Why social innovation matters to business

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The World Economic Forum’s Global Agenda Council on Social Innovation, an advisory body comprised of leading practitioners, thought leaders and academics, defines social innovation as “the application of innovative, practical, sustainable, market-based approaches to benefit society in general, and low-income or underserved populations in particular”. Social innovation means being more strategic, more ambitious and more collaborative in how access and opportunity can be provided for billions of low-income people to participate in the global economy.

It is society that gives us the right to be active, our licence to operate. A business leader has to think about how to solve the societal challenges of today, because if we don’t solve them, we will not have a business.

Corporate involvement in societal issues is not new, of course. Companies have long deployed a portfolio of tools to exercise their citizenship in society, including corporate governance, corporate philanthropy and corporate social responsibility. What distinguishes social innovation from these traditional approaches is the pursuit of societal challenges in ways that create tangible business benefits. While those methods and approaches can vary, social innovation strategies share certain characteristics:

  • They are directly aligned with the company’s innovation agenda and business strategy.
  • They leverage a company’s core for-profit assets, such as human capital, value chains, technology or distribution systems.
  • Increasingly, they are managed from within a firm’s core operations or business units.

Benefits to the companies include not just financial returns but also improvements to long-term competitiveness, including access to new markets or consumers, strengthened supply chains and talent retention.

Why is social innovation relevant to business?

Restoring trust in business: According to the 2015 Edelman Trust Barometer, public levels of trust in business are at its lowest since 2008. More than half (55%) of chief executive officers who participated in the PWC Annual CEO Survey are concerned about these declining trust levels. Businesses that are able to enhance their net positive contributions to society are more likely to earn the trust of stakeholders and secure their licence to operate in society.

Adapting to resource scarcity and environmental concerns: There is heightened pressure on companies to invest in the resilience of their supply chains and a growing business case to assess their social and environmental footprint, ensure responsible practices and “internalize” negative external impacts. Companies that pursue business models and strategies that invest in the economic prosperity of key stakeholders in its supply chain, including small producers and local communities, are better poised for long-term competitiveness.

Attracting and retaining talent: Tomorrow’s workforce views business success differently than their parents’ generation, and prioritizes long-term sustainability over short-term profit maximization. Six in 10 millennials indicated in the “Mind the gaps: The 2015 Deloitte Millennial survey” that a “sense of purpose” is a major factor in their decision to work for their current employer. Moreover, considering that an absence of loyalty to employers marks this generation – two out of three respondents expect to move to a new employer by 2020 – companies must “stand out” in their efforts to improve employee retention, pride and loyalty, or face significant turnover costs.

Changing performance metrics: A growing number of investors are including social and environmental considerations into their performance metrics and investment decisions. For instance, according to the Global Sustainable Investment Review 2014, the share of sustainable assets within all professionally managed assets globally grew from 21.5% in 2012 to 30.2% in 2014. For the first time, the 2015 Harvard Business Review ranking of the top 100 performing CEOs in the world – a measure aimed at evaluating long-term performance – weighted social and environmental performance at 20% of the overall score. The #1 CEO on the list, Lars Rebien Sørensen of Novo Nordisk, crisply summed up the importance of this shift in measuring success: “In the long term, social and environmental issues become financial issues.”

Search for growth and inclusion at scale: Even as the World Bank reports significant progress in tackling extreme poverty across the world (with less than 10% of the global population estimated to be living on less than $1.9 a day), there are growing concerns on rising income inequality worldwide. As the world searches for solutions at scale to address societal challenges, governments and civil society leaders are calling on business to make key contributions. The recently launched Sustainable Development Goals (SDGs) offers an opportune framework for such contributions. Companies that turn societal challenges, such as unemployment and lack of healthcare services, into opportunities that enhance business growth and long-term competitiveness will be positioned for sustainable success.