Business can drive development for good, core commercial reasons, but it has to be smart…

By Mike Barry, Head of Sustainable Business, Marks and Spencer plc

Business can drive development for good, core commercial reasons

Marks and Spencer – a UK-based retailer that sources from factories and farmers around the world – has been on a journey: moving beyond old-style philanthropy and corporate social responsibility, towards the long term goal of building a sustainable business – in the full commercial, social and environmental sense of the term. We believe that business can drive development and our own experience has demonstrated the powerful business case behind doing this.

But why does this matter for us? First, it matters to our customers. Research shows that 50 per cent of British consumers* strongly believe (and a further 22% somewhat believe) that business should be even more responsible in a recession. In part because consumers may do a little less when they are worrying about their own financial security and want business to pick up the strain for them on environmental and social issues they are still concerned about. But also because they increasingly distrust business, blaming it for the economic hard times that now buffet us.

And second, it matters in terms of straight economics. Our own 5 year “Plan A” programme of 100 commitments to change our business by 2012 – covering climate change, waste, raw materials, fair partnerships and health – was budgeted to cost £200 million but is now cost neutral, with each pound of investment matched by a pound of savings from activities such as reductions in energy use and waste.

As a retailer, M&S buys from 10,000s of factories, farms and, behind them, commodity producers from over 70 countries across the world. A key lesson for us has been the need to recognise that different parts of our supply chain require different interventions to drive both development and a business case. Let me illustrate this by telling three brief stories: one about factories, another about commodities and a final one about buying direct from the farmer.

We source food and clothing from 2,000 factories, and we have worked hard to improve compliance with basic labour standards across these. While we are not perfect, we believe we are among the leaders on this issue. The challenge is to move beyond basic standards – beyond, for example, a legal minimum wage to a living wage – which can be very different in countries like Bangladesh. Now, we cannot necessarily just pay more to suppliers than our competitors. Our marketplace is too competitive and there is no guarantee the money will trickle down to the workers anyway. We need to look for different techniques. In Bangladesh we identified three factories – one with high productivity, one medium and one low. We sent in productivity specialists, and invested in worker rights training and supervisor training. The early results suggest that productivity can be further improved by these interventions and that this in turn will pay for a sustained and substantial increase in wages for the workforce. With more profitable factories, better pay for workers and better products for us, this has been a win-win initiative. It’s early days, and we need to look at how we scale-up a pilot, but the results are very interesting nonetheless.

Another story covers commodity purchasing. M&S buys large quantities of cocoa, coffee, tea, sugar and cotton. Fairtrade has helped us enormously to intervene back along complex supply chains (that can be several stages away from the shop floor) to get solutions. We also have to work from the bottom up, and we are very supportive of the Better Cotton Initiative (BCI). This works directly in the field with cotton producers and, initially delivered in partnership with groups such as WWF in India, aims to reduce inputs, fertilisers and pesticides – which in turn improves productivity, generating savings for farmers and benefiting the environment. Again its early days but the savings appear to sustainably improve farmer incomes. We are excited about the potential for BCI to complement our Fairtrade offer, which has already seen sales of four million garments made from Fairtrade cotton, helping 4,000 farmers.

A third practical example comes from our work with farmers. We buy directly from farmers all over the world – lots from the UK and some from Africa. What we are really looking for here is differentiation; a message that we can take to the consumer that this is the highest quality product produced in a different way than the norm. Working with the Shell Foundation in South Africa, we have developed a highly differentiated flower product and have sold over one million bouquets to date. A new project, also in South Africa with the Shell Foundation, aims to build skills and capacity to support raspberry supply. We could have bought the raspberries from Spain but the climatic and geographic conditions are not as good as South Africa for the quality, highly differentiated raspberry we want. South Africa also offered the opportunity to work with a less intensive industry, hand picking the raspberry for the highest possible quality. The Shell Foundation has helped us build a model with local farmers that have provided the differentiation we wanted whilst delivering the skills development and black economic empowerment needed by South Africa.

Three stories, three different types of intervention but all three underpinned by a compelling business logic that made it in our commercial interest to help deliver social development. We don’t want to pretend that we are using these models in all parts of our supply chain, we are not. Nor will we drift into applying these models where there is a little evidence of a business case. This would take us back to ‘old school’ philanthropy, at the mercy of whim and how ‘well off’ we feel on any one day.

Instead I want to use these stories to highlight a number of specific lessons that may be useful for others undertaking this journey.

1. Understand your value chain. There are 1.7 million workers in M&S’ value chain from Scottish hill farmers to Kenyan flower growers, Bangladeshi factory workers to Indian cotton pickers. That is a huge number of people operating in a huge number of locations. Yet despite this scale we are not in the top 25 retailers in the world by turnover. The potential for retailers to make a difference to development is huge but you need to understand the landscape before you can make a difference to it.

2. Engage stakeholders: M&S has learnt an important lesson over the years about the need to engage more – whether it is to challenging non-government organisations, such as War on Want and Action Aid, or more collaborative ones, such as Shell Foundation and Oxfam. Healthy engagement on both sides spurs new thinking and new solutions.

3. Be clear about the business benefits: Be honest about what is in it for you as a business – productivity gains, stability gains down the supply chain, differentiation gains. Understand these benefits and be clear about them at the start of the process.

4. Use different tools for different parts of your value chain: That is how you can make a difference not by applying one size fits all. Do trials. Learn. Start small, but do it fast. Expand on the back of the lessons you have learnt.

5. Develop indicators to measure success: you can’t just plunge in with eyes closed. Commercial, social and environmental indicators tell you about the journey you are on.

6. Look for disconnects: How does social progress and environmental progress rub up against one other. Our cotton example shows that these are not mutually incompatible: a better socio-economic outcome for the farmer can also be a better outcome for the environment.

7. And what of the role of Government? We can do a lot as outlined above but Governments need to ‘oil the wheels’. If we had one ask, it’s to invest in training: In Bangladesh, we needed productivity experts. In South Africa, marketing specialists. On the commodities side, we needed specialists in different production techniques. That, to me, is the heart of it, good people, with the right skills in the right place at the right time.

It is still early days on our journey but we have safely shifted beyond CSR (at last I feel I can change my job title, from Head of CSR!), which is a focus on telling the good stories we want to tell, to two years of Plan A, which is tackling all 100 environmental and social issues that we must tackle whether we like it or not.

Plan A has been challenging but it needed to be, so much has to change in business. Now it’s stacking up for us economically, shifting from a net cost to cost neutral. We are clear customers still want us to take a lead whatever the economic challenges of the future. What next? Well the stories I’ve outlined above show where Plan A is taking us, creating such a compelling business case that everyone in the company wants to do it to deliver their commercial objectives, it literally becomes how we do business. And beyond that, a truly sustainable business model, but that’s another story for another day and many, many years of hard work!

Post written for Business Fights Poverty by Mike Barry, Head of Sustainable Business at Marks and Spencer plc

*Mori, September 2008

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