What Drives Companies to Invest in Inclusive Business?

This month’s Editor’s Choice explores companies’ own perspectives on Sustainable and Inclusive Business. It’s a rare glimpse probing inside the company structures and lingo, to see what drives and what impedes company engagement.

Growth for Good or Good for Growth is a new report by Monitor Institute, Citi Foundation and The Fletcher School at Tufts University. It’s not focusing on the business models themselves, but on why and how companies approach business unusual, which they have christened with a new acronym – SIBA – Sustainable and Inclusive Business Activities. It’s based on a survey of 42 companies.

The whole 28 page report is interesting, but five things really added value for me.

Company motivations for SIBA. For so long there has been on decent analysis of this, just the challenge as to whether companies are really ‘serious enough’ about inclusive business. Now suddenly in the space of a month we have two decent data sets exploring company drivers. One from 49 members of Business Call to Action, explored by my colleague Joe Shamash this week, and the other in this report.

Growth for good lists several business-related motivations, ranging from the defensive (avoid loss) to affirmative (seeking growth) as shown in the diagram. The most frequently mentioned driver is ‘maintain competitive position’ which they put in the middle .

At first glance the results differ from those we took from businesses in the Business Call to Action Portfolio, and earlier in the Business Innovation Facility pilot, where survey results emphasised the ‘strategic drivers’ which are all about positioning for the long-term. In BCtA and BIF, many respondents highlighted ‘competitive advantage’ and ‘expanding into new markets’. Few if any talked of preserving licence to operate (there were no companies in extractives or tourism, where this is common) or avoiding reputational damage) But I think the differences are perhaps methodological (around wording, classification and sample type) and the overall message is similar: company drivers are not heavily focused on profit-maximisation, but on strategic positioning, and often about competitive position or competitive advantage. The other common message is there is no single driver and certainly no right driver for all. If you are making the case internally for SIBA, or trying to encourage others to act, I recommend pages 10 and 11 of this report, complemented by Joe’s blog.

Organisational home strikes me as the issue with the greatest gap between its level of significance and level of recognition, affecting whether inclusive business initiatives scale and mature. Of course it only applies to initiatives of an already established business, that diversifies to the Base of the Pyramid (which is the focus of this report, but is probably only about half the inclusive business world). AS this report explains, companies struggle with how to institutionalise and thus scale up SIBA, with all the associated questions about skills, performance, compensation and partnerships. It outlines two contrasting models from unnamed companies.

Sources of funding: closely related to the questions of internal structure and commercial driver, is the question of budget lines. In three quarters of their sample, the SIBA is at least partially funded from commercial budgets, indicating an expectation of commercial return. Sometimes CSR or external funds are used to de-risk and tolerate longer term horizons.

Definitions and jargon: some of the best insights are just blindingly obvious once stated, but important to be stated. So it is with their findings of ‘a lack of common language amongst actors in this field.’ Although there has been a proliferation of buzz words and terminologies, which can be a clear sign of growing momentum, they note that ‘shared value’ and ‘inclusive business’ are used by consultants and academics, rather than by companies themselves, and can even deter managers by diminishing the strength of the business case. The absence of common strategic motivation and terminology is in fact highlighted as the number 1 challenge to SIBA.

‘Closing contextual gaps’. The first page of the report makes a point which resonated with me, but is hard to explain. They argue that companies face many ‘contextual gaps’ in emerging markets, where economic growth has outpaced the capacity of supporting institutions. As a results challenges, such as capacity gaps, supply chain weakness, regulatory constraints, arise. The key point is this:

‘These businesses cannot afford to wait for governments, grassroots enterprises or civil society to close the contextual gaps; nor can they rely on prevailing business-as-usual practices to automatically overcome or resolve the gaps. Businesses must actively find ways to reinforce the contexts that support the very markets they need for sustaining their growth aspirations.’ (page 2)

To put this in my own words (and in terms explained in the 4Ps of Inclusive Business) the innovative companies have to internalise external constraints. Success comes when they can devise a business model that internalises the constraints, and thrive despite or because of them. This is why innovation goes hand in hand with business that is inclusive . Back in the authors words: identify investments in contextual gaps as part of core growth strategy.

The report draws out several challenges to SIBA – including lack of measurement which impedes business decision making. It identifies implications for how philanthropists can tackle barriers. And it highlights the importance of partnership too. This isn’t one of those Monitor reports that has a single high level easily captured message – the pioneer gap for example. So far it also seems to be lower profile too. It’s an interesting collaboration of three strong organisations, co-authored by Bhaskar Chakravorti (Tufts), Graham Macmillan (Citi Foundation) and Tony Siesfeld (Monitor Deloitte and Monitor Insitute). I like it because it is an invaluable nuanced look below the surface in companies that are diversifying into Sustainable and Inclusive Business Activities, and brings to the surface some key issues that we should be discussing much more often.