We are not making fast enough progress to address the big social and environmental problems (partially) described in Part 1.
As therecent IPCC reportclearly demonstrated, we are moving in the wrong direction overall on climate, resource scarcity, renewable energies, etc.
Every ‘for profit’ corporation has a great story to tell on progress in the context of Sustainability, every NGO, philanthropic and nonprofit organization should receive the highest respect for their efforts. But its only incremental change and not moving the needle. All progress is easily wiped out by our growing population, growing middle-class and our growing demands as consumers.
Systemic change, asAron Cramerfrom BSR calls it, is required. That only can come from ‘for profit’ corporations. Why? Only those have the resources needed to scale up the efforts to address our BIG social and environmental problems.
Some might think this would contradict Milton Friedman ‘dogma’ stating ‘…the only responsibility of business is to increase its profit’, something I learned during my economic studies. But here I prefer the viewpoint of Professor Michael Porter from Harvard stating ‘…the purpose of the corporation must beredefined as creating shared value, not just profit per se’. He further continues explaining that the role of corporations is to solve social and environmental challenges – with a profit. Because only profit allows any solution to be infinitely scalable and sustainable.
Michael Porter does not see a trade-off between economic efficiency and social progress, he argues we can address a social (or environmental) issue and a business problem jointly. But if we view ‘…value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success’, we will not be able to achieve this.
Corporations cannot continue to ‘….overlook the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, or the economic distress of the communities in which they produce and sell?’ Instead, companies must take the lead in bringing business and society back together.
‘Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success’ (Michael Porter)
SAP’s co-CEO Bill McDermott’s recent article ‘Saving world is good biz strategy’matches that perfectly. We can ‘…innovate business models around making the world run better and improving people’s lives’ by ‘…creating a new era of responsible growth that protects the planet and benefits everyone’.
That’s why we at SAP continue to invest in (among others)
A next generation ERP system that accounts for, manages and plans for ‘externalities’, and therefore goes beyond ‘traditional’ enterprise resources like cost, material and labor. (Note: Externalities arise when corporations create social and environmental costs that they do not have to bear, such as pollution – today we do not measure, manage and plan them and therefore do not put a price on it).
A narrow interpretation of capitalism has brought us into todays situation. But the awareness of social and environmental problems is different now. We find more and more cases where corporations profit from solving those challenges. I like Michael Porters and Bill McDermotts views from the concept of ‘shared value’, where everyone recognizes that in ‘….societal needs, not just conventional economic needs, define markets’.
My outlook: 2014 will be the year for systemic change, where innovative business processes generate new potential, customers are treated as informed citizens rather than consumers, and investors will base their decisions on sustainability performance next to financial performance.
And last: My favorite books in 2013 (hopefully) fitting into this blog write-up and are highly recommended to be read in the sequence listed, because it rocked my world view (and will probably change yours):
Hot, Flat, and Crowded 2.0: Why We Need a Green Revolution--and How It Can Renew America by Thomas L. Friedman
Upcycle by William McDonough & Michael Braungart
Let my people go surfing by Yvon Chouinard (founder & owner Patagonia)