Companies who design or adjust their business models to pursue both economic gain and social impact are set to win the race. Having this kind of “dual core” is a major avenue for relevant (and lasting) differentiation.
“Doing good while doing well” is an old expression now. The idea of companies’ combining business and social purposes in a balanced and honest fashion has been around for a long time. But social, cultural and economic changes (read: pressures) have made it more relevant to companies today than it has ever been. We think that it can now become a mass phenomenon at the core of the modern economy.
TOMS has donated millions of shoe pairs and hundreds of thousands of glasses to people in poor countries. This is their core business model (called ‘One for one’), not their CSR program. For every footwear item that they sell, they donate another one in a poor area of the world, and their business was valued at close to half a billion pounds in 2015. GSK, the world’s sixth largest pharmaceutical company, has made its mission to reach “the other 6 billion people on the planet” who do not have access to good healthcare services. It released some drugs from patent protection in several poor countries, thus lowering their prices. The company also invests 20% of the profits it makes in the least developed countries into health worker training and building medical infrastructure there. In both these cases, doing business is tightly connected to tackling surrounding social challenges.
Allocating a microscopic percentage of a firm’s profits to charity while touting it via a hefty publicity budget is now perceived as superficial. Bona-fide businesses and business thinkers have long repudiated it and tried to develop more impactful and sustainable approaches. That is why these days “corporate social responsibility” is just one (and rather modest) concept among many others that try to figure out how to best align economic and social interests. The world’s top companies, consultants and professors have dreamt up ideas such as conscious capitalism, corporate social investment, social entrepreneurship, community investment, benefit corporations, bottom-of-pyramid economics or creating shared value.
The last one is the brainchild of Professor M. Porter (of five forces and value chain fame) and it has been influencing how (some very large) companies do business since 2011. Like any model, it is imperfect. But we think it is the ablest to evolve and the best fit for companies of all sizes, from all industries. Simply put, creating shared value (CSV) is about finding a way to turn a profit and solve social challenges, at the same time. To do that, firms re-think their products and markets, redefine productivity in their value chains to include dual KPIs (business and social), and support local business clusters. On the social side, CSV addresses health and nutrition, environmental, habitation, education and financial needs.
Regardless of the paradigm they choose, companies that want to do good should start with a simple question: what kind of good? We are very specific about that: the kind of good we advocate is built-in, universal and casual. It is also balanced, inclusive and relevant.
Built-in means it makes up a significant part of a business’ focus, turnover and resources, because it is embedded in the business model. That part should show as one or two-digit percentages, not zero comma something.
Universal means any kind of company can do it, since it is not the appanage of non-profits, charities or very large organisations.
Casual means it’s part of a firm’s everyday life and, as such, it is not something to brag about via a communication campaign, but rather something to demonstrate and advocate long-term.
Balanced means it recognizes that people and companies have a natural right to pursue private gain, but that should not necessarily and completely contradict the interests of others (or all) around them.
Inclusive means it considers all the stakeholders a company has.
And relevant means it correctly reflects the priorities these stakeholders have—a second-hand laptop may be less helpful with increasing school performance than a hot, daily meal.
But why would any business genuinely care and act about the welfare of others (people or non-competing businesses) – and we do not mean the white- or green-washing that is still so widely spread and so rightfully vilified? Well, let’s consider the following:
- 80% of CEO’s worldwide believe that committing to a social purpose is a differentiator in their industry (Accenture global 2016 study on 1,000 CEOs).
- 66% of consumers worldwide (and 73% of millenials) say they’re willing to pay more for sustainable brands—up 55% from 2014. (Nielsen global 2015 study on 30,000 people)
- 85% of people believe businesses are as accountable as governments for improving their lives, but 72% think that businesses fail to do that (Accenture/Havas Media global 2014 study on 30,000 people).
In crowded, hyper-competitive markets such as those we have today, there are ever fewer opportunities for real differentiation. Societal needs that so strongly (re)define these markets and the commercial relationships that underpin them are under-leveraged. That is, too few businesses regard them as a key component of their strategies. At the same time, client, partner, employee and public relationships are hard to build and even harder to preserve. Doing good in a constant and consistent way (while thriving economically) is relevant for companies and their customer bases alike, because it strengthens these relationships through higher preference, association, choice and loyalty.
For the last two years, Fortune magazine has been publishing a Change the World list of companies that do well by doing good. These are large companies, but there’s also a list of smaller companies with a similar approach. This trend gets more and more media attention and that is great news (and inspiration) for everyone. Today, there is no size limit to companies taking on missions of doing good and we are excited to have worked for several such start-ups. Some are straightforwardly addressing social problems – like Bookster, the library advocating quality reading, or Teacherise, the app that gives a fair pay to supply teachers in England. Some others, like Ajusto, started with purely commercial missions, but understood that a strong differentiator in a crowded market would be to act upon the social needs of the public. They vowed to introduce standards in an otherwise grey area (the house repair market), and that vow led them to immediate economic success.
The small and medium businesses’ ability to prosper is essential for the well-being of nations and individuals. The last few decades, with their economic crises, have provided few opportunities for it. We believe the “dual, business-and-social core” is such an opportunity and now is the time for it.