Last week, I gave a speech to over 500 students at Cambridge University. I was there to speak on how we can radically re-think business models for sustainability in the 21st century. We had a great debate, and I challenged the audience to think about the triggers needed to transform markets so that they are responsive to people, planet, and profit.
Below is an excerpt from my talk, where I argued the answer lies in remembering the uber client. Do you know who your client is? If you don’t, it may be time to take a closer look.
Who is Your Client? The Challenge of Reinventing Business Models Pamela Hartigan, Said Business School, The University of Oxford Judge School of Business, Cambridge University, October 26, 2010
Who is your client? What a deceptively simple question – yet one that is remarkably difficult to answer, particularly for organizations that pursue more than a single bottom line.
My presentation this evening is really in the spirit of prompting reflection rather than giving you answers. Nationally and globally, we are at a crossroads that forces us to think about how we should be designing business for the 21st century – and those of you here tonight, the business leaders of the future, have a huge responsibility in this regard. Business is tough enough when it is only about one bottom line – making money. So why overcomplicate matters and not just stick to one bottom line, one client, and just maximize shareholder value? One could argue that the modern corporation as we know it today has thrived precisely because it has followed that mantra, and in so doing, there is little doubt that it has empowered individual genius and bestowed great social benefits.
But we all are aware that many ills of modern life – non-sustainable levels of personal and institutional debt, toxic air and water, workplace injury, loss of livelihoods for communities, political bribery – can be traced to corporate lack of responsibility to one or more stakeholders. This is not intentional. No one in their right mind sets out to cause poverty, pollution, disease, injury or unemployment, or foster corruption. Rather, they want to make profits. But in that pursuit, they may find anti-social behavior pays. To achieve profits in the short term, corporations exact a “social and environmental price” and that price is high and rising.
The reality is, if we are to survive as a people and a planet, the model has to be radically rethought. And in so doing, we need to take a number of “clients” into account – and that doesn’t depend just on where we are in the supply chain – but also on considering seriously a much wider group of stakeholders as our clients, including the communities and the fragile environmental ecosystems where we have a footprint.
To get a sense of what I am talking about, let’s look at the much celebrated model of Fair Trade. Who is the “client” in Fair Trade? It is a model that purports to adhere to a social, an environmental and a financial bottom line. I am sure those of us here would say that the reason we buy Fair Trade products is because our most important client in that chain is the farmer to whom we are willing to pay a premium for an organically produced, high quality product – coffee, tea, chocolate, etc. After all, that is what we all buy into when we show preference for a commodity labelled “Fair Trade”.
However, for the certifier who verifies that the product can bear the Fair Trade label, the client is not really the farmer at all. Instead, it is the product’s distributor who needs to know that environmental and social bottom lines have been met so he can safely say this is “Fair Trade” and organically produced. Then, for the retailer that sells the product – say coffee – the Marks and Spencer’s, Costa’s or Starbucks of the world, the client is you and me who buy the coffee at a premium price which in turn keeps the company’s shareholders happy – the ultimate clients.
In fact, the interesting thing about the Fair Trade model is how little the farmer actually has to do with anything but growing the commodity. By signing up for the privilege of selling under a Fair Trade label, and despite the extra demands of achieving certification, the farmer must forego a portion of any extra earnings for a “community project” – to be decided by the leaders of the cooperative. It might be a school, a playground, a road – all valuable assets for communities. It is not uncommon to find that farmers would prefer to keep their gains rather than surrender them for community endeavours. So clearly there is also a governance bottom line that is not being adequately addressed.
My purpose in raising this example is not to criticize Fair Trade. It is to point out how, particularly in the realm of business that has more than one bottom line, who your client is depends not just on where you are in the supply chain and who pays you for your deliverables. It is also about continuously accounting for your “Über client” or clients – the communities and environment in which your business operates. For companies that have traditionally focused only on a financial bottom line, this would mean radically rethinking their operations. It is thus little wonder that businesses are reluctant to engage in the broader structural changes required to be truly sustainable businesses.
There’s been a lot of talk recently around the halls of Saïd about the future of business and what role entrepreneurs – especially those with a social bottom line – will play. Along the way, some interesting questions have arisen. In particular, where do we draw the line between commericial and social entrepreneurs – especially if both are having a social “impact”? So here’s my two cents.
Entrepreneurs, whether primarily commercial or “social” in orientation, are cut from the same cloth. In that sense, the term “social entrepreneur” has done entrepreneurs-so-designated a disservice, as people tend to classify them alongside “charities” and “do-gooders”. So it seems appropriate to highlight the essence of entrepreneurial activity in general, and then distinguish those who are primarily driven by value appropriation and from those primarily driven by social value creation, keeping in mind that all entrepreneurs must do both – but in each case, the emphasis is different.
In any situation, business-as-usual -or the status quo- implies the existence of an equilibrium which, even if unsatisfactory and inefficient, is at that time the only option that exists. Thus people simply put up with the current shortcomings. The entrepreneur focuses on addressing that dissatisfactory equilibrium by providing an innovative solution – be it a new product, service or process.
For example, commercial entrepreneurs Sergey Brin and Larry Page identified an unsatisfactory equilibrium in the slowness of existing search engines. So they exploited the opportunity by improving on search engine speed, among other things, and in so doing created Google, raising the bar for all search engines. Likewise, social entrepreneur Jimmy Wales sought to provide a free open-content encyclopedia and today Wikipedia is available in the world’s leading ten languages.
Thus, all entrepreneurs are driven by a perceived opportunity which they relentlessly pursue. Neither is propelled primarily by money. But for the commercial entrepreneur, from the beginning of the venture, the perceived opportunity lies in creating a new or improved product or service with the expectation that it will sell, generating financial profits for the entrepreneur and the investors. As such, profit is essential to achieve massive uptake and market mainstreaming.
Social entrepreneurs, however, are driven to address market and/or government failures. They work where business have failed to come up with innovative ways to design and deliver the goods and services needed to address social, economic and environmental challenges because the risks are too high in relation to the financial profits. Similarly, these are issues governments have been unable or unwilling to tackle – because of financial, political or bureaucratic constraints. Social entrepreneurs are drawn to deal with such challenges, transforming the systems and practices that have stood in the way of pragmatic, equitable and sustainable solutions.
Our hope at the Skoll Centre– and the reason for our presence in Said Business School – is that all entrepreneurs balance value appropriation and social value creation goals from the outset as they pursue their innovative approaches. And it is that spirit that we are keen to interface with the business leaders of tomorrow, including “social” and commercial entrepreneurs, and their investors.