What’s good for society is good for business

Today the Henry Jackson Initiative for Inclusive Capitalism launched a very interesting paper making the case for society to move towards a more inclusive capitalism model. It’s a good read and an acknowledgement by those most in favour of market enterprise of the need for positive reforms in current models of western capitalism if it is not to come a cropper later down the line.

There are also some pretty decent recommendations in the report – not least a call to rethink the education young people are receiving in the west today to ensure they have the right skills to be employable in the economy of tomorrow. However, what really caught my eye was the the quote they put in the report from the Harvard Profess Michael Porter: “We once thought that if business just increases its profit, what’s good for business is then good for society …we need to think differently: what’s good for society is good for business.” For those of us who have been pushing for triple-bottom lines, hybrid enterprise models and robust social impact measurements over the past few years we could see this as more evidence of corporate responsibility now exploding into the mainstream of capitalist business models.

Not surprising really as we know there is good evidence that: firms with high levels of corporate responsibility are better managed, firms with mutual models of ownership were more robust in the financial crisis, firms perceived as more ethical can have an advantage in recruiting the best talent, and traditional non-profits are realising that profit can actually significantly enhance and sustain their social impact. Yet, I bet you a dollar that for all the premiums and competitive advantages that businesses believe they can gain from being ‘best in pack’ on corporate responsibility they will always default around the board room to looking at price and how they can reduce costs to maximise profit.

This is perfectly rational in the current model of capitalism as any good business person would tell you: to increase profits you need to either reduce costs or increase sales – ideally both!  Now, I think for those of us passionate about strengthening society, what we really want to see is increased sales of goods and services that increase social bonds and relationships within communities. For example sales of TVs and Xboxs that encourage people to isolate themselves in their own rooms are actually not good for society, while services such as open-air music festivals which enable people to come together and interact with each other are good.

So, a more inclusive model of capitalism is actually much more than mainstreaming corporate responsibility within the system and institutions. It is about the next generation of businesses and enterprises enabling citizens to come together and interact within communities, rather than consume in isolation. Those organisations – whether they be commercially or socially driven – who can most effectively innovative to connect people will be the ones that can do the most good for society. It’s an open question whether such collaborative goods and services will be purchased in place of personal consumer goods (which would have a profound impact on the current model of capitalism) or whether they will be purchased in addition to current personal consumption habits.

Devil’s advocates

Kriss Deiglmeier’s latest column, just say no, on her CSI blog focuses in on the need for social entrepreneurs and organisational leaders to really identify and prioritise the most crucial actions to achieve the goals they have. “For those in the social innovation field, finding the 20 percent of activities that are going to give you maximum impact is paramount. Clearly, that means sorting through the list of innovative ideas and not trying to go for all of them.”  

Indeed, Deiglmeier points out that it is just too easy to distracted by multiple calls for your resource and time pulling in all sorts of different directions – the effects on organisational effectiveness can be highly damaging. Hence the importance of leaders to say no as well as yes. She then adds to this with some very practical advice: “This is not a call about resisting change; rather it is a call to deliberate choice and action.  As you get pulled in these directions, push yourself and those in your organization to think critically about priorities. If you could only do three things for the next year, would this item make the top of your list? Force yourself to answer.”

For organisations to do this effectively Deiglmeier suggests they seek out Devil’s advocates to ask the questions incumbents rarely ask. This got me thinking about the state officials and the decision-making that takes place throughout Californian counties. Each one of California’s 38 million residents lives within the boundaries of one of the state’s 58 counties. California’s counties serve a dual role. They provide a vast array of municipal services to residents, including roads, parks, law enforcement, emergency response services and libraries. Counties also serve as a delivery channel for many State services, such as foster care, public health care, jails and elections.

Now, within those counties I bet that path dependency is rife – a ‘this is the way we’ve always done it’ or ‘why would we change that?’ mentality. Surely many of these county service providers could benefit from some devil’s advocates to really challenge current orthodoxies and ask some critical questions about priorities. Who could these devil’s advocates be? Well, why not high-flying students from Californian academic institutes and business schools?

Surely there could be a win-win here – current students could get some additional hands-on time working with Californian administrators and gain new practical understanding of influencing and innovating within the public sector. Equally Californian administrators could build up new networks and bonds with highly skilled students that could support organisational purpose clarity and operational effectiveness in their organisation. Who knows, maybe such a connections programme could spur new spin-out service innovations that could be scaled up state-wide?

Frugal innovation sells

Courtney Martin’s latest post on the Stanford Social Innovation Review blog Instagram-Style Innovation in the Public Sector raises one of the most exciting questions for society and the social innovation sector has been grappling with over the past decade, and with increasing vigour since the fallout from the financial crash: “what would happen if we leveraged the ingenuity and resources in Silicon Valley for the improvement and renewal of the rest of the country—starting in D.C., where simple solutions seem all but impossible?”

Martin firstly quotes Annie Leonard, founder of The Story of Stuff (an online video information service), to explain why silicon valley companies such as Apple have had such a competitive advantage in attracting the most talented innovators: “while our “consumer muscles” have gotten a great workout over the last few decades, our “citizen muscles” have grown anemic. We’ve created gods out of entrepreneurs like Steve Jobs, inspiring a fresh batch of the most innovative graduates each fall to aspire to go into the tech industry; all the while, the public and government sectors are starving for their ingenuity and energy.”

Martin goes on to point out that the social innovation sector has failed to sell itself and its rewards to compete with those portrayed by the techies in films such as the social market. Both social innovators in the state and society need to “tell a better story about the rewards of public service and its potential for innovation” and Martin is absolutely right to explain that there is a good story to sell: While helping a dysfunctional state run more smoothly or simply improving the quality of life of the average citizen might not be the kind of innovation that makes you filthy rich, it could make you a game changer, and at the very least, it will make you proud.

Maybe there is a potential lesson for current policy makers – and me! – here. Too often those rapidly-increasing-few of us banging the drum for the mainstreaming of social innovation within the state default to Schumpeter’s theory of innovation: ‘creative destruction’ – a ceaseless cycle of new ideas smashing through previous accepted norms (shibboleths). Energy, enthusiasm and resources all follow lots of new ideas in the hope that a handful will be successfully nurtured, piloted and then scaled up. Lets call this approach the ‘radicals agenda’ You’ll find a lot of radicals fostering excellent partnership working between state institutions and society organisations in order to overcome barriers and ensure their vision (a new idea) becomes a reality. You’ll find a lot of radicals in NYC!

But I’m not so sure if the radicals agenda really is the one to pursue to get the truly creative-minded and technically-gifted people that silicon valley attracts in their truck load. To me – and this is an open question – I suspect most radicals are those disillusioned with the injustices in their society, have an inherent desire to be either politically active or socially active in their community (which is a good thing!) or are just seeking to do social good. If this is the case, then – like the current problem with the political classes being disconnected from the rest of society – social innovation is at risk of being something that is  only for a certain type of person with certain values.

Maybe then state and academic institutions in California keen to promote social innovation to a wider audience should consider pushing an alternative to the east coast agenda. Perhaps we should be looking at the highly successful honey bee network in India whose focus is on ‘Frugal innovation’ – the design of simple solutions to society’s problems. Interestingly the network has a highly diverse membership (many of whom wouldn’t dream of calling themselves inventors, social entrepreneurs or radicals!) and is highly effective at building collaborations through the network (the sort of skills you see being employed in the open-source movement). While not flash, many of the frugal innovations coming out of the network are game changers – perhaps such an approach could connect more effectively with the next generation of creatives and techies that are destined for Apple?

Library crowdfunding

This month the California State Library, opposite the Capitol in Sacramento, is celebrating the 75th birthday of San Francisco’s fabled Golden Gate Bridge. On May 16, the monthly “A Night at the State Library” program will present the 1968 film Bullitt, starring Steve McQueen as a San Francisco police lieutenant and “showcasing an almost 11-minute car chase in which the Golden Gate Bridge is visible”. Brilliant!

These programs, which enhance access to and engagement with great public institutions such as libraries, are a positive contribution the state can make to help strengthen society. They not only promote greater knowledge and learning but, more importantly, also provide opportunities for people to come together, connect and exchange ideas with each other – the very fabric of a good society. This is why the work of the California State Library Foundation (CSLF) is so important – it provides private support (through membership, donations, grant-bids) to enhance the role of the state library as an active partner within society (i.e. Governors book fund, California research bureau work, Saturday hours program, etc)

For scholars of social innovation though, there is surely a huge opportunity here to work with the Foundation to expand entrepreneurial support for those using the library to develop their innovative ideas. Many potential entrepreneurs (regardless of whether they realise they are one yet) do spend time thinking, researching and meeting in Californian state libraries. Some of these may have some outstandingly good ideas, but most of which will never get off the ground for various reasons (i.e. not realising potential market, lack connections to angel investors in the Bay Area, lack critical mass support, etc)

How can the California State Library Foundation help? Well, it could provide an on-line platform for a Californian state library user with an idea to pitch it to the whole membership (all users) of state libraries. The platform would allow members, if they like the idea, to collaborate virtually and provide start-up capital for idea to become a social venture. For example 1000 members could all like a pitch they read about, and the first 500 to sign up $10 each to support the new social venture could each be given 0.1% equity share in the venture (it would be an open question what dividends they are investing for: could be financial or social impact returns).

Obviously such investment platforms are not new – we know them as ‘crowdfunding’ – but they are rapidly becoming more credible with new technological innovation. State institutions – such as libraries – which are in the fortunate position of already possessing access to both potential innovators as well as a critical mass of potential investors should look to exploit this institutional advantage to catalyse more connections, for the benefit of society. This is especially the case given the recent passing of the JOBS Act that now allows crowdfunders to receive equity in small companies

For entrepreneurs using the State library, an in-house crowdfunding platform has three extremely powerful advantages. Firstly, in an era when credit and institutional VC is more risk-averse, the platform provides a much needed alternative to raise seed capital and – given risk will be dispersed across a collaboration of micro-investors rather than concentrated in the hands of a couple of big ones – ideas with greater social returns (but bigger financial risks) are more likely to be funded. Secondly, it provides an instant feedback mechanism for aspiring entrepreneurs and their ideas: if people don’t think it will work they won’t invest – this is invaluable information for entrepreneurs as it signals a sharp return to the drawing board before any more resource is wasted pursuing an unsustainable idea. Finally, it connects the idea with a potential market: the mass of people who see it and invest in it may also provide the first wave of customers / participants for any new product / service.

The CSLF could also move beyond simply facilitating the crowdfunding platform to being an active player in it to. In the UK Adrian Hon, the founder of the online games company Six to Start, has written recently about potential hybrid crowd and public funding models. Essentially the CSLF could take an initial stake in ideas that it thinks would benefit the work of the California State Library and the Foundation’s mission. This would firstly provide an incentive to entrepreneurs to come forward with ideas that could have direct relevance to the library and the Foundation’s mission (as they are more likely to secure funding – individual funders will be more likely to sign up if they see an insitutional investor has taken an equity stake). Secondly it could encourage both the state library and its users to work in greater active partnership as they all have a mutual interest in ensuring their investment is successful.

I think this is something the CSLF should seriously consider – it could have huge benefits for itself, the libraries users, and most importantly Californian society.

A market society

Rob Reich’s review of Harvard political philosopher Michael Sandel’s new book, What money can’t buy: The moral limits of markets, on the Stanford Social Innovation Review website is well worth a read. I love Michael Sandel’s work and by the sounds of Reich’s review it should be a good read with plenty of real-world case studies to stimulate thinking around the big question he is essentially raising: What shouldn’t money buy? A very poignant question for both state and society, especially if Sandel is right to suggest that we have “drifted from having a market economy to being a market society”

Reich writes that Sandel is not arguing against markets per se: “Rather, he proposes that markets should have limits. He identifies two moral concerns. First, when markets exist everywhere, he argues, we need to worry more about inequality. If money can buy more and more, including political influence and better health care and education, then having money matters more and more. Second, making certain goods into commodities can corrupt the very value of these goods; market norms can crowd out valuable non-market behavior.”

With regards the first argument few would disagree with a serious concern about markets and fairness. There was open (nervous) talk at Davos about the future consequences, for both state legitimacy and society well-being, of global wealth monopolised in the hands of the global winners. However the second argument about commodification is a bit more contentious.

Reich makes an interesting point about this: “Sandel could have conveyed a more sophisticated view about markets. Not all markets and marketplace exchanges are alike, or have the potential to corrupt valuable non-market norms. Take for instance the simple distinction, familiar to any reader of SSIR, between goods offered for sale by for-profit versus nonprofit organizations. Commodification looks different if the marketplace is populated by nonprofit organizations, but this distinction is lost in Sandel’s undifferentiated treatment of markets”

Building on this, one can also make an argument that markets which encourage greater physical connections, interactions and exchanges – regardless of whether profit is the underlining motive – can in itself strengthen society. Remember a stronger society is created by increasing the quantity and quality of social bonds and relationships within communities. Surely it is better for a person to turn off the TV and walk down to the local mall where they will interact with people in stores who are selling their goods for profit, rather than remain sitting isolated in front of the TV for the day in order to abstain from rampant market consumerism? Note, I pose this as a provocative question rather than a statement of fact!

Open to innovation

Last month at the Stanford Graduate School of Business, marketing Professor Kate White of the University of British Columbia shared some brilliant studies done in Calgary showing that “communication that cognitively makes sense to people makes it easier for them to understand how to recycle – and therefore more likely to do it.” For those fascinated by the potential of behavioural economics to support society make better decisions that are in the long term interest of all, it is well worth watching on YouTube.

For avid readers of the SSI Review and addicted viewers of Ted talks, such brilliant insights – ranging from the small scale practical to the transformational paradigm shifts – are it seems increasingly accessible and implementable in civil society. However, it would be interesting to know how open state policy makers are to Professor Kate White’s ideas, moreover does such a person with active solutions see the state as an ‘opportunity’ to mainstream the ideas from their research or as a ‘barrier’?

Let’s explore this further. The Department of Resources Recycling and Recovery (CalRecycle) is responsible for waste management and recycling in the state of California. CalRecycle’s vision is to inspire and challenge Californians to achieve the highest waste reduction, recycling and reuse goals in the nation. They have been doing lots of great stuff and the state has an impressive recycling rate of 65%. But they’re keen to do more. So, what mechanism could firstly incentivise Kate White herself to transfer the research into operation to help CalRecycle pursue its vision, and secondly why would the Director of Calrecycle take on the risk and hassle of outsourcing something they do (say their waste management & waste prevention poster designs) when their existing path is already yielding impressive results?

Well, some form of state ‘challenge’ could potentially provide the answer to both questions. CalRecycle saves waste management costs if waste is reduced – this is the main outcome the organisation wants to achieve. So Calcycle could ringfence 10% of its total budget as an incentive fund to people and organisations who can prove their intervention has reduced the amount of landfill waste produced in a given city or county. Now would Kate White, perhaps together with a team of entrepreneurs, now see a potential new business opportunity that could both make money and have a positive social impact? If the answer if yes, then such a mechanism which aligns state incentives with the development and application of social innovation outside of the state would have win-win benifits: both the state and society would be better off.

In the UK the coalition government has been pushing hard to open up more state service provision to non-state providers, however such moves have proved challenging for the incumbents to drive through as outlined beautifully this week in this FT analysis article. It appears the British, rather than focusing on ‘outcomes’, are path dependent on closed state monopolies simply because the stability of such institutions provides a psychological reassurance regardless of  whether it crowds-out social innovation and regardless of the inevitable ‘less for less’ path dependency such managed decline will result in. Far better for the state to embrace new demand-side reforms of their service provision so that supply-side provision is opened up to the mass of innovation and resource that currently exists, or could be activated, in society.

Mainstreaming social innovation with the public sector

Last week the CEO of Living Cities, Ben Hecht, wrote a very smart piece in the Huffington Post. In it Hecht rightly identifies the reason for the rise of “social innovation”, and the creation of the high profile White House Social Innovation Fund, is because “People have lost confidence in the institutions that they historically relied upon to solve our most pressing problems. Leaders have realized that if they want to change the status quo in their lifetimes, they need to stop waiting and start building their own solutions.” Absolutely! Inertia and path dependency may explain the state’s inability to drive the transformational change required to support society meet the challenges it faces, but it doesn’t excuse inaction by those who are passionate about strengthening society.

The result of this realisation (and frustration with the state) according to Hecht? “nonprofits created to fill gaps in a terribly broken system, such as connecting patients and their families with the basic resources they need to be healthy (HealthLeads) or providing urban young adults with the skills, experience and support that they need to reach their potential through professional careers and higher education (YearUp). Organizations like Echoing Green, Ashoka and New Profit, have accelerated the creation of a social sector innovation field by supporting the emerging leaders of these organizations with grants, business planning and connecting them to a network of similar ‘social entrepreneurs.”

However Hecht points out that if large scale change is our goal such social sector innovation is necessary, but it is simply not sufficient. Given the resources the state has and institutional advantages it enjoys over the social sector, the state has far greater potential to achieve large scale change: “public sector-led social innovation (“public sector innovation”) differs from social sector innovation in one absolutely fundamental way: it actually has a much better chance of having permanent, lasting impact from the outset. Many social sector innovations, like ones I’ve helped lead over the past 20 years, toil for years to build a successful model and then struggle for years thereafter to both get the attention of government and the adoption of the model by the public sector. In contrast, public sector innovation is undertaken with the assumption that if it is successful, it will go straight, “intravenously” into effect. No annual fundraising or advocacy necessary. The innovation and related funding will quickly displace the old way that government did business.”

Beyond the obvious implications that modern state institutions need to be both more innovative and more open to innovation as they  reform and evolve over the next few years, it maybe worth state reformists looking more closely at how the skill set of a Sacramento, Washington or Westminster bureaucrat can become fused with that of a social entrepreneur? A good place to start would be to look at the three instrumental dimensions Christian Seelos and Johanna Mair from Stanford PACS identify that can enable and trigger effective and efficient action: 1) creativity, 2) absorptive capacity, and 3) strategy.