Furthermore, business owners are not receiving any dividend out of the business profits, if any. On the other hand, unlike a non-profit, a social business is not dependent on donations or on private or public grants to survive and to operate, because, as any other business, it is self-sustainable. Furthermore, unlike a non-profit , where funds are spent only once on the field, funds in a social business are invested to increase and improve the business' operations on the field on an indefinite basis.
Per Yunus' quote: "A charity dollar has only one life; a social business dollar can be invested over and over again. Philosophically, social business is based on what Yunus identifies as the two basic motives of human beings, selfishness and selflessness. Selfishly, people do seek profit through business; however, social business is also based on the latter motive people by performing philanthropic services, like establishing churches, mosques, synagogues, art museums, public parks, health clinics or community centers.
According to the corporations we surveyed, the most important business benefit that social businesses can provide is the potential for learning and innovation.
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All along the value chain, companies often find that the new products, operating models, marketing strategies, and distribution approaches aimed at reaching those most in need have a broader commercial application and can be a source of competitive advantage for the core business. For instance, Grameen Danone Foods set a goal of improving the health of children in Bangladesh by selling nutritious, affordable yogurt to local families.
To maximize efficiency and create local employment opportunities, Grameen Danone Foods built the smallest plant that was technically possible—its capacity is below 4 percent of the typical capacity at a Danone factory in Europe. This production approach sharply reduces capital expenses and provides an innovative blueprint for small-scale production that Danone can leverage in other emerging markets.
When companies enter a new region, social businesses can also provide valuable insights into the legal, regulatory, and political environments. Social businesses can also provide less tangible but equally important employee benefits. Giving employees an opportunity to become involved in a social business can give them a sense of purpose and new personal- and professional-development opportunities. By providing experiences that enrich the lives of their employees, companies can strengthen employee engagement, job satisfaction, and retention. For members of this generation, experiencing a sense of purpose is an integral part of their lives and plays an integral role in their career choices.
Public campaigns to encourage corporate recognition of social issues demonstrate the growing power that external stakeholders can have on business success. Best practices for developing a successful social business, however, are not as well known. While social businesses can apply many of the same business principles to achieve financial sustainability, guidance on how to achieve and maximize social impact is less straightforward.
These factors are clustered across the five critical steps for developing a social business: choosing the right focus area, designing a successful business model, continuously learning and adapting, building efficient and sustainable operations, and managing for impact. In the following sections, we look at these steps more closely, along with the key lessons associated with them.
For an overview of the steps, see Exhibit 4. Any successful business identifies and meets a specific customer need. A social business is no different, except that it focuses its efforts on addressing an unmet social need or unsolved social problem.
When identifying a social problem to address, companies should start from a baseline of their core capabilities, goals, and learning agenda. By targeting a specific need that their core capabilities can address, social businesses gain a clear sense of purpose and can generate real impact. Danone, for instance, drew on its own expertise in nutrition when it chose to address the problem of poor nutrition among children from the lowest-income families in Bangladesh. Similarly, Veolia Water built upon its capabilities in providing safe water solutions by addressing the issue of arsenic-contaminated drinking water in Bangladesh.
Understanding the goals and learning agenda of the organization also helps orient the company to particular problems while maximizing the potential business benefits. Addressing the root causes was important for Grameen Veolia Water, a joint venture with Veolia Water, a leading provider of water treatment services. Given its core capabilities, Veolia Water identified the issue of providing safe drinking water to the people in rural Bangladesh as a potential focus area.
To truly understand the complex web of underlying issues, the company invested a significant amount of money and effort, even commissioning an in-depth study of the cultural and religious aspects of the problem.
As it turned out, there were several root causes. Despite growing awareness among villagers of the presence of arsenic-contaminated water, they continued to drink it. A UNICEF report noted that 80 percent of the local people knew arsenic could be a problem in tube-well water, and even though contaminated wells had been painted red to increase awareness, many villagers still used the wells either because there were no other alternatives or because of convenience and cost considerations.
By understanding these underlying causes, Veolia Water realized that an effective solution would require addressing not only the availability of safe drinking water but also the local perception and use of water. While Veolia Water has undisputedly strong expertise in designing the right technical solution, the company realized that solving behavioral issues would require additional skills and a focus on educating the local people. Understand the landscape of stakeholders, legal issues, and activities of other players.
Understanding the landscape of players is important in any business activity. But it is even more important when aiming to address a social problem, as the social sector is often very complex and fragmented. Fully understanding the regulatory environment as well as the activities and plans of the many players that are active in a given social area is key to deciding whether a new engagement can truly deliver impact.
For instance, BASF originally planned to address the problem of malnutrition in Bangladesh with a multinutrient product.neogeileyruthro.cf
But its detailed review of the complex landscape directed it to another option. In addition, there is a broad set of regulatory processes connected to the sales or distribution of micronutrient supplements in the country. After investigating this complicated network of stakeholders in detail, BASF Grameen recognized that there were already plans for a similar product and that regulatory hurdles would be too high to allow for a quick market entry.
An effective business model—with a clear value proposition—is as important to a social business as it is to a commercial business. The challenges that the social business model must tackle, however, are exceptionally difficult, particularly in the context of a developing country. Three other challenges were consistently mentioned: achieving a price point that the targeted population can actually afford, physically reaching those most in need, and generating sufficient demand for the new offering.
An effective business model must explicitly address these four challenges.
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The poor are demanding too: A clearly differentiated offering tailored to local needs is important. Operating a social business that sells products to the poorest populations does not mean cutting corners on quality.
- Building Social Business Models: Lessons from the Grameen Experience | Reading lists @ LSE.
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- Grameen UNIQLO (Bangladesh)│Unlocking The Power of Clothing. UNIQLO Sustainability.
Poor customers, therefore, put exceptional emphasis on getting value for their money. This makes it critical to truly understand their needs and to address those needs with a tailored and clearly differentiated offering. Existing products in other markets or business ideas from social entrepreneurs around the world may provide potential starting points.
Danone and BASF, for example, leveraged existing products as starting points for their solutions in Bangladesh.
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When no appropriate product exists in the current business portfolio, it is well worth the effort to systematically assess the local and global landscape for existing solutions to similar problems and the lessons that can be drawn from their application. To achieve real impact, however, a social business must tailor its product or service to the needs, culture, and local tastes of the targeted population. Standard solutions from developed markets rarely work.
Building Social Business Models: Lessons from the Grameen Experience
Market research in the field and consultation with local governments, NGOs, or partner organizations can help generate the insights needed from the local market to ensure a good fit between the solution and the specific local needs, as well as legal compliance, and a truly differentiated offering. For instance, BASF tailored the insecticide-infused mosquito nets it sold in other markets to meet the needs of the Bangladeshi customer. Instead of sizing the nets to cover a single bed, the company adapted the nets to cover an entire sleeping family.
Grameen Danone Foods innovated its yogurt formula by adding essential micronutrients needed to address local deficiencies. But to make the product appealing to local tastes, the company recognized that it needed to also thicken and sweeten its yogurt. Minimize the clash between affordability and sustainability: Consider differentiated pricing. This can be a major hurdle for social businesses to overcome. Veolia Water, for example, had to convince people to pay for clean, uncontaminated water when river water, although less safe, was free.
To overcome this hurdle, social businesses must achieve an affordable price point, while demonstrating the value of their offering. Social businesses have three pricing options. One is to charge the lowest possible price to reach the people most in need. Using low-cost, manual production processes to build its solar panels, the company is able to achieve prices even lower than those of competing Chinese imports.
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