How Ambitious Social Entrepreneurs can really get Investment Ready

These last couple of months have been a busy time for all of us at UnLtd involved in the Big Venture Challenge: a call for the 25 most ambitious social ventures in England that are seeking debt or equity investment to scale their operations. 

 

When applications closed at the end of June we were overwhelmed (figuratively and literally) with the response of 640 applications. We’ve now reduced that to 41 for interviews, that start today.  The good news is that the competition was fierce and there were some truly exceptional applications – way more than the number we have capacity to interview.  Thankfully many came from entrepreneurs that we already know and work with but, equally pleasingly, many came from those we don’t.

 

As any funder will tell you, there’s always a sizeable number of applications that, whilst impressive in many ways, don’t quite tick all the boxes. This time we explicitly marketed for ‘the most ambitious’ social entrepreneurs in the country and that was a box that was certainly ticked by almost everyone.  But ambition alone is not enough.  A number of applications highlighted a gap in the sector between the ambition of the social entrepreneurs (i.e. those that think they’re investment ready) and the reality of expectations from the investment community (i.e. their requirements of ventures in order to actually be ready for investment).

 

To me, this isn’t wholly unsurprising.  I’m pleased the response to BVC can put to bed the view, held by some, that social entrepreneurs somehow don’t want investment. They’re clearly flocking to it.   But I’ve worried for sometime that the hype around social investment will lead too many social entrepreneurs to rush full-speed towards the dollar signs, forgetting about the boring middle bit of actually building sustainable business models.

 

When doing the application assessments, I tended to go straight to the question about customers: who’s buying their product, how much are they buying and for how long are they contracted? And what sort of shape are their customers in?   What value are they getting from this and who else could they be buying from?

 

Whilst many of the BVC applicants took the time to forecast impressive hockey-stick projections, not all detailed who they thought would be buying their products, let alone actually showed us they’d gone out and tested the market with these customers before approaching us. 

 

Of course, not all social ventures can or should target the private sector.  And many of those that target the public sector do a fine job of managing their sales pipelines and projections – but in general terms this is a tougher job, particularly when tendering is involved.  Whilst most SMEs working in B2B supply chains lack real security of contracts, if their customer is healthy and they’re doing a good job, it’s a very good start. The first lesson I learnt on my first day in sales was getting repeat sales is a hundred times easier – and manifold more valuable – than sourcing new sales.

 

Many social enterprises are still of the mindset of accepting the uncertainty, bureaucracy and whimsical nature of public sector tenders and grant-makers as a necessary part of what they do. It strikes me this is a very different kind of selling from the one I know in the private sector: much less focused somehow and giving much less confidence to make realistic projections.  And I also don’t think this is as attractive to the investment community – for a number of reasons.

 

Talking to an investor recently he echoed this.  He’d be much happier with his potential investees working with the private sector.  And not just for the securing of revenues.   Beyond strong sales pipelines, the other big piece of the jigsaw missing from the social investment market – particularly those investors like him looking for equity stakes – is readily available exits. 

 

Recent EVCA data showed trade sales as consistently the most frequent exit route – around 25% of all exits over the last 4 years – vs around 5% on IPO .  Yet, our sector obsesses about things like the Social Stock Exchange without any dedicated focus on putting in place an M&A market.   Operating within private sector supply chains is clearly a piece of this jigsaw: it places you in an industry, where other businesses – customers or competitors – can see your value.

 

For now, most of the investments in the social space are debt-based – but this means not enough risks are being taken.  To attract equity investors there must be the possibility of exits.  And, amongst other things, I suspect this requires a shift in mindset amongst social businesses to build their business models around the private sector / B2B landscape.  Exits are, of course, important as they provide financial incentives for investors and entrepreneurs alike to invest their time and money in delivering social value.

 

If the early indicators from the Big Venture Challenge show anything, I think they show the need for teams like UnLtd Ventures to put more focus on spotting talent early and working with them over a period of time before introductions to investors are hurried.  There’s a vast amount of money flooding to our sector at the moment.  It would be a tragedy if it just as swiftly returned from whence it came, convinced there was no market for it.  It feels like we’re only going to have a limited amount of time to prove not only that we want it, but actually that we can use it.

 

Surely there’s a role for organisations like UnLtd to work with the most scalable ventures not on which investors to approach and how to ‘sell’ to them, but on which potential large customers to approach and how to sell to them… To build a market that understands the value of working with social businesses and to work with them to put a value on these relationships to their financial bottom line.  So that when investors eventually enter the picture many more boxes are ticked. 

 

And what does this require…?  Well, after the flood of individuals from financial backgrounds to the social sector in the last few years, maybe we now need an influx of just good old fashioned sales people to help sniff out those big wins…

 

Social Impact via the ‘Short Head’ of Consumerism

I’ve found one of the most striking aspects of the aftermarth of the UK Riots to be the ongoing debate on the ‘consumerist’ nature of it all. It wasn’t riots, it was looting. And the looting wasn’t for food and the basic essentials that would neatly fit the ‘these are the people the state can’t provide for’ narrative. The looting of plasma screens and designer trainers suggests the most powerful influencing factor here – 2 years after the publishing of The Spirit Level – is inequality.

Reading The Spirit Level left me quite convinced that inequality is the fundamental driver to many of society’s problems. The question is how to fix it. Most of the suggestions, coming from the wealthy, white, well-educated academics are for the wealthier amongst us to earn less, consume less, flaunt less. Yes, there is a huge environmental problem of over-consumption that needs tackling. But as solutions to social problems, I just find these proposals too divorced from reality. In short, businesses need to sell more stuff. And marketing departments have become very good at convincing us we need it. In amongst all the self-flagulation that somehow consumption is inherently evil, how about a radical idea: that we use consumerism as a force for good to get us out of this mess?

I’m reading Jason Saul’s ‘Social Innovation Inc’ at the moment. A good read – encouraging corporates to focus their social efforts on generating core business value and leveraging core business competency – and to focus on outcomes not efforts (key line: ‘philanthropic strategies get funded out of leftover profits; business strategies get funded out of operating budgets’). Yet it’s a slightly frustrating book that you feel would have been a great article that somehow has been stretched into a very repetitive 12 chapters.  Many of the examples given seem to me as classic CSR (Pampers giving cash to third world mothers) and reemphasise that real genuine shared value is rare and tough for companies to deliver.

That said, there’s some interesting bits – much centring around businesses creating new markets for themselves amongst disadvantaged consumers.

My interpretation of his message goes like this: Once businesses have reached saturation point, the currently accepted route to growth is to find ever-more elaborate ways to convince existing customers they need to upgrade to a new model. This leads to the kinds of mindless product ‘innovation’ that in reality is simply an exercise in marketing BS of the ‘toothbrush that cleans the tongue’ variety. Nobody wins here: marketers tell lies, consumers get affluenza, the planet fills up with junk. This is most famously summarised in Tim Jackson’s damning assessment.

But there’s an alternative. The businesses could develop new markets for their perfectly good existing products: specifically mass market access to basic mass production goods

Saul terms this ‘short-tail economics’ in direct contrast to Chris Anderson’s Long Tail theory. Ironically enough, given I spent 3 years working in online media, eulogising I think the short-tail is more interesting than the long-tail (but argue that surely it should be the ‘short-head’?).  By servicing the basic needs of the vast numbers of disadvantaged individuals, companies can take these people out of poverty and social exclusion: making the products affordable in the short-term whilst improving the health and wealth of the consumers in the process. In doing so they’re creating huge future markets for themselves, something that seems to me the most sensible (and most selfish) thing a company could do. (Especially when you consider the alternative – currently considered ‘the norm’ – providing this demographic with products and services which actively harm them, financially or socially, thus decreasing their future spending power).

Much is made of this in the Bottom of the Pyramid: Grameen Bank and Grameen Danone in the developing world but Saul talks about Tonik, a US health insurance product for the twenty-something ‘young invincibles’ previously thought of as not a serious business proposition and Tesco’s remarkable entry into the US Market – through Fresh & Easy stores in Food Deserts.  But there are examples in the UK too. Look at The People’s Supermarket, London Rebuilding Society’s Shimmer or Fair Finance, tackling food poverty, fuel poverty and financial exclusion, respectively.  Note these aren’t huge corporates, however, but early stage social ventures.

But these are necessarily low margin businesses and social ventures simply don’t have the scale to sell the volumes needed to make these things profitable. The thing about the ‘short head’ is that the volumes need to be huge. This is the reason why Saul and others focus on large corporates when extolling the virtues of this strategy. But he too references the impact on the ‘nonprofit’ sector, as he calls it: ‘…need to figure out how to sell their impact as a business proposition’. Big businesses, on the other hand need to work with partners who genuinely understand the needs of these new consumers: their motivations, their social needs, their consumption habits, their purchasing power.

So far on this blog I’ve looked at two ways in which big businesses and social businesses can work together:  

• Firstly those big businesses contracted to deliver public services: increasingly as they are commissioned and/or paid on the basis of outcomes they will look to subcontract to the social ventures that can most reliably and most cost effectively deliver these outcomes.
• Secondly those big businesses that are looking to achieve CSR outcomes directly through the organisations they sub-contract to in their daily operations. My colleague, Steve Leach, calls this ‘hydro-electric’ social value. The social value (electricity) is created as a nice side effect of the process and the people using the service (water) downstream either don’t know or don’t care about it.

My hunch is that the social value created through ‘short-head consumerism’ offers even more interesting potential for social businesses and big businesses to work together. It’s certainly not restricted to traditional definitions of supply chains.  Rather it creates a market for social businesses to touch at every stage of the value chain: market research, design, production, white-labelling of products and services, routes to markets and customer services.

 

Influencing the Influencers

Social Sector organisations love nothing better than talking to themselves.  Usually about how mad it is that the corporate world ‘don’t get it’.

In order to make this happen, we need to work alongside 

There’s no way we’re going to walk into the office of @@ and sell in shared value supply chains.  They’d stare blankly and ask if we wanted some cash for a grant scheme or possibly some pro-bono support.

But we Accenture or McKinsey walked in….

Mark Kramer on Shared Value

Competence and Reliability are Nothing Without Trust

There’s much debate over what the most valuable commodity for  businesses will be in the 21st century. Oil? Water? Carbon?

I would argue it is trust. If there’s one thing we’ve learnt over the last 12 months it’s that if you’re a powerful figure and you’re not doing what you say you’re doing, you’re going to be found out.  From Giggs to Gadaffi, Murdoch to MPs expenses, a world of Twitter and Wikileaks means money and power can no longer buy you control of message. 

These are exciting times.  But worrying times for big businesses, many of whom are suffering a crisis of trust following the perceived failure of the capitalist system in recent times.  One of the more interesting ways this loss of trust in big business is manifesting itself is in the rapid growth of online peer-to-peer platforms that are forcing their way into the traditional business of businesses: think ebay rather than highstreets, Zopa rather than bank loans, blogs rather than newspapers, carshares, skillswops etc etc.  It suggests people are happier to trade with their peers rather than businesses because they don’t trust these brands as much as they do their fellow men.   

Trust in business matters.  As Matthew Bishop and Michael Green eloquently argue in The Road From Ruin, hitting out at businesses and the capitalist system may seem an easy and tempting option at the moment, but it will only hamper our recovery.  The less the public trust big business, the more they blame them, the angrier they get and the greater the pressure on government to regulate in ways that hamper financial growth.  I would agree with this: I say we don’t need to regulate, restrict growth or reign in bonuses.  We need to rebuild trust.

The standard response to this from business is to ‘build stronger, more trustworthy brands’.  In practice, normally this means the marketing department using Twitter more so they appear ‘more human’. 

But this cultural shift is far too important to be left to the marketing teams.  It has to fundamentally change the entire way a company behaves.  They have to open themselves up.  They can no longer hide behind brands they’ve built.  They have to be judged by the product or the service they offer AND the way they operate as a business.

This isn’t just an appeal for an end to greenwashing.  I hope that’s a conversation that’s no longer needed.  It’s more fundamental than that.  It’s about an open, frank and mature dialogue with consumers on what it means to be a business: what the goals of a business are and what challenges they face in trying to achieve these goals. 

It’s about us all understanding that generating long-term wealth and handsomely rewarding those that deliver this isn’t wrong.  It’s also about us all understanding that no business is in the business of causing social harm.  Most just haven’t figured out how to avoid doing so in a profitable way.  Most of the social or environmental harm – pollution, carbon emissions, waste, supplier or staff mistreatment – is simply caused because the business considers these externalities that would be costly to internalise. 

This applies even for those businesses that you might think are in inherently bad industries.  Shell aren’t in the business of creating pollution any more than McDonalds are in the business of making people fat.  They just haven’t found ways of delivering energy and tasty fast food in maximally profitable ways that don’t cause social harm in the process.  Which sounds to me like a challenge and an opportunity more than a failure… 

 

More transparency and more trust between businesses and the public should also create a shared interest in highlighting the instances where it genuinely is a case of individuals focusing on personal, short-term profit and risking the long-term sustainability of the company and society.  The businesses and individuals that adopt genuinely unethical business practices can and should be exposed and held to account.

Could the next big social media movement be one of leaders of big business and members of the public on the same side? Pushing for fundamental changes to the system that benefit both of them…

What’s this got to do with shared value and social entrepreneurs?  Well, firstly it’s about social entrepreneurs being unashamed about generating profit – for themselves and their investors – whilst creating social and financial value.  Secondly, it’s about social entrepreneurs having found innovative ways to actually do this – to internalise and monetise things that big businesses consider externalities and expense.  

But it’s the combination of these two that I feel gives social entrepreneurs the real competitive advantage. They have trust.  Trust with consumers, trust with staff, trust with government.  The kind of trust big business can’t buy right now. CSR, by contrast, is seen by many as a tacit acknowledgement by the company in question that what it does is inherently bad.  I’m thinking McDonalds sponsoring School Sports, Shell sponsoring Wildlife Photography.   Not a way to build trust, I’d argue.   

There’s an interesting article by Barry Quirk in the new RSA Journal. He suggests (public) service users look for ‘competence, reliability and trustworthiness’ in service providers and highlights that local enterprises might gain a competitive advantage

“from their local knowledge, experience and connections with networks in the community. They may have developed high levels of trust among their employees and may have been able to drive higher levels of trust in their products and services as a result.”

But he cautions that this alone is not enough.  Big businesses certainly have clear advantages in competence and reliability if not necessarily in trustworthiness.  Social businesses, particularly those routed in local communities, on the other hand, have the trust but still need support to genuinely build the other two. 

Mr Quirk concludes saying that councils such as his

“need to encourage enterprises to seek markets not just in state service provision but also in the private economy. It is imperative that local enterprises are economically viable and financially independent. While councils may provide financial support to new enterprises in the form of grants and short-term contracts, these organisations must not underestimate the continuing demands of capital.”  

Quite.  I believe social businesses can help make big businesses more trustworthy – and big businesses can make social businesses more reliable and sustainable.   Working together they offers the hope of a genuine new kind of capitalism and a new pact between business, government and the public – built on trust and shared value. 

"What social enterprises can teach big business" By @AlexaClay in @Guardiansocent

I don’t know Alexa – but I loved this article she wrote in the Guardian Social Enterprise site.  Ties in very nicely with a new post I’m writing at the moment…

Before large companies reach crisis point – think BP and now News International – there are lessons they could learn from social enterprises

Deepwater Horizon proved costly to BP, but the disaster might have been avoided if the company had adopted social enterprise practices. Photograph: Ho/Reuters

The recent accusations against Rupert Murdoch’s News International exposed many to corrupt practices that could happen in the media king’s empire. The subsequent public outrage has resulted in the serious questioning not only of the newspaper business, but of corporate behaviour generally.

The sins of multinational companies are well known and, while we may have become normalised to corporate transgressions, it’s in periods of scandal (in Murdoch and BP’s case) that we are forced to question big companies and the value they create.

So the question becomes, rather than wait for companies to hit crisis, how can we fundamentally reform corporate DNA? On this point, social entrepreneurs may well have something to teach their incumbent counterparts.

Greg Van Kirk, an Ashoka fellow and founder of Community Enterprise Solutions, established to empower business and educational entrepreneurs in the developing world, said of social entrepreneurs: “Companies are very good at innovating solutions and often times not as effective at understanding people’s needs; whereas, social entrepreneurs are good at identifying the needs and desires – and the challenges and opportunities – of the most vulnerable populations.”

The success of many social entrepreneurs stems from the reality that they design systemic solutions. As Van Kirk suggests, “people don’t just need HIV medication, but they need refrigeration and nutrition. Social entrepreneurs think with this holistic framing in mind.”

Big companies, however, often fail to put those different pieces of the value chain together. Too often they are restricted by their core competencies – and so they produce value in a silo. Companies can, in fact, learn a lot from social entrepreneurs on how to deliver multi-pronged value.

More directly, one engagement point for big companies to work with social entrepreneurs is through hybrid value chains, which are effectively business models for structuring commercial partnerships between businesses and social entrepreneurs. In this way, business and social entrepreneurs work together to create and transform markets. The experimental use of such chains has been pioneered in the housing sector and is spreading to other sectors.

Hybrid value chains offer a new opportunity for large companies, across many sectors. From a societal point of view, however, many multinationals have seriously failed to furnish us with the products and services that actually improve human wellbeing. Nowhere is this more pronounced than in the pharmaceutical sector.

Much academic research has shown that, overall, R&D productivity is not increased when pharmaceutical companies reach a certain scale.

Sophia Tickell, founder of Meteos and director of Pharma Futures, an investor-led dialogue working to align corporate profitability with improved access to innovative and affordable healthcare, said: “The wave of mergers and acquisitions from the 1980s onwards also contributed to a reduction in R&D productivity as the act of consolidation, rather than enhancing productivity, proved to be an organisational disruption which reduced the pipeline, created distractions and fostered an organisational structure at cross-purposes with product driven value creation.”

There is a clear tipping point at which “the quest for big” has diminishing returns. What is
interesting about pharma now is that the industry is looking to smaller firms for discovery and drug development and to social entrepreneurs for new types of business models.

Outside the pharma industry, the investment community is also recognising the work of smaller business to contribute to markets that would have historically been driven by large companies. Simon Cottle, an investment manager at Cognetas, a European private equity firm, captures the spirit of the moment well: “Recessionary times may form greater opportunities for smaller business because they don’t have the same historic baggage that incumbents have – they can adapt more quickly to changing environments and build their business model more in accord with customer need,” he said.

Clearly, new times require new models, and social entrepreneurs are on the frontlines of these new market opportunities. The outstanding question is whether their commitment to social value is something that can be learned and adopted by big companies. If not, companies may find that they face more than just scandal, but are at risk of becoming defunct.

Alexa Clay is a knowledge and learning manager at Ashoka’s Changemakers and a senior research associate at Meteos

 

Doing Away with Corporate Social Responsibility | Sustainable Business Forum

Maybe it’s time to do away with corporate social responsibility (CSR).

Not merely the words and the idea but the infrastructure: CSR departments, CSR reports, CSR conferences and CSR executives.

And, as long as we’re at it, let’s think about ditching the triple bottom line, the pursuit of shared value, corporate citizenship and especially, yuk, the idea that stakeholders deserve a say in how to run a business.

All of these are, at best, distractions and, at worst, ways of thinking about business that create a separation between a company’s core business and its impact on the world. Both ought to be life-enhancing. No more and no less.

I’ve been thinking about CSR and how to talk about it for years.  I wrote my first article on corporate responsibility for FORTUNE in 2003. It ran under an odd headline — Tree Huggers, Soy Lovers and Profits — because my editors knew that  words like corporate social responsibility turn off readers. I grappled with the meaning and terminology of CSR again in my 2004 book, Faith and Fortune, which explored connections between religion, faith, values, spirituality and business. The language of faith and values, I subsequently decided, wasn’t the best one to use when speaking to corporate executives about business and its impact. I’m now inclined to talk about sustainability. For all its vagueness, corporate sustainability is an idea that is both practical–no one wants to kill their company–and radical, because no company  is truly sustainable, at least as defined by the Bruntland Commission as promoting development in a way that “meets the needs of the present without compromising the ability of future generations to meet their needs.”

But the here goes beyond language. I was reminded of that when reading an excellent new book by Carol Sanford called The Responsible Business: Reimagining Sustainability and Success (Jossey-Bass, 2011). No, I don’t love the title or even her terminology. (One chapter is  called, yikes, “Stakeholders as Systemic Collaborators.”) But Carol’s arguments and insights (and the title wasn’t her idea). Carol argues that the most successful and profitable businesses, over time, will not be those that “practice CSR” but instead those that rethink their purpose, reorganize themselves to draw upon the creativity and passion of all, and integrate responsible behavior into the way they do everything they do.

As Carol writes:

Responsibility isn’t a set of metrics to be tracked or behaviors to be modified. It is central to both the purpose and prosperity of a business and must be pervasive in its practices.

This may sound obvious but it leads her (and her readers) to new ways of thinking about business. Businesses, she says, should strive not just to minimize the harm they do, but to do good, to become restorative, to “improve and evolve healthy systems.” She explains: 

Ecological and biological systems not only adapt to their surroundings, they also transform them. They create contexts in which increasingly sophisticated networks of relationships emerge…

Corporations, and the businesses within them, work more or less the same way. If they are to live and prosper, they find ways to remain connected to their origins while cultivating and then adapting to changes in the world around them. Their long-term viability has as much to do with how well they create networks of relationships [emphasis added] with consumers and other companies and industries that advance the health of all.

Yes! Here’s how I think about this:

The old/traditional/assembly-line way of doing business was fundamentally transactional. Business was seen as a set of discrete win-lose transactions with customers, employees and suppliers. Companies created value by paying their employees as little as possible, paying their suppliers as little as possible, charging their customers as much as possible and externalizing their costs.

The new/progressive/responsible/sustainable business is fundamentally about relationships. This company sees itself as the center of a network of long-term, win-win relationships with workers, customers, suppliers and communities. The company’s value lies in its ability to strengthen and enhance all of those relationships.

This new way of thinking and behaving can’t be left to the CSR department, the chief sustainability officer or anyone else. It’s the job of the CEO, the CFO, the COO, the CMO, the head of sales, the factory foreman, product designers, everyone.

With a focus on CSR, “you get officers, you get programs, you get incentives,” Carol told me when we spoke by phone. “If you are given a target that you are to achieve, people focus on the target and the processes.” Instead, people need to feel free to express their highest values and beliefs at work. “Humans are most alive, and most creative and innovative when something comes out of them as a person,” she says. A company should be “more like a jazz quartet and less like a conducted symphony.”

Nor does “embedding sustainability” into the business do the trick, Carol told me. Sustainability to what end? Recently,  I had an opportunity to give a paid speech about sustainability to suppliers of a big tobacco company. Uh, no.

Carol has corporate experience to back up her thinking. She’s been a business consultant since 1980, working for such companies as DuPont, Colgate, Seventh Generation and the Kingsford Charcoal unit of Clorox.

She tells revealing stories in the book.

A Kingsford Charcoal executive leads a transformation of the company by developing the skills of the company’s workers and encouraging them to think like business owners; he dissolved departmental boundaries, invited everyone to put themselves in the shoes of a customer, and to see the contribution that their work makes to other people’s lives.  He helped them connect their work to a bigger purpose.

In South Africa during the turbulent 1990s, a Colgate leader shook up the workforce by persuading whites to work for blacks, and getting everyone to come together to address issues in both the business and the community.

At DuPont, a middle manager looking for an alternative to Freon, which was co
ntributing to ozone destruction, gets help from throughout the company, from customers and, unexpectedly, from Greenpeace.

None of that could have been accomplished by a CSR executive or department–or any department. “The biggest challenge for a company that aspires to be a responsibility business,” Carol says, “is to stop working on parts and start recognizing and working on whole systems.”

CSR “can’t be bolted on but must be built in,” she says.

Business is too important to be left to CSR departments. It’s also too important to be left to business alone.

Pressures on business to become life-enhancing must come from without as well as from within–from customers, from rank-and-file workers, from engaged shareholders, from activist groups and, gently, from governments. If we find ways to hold businesses accountable for what they do, smart businesses will adapt and meet our rising expectations. Others will die.

It’s not a lot more complicated than that.

Business managers should focus on generating long-term value for their shareholders.

They should lead their companies in ways that enable human flourishing.

That’s the purpose of business in a phrase, a wise man once told me, and he wasn’t a CSR officer.

As Carol writes: “I can hardly wait for the corporate responsibility movement to run its course so that businesses can get back to being responsible by nature.”

Me, too.

via sustainablebusinessforum.com

 

Raising the Bar on CSR | Philanthrocapitalism

Can and should companies be in the business of doing good? This long-running debate was graced earlier this year by a new contribution from Michael Porter, one of the world’s leading management gurus, and his sometime sidekick, philanthropy consultant Mark Kramer. In a headline article in the Harvard Business Review they both took a swipe at traditional corporate social responsibility and proposed a new framework, which they called ‘shared value’. Get the do-gooding out of your PR departments and corporate foundations, they cried, and instead mobilise the whole of your business to find the win-win where what is good for society is also good for the bottom line.

This offering was greeted with enthusiasm in some quarters, such as the World Economic Forum in Davos, yet also encountered some scepticism, both on the grounds that the idea is not particularly novel and that it may not mean anything. So it was with interest that we read a feature in the current edition of the always excellent Stanford Social Innovation Review in which Mr Kramer engaged in what was billed as a “candid” discussion of shared value with the representatives of ten major global corporations.

Do businesses recognise shared value as the next big idea? Well, the corporate folk gathered by Mr Kramer seemed to be lapping it up. Executives from a diverse range of businesses from money transfer giant Western Union to IT powerhouse Cisco happily described how their do-gooding slotted into the shared value worldview. And why not? It’s always nice to be part of the newest big idea.

Yet amid this love-in for shared value there was one jarring note. “I’m probably the only person at the table who’s not part of a corporate affairs organization or a foundation”, observed Beth Schmitt, the director of recycling for North America at metals behemoth Alcoa. Well spotted. That shared value, which is supposed to be at the heart of the business and at odds with traditional CSR, was being celebrated largely by CSR and PR people rather than core business executives strikes us as somewhat contradictory. 

This matters because tough questions do need to be asked about the role of business in society. Take the iconic mega-bank Goldman Sachs, for example, which hosted the roundtable discussion and showcased its 10,000 women project and 10,000 businesses initiative (for which Mr Porter co-chairs the advisory board, alongside Warren Buffett ad Goldman CEO Lloyd Blankfein) at the meeting. These are, in our view, good examples of smart, high-leverage corporate philanthropy. Yet, as we argued recently, such projects remain at the margin of Goldman’s business and do nothing to address bigger questions about whether Goldman’s core activity is actually socially useful.

Was the selection of participants at the roundtable actually a tacit admission that even those firms which most fervently champion shared value are really not doing much that wouldn’t qualify as traditional CSR?

“The vast majority of acivity in this area [CSR] is seen as separate from the business,” Mr Porter told a meeting of the Committee for Encouraging Corporate Philanthropy last year, as he mused on why so much corporate giving achieves so little impact: “I firmly believe that now we have to raise the bar”. We agree. But if shared value is going to be about anything more than the status quo, there need to be different people at the table.

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via philanthrocapitalism.net

 

Return of the Single Bottom Line?

Yesterday I took part in a live debate on social enterprise and CSR on the Guardian Social Enterprise website – happily coinciding with an article of mine they’d kindly published.  I was joined on the panel by, amongst others Temi Odesanya from Social Firms UK, Marcus Jamieson-Pond, an experienced CSR professional and founder of Convergence Network and David Connor of Coethica and 3BL Media.

Temi and Marcus I know – they both do great things and I know our philosophies on these matters are closely aligned.  Marcus, in particular has been very receptive of the concept of shared value supply chains. In the debate i suggested that “at best, [shared value supply chains] could be like outsourcing your entire CSR department and not paying for it”.  To which Marcus replied: 

“Perhaps that’s the answer? I was talking to Acre resourcing this morning, who said that there is something in the air and that maybe in 5 years time CSR roles will have disappeared. Going back to the point of cash is king – if corporates were told that they could strip out the overhead of their csr team and programme and deliver it through the efforts of those people providing services, I suspect you would be trampled in the rush to sign up.” 

Temi, meanwhile, pointed me to this great report from Wates, one of the true poster boys of really living the Shared Value Supply Chains ethos. 

But it was David that directed me to perhaps the most interesting piece: “The Single Bottom Line” by Daniel Altman and Jonathan Berman from Dalberg.  Lots of good stuff in there, along the lines I’ve been discussing in this blog – namely treating all social activity undertaken by the company as contributing ultimately to their financial bottom line and arguing that “the single bottom line keeps companies doing what they are good at and improves the overall efficiency of investments in society’s wellbeing”:

“Furthermore, a return to the single bottom line does not imply that companies’ involvement in activities that create social benefits will diminish.  On the contrary, we argue that these activities will become more common as companies make a case for them in terms of the single bottom line.

…Using the single bottom line will help companies to avoid misallocating resources and, with fewer unproductive projects on their balance sheet, likely increase their appetite for activities that create social benefit.

Using the single bottom line also makes investments that generate social benefit more sustainable.  If companies view social initiatives as cost centers rather than contributors to profitability, then these initiatives are likely to become procyclical, being cut in downturns and then reinstated when balance sheets are flush again.  Their budgets will be arbitrary rather than being linked to a rate of return.  As investments expected to be competitive and profitable, by contrast, social initiatives will enjoy more durable support from executives and become a core part of corporate operations.”

This all makes intuitive sense and actually is arguably closer to my interpretation of ‘Shared Value’ than Michael Porter’s version.  I want businesses to be able to focus only on the single, financial bottom line.  And for social businesses in their supply chain to offer social value that contributes to it.  Using the Dalberg approach allows businesses a means of quantifying the value social suppliers offer – and social businesses a clear sales message.  

But as pointed out in this very fair critique  – there’s quite a major caveat in all this… the need longterm reporting and incentives.  

“Executives targeting profitability with a sufficiently long time horizon will make investments that generate social benefits because these investments serve the interests of their companies… When executives’ time horizons are sufficiently long, social benefits will arise automatically from these investments.”

This, still, is the overarching sticking-point with all attempts in this field.   Time horizons currently simply aren’t sufficiently long.

They cover this by saying:

“Despite the current slavish focus on quarterly earnings reports, a company’s market capitalization still represents – in theory – the expected value, in today’s money, of all of its future profits.  Under this conception, embraced by textbooks and investors (especially institutional investors) alike, a big change in profits some years into the future might be expected to have the same weight as a small change in profits today.  In other words, the time horizon for a company’s decision-making should be infinite.”  

But is that REALLY the case??  They mention Nestle and AXA who only publish results annually – but I’m sure the internal reporting and incentives are still short-term.

The single bottom line approach again highlights the debate around businesses profitting from social value.  This came up again in the Guardian debate.  To my mind, this philosophy – that it’s somehow immoral (as an individual or business) to profit from delivering social good – is what drives large numbers of social businesses to the point of bankruptcy and also causes big businesses to deliver CSR initiatives that are completely unaligned to their corporate mission.  

Even Wates in their work insist on the social enterprises they work with be constituted as a non-profit-distributing organisation…. It must make their goal of having strong, resiliant social businesses in their supply chain harder to achieve. 

 

How The Private Sector Can Drive Social Innovation – Vice President of Hewlett-Packard???s Office of Global Social Innovation in Forbes

Written by Gabi Zedlmayer

Gabi Zedlmayer: Taking action.

Global citizenship today is at an inflection point. As the size and global span of corporations have grown over the years, so has the importance of their commitment to social good.

Out of the 100 largest economies in the world, about half are multinational corporations. Given their impact on global communities, it is becoming increasingly essential that these large corporations execute responsibility to society, rather than rely on governments and non-profits to address difficult social issues alone.

Evolving responsibility to opportunity

Much has changed since the term “corporate social responsibility” was first coined in the 1960’s. Today, the world’s largest companies are in a unique position to play a much greater role in driving social change than ever before. It’s clear that Fortune 500 companies are committed to scaling up their international giving and volunteering programs worldwide. Aside from pure monetary donations, however, is a new model that is transforming corporate philanthropy.

Increasingly, corporations are turning to a shared value model, in which companies work in alignment with society rather than against it, producing mutual benefits to both the community and the corporation. It evolves the traditional model of financial and material goods donations, to one in which corporations leverage a range of corporate assets including employee skills, business acumen and partner networks, to drive social change.

In this model, corporate success and social welfare are interdependent. The same passion, energy and culture of innovation that make a particular company successful are also used to make a profound and positive social impact in the world.

Adopting the concept of creating shared value requires an important shift in perspective, for employees at all levels from the CEO down. Here’s the shift: Instead of viewing it as our responsibility to drive business and social value, view it also a valuable opportunity to rethink existing practices.

The business case for social innovation

Global citizenship is not just about “doing good.” When corporate responsibility becomes an integral part of the overall business strategy, companies broaden their understanding and perspective, creating a virtuous cycle of business development. For example, by working with a non-profit organization, a corporation can demonstrate its expertise to a new audience, expanding its business network.

Additionally, collaborations can drive innovation through necessity. Non-profits work in extreme environments, faced with limited infrastructure, connectivity and staff. Operating in these situations exposes corporate staff to new sets of customer challenges, which can often deliver innovations in product design or services into the business.

In reality, there are a variety of benefits for an organization, from brand building, to staff retention, and even improved client stickiness. Shareholders and the investment community are also increasingly considering corporate responsibility when making investment decisions.

Increasingly, investors weigh environmental, social and governance  data when making investment decisions. While such data has been a benchmark for European-based companies for some time, we are now seeing a more global adoption and interest in this, which should be another forcing function for more corporations to act as good corporate citizens.

Applying social innovation in practice

It is essential to determine the synergies between a corporation’s expertise and the elements needed in a social development program before committing to corporate support. It’s not possible to address all challenges in a community, nor respond to all requests for collaboration with other organizations.

A good starting point is to assess the company’s available skills, expertise, partnerships against the touch-points the company currently has within a given community. From there, establish specific goals to achieve and a strategic plan to meet those goals.

Companies that have an expertise in technology, for example, can collaborate with non-profits or social entrepreneurs to provide the infrastructure backbone that turn their ideas into reality. With the social enterprise mPedigree Network, HP leveraged its technology expertise in cloud-based services to design and build an anti-drug counterfeiting service in Africa. Counterfeit medicine is a significant problem in developing countries, causing more than 700,000 deaths each year. The new service helps save lives by enabling patients to validate the integrity of their medicine by sending a free text message.

The ecosystem of both partnerships– for social impact and for commercial collaboration– is growing quickly.  When there are both business objectives as well as social impact objectives, the new model of shared value is much easier to demonstrate.

My experience in managing corporate citizenship programs has convinced me that creating shared value is a powerful way to motivate companies into taking and sustaining action that can change the world. Let’s shift the perspective from responsibility to opportunity, and let’s mark that change by innovating first in our own programs.

Gabi Zedlmayer is Vice President of Hewlett-Packard’s Office of Global Social Innovation.

 

via blogs.forbes.com