Changing Social Compact? Naa, just good sound long term strategic planning

On Shared ValueShared Value is neither new or an unusual a strategy as the media and popular press suggest.   Any company who has been deliberate and committed to strategic planning quickly discovers  the imperative  to invest  in their future and develop ancillary parts of their market. Deloitte’s global chairman and CEO-elect UK responded on the phenomenon in a letter to the editor of  the Economist that appeared in March.  (Note, our apologies for not noticing  and bringing it to discussant’s  attention earlier).  Deloitte’s position:

Society is more affected, for better or worse, by the core activity of a business than by its community investment projects, social initiatives and other peripheral activities…Good businesses recognise and understand the contribution they make, alongside government and non-governmental organisations, to economic, environmental and social progress. According to our analysis, over a fifth of Fortune Global 500 companies already have a clear, society-focused purpose underpinning their activities.

These views appear somewhat consistent to other reports such as the Global Reporting Initiative (see earlier post).  Questions circulating in the Friday discussion did not challenge the value of the activity.  Comments focused on complexities and organizational thinking that prevent more than a few companies from pursuing these strategies.

The search for Profits

Fundamentally, profitable growth comes from one of three sources:

1. Expanding your customer base–more customers

2.  Higher profits per customer–which means expanding the margin by either shrinking costs or raising prices; and

3. Increasing the number of things you sell, or sell the same things more often, or create more products to sell to existing customers-

Throughout history, the intersection of  supply and demand, creates value. Companies who effectively overcome logistics that separate the two, and with efficiency, naturally  benefit.  Business practices that optimize  costs, resource use or adopt solutions that minimize risk however,  are not always synonymous with ethical practices.  Add  cultural differences and attitudes into the wider system of decision variables  and it’s  easy to see why history is full of stories about companies who failed to share their economic benefits with local  workers or communities.

In 2011,  sustainability or persistent business operating practices depend on a wider decision frame that encompasses local good will and good behavior.  The repercussions of bad or exploitative behavior may upset the strongest of a company’s standing in the marketplace, especially because of the speed in which any number of stakeholders can usurp social media to exact revenge.

The global, wired world is only one reason we increasingly learn of companies behaving more responsibly globally. It turns out behaving responsibly is also cheaper.   Averting the damage, by doing a little more upfront, or taking on some upfront risk may in fact limit if not eliminate back-end risks. Perceptions are important to keep up, but equally important are relationships.

Numerous global companies seeking to expand their presence in alternative markets are finding NGOs reliable partners, thus earning the project the shared value label. Knowledge of local custom, culture and conditions, when integrated into investment decisions, mitigates possible failure and offers added security from future liabilities.

Is  it really a surprise to see corporations increasing their reliance on NGOs local knowledge to help penetrate new markets?  To the assembly of strategy minded Chicago Booth MBAs and professionals, leveraging ability to enter a market indicates a prudent well thought out, long-term strategic initiative.  The rising number and prominence of news  stories that expressed the value of pursuing long-term strategy initiatives, that was a surprise.  Maybe these are examples of capitalism at the extreme.  Is there anything inherently wrong with a company creating downstream demand for its products and services?   More cynically, the stories and highlighted attention around shared value merely reaffirms the reality that there’s no pure charity going on.  Both business and NGOs are no longer distracted by taking adversarial positions, and instead both are more productively realizing their aims.

In modern times, new market expansions up the stakes considerably, made evident by the lessons from earlier experiences.  Recall the disaster in Bhopal.  This accident continues to haunt DOW, no matter how much money, support or distance they attempt to create.  The  clear lesson for business today, is that its best to know your way around the market where you are trying to set up a toehold.  The easy pickings in most market are gone or governments and other organizations more hesitant to roll out the red carpet.  The increased risk  of crossing cultural divides is something that NGOs have felt more viscerally, as when their failure to deliver puts peoples’s lives at risk, not just the loss of investment capital.

What does maximizing value look like? 

Value , as earlier stated is not just a measure of profit; and as such doing good to more of your stakeholders, regardless of your tax or operating mission, may indeed create value.  It’s simple to believe that shareholders are only interested in returns near or short term.  Ample evidence exists that investors consistently pay more for companies who derive direct and indirect value from multiple sources.  [Anyone have a reference or citation for this? ]

Another cautionary tale

Nicholas Negroponte’s vision for accelerating learning in impoverished communities, widely shared with other luminaries in technology has fallen short of collective expectations.    In establishing the onelaptop per child foundation, the mission was simply

  to empower the world’s poorest children through education.

One laptop in Africa

Nobility aside, ample data and analysis correlates education level with higher income making this a logical path to empowerment, sufficiency, economic independence etc.  The founders, rather than deal with the complex system of resource coördination in locations short on infrastructure,  seized upon the silver bullet in the form of a simple laptop. The private foundation and their very sophisticated, resourceful founders and network  encountered more than one bump in their path to distributing the 1 million laptops across the globe.  A recent evaluation  contrasted  reality with the dream by acknowledging the  foundation “failed to achieve its ambitious goals when it met its intended market.”

In short, the answer that emerges when sitting in a resource rich environment failed to fully consider the ancillary factors that were key to realizing the project.  With the best of human intuitions and insights, they  tried to think of everything. The impressive self-contained laptop with software especially designed  toward natural learning, included a crank battery and internet access via satellite.  But the technology was simply too big a leap for populations who struggle to support basic necessities for their survival.  Click here for  More of the story. 

We welcome other thoughts or comments, and invite you to share them here.

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