Era of 'social' business arises
Era of 'social' business arises
Inland Valley Daily BulletinI am continually struck by the late Peter Drucker's prescience. He was someone who didn't claim to be able to predict the future; he simply "looked out the window to see what is visible but not yet seen."
In looking out his window in Claremont, where he wrote and taught for 35 years, Drucker once observed that "every social and global challenge of our day is a business opportunity in disguise." What a profound insight about how to face the multiple and seemingly overwhelming challenges of our day.
We recognize that government needs to lead right now, but it's from the private sector's creativity and innovation that many of the most sustainable solutions to our problems can be derived. In the new and revised edition of his masterwork, "Management," (abridged by Drucker School professor Joe Maciariello), Drucker wrote about the lessons that can be learned from successful nonprofits.
"The best nonprofits," Drucker wrote, "devote a great deal of thought to defining their organization's mission."
He added, "Successful nonprofits also start with the environment, the community, the customers to be; they do not, as American businesses often do, start with the inside - that is, with the organization or with financial returns."
Drucker's insight perfectly dovetails into a new type of venture that is beginning to be seen more and more: the social business. If you've read my column in the past, you know that I greatly admire Muhammad Yunus, the 2006 Nobel Peace Prize winner who founded the Grameen Bank and pioneered the concept of microfinance.
Yunus also co-founded Grameen Danone Foods Ltd., a trail-blazing enterprise launched in partnership with Groupe Danone, the U.S.-based yogurt producer. He called this new structural approach a social business.
What is a social business? It's a hybrid between a for-profit and a nonprofit. And guess what? It starts with a mission. Drucker would have understood why.
In the case of Grameen Danone Foods, the mission was to bring inexpensive and nutritious food to undernourished children in Bangladesh, Yunus' home country. It operates like a regular profit-making business in the sense that it must recover its expenditures from its operations but unlike a for-profit it is driven by its mission, not money.
Investors receive a small - 1 percent - annual dividend but all the other profits are put right back into the business because the main goal is to create social benefits for its customers.
As Yunus says in a pithy statement that could have come from Drucker himself: "While we make money, we can also do good."
The idea of creating a business based on purpose is timely, especially in this time when we see the catastrophic results of operating out of the profit-maximization principle.
The idea of a more humane form of capitalism has been applauded by one of America's greatest capitalists, Bill Gates, the founder of Microsoft. In early 2008 at the World Economic Forum, he called for "creative capitalism."
What we are witnessing now is the manifestation of Drucker's remarkable acumen: Start with the mission and you can create new business structures such as the social business.
We now know that those who pursued profit over mission and who also ignored their environment and their community caused the global financial meltdown.
Drucker would be pleased with this evolution of corporate structure. As someone who saw the tremendous value of the nonprofit venture and also knew the great worth of management, Drucker would welcome the new hybrid archetype that is emerging throughout the world as well as appreciate its timely appearance.
It's been said that we may be witnessing the emergence of a new business species: the creative and humane capitalist who creates the for-benefit enterprise.
Drucker said that one day American businesses would have to learn from nonprofits. Well, that day has come. And none too soon.
Whether it's the Grameen Danone Foods, the Transforms Corp. in North Carolina, Ethos Water founded by Claremont native Peter Thume, New Leaf Paper (whose paper production plants are the only in the world powered by 100percent renewable energy sources and which is starting to transform a gigantic industry that is also one of the most polluting), Rubicon Industries (which employs homeless people and battered women and others with serious disabilities to work in their for-profit bakery, which sells successfully to outfits like Costco and Williams Sonoma), the Rabobank Group in the Netherlands, Upstream 21 in Oregon or Spain's Mondrag n Corporaci n Cooperative, the day of mission-driven companies has arrived, and these new hybrid alternatives to the old for-profits will one day be as pervasive and successful as the traditional types of companies.
As Drucker well knew, we will all be better off when principle trumps profit. (Curiously, that's exactly what Henry Ford had in mind when he founded Ford Motor Co. It wasn't his desire to get rich; it was his dream of helping to create a middle class in America that powered his vision. When he raised the daily wage of his workers to $5 a day, in fact, he was called a communist by other capitalists. Why did he do it? Because he wanted his workers to be able to afford the cars they produced - and he wanted them to have pride in the product that they created on the assembly line. As Ford said so simply and wisely: "Business must be run for a profit, else it will die. But when anyone tries to run a business solely for profit, then also it will die, for it no longer has a reason for existence.").
For Drucker, starting with a mission "focuses the organization on action. It defines the specific strategies needed to attain crucial goals. It creates a disciplined organization."
Isn't this what we all want in our organizations? What's more important in a business than mission focus, strategic goals and organizational discipline? Drucker said the most effective nonprofits "realize that good intentions are no substitute for organization and leadership, for accountability, for performance, and results. Those require management, and that, in turn, begins with the organization's mission."
Ira A. Jackson is the dean of the Peter F. Drucker Graduate School of Management, the business school of the Claremont Colleges.