Part 1: Social Entrepreneurship is Business’ Savior and Nemesis
“A – always B – be C – Closing. Always be closing… You close, or you hit the bricks.”
Blake’s diatribe against ineffectuality reverberates in the eardrums of anyone who has dialed for dollars or worked the walk-in beat in a sales job. And for decades, revenue, and its even sexier cousin, profit, has been the object of managerial desire.
But somewhere in the rigor of sales, the greed of ambition and the lust for growth, the pursuits of private enterprise have pushed markets and managers to look beyond the bottom line to achieve competitive victory. Capitalism has evolved both its nemesis and its savior, called social entrepreneurship.
Bookshelves and business publications are rife with references to new age concepts and terminology – “Conscious Capitalism,” “The New Economy,” “The Shared Economy,” “Transformational Leadership,” and dozens of others that exemplify a new generation of popular business management literature (and managers) obsessed with making the case for doing well by doing good – or at least doing good while doing well.
Sustainable Competitive Strategy
While many books make the case for why one ought to integrate “do-gooder” practices, readers are often left wanting when it comes to how and where to integrate compassion and conscientiousness into our business models.
The B Corporation impact assessment and metrics serve businesses well by providing a framework for integrating impact creation into a business’s competitive strategy.
As anyone who attended Strategy 101 in MBA school knows, competitive strategy starts with mission and vision, filters through the competitive environment and the value chain, and when the right strategy is implemented effectively, the fruit of strategy comes back to the organization in the form of profit.
Management science has evolved a number of frameworks to develop and analyze competitive strategy – Five Forces, Balanced Scorecard, Blue Ocean, N=1 R=G… the number of frameworks are as numerous as the number of strategy professors with access to word processors.
A Balanced Profit-Impact Synergy
But there is yet to be a strategic framework for effectively managing a balanced profit-impact synergy. This gap exists partially because ventures struggle to know what “impact” actually looks like, because impact’s linkage with competitive strategy remains a mystery, and partially because, historically, ventures have been precluded as a matter of law – from looking at impact and mission for their intrinsic value – blocking management science from establishing an empirically verified framework for managing a 21st century venture.
The benefit corporation legal entity resolves the latter part of this dilemma by creating a legal framework that both allows and requires organizations to pursue and manage toward their mission. For the first time, we have ventures that are legally accountable to pursuing the creation of public benefit.
Hello, sustainable competitive advantage.
B-Corporation Impact Metrics
The B Corporation impact metrics resolve the first part of this dilemma by providing a concrete set of measurable, manageable performance variables that can be used to structure performance objectives and incentives. Importantly, these metrics are comparable across industries, markets, and business sizes. So ventures across industries and markets can compare their impact performance just as easily as they can compare their financial performance.
Like financial heuristics, the B Corporation metrics are not perfect, they are not a comprehensive or perfectly accurate lens into an organization’s impact performance. They also do not promise impact clairvoyance; they provide simplicity and comparability.
Precision in impact measurement requires outcomes studies. Regardless of their imperfections in measuring outcomes, however, the metrics are a useful tool for structuring a competitive strategy with profit-impact synergy.
Part 2: How to Define a B Corporation Impact Strategy
Step 1: Solve a Problem. Like… a real problem
Do you want to create a business venture that will last for decades? You’re going to need something called sustainable competitive advantage.
The B Revolution hypothesis is that, the stronger the link between the problem the venture is trying to solve, and the creation of some real, measurable public benefit, the stronger (and more sustainable) the venture’s competitive advantage will be.
So what does this mean for impact enterprises? You don’t have to save starving babies in Africa. You don’t even have to save starving babies in the U.S. But you do have to meet a real consumer need, and link that solution with the creation of measurable public benefit.
The TOMS Example…
TOMS shoes is an example of a business that has done a good job of meeting a customer demand (shoes), and an OK job of linking their solution with creation of public benefit (shoeing the impoverished shoeless).
The less that impoverished people need TOMS shoes in the way that TOMS provides them, the less public benefit is created and the less sustainable TOMS as a venture will be. Already, footwear and apparel companies are displacing the TOMS model with impact models that employ local constituencies in the creation of quality shoe products, while industry giant Sketchers goes about shamelessly imitating the TOMS model with BOBS.
…On The Other Hand, Snuggies
By way of contrast, Snuggies did solve a real customer need, but failed to link its solution with any public benefit. People, for whatever cause, needed something extremely comfortable to wrap themselves in while they watched more Snuggy ads on TV.
But what Snuggy lacks, is any outcome of actual public benefit.
Does Snuggy produce its snuggies in an environmentally responsible fashion? Provide a free snuggy to children in need, with the purchase of every snuggy? No. So, under this hypothesis, Snuggy would be very successful for a short time, then fail because people will eventually realize the product produces no, or very limited, public benefit. There’s just no special sauce beyond those ads.
Know Your Market & Your Public
The upshot of Step 1 is that you cannot avoid traditional competitive strategy. You must know your pain point and your market. Who else is serving your niche, and how are you different? Is what you’re offering different, or are you offering the same thing in a different (better) way? If you have “no competitors,” you probably aren’t defining the problem or the market properly.
But you also must look to the creation of public benefit in order to sustain your competitive advantage. Thus, the organization’s mission shouldn’t just be to solve a customer problem, it should also link solving the customer’s problem to the value the venture will create for other stakeholders. The more the organization links its customer solution to the value it creates for stakeholders, the stronger its competitive advantage will be.
Step 2: Account for Existing Sources of Competitive Advantage
Once you’ve adequately defined your problem, the next step is to analyze your existing sources of competitive advantage in delivering your solution. Are you a cost minimizer? Product differentiator? Do you pursue a market focus? How are you positioned relative to your competitors? How does your organization learn from the market and adapt to it? What attributes of your competitive advantage make it sustainable?
Often, a venture’s competitive advantage is linked inextricably to a handful of organizational assets – personnel, internal knowledge or processes, distribution relationships, supply networks, organizational learning capacities, culture, even a brand itself. The combination of these assets result in your “special sauce” – something you have, that no one else has, and which is extremely hard to get and can’t be replaced by anything else.
Once you understand your existing sources of competitive advantage, it’s time to discover the impact layer of value creation that will help make your venture’s advantage inimitable.
Step 3: Analyze Impact Sources and Outcomes
Here, in addition to the public benefit creation element of Step 1, is the main departure from the existing strategic frameworks and thought leadership. The B Revolution thesis for strategy is that, to sustain a competitive advantage, an organization must identify and manage its B Corporation impacts, and link its impact creation with its competitive strategy. If the competitive strategy is discrete from the impacts and public benefit the venture is creating, the competitive advantage will be short-lived and not sustainable.
The B Corporation metrics provide an excellent heuristic for understanding the multiple facets of organizational impact creation. What impacts does your organization create? How does it create them? What value chain segments produce the greatest negative and positive impacts?
The Taxonomy of Impact
The B Corporation impact assessment taxonomizes impact into the following segments: Governance, Workers, Community, Environment, and Business Model. These areas are both sources of impact creation and loci of impact outcomes; the indicia underneath each segment help organizations monitor the precursors of stakeholder engagement and shared value creation.
By taking, for example, the worker section of the B Corporation impact assessment, ventures gain a better understanding of how the entity is engaging its workforce to create impact, interact with the local community, strengthen external bonds, inspire internal camaraderie, and enhance productivity through mission buy-in. Through the workers section alone, a novice manager can gain an understanding of the key ways worker practices can be used to enhance impacts and bolster productivity.
Likewise, the environmental section can help ventures identify and mitigate areas of risk within the supply chain, eliminate environmental inefficiency and excess costs stemming from workplace location and facilities shortfalls, and examine overall resource utilization and efficiency. By becoming more conscientious of the resources the organization is consuming or utilizing, ventures gain insight into loci for efficiency gains.
But understanding impacts and impact segments is not enough to formulate an impact strategy.
Step 4: Define the Link Between Impacts and Core Competencies
To convert impact analysis into core competencies and a sustainable competitive advantage, ventures must identify their impact leverage points – which impact outcomes really affect and correlate with profitability and other KPIs? Who are your strongest stakeholder groups and how do you engage them? And how does stakeholder engagement drive growth?
Using the problem definition from step 1, core competencies listed in step 2, and impacts tracked in step 3, the final step for organizations is to discover the touch points of impact performance as they relate to organizational KPIs.
- How does worker engagement correlate to customer satisfaction?
- How does local charitable giving relate to local customer acquisition?
- How do customer protection policies relate to customer retention?
- How does supplier engagement relate to cost of production and inventory flexibility?
- How do impact practices affect price, and how does price affect market perception and segmentation?
It is important not to get lost in the B Corporation assessment – no organization will be able to capture and excel in all areas of impact.
Rather, organizations must target the impact practices that link most closely with their core competencies, and define which impact practices can help either create new competencies or bolster existing ones. It is as insufficient to say that an organization does not need impact practices to sustain its competitive advantage as it is to say that an organization must pursue all impact practices and will still sustain its competitive advantage. Creating or defining a link between practices and competencies is essential.
Step 5: Measure Results, Iterate
Impact practices are only as good as the data gathered when tracking their outcomes. If you do not monitor the outcomes of impact practices, you’ll never be able to refine your impact strategy by tightening linkages between impacts and competencies or becoming more selective in impact practices pursued. Moreover, you’ll want the impact data to use in external communications and for competitive positioning.
This article was originally published on CSRwire
Dirk Sampselle is Founding Partner at B Revolution Consulting, a benefit corporation consulting firm that helps social entrepreneurs structure, fund, and market their social enterprises.