David Wilcox reinvents the Triple Bottom Line, one that combines reputation and ROI, on Talkback.
As we dive into the New Year and face up to the challenges ahead, I am reminded of the fundamental reason so many of us are working in this area. We came to do more good, though we often find most of our time is spent doing less harm.
CSR organizations are increasingly tasked to cover both.
And we will have to come up with new approaches to scale doing less harm and doing more good at the same time.
The Cost of Incrementalism
What is taking so long? Looking at just one aspect of CSR, corporate philanthropy, we see lack of results from scale — from the ReachScale site:
"Over the past forty years, over 200,000 nonprofits were established. Only 144 achieved budgets of 50 million (USD) or more. Of that group fewer than 15 were scaled through corporate financial contributions. In other words, corporate funding has scaled one nonprofit every three years."
Adding to the old answers to "What is taking so long?" are some new challenges:
First is the fragmentation of social responsibility activities in most companies. Executives talk about the need to track involvement in major issues (pensions, training, employee healthcare, etc.) as well as environmental impact (carbon, water, energy, packaging, etc.). But treated as individual issues, the solutions often receive inadequate attention for any comprehensive solutions.
This fragmentation problem is most extreme for companies who ignored externalities until recently and then just tacked on an external function to try to handle them. Doing what's right needs to be mainstreamed, and it all begins by comprehending what it means to "do less harm."
Unfortunately many companies fall victim to the equivalent of the mission creep that plagues the non-profit world. Creeping incrementalism in both environmental and philanthropic activities falls short in three ways:
- Essential focus and risk taking never happens, and under-resourced efforts yield inadequate progress.
- Instead of focusing on innovation and testing sustainable approaches, attention drifts to smaller and easier approaches and/or unsustainable activities (often with high visibility). As a result, real challenges—like measuring water risk without addressing water stewardship—are avoided altogether.
- Too many resources are spent communicating small wins and covering up a lack of progress. The focus on perception vs. reality becomes a resource sink and can actually do more harm.
Scaling "Do Less Harm"
Two years ago, Wal-mart began to scale its comprehensive supply chain initiatives. Many questioned the resource allocation and the criticality. Two years later, these new comprehensive mainstream models are being talked about as table stakes.
The genie is out of the bottle on these issues. These days the scorecards are being kept by a variety of independent monitoring organizations.
While some companies are still in denial, the smart corporate players are partnering with the scorekeepers to assist them in mainstreaming their "do less harm" commitments. The recent comprehensive fleet mileage targets agreement between the US Government and the global auto companies (highlighted in a recent editorial by Tom Friedman) represents an example of this trend that will continue across many ecosystems.
Scaling and mainstreaming "do less harm" is garnering much of the effort in the best companies. And as leaders see the positive benefits of this approach, the most innovative already realize that the same idea set should be applied to "do more good." They are also the first to see that the big problems can only be solved through a mix of both approaches along with a significant dose of innovation.
Scaling "Do More Good"
Here are three reasons why scaling "do more good" will have even more impact on creating virtuous cycles that support both better environmental stewardship and better economic growth. First, an example:
Many challenges exist around young people, learning, access for people at risk and education for the disadvantaged. One critical reason that youth are at risk and people lack access is disabilities. There are a broad range and most require donor driven approaches with limited sustainability.
One exception is hearing loss—an opportunity that can directly overcome the disability of 300 million people and over 180 million infants, children and young adults. As is often the case, these opportunities exist because of underserved markets and this is one of the largest underserved markets with 60 percent of 600 million people at risk, untouched, globally.
Access to the market has been created by a small team of innovators working over the past decade to invent the solar hearing aid. Solar Ear is already manufacturing in Botswana and Sao Paolo. Eventually there will be 10 manufacturing sites serving 60-70 countries, with low tariffs, and reaching millions of people that are not served by traditional companies. They are completing a deal for the distribution rights for Solar Ear in Brazil that will fund their third manufacturing line in China — and all the hearing aids and chargers are manufactured by deaf young adults.
Solar Ear and Howard Weinstein just won the Social Entrepreneur Award at the World Technology Summit, among many other recognitions.
From "License to Operate" to "License to Grow"
Social impact scaling that can demonstrate progress in meeting people's fundamental needs while making a modest profit is a new innovation. With an ethics-based marketing model instead of interruption-based one, new opportunities emerge. As corporate strategy guru Michael Porter pointed out in "Strategy and Society," a Harvard Business Review article he coauthored with Mark Kramer:
"No business can solve all of society's problems or bear the cost of doing so. Instead, each company must select issues that intersect with its particular business. Other social agendas are best left to those companies in other industries, NGOs, or government institutions that are better positioned to address them. The essential test that should guide CSR is not whether a cause is worthy but whether it presents an opportunity to create shared value – that is, a meaningful benefit for society that is also valuable to the business."
Other examples include Healthpoint Services (see this article on exceptional scale) and Lifespring Hospitals, operating in rural India, are two examples of a license to operate that has evolved into a license to grow. Arogya Parivar (AP), an innovative outreach by Novartis India is another example. (AP received a prestigious award for "Best long-term rural marketing initiative" from the Rural Marketing Association of India.)
Increasingly companies will recognize that it is not enough to do less harm. A license to grow demands more vision and more impact. It also requires building ecosystems and innovation models that can turn problems into profits.
Reputation based on Results
Donations and volunteer hours are no longer newsworthy unless presented in the context of strategic commitments to solve real problems.
Forward thinking companies like Nike and Timberland admit openly that they know their businesses are not currently environmentally friendly. Going forward they need to drive innovation to drastically change their businesses. In the future we cannot produce products like T-shirts in the environmentally damaging way we do it today.
Going forward, companies will not be able to protect and preserve their reputations through "pretty pictures" CSR. Instead they will need to identify an appropriately big problem and then demonstrate measurable results towards a solution.
Return on Investment
What is new with ROI in the sustainable impact world is how it is achieved. In the past the corporation's core business produced the returns with a small percentage of the profits allocated to cost centers including CSR and philanthropy. Increasingly global companies see how the most pressing problems that seemed to be intractable resource sinks can be, with appropriate innovation and collaboration, profit producing. For example, General Electric's global business strategy now centers on two critical challenges: healthcare and energy.
Achieving profit through social innovation and collaboration requires new partners that are assembled from all over the globe. These partnerships are generating profitable and sustainable innovations by offering products at price points that a large segment of the pyramid can afford. Ideally these solutions are marketable because they also result in behavior change. The creation of delivery systems for clean water to rural villages is an example of a rapid behavior-change solution.
The reputational value of sustainable solutions can attract multiple sources of capital. As you watch the social investment announcements in 2012, you will increasingly see strange bedfellows clasping hands and acting together to drive integrated social and monetary returns.
This new triple bottom line leverages strategic and brand resources within the corporation with highly innovative social enterprises. By combining social impact, enhanced reputation and a return on investment in this way, the whole becomes significantly greater than its parts.