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Measuring Industries of Purpose

At FSG, I have spent years thinking about Creating Shared Value (CSV) with my colleagues. We’ve been on a mission and are reaching a most exciting tipping point: companies throughout the world want to understand how to create shared value. Next week I’ll be in Indonesia to brainstorm about CSV opportunities with two local companies.

Tipping points, however, often bring more questions, more horizons, and more innovation potential. Here are some things that are on my mind as we look forward to what we’ve called the CSV (r)evolution:

Industries of purpose: as more and more companies embrace new visions for leadership around social needs, are we going to think about industry sectors in a different way? As I think about leading CSV companies, they state their mission clearly. Nestlé is the ‘Nutrition, Health and Wellness’ company, Syngenta is hanging a ‘Food Security’ mission over its activities, Houghton Mifflin Harcourt (HMH) – a major publishing company - is concentrating its purpose around ‘Educational Outcomes. ‘ And the list goes on and on. We’ve had the ‘Healthcare’ industry for a long time, the ‘Clean Tech’ sector for a few years, and if we are right about CSV as the new frontier of competition, then won’t we see new industries of purpose emerge? I can just hear the financial analysts on business talk shows: “In our Food Security portfolio…we think X is a “buy;” and in our Educational Outcome segment, we would favor Y for delivering superior financial and educational returns.”

Measuring purpose: Well in that case, we better start answering questions on how to compare companies on food security or educational outcomes. And the answer is not to be found in the CSR measurement legacy. Sure, we’ve made big strides there, particularly on measuring the use of natural resources, energy or even labor inputs – as championed by GRI. Those measurements are getting smarter too. I am impressed by Corporate Knights in Canada for example, in the how they look at energy productivity across companies within industry sectors. You can see how this approach could spread to water or labor productivity measures, and be useful to financial analysts, as corporate laggards may indeed be heading into oblivion for lack of rigor in a resource constrained world.

But we’ve got to look beyond compliance and sustainability metrics.

As once hammered in by my business school professor: revenue is king! You can’t win forever on labor or resource productivity; you’ve got to find ways to better serve (customer) needs and new avenues for growth. So now that we will have high growth purpose industries, how will we compare who’s winning on that challenge?

Perhaps we can start with the one we’ve had around for a long time: the healthcare industry. If you look at what is being measured today from a needs perspective, you quickly fall back into the old CSR world and stumble unto the ATM (Access to Medicines) Index. The instigators of the ATM have a noble cause: show which pharmaceutical company does more or less for access to medicines for the poor, and it will cause laggards to do more. And it works, because companies are terrified of the impact of ‘naming and shaming’ strategies on their overall business. But it is precisely the fact that the overall business is ignored by the ATM that has always bothered me. What about that ‘rich’ cancer patient in a ‘rich’ country and how medicines are helping her? The public health sector, albeit imperfect, has a measure for healthcare that cuts across disease areas: DALY (Disability-Adjusted Life Years). DALY measures loss of life and loss of life days due to any disease. With that indicator, you can compare the relative burden of any disease, or conversely, the relative benefits of any healthcare intervention. Pharmaceutical companies know how many patients they reach with their products and the relative improvements in health outcomes these products deliver: it was part of their business development strategy and regulators’ approval process. So why not measure such economic and DALY purpose consistently? I see my future analyst talking again and pointing at a two-by-two matrix: on the upper quadrants are the companies that deliver high financial and DALY returns, and their success is ensured by the inherent linkage between the two. DALY intensive sales and profits are worth more than DALY weak sales and profits (read more about “not all profits are equal” here).

A lot rests on how precisely you define the purpose and specific objectives of our new competitive niches. Companies that define their purpose as “Zero Emissions Mobility” (like Toyota) or Food Security need to find that common measure that will be attached to each new business plan to measure progress against purpose. Food security is largely about yield improvements in agricultural based on the same or lesser use of natural resources, and then of course access to that agricultural output for consumption. For companies like Syngenta, each new seed variety, or pesticide, should have an incremental yield/resource impact versus products already available in the markets. Should we ask each product manager to deliver results against yield purposes and guide investment decisions across the company with these opportunities and results in mind?

Aggregating purpose: the next challenge of course is the actual measurement and aggregation of results across the company. We know from the social sector and our learning and evaluation practice at FSG that rigorous analysis of social outcomes can be extremely complex and costly. Even DALY or yield measurements, which we know how to do, will require considerable foresight, research and validation to measure and aggregate across products and services. Then take a company like Nestlé, operating in almost every country of the world with hundreds of brands, and tell me how we will aggregate and compare its nutrition purpose against another nutrition company? Nutrition is particularly tricky, because there’s a lot more in a daily food basket than that one Nestlé product. And measuring that specific contribution to a diet is extremely difficult: it takes costly longitudinal studies tracking individual consumers over time. Part of the issue here may be that we don’t have a specific problem defined as “nutrition.” We don’t have a DALY measure here that cuts across nutrition needs. So does Nestlé need to set the tone on the basis for competition and issue nutrition metrics (e.g. calories or micro-nutrients delivered per consumer)? Or does it need to find more specific needs and outcomes under nutrition (e.g. micro-nutrients deficiencies) and therefore “compete” in several different purpose markets under nutrition?

Our CSV pathway is set and new industries of purpose are emerging: but we’ve got a lot more thinking to do! Join us in this journey, let’s crack these questions and we will truly unleash the shared value (r)evolution!

Marc Pfitzer

Managing Director