Socially Responsible Resource Management

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Creating Societal Benefits and Corporate Profits By Alexander Zimmermann, Peter Gomez, Gilbert Probst and Sebastian Raisch

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SLOANREVIEW.MIT.EDU18 MIT SLOAN MANAGEMENT REVIEW SPRING 2014

I N T E L L I G E N C E

In an effort to create societal value, many

companies engage in important corporate

social responsibility (CSR) initiatives. Un-

fortunately, admirable as these activities

often are, they are not always easy to sustain.

From a traditional business perspective,

such societally beneficial projects are often

considered a cost, and the cost side of a

business equation is forever vulnerable.

However good a company’s intentions,

many CSR programs ultimately depend on

the commitment of current management

and the profitability of the core business.

Fortunately, some smart companies have

found a way out of this trap by designing

ventures to not only yield important public

benefits but also make money. Our in-depth

analysis of how four companies created

for-profit initiatives that also have high soci-

etal value suggests that each followed a

similar step-by-step process to achieve what

we call synergistic value creation. As with

any kind of new business, the odds of estab-

lishing a new business that creates value for

both shareholders and the public can be

improved with good planning.

For each of these four companies, we

analyzed company reports, press articles,

case studies and ranking information, and

on the basis of these insights, identified the

most important activities that aimed simul-

taneously at creating public and private

benefits. Next, we conducted between three

and 10 semi-structured interviews with

various respondents at multiple levels

within each of the companies, and asked

them how they developed these new proj-

ects. We found that all of them followed a

surprisingly similar four-step new business

development process.

STEP 1: Create mechanisms to gain

multi-stakeholder input Traditionally,

companies analyze their internal capabilities

and target customer markets to identify new

opportunities. The process of synergistic pub-

lic-private value creation requires a different

starting point, since companies generally have

a limited understanding of public needs.

The companies we observed resolved this

issue by creating mechanisms at the outset

to bring together actors with very different

interests, perceptions and capabilities.

For example, the consumer goods com-

pany Procter & Gamble established its

Connect + Develop open innovation pro-

gram to ensure that its business innovation

leaders consider external expertise and

multiple stakeholders’ perspectives. The

Live Well Collaborative, founded by Procter

& Gamble and the University of Cincinnati,

is a recent example of a Connect + Develop

[STRATEGY]

Creating Societal Benefits and Corporate Profits When pursuing initiatives that aim to synergistically create both business and societal value, companies should keep four key steps in mind. BY ALEXANDER ZIMMERMANN, PETER GOMEZ, GILBERT PROBST AND SEBASTIAN RAISCH

SLOANREVIEW.MIT.EDU SPRING 2014 MIT SLOAN MANAGEMENT REVIEW 19

initiative. By designing products and ser-

vices to assist an aging population with its

health and mobility needs, Live Well re-

sponds to critical demographic changes.

Live Well united a variety of societal actors,

including Citigroup, the University of Cin-

cinnati’s design school and the Singapore

government. In three years, Live Well gener-

ated ideas that led to eight new business

projects and 20 unique product and service

concepts, all designed to make life easier for

older people. The use of biomechanical vir-

tual modeling to design products and

packaging that are aligned with arthritis

sufferers’ special needs is a good example.

The other companies we studied also de-

veloped mechanisms for multi-stakeholder

engagement. At BMW, the challenge was

less to understand customers’ specific de-

mands than to gain insights into public

expectations of individual mobility. By in-

tegrating input from academic experts,

customer groups and public institutions,

BMW learned that a new, modern and lib-

eral group of “multimodal consumers” is

emerging that prefers the flexibility of com-

bining different modes of transportation to

owning a single vehicle as a status symbol.

BMW and its experts then developed the

idea of the DriveNow premium car-sharing

business as a way to reach this increasingly

important demographic.

The food company Nestlé initiated its

synergistic public-private value creation

process through its nutrition, water and

rural development initiatives. As part of

meeting its goal of improving nutrition

and consequently the health and well-

being of consumers through food and diet,

the company decided to focus on helping

to reduce the risk of undernutrition

through micronutrient fortification. More

than one third of the world’s population is

affected by micronutrient deficiencies,

such as iron, vitamin A or iodine defi-

ciency. A breakthrough idea — to fortify

affordable Nestlé products with specific

(Continued on page 20)

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I N T E L L I G E N C E

micronutrients — emerged when research-

ers at the company engaged with local

communities to study nutrition and cook-

ing habits in developing countries.

At the Chinese real estate development

company China Vanke Co. Ltd., chairman

and founder Wang Shi visited Japan to

learn more about that country’s ancient

and modern architecture. In particular, he

was looking for ideas that would help

make homes more resource-efficient and

long-lasting while addressing China’s in-

creasing public demand for housing. In

Japan, the large number of prefabricated

homes in excellent condition impressed

him particularly. Back in China, Wang Shi

brought together a varied group of stake-

holders — including builders, customers,

industry associations and politicians — to

generate ideas about how Vanke and China

could benefit from this opportunity.

STEP 2: Establish cross-business incu-

bators After external stakeholders point

out potential opportunities for synergistic

public-private value creation, companies

need to develop them further based on

their specific internal capabilities. How-

ever, traditional organizational silos often

make it impossible to pursue synergistic

public-private value creation within a

company’s established functional or divi-

sional boundaries. Societal issues are

complex, and creating public value fre-

quently requires changes that go beyond

traditional product development issues.

The companies we studied developed,

in effect, incubators focused on advancing

ideas for public-private value creation.

While these incubators draw on the com-

pany’s core capabilities, they also provide

the necessary distance from the traditional

business to combine them into novel solu-

tions that meet the company’s dual

objectives: creating economic value and

public value.

For example, Nestlé established a cor-

porate wellness unit in 2004 to pursue

opportunities for nutritionally enhanced

products and to coordinate their imple-

mentation in close collaboration with

corporate R&D centers, sales and market-

ing units and ground-level business

managers in developing countries. The

corporate wellness unit helps determine

which products are most appropriate for

nutritional fortification and selects coun-

tries with the biggest micronutrient

deficiencies. A core team of scientists and

business experts meets with country heads

and helps them explore commercial, fi-

nancial and scientific issues.

In 2010, Nestlé invested in a project, co-

ordinated by the corporate wellness unit,

to fortify Maggi bouillon cubes in Central

and West Africa with iron in addition to

iodine. Their frequent and wide consump-

tion and low cost make bouillon cubes

good candidates for micronutrient fortifi-

cation. The launch of the fortified Maggi

products was supported with advertising

and information campaigns that promote

their health benefits, their affordability

and the benefits of combining them with

fresh, locally sourced products. This nutri-

tional fortification, which is highlighted

on packaging and through marketing

campaigns that also emphasize the bene-

fits of eating fresh, local ingredients and

home cooking, helped increased sales in

2012 in Central and West Africa. With the

help of Nestlé’s corporate wellness unit,

that experience is now being leveraged in

other developing countries.

STEP 3: Form new partnerships After a

solution with the potential for synergistic

public-private value creation has been devel-

oped, it must be brought to the market. Most

large companies have built strong execution

capabilities to ensure that new ideas can be

profitably introduced to the market. How-

ever, synergistic public-private value creation

has special requirements. Quite often, com-

panies lack the specific capabilities or the

legitimacy to successfully launch these activi-

ties and get them accepted and valued by

the broader public. They often target new

customer groups that may not find the com-

pany’s existing brands, marketing concepts

and distribution channels attractive.

At this point, external partners must

again enter the picture. Collaborations

with external partners enable companies

to complement their internal resources

and capabilities. Moreover, partnering

with governmental institutions or non-

governmental organizations often adds

Creating Societal Benefits and Corporate Profits (Continued from page 19)

To implement its DriveNow premium car-sharing business, BMW set up a strategic network of partners that is managed by a team of senior executives.

SLOANREVIEW.MIT.EDU SPRING 2014 MIT SLOAN MANAGEMENT REVIEW 21

the legitimacy and political credibility re-

quired to spur market adoption.

For example, to implement its Drive-

Now premium car-sharing business, BMW

set up a strategic network of partners that a

team of senior executives manages. Initially,

the team established a joint venture with

Sixt SE, a leading European car rental com-

pany based in Pullach, Germany. Sixt shared

BMW’s vision of creating synergistic value

by introducing affordable, flexible and en-

vironmentally friendly solutions for

individual mobility. While BMW provides

technical know-how and marketing skills,

Sixt contributes its expertise in fleet man-

agement and customer operations.

DriveNow works with political decision

makers at the national, regional and city

levels. For the launch in Munich, the city

council allowed DriveNow vehicles to park

in any of the city’s public parking spaces.

This was a change from previous car-shar-

ing offerings, which require users to drop

cars off at specific locations; by not requir-

ing customers to return a car to the same

parking space where they picked it up, the

DriveNow model reduces exhaust emis-

sions and increases flexibility for customers.

The city found the collaboration attractive,

since it helped reduce problems with con-

gestion and environmental pollution while

ensuring steady revenues for the city from

public parking spaces. For BMW, beyond

helping to make DriveNow a profitable

business, the collaboration provided addi-

tional legitimacy since the public perceived

the company as supporting the public’s in-

terest in more sustainable transportation.

DriveNow gained 85,000 registered mem-

bers in its first year in Germany and is

growing by 10,000 members a month.

STEP 4: Install multi-perspective moni-

toring systems Once the process of

synergistic value creation has reached the

implementation stage, the company must as-

sess its effectiveness. Since market demands

and trends are constantly shifting, companies

need to assess and adapt their portfolio of

products and services. Traditionally, compa-

nies use internal performance metrics to

monitor whether products or services con-

tinue to fulfill customer expectations.

However, although these systems capture

the economic value dimension well, they are

insufficient to evaluate the public value that

these initiatives create. Public value cannot

be measured internally because it is largely

dependent on external observers’ percep-

tions. Companies striving to monitor their

synergistic public-private value creation

process therefore complement their internal

monitoring systems with perspectives from

different external stakeholders.

After the launch of its prefabricated

homes business, the Chinese real estate de-

veloper Vanke relied initially on internal

figures to assess the reductions in energy,

water and wood consumption achieved

through the use of prefabrication. The chair-

man set yearly savings targets for resource

consumption and carbon emissions. Strong

improvements were realized by extending

the projected average lifespan of a house.

Vanke then engaged in extensive cus-

tomer surveys to understand how customers

perceived the company and which of its ac-

tivities they valued most. These surveys

helped align the company’s offerings with

changing customer demands and also fur-

ther improved the economic and public

value creation of its prefabricated homes.

Over time, Vanke complemented its internal

monitoring systems with additional external

perspectives, such as the U.S. Green Building

Council’s LEED standard for excellence in

green building design, construction, opera-

tions and maintenance. In addition, Vanke is

now working with the World Wildlife Fund

on environmental sustainability issues.

Multi-perspective monitoring systems

are not only well suited to measure public

and private value. They also provide an im-

portant foundation for further synergistic

value creation. For example, BMW’s assess-

ment of its DriveNow business provided

very valuable insights regarding the evolu-

tion of public mobility needs, which are

now being used by the company to develop

more next-generation mobility ideas. In

other words, the four steps of synergistic

value creation can form not so much a sin-

gle line as a virtuous spiral — one that will

hopefully lead the company to both higher

performance and greater public value.

Engaging in a process of synergistic

public-private value creation has many

benefits. It can stimulate new growth and

increase the company’s profits. It can also

be a great way of improving customers’,

partners’, and other societal groups’ per-

ceptions of the company. Our favorite

outcome, however, is the sense of purpose

and fulfillment these synergistic value cre-

ation initiatives give to employees. In all of

the companies we studied, employees’ eyes

lit up when we asked about their involve-

ment in these projects. After all, it’s not

every day that you can help your career,

help your company and help society all at

the same time — at least not yet.

Alexander Zimmermann is an assistant professor of organization and strategic management as well as project manager at the Center for Leadership and Values in Society at the University of St. Gallen in Switzerland. Peter Gomez is the former president of SIX Group in Zurich, Switzer- land, and the former dean of the University of St. Gallen. Gilbert Probst is a managing director at the World Economic Forum in Cologny, Switzerland, and a professor of organizational behavior and management at the University of Geneva in Switzerland. Sebastian Raisch is a professor of strategic management and director of the executive MBA program at the University of Geneva. This article is drawn from a larger research project on companies that have achieved sustainable growth and profitability under- taken by the Center for Organizational Excellence (CORE), a joint effort of the University of St. Gallen and the University of Geneva. Comment on this article at http://sloanreview.mit.edu/x/55310, or con- tact the authors at [email protected].

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