Children have a limited understanding of the broader cultural and environmental systems of which we are all a part. They act without a thought of how their actions relate to the whole. Their blissful ignorance cannot and does not last, however. Awareness of the consequences of our actions increases slowly as we pass from childhood to adolescence and adulthood, and is ultimately something we come to own in the form of personal responsibility.
Like children on a playground, we as a species have run roughshod on the planet, acting without awareness of the depth and breadth of our actions. Like toddlers leaving toys to be picked up by parents, we have used and wasted resources without care for the consequences; we have focused on our own needs and wants while ignoring our consumption’s impact.
For some 200,000 years we have lived in a “childlike” state. We have lacked systemic awareness because our planet’s resources seemed abundant enough and because our communications and social connectivity were limited enough that knowledge of the true dynamics of the world’s systems was elusive or avoidable. At present, that state of childhood is rapidly ending. Human consciousness as a whole has begun to enter its adolescence.
THE BUSINESS IMPLICATIONS OF INCREASED CONNECTIVITY
Until very recently our communications and social connections have been so local and limited as to prevent us from understanding the global consequences of our local actions. With the advent of unprecedented access to the Internet and the information it carries, the global consequences of our social, political, and environmental actions have become readily apparent and the consequences of our actions impossible to ignore.
It has become impossible to ignore human rights violations, poverty, or environmental disasters across the world. The human population is exploding, and supplies of water, arable land, and other resources are increasingly stressed as a result. Climate change and its accompanying severe weather events will only make these stresses more acute in the decades to come. And climate will tie social and environmental issues together as infrastructure, energy regulation, agriculture, and resource scarcity — all of which climate significantly impacts — link to social issues like poverty, urban development, and inequality.
Consciousness, in the sense of awareness of and access to information, is emerging on a global scale, and with it, for the first time in history, the ability to harness global human resources and capital of all kinds: to create some semblance of shared purpose.
“Increasingly, entrepreneurs and business executives are becoming aware that holistic, systems-based approaches create competitive advantages by helping them balance current actions against long-term outcomes.”
MILLENNIALS: THE DRIVING FORCE OF CHANGE
Millennials — now well-documented as being the largest generation in our country’s history — have grown up in a world where access to instant, global information is ubiquitous. This generation is the primary driver of an emerging transformation: they see clearly the global nature of the problems we face, realize the consequences of complacency or inaction, and are demanding change. Millennials are three times more likely to seek employment based on a company’s position on social issues. Globally, Millennials represent more than half of those who report a company’s environmental or social impact affects their purchasing decisions.
Social responsibility is also reflected in their investment decisions. Millennials are twice as likely as the general population to use their investment dollars to reflect their social conscience. And with an unprecedented wealth transfer expected over the next 30 years — experts anticipate Generation Xers and Millennials will inherit over $30 trillion from Baby Boomers in that time — those dynamics will only accelerate. As 45 percent of Millennials say they want to use their wealth to help others, it seems apparent that impact investment will continue to experience strong growth.
Polling data from the Harvard Business Review, Nielsen, Cone Communications, Deloitte, PwC, and others demonstrate that:
• 67% of people would prefer to work for socially responsible companies.
• 55% report a willingness to pay extra for products from companies committed to positive social or environmental impact; this has increased 10% in just the past three years.
• 91% of people would switch brands to one associated with a good cause given comparable price and quality.
• 90% of people would boycott a brand if it acted irresponsibly.
The bottom line across all of these studies is that virtually limitless access to information increasingly gives us the freedom and ability to make purchasing choices that align with our personal values. This influence should be a preeminent concern for those fighting for talent and struggling to keep it. A recent Harvard Business Review study reported employees who derive meaning and significance from their work were 300 percent more likely to stay with their organizations, had 170 percent higher job satisfaction, and were 140 percent more engaged at work.
And within private industry — especially where consumer purchasing power affects market share — the effects of these shifts are astounding. In the food industry, for example, we have over the past 50 years increasingly prized efficiency and centralization at the cost of sustainability and nutrition, and the country is now 70 percent overweight and 40 percent obese. Costly chronic disease (e.g., diabetes, the incidence of which has grown 400 percent as obesity rates have tripled) is crippling our healthcare system, costing us nearly $1.5 trillion a year. That creates an environment ripe for mission-driven, systemically aware disruption, which is already playing out in the market. Large incumbents find themselves sitting on outmoded portfolios losing share to smaller, nimbler platforms that have been built from the ground up around values that better reflect the new generation: clean and simple ingredient profiles, sustainable production, and better nutrition. General Mills, for instance, recently saw a shrinking top-line for the first time in its century-long history; organic food is growing at four to five times the rate of conventional in the US.
In the past 15 years, as I have been investing in and advising growth-stage businesses in the US, examples of emerging companies built around purpose and focused on multiple stakeholder value creation have increasingly become the rule, rather than the exception. These purpose-driven companies are only the crest of a wave that is coming whether the larger incumbents ride it or not. As more globally conscious and technologically adept consumers become increasingly savvy and well-informed, companies will have to do better to thrive in the competitive dynamics of the 21st century.
This is not just a trend, but a major cultural shift. The increasing interconnectedness of our world has made us aware of the complexity of the systems in which we live and given rise to a feeling of increased responsibility. By understanding the shifts in thinking and decision-making that result, companies can prepare themselves for the coming golden age of more holistically aware, socially conscious, and environmentally responsible business.
“These purpose-driven companies are only the crest of a wave that is coming whether the larger incumbents ride it or not. As more globally conscious and technologically adept consumers become increasingly savvy and well-informed, companies will have to do better to thrive in the competitive dynamics of the 21st century.”
THE SHIFT TO SYSTEMS THINKING: THE BUSINESS CASE
“Systems thinking” asks us to re-evaluate problems more holistically, abandon myopic focus on individual components of ecosystems in isolation, and realize that these components must be thought of as part of a larger, often complex system.
Most modern societies have been focused narrowly on the inputs and outputs of the industrial system, ignoring the larger global systems. In the process of making and consuming stuff, the industrial system also generates waste, which can damage or limit the ability of nature to replenish resources. The industrial system also sits within a larger social system of communities, families, and society at large. Just as overproduction and waste can damage natural systems, mismanaged production can also cause anxiety, inequity, and stresses within our social systems, as well-outlined by the work of Peter Senge and numerous others.
We are now confronted with a global mandate to change course and embrace a new way of thinking that balances the needs of the entire system. And that is what impact investing is also ultimately all about: how we can collectively reimagine every industry and every company to take a “systems-aware” approach to building businesses, and to operate in ways that do not fundamentally damage the overall system.
This approach is finding its way into the boardroom more frequently. Unilever, the parent company of hundreds of brands, such as household staples Dove and Lipton tea, is one company publically committing to systems thinking. CEO Paul Polman recently stated, “Future leaders will be systems thinkers. It is inconceivable that anyone will successfully steer companies, or countries, through our volatile world without understanding the inter-dependencies between the systems on which we depend.” Polman is not running a charity; his philosophy is based on his belief that this is the best course for Uni-lever to take to ensure long-term competitive market advantage.
Increasingly, entrepreneurs and business executives are becoming aware that holistic, systems-based approaches create competitive advantages by helping them balance current actions against long-term outcomes. In the process, they reduce risk, engender trust from their customers, attract and retain better talent, build stronger partnerships, and, ultimately, create more value.
As far back as the late ’90s, James Heskett and a group of his colleagues wrote extensively about the “service-profit chain,” which established early evidence of the relationships between profitability and customer loyalty on the one hand, and employee satisfaction, retention, and productivity on the other — all laid on the foundation of culture and a greater sense of purpose:
“Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal, and productive employees.”
Heskett’s work has come to life before our eyes as shifts around connectivity and transparency and a Millennial generation that grew up in that environment have increasingly influenced the marketplace. Take some of the findings mentioned above into account with Heskett’s value chain, and powerful, data driven competitive advantages emerge.
Authentic, mission-driven cultures built around purposes beyond profit attract committed, values-aligned talent that is often willing to work for less in order to align their career with their values. Longer-tenured, more engaged employees create better partnerships, and employees with higher job satisfaction provide better customer service. Better customer service begets increased customer loyalty, which is a primary driver of growth. Similar links are apparent externally as values alignment is a primary catalyst to move customers up the so-called “engagement curve,” generating higher probabilities of repeat purchase, lower cost of customer acquisition, and higher net promoter scores. The simple fact is that purpose-driven companies — especially at the emerging growth stage of their evolution — are also winning in the marketplace.
“Authentic, mission-driven cultures built around purposes beyond profit attract committed, values-aligned talent that is often willing to work for less in order to align their career with their values.”
EMERGING SOCIAL PARADIGM
Social scientists talk a great deal about “dominant social paradigms” — the norms, beliefs, and values that comprise a culture’s worldview. Our dominant social paradigm has been shifting dramatically without most of us noticing. To compete in the new paradigm, individuals and companies need to embrace change and adapt quickly.
The endemic challenges we face are scary and their solutions will be complex. As we approach humanity’s “end of innocence,” however, there is much cause to be hopeful. There is a systems-driven awakening emerging on a global scale. We are beginning to comprehend the world around us as a complex, regenerative, and dynamic system. As we continue down this path, the prospect of flourishing on this planet in its truest sense is becoming, for the first time, a real possibility.
Increased connectivity is changing the nature of business.
Tripp Baird is, among other things, the founder and managing partner of The Builders Fund, a private equity platform whose purpose is to help solve social and environmental challenges through the profitable deployment of capital into more conscious businesses. He plans to be gratefully chasing his sons around playgrounds for as long as he is able. With thanks to Gary Rosenberg and Hippo Reads.