Businesses have scaled negative social and environmental impacts through their profit formulas for centuries. While not their fundamental purpose, getting society to pay – directly or indirectly – for the health effects of smoking, fossil fuel emissions or the consequences of the migrant labour system has delivered immense rewards for some. As pushback by stakeholders and nature increases, companies are getting seriaaass about improving decision-making at their intersect with society and nature.
To reduce or offset their social and environmental impact, companies comply with legislation. They develop policies. They deliver ESG data to investors and donate a fraction of profits to charity. All good, but these things don’t scale. Porter and Kramer’s 2011 article on ‘Creating Shared Value’ opened a few doors, but movement has been painfully slow. One reason is the assumption that positive social/environmental impact must incur a tradeoff on profitability (not necessarily true). Another is that the leverage points for profit-enabled impact are not obvious.
Over the past decade, I’ve noticed recurring elements in business initiatives that deliver tangible social/environmental impact while tangibly enhancing the profit formula. I called them Profit-Enabled Impact (PEI) patterns. Patterns can be useful in complex systems. By organising overwhelming amounts of information into patterns of recurring elements or features, we can make complexity easier to understand. Learning more about applied complexity (my late discovery during Covid) helped me turn PEI patterns into a useful tool. You can also read about Ideator – a tool that supports PEI awareness and ideation – here. The rest of this post focuses on the patterns and how we came to work with them.
All PEI patterns have the potential to deliver positive social/environmental outcomes, but how a pattern is applied depends on the particular context. They might occur in different sectors geographies or parts of the value chain, but some fundamental element is repeated and that is the basis of the pattern. PEI patterns are activated through the core business. They are not about corporate largesse and all have demonstrated potential for increasing profitability in the short or medium term. This potential unleashes commercial genius – case by case – in pursuit of scalable social/environmental impact. The positive impact scales as the business grows. If another company can do it better, it probably will. Profit and competitive behaviour re-emerges from the naughty corner as a potential enabler of scaled positive social and environmental impact. At least that’s the idea; what happens in practice is another story.
Examples show how simple this concept is. By engaging micro-entrepreneurs, companies may become more inclusive of previously excluded groups (positive social impact). They may also develop new sales channels or supplier networks (positive impact on profit). Multinational consumer goods company Unilever engages micro-entrepreneurs (‘Shakti Ammas’) to sell its products in villages in India. Brewer AB Inbev engages micro-entrepreneurs to grow and sell barley in Uganda. Different contexts, different sectors, different geographies, but the activating element is the same: Micro-preneurs.
Whether or not the initiatives actually improve profitability or deliver positive social impact depends on many things. Hindustan Unilever’s Shakti initiative scaled to become part of the mainstream business, and led their growth during Covid. I stand to be corrected, but I suspect a quiet discussion with AB Inbev is likely to solicit a less enthusiastic report on their experience with micro-growers. Different context, different capabilities, different outcomes. Tangible evidence of outcomes is often lacking, but we still tag a scalable PEI initiative if it appears in the annual reporting cycle. In our experience public disclosure is enough to indicate that the pattern has potential and it’s a better starting point than something entirely new. (We can discuss the value of radical innovation some other time. I’ve got older and wiser and Snowden’s insight on this point has convinced me that radical repurposing is a better approach all round.)
Over the years, our team has developed a working knowledge of about 50 high-level PEI patterns. (I’m into helping machines take over this job, which would allow us humans to get on with more fun stuff. Watch this space.) For the time being, we personally scan many, many peer disclosures to identify the top 10+1 patterns most relevant to our client. 10+1 is an arbitrary number, but it’s a useful upper limit for first time exposure. The main point at this stage is to get teams to notice PEI patterns themselves, at which point they lean-in to their collective value chain insights and loving hearts.
Product-as-a Service was an early PEI pattern. Xerox pioneered it – before it became a pattern – in the late 1950s. By renting rather than selling photocopiers, Xerox customers benefitted from greater flexibility, lower operating costs and zero capital outlay. Long term customer relationships delivered tangible financial returns to Xerox. The positive environmental impact lay in improved productivity: by retaining ownership of the asset, Xerox had an incentive to keep it operational for longer and to recycle used parts. Both value stream are measurable, and the impact scales as the business grows. Of course more resources are still being consumed, but it’s a meaningful tweak in the matrix. Hilti did something similar with tools, Castrol does the same with fluid management. Fleet rentals appear to follow a similar pattern, but look again. Fleet rental solutions usually involve a partnership with financial institutions who take ownership of the asset. If the producer does not retain ownership, the social affordability might increase but the environmental impact may be a lost opportunity. Not necessarily; as ever, it depends.
Once we understand PEI patterns, we notice them all over the place:
- Rematerialisation: Afrisam’s Eco-cement uses recovered waste – slag – in a hybrid product to lower its costs and carbon footprint. Coca-Cola’s marine bottle – made with recycled marine plastics – does something similar.
- Raw material substitution: AB Inbev applies this pattern in Uganda too, substituting cassava for traditional hops and barley. Cape Town-based food tech company Freddy Hirsch make use of locally available, sustainable raw materials in alginate sausage casings – derived from kelp – helping global B2B customers replace animal products in their brands. (Given the plant-based food trend and the juicy fact that Americans alone consume 20 billion hot dogs every year, that’s impressive growth potential for a family-owned business.)
- Intermediate products: Canadian petroleum company Frontera Energy uses water extracted from their Colombian mines to supply irrigation water to local communities. This pattern inspired teams at local alcohol brands company Distell to consider how snails harvested from their vineyards might be used for mucin production, an ingredient in beauty products. Intermediate products is the primary pattern, but the Distell team quickly recognised the opportunities for engaging Micro-preneurs in the process. Environmental impact can potentially expand to social impact.
As Distell discovered, primary PEI patterns usually open the space for secondary and tertiary patterns to increase potential impact. This is what The Cynefin Co calls exaptation (think expand and adapt) and it motivated Distell to use Ideator to develop one of their brand strategies. When patterns combine along the value chain, we anticipate accelerated learning because someone or some team within the company is seeing with pattern-mind.
Companies can extend or adapt their own PEI patterns to increase impact and accelerate growth. Discovery built its health insurance business on a PEI pattern we call Behaviour change. By incentivising customers to become healthier, the Vitality model tangibly reduces claims, increasing the cash available for innovation. The pattern underpinned their global growth strategy, with the Vitality chassis sliding into place for every partnership and joint venture (including their 25% partnership with the Ping An Group of China through Ping An Health). Discovery recently exapted their core behaviour change pattern by committing to launch climate-related product offerings in South Africa and the United Kingdom by 2023. They’re old hands at behaviour change, but carbon is another ballgame. Let’s see if they get it right.