Doing good drives profitability

Use a wider lens to rethink value in your business model

This article was originally published by SogetiLabs.

Apart from making a difference, doing good for the planet and society drives a strong business advantage which leads to higher profit and market share. Why’s that?

Companies that are doing good and making money

Nike very publicly supported Colin Kaepernick, the American Football player who kneeled during the national anthem. This was his way to protest against police brutality and racism. Some people didn’t approve of his actions and denounced Nike, encouraging the general public to boycott the company and burn their products. Not having much effect, though, since online sales grew by 31% in the bank holiday weekend after Nike launched its ad staring Kaepernick.

This example shows that doing good and making money is perfectly compatible. The same becomes apparent from companies such as Unilever, Patagonia, Tesla, Ikea, Lego and Lush, all of which have sound financial performance and embrace a strong purpose proposition. It is worth noting that these are all global companies operating in different industries. This tells me that doing good and being profitable is not limited to a single type of product, customer or supplier and that it can be done on a global scale.

Doing good drives profitability

The strong business case behind doing good is evidenced in many surveys and research. A 2015 survey by Harvard Business Review found that purpose gives a business edge. Organizations with a solid purpose proposition have higher revenues and their initiatives are more successful. Whether it’s launching a new product, entering a new market or transforming the organization.

This finding is supported by a 2015 publication by Gunnar Friede et al. They combined over 2.000 studies on purpose and financial performance. Friede found in 63% of all cases a positive correlation between being purpose-driven and return on equity. There’s a negative correlation in 8% of cases.

Stakeholders are key

McKinsey followed up on the publication of Friede and studied the reasons why purpose leads to a business edge. Their conclusion in 2019 is that a strong purpose proposition attracts and motivates customers, talent, and suppliers and builds trust with regulators. This in turn leads to benefits and opportunities that drive growth and lowers costs. McKinsey concluded that a strong purpose proposition leads to a distinct business advantage as much as a weak purpose proposition leads to a distinct business disadvantage.

The critical role of stakeholders is also described by John Elkington. Already in 1998, he writes that “winners, whether they are companies or national or regional economies, will learn how to earn the loyalty of their key stakeholders”.

Tips

A long-term commitment

A strong purpose proposition is not a silver bullet nor a quick fix. The investments and hard work come first. The benefits to planet, society and the company’s profit, come later. Therefore, adopting a strong purpose proposition is a long-term commitment.

Use a wide lens

Revisit the value generated by your business model. Use a wide lens and include your economic, social and environmental impact. A tool you could use, is the “Triple layered business model canvas”.

Important when using a wide lens is to safeguard horizontal and vertical consistency. Horizontal: cross-silo and cross-organizational. Vertical: within an organizational silo. Otherwise you’ll create local optimizations that will hurt you in the long term. So, align and keep aligned purpose, brand, stakeholders, initiatives and actions.

Tools

You’ll find a broad approach to business model tools for positive impact in “A Review and Evaluation of Circular Business Model Innovation Tools”. Table 4 on page 10 highlights several tools.

You may draw inspiration from the widely recognized and used 17 Sustainable Development Goalsdescribed by the United Nations.

People, planet, profit

In the post I mentioned John Elkington. Does that name ring a bell? He also introduced the principle of Triple Bottom Line: people, planet, profit. Which influenced at scale the thinking behind organizational positive impact.