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Much of my writing time these days is being dedicated to SocialEarth.org, where I’m a contributing writer.  It’s a fantastic site, so please check it out – http://www.socialearth.org.

My articles on SocialEarth can be found here – Mike’s Posts.  Thanks for reading!

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That’s right.  The business profiled yesterday is Wal-Mart.  Apparently, though, this didn’t really come as a surprise to those brave enough to venture a guess.  I must be far more transparent than I had thought.

Anyhow, whilst I await my severe flagellation from the anti-Wal-Martians, here are those bullets again, with some specifics added.

  • Mission to serve customers who have not traditionally been beneficiaries of the innovations and successes of the broader economic system
    • Wal-Mart’s initial mission was to serve rural communities that were in many ways excluded from the mainstream economy
  • Obsession with providing the greatest value to customers at price points they can afford
    • There mission statement is, “Save money. Live better.”  Finding ways to provide quality goods at the lowest possible prices is ingrained in the culture.
  • Meritocratic work environment that puts results and work ethic ahead of shining academic credentials and other factors that are more susceptible to “privilege.”  (The organization has consistently rewarded highly capable and hard-working individuals regardless of their level of formal education.  Much of the company’s leadership is made up of these individuals.)
    • Many executives and middle managers started as store or distribution center employees.
  • Works feverishly, both internally and externally, with industry groups and suppliers,  to make improvements in “green-ness” of both internal operations and its supply chain
    • This has been a more recent push, in part thanks to Adam Werbach‘s efforts.
  • Has achieved amazing financial returns and successfully grown and scaled without sacrificing commitment to its original mission (see first bullet); puts some of those profits back into the communities it serves through philanthropic structures
    • Wal-Mart’s financial success is self-evident.  What is less well-known is that both Wal-Mart corporate’s giving program and individual store managers are allowed discretion in putting money back into their communities.

Now, don’t get me wrong.  Wal-Mart should by no means be considered a darling of the social enterprise movement. Throughout its history it has made a number of questionable decisions, including but not limited to:

  • Providing uncompetitive wages and zero health benefits to store-level employees
  • Until recently, writing off green practices as unpractical and unprofitable
  • Using its hegemonic position to place extreme pressure on suppliers to engage in unsustainable business practices
  • Indulging Americans’ insatiable appetite for consumer goods

I’m sure the list could go on, but I’ll stop there.

The point of this exercise is not to lift up or cut down Wal-Mart.  The point is to be provocative and make a point.  Actually, a couple of points:

  • Through scale, BOP businesses can achieve both social impact and financial returns.  And achieving both is ok. This was Prahalad’s initial thesis, but is something that we seem to forget.
  • Classifying companies as social or not is inherently grey business, perhaps undoable, and maybe even undesirable or counter-productive.
  • Any self-proclaimed social business that makes it big will, at some point, be characterized as a sellout.  Big companies, even those with the best of intentions, ultimately make some missteps.  Also, their dominant position comes to be resented and viewed negatively by certain groups.  If you’re a social entrepreneur with larger-than-life aspirations, be ready for this.

Ok, now I’m ready for my flagellation.

Social innovators tend to think big.  We want our organizations/companies to change the world.  Not just impact one community, but thousands; not just a million people but billions.  And we want to do it through awesome, disruptive innovations.

Here’s the catch.  Broad reach and large-scale impact don’t get along well with big-time innovation.

You probably think I’m nuts.  Every noteworthy idea in existence somehow reached scale.  I’d say you’re guilty of selection bias.  For every one idea that makes it big, there are 1,000 others that die on the vine.  When innovation and impact work together, what you’re seeing is the exception, not the rule.

Charles Leadbetter, in minutes 6:45-8:10 of this fantastic TED Talk, does a wonderful job of articulating one reason why.  

(Click here to watch only that section of the talk or watch the full talk below… WordPress doesn’t allow you to designate a starting point)

Organizations with the greatest reach and the resources to generate massive impact are also those with the most limited capacity to support disruptive innovation.  This is almost a foregone conclusion.  Some huge companies like Google, Apple, Cisco, etc. have cracked this nut.  Most others “innovate” through acquisition or simply fail to innovate and fall into the dark depths of irrelevance over time.

There are numerous lessons for social entrepreneurs here:

1. Your best bet is probably to start from scratch.  Don’t expect that a larger, existing org will be able/willing to support your big new idea.  According to Paul Light, in his recent SSIR article, you probably already know or suspect this: 

“Funders seem to prefer new organizations as platforms for change. At best, they dismiss old organizations as incapable of change. At worst, they view them as protectors of the status quo. Yet I find considerable evidence that old organizations can produce change, especially if they are able to rejuvenate themselves. In short, socially entrepreneurial organizations do not have to be new.”

While Paul is right that big, old organizations can produce change, I would challenge you to think about whether yours will. The organization and its executives have to be willing to take big risks and put significant organizational resources behind something that is relatively unproven. Then, they need to be willing to see it through despite painful resistance, failures and setbacks.  BP, with its “Beyond Petroleum” campaign is a good example of half-hearted commitment to change (listen also here). 

2. Scale is something that will have to be achieved the hard way.  Big organizations have big networks and numerous channels through which new products can often be funneled.  If the channels don’t exist, they can be created.  So reaching scale is much easier within the confines of a big company or org.  But, since your small business won’t enjoy the same privileges, scale will have to be achieved slowly, over time, through a huge amount of effort.  So… is your stomach as big as your eyes?

3. The bigger you get, the more you become one of “them.” Don’t fool yourself into thinking that your big, new idea will always be relevant.  It won’t.  And don’t assume you’ll always be on the leading edge of change.  You won’t. If you achieve scale and don’t find ways to enable innovation, you will become one of your former worst enemies.

There is one other lesson here for all of us.  That is the importance of building institutions to support ventures from start-up through to “big.”  What we’re seeing right now in the sector, it seems to me, is an abundance of orgs and structures targeted at supporting brand new ventures.  But the successful among these ventures will, at some point, need access to much larger pools of capital in order to grow.  Not thousands of dollars but millions.  If they can’t get that from traditional financial institutions, because they are generating below-market returns, for example, then we need to figure out how to provide it to them.  Is anyone working on that now?

The term “ROI” just might be the most hackneyed and disgusting piece of vocabulary in the world of organizations.

I hear it on a daily basis in my work life and have watched it spread throughout the blogosphere like a bad virus.  Ask anyone to put their “metrics hat” on and they will invariably drop the word “ROI” on you,  often in a desperate attempt to build their credibility and sound more like a CFO.

There is no ill will here – I am intentionally being provocative – but there IS (and probably always will be) an enormous need to increase the level of statistical/financial competence among professionals who strive to measure impact, whether financial, social, environmental or otherwise.  We can’t simply borrow from existing concepts and measures without understanding their dirty little secrets.

So let’s talk about ROI and its dirty little secret.

ROI, or Return on Investment, is a decision measure.  By that I mean that it is supposed to give you an indication of how successful an investment decision has been/might be.  The most perfect example might be your stock or 403(b)/401(k) portfolio.  When you make the decision to funnel dollars to those accounts, you are placing a bet on the success of the fund or company whose shares you are purchasing.

So…. you invest, time passes, lots of stuff happens (with the company, economy, etc.), and then, at some point, you decide to see how well your bet paid off.  Were your right and/or lucky enough to see a positive ROI?  You subtract the original value from the present value, then divide by the original value.  TA-DA!… ROI.

Not rocket science, right? Which is probably one reason it is so well-liked as a measure.  But let’s take another look at that process.  Here it is visually.

ROI Big Black Box

One of the major and perhaps most overlooked problems with ROI is that it only cares about the green boxes – the inputs and the outputs.  This is fine if you’re an investor, since you often don’t care so much about what generates the returns as the fact that they are there.  Remember, it’s a decision measure – did your bet pay off? – that doesn’t discern skill from dumb luck.

But what about the Big Black Box?  All of the “stuff” that happens between the time the investment is made and the point in time in which you’re measuring ROI?  Doesn’t that count?  If you run an organization or care at all about a company’s internal operations and how it is generating returns, then YES, ABSOLUTELY!  It counts an enormous amount.  In fact, if you’re trying to measure social impact, unless you understand what’s going on in that Big Black Box and how it correlates with outcomes, you simply cannot say with any confidence whether what you’re doing is having an impact.  Period.

So please, please, use ROI with care.  You, your organization, and your constituents will be better off as a result.

[Esoteric aside:  I’m referring to a very specific form of ROI here.  If you report on ROI as “people served per dollar spent,” or something to that effect, know that that’s a great thing to measure as an indicator of operational efficiency or effectiveness but not true ROI.  You might be confusing people or damaging your own credibility among shareholders and donors by referring to it as such.]

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