Why Business will move "Beyond Business"

Mayank Krishna had posted a comment and link to his post on Future of Business: Socially Oriented Capitalism.

Which is also the reason for this post - to extend his point... and to share why Milton Freidman's "Business of business is business" may be - hopefully - out of steps with the emeging tends.

The following are some of the reasons why in time to come, business will move "beyond business":

Even though voluntary by nature, the UN Global Compact has been increasingly adopted by companies in India and abroad. In India, more than 125 companies have committed to support and abide by the 10 UN principles (which relate to human rights, labour standards, environmental protections, and anti-corruption) in doing business.

'Triple Bottom Line Reporting(or TBL/sustainability reporting) that was mandated in France is increasingly becoming the norm across the world. This format recommends that companies not only disclose their financial accounts, but also their performance on environmental, and social and ethical parameters. About 25 Indian companies, including ITC, Dr Reddy’s Laboratories, Jubilant Organsys, Ford India, Tata Steel, Reliance, etc., have already shifted to triple bottom line reporting norms.

The Global Reporting Initiative (GRI) that started in 1997 under UN Environmental Program, and is spearheading the TBL/sustainability reporting has around 20,000 ‘stakeholders’ across 80 countries. Its 2002 guidelines are followed by around 880 corporations worldwide that include almost all well-known MNCs. More are likely to join once the 3G (3rd Generation) guidelines get published in October 2006.

One of the landmark events, which is likely to change how business is done globally, took place in May 2006, and resulted in 'The Equator Principles’for project financing that were adopted by 40 global international financial institutions with funds worth $4trillions. These 10 principles lay guidelines about assessing the environmental and social risks in funding a project, and ensure compliance to the performance standards on these issues. These principle will come in operation from January ’07, when the EPFIs (Equator Principles Financial Institutions) will expect due diligence on the environmental, social and governance issues before funding a project.

Increasingly the global trading companies (e.g., Chiquita, Gap, Levi Strauss, Marks and Spencer, Mothercare, Tesco, etc., to name a few) are adopting the nine standards of the ‘Ethical Trading Initiative Base Code’, which is based on the ILO recommendations about child labour, right to collective bargaining and association, working condition, wages, etc.. The ETI initiative also involves the trade unions and global NGOs such as Care International, Christian Aid, Fairtrade, Oxfam, etc.

Etc.

My guess is that in time/years to come, just like ISO certification, these will become the norms. So just like, even if an ISO-certified company is not necessarily, the most 'quality-conscious' organisation - and may be just paying lip-service to the norms - similarly, the business will have to follow certain norms to remain in the business (even, if it does not believe in it)

Development through Philanthropy?

Over the last couple of decades, globally, social sector has emerged as a fast growing field aimed to create societal/economic value on a sustainable basis. According to some reports, it is also perhaps the only sector that is creating gainful employment worldwide.

It is therefore, not surprising that recent years have witnessed an increasing flow of resources, in terms of professional talent and funds, to this sector. An indication of this emerging trend was the donation of $37bn by Warren Buffet to The Bill and Melinda Gates Foundation, which made headlines across the globe. Corporate philanthropy, it appears, has come to age. In a way, such developments indicate a healthy and increasing collaboration between the private/corporate donors and social sector not-for-profit organizations.

Heartening as this trend is, it also has some wider implications for development, which often get ignored and need consideration.

Firstly, social sector has traditionally attracted sincere individuals whose personal values and ideologies motivated them to “do something” for the marginalized segment of the society. It is this commitment, which sustains their efforts, even in the face of failure and adversity.

Easy availability of large funds (which the donor has already committed to spend though not-for-profit organisations), on the other hand, also has the potential of converting the social sector into a “money-spinner” for those who are merely looking for a secure source of employment and income. The phenomenal growth of the number of organizations registered under the Foreign Contribution Regulation Act (FCRA) during last decade or so, is an indication that this may already be happening.

Secondly, most of the private/corporate initiatives have their own pre-set agenda, schemes and methodologies for development initiatives. For the social entrepreneurs, this reduces the scope of “collaboration” to merely roll-out of these initiatives. In a way, this makes the role of the not-for-profit organizations to merely that of “contractors” to these schemes.

While there is nothing inherently inappropriate in helping and partnering in the roll-out of a developmental scheme, the top-down nature of these initiatives can (and often does) make them vulnerable to many undesirable consequences. Often such blanket initiatives neglect the local issues, and divert the attention to more symptomatic solutions. For instance, a drip irrigation scheme may be advocated as a solution, while the actual local problem is the lowering ground-water level due to its extraction by commercial interests. Similarly, an AIDS prevention program can neglect that the larger causes of death are due to hunger and not disease. Often these initiatives can (and do) also become the vehicles for dumping of obsolete technologies and harmful drugs, or even in empowering non-democratic power-structures at the grass root level.

Lastly, and more importantly, these widely, and often overly, publicized funding (by private donors, or corporate under their CSR initiatives) inadvertently and unfortunately create a myth that private initiatives can replace what is otherwise the duty of democratically elected government. In a way, by perpetuating this impression, in the public mind, they tend to absolve the governments from their responsibilities. This is an unfortunate (even if unintended) consequence, since the very purpose of social sector initiatives is to strengthen the democratic processes at the grass root levels.

Social vs. Business Entrepreneurship

I had my first class for the Social Entrepreneurship course, last evening. The following were the key points that came out from discussions:

1. Like any business entrepreneur, social entrepreneurs also find gaps and create a venture to serve the unserved 'markets'.

2. The primary difference between the business and the social entrepreneurs is the purpose for setting up the venture. While the business entrepreneurs' efforts focus on building a business and earning profits, the social entrepreneurs's purpose is to create social change.

3. A business entrepreneur may create changes in the society, but that is not the primary purpose of starting the venture. Similarly, a social entrepreneur may generate profits, but for him/her that is not the primary reason for starting the venture.

4. Profitability - not 'profit-making' - however, is important for the social entrepeneur. Being 'profitable' helps self-sustainability of the venture, and also works as a mechanism for self-monitoring. To quote from Dr Yunus (Grameen Bank):
"Grameen's central focus is to help poor borrower move out of poverty, not making money. Making profit is always recognised as a necessary condition of success to show that we are covering costs. Volume of profit is not important in Grameen in money-making sense, but important as an indicator of efficiency."

5. Another key difference between the social and the business entrepreneur is in the meaning of wealth creation. For the business entrepreneur, 'wealth' is same as profits. For the social entrepreneur, however, wealth also encompasses creation/sustenance of the social and environmental capital. Therefore, to be viable, a social entrepreneurship venture must show a positive Social and/or Environmental ROI.

Profile of Indian "Unorganised"/ "Infomal" Sector

Often classified as part of the “informal” economy, the unorganized sector constitute the largest, yet surprisingly the most invisible, part of the economically active workforce in India.

According to the definition of International Labour Organisation (ILO, 2002), they comprise

the own-account workers in survival-type activities, e.g. vendors of vegetables, fruits, meat, fish, etc., and of non-perishable items like locks, clothes, vessels; garbage collectors, rag-and scrap pickers; head-loaders, construction and agricultural workers, rickshaw- and cart-puller, etc.

the paid domestic workers, e.g., maids, gardeners, chauffeurs, etc.

the home-based workers, e.g., garment makers, embroiderers, incense stick rollers, bidi-rollers, paper bag makers, kite makers, food processors, etc., and

the self-employed in micro-enterprises, e.g., road-side mechanics, barbers, cobblers, carpenters, tailors, book-binders, owners of small stalls and kiosks, etc. What they share in common is a lack of secure contracts, worker benefits or social protection.

In India the self-employed workers account for 93% of the total workforce. In other developing countries/regions also, informal employment comprises 50%-75% of non-agricultural employment, e.g., 78% in Sub-Saharan Africa, 51% in Latin America, 55% in Mexico. Even in developed economies, the temporary/part-time/self-employed – i.e., employment without benefits or protection – account for a large working population.

The contribution of the unorganized workforce to the economic health of India society has largely remained neglected. In India, this sector accounts for
- 60% of Net Domestic Product (i.e., GDP minus depreciation),
- 68% of income, 60% of savings,
- 31% of agricultural exports, and
- 41% of manufactured exports.

Even in the urban centers of India, the unorganized workers account for about 60-67% of the employment.

Women workers in the unorganized sector – the farm workers, vendors, casual construction labour, domestic help, home-based workers – are even far more neglected and unaccounted-for part of the informal economy. This is so, since the self-employed women work from homes and their contribution is mostly not calculated into the national economic data. However, according to the National Sample Survey ’05, one-third of the informal sector workforce (about 120mn) comprises of women. Collectively, they accounted for 96% of the female workforce in the country, and contribute to about 20% GDP of India.

Manager as "Professional" = Manager 'Beyond Business'

Is "management" really a "profession"?... Does a manager really qualify to be called a "professional"?

Perhaps it is worth looking at what the term "Profession" means.

More often than not, the meaning of the “profession” remains confined to two parameters:

mastery over certain specialized skills or body of knowledge, and

membership to a community who possess similar skills or knowledge.

However, as RJ Lifton, in his book Home from the War (1973) pointed out, there is another, more immportant, criteria for a trade-skill to qualify as a "profession":

The fundamental and distinctive meaning of the term “profession” (and specially in the context of people-focused helping professions) revolves around the self-acknowledged “public/social role” of the professional. The term “profess” is made up of the Latin prefix pro, which means "forward," or "into a public position," and fess, which derives from the Latin fateri or fass and means "to confess, own, acknowledge." Lifton pointed out that the original meaning of profession was "a personal form of outfront public acknowledgment."

Thus, a profession by its very definition has a public or social role that goes beyond mere possession of specialized knowledge/skill and membership to a professional body.

In practice, this is also true of most other professions. A doctor, for instance, still retains his/her professional identity as a doctor even when outside the hospital or his/her chamber. The same is true for a lawyer or a chartered accountant. This is because their professional knowledge and skills remain relevant to the society even outside their place of work.

In contrast, a manager becomes just another ordinary citizen as soon as s/he steps out of the corporate boundary; his/her professional knowledge/skills have little relvance to perform a social/public role.

...at least so it is in practice!!!

So when can management really become a "professional"?

...when, for instance,
- the HR Manager can use his skills to empower the de-empowered in the society
- the Sales Manager can use his skills to open up a market for the village artisans
- the Corporate Strategist can turnaround a school or a hospital
- the Finance Expert can find a solution to the 'cash-flow' problem of a vegetable vendor
...etc.

That is... when a Manager can remain socially relevant even 'beyond business' !

Revisiting the "Bottom of the Pyramid"

A few years back, CK Prahalad’s conceptualisation of “The Fortune at the Bottom of the Pyramid” woke up a large number of corporates and entrepreneurs to the huge business potential that lay dormant in the lower strata of the masses. CKP’s thesis was that 4bn people on earth subsist on less than $2/day, and therefore, collectively and globally constitute a $13trillion market!

With all noble intentions, CKP argued that this masses at the Bottom of the Pyramid (BOP) should be viewed not as victims or a burden, but as value-driven consumers. If large corporations design and customise their offerings for this huge segment of consumers, it can change their life-style, and enhance the quality of day-to-day living for them.

CKP’s proposal, however, suffers from three underlying biases that permeate much of the contemporary management literature. The purpose of this note is not to diminish the value of the concept of BOP, but to surface these biases and reinterpret the concept, so that real the “fortune” that is embedded in the BOP can be leveraged:

Bias 1: Masses are primarily consumers, and not producers. And therefore, their life becomes “better”, if they get to consume more, and not if they produce more. This assumption, while partially correct, misses out on the entrepreneurial potential that lies in BOP. For instance, it neglects facts such as the exports from Dharavi, Asia’s largest slum in Mumbai, exceeded the total international earnings of a company like Ranbaxy in 2004.

This is allthemore more relevant in context of India where the “unorganised sector” accounts for 93% of the country’s economically active workforce. More than just being consumers, this workforce (consisting of hawkers, construction workers, domestic helps, road-side mechanics, scrap workers, etc.) account for 60% of net domestic product, 68% of national income, 31% of agricultural exports, and 41% of manfactuing exports.

The real “fortune” of BOP lies not merely in serving these low-income markets, but in organising and unleashing the under-utilised entrepreneurial potential of its inhabitants. For instance, Sri Mahila Grih Udyog (more popularly known for Lijjat Papad) mobilised the grassroot entrepreneurship of women into organising them into a Rs. 312crore business. Similarly, Aavishkar India Micro Venture Capital Fund provides venture capital to rural entrepreneurs to leverage rural innovations and appropriate technologies.

Bias 2: The quantum of profits is more important than its source. Like most contemporary management concepts, BOP primarily focuses on how corporates can create and exploit markets to reap large profits (though to be fair, along with “growth” and “profit”, CKP also added “incalculable contributions to humankind” as a benefit of focusing on BOP).

The concept of BOP, however, does not essentially discriminate among the sources from which the profits are generated. It would treat the profits from selling a Rs.5 bottle of aerated drink, or a Re.1 shampoo sachet as identical to the profits generated from making medicines or education available to this segment.

Like much of contemporary management literature, BOP also does not distinguish between the motives of “profit-making” and “being profitable”. Profit-making motive tilts the prioities away from the society to the owners of capital. It follows the dictum of the economist Milton Friedman: “there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits…”

Being profitable, on the other hand, is an imperative for the sustainability of any entrepreneurial venture. As Prof Mohammad Yunus, the founder of Grameen Bank (the largest bank of Bangaldesh which services almost 3mn “poorest of the poor” across more than 40,000 villages) once mentioned: “Volume of profit is not important in Grameen in money-making sense, but important as an indicator of efficiency. We would like to make more profit so that we can reduce interest rate - and pass on the benefits to the borrowers.”

Bias 3: Wealth-creation is same as making profits. Lastly, the BOP concept takes a very narrow view of wealth-creation. It neglects the fact that a society’s “wealth” is not just the income-levels of its members, but also the the sustainability of its community relations and environment. By focusing on profit making, BOP reduces the concept of wealth to just money, and the rest – i.e., the community and the environment - become mere resources which need to be "exploited".

To make BOP a viable concept for social change, there is a need to reinterpret the meaning of wealth. Take for instance, the Yasaswini health insurance scheme, pioneered by Narayan Hrudayalaya in Bangalore, which provides complete health cover (from common cold to brain surgury to 1.7mn farmers at a cost of Rs.5/month). The scheme is self-funding, but the “wealth” it creates is not money, but a healthy community of economically active people.