Traditionally firms develop their social responsibility skills after they grow and mature. The culture of business and economical conditions delay these skills to later stages. It may seem viable for companies to focus on revenue and profit and disregard social responsibility, but the late gaining of competencies for social good probably has a higher cost both for companies and the society. Therefore businesses should be designed for the good of the society from the beginning.
Increasingly in the last decade we are witnessing big companies struggling for social business. Only a few of them are radically trying to reorganize. And most of them are trying to patch their current models with charity solutions. Today, what all these companies are facing is that transforming towards social business is very costly. The reason of the cost is two folded. First, reorganizing management from traditional profit driven understanding to value driven understanding needs cross-cutting change through all layers in a company. It requires cultural change, hiring of new people, and new business models. Second, companies need to undo their past which is even more costly.
An example about undoing the past is that energy companies are now investing in undoing the air pollution. If they had designed their business with a more social understanding, today they could be investing in more innovative and more profitable businesses. This example shows that the low profit margins in social businesses are not a result of the nature of social businesses but the wrong initial business design. Today there is a misunderstanding like social businesses should work for low profit. The low profit is a result of the cost for undoing the past. There is far more profit opportunity if your current profit model is not creating your own hurdles. The example was about energy companies but we will examine to see if the same thing is true for other businesses.
The solution is about designing organizations from the beginning that they do not create their own hurdles. The question is “how”.
Since social businesses do not seem profitable, many companies delay their efforts and say that they will invest in social businesses when they are sufficiently institutionalized. Many companies imagine their development as a stairway to institutionalization and the last step is about doing good. Probably the stairway is changing and the last step is becoming the first. Societies no longer let companies take a step before they do any good. Moreover, societies force companies step down if they had done any damage in the past. The old and traditional companies will keep facing the cost of stepping down from their past until societies start giving them profitable opportunities in social businesses. On the other hand, societies will reinforce new organizations designed for betterment of the society.
While designing a business for the good of the society, there are 2 important dimensions; (1) the social and environmental dimension and (2) the core business dimension.
For the social and environmental dimension, companies should consider designing businesses that are humanistic, long term investing, energy efficient, and non-polluting. For example a company can locate their headquarters to reduce flight travels and create less pollution. This would bring handsome savings in the long term but still it is very urgent because carbon footprint taxation will eventually rise and the cost of relocating headquarters will become a burden. Another example can be a company investing for its factories in China and adopting decent health care. This would bring market share from China, if not from the whole the world, because the families of the workers would respect your brand. After China becomes a rich country, which is not too far, it would take much longer time for an irresponsible company to gain a good reputation.
For the core business dimension, companies must ask 2 questions; (1) “how can we create a social impact so that we can maximize our profit?” and (2) “could our social impacts create our own hurdles in the future?”. If these 2 questions are not examined together the business will fail. For example a software company could develop an educational tool that maximizes students’ scores in standard tests. If this company does not elaborate on the 2nd question it would accelerate the problems about standard tests which would create great social mistrust and severely harm product sales. So instead of maximizing students’ scores, they should think of solutions that would not hurt them later. If the same company had asked the 2nd question they would make a radically different design. A radical alternative to maximizing students’ scores might be about enabling students’ creativity. Let us examine this as a wider term like consumer creativity. Technological advances made creativity tools more possible and consumers started demanding products and services open to user intervention. Moreover, better nutrition and better stimuli factors are rising IQ points in most countries which bring a second rocketing wave to creative consumers. Many businesses seeing consumers as consumers and not addressing them as creative share holders will be creating their own hurdles because they will be contributing to bankrupt social problems.
Ironically we are living in a fortunate time that problems arise faster and generations live longer. We no longer have the chance to carry over problems to next generations. Whatever you do, you have a social or environmental impact that can either reward or punish you. Small or big, niche or mainstream in every case you must think that your impact does not hit you back.
So the solution is about not delaying social responsibility after institutionalization, designing social business from the beginning, gaining trust of the society, earning the credits to do profitable social business, not contributing to social and environmental problems while profiting, and designing core business that does not create your own hurdles.
Many people think that latest trends in business philanthropy should be applauded but they still have marginal impact. The presented solution above aims to change this by introducing a radically different method like designing businesses from the beginning. With this change, companies no longer have to face the cost of reorganizing for social responsibility. Social responsibility is no longer a goal but is the reason why an organization exists and is embedded in the organization’s DNA.
The solution will immediately change how start-ups model their business which is the key to long term success. In business philanthropy, big companies and investors are emphasized a lot as if they were the key to solving problems. Rather, their impact is eradicating the meaning of social business. The presented solution above should also help regaining respect from society for social business. Everyone knows that companies are built for profit. Until profit and social business are perceived to serve a common goal the society will only provide marginal credit to business philanthropists. What this means is that the society wants to believe that the profit is used for solving social problems; and only henceforth the society will let social businesses become profitable. New companies have far more advantage in gaining social respect. This should also lead to distribution of philanthropic investments towards start-ups.
Another impact is that companies will have a lot less social and environmental damage. In the future, when social respect for social business is gained, social businesses will become very profitable. By then, companies which had no or little damage will be free from undoing their past and will be investing in more innovative and profitable social businesses. Therefore social business is not only profitable but a cycle that grows itself to even higher profits.
For the first steps, a few (2 to 5) companies should be started with voluntary founders. The companies should be independent from each other but they should follow a common methodology. They should make their accounting system totally visible to the society. They should work with universities and make it a laboratory for them to test radical innovations. They could start by testing gaining trust of micro investors from the society. These companies should focus on what is good for the society and how their impact would bring the highest profits without contributing to social or environmental problems. They have to keep in mind that today’s so called social businesses are tomorrow’s profit centers. If they need investment they should first go to people or organizations they can co-create their business. They have to clarify how profit will be reinvested to their core business. Once they grow a little, they should create a network between companies that are transparent and built for good of the society and start investing in them.
Looking back at a recent panel discussion at the Geneva Forum for Social Change, my COFES Keynote on The Future of Innovation http://slidesha.re/fJ68g6, and conversations we had on CSR in Brussels last month, I realize that I could have written this hack... Congratulations!
As an innovation consultant, my message is repeatedly that CSR cannot be an afterthought, that it has to be included in new product or service thinking from the outset. At the workshop we had in Brussels last month http://tinyurl.com/3nzanyb we mentioned CSR being part of the company DNA, and we formulated a calling question “How do we create companies that thrive on a healthy planet?” which seems very much aligned with the thinking expressed here! - @cdn
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