examining how a supervisor’s virtuous leadership as perceived by subordinates influences subordinates’ work-related well-being using a coherent measure of virtuous leadership. In addition, the mediating role of trust in the leader and the moderating roles of individual leader virtues and various characteristics of subordinates and organizations are examined to gain a deeper insight in the prevalence and underlying mechanisms of this effect.

The current study reveals that subordinates who perceive they have more virtuous immediate supervisors have higher work-related well-being across a wide variety of contexts in Western societies. This positive influence holds for all three considered dimensions of work-related well-being – job satisfaction, work-related affect and work engagement. These findings are consistent with previous research findings showing that virtuous leadership has a positive influence on various positive follower outcomes that are antecedents and consequences of work-related well-being, such as subordinates’ overall happiness, life satisfaction, psychological empowerment, organizational identification and moral identity ( Riggio et al. , 2010 ; Wang and Hackett, 2016 ). These findings are also in line with the documented positive influence of value-laden leadership styles such as ethical and transformative leadership on work-related well-being ( Bedi et al. , 2016 ; Banks et al. , 2016 ). In sum, the findings of this study extend the evidence for the importance of the character and virtuous behaviors of leaders in stimulating positive outcomes for subordinates and show the prevalence of this positive influence in at least Western contexts.

The results further show that subordinates’ greater trust in the supervisor fully mediates the positive influence of their perceptions of the supervisor’s virtuous leadership on job satisfaction and work engagement and partially mediates the positive influence for work-related affect. The full mediation effects for two of the three well-being indicators suggest that a subjective process with trust in the leader at its center is a particularly influential way in which virtuous leaders influence the work-related well-being of followers. Moreover, the sizes of the mediation effects suggest that this trust mechanism is probably more influential than alternative mechanisms, such as the creation of a more virtuous organizational climate and better objective job characteristics and outcomes of subordinates. The revealed strong influence of virtuous leadership on trust is consistent with the idea that trust is particularly built when moral behavior is intrinsically motivated and intentional, i.e. when the behavior is character-based. Following this rationale, trust in the leader may be more influenced by virtuous leadership compared with less character-based leadership styles that have been associated with increased trust, such as transformative leadership ( Altunoğlu et al. , 2019 ). The reference to a limited period (i.e. the past month) in the measure of work-related affect may explain why trust related less strongly to work-related affect because building trust is a long-term process, whereas virtuous leader behaviors also elicit short-term affective responses in followers independent of trust.

All five individual core leader virtues positively influenced trust in the supervisor and work-related well-being. This finding suggests that the five leader virtues that are prominent in the emerging frameworks of leader character and virtuous leadership each contribute to the well-being of employees. The similar influence of the individual virtues on trust and work-related well-being is inconsistent with the common viewpoint in Western philosophical and spiritual traditions that prudence is the central and most important virtue ( Zeuschner, 2014 ) and with the central role of prudence in some frameworks of leader character ( Crossan et al. , 2017 ) but is consistent with frameworks that do not make a hierarchical order among the five core virtues ( Peterson and Seligman, 2004 ; Hackett and Wang, 2012 ) and supports the philosophical viewpoint of some ethics scholars that virtues form a unified whole in creating positive outcomes ( MacIntyre, 1984 ). However, the consideration of individual leader virtues in specific situations remains essential, as the importance and the specific roles of virtues are context dependent ( Riggio et al. , 2010 ).

Implications

Theoretical implications.

The results suggest that the character and related virtues of leaders are important drivers of the documented positive influence of value-laden leadership styles such as ethical and transformative leadership on work-related well-being ( Bedi et al. , 2016 ; Banks et al. , 2016 ) and trust ( Altunoğlu et al. , 2019 ). Virtues should therefore have an important role in theories on how value-laden leadership styles affect follower outcomes. Another implication is that trust in leaders and work-related well-being seem to be important drivers of the positive influence of virtuous leadership and leader character on overall well-being, work performance, and other work-related outcomes ( Riggio et al. , 2010 ; Wang and Hackett, 2016 ).

More generally, the demonstrated positive influence of virtuous leadership on employee outcomes highlights the importance of further explorations into how leaders can be helped or stimulated to become more virtuous and provides support for recent calls to incorporate leader character and, more specifically, virtuous leadership in mainstream management theory ( Crossan et al. , 2017 ; Newstead et al. , 2020a , 2020b ).

This study highlights the potential relevance of leader virtuousness for leaders and organizations that aim for high levels of employee well-being and trust within the organization. Trust and well-being are not only desirable in themselves but are also instrumentally important in enhancing the recruitment, performance, and retention of employees ( Krekel et al. , 2019 ). This link suggests that virtuous leaders are often effective leaders and that often there is no trade-off between effective and virtuous leadership, contradicting the fear or conviction among many leaders that virtuous leadership comes at the expense of effectiveness. The positive influences of virtuous leadership shown in this study reinforce calls for promoting virtuous leadership in organizations ( Flynn, 2008 ; Cameron and Winn, 2012 ). Leader character is widely considered to be malleable, and following Aristotle, the related virtues are considered learnable and developable ( Newstead et al. , 2020a , 2020b ). Sison and Ferrero (2015) suggest that:

[…] a virtuous character comes from the cultivation of virtuous habits. However, virtuous habits themselves result from the repeated performance of virtuous actions, and virtuous actions, in turn, arise from one’s having nurtured virtuous inclinations or tendencies (p. S81).

These inclinations and tendencies can be promoted in several concrete ways, such as by verbally acknowledging virtuous behavior of leaders ( Alfano, 2013 ), role modeling virtuous behaviors, encouraging leaders to explain the rationale behind their virtuous decisions to employees, and offering training programs and workshops to promote and develop virtuous character traits ( Crossan et al. , 2017 ; Newstead et al. , 2020a , 2020b ). In addition, one could place greater emphasis on character when hiring and evaluating staff to create a virtue-based leadership culture. To develop excellent future leaders, the findings of this study also support Byrne et al. ’s (2018) call for education and training programs that raise awareness about the importance of virtuous character and helping to develop virtuous character traits, particularly in business schools (see also Eriksen et al. , 2019 ). For (prospective) employees, the revealed influence of leader character on employees’ outcomes suggests that a leader’s character should be an important criterion when making job decisions.

Limitations and future directions

First, while this study focused on perceptions of virtuous leadership, future research could examine the role of actual leader virtuousness using objective data regarding virtuous and vicious behaviors of leaders. Third, while endogeneity concerns were alleviated in this cross-sectional study by the inclusion of control variables and a marker variable, future research could test the causal directions of the proposed relationships more thoroughly by collecting longitudinal or experimental data. Fourth, the demonstrated relevance of virtuous leadership and the observed differences in the theorized and empirical factor structure of Wang and Hackett’s Virtuous leadership Questionnaire reinforce Dawson’s (2018) call to further develop and validate measures of individuals’ virtues in business. Fifth, future studies in other contexts and utilizing different data sources are needed to examine the generalizability of these findings. Sixth, future research can test the value of virtuous leadership beyond other leadership styles by exploring the extent to which it predicts unique variance in follower and organizational outcomes. Seventh, while this study shows that virtuous leadership is important for employees’ work-related well-being regardless of the specific context, more research is needed to explore the extent to which the role of specific virtues is context dependent, the interdependence of different virtues, and the effect of imbalances between leader virtues in creating positive outcomes ( Riggio et al. , 2010 ).

The present study demonstrates the positive impact of virtuous leadership as perceived by subordinates on the work-related well-being of subordinates across a wide variety of contexts in Western societies. In this regard, this study shows that subordinates who perceive they have more virtuous supervisors trust their leaders more and, in turn, have higher work engagement, job satisfaction and work-related affect. The findings suggest that organizations seeking to promote the well-being of their employees may strongly benefit from stimulating virtuous leadership and employee perceptions thereof. Despite some limitations, this study contributes to the existing literature by providing theoretical refinement and empirical evidence of the influence of virtuous leadership on trust and work-related well-being using a more coherent and philosophically grounded conceptual framework compared with the extant literature.

what is the virtuous business model

Unmediated model

what is the virtuous business model

Mediated model

what is the virtuous business model

The influence of virtuous leadership on work-related well-being by subgroup

Sample profile ( N = 1,237)

Notes: Standardized coefficients reported. * p  < 0.001. Control variables are as in Figure 1 for the work-related well-being variables and as in Figure 2 for trust in leader

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Acknowledgements

Funding : This publication was made possible through the support of a grant from Templeton World Charity Foundation Inc. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of Templeton World Charity Foundation, Inc.

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what is the virtuous business model

A virtuous business model

VirtuSense founder Deepak Gaddipati

The Peoria-based AI company VirtuSense is being recognized as a global innovation leader, specifically in the prevention of falls

T en years ago, engineer Deepak Gaddipati founded VirtuSense Technologies to solve a complex and deeply personal problem. How do you proactively identify risk factors for adults to prevent falls?

Gaddipati’s grandmother had been an active 68-year-old when she fell and broke her hip in 2009. It was her first fall, but she passed away from complications within 10 days. The whole family was in shock.

A graduate of Bradley University’s engineering master’s degree program, Gaddipati, 41, was already known for finding solutions. He invented the full-body scanner now used in many airports and had been working on government defense contracts.

He started talking to doctors, nurses and physical therapists to identify what put a person at risk of falling. His six-person team poured over peer-reviewed medical data, pinpointing balance, logic, cognitive function, endurance and flexibility as the key factors involved in a fall. Then, they plugged thousands of hours of data into machines to train them how to detect and monitor those factors. 

Today, VirtuSense employs more than 130 people, 55 of those at its Peoria headquarters, and helps care for 1.4 million seniors across hospital systems, post-acute care facilities and doctor’s offices. The company’s VSTAlert, VSTBalance and VSTOne systems have prevented an estimated 106,000 falls and 22,000 hospital admissions in the last two and a half years alone.

“These are real people. I mean my parents, your parents, grandparents,” said Gaddipati. “We don’t publish all the data. Our clients do. They say, ‘We got a 90% reduction in falls.’ Everyone wants to show they’re using this and seeing tremendous changes. That’s what gets us going, and that’s how we’ve been growing pretty aggressively.”

‘Everyone wants to show they’re using this and seeing tremendous changes. That’s what gets us going’ — Deepak Gaddipati

At one point, the company branched out to work with NBA and NFL teams on injury prevention. Three years ago, VirtuSense stopped selling that equipment to new clients or offering support for existing machines. Professional teams still request devices because they’ve seen significant benefits to players, said Gaddipati. But rather than support these glamorous businesses, VirtuSense has focused on essential health care issues highlighted by the pandemic.

“Our customers saw us as a very innovative company that can make anything happen,” said Gaddipati. “I can’t tell you how many calls we fielded asking, ‘Can you automatically measure vitals? Can you enable telehealth for me?’ So, during a pandemic, in the midst of everyone sitting at home, we executed our telehealth solution, which is becoming the basis for telehealth and virtual nursing. Now also for acute care.

“We have variables that go on the chest that automatically measure vitals. I’m not kidding. Within a matter of a few months, we got this up and running by partnering with companies and some of these post-acute communities. We didn’t even charge them. We just gave away these products because they said they couldn’t care for these patients.”

A 2010 study published in The Journal of Healthcare Information Management found that automating the collection of patient vitals like pulse and respiration rate reduces errors by 75%. It can also save almost 120 hours of staff time per month. VirtuSense systems boast 98% accuracy with fewer false alarms, alleviating alarm fatigue for staff. At a time when the health care industry faces staffing shortages and high burnout, these time-savers mean better care for patients and less stress for workers.

Gaddipati is very frank about his goals for the company. His previous work at the Department of Defense and the Transportation Security Administration showed him technology years ahead of anything consumers could purchase. He saw that health care services lagged behind consumer products by up to five years.

“What we do today on technology is leapfrogging health care like five or six years ahead of COVID,” he said. “That’s what gives us the ability to have this one-device strategy in the hospital room. That [technology] is your eyes, ears, mouth and brain. That all is in the room itself. It’s privacy-centric. It’s simple. It’s not expensive to install.”

VirtuSense is leaping forward so emphatically that it was named one of Fast Company’s 50 Most Innovative Companies for 2022. It’s a multi-year winner of McKnight’s technology awards, including the 2021 Silver winner for Innovator of the Year.

VirtuSense systems boast 98% accuracy with fewer false alarms, alleviating alarm fatigue for staff

The company’s continued pursuit of technological excellence led its leaders to organize the inaugural New Evolution in Healthcare Technology (NEXT) Summit in Peoria in 2022. The invite-only conference drew some 70 executives from the top names in health care to discuss trends, staffing issues and how innovation can make care more efficient and affordable. Among them were Danika Fry, Morgan Stanley’s executive director for health care investment banking; Seema Verma, former administrator at the Centers for Medicare & Medicaid Services; and Dr. Michael Cruz, CEO of the Central Region of OSF HealthCare.

Gadipatti said he has found Peoria an excellent place to develop business opportunities and relationships. VirtuSense works closely with OSF Saint Francis Medical Center, UnityPoint Health-Methodist Hospital and the Jump Trading Simulation & Education Center. The company also works with Hospital Sisters Health Systems and Carle Health in Springfield. Its post-acute care currently has a wide reach in major cities including Chicago.

A native of India and former resident of New York and Los Angeles, Gaddipati knows that Midwesterners are a special breed.

“The best thing [about Peoria] is people are very helpful. They’re not arrogant. They see value, and they try to help you. It’s not just lip service,” said Gaddipati. “Most of these people are like, ‘Give me a problem. I’m going to solve the problem.’ That’s the mindset that we need.”

Laurie Pillman

Laurie Pillman

what is the virtuous business model

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What Is a Business Model?

  • Andrea Ovans

what is the virtuous business model

A history, from Drucker to Christensen.

A look through HBR’s archives shows that business thinkers use the concept of a “business model” in many different ways, potentially skewing the definition. Many people believe Peter Drucker defined the term in a 1994 article as “assumptions about what a company gets paid for,” but that article never mentions the term business model. Instead, Drucker’s theory of the business was a set of assumptions about what a business will and won’t do, closer to Michael Porter’s definition of strategy. Businesses make assumptions about who their customers and competitors are, as well as about technology and their own strengths and weaknesses. Joan Magretta carries the idea of assumptions into her focus on business modeling, which encompasses the activities associated with both making and selling something. Alex Osterwalder also builds on Drucker’s concept of assumptions in his “business model canvas,” a way of organizing assumptions so that you can compare business models. Introducing a better business model into an existing market is the definition of a disruptive innovation, as written about by Clay Christensen. Rita McGrath offers that your business model is failing when innovations yield smaller and smaller improvements. You can innovate a new model by altering the mix of products and services, postponing decisions, changing the people who make the decisions, or changing incentives in the value chain. Finally, Mark Johnson provides a list of 19 types of business models and the organizations that use them.

In The New, New Thing , Michael Lewis refers to the phrase business model as “a term of art.” And like art itself, it’s one of those things many people feel they can recognize when they see it (especially a particularly clever or terrible one) but can’t quite define.

what is the virtuous business model

  • AO Andrea Ovans is a former senior editor at Harvard Business Review.

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    The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles - also defined as flywheel models - help companies capture more market shares by accelerating growth.

  9. Virtuous Cycle Business Model: How to Accelerate Growth

    Virtuous Cycle Business Model: How to Accelerate Growth Oct 14, 2022 Competition is fierce these days. Business owners looking for a way to accelerate the growth of their business should (if they haven't already) explore the process of creating their own virtuous business cycle.

  10. The Implication of the Virtuous Business Model to the Knowledge

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  12. The Virtuous Circle Business Model:

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  13. Strategy and virtue: Developing strategy-as-practice through virtue

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  14. Business Models for the Companies of the Future

    A company that cannot reinvent itself and develop a workable business model has no future at all: it will fade and die. We are in the midst of change and, as Peter Drucker said, where there is change, there is opportunity. Those unable to see opportunity see only threats. The future starts now. A Connected World

  15. PDF Indiana Wesleyan University

    The DeVoe Report Spring/Summer 2017 is a publication of the DeVoe School of Business at Indiana Wesleyan University. It features articles on topics such as leadership, entrepreneurship, innovation, and social responsibility. It also showcases the achievements and stories of alumni, faculty, and students. Read the DeVoe Report to learn how business can be a force for good in the world.

  16. Virtue as a Model of Business Ethics

    A theory of business virtue is not simply for policymakers, executives, or regulators but for all individuals in the everyday working world. The importance of virtue resides in its influence on choice, desire, and action. Virtue is a manner of living and in this simplicity of perspective resides its power and appeal.

  17. Virtuous business models for international competitiveness

    4.1 Introduction. This chapter highlights the most relevant qualitative attributes of the Italian midsized manufacturing companies that have been the object of our in-depth study described in Sect. 1.2. Four issues of their business model are analyzed: the governance issue with particular attention to the companies' governance style and ...

  18. The Virtue of Business: How Markets Encourage Ethical Behavior

    More importantly, because their more honest and virtuous behavior was profitable, their business practices began to dominate the industry. While a few circuses continued to try to operate using the old methods of taking advantage of the rubes, the dominant business model became the so-called Sunday-school approach of Barnum & Bailey (Mueller 2001).

  19. Virtuous leadership: a source of employee well-being and trust

    The five-factor measurement model - including virtuous leadership, trust in leader, job satisfaction, work-related affect and work engagement - fits the data well ( χ2 (880) = 3359, p < 0.01; CFI = 0.95; RMSEA = 0.05; SRMR = 0.04). Two tests confirmed that the six-factor model has adequate discriminant validity.

  20. A virtuous business model

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  21. Virtue Ethics in Business

    Virtue ethics is a fundamental approach in normative ethics. The concept emphasizes moral character and virtue. Notably, virtue ethics differs from deontology and consequentialism. The former ...

  22. The Virtuous Circle Business Model: Social Purpose at the ...

    The Virtuous Circle Business Model: Social Purpose at the Core of Business Success Coro Strandberg Pioneer, thought leader and expert in business strategies for a sustainable future....

  23. What Is a Business Model?

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