Profit and purpose are converging. Over 80% of millennials report that making a positive difference in the world is more important to them than professional recognition. They no longer believe the primary purpose of business should be to make profit, but rather to create social value. On the investor side, more and more shareholders demand tracking and reporting of both positive and negative externalities, compelling some of the largest corporations on earth into action. Customers overwhelmingly prefer products tied to a social cause. A significant majority of citizens want changes to how society governs itself—and therefore how problems get solved—and also changes to the corporate status quo. Not surprisingly, more and more businesses are becoming certified for their social responsibility practices.
Capital markets, as a whole, are also moving in this direction. In 2016, socially responsible investing made up more than one out of every four invested dollars under professional management. And recently, the head of BlackRock, the world’s largest asset manager, called on all companies to explain how their businesses make “a positive contribution to society” beyond just financial performance. “To prosper over time,” he argued, “companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
When we talk with corporate executives around the country, they almost always ask the same question: Can managers and CEOs really accomplish their business goals while also advancing society’s goals? We believe the answer is yes. In fact, this sort of thinking is something of a return to the norm. In his Theory of Moral Sentiments, Adam Smith argues that duty and sympathy are part of our very nature, and that because of our innate morality, we can live collaboratively in a just and harmonious society. We hear similar ideas in Peter Drucker’s bestseller, The Age of Discontinuity, where he argues that all sectors of society are “affected with the public interest” but must operate in symbiosis, like an orchestra—each playing its own part in collaboration with other institutions. More recently, Nobel laureate Joseph Stiglitz argued that we have the capacity, if we choose to collaborate across and among the sectors of our society, to grow the economy and move toward equality, “creating a shared prosperity.”
In light of this, we think the pressing question isn’t whether managers and CEOs should care about advancing society’s goals, but how they do so most effectively. To us, the message is clear: For businesses to survive and succeed in today’s globalized, hyper-connected world, business leaders must be willing to embrace collaboration as a guiding principle, more so than competition.
Truly, business interests and societal interests can be one and the same. We see this in our research at Columbia University and have identified many examples where CEOs benefit their businesses by partnering across sectors with public officials, nonprofit managers, and community members. When such partnerships are done well, they lead to more equitable and inclusive solutions where leaders can consider, and calculate, the impact of their decisions for society over the long run. But these successes are not by mistake—they are the result of decades of collaboration between business, government, philanthropy, and community.
This is apparent in India, where Prime Minister Narendra Modi’s government is using a collaborative approach to build a national digital highway, partnering with the country’s world-class technology companies in the process. This initiative will soon connect all 1.3 billion of India’s citizens to voting, banking, government assistance, healthcare, recordkeeping, and more. In turn, this will foster better social outcomes and create new markets and consumer segments. Developed alongside business magnate Nandan Nilekani, “the biggest social project on the planet” relies on community-operated Common Service Centers (CSCs) and local entrepreneurs to deliver programs and share in the profits. To improve the delivery of healthcare, the government is working with private sector group Apollo Hospitals on telemedicine services to reach low-income and remote rural communities. Business partners provide lower cost services with lower margins, but still meet their bottom lines, aligning their brand with a social good, and expanding their customer base (Apollo Hospitals makes this case explicitly). Modi’s Digital India initiative is a massive cross-sector partnership that aligns business and social goals so that many groups share in the successes—and risks—of the program.
When organizations from different sectors, with different missions and priorities, endeavor to collaborate, how should business leaders approach partnership building? Our research finds that successful collaborations begin with a common process, one that applies no matter whether you are a CEO, nonprofit manager, philanthropist, or public servant. In researching and testing these commonalities, we developed a new management framework for effective cross-sector partnerships, and a clear method for measuring success.
We call the framework Social Value Investing because it is inspired by Berkshire Hathaway and modeled after the company’s application of value investing—one of history’s most successful investment paradigms. Like value investing, Social Value Investing employs a long-term investment strategy that unlocks hidden or intrinsic value. The approach is detailed in our recently published research, which outlines five aspects of effective partnership management that every leader should know: process, people, place, portfolio, and performance. Let’s take a closer look at each:
1. Plan a coordinated and comprehensive process for cross-sector partnerships. Successful cross-sector partnerships contain diverse but complementary organizations that collectively contribute to the creation of long-term value. Through a well-structured operating process, partners expand and align their efforts and draw on comparative strengths.
We see this with Digital India and the telemedicine program. The government invested in training and long-term infrastructure and established high-level goals for the country to guide activity. Apollo Hospitals focuses on medical service delivery through a geographically diverse network of CSCs. And the CSCs are staffed by local entrepreneurs who provide services that are affordable for low-income residents in their community. This mutually collaborative partnering process, based on strategic planning and distributed operations, enabled the program to expand to more than 60,000 community-level CSCs fairly quickly, and eventually led to more than 160 new, major eUrban Primary Health Centers.
2. Manage people effectively through decentralized teams across organizations. Cross-sector partnerships thrive through a network of decentralized leaders and managers who operate independent programs or organizations. These leaders and their teams comprise a range of varied strengths but are aligned toward shared goals. By focusing on and empowering the people involved, partnering organizations can support their teams’ collective ability to lead and succeed.
Collaborative leadership was critical for the revitalization of Central Park in New York City. In 1979, Betsy Rogers became the first Central Park Administrator and set out to save park operations from a shrunken staff and dismal resources. She rallied her teams around a newly communicated vision, coordinated closely with the mayor’s office, and established coalitions of community, government, and private sector support. (In our case study on Central Park, we elaborate on ways she built and maintained her team’s momentum, and we discuss the Park’s current forty-nine team, decentralized zone management system.) Today, the Park creates incredible social value, but also provides billions in economic value through higher tax revenue, tourism, consumer spending, and real estate appreciation.
3. Integrate stakeholders from across organizations and communities in a given place. By employing a place-based strategy, cross-sector partnerships incorporate stakeholders as shareholders of a partnership’s investment, rather than just beneficiaries. This typically requires time and effort to build trust and requires intentionality around prioritizing stakeholders’ preferences and best interests. Working collaboratively with a sense of permanent community—what we call place-based co-ownership—reinforces important long-term relationships between partners.
This is evident in another of our research cases, based in western Afghanistan. There, a group of partners collaborated on a series of community investments to rebuild agricultural value chains and long-term infrastructure. Partners co-invested their time, energy, and resources alongside community members into a set of interconnected programs in and around a specific group of villages. Stakeholders in the area worked together with government agencies, foundations, NGOs, and others to design, plan, and carry out the overall partnership. Local entities, ranging from village councils and opinion leaders to the region’s public university, took ownership of the projects, determined program governance, and co-developed priorities and time lines with the other partners. The initiative’s funders and implementers entered the partnership with a specific mentality, treating stakeholders as permanent co-owners of the investments being made, resulting in some surprising successes.
4. Develop portfolios of financing to offset risk and achieve greater scale. Cross-sector partnerships can draw from and combine various financial tools and investments. This enables partners to diversify risk and expand the pool of capital available to carry out the partnership’s programs and deliver its outcomes. By blending financial capital from different sources, including philanthropic capital (which can take significant risks), programs benefit from a versatile and coordinated portfolio of funders.
Our research brings this portfolio-based approach to life through the story of Comunitas, a Brazilian nonprofit focused on improving the transparency and reliability of city services across the country. Comunitas relies on voluntary time and contributions from members and their board, which includes many of Brazil’s most successful private sector, corporate leaders. The organization works with committed local governments, and combines philanthropy and best business practices to offset costs and political and implementation risks of new programs. In turn, cities are modernizing public processes including financial management, building permitting, design and operations of public health systems, and strategic planning, resulting in an increase in efficiency, transparency, and civic engagement. This has led to new business development and growth in the participating cities, along with a return of ten dollars in program savings or increased revenues for every dollar invested through the organization.
5. Define success collaboratively, and measure social-impact performance. Partners must work together to identify and select collaborative programs with comparatively high intrinsic value—programs that are in line with partners’ principles and the partnership’s overall objectives. By predicting the relative performance of a given set of program options, partners can allocate capital based on specific priorities and goals.
For example, by defining and prioritizing new performance measures, the Police and Fire Departments of New York worked across city agencies to redefine success from responding to emergencies to preventing them. This led New York City to become one of the safest in the world—fire-related deaths in 2016, for example, were a historically low 48, despite responding to more than 26,000 structural fires across all five boroughs. Our published work outlines other scenarios where partners use performance management to collaboratively define and measure the social impact of their work.
Taken together, Social Value Investing is a blueprint for aligning the interests and goals of partnering organizations, and demonstrating how business efficiency and customer orientation can benefit the efforts of the public and philanthropic sectors. However, we also recognize that cross-sector partnerships are difficult work. Effective partnership development requires comprehensive planning across many organizations, which is complex, takes time, and can be impossible without dedicated funding or support. It also requires visionary leadership, stakeholder engagement, and operating transparency between partners. Furthermore, lack of common performance measures can make it difficult for any group of partners to know whether or not they are accomplishing their shared goals.
Our research demonstrates that partnerships are worth pursuing—though rarely easy or seamless—and we hope that our findings will serve as a resource to others. In these turbulent and conflicted times, this framework provides a starting point for leaders of all kinds to find commonality in purpose and direction. Partnerships can help society move past the individualistic rent-seeking and free-rider behavior that dominates traditional ideas of economic self-interest. Social Value Investing operationalizes a vision for society built on collaboration over competition, one that resonates and builds on the visions of Adam Smith, Peter Drucker, and Joseph Stiglitz. For companies to survive and thrive in the economy of tomorrow, business leaders must move toward more equitable and sustainable products and services. And to remain relevant in the eyes of consumers, they will have to find solutions where business interests and societal interests are truly one and the same.
from HBR.org https://ift.tt/2H7lFQy
