Thousands of people from Kenya and Uganda to India and Guatemala currently wake up each morning with necessities that were not available in the region just a generation ago. Citizens of these formerly impoverished regions now have not only food and water but even the necessary infrastructure to access the global marketplace thanks to good corporate citizenship. But these social improvements didn’t happen because of charitable contributions or a corporate social responsibility program. They were the result of strategic thinking at Nestlé designed to increase shareholder value.
Many companies today incorporate social responsibility into their businesses in some form. But too often, firms stop at publishing a values statement or code of ethics. Even those who make their products “greener” or support philanthropic efforts with time and money aren’t being as effective as they could be. I think businesses must go one step further and use social responsibility as a driver of business strategy, not just a supplement to it.
Current global economic problems only punctuate the need for businesses to re-examine their strategic directions. Profit, while essential, should not be a firm’s sole purpose. Too often, the pursuit of profit comes at great expense to one or more stakeholders. We know much of the financial crisis that began in 2008 was caused by unconcern for customers’ financial security and well-being as Wall Street and mortgage companies tried to sell more and bigger home loans. Around the world we’ve seen ecosystems destroyed by companies who care only about harvesting natural resources as quickly and profitably as possible.
So how can companies in today’s world take the step from socially responsible to socially strategic? First, I think a firm must buy into the notion that profits, while extremely important, are not its only reason for being. Then, it must have a clear understanding of other ways it can create value, which requires defining its social purpose. Once a firm embraces these concepts and defines its social purpose, strategy should be determined by using a two-step process.
The first step is looking at current and potential businesses and opportunities through four lenses.
Lens 1: Alignment with Social Purpose. What opportunities exist that allow us to further our contribution to humanity? Whether it’s in public health, environmental improvement, transportation, or anything else, what course of action would expand our reach?
Lens 2: Core Expertise. What goods or services could we offer that would allow us to leverage our competitive advantages? This could be a process, product, or technology.
Lens 3: Market Demand. What are customers willing to buy? Are there unmet needs that we can profitably satisfy for customers in both existing and untapped markets?
Lens 4: Employee Fulfillment. What opportunities would fully engage our work force? What kinds of work will provide personal and professional development and satisfaction? This is a key factor because strategy is useless if employees are not motivated to execute it.
Once each of the four lenses has been used to identify business prospects, the second step in the process is an analysis to find commonalities among them. Opportunities that appear in all four categories should become growth priorities and receive resources accordingly. Strategic decisions must then be made regarding other opportunities that meet three or fewer of the criteria. Depending on the relative position of an opportunity within this model, the company might need to develop new expertise, find a market, or divest itself of the business altogether.
There are firms of all sizes that illustrate what this approach looks like in practice. The process and tools these companies use to develop their strategies may differ from what is described above, but they have made an effort to use social purpose as a key input.
For example, Nestlé describes itself as “the world’s largest food company with a focus on nutrition, health, and wellness,” and employs the slogan “Good Food, Good Life.” The company has taken this clearly defined social purpose and made it an important strategy driver. Through the social purpose lens, Nestlé looks for opportunities to improve nutrition, water, and rural development. It has core expertise in research and development as well as operational efficiency. As for market demand, Nestlé believes that premium products, emerging markets, and food services for restaurants, hospitals, and schools represent its best growth opportunities. Finally, the company believes it offers employee fulfillment through diverse work opportunities and the ability to impact the world around them. As mentioned earlier, Nestlé has helped numerous communities in India, Africa, and South America improve their income, infrastructure, and health. How? By sending employees to develop and train local farmers based on the company’s expertise. In turn, Nestlé has a steady source of quality raw materials at prices that give it a cost advantage, and the company helps create markets for its products that did not previously exist.
Anheuser-Busch has also found numerous strategic opportunities to improve its bottom line while supporting a social purpose defined as “promoting alcohol responsibility, preserving and protecting the environment, and supporting local communities.” One strategic social effort was the creation of a subsidiary dedicated to recycling. The Anheuser-Busch Recycling Corporation says it recycles approximately 27 billion cans annually—five cans for every four packaged by the company. In addition to keeping these cans out of landfills, the business unit generates multimillion-dollar profits. Anheuser-Busch also has developed processes to capture biogas from wastewater at its breweries, which it uses as an alternative, sustainable energy source. According to company reports, doing so decreases greenhouse gas emissions by hundreds of millions of pounds each year and significantly reduces energy costs. The remaining wastewater is then pumped to company-owned farms. The practice reduces overall water consumption and costs, while the nutrient-rich water helps grow better raw materials such as barley and grain.
Not all companies have the size and resources to use their social purpose as a strategy driver in such an impactful way. But that should not deter the average car dealership, medical clinic, accounting firm, or food manufacturer from using this approach. Developing strategies with this model can create value not only for the world but for investors and employees as well.