Archives for category: social return

In a recent edition in the Harvard Business Review, Ram NiduMolu (Founder and CEO of InnovaStrat), C.K. Prahalad (Paul and Ruth McCracken Distinguished University Professor of Strategy at the University of Michigan’s Ross School of Business ) and M.R. Rangaswami (Founder of the Corporate Eco Forum and the co-founder of the Sand Hill Group) wrote an article on “Why Sustainability is Now the Key Driver of Innovation”. The article talks about how, being eco-friendly and sustainable, lowers costs and drives innovation. It goes on to say that in the future, only companies which make sustainability a goal will achieve competitive advantage, which means that rethinking business models as well as products, technologies and processes is the need of the hour.

As I was reading the article, I realized how emerging companies, both in developed and developing economies can use “the five steps to sustainability” mentioned in the article and lower costs from day 1. The article takes several organizations and describes how they were able to drive innovation, gain competitive advantage and cut down costs by adhering to gold standards for sustainability. Talking about supply chains, it says how responding to people’s concerns about destruction of rain forests and wetlands, MNCs such as Cargill and Unilever have invested in technology development and worked with farmers to develop sustainable practices in the cultivation of palm oil, soybeans, cacao and other agricultural commodities, which in turn has improved crop yields and seed production.

Companies like FedEx, which consumes 4 million gallons of fuel every day, are also becoming eco-friendly and working on new methods to save fuel. Following a lot of pioneers, FedEx has recently converted its energy-saving expertise into a stand alone consulting business which it hopes will become a profit center. “Work from home” is another key policy which is saving costs and increasing employee satisfaction.

By creating environment-friendly value chains, companies are linking sustainability initiatives to business results. Designing sustainable products and services, developing new business models and creating next-practice platforms for the future are key steps towards sustainability. Amidst all this, the lesson to learn for both SMEs and start-ups is to start looking at sustainability as a key driver of innovation and pave the path for a cleaner future!

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In social ventures, like the ones developed under the Acara Challenge, the idea of “social return” is bandied about. What exactly is social return, and what does it mean? Broadly speaking, it just means that you measure the return in the business, not in traditional financial terms (how much money we make vs how much we spend) but in social terms. That could be improving the public health, educating more children, moving homeless people into a home, etc. Many of these things have measurable value. For example, a program to provide cleaner water in the slums should result in fewer people getting sick, which translates to fewer work days lost (that has measurable value), fewer hospital stays (you can measure that), etc. A more complex measurement would then also measure, what is the economic value added in the long run by these lives that may be saved. Sort of a Net Present Value kind of calculation.

In the Acara Challenge, we wanted teams to also describe what the social return was on their business. We didn’t ask for any complex analysis, that alone could have taken most of the semester. But because all the solutions were related to the same problem, clean water in Mumbai slums, we could compare results mostly by looking at how effective the solution might be, and how many people might be affected (and how expensively).

How important is social return and how can you measure it? Let’s address the second question first. A lot of talented people/organizations have been looking at this question. The Gates Foundation has a couple of excellent white papers on the topic. If you really want to understand the complexities of this topic, I’d encourage you to read the white papers. They describe a number of different methods being used by organization to attempt to measure return. By far the biggest challenge though fro measuring social return, is not how to compute it, but how to get the data in the first place. Non profits are always understaffed, short of funds, and generally don’t have the high powered MBAs you might need to do this sort of collection and analysis. So it’s a garbage in, garbage out sort of situation, even if you get to the point of collecting some data. I don’t mean to diminish anyone here, it’s just a fact that it’s resource intensive and even hard for a big for-profit multi-national company to do this kind of analysis. Let alone a 10 person NGO.

Is it important? Yes. If the mantra of social business advocates is to be believed, then you have to have some way of measuring the impact and efficacy of the business. In the for-profit world, it’s ROI, revenue, etc, which then is effectively summarized in share price (for public companies). There is a Dow Jones average to measure overall stock market health. This system has evolved over hundreds of years. Measuring social return is just in its infancy, so you can’t expect the same level of sophistication. But if social businesses are to define their success, and then work to improve it, these social benefit measures have to happen. Else, how will we determine the successful social businesses? Acara is not going to solve this problem. Academics and think tanks will keep working on this, and there are also some companies working on defining a “Dow Jones” of social responsibility (this helps those mutual funds that invest in these kinds of companies). But we want to use some good methods to help us both assess the approaches in the challenge but also to help improve the businesses that we incubate and launch. More on this topic of social return to come in future blogs. I am looking for some ways to get more rigor into this process for Acara.

Thanks to my friend Dan Kaskubar for providing the links and background information on this topic.