Tuesday
August 13
2019

Tom Harrison

Do Inclusive Business Models Need a ‘Safe Space’ to Survive Within Multinational Companies?

We live in an era when change seems to happen at an ever more dizzying pace. For example, shortly after we started hearing that companies were putting “purpose” at the heart of their strategies, people also started worrying that this was just some form of corporate virtue signaling. Many began to suspect that these companies were taking largely symbolic actions in relation to social issues – then promoting them as loudly as possible on social media – without actually demonstrating any true commitment or sacrifice. Some people have begun to call this “purpose-washing.”

However, in my work as Technical Director of the Business Innovation Facility, I’ve seen very good evidence that many multinational companies are taking purpose very seriously. We recently published five reports through our Inclusive Business Boost, which demonstrate both the level of commitment among these companies – and the different approaches they’re taking to launching inclusive business innovations.

 

Purpose-Washing vs. ‘Purpose in Action’

The reports were researched through interviews with frontline practitioners in over 30 companies, and each explores a different aspect of how these companies are developing new business models that benefit poor and low-income customers in developing countries. They also include research on intrapreneurship (The intrapreneurship ecosystem: Creating the conditions for social innovation to flourish in your company), corporate venturing, and will soon have additions on management practices and the opportunities presented by new technologies. Taken together, these profiles show purpose in action – something that’s a long way from purpose-washing.

But though the reports share a common overall focus, they also present some slightly differing perspectives. I find these differences interesting because they go to the heart of a debate within the inclusive business sector. If inclusive initiatives can go to scale within a corporation, should they be treated the same as any other innovation? Or does the social impact achieved by a successful inclusive business model justify – and perhaps require – a separate approach with its own innovation structures, investment criteria and corporate metrics?

Let’s look at some examples of these two different approaches.

 

Separate Structures for Inclusive Business

On the one hand, consider the investment funds set up by Danone and Engie, used as case examples in the reports by Hystra (The Journey of Multinational Corporations to Inclusive Business) and Endeva (Make or Buy: Corporate Impact Venturing at the Base of the Pyramid):

  • The Danone Ecosystem fund, created in 2009 to “strengthen and develop the activities of the partners who make up Danone’s ecosystem: farmers, caregivers, micro-distributors, street vendors and waste pickers,” co-creates businesses with external partners. It gets its funding mainly in the form of grants, without taking equity in the projects, which are often run by non-governmental organizations.
  • Rassembleurs d’Energie is Engie’s impact investment fund that invests in promising energy startups aiming for “clean and sustainable energy for all.” It invests equity as a minority shareholder in small companies, and Engie employees can volunteer to provide technical assistance to its investees.

Separate legal entities allow these two structures to have less of the financially oriented criteria that apply to new projects or product lines within the rest of the company. In other words, they’re not expected to make a profit as quickly (or at all), which protects them from the short-term pressure of the business. This helps them to avoid potential “misalignments between commercial and social impact expectations,” which are cited as the third most important barrier to inclusive business growth in a recent study cited in Improving Inclusive Business Management Practices in Corporations, the forthcoming Inclusive Business Boost report by Business Call to Action. This report will explain how companies that are successfully implementing inclusive business initiatives are developing specific targets for these activities that take into account a balanced view on both financial/commercial and social/environmental impact. This also feeds into how they manage performance and set appropriate timescales that take into account the long-term value created by inclusive business.

 

Treating Inclusive Business Equally

On the other hand, Reimaging Inclusive Business, the report from Accenture Development Partnership which is also nearing completion, argues that inclusive business should not have different key performance indicators (KPIs) or investment criteria from the rest of the business. In this report, they suggest instead that companies should be making use of new technologies, platforms and ecosystem business models to reduce costs. This can enable them to grow inclusive business models that meet all of their commercial requirements – as well as engaging deeply with large numbers of low-income consumers and suppliers.

This approach takes inspiration from companies in the Global South like Alibaba, Ant Financial, Jumia and Gojek, which are having transformative impacts in emerging markets – even though their activities are often not viewed as inclusive business. Engaging low-income customers is simply “business as usual” for them. They don’t talk about their social impact as much, but their growth rate, scale and reach are under-appreciated factors that should cause us to re-consider what we mean by inclusive business. The biggest characteristic of each of these companies is their innovative use of mobile platforms – an opportunity that is also open to more traditional companies.

Consider Gojek, a company which launched in Indonesia in 2010 – initially as a ride-hailing app with just 20 motorbikes. It now has over 1 million registered drivers, and offers a “one stop shop” where you can get a ride in a motorbike or car, rent one to drive yourself, arrange a package delivery, order take-out, buy tickets or even schedule a visit from a handyman. Similar platforms such as SafeMoto, Ola and Careem are now formalising millions of “gig economy” jobs each year, in countries around the world.

In the supply chain industry, Twiga Foods provides another example that established companies can learn from. The company provides an app for farmers with real-time information on demand coming from many shops in towns across Kenya. Once a sale is agreed, Twiga handles all the transport and warehousing. It also collects data from all buyers and sellers to determine their credit-worthiness, so it can extend loans to both sides via partners. Considered by some to be the future of African retail, Twiga has leveraged blockchain-based supply chain operations for enhanced speed and transparency.  The report presents this as a simple and innovative model that offers insights for banks, retailers and logistics providers on how to profit by eliminating huge inefficiencies in fragmented informal retail markets. Its key takeaway is that inclusive business initiatives can avoid the need for a separate structure if they emulate companies like Twiga in using technologies like blockchain to drive efficiencies and cost savings. In that way, “business as usual” can become far more inclusive, without the need for special structures to support it.

So, which approach is the right one? My feeling is that companies that are able to benefit from such technology-driven opportunities will most easily be able to treat social business initiatives the same as any other innovation. This can help them avoid the accusation that they are simply virtue signaling when it comes to social impact – and anyway, they will be too busy to care. However, for most companies, the reality will be that some kind of “safe space” will be needed for them to innovate for both social and business benefits. And this might make them more open to suspicions that their social incubators, social KPIs or impact venture funds are mainly window dressing.

However, they may not think this matters – and they may be right. For me, the fact that mainstream companies are taking these steps to promote inclusive business provides more than enough evidence of their social impact bona fides. Actions – and actual initiatives – speak louder than words in demonstrating purpose with substance.

 

Tom Harrison is Technical Director at Business Innovation Facility (BIF).

 

Main photo provided by author.

Homepage photo credit: Atik Sulianami via Unsplash.

 


 

 

Categories
Entrepreneurship
Tags
business, business development, business models, emerging markets, inclusive business, multinational corporation, social business, social enterprise, social impact, social innovation