SDGs and Corporate Strategy - Putting the Two Together
Novozymes is a world leader in the industrial biotechnology space, head quartered in Denmark and providing B2B solutions (enzymes and micro-organisms) that on average save customers 100kg CO2 for every 1kg of product applied. As such, sustainability and positive societal impact are embedded in the corporation’s DNA.
That was true 10 years ago, when the corporate ambition was to achieve revenues of “10 billion [Danish kroner] by 2010” (as the tagline went). Fast forward to 2015 and the connection between the DNA of the company and the corporate strategy has become even clearer: the new strategy is called “Partnering for Impact”. And yes, “partnering” does refer particularly to non-commercial actors and “impact” does refer to positive societal impact. In fact “impact” is understood specifically as impact toward the SDGs.
Even though continuing with some variation of business-as-usual would allow Novozymes to deliver a lot of positive impact, there is a clear conviction that new partnerships with different stakeholder groups are necessary to achieve still greater impact and higher business growth. Further, the idea is that “impact” and “business growth” are strongly correlated: if Novozymes develops high-impact solutions, these will also drive great business growth.
What’s the logic here? Well, assuming that the SDGs get the sort of traction we all hope, they will influence all manner of stakeholders, incl. businesses, consumers, investors and policy-makers. As such, if everyone pulls in the direction of the SDGs, then the businesses best geared to help deliver solutions toward the SDGs will be best positioned to grow. As a result the SDGs are influencing Novozymes’ answers to 2 key questions: “what to develop?” and “how to do it?”
Choosing the initiatives to take forward
Like any corporation, there are a host of new things the company could work on, which get screened, filtered and prioritized. In Novozymes the SDGs are being used as a lens in the innovation funnel to help in prioritization. The slides I presented at the Inclusive Business Forum in Manila last month, including this diagram, explained this further.
How to do it – designing innovation strategies
With this starting point Novozymes has moved further forward to think about business innovation: how to develop the high-impact solutions that can secure long-term business growth? Looking inward it is clear that technical R&D is something Novozymes is already quite comfortable doing, placing aggressive bets and accepting significant risks. So gearing R&D activities to deliver even more impactful technical solutions (and faster) is a well-understood challenge that involves strengthening partnerships with major existing and potential customers in key markets. And this is certainly an area of great focus. However, technical innovation is only one part of the equation – albeit a dominant one in a company such as Novozymes.
On the other hand there is the question of business model innovation, which is less straight-forward for Novozymes. Thinking of creative ways to bring existing technologies to underserved markets is simply a less familiar challenge to the corporation. With an impact lens on, you could say that Novozymes (like most corporations) finds that building inclusive businesses - especially in emerging markets – is a daunting task that requires a lot of resources, capabilities and patience. These are not usually in abundance in large corporations.
Taking a step back, a corporation like Novozymes has a number of pathways through which it can develop impactful business solutions. For solutions that are close to the core business model it might be possible to pursue opportunities through vehicles suitable for more incremental business development activities – such as sales, marketing or supply chain management departments. For more radical ideas that are further away from the core, the corporation may choose to develop the opportunity through a business innovation unit that it has given more patient resources and greater freedom to experiment. In their most extreme form many corporations refer to such units as “incubators”.
Pursuing internal incubation pathways makes a lot of sense when a corporation has a radical idea where 1) it has most of the “pieces of the puzzle” to deliver the solution, 2) it has the capabilities to design and execute on the opportunity, and 3) there is a reasonably clear business case. For Novozymes a number of impactful business ideas fit this bill, hence the growing focus on and maturation of internal incubation vehicles.
However, it is seldom the case that all three boxes can be ticked when we look at inclusive business opportunities in emerging markets. Many corporations have limited experience in low-income markets, so they lack key capabilities. And these markets tend to be riddled with institutional voids that make solution puzzles larger and more complex, requiring various partnerships to overcome – not least with governments. And with business cases less clear at the offset, high corporate opportunity costs become a hindrance that point to the need for cost-sharing partnerships, e.g. with development agencies or foundations. Further, designing for, managing for, and assessing impact is something that other actors excel at and that corporations are well-advised to seek partnerships for – especially NGOs and universities.
Realizing that pursuing high-impact inclusive business opportunities would entail such challenges and needs, Novozymes decided to take a systemic view and co-found an external incubator that could form the necessary partnerships to bring in capabilities and reduce the risk and cost of early-stage impact venturing for any corporation. The incubator is called DIVA Ventures L3C.
The DIVA coalition includes a range of partners besides Novozymes, incl. WBCSD, Pillsbury Law, BoP Inc and DSM (to name a few). By crowding in resources from foundations, corporations and impact investors, DIVA is a unique venture incubation partner that both co-develops and co-invests in opportunities, helping corporations reach further with their ambitions for business development and societal impact.
Corporate partners bring their own impact venture ideas to DIVA, based on their existing technologies, products and services. A joint team is then formed to begin developing the venture in a structured process, optimised to generate blended returns. As individual ventures mature through the DIVA process and become bankable, the venture partners approach impact investors for external funding. As such, these investors gain access to a pipeline of high quality deals with attractive ticket sizes, backed by strong organizations with solid track records – and the ability to execute at scale, internationally.
Supporting the formation of DIVA Ventures L3C is an example of how Novozymes is walking the walk on the “Partnering for Impact” strategy, taking an ecosystem approach to enabling the development of inclusive business solutions to achieve the SDGs. As Novozymes begins to work with DIVA on specific impact venture opportunities, it will be interesting to see this particular partnership in action – and to see how it delivers on the ambitions for both societal impact and commercial growth.
This article first appeared on The Practitioner Hub for Inclusive Business as a part of the March 2016 series on Inclusive Business and the Sustainable Development Goals. View the whole series for more examples, tools and insights to help you understand what the SDGs mean for business.