Corporate purpose in the era of disruption

Read the article in Spanish published in Harvard Deusto

Authors: Sonia Navarro & Sonia Ruiz

We are facing a disruptive era, with exponential, systemic, and interrelated social and environmental challenges that will radically affect the way we live and work. In this new context, it is expected that companies will act as social agents of change.

To maintain their social license to operate, companies will have to link their value proposition and corporate purpose to the social and environmental impacts they generate. It is expected they will play a pivotal role in solving the major social and environmental challenges of our times.

A new paradigm: systemic challenges

We are immersed in a new environment where immense social, economic and environmental challenges cannot be addressed individually by any social agent.

The integration of purpose and sustainability in core business strategies reflects increasing demands and greater pressures from society. These may range from impact investments and environmental, social and governance regulations – to more demanding consumers and employee activists.

Stakeholder capitalism implies that a company creates value while considering all of its stakeholders

Companies must adopt a more integrated approach on the impacts they generate: meaning how their activities affect people, the planet and the communities in which they operate. The era of shareholder capitalism is over, and the new paradigm, stakeholder capitalism, implies that a company creates (and shares) value while considering all of its stakeholders. Resilient, innovative and forward-looking companies are part of the solution and not the problem.

According to all the forecasts, in 2030 the planet will lack the resources to support two billion more citizens. The complexity of these challenges is clear and the latest Global risks report published by the World Economic Forum stressed that five of the top risks by likelihood and three by impact were climate-related.

But what the report also indicates is that other equally relevant challenges are interrelated. Human rights, social inequality, migration, demographic changes, the crisis of democracy, global governance, the re-emergence of populism, risks derived from cybercrime, and loss of biodiversity, are systemic, complex and interconnected challenges in a globalised world.

We believe that a company that ignores this reality will not be competitive in the medium or long term. Companies need to develop scenario planning and strategically evaluate how these risks affect their value chains and business models, and how they will contribute to solving these problems.

For this reason, we consider that the corporate purpose should respond to how a company responds to these global challenges and creates shared value for all society. As the British Academy report Principles for purposeful business indicates: "the corporate purpose is to contribute to solving the challenges of humanity and the planet profitably, not obtaining profitability as part of the problem."

The era of radical uncertainty is here to stay

The purpose, conceived as a gearshift for corporate transformation, enhances the ability to anticipate and act on the disruptions of our time, and which will become more the norm than the exception in this new decade. The era of radical uncertainty is here to stay.

Corporate purpose is the ability to create shared and sustained value with and for society. The generation of shared value must be linked to the business model, guide the future strategy of the company and its decisions, be activated through values, culture, and corporate leadership, as well as through the value chain and company stakeholders. It must go beyond a marketing slogan and a mere declaration of intent. It should not be descriptive nor complacent, but disruptive and challenging.

The future will be for the companies that adopt this vision with agility, flexibility, and so adapt to these volatile times of rapid and constant change.

Collaboration, social innovation and the 2030 Agenda as levers of corporate purpose

Intersectoral collaborations are at the foundations of social innovation. According to the definition of the European Commission (Innovation Union, 2010), social innovation consists of finding new ways to satisfy social needs, which are not adequately covered by the market or the public sector; and or in producing the necessary behavioural changes to solve the great challenges of society by training citizens and generating new social relationships and new models of collaboration.

It is often confused with the concept of social entrepreneurship, but, although linked, social innovation is not always developed through entrepreneurship (it can be, for example, a public policy or an innovative model of collaboration with a company or public organisation).

Corporate purpose is the ability to create shared and sustained value with and for society

For this type of more complex collaboration, a key element is building trust. The trust, loyalty and commitment of an organisation depends on how people, throughout the organisation and not only at higher levels, communicate, integrate and reinforce the purpose and values in all their interactions.

Defining purpose and values is important, but it is only the first step. These values must be shared and placed at the service of a common impact objective. According to the publication of the Esade Institute for Social Innovation, Pathways to systemic change, these collaborations must respond to the following factors:

Despite having shared objectives, difficulties arise when establishing collaborations with organisations from other sectors (public sector, incubators and accelerators, universities, social entrepreneurs, foundations and civil society). These difficulties include finding a common language and resolving different organisational cultures and strategies to achieve what may be the same objectives.

Key actors in the ecosystem of social innovation can act as networking platforms so these relationships of trust are established and consolidated.

Foundations and universities, for example, generate neutral spaces of connection between actors from different sectors by providing content through various formats (such as training, research, events, workshops, forums, competitions and challenges).

The Ashoka Foundation or the B Corp movement are other clear examples of agents of change generating trust building spaces. They started by supporting the emerging world of social entrepreneurs, especially those seeking systemic impact. In the last few years, companies committed to advance towards a business paradigm change have joined changemaker communities exponentially all over the world.

The most referenced example when talking about B Corp and Ashoka is probably Danone, which is both an Ashoka Changemaker company through the movement "Alimentando el cambio" and the first certified Spanish B Corp consumer company.

Another notable example is Ecoalf, the first fashion brand in Spain to be certified B Corp. Ecoalf aims to be a truly sustainable fashion company and is one of the leaders of this movement. The company is creating a first generation of recycled products with the same quality and design as the best not recycled products. From its foundation, it has coordinated the Upcycling the Oceans Spain project together with Ecoembes and together they have recovered tons of rubbish from the seabed.

2030 Agenda and SDGs

A good way of incorporating purpose into business management is to align strategies with the 17 sustainable development goals of the UN Agenda 2030. The SDGs are a fabulous framework of reference for companies to activate the purpose and make it explicit in actions that generate impact at a systemic level.

PWC's 2018 SDG report From promise to reality: Does business really care about the SDGs?  notes that most companies only select the SDGs where they already have metrics. As a first step that makes sense, but it also suggests that organisations see SDGs as another reporting requirement, rather than an opportunity and commitment for the entire company. However, making this commitment is essential to place the organisation in the transformative dimension implicit in the 2030 Agenda and which is absolutely essential to make it a reality.

Organisations see SDGs as another reporting requirement, rather than an opportunity and commitment for the entire company

According to Esade Chair of Leadership research, The need to accelerate the implementation of the 2030 agenda, an analysis of Spanish company reports indicates that the introduction of SDGs into the strategy of these companies is not advancing at the pace necessary to have a sustainable economy by 2030. Many companies tend to analyse the SDGs where they contribute positively and ignore those where they affect negatively.

However, there is also an increasing permeability between companies and actors in the social innovation ecosystem (networking platforms, accelerators, impact investors, educational and research centres, civil society and co-creation spaces), in which companies seek to consolidate the SDGs through synergies and innovation using diverse and creative formats of collaboration and co-creation.

An example is CityShakers, an open social innovation initiative that connects JCDecaux’s vision of social and environmental impact with key agents in the city of Barcelona, and amplifies and strengthens the message of "Everyone a changemaker" by detecting and activating high-impact solutions for current and future social challenges. The challenges that CityShakers pose are in line with the SDGs. To carry out this initiative JCDecaux, Ashoka and DOT S. Coop have formed an alliance focused on making social challenges visible and creating a platform for proven innovative solutions.

Another example is the Repsol Social Impact programme of the Repsol Foundation, from which a €50 million fund was launched in 2019 for investing in companies focused on energy transition and the inclusion of vulnerable groups in Spain and Portugal. The Ship2B Foundation and Open Value Foundation are collaborating in this initiative. In addition, a collaboration agreement has been signed with Ilunion, the ONCE Group social brand.

In the aforementioned cases, we see how the field of social innovation and the framework promoted by the 2030 Agenda can act as a framework for global governance in the twenty-first century by enabling strong synergies through impactful collaborations that involve at least three or more actors with different roles. These collaborations orient corporate purposes towards generating social and environmental impact.

How to articulate corporate purpose

The transition to sustainability and social innovation and the integration of purpose as a key value proposition for companies is not an easy task: it requires a holistic leadership and a corporate culture open to collaborations that help us rethink both challenges and solutions. It also requires adaptability, flexibility, agility and social vision, and the ability to listen, co-create and innovate with the most relevant stakeholders.

The articulation and activation of the purpose should be a co-creation process in which companies should answer three questions:

1. What is my purpose?

The purpose is unique to each organisation and describes the "why," the rationale for the company, and how it creates shared value. Knowing the "why" of a company allows you to have the basis on which everything else is based: the "how" (organisational culture and business integration) and the "what" (products, services and brand).

There are several ways to start this conversation: one is to go back to the origins of the company's foundation, search its history and legacy, and the values that underpinned its creation. Another is to openly and proactively ask big questions about the future of the business model in a changing world: will it be relevant in three or five years? What disruptive trends will impact our core business? How can we adapt to it? Should we change?

The transition to sustainability and social innovation requires a holistic leadership and a corporate culture open to collaborations

It is at this point, when it becomes relevant to align the corporate purpose with the United Nations Sustainable Development Goals, identifying and prioritising those challenges that are related to the business core and defining an action plan with indicators to make it possible.

Last but not least, it is essential to establish channels of dialogue and co-creation with stakeholders in which employees, suppliers, customers, investors and the community can offer their point of view on what distinguishes our company and what motivates others to collaborate and work with us. The process of defining the sustainability materiality analysis can become a great source of information when redefining and co-creating corporate purpose.

2. How to activate the purpose?

Activating the purpose implies having a plan that integrates it into the business and the value chain. It is about having a culture and leadership of purpose that encourages innovation, risk, involvement, transparency and accountability. It is essential that corporate governance and leadership create the conditions for purpose to be a key element in decision-making, business processes, in how human resources are managed and in attracting talent.

It is highly relevant to integrate KPIs for measuring social and environmental impact across the business, such as those determined in the Global Reporting Initiative (GRI), SASB, or Social Value International, which are working together with the OECD for the harmonisation of measurement measures and transparency in ESG risks and their impacts.

3. How to create an ecosystem of change that sustains the purpose?

To scale the purpose, the creation of an ecosystem of collaboration with other players is essential. Recognising that the challenges before us are greater than any organisation that seeks to solve them is the first step in adopting a systemic change strategy that enables the articulation of an ecosystem of social and sustainable innovation.

Companies with purpose seek new opportunities for competitiveness and innovation to achieve a more inclusive and sustainable future. Open innovation processes, collaborations between impact start-ups and large companies, co-creation projects between different interest groups (suppliers, customers and consumers), hybrid NGO-company models and partner intrapreneurships are increasingly successful as innovation strategies. These strategies enable incorporating diverse points of view and capabilities, as well as economies of scale, and greater flexibility and speed in the development of new business ideas, products, or services.

Companies with purpose seek new opportunities for competitiveness and innovation to achieve a more inclusive and sustainable future

More than ever, we need leadership with purpose and corporate responsibility that knows how to navigate in times of constant change. This new leadership must be collaborative, have a systemic vision, manage alliances in a comprehensive manner and integrate sustainable and social innovation, as well as the generation of shared value, in its business models. The leaders of the future will be those that find the corporate purpose to transform their organisations in a complex, uncertain, interconnected and hyper-transparent world.

Companies that articulate and activate their purpose and are committed to society will be rewarded by their stakeholders and will be the best prepared to successfully tackle future disruptions.