Profit for Good

By Lexi Doolittle

Companies have long held the power to affect systemic change in how our markets operate, but only a few corporations and enterprises have recognized the full scope of the simultaneous economic and social impact potential that they hold. And while the complexity of developing a more inclusive business model to fully capture those economic and social benefits can be overwhelming in the abstract, the reality of the opportunity to capitalize on the best of both enterprise strengthening, and poverty alleviation is not only captivating and possible, but increasingly unavoidable. The real challenge is to do it well.

Inclusive business principles and practices have begun permeating more mainstream dialogues through the models of impact investing, corporate social responsibility (CSR) and impact bonds. Those frontier companies and private sector entities already beginning to explore the synergies between their usual profit-driven operations and inclusive practices that are profitable as well as meaningfully socially impactful, are at the forefront of a global transformation in how development is addressed. But more companies can be doing better, now.

A Collaborative Experience

Companies have a unique and critical role to play in how we as a global community can iterate upon and scale inclusive business practices to specifically include bottom of the pyramid (BoP) populations and drive positive social impact. There are a number of different avenues for companies to engage in this space, such as designing and marketing services specifically to BoP customers, strengthening supply chains to include excluded populations as suppliers, and/or injecting seed funding to foster ecosystem change.

Companies, however, are often incapacitated by the risks associated with overcoming the critical initial barriers to implementing modifications that would enable a them to effectively engage with the BoP as customers and/or suppliers. To overcome these barriers, a catalyzer (like S3IDF), is necessary to guide companies through the process, and take on an independent role in facilitating the relationships and knowledge transfers necessary to initiate the mutually productive arrangements between the relevant stakeholders in the transaction.

The catalyzer can assist the company in evaluating the preliminary trade-offs between up-front profit and long-term social impact, which are necessary to build a sustainable double bottom line operational foundation. A catalyzer could also help in sourcing and appropriately applying different types of blended capital, including some soft or philanthropic funding, which could sustain the company’s new activities until full profits could be realized. The independent catalyzer ultimately assists the company in finding the capital at the bottom of the pyramid through re-tooling business models, investing in different types of market research, helping create sustainable supply chains, etc.

Profit

A recent Monitor Deloitte report, Reaching Deep in Low-Income Markets, sought to confront some of the biases regarding the BoP as viable customers, and evaluated how companies could engage more meaningfully with this population. Specifically, it reviewed the potential for enterprises to reach into the bottom of the pyramid markets while still achieving profitability and scale. It identified factors that would enable some companies to more easily respond to the needs of the poor and underserved, but overall the report’s initial findings were that “the enterprises we studied are able to reach BOP populations with critical goods and services and some are able to reach surprising deep down (e.g., those living on less than $2.50/day and even $1.25 in some cases.”

Many of the enterprises in this study did receive some form of subsidized capital, which did not preclude the business from becoming self-sustaining, but further suggests that in order to achieve both sustainable profit, and effective pro-poor product design, an outside force, such as the aforementioned catalyzer facilitating a blended capital arrangement, is critical to success.

This catalyzer concept was also presented in this month’s Harvard Business Review, Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality. The article delves into the powerful potential of companies to actuate widespread change and, to “create a new ecosystem that replaces economically and socially inefficient supply chains with ones that are both more profitable and capable of bringing more people into the formal economy.” The article specifically identifies the critical need for a company to collaborate with an independent catalyzer who can respect the needs and perspectives of all involved stakeholders.

As these reports make clear, successful trailblazers in this space have had the foresight to recognize the monetary value of maneuvering their operations into alignment with the global inclusive practices trend, and the gumption to accept and navigate through the initial profit and time barriers, which often dilute the depth of transformation in less committed companies.

Be it a small enterprise developing products and services to specifically respond to the needs of the BoP market segment, or a corporation shifting its comprehension of its social responsibility from traditional charity to ecosystem change, the potential for private sector engagement in the social impact space, with independent support and facilitation, is frankly staggering.

For Good

Both of the aforementioned reports illustrate the potency of the private for-profit sector to not only maintain fiscal responsibility, but also to enable social impact, on a scale that could not be achieved through traditional charity. A critical facet of a company’s ability to sustainably engage in social development is their commitment to transitioning away from bounded small-scale aid projects, and internally re-framing how they understand their role in the global market as an inclusive business.

One example of this inclusivity, drawn from S3IDF’s own expertise, could take the form of a bank collaborating with an NGO to source and serve BoP clients in need of working capital loans with affordable interest rates. Through this type of engagement, the NGO is able to facilitate an equitable low-risk collaboration that is profitable and critically needed, the BoP client gains access to a formal service they would otherwise be unable to utilize (with subsequent community-level benefits to their enterprise strengthening), and the bank gains exposure to a new client whose previous unfamiliarity, among other factors, deterred interaction.

Banks are able to offer more inclusive products, given the right support

It is hard to overemphasize the depth of currently unmet BoP customer demand and availability to supply, as well as the real viability of overcoming the persistent barriers to access, whose perceived inflexibility, among other factors, have precluded serious exploration of the adjustments necessary to enable a more productive, efficient and inclusive economic system. The demands of delving into the details of the modifications necessary to facilitate these more inclusive practices are real and daunting, but the results of such modifications, can have far-reaching ramifications.

Transitioning towards selling household necessities in small packages that more appropriately fit subsistence budgets, facilitating access to chilled transportation or storage warehouses that would prevent needless produce spoilage, or sponsoring the creation of a mobile app that increases transaction transparency and reliable data-sets are all real examples of how, after a company gains a better understanding of the underserved market through a catalyzer, it can profitably transform its engagement with the sector. These modifications will be hard to implement initially, and will likely only realize their full economic and social potential over the long term, but they are worth it, and companies like The Body Shop and Toms are already demonstrating their double bottom line viability.

Going Forward

Large organizations, such as Co-Impact, have committed significant funding to the espoused principles of systems-level change. In lock step with the commitments of entities like Co-Impact, companies are uniquely poised to engender the transition towards truly inclusive business practices that engage the BoP as both consumers and suppliers (even direct employees), a transition that begins from within the company, and diffuses throughout the local, national and global economies.

While facilitating these relationships and the principles of inclusivity into corporate practices will be challenging, particularly at first, it is through these types of collaborations that sustainable systems-level change will be enabled to achieve the scale of social impact that is necessary to effectively address the multi-faceted challenges of global poverty.

Companies big and small who integrate the principles of inclusivity into their formal practices with the critical support of an independent catalyzer will have the capacity to join the cohort of pioneers globally transforming how the needs of the poor are understood, engaged with and alleviated, while simultaneously strengthening and expanding their own for-profit operations.

Now is the time to build an inclusive business practice, meaningfully capitalizing on previously un-served client segments and driving positive social change and profit for good.

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