Implementation challenges can prevent many strategic social partnerships from achieving their full potential.
Since Michael Porter and Mark Kramer introduced the term in 2011, the concept of “shared value” has quickly become accepted by many forward-thinking companies and business leaders. After all, improving the bottom line while creating positive social and environmental impact is a classic win-win scenario. Also, when implemented well, shared value strategies can fundamentally change a company’s competitive positioning and the way it relates to customers, employees, suppliers, and investors. What’s not to like? At Deloitte, we have found that shared value is often not so easy to implement, though, especially within large, complex, global corporations. Mark Pfitzer, Valerie Bookstette, and Mike Stamp write about some of these implementation challenges in the September 2013 issue of the Harvard Business Review in “Innovating for shared value.” While the points made there are important, our work with clients and our research indicate that implementing shared value often requires a complete reevaluation of partnerships: one of the major implementation modalities for shared value. For many companies, creating and managing truly strategic relationships with partners outside the business sector—with community groups, non-profits, and governments—is a new skill, and there is often a reluctance to really commit because of organizational inertia, a fear of risk, and a sense that non-profits and the public sector are inherently inefficient and hard to work with. We see some companies developing deep competence in partnerships, and a new model that we call strategic social partnerships (SSPs) emerging in those companies. SSPs are often implemented jointly by the corporate social responsibility (CSR) department, the philanthropy function, and the core business functions; they are given high visibility in public reporting; they establish complementary roles for each partner leveraging the skills, resources, and sense of mission of each; and they receive substantial investments of time and money, including significant C-suite attention. While the importance of shared value as a concept seems on its way to widespread acceptance, implementation challenges have continued to dog efforts to scale up, preventing many efforts from achieving their full potential and resulting in some costly and public mistakes. Mastery of the skills needed to identify, create, and manage SSPs can make the difference, enabling companies already practicing shared value to scale up their efforts, and providing a way for those still sitting on the sidelines to get into the game. Getting SSPs right can also help all sectors—corporate, non-profit, and the public sector—align social impact to business opportunities, create distinct competitive advantage, and identify innovative solutions to solve tough social and development problems.
Most leading companies now recognize the business benefits of investments in social impact, including corporate social responsibility (CSR) programs, employee giving and volunteerism, community grants, and joint programs with non-profits. Research from leading business thinkers such as Rosabeth Moss Kanter and Robert Eccles increasingly links long-term business performance to corporate social impact, showing that companies more committed to social performance ultimately outperformed counterparts on return on assets and return on equity.1 Companies are also proactively driving transparency around their social impact investments. This is clear from trends in reporting: The number of companies publishing sustainability reports skyrocketed from only 44 in 2000 to more than 2,000 in 2010.2 These facts and the growing body of literature show that companies should understand and proactively pursue social investment in order to achieve sustainable growth. Customers and employees demand it, the market rewards it, and competitors look out for it.
For many companies, social impact is how they define themselves, differentiate from the competition, and excel in the market.
While the concept of social impact is not new, the approach is changing. Previously, social investments were separated from the core line of business in CSR units or corporate foundations. While in some cases, social impact programs were seen as part of polishing a company’s public image or earning “social license to operate” in various communities, contributions were considered purely philanthropic and disconnected from a firm’s core business. In recent years, this view has shifted dramatically. Now, forward-thinking companies are taking a far more strategic approach, bringing social impact squarely in line with business objectives and opportunities. These companies seek to leverage investments in social impact to increase their market presence, build stronger and more efficient supply chains, develop new products, and engage a larger customer base. For many companies, social impact has become a core part of how they define themselves, differentiate from the competition, and excel in the market.
Consider the exponential success of one-for-one companies that donate goods to people in need for every unit purchased by a consumer. TOMS Shoes, for example, has built a multimillion-dollar business giving away millions of pairs of shoes in Africa, Asia, and Latin America. TOMS has begun to work with non-profits like Africare, UNICEF, and Management Sciences for Health (MSH), which help TOMS identify worthy recipients in developing countries, distribute the donations effectively, and combine them in “kits” with other products to improve the health and livelihoods of recipients. Warby Parker, a new eyeglass company, has gained popularity among young adults who are attracted to its model of giving away glasses to developing-world micro-entrepreneurs who reach poor consumers. In both cases, these companies have leveraged social impact to stake out new market segments with customers willing to exercise their buying power to support products with strong social impact attributes.
Like TOMS Shoes and Warby Parker, other companies are fundamentally redefining their role within the social sphere. Unilever, the global consumer goods company, has set aggressive social standards for itself, including bringing its health and hygiene projects to a billion people at the bottom of the economic pyramid and sourcing all of its agricultural inputs sustainably by 2020. Additionally, coffee giants such as Starbucks, Nestle, and Kraft have publicly committed to high levels of sustainable coffee sourcing, potentially doubling demand for sustainable coffee by 2015. In many ways, this represents the mainstreaming of the concepts that Michael Porter and Mark Kramer identified in their 2011 article “Creating shared value.” By and large, directors and executive leadership at many of the world’s largest companies have taken these concepts on board at a conceptual and strategic level.
We believe that now is the critical time for action in the implementation of these concepts. Companies are progressively turning to partnerships with non-profits, social enterprises, and the public sector as the major method by which they achieve shared value. Partnerships are efficient and enable risk-sharing by allowing different entities to serve complementary roles. Organizations are able to draw upon specialized capabilities of each partner and access new skills and resources that were previously unavailable when working alone. For example, non-profits typically bring longer time horizons, the ability to buy down startup costs that would derail a fully commercial venture, specialized skills in their area of work (for example, the environment or rural development), on-the-ground knowledge of the communities they work in, and credibility with groups that are skeptical of corporate motives. Governments bring the capability to reconcile competing interests, leverage public infrastructure, and develop policy frameworks that reduce risk and provide the ground rules for investment.
Partnerships have yielded early successes and demonstrated tremendous business and social potential. For instance, Dole Food Company has used partnerships with non-profits to build its supply chain in Peru. Dole originally sought a large-scale, sustainable source of organic bananas that would meet its quality and food safety standards. The company decided to work with local smallholder farmers in Peru’s Sullana Valley, but the challenge was to access sufficient supply at competitive cost. To solve this problem, the company created the Organic Project, a partnership with 11 local producer organizations, through which it provided technical assistance, certification, and technology to smallholder farmers in Peru’s Sullana Valley. These helped the Sullana communities export nearly 1.5 million banana boxes per year, easily meeting Dole’s demand for sustainable organic bananas. The Sullana communities have also grossed more than $11 million per year in income and created more than 1,900 jobs (both directly and indirectly).3 Municipal governments helped organize classroom training and developed public lighting and infrastructure projects with the new revenue. Through this innovative partnership, Dole successfully built a sustainable sourcing strategy while supporting the local community—marrying its business and social impact needs and opportunities.
Organizations are able to draw upon specialized capabilities of each partner and access new skills and resources that were previously unavailable when working alone.
Executives are enthusiastic about the benefits of social partnerships for both their own bottom line and the benefit of the communities they serve. In a recent survey, 79 percent of CEO respondents expected their investment in social sector partnerships to increase over the next three years.4 Under the G8’s New Alliance for Food Security and Nutrition Commitment, 45 companies have signed Letters of Intent to invest over $3 billion in African countries, while 60 companies have signed the Private Sector Declaration of Support for African Agricultural Development. CEOs understand the economic value of social impact programs and are using partnerships to achieve bottom-line benefits in a number of ways, such as promoting brand loyalty, reducing supply chain costs, or leveraging cost-effective distribution networks.
However, as more and more companies enter into new partnerships with the intention to unlock business and social value, they must carefully navigate key issues around strategy, governance, organization, and measurement for successful implementation. Our research suggests the importance of a structured approach to defining and implementing partnerships in order to help corporations and non-profits alike manage the inherent issues and risks and realize the full potential of their partnerships.
Over the past two years, as part of research on the topic, Deloitte interviewed and worked with staff at multiple levels of more than 30 industry-leading companies to better understand how these companies are implementing social impact partnerships. We have also worked with and interviewed government agencies and international donors including the United States Agency for International Development (USAID), the Department of State, the Department of Defense, and the World Bank, as well as non-profits like Conservation International, CARE International, Africare, and the Clinton Giustra Enterprise Partnership.
We found that SSPs address a broad range of business functions and that companies are using SSPs in six specific areas.
We found five characteristics of the most effective partnerships. First, they were “multi-sectoral”: They included corporates, non-profit and social sector organizations, and sometimes governments and other public sector organizations. Second, the partnerships were often set up to resolve implementation challenges that the company had tried and failed to solve on its own. Third, the social impact aspect of the partnership was sufficiently well articulated and backed up with investment to bring highly credible, mission-oriented non-profits and other social sector organizations into the partnership. Fourth, within the corporation, they were driven by a business unit (and, rarely, by corporate affairs) rather than the CSR department or the corporate foundation, and they had clearly defined business goals. Fifth, they were developed with significant up-front thought toward governance, the number and roles of organizations involved in the partnership, impact measurement procedures, rules around communication, and the “exit strategy” for the partners.
Because these partnerships were sufficiently different than other, less strategic partnerships we have seen, and because the executives driving them often struggle to explain them both inside their company and to external audiences, we believe a new name is needed. We have called them strategic social partnerships (SSPs).
While not an exclusive feature, we also found SSPs especially important in business ventures launched by multinational corporations (both “Western” and “Southern”) in emerging and frontier markets, where the importance of inclusive distribution and supply chains, the need to develop workforce health and capability, and the imperative to manage social and political risk make them especially important.
We found that interviewees often struggled to name what they are trying to do with social impact partnerships—often falling back on the term “public-private partnerships” with its infrastructure connotations or simply calling them “CSR efforts.” We use the term “strategic social partnerships” to highlight the involvement of multiple sectors, the focus on core business objectives, and the generally more strategic approach to governance. SSPs are different in five key ways in that they:
SSPs are often designed to capture growing opportunities in emerging and frontier markets, although they are also useful in developed markets.
We found that SSPs address a broad range of business functions and that companies are using SSPs in six specific areas (see figure 1): talent and workforce, product design and development, distribution, sourcing and supply chain, regulatory affairs, and brand marketing. In the talent and workforce function, for example, Walmart and CARE International have teamed up to provide leadership development and life skills training to more than 60,000 women who work in factories that supply to Walmart. The initiative seeks to retain and promote talent within the factories, while empowering the women to make financial and economic decisions within their communities. Under the distribution function, companies and non-profits have teamed up to leverage non-traditional means of distribution such as hawkers, cooperatives, and bicycle vendors to distribute valuable consumer goods, including drinkable water packets and medical supplies. In the technology sector, Google is engaged in a number of innovative partnerships to help refine some of its best-known products, such as Google Earth and Google Maps. Teaming up with organizations that range from universities to the World Bank to local NGOs, Google makes its data and tools available to local mapmakers and scientists to support their goals (such as tracking environmental degradation, spread of viruses, or community mapping for public services) while receiving updated, more accurate information to feed back into the mapping products.
Figure 1. SSP business functions
Across these business functions, SSPs bring a distinct set of advantages to each partner:
Benefits to the corporate partner: Non-profit partners can help corporations reap the benefits of local and community knowledge, lower programming and coordination costs, and expertise in sustaining and managing the program. Sourcing is a key business function where SSPs have delivered high value, as Starbucks has shown in the coffee industry. The coffee giant initiated training and support for local coffee cooperatives in partnership with international donors and non-profits through targeted programs in Costa Rica, Rwanda, and Tanzania. As a result, Starbucks has been able to bring sustainably sourced and distinct varieties of coffee beans to market and sell them to consumers with specialty packaging and differentiated branding.
Benefits to the non-profit or social enterprise partner: SSPs offer non-profit organizations sustainable, secure, multi-year funding (often with fewer restrictions than traditional philanthropic funders), as well as access to corporate partners’ buying power, trained staff, technologies, and expertise. This helps the social enterprise link its beneficiaries to markets and deliver impact on a larger scale. For example, the Clinton Giustra Enterprise Partnership has led and run a successful hotel supplier development project in Colombia. Working with some of the largest hotel chains in the country, the Enterprise Partnership has worked with small, local suppliers to build capacity and quality of services and goods, scaling up businesses to meet the hotels’ needs. As a result of this project’s success, the Enterprise Partnership has now catalyzed a new for-profit “distribution enterprise” that will aggregate the goods of small producers, handle logistics and distribution for them, and develop new customers. The Enterprise Partnership is replicating this supply chain model with leading market buyers in multiple developing countries.
Benefits to the public sector partner: The public sector plays a key role by establishing partnership-friendly policy frameworks that reduce risk and encourage investment, making public investments in infrastructure to support social value, leveraging convening power to bring parties to the table, and reconciling competing interests. The public sector benefits from the economic power, technology, new thinking, and skills of the private sector to overcome challenging societal problems (for example, improving basic services like education and health and creating jobs and investment). In the United States, the State Department’s Global Partnership Initiative (GPI) forges partnerships that strengthen development and diplomacy outcomes, such as the Global Alliance for Clean Cookstoves, while the Department of Defense has partnered with cruise lines on anti-piracy and drug interdiction programs. Additionally, USAID has leveraged over $9 billion in combined public and private resources for its Global Development Alliances (GDA) program since 2001.
Table 1. Sample SSPs across industries
While the promise of SSPs is clear, successful implementation has proven more challenging. SSPs can be more difficult to implement than philanthropic or CSR partnerships because they seek to create core business value. They also require coordination across multiple functions within a business and among partners with a broad array of interests: the social mission of the non-profit; the social, market development, and financial goals of the corporation; and the political priorities of the government. Without proper alignment of motivations and objectives up front, participants are invariably less invested in the partnership. With insufficient funding and attention, partnerships are more apt to produce only marginal impact or fail entirely.
The Republic of Georgia is the third-largest producer of hazelnuts worldwide, but low quality and a fragmented production base consisting of smallholder farmers significantly reduce the competitiveness of the sector. It also creates barriers to reaching high-value markets, resulting in lower incomes for farmers. Facing an increasingly tight supply environment of sustainably harvested hazelnuts in its primary market, Turkey, the global confectionary company Ferrero began to look at investments in Georgia and at an SSP that would establish a new source of supply and increase incomes and quality standards for its small suppliers in Georgia.
An SSP was established among USAID, Ferrero, and Ferrero’s local subsidiary, AgriGeorgia, to create a scalable, competitive, and stable hazelnut supply chain. AgriGeorgia implemented a hazelnut training program at Ferrero’s 4,000 hectare plantation in Georgia, developing training and demo plots, and delivering tailored trainings to local agronomists and smallholder farmers on modern hazelnut production practices. As part of the SSP, the partners also facilitated the establishment of 16 farmer groups to improve smallholder farmer access to finance, inputs, and marketing scale.
As a result of the partnership, Ferrero has secured a new, sustainable source of high-quality hazelnuts for its products, while developing significant capacity for smallholder farmers in Georgia to connect to a high-value global supply chain for their hazelnuts. More than 2,100 hazelnut farmers have increased both the quantity and quality of their production, which has resulted in higher prices for their products and double-digit annual increases in their household incomes. Through this partnership, Georgia’s hazelnut industry can achieve efficiencies and better meet the global market’s quality and quantity needs.
Poorly implemented SSPs can expose organizations to unnecessary risk, public reversals of commitments, and wasted time and resources. PepsiCo, for instance, launched a widely publicized healthy foods campaign in 2007 in partnership with a number of food manufacturers to sustainably source ingredients and with the involvement of non-profits and multi-lateral public sector bodies like the World Health Organization. However, some parts of the company came to see the initiative as too costly to the business, and the initiative was reined in before achieving commitments.5 While this experience will ultimately help PepsiCo better align its sustainability program to core business needs in future iterations, the initial lack of defined objectives led to some uncomfortable public scrutiny. Similarly, an international oil major working in an African country sought to strengthen the health system for its local employees and the communities in which it worked by building clinics and hospitals in a local community. Unfortunately, because there were not strong enough commitments from the government and the non-profits involved to assume on-going management of this health infrastructure, the company found itself operating the de facto health system for many years, siphoning off valuable time and funding from its core business.
In our research and our work setting up SSPs, corporations and social enterprises have cited four key challenge areas that are the biggest sources of risk when implementing SSPs: strategy, governance, organization, and measurement and reporting (see table 2).
Table 2. Challenges and risks in implementing SSPs
Cargill has developed an innovative approach to effectively address organizational challenges in developing SSPs. Leveraging its decentralized organizational structure of over 70 business units across 65 countries, the company sets an overarching corporate strategy that each business unit then adapts to unique market conditions. Each business unit controls partnership funding as part of its P&L. As a result, Cargill’s business units, in conjunction with the headquarters, have developed innovative partnerships that meet local business and social needs. For example, Cargill’s Middle East and North Africa business partnered with CARE International to support a “rice-to-soya” program in Egypt. This SSP has helped diversify agricultural products, lowered water demands in the region, and enabled farmers to earn premium prices that have been reinvested in community development projects.
In order to achieve the full benefits of their SSPs and overcome the risks, organizations should follow a roadmap to manage partnerships. The SSP roadmap depicted in figure 2 helps both corporate and social sector organizations navigate the four common challenges, speak the same language, and move from good ideas to successful projects implemented through strong partnerships. The development of partnerships is always an iterative process and should follow five key steps at both the strategic partnership and individual program level, from inception through implementation and even sunsetting. Constantly revisiting some of these questions will help organizations build and maintain successful SSPs.
The SSP roadmap described in figure 2 is a tailored approach that helps organizations manage the inherent risks and costs of SSPs and achieve the full value they can help organizations to accomplish. The steps are presented in detail in the appendix.
Figure 2. SSP roadmap
The question is: Where will things go from here? We believe that in this decade, leading companies in most industries will be using “shared value” strategies and investments to change the way they relate to their markets. Social impact will be a major part of the way they reach new customers, recruit and retain employees, develop products, enter new segments, manage their supply chains, work with regulators, differentiate their brands, and report to investors. They will use SSPs with non-profits, governments, and others companies—skillfully and innovatively—as the major way they operationalize shared value. Companies will rely on the skills, capabilities, and perspectives of their social and public sector partners to help them understand new countries and markets, develop distribution models for new consumers (including the billions of developing world consumers at the base of the pyramid), source new ideas for products, and think differently.
Whereas today, this way of doing business can still be (just barely) dismissed as the province of “early adopters”—like TOMS Shoes, Unilever, and Starbucks—we believe it will soon be solidly in the mainstream, used by the top 25 percent of performers in most industries. Therefore, the approaches in this article are something that should be considered now—before your customers, employees, and investors are asking about it, and more so, before your competitors are doing it. So what can be done now? We see three things.