Co-creating Business’s New Social Compact

Submitted by:Group 7Abhinav VKAnubhav GuptaKshitij AhujaMayank BathlaMohit AmbwaniSaurabh Arora

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by Jeb Brugmann and C.K. Prahalad

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Motive>What?:

Convergence of Corporations & NGOs >Why?:

Create innovative business models >To?:

Grow new markets at bottom of pyramid & niche segment in mature market

Changing Relations: Businesses, The Civil Society & NGO’s

New Opportunities: Bottom of the Pyramid

NGO’s: Taking the new role of Entrepreneurial Ventures

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A ROCKY START

• Two decades of liberalization by governments

• At the behest of IMF and World Bank

• Business and civil society fought bitterly

• Point of Contention: nature & rate of economic reform

• Government reduced its intervention

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UNANTICIPATED CONSEQUENCES: CONVERGENCE OF PATHS

• NGO emerge as corporate sector’s ‘De facto’ regulators

▫ With the ability to coordinate “smart mobs”

▫ A potent example: Attack on Coca Cola by local NGO over use

of water in village in Kerala

• Account spread over Internet like wildfire

• Millions of dollars in lost sales & damage to reputation

• Make the corporate conform to their norms

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HEAVY INVESTMENT BY COMPANIES TO COUNTER NGOS

• Initially companies did it defensively; followed by proactive strategies

• Social Market Slogans• Setting up non profit entities• CSR initiatives• Cause based marketing programs• Chevron on Global Energy Issues & Unilever on women issues• Microsoft Director worked with NGO’s

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EMERGENCE OF MARKETS AS AN ARENA FOR INTERACTION OF COMPANIES & NGOS

Utility of NGOs Possess

… Local knowledge… Local infrastructure

Understanding of … Local cultures … Consumption behavior

Utility of Corporations Provide

… Business models… Acumen… Funding

• JV between Telenor & Grameen Bank: Sell cellular phones• Decline in Government aid & Private Sector charity: NGO’s

eyeing entrepreneurial opportunities• WIN:WIN for both: Companies can market well & NGO’s

calibrated business models for good.

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STAGES SUMMARIZED

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THE PATH TO CONVERGENCE

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THE BE-RESPONSIBLE STAGE

• Realization of possibility of mutual existence • Work to meet limited objectives• Collaborate with the “enemy”• Creation of three convergences

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CONVERGENCE OF STANDARDS OF PRACTICE & EMERGENCE OF JOINT REGULATORY

FRAMEWORK

Benefit to Corporations

Access to NGO’s knowledge of local market & social network

Benefit to NGOs

Developed more expertise in marketing & specialized business practices

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CONVERGENCE OF BRANDS, MARKETING & COMMUNICATIONS AND

EMERGENCE OF FIRST JOINT PLATFORM FOR MARKETING & CUSTOMER MANAGEMENT

• Case in Point: Cause-related marketing

• Learning from each other:▫ Co.: Viral Marketing▫ NGO: Commissioning of Advertising Agencies to design campaigns

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CONVERGENCE OF PROFESSIONAL CADRES AND CAREER PATHS & EMERGENCE OF MGT PROFESSIONALS DEDICATED TO WORKING WITH COS ON SOCIAL CAUSES AND NGOS ON

BUSINESS ENDEAVORS

CSR

Many managers building careers by moving back and forth between the two sectors

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THE GET-INTO BUSINESS STAGE

• Failure on part of Cos to cater to the 4 Billion consumer market in developing countries

• Few Co’s Success in Bottom of Pyramid mkt.

• Few NGO’s success in untapped market segment

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CASE IN POINT: PICK ‘N PLAYPick ‘n Play: South Africa’s largest retailer• CSR Initiative: Support black farmer & cooperatives• Co operatives: Provided mgt & mkt. skills• Farmers: directly source produce to urban areas

Health Store Foundation• Aim: Provide people with safe medicine in Kenya• Created 68 Child & Family wellness shops• Provide • turnkey mgt systems & support• Training to owners• Select optimum store location

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ISSUES WITH THE GET-INTO BUSINESS STAGE

• One retail outlet per 5800 people vs one per 3.4million people• Companies that succeed leveraged relationship with NGOs

▫ ABN AMRO – Accion initiative for microfinance in Latin America▫ Shell Foundation venture capital funds to local entrepreneurs▫ Pick ‘n Pay – support to weak farmers

• Difficulty in managing new roles▫ “Business investment strategy to achieve both social and investment

goals”??▫ Can local NGOs earn profits through consultancies??

• Are you a competitor or a collaborator?▫ Microfinance Vs Banks▫ Cooperatives Vs retail outlets

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NEW RULES OF COMPANY-NGO ENGAGEMENT

Jointly define the norms that will govern their future relations and behavior.

Private and civil society sectors will cocreate markets. Task oriented relationships, rather than ideology driven

dialogues. Align global positions and standards. Neither companies nor NGOs can see one another as

adversaries. Creating legitimacy in the society by creating bold

value propositions. Advocate common policy positions and jointly develop

co regulatory schemes.16

THE CO-CREATE – BUSINESSES STAGE

• Development of integrated business model

• Both become key parts of each other’s capacity to deliver value

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OPPORTUNITIES OF SUCH VENTURE

• Ability to target Low income consumer/ niche market

• Create hybrid business model to cater to bottom of

economic ladder

• Revive corporation’s social legitimacy while

expanding NGO’s impact

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CASE IN POINT: BRITISH PETROLEUM

• Aim: Develop Fuel Efficient Stove for poor consumers in rural India• Requirement: Option to switch between fuels based on

• Current income• Availability of fuels • Cooking styles

• BP in collaboration with IISC Bangalore developed a portable stove that could use LPG or biomass as fuel

• Distribution through three NGOs• Established channel in 5 states• Work together on

• Product features• Promotion campaign• Financing options• Distribution• Safety considerations 19

ADVANTAGES OF THE CO-CREATE – BUSINESS MODEL TO SHAREHOLDERS

• Availability of pre existing distribution channel to BP• Building reputation for the NGO

• Shared credit for developing the product• Collaboration with a global firm

• Financial advantages• Unique venture in efficient value chain

• Global corporation• Informal local organization• Research Institute

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CONCLUSION: A MUTUALLY BENEFICIAL ALLIANCE

• The two parties are dependant on each other

• Both realize the mutual benefits which they derive

from each other

• Application of asset and competencies by both

partners

• Value creation greater than sum of individual efforts

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