Qualities of Social and Sustainable Enterprises

Berge discussed the concept of a “social enterprise” including the following description: “A social enterprise’s primary objective is to ameliorate social problems through a financially sustainable business model, where surpluses (if any) are principally reinvested for that purpose”.[1]  According to Fury, the elements of a “social enterprise” include a primary social purpose, a financially sustainable business model, and a mechanism for ensuring accountability and transparency.[2]  Berge further explained that social enterprises balance “mission” and “market” and their goals include the creation of not only economic value but also social and/or environmental value.  Social enterprises are looking to perpetuate resources rather than accumulating excess profits and any profits that are derived from the activities of the enterprise are to be reinvested in the business as operational expenses or used for mission activities and/or retained for business growth and development.[3]

Qualities of Sustainable Enterprises

Wirtenberg et al. analyzed the sustainability initiatives at nine large, public, multinational companies that had been recognized as being among the world leaders in “sustainability”, a process which included assessing how those companies handled environmental, governance, social responsibility, stakeholder management and work environment issues.  Their research allowed them to identify seven distinguishing qualities that they believed were associated with achieving “triple-bottom-line corporate sustainability” and which were also amenable to managerial intervention.  These qualities included deeply ingrained values relating to sustainability, strategic positioning, senior management support, systems alignment (i.e., structures and processes around sustainability), metrics, holistic integration across functions, and stakeholder engagement.  They then organized these qualities into a three level “pyramid” that they used as a representation of an organization’s sustainability journey.

The bottom level of the pyramid, referred to as the “foundation”, included three fundamental drivers of a successful journey to sustainable management.  The first driver was corporate values consistent with sustainability which were deeply ingrained in the organizational “DNA”, typically embedded by the founders.  The second driver was visible support for sustainability from top management, which often took the form of members of the executive team asserting their personal and positional influence about the importance of sustainability and their personal involvement in setting the priorities as well as making important strategic decisions that affected the sustainability of the company.  Top management support was important to creating an organizational culture in which extensive inquiry and self-examination was encouraged and welcome at all levels of the organizational hierarchy. Top management should evoke a long-term perspective for the company and seek to take steps that ensure the success and strength of the company for future generations.  The third driver at the foundational level was placing sustainability as central to the company’s business strategy, which an executive from one of the companies explained as: “For us sustainability is business. This is business stuff, it’s not something that sits outside.”  The companies recognized that that performance was inextricably linked to caring for communities, environment and society and developed business strategies that simultaneously took into account all stakeholders, as well as the short- and long-term view.

The second level of the pyramid, referred to as “traction”, focused on executing top management decisions regarding sustainability values and strategy and included the development of sustainability metrics (“we manage what we measure”) and alignment of formal and informal organization systems around sustainability.  Metrics should be included in the business plans that are created during the planning stage for sustainability initiatives so that they are embedded from the very beginning, not imposed at some later date, and can be referenced when aligning the company’s structures and systems to its sustainability goals.  The measurement of key performance indicators relating to sustainability should be accompanied by disclosure and reporting to the company’s stakeholders.  Reporting obligations add rigor to the assessment and allows companies to transparently demonstrate the values and initiatives driving its sustainability program.  Reporting also makes companies more accountable.

The third and top level of the pyramid, referred to as “integration”, called for broad stakeholder engagement and holistic integration, which was explained as an elusive state in which all “the many facets and functional domains of sustainability were conceptualized and coordinated in an integrative fashion”.  Wirtenberg et al. noted that even the companies they had studied, all of which had demonstrated exemplary progress with respect to implementing sustainability strategies, “seemed to be struggling with reaching this cross-boundary, multi-stakeholder, integrative pinnacle”.  They explained that holistic integration occurs when companies are able to bring multi-faceted activities under a clearly understood, unified umbrella of sustainability, which means aligning a variety of key enterprise functions around sustainability such as supply chain management, marketing and sales, accounting and finance, public relations, environment, and health and safety.  An executive at one of the companies suggested that holistic integration extended beyond internal activities to include connectivity with the broader industrial ecosystem in which a firm resides.

Sources: The discussion in this section is adapted from J. Wirtenberg, J. Harmon, W. Russell and K. Fairfield, “HR’s role in building a sustainable enterprise: insights from some of the world’s best companies”, Human Resource Planning, 30(1) (2007), 10.  The companies included Alcoa, Bank of America, BASF, The Coca Cola Company, Eastman Kodak, Intel, Novartis AG, Royal Philips and Unilever.  For discussion of the roles of HR leaders and the contributions of the HR functions, see “Human Resources: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).  Wittenberg et al. recommended several books on sustainability and the triple bottom line including A. Savitz and K. Weber, The Triple Bottom Line (San Francisco: Jossey-Bass, 2006); D. Esty and A. Winston, Green to Gold (New Haven, CT: Press by Esty Winston, 2006); and D. Hitchcock and M. Willard, The Business Guide to Sustainability (London: Earthscan, 2006).

 

This post is part of the Sustainable Entrepreneurship Project’s extensive materials on  Entrepreneurship and Sustainability and Entrepreneurship.

Notes

[1] L. Bergh, Sustainability-Driven Entrepreneurship: Perceptions of Challenges and Obstacles in a South African Context (Cambridge UK: Master Thesis for MS in Sustainability Leadership, July 2013), 6 (citing S. Steinman, “An exploratory study into factors influencing an enabling environment for social enterprises in South Africa”, International Labour Organisation (2010)).

[2] B. Fury, Social enterprise development in South Africa – creating a virtuous circle, Tshikululu Social Investments (2010).

[3] L. Bergh, Sustainability-Driven Entrepreneurship: Perceptions of Challenges and Obstacles in a South African Context (Cambridge UK: Master Thesis for MS in Sustainability Leadership, July 2013), 6 (citing B. Parrish, “Sustainability-driven entrepreneurship: Principles of organization design”, Journal of Business Venturing [e-journal] 25(5) (2010), 510).

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