Profit With Purpose
The role that 'profit with purpose' should play in building a sustainable business that consumers want to support, that solves real market needs, and that also makes a profit.
Entrepreneurs are inherently problem solvers. We identify unmet needs and try to solve them by creating businesses to meet these needs. This may be why as a third generation business owner in my family, creating shared value resonates so strongly with my entrepreneurial journey.
Having cut my business teeth as a teen in the southern Johannesburg township of Eldorado Park, spending weekends and school holidays working in my family's businesses, I learnt quickly the trials and triumphs of business ownership, particularly in a resource-scarce environment.
The entrepreneurial journey is often fraught with the hurdles of changing market conditions, resource constraints, business growth and team building.
As the custodians of the business vision, we are required to be resilient in the face of obstacles and shortcomings.
One of the most important tools I’ve come to learn in meeting such challenges is that of purpose. For many in business this purpose is personal, a growing family, a generational legacy or even survival.
As citizens of a country with soaring unemployment, deepening poverty and inequality and poor access to basic services for much of society’s most vulnerable, it’s incumbent on businesses to ensure that we put at the centre of our commercial gain a sense of societal purpose.
CSR is out; Creating Shared Value is the future of business
For too long now, business has been seen as a major cause of social, environmental and economic problems, generating income at the expense of society. More and more, business’s relationship with broader society has become vital in determining its value.
What is required is a rethinking of how we do business, and shifting to the new model of profit with purpose. We must internalise and adjust our approach to value creation in order to stay ahead and thrive or be relegated to the business strategy history books.
The Corporate Social Responsibility Model (CSR) has been a means thus far for business to address these issues and has been important for reputation management, however as peripheral activities limited by budget these falter in generating revenue for business.
An evolution of the CSR model is to be found in Creating Shared Value (CSV), a business strategy that provides a means for companies to make profit in a way that addresses social and environmental issues.
Business has moved from philanthropy, through responsibility, to driving growth by creating new products and markets through CSV. This vital shift in business thinking and its implementation is an essential strategy for entrepreneurs to future-proof business for long-term gain.
By leveraging resources, market access, scale and their capacity for innovation, businesses can advance and accelerate development while generating commercial returns.
Shared Value in practice
So, how can your business create Shared Value? It starts with an in-depth business analysis — and the commitment to a shift in strategic approach. Each business is different, and has the opportunity to engage with CSV in a different way.
Harvard Business School Professor Michael Porter, considered the father of Shared Value, shares practical insights on how businesses that intend to transition to Shared Value can do so.
1. Find a social or environmental cause
CSV is a business strategy that provides identifiable economic benefit to business while having a measurable impact on social or environmental issues. Identify a systemic social or environmental issue such as youth unemployment, access to healthcare or emissions reduction, which will serve at the core of your business strategy and inform all business activities.
A social entrepreneurship-based company can effectively utilise the UN Sustainable Development Goals as a basis from which to identify key areas of focus.
2. Innovate new products, services and markets
Create marketable new products and services that address this societal need. This can be done by gaining deeper insights through collaboration with stakeholders such as staff, customers and the communities in which your business operates. Open untapped markets by reimagining and, if necessary, redesigning existing products to cater to unmet needs.
As an entrepreneur I am inspired by stories of social innovators such as Sizwe Nzima, a 24-year-old from Khayelitsha, Western Cape and the founder of Iyeza Express Medicine on Wheels, a service that collects chronic medication from clinics and hospitals and delivers them to the sickly and elderly of the community. Sizwe is providing access to healthcare for users and simultaneously generating profit.
Another social ‘intrepreneurship’ story is that of Dr Gavin Armstrong of Lucky Iron Fish, who identified that nearly 3,5 billion people worldwide suffer from iron deficiency and innovated a solution in the form of a small iron fish that is placed inside a pot when cooking and has been shown to substantially reduce instances of iron deficiency and iron deficiency anemia. It’s a growing social enterprise working to improve the health of its users.
3. Redefine productivity in the value chain
Look inward and identify areas for improvement in internal operations and supplier relationships. The value chain includes everything from human resources to marketing to procurement and logistics. By reassessing the way your company does business, operations can be streamlined, suppliers can be empowered and costs saved.
4. Enable local cluster development
Create a conducive environment for optimal business operations to take place by addressing societal needs around the business. This also includes developing and empowering elements of the supply chain in order to encourage stability while benefitting the local community.
Nestlé, for example, has implemented a rural development strategy to support and empower the farmers on whom they rely for much of their raw material production. Having recognised that farmers earning a decent income and supported by a thriving community would produce more and better-quality produce, Nestlé has committed to working directly with farmers across the world, providing them with training and support and engaging with their communities.
This investment has resulted in higher yields of raw materials and a growing network of stable, productive suppliers.
The global shift towards Shared Value-driven companies operating in all fields and of all sizes is fast becoming a powerful movement. Business has the power to make positive change at scale, without compromising quality or revenue. CSV requires a commitment to making a core strategic shift to structuring operations around addressing societal and environmental needs, while maximising profitability. CSV is a new kind of capitalism, shifting the paradigm to profit with purpose. As entrepreneurs we must develop commercially competitive businesses that build our societies.
Less risk, more opportunity
Ryan Short, a partner at Genesis Analytics and a visiting lecturer at GIBS on its Creating Shared Value executive course, says Shared Value is a lens that companies should put over the whole business.
“Through Shared Value, companies are creating more products and accessing new markets that they haven’t thought of before. It’s changing the way we view and approach business.”
One key example of this philosophy and strategy in practice is Discovery’s Vitality programme. “Vitality is making people healthier and therefore serving a societal need, and it does it profitably,” says Short. “Discovery has found a way to twin social impact with profitable impact.”
Acclaimed business strategist Michael Porter makes his case for why businesses should be solving social needs: Because when business solves a problem, it makes a profit — which lets that solution grow.
Visit www.africasharedvaluesummit.com for more information