Business 2.0, Sustainability

Shared value and SMEs

As part of my Masters studies, I had the pleasure of interviewing a few businesses that were doing really interesting things in the shared value space. While some of these businesses didn’t formally recognise their activities as being related to shared value (some hadn’t really heard the term), I put together a short paper with corresponding case studies that linked what they were doing with this broader concept.

I thought it might be of value to present these in a short series of posts that I’ll be putting up over the next few weeks. I hope that they contribute constructively to discussion around shared value, and particularly how this concept relates to smaller businesses.

As a starting point, I think it’s worthwhile to ground shared value in a broader context of what some have termed “strategic CSR” and to look at some of the challenges that small to medium businesses face in applying these principles in daily practice.

I wrote a (relatively) short paper on this topic (unimaginatively titled Strategic CSR and small to medium businesses in Australia (PDF 1.3MB), which:

…explores the concept of shared value as it relates to small to medium businesses (SMB) in an Australian context. It begins by lightly tracing the evolution of the concept of corporate social responsibility (CSR) from “defensive” to “strategic” positions. It then brie!y outline the core principles of shared value and related work around economic clusters. It then considers the role that SMBs can play in achieving sustainable outcomes and some of the potential impacts of shared value on SMBs. The paper concludes with three brief examples of Australian small to medium businesses who illustrate aspects of strategic CSR as outlined in this paper.

(Note that I’ve left the case studies out of that paper, as I’ll be posting them here individually in the next few weeks.)

One short note: my lecturer took (constructive) issue with my closing statement that “We are in the midst of a significant shift in thinking about the role of CSR within the business community.” He noted that perhaps this was more prevalent in the circles that I frequent, which is probably true. I very much based this on my experience and reading and there does seem to be a lot of discussion about these concepts, from Porter & Kramer’s HBR articles to commentary on the web to my own discussions amongst peers and with interview participants etc. I’d be interested in your thoughts: is this shift more broadly applicable, or is it a niche thing?

Business 2.0, Social media & networking, Sustainability

Platforms for shared value creation (redux)

I’ve just completed 3rd semester of my masters degree, and I wanted to share one of the papers I wrote on the concept of Platforms for shared value creation, that builds on the model that I outlined in my Web Directions South 2010 talk.

Diagram outlining the 'Platform for shared value creation' concept

The paper, which is provided under a Creative Commons license:

…proposes a model of service delivery that has the potential to create shared value (Porter & Kramer 2011), addressing pressing societal and environmental needs while delivering commercial returns. The aim of this paper is to introduce the model — the “platform for shared value creation” (PSVC) — as a first step towards further exploration in the future. The model is not yet fully-formed and as such this paper should be considered more as “thinking in draft” for further discussion and refinement.

While the nature of these things means it takes an academic tone, I hope that it provides some value as a contribution to discussions around shared value, Collaborative Consumption, and social innovation. I would love to know any feedback you might have, so please drop me a note in the comments if you find it useful, or want to challenge or probe any of its assertions.

Business 2.0, Sustainability

Guest post: Corporate Responsibility — engagement and transparency

We’re delighted to have urban and social planning consultancy Urban Affect on board as a partner. In this guest post (reposted with permission), principal Allison Heller shares some of her thoughts on CSR and social engagement.

A new year is often a time of reflection among businesses on strategic directions and corporate goals. For many firms, sustainability — environmental, social, economic — is fast moving up the agenda.

Raised regulatory standards and consumer expectations are today demanding far more from companies than an annual CSR report and a handful of associated token initiatives. The genuine integration of sustainability within an organisation may require significant organisational change and improved stakeholder engagement.

The Centre for Social Innovation — a partnership between the Universities of New South Wales, Melbourne, Western Australia and the Swinburne University of Technology — has been undertaking research on this shift taking place in the corporate sector in recent years. Researchers Gianni Zappala and Sarah Adams’ 2010 paper, The Integration of Corporate Responsibility: Evidence from leading companies in Australia & New Zealand (PDF 266 KB), considers the level of integration of sustainability principles and practices achieved to date.

The paper defines Corporate Responsibility (CR) as “understanding and minimising a company’s negative impact or footprint on society and a broad range of stakeholders including the planet and environment, its employees, the communities in which it operates and the governments which make the laws.” It utilises data from the Corporate Responsibility Index (CRI) benchmarking tool developed by Business in the Community in the UK in 2002, which is applied annually in Australia and New Zealand by the St James Ethics Centre.

The reseach found that “corporate responsibility is on the whole well integrated into the way that leading companies in Australia and New Zealand are doing business.” However it suggests that firms could improve in four key areas, including ensuring improving CR training at board level and improving the extent and quality of stakeholder engagement.

The following criteria are suggested as a measure of firms that have achieved genuine integration of CR principles:

  • Adopt a holistic conception of corporate responsibility or citizenship;
  • Have board level governance systems to oversee CR policies and practices;
  • Have senior leaders that champion CR internally and externally;
  • Have a range of structures and systems to integrate CR across the business, including risk management systems, stakeholder consultation schemes, sustainability training for managers and employees, establish and monitor key performance indicators for CR, and
  • Have an open and transparent approach to CR information disclosure (eg undertake assurance of their CR reports).

There is no denying the challenge for corporates in moving to greater levels of stakeholder engagement and associated transparency. However in many cases this is a necessary first step on the road to more sustainable, productive and profitable business. Which companies will rise to the challenge in 2011?

Business 2.0, Sustainability

Michael Porter on shared value

Certainly a man that’s speaking my language — economist and business school professor Michael Porter interviewed for the Harvard Business Review (via Umair Haque):

There are a few particular points of note I picked up watching this interview. At around 4:20 he says:

we once thought that if business just increases its profit, what’s good for business is then good for society. … we need to kind of think differently: what’s good for society is good for business. And that sounds like a play on words but it’s really quite a profound difference in perspective. The [concept] of “shared value” says that, actually creating societal benefit is really a powerful way to create economic value for the firm.

A short while later (at around 6:37) he says:

But that kind of profit creates shared value — it’s not just profit at the expense of society or the expense of the consumer, it’s really profit by benefiting society and the consumer.

On this latter point, in previous posts I’ve used the phrase “shifting from extracting value from the market, to creating value with and for the market”, which very much aligns with this theme.

At 8:31 he goes onto express the potential for competitive advantage inherent in such and approach:

I think the great strategies of the future are going to have this dimension. The companies that are going to have the more sustainable advantage are not just going to be making these minor cost and quality differences, they’re going to be engaging communities they’ve never served before; they’re going to be thinking much more deeply about the underlying human needs that are related to their products.

I would add, underlying needs that can be effectively determined using service design and design thinking approaches ;) He goes on to talk about building the shared value proposition into the core of the business strategy, another theme that I, among others, also propose.

His discussion on increasing farmer capabilities (around 11:00) reminded me also of what MTC Group is focusing on in their business.

Business 2.0, Design, Sustainability

Mind the gap

In the time I’ve been actively engaged in business sustainability, I’ve noticed that report after study after survey that shows that a majority of customers have environmental and social considerations at the forefront of their mind when making purchases. For example, this 2008 McKinsey report (free registration required to read article) highlights that “87% of consumers worry about the environmental and social impact of the products they buy”. In the Australian context, research carried out by NetBalance for the Australian Food and Grocery Council (AFGC) reports “80% consider sustainability issues when putting products in their shopping trolleys”.

Diagram outlining intention vs. action

Yet this latent desire to make ethical choices in purchasing is also shown to be missing in action, outside of a significant minority. The same McKinsey report suggests 33% make such purchase decisions (which is similar to other reports I’ve read) and the AFGC finds that only 13% of Australians buy environmentally-sustainable food and groceries from the supermarket (as an aside: this figure seems low — I’ve seen other statistics that show organic produce as being much more prevalent than this, and that these purchases would be considered “environmentally-sustainable” — something to look into further).  Trendwatching place these figures at 40% and 4% respectively (based on Journal of Marketing data).

In considering this gap, we find many stated reasons as to why intention isn’t translating into action. Most commonly cited is price — reports I’ve read (coupled with my own experience) suggest that customers aren’t willing to spend more than a 5-10% premium for “green” products, if they are willing to spend more at all. And of course products with a price premium were much more likely to feel the pinch of changing economic circumstances.

But there is more to it than that — performance is another, where “green” products are seen as inferior to mainstream products. As Joel Makower asks, why does “green” not equal “better”?  Convenience is another factor, with limited availability of green options through mainstream channels (e.g. mainstream retailers, such as Coles or Woolworths here in Australia). Each of these is noted in both the McKinsey and AFGC summaries — and each is weighted against the environmental or social benefits of the product when making a decision. The AFGC report notes that only a small number will compromise on cost or convenience for environmental factors.

So what to do? We could try to change people’s priorities, to get them to change the weighting the put on each of these factors. I suspect this won’t get very far though… As I noted in my Web Directions South presentation, a lot of successful social innovations aim to actually flip the equation — to make the more sustainable option also cheaper, or more convenient, or have better performance, rather than forcing this kind of trade-off.  Companies leading in the Collaborative Consumption space often fit this category.  Trendwatching call such products Eco-superior or Eco-easy.

Bridging the gap

But why aren’t more companies doing this? Why aren’t there more products like this in the market? I think part of the challenge is that when companies are considering sustainability factors in their products, they focus on specific attributes of products, rather than thinking more holistically. What this means is that their consideration only extends as far as lessening the impact of certain ingredients — e.g. substituting an eco-friendly alternative as a key material or ingredient in a product.

Often this results in a more expensive product that doesn’t perform as well as the mainstream alternative. But more importantly, I think it misses the bigger opportunities of taking a sustainable approach to business – the kind of opportunities outlined by leading thinkers like Makower, Gil Friend, Paul Hawken and William McDonough.

These opportunities require a more holistic approach that considers the broader context in which a product or service exists. In Natural Capitalism, Hawken, Lovins & Lovins call this “whole of systems thinking”.

For those familiar with design thinking or service design approaches, this will be a familiar theme — core to these practices is assembling multi-disciplinary teams that take a broader contextual view (informed by design research) to uncover opportunities for rethinking the role of organisations and the products and services they provide that can create whole new classes of products (or, perhaps more accurately, product service systems).

Diagram outlining how design thinking/service design can connect intention with action

The iPod/iTunes ecosystem is an oft-cited example of the possibilities of rethinking the system, rather than innovating purely on product attributes (while this isn’t explicitly for sustainability benefits, it does demonstrate the concept in practice).

In Blue Ocean Strategy, authors Kim and Mauborgne suggest a similar approach in their guide to formulating a successful product/business strategy. They reference this as an opportunity for innovation — without considering sustainability as a factor. However, it seems clear to me that the same principles are at work in books like Cradle to Cradle and Natural Capitalism, and are also cited in papers on design thinking in business (as I covered in more detail in my paper on Design Thinking and Sustainability).

This, I believe, is where design thinking and service design can play an enormously positive role in progressing sustainability. As it inherently takes an innovation frame, it is appealing to business. However, the opportunities for including the building of social capital and environmental benefits in the broader contextual frame of reference are huge — creating significant wins for business and society simultaneously.