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Why “Great” Is No Longer Good Enough
Research confirms that companies that attend to TSI perform better financially than those that don’t. They generate better returns, are more valuable, and have an easier time attracting capital.
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Is your company “great,” delivering exceptional growth and profits? In the 21st century, that won’t be enough. A consensus is emerging that companies exist not just to make shareholders rich, but to deliver broader benefits across stakeholder groups, including employees, customers, communities, and the environment.
Rather than running their businesses to maximize total shareholder returns (TSR) and then “giving back” via CSR initiatives, companies are retooling their core operations to maximize total societal impact (TSI), understood as the cumulative social benefit delivered by a company. This is the first of seven key paradigm shifts uncovered by my BCG colleagues and I in our study of leading-edge global companies, as conveyed in our book Beyond Great.
External pressures to transcend shareholder maximization are enormous—and growing. Communities are demanding that firms attend to TSI or lose their license to operate. Consumers and prospective employees are choosing to do business with or work for companies that deliver social benefits over those that don’t. Investors are pouring trillions into companies that perform against environmental, social, and governance (ESG) measures. And companies themselves are recognizing the urgency of global challenges and the need to address them. As one executive remarked, “If the world dies, we won’t have a business.”
Instead of a “tax” on business, as CSR has traditionally been, these mounting trends render TSI a potential boon for companies. Research confirms that companies that attend to TSI perform better financially than those that don’t. They generate better returns, are more valuable, and have an easier time attracting capital. As Blackrock CEO Larry Fink argues, companies that pursue a multi-stakeholder approach “will attract investment more effectively, including higher-quality, more patient capital.”
BCG research into dozens of global companies uncovered three approaches that leading-edge companies have taken to enhance their social impact while also delivering strong shareholder returns and growth:
Approach #1—Innovative Business Models: Companies are improving life for people in underserved communities by finding new ways to expand access to their products and services. Mastercard has pledged to make financial services available to 500 million people by 2025. To date, the company has helped launch a mobile payment platform in Uganda and a platform that links rural farmers to markets. As one Mastercard executive explains, “Our core business is building the digital infrastructure to give people access to business and commerce. We now ask how we can extend the same core capabiltiis to the marginalized segments and population.”
Approach #2—Retool Processes and Functions: It’s one thing to innovate, but why not take social needs into account from the very beginning when embarking on new projects? That’s what the Japanese manufacturer Omron does. When deciding where to channel R&D investments, leaders scour for opportunities to do good in four key areas: health care, social systems, factory automation, and mechanical components. The idea is to deploy Omron’s technical capabilities to drive future profits while also solving important problems. To date, Omron’s innovations include technology that improves road safety and reduces the burden on the country’s healthcare system.
Approach #3—Partner with Local Governments: As a regular part of their operating models, global companies are working closely with stakeholders to improve the welfare of local communities. The mining company Anglo American, for instance, works collaboratively with a range of stakeholders, making capital investments that not only generate shareholder value but are designed to open the way for economic growth in local communities.
Firms pursuing these three approaches don’t simply enjoy the satisfaction of doing good. They reap significant business benefits, securing their license to operate, establishing a presence in new markets, and building strong customer loyalty. By delivering benefits to a range of stakeholders, not just shareholders, they’re going far beyond “great.” Your company can, too.
Boardroom comment by Rama Bijapurkar, Independent Board Director, Professor of Management Practice IIM Ahmedabad
Few old economy companies are opting to pursue the first approach above, as the resulting businesses are high volume and tiny margin with high, upfront CAPEX investment. Only firms like HUL and Jio have shown an appetite to engage, and even businesses created to target the underserved like Small Finance Banks or NBFCs levy “cost plus” premium pricing. But some emerging new economy companies are taking this approach, innovating using digital aggregation and sharing business models to crash costs. NPCI has walked Mastercard’s talk with UPI and PayTM, Googlepay are onboarding street hawkers. India also abounds with amazing small innovators with pilot tested models to serve the underserved. But because India’s incubation and early-stage funding ecosystem is woefully inadequate, these entrepreneurs win innovation awards but then have trouble growing viable businesses.
Big, established Indian businesses can adopt Approach #2 impactfully, and many are already on this path. In areas like nutrition, solar power, electric mobility, med tech, prefab housing, infrastructure, and agri solutions we see “profit meets purpose action.” Government partnerships without pain is Nirvana for India Inc., but successful public- private partnerships require fundamental changes on both sides, which aren’t happening any time soon.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.