In the last few decades, there has been a significant shift in the operating environment companies find themselves in. The rise of environmental and social investing, climate change, customer and stakeholder expectations, and the transparency and immediacy of social media has shifted the balance of discussion, as businesses need a “social” licence to operate.
This has been seen in the way global energy companies like BP, Equinor, and others portray themselves and communicate their mission. It’s been seen in Australia’s finance sector since the Royal Commission.
And the CEO of Woolworth also cited “responsibility” – which likely reflected changed stakeholder expectations – as playing a role in the company’s decision to spin off the alcohol and gaming business into the Endeavour group.
David Young, Wendy Woods, and Martin Reeves of the Boston Consulting Group (BCG) argue in “Winning the 20’s – Optimise for Both Social and Business Value” this is the new corporate operating environment.
“As we approach a new decade, we are also approaching a tipping point for business, with new benchmarks for what constitutes a good company, a good investment, and a good leader,” they wrote.
Young and his colleagues say there is now a “defining expectation” companies need to fulfil in order to enable and empower business sustainability. The expectation is that “good companies and investments will deliver competitive financial returns while helping society meet its biggest challenges”.
As a result, Young and his co-authors say leaders need to change their thinking to allow the connection of two currently seperate ideas — sustainability and sustainable competitive advantage.
They say this is necessary as businesses face the tipping point because “stakeholders are beginning to pressure companies and investors to go beyond financial returns and take a more holistic view of their impact on society”.
Whereas, in the past, all a company needed was a good idea or service to fill a gap in the market or to create a market, now “governments and local communities will set a higher bar for a right to operate”.
That’s a big shift in itself.
The notion of local is also skewed given the transparency social media brings to company activities. This means what a business does or doesn’t do in one jurisdiction “will quickly affect its global reputation and trigger social and regulatory consequences”.
BCG says to satisfy “a growing demographic of socially-minded consumers and businesses” companies are going to have to show their products are not only good but that they are also doing good.
And in order to both satisfy customer and staff — so as to attract the best available talent — companies need to credibly show how they are helping build a better world.
That’s a big change from the operating environment and expectations of companies, their boards, and management even 5 or 10 years ago.
As a result, the authors suggest a 6 step plan, which lists the imperatives they believe can establish what they call an “Agenda for Value and the Common Good”.
Critical to the transformation business leaders with changed mindsets and the reimagining of strategy to build a companies “competitive advantage at the intersection of shareholder value, corporate longevity, and societal impact”.
To do this, companies should incorporate 10 questions into the strategic process.
Following this, the authors say the remaining steps in the process are then possible. These include:
- To transform the business model companies need to own the origins of their product. They’ll also need to “compete by creating societal impact through the whole product usage cycle” as well as adding “social value” such as economic gains, environmental sustainability, customer well-being, ethical content, societal enablement, and access and inclusion. Having done this, companies need to expand into other industry’s “value chains” and build from there.
- In order to truly improve scorekeeping and increase transparency companies need to “focus the business and its stakeholders on insightful metrics that directly connect the company’s unique purpose and business models to the way the company creates differentiated value and societal impact”.
- And it’s got to be about more than profit if companies want to attract the best talent in the years ahead the authors say. This means managers need to lead a purpose-filled organisation which “gives employees meaning in their work”. Research shows this leads to better engagement and ultimately improved profitability.
- Crucially though, culture starts at the top. Young and his colleagues say companies need to elevate board governance and move away from the almost exclusive focus on financial management that was the key driver in the past and instead “steer the company in this new era of business and hold the CEO accountable for the company’s financial, environmental, and societal performance”.
In the end, as difficult as this may seem BCG says it will “open up new opportunities for growth, shareholder value, and benefits to society and the planet”.
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