By Managing Directors Valerie Bockstette and Marc Pfitzer of FSG and the Shared Value Initiative
IBM’s award-winning and fast-growing Smarter Cities initiative. M-PESA’s profound impact on banking the underbanked in Kenya. Philips’ ever growing suite of Green Products. We’ve all heard about, celebrated and shared these examples of companies engaged in large scale social innovation. The kind of innovation that drives real progress on pressing societal needs and, at the same time, builds competitive advantage for companies. When cheering on these corporate pioneers, have you ever wondered about the backstory?
How did these particular companies manage to scale their social innovation initiatives and business models when we know that the world is littered with well-meaning pilots that went nowhere? We all know that large corporations are really good at innovation. Unfortunately, they’re even better at killing innovation, especially social innovation. That’s because corporate social innovation is really hard. It takes companies out of their comfort zone on several levels. First, serving unmet needs means a different balance of margin and volume, which is a delicate dance. Unrealistic volume or margin expectations can quickly sink an idea. Second, corporate social innovation takes collaboration across many business units, including R&D, marketing, finance, supply chain management, and country or functional leads. Too often, these units are siloed and getting the right people around the table is a frustrating process. Third, even these units are not enough. Successful social innovation requires working with unconventional partners, such as nonprofits, foundations, government and even peers. This type of collaboration takes time, patience and a mutual learning of “new languages” to find common ground across sectors. Finally and most importantly, social innovation has a longer return horizon, meaning that executive leaders have to be comfortable with a longer payback period. This takes courage and conviction. It flips the question from “what will our EPS be this quarter?” to “how will we profitably serve society over the next ten years?” Indeed, we could fill ten pages with all of the obstacles engrained in day-to-day corporate life that stand in the way of social innovation. And yet, the visionary companies listed above and many others have broken through these barriers. How?
In looking at dozens of examples of successful corporate social innovation at scale, we found five ingredients that all companies had in common. You can read more about these ingredients and relevant examples in the Harvard Business Review article, Innovating for Shared Value (September 2013). In a nutshell, the five ingredients are:
- Purpose: Top executives are (re)defining the raison d'être of their business to be around addressing societal needs. Imagine, for example, what it would mean to shift your core business from manufacturing cars to providing clean mobility. All of your business decisions would change in profound ways.
- Defined Need: Efforts are not about a “theme,” such as “health,” as is often the case in CSR. Rather, efforts are about a clearly defined need, for example: “reducing the percent of people in Rajasthan that are malnourished by 50 percent in five years.” You can create a business case and business model around that need because it is well-defined and as was always the case in our examples, extremely well-researched.
- Measurement: Related to that, companies are measuring value creation for both business and society. Rather than publishing 300 page reports that list generic sustainability indicators and have stories of volunteer days, companies are pinpointing and quantifying bottom line measures – such as the aggregate cost savings of reducing the carbon footprint of their logistics operations – and have a deep understanding of how tackling certain societal issues drives an improvement in those measures.
- Co-Creation: Companies have cracked the code on partnering with unconventional partners. They’ve also changed the paradigm from thinking of partners as grantees to thinking of them as business model co-developers. Partners are brought in at the scoping, design, roll-out and scale phases in deliberate and mutually beneficial ways. A nonprofit that’s been operating in a remote setting for decades might have better ideas on product design than a corporation, while a foundation might be willing to provide seed funding to pilot new distribution channels.
- Innovation Structure: Finally, companies are extremely thoughtful about where in their organizations to house and nurture social innovation, so that it doesn’t become a victim of all the engrained pressures that prefer chipping away at the status quo to disruptive innovation. Depending on the existing innovation culture of the business, this might mean a separate social innovation unit with different return expectations or an extra filter in existing R&D processes that requires new products to address large-scale societal needs. There is no right or wrong answer on where to house corporate social innovation. All that matters is being intentional about it.
All these ingredients are necessary; a deficiency in any one of them makes corporate social innovation at scale nearly impossible. Reply below how you’ve experienced these five ingredients – and others – in action. Please share your insights with a community of practitioners by joining the Shared Value Initiative community
Valerie Bockstette and Marc Pfitzer are managing directors at FSG. Learn more about the Shared Value Initiative, a new community of shared value practitioners. Join the community.