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green@work : Magazine : Back Issues : Winter 2004 :Serving the Many


NEW PERSPECTIVES


Serving the Many
How partnerships expand the social dimension of commerce.


By William McDonough and Michael Braungart

Over the past decade socially responsible business has surged into the public view. From Ben & Jerry’s to The Body Shop to Eddie Bauer, companies are marketing their business practices as much as their products—and customers are lining up to support them. But even as the Peace Pop and shade-grown coffee capture media attention and market share, businesses that take the social dimension of commerce seriously are still in the minority.

By and large, this is not a result of cold-heartedness among business leaders. It is rather a failure to understand the great benefits of serving social needs. Part of the problem is that the traditional short-term value proposition of the market, which often benefits shareholders, does not typically drive innovation or long-term thinking. When only a narrow economic perspective dominates—when any narrowly defined perspective dominates—creativity tends to suffer. As a result, business models that create opportunities to profitably address social concerns are simply not considered, and when they are, the social dimension tends to be window dressing for the traditional bottom line.

There is an alternative. Opportunities blossom when business models are designed, right
from the start, to support social, environmental and economic concerns. Instead of meeting the bottom line through a series of compromises between economy, ecology and equity, businesses can employ their dynamic interplay to generate revenue and value in all three sectors. That’s what we call triple top line growth. From this perspective, design questions such as “How can I create jobs?” and “How can I support the health of my community?” become as important as “How much will it cost?” And when questions such as these drive the design process, companies not only serve society and nature, they also become more innovative, profitable and stable in the long-term.

Ben & Jerry’s provides a good, early example of socially beneficial triple top line thinking. The company broke from traditional business practices by inviting their employees to be partners. Not only did the company’s leaders try to create a fair, safe and comfortable work environment, they encouraged innovative thinking on the shop floor, shared benefits equitably, and developed a pay scale that tied executive salaries to employee wages. Ben & Jerry’s also developed partnerships with nearby dairy farmers, which helped create a superior product while supporting local agriculture and commerce. The idea was simple: We’re all in this together. With that defining value in mind, Ben & Jerry’s created a successful, profitable, socially responsible business.

The Benefits of Partnerships
Ben & Jerry’s innovative thinking allowed it to create a variety of successful partnerships, which proved to be a key ingredient in the company’s success. Indeed, partnerships—with employees, customers, suppliers and competitors, as well as with nature—are the foundation of any sustainable business. By expanding the dimensions of a company’s concerns, partnerships make a business both more effective and more socially beneficial. Partnerships with suppliers allow companies to ensure the safety and quality of every material they use. Partnerships with other businesses allow companies to set intelligent, industry-wide standards and develop profitable recovery systems for recyclable materials. Partnerships with customers create long-term business opportunities through the leasing, recovery and replacement of valuable products over many product life-cycles. And partnerships with nature allow businesses to cost-effectively filter water, harvest the renewable energy of the sun, and create delightful, regenerative public spaces.

Clearly, effective partnerships can generate a long-term perspective while also generating good business results. Consider the pioneering work of Herman Miller. When the furniture manufacturer engaged its suppliers as partners in implementing its new sustainable design criteria, the company took a giant step into the future and benefited in myriad ways. Most obviously, the strategy ensured the consistent procurement of safe materials—no small matter when making products designed for recycling. But that was not all that built the business case. As one Herman Miller engineer pointed out, “Getting a handle on supply chain issues from an environmental standpoint has also helped us get a handle on the organization and prioritization of materials.” Now, using a database built with new information from suppliers, Herman Miller can record the volume and content of the raw materials it uses and distributes, figures it had not previously tracked. This kind of material research and tracking was instrumental in the making of Herman Miller’s award-winning Mirra chair, which is designed for disassembly using nearly 100 percent recyclable materials and no PVC. Could a high-performance office chair selling vigorously while being heralded as “the next icon” be bad for business?

Expanding the Social Dimension of Commerce
So the point of expanding the social dimension of commerce is not philanthropy. It’s just good business. When we work with our commercial clients we always ask, “Can you make your product or provide your service at a profit?” If the answer is no, they reconsider their business plan. As we see it, the goal of an effective company is to stay in business as it transforms, providing economic value as it discovers ways to generate positive social and environmental effects.

But that does not mean business-as-usual. Expanding the social dimension of commerce requires extraordinary creativity, new business models and a willingness to re-imagine economic value. There are as many entry points into this process as there are businesses searching for new opportunities—so much needs to be done that the possibilities are endless. What seems clear is that businesses profit when they do not limit themselves to a narrow definition of serving social needs.

Consider the Spanish manufacturing company Mondragon Corporacion Cooperativa (MCC). An industrial business group that includes makers of automotive parts, domestic appliances and machine tools, MCC was built on the idea that a good business generates a broad spectrum of positive social effects. Founded in 1956 to create jobs and essential products in the Basque region, MCC has developed a cooperative business model so effective that the company has grown from a single factory producing oil stoves and paraffin heaters into a 218-member business group that employs nearly 70,000 people and relies solely on self-funded investment.

In fact, MCC has always relied on self-funded investment. When it received no support from traditional banks, it started its own, Mondragon Bank, which has become an industry leader. By generating its own capital and re-investing it, rather than acting purely in the interests of shareholders, MCC can fulfill the cooperative’s commitment to a democratic workplace and to “protecting the cooperative members’ right to self-government.”

In other words, MCC’s social commitment starts at home. The cooperative is organized to foster the one-person, one-vote democracy of the MCC’s General Assembly, which expresses “the will of the members,” and to encourage a “high level of worker involvement in the company through direct participation in capital and management.” Simply put, MCC sees its employees as partners, and because employees take part in decision-making, they see themselves that way too.

MCC energetically supports this basic social partnership both in the workplace and in the community. When it saw that local educational institutions were not meeting the community’s social needs, MCC started a university, which today provides academic and technical training to students in the Basque region, half of whom go on to work for MCC. In addition, MCC sets its salary scale at 1 to 6.5, a smaller difference between management and entry level employees than is commonly seen in the corporate world; distributes profits to all members, including laborers and technicians; pays generous social security benefits; creates jobs for people with disabilities; lends technical assistance to local community development efforts; and supports social projects in developing countries. Going far beyond the marketing of a product designed to address a single issue, MCC’s deep social involvement generates a wide spectrum of value, which in turn strongly supports the company’s economic success.

Redefining Customer and Competitor
MCC could effectively extend its social reach even farther. While its partnerships with its employees are strong, the company could also begin to develop profitable partnerships with its customers. Like most companies in today’s marketplace, MCC tends to see those who buy its products as consumers—its relationship with the customer does not extend beyond the sale. For a maker of quality durable goods that’s a missed opportunity.

Why not provide the “service” offered by durable goods rather than sell the product itself? In this business model, MCC would retain ownership of the valuable materials it uses to make its home appliances while the customer enjoys the service of clean clothes, home-cooked meals, and so on. At the end of the product’s useful life, say a defined period of two or three years, MCC would recover its washing machine or electric stove and replace it with a new model, re-using its high-quality durable parts in the next generation of appliances. Instead of selling to a customer once, the company, in effect, becomes a long-term service provider. The customer, meanwhile, continues to get the most up-to-date service available, as well as the peace of mind that comes from supporting a responsible company. This is not an unknown concept; copier companies typically lease large copiers and constantly seek to upgrade the quality and scope of their services to stay competitive.

In this mutually beneficial, long-term relationship between customer and producer, everybody wins. By taking full responsibility for materials throughout a product’s life cycle, a company transforms the one-way, cradle-to-grave flow of materials into safe, cyclical cradle-to-cradle material flows. Rather than continuously taking new raw materials from the earth, it uses them again and again, preserving and profiting from their value through many product life cycles. Commercial activity becomes a kind of nutrient management system (as opposed to a waste management system) in which the producer-customer relationship keeps valuable materials flowing through production, use, recovery and remanufacture. Meanwhile, as we have seen in Herman Miller’s pioneering designs, the resulting need for new cradle-to-cradle systems drives effective, ecologically intelligent innovation. All of these changes serve social needs—they are good for the earth, good for business and good for our common future.

They also signal a new era of business-to-business partnerships. As companies work to implement cradle-to-cradle systems—data systems for tracking material flows, for example—they are finding that cooperation and information sharing are valuable tools. In the packaging industry, leading companies such as Estee Lauder/Aveda, Tropicana/Pepsi and Unilever have created the Sustainable Packaging Coalition (see green@work, July/August 2004, www.sustainablepack aging.org) to together pursue a “positive, robust environmental vision for packaging” that includes developing cyclical material flows and increasing the demand for “environmentally intelligent, cradle-to-cradle materials.” Major players in the electronics industry are also engaged in integrating cradle-to-cradle principles into the design of products, production processes, distribution logistics and material recovery systems. Textile manufacturers, meanwhile, are considering “pooling” cradle-to-cradle materials and purchasing power to cooperatively strengthen their position in the marketplace. In each case, industry-wide partnerships are providing a platform for shared leadership and collaboration among a wide range of stakeholders—suppliers, manufacturers, dismantlers, government agencies, academia and non-governmental organizations—involved in realizing a cradle-to-cradle world. They are competing in the original and best sense of the word; they are striving together, like athletes in training getting fit together, and thereby achieving more than they could possibly achieve alone.

Serving the Many
Even if all the world’s companies were to follow the example of these innovators, they would still not have fully extended the socially beneficial reach of commerce. In spite of great changes in the way the world does business, there are still more than four billion people on the planet who do not have reliable access to the most basic goods and services. The global economy simply doesn’t serve them. As a result, they are left to burn wood scraps for fuel, draw water from foul streams and gutters, and do without shelter, electricity, and even the most rudimentary household conveniences, such as soap. In this context, choosing to preserve a forest for its own sake simply isn’t an option.

Why not make that an easier choice? Why not serve the bottom of the economic pyramid and create profitable businesses doing so. That’s precisely what C.K. Prahalad, a business professor at the University of Michigan, suggests in his new book The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. Prahalad sees serving the world’s poor as the next great business practice, an economic opportunity he values globally at $13 trillion a year.

But serving this market, he says, “can’t be based on philanthropy” or conventional measures of corporate social responsibility. Instead, corporations need to involve the poor in creating solutions. “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers,” writes Prahalad, “a whole new world of opportunity will open up.”

The opportunities extend from the bottom of the pyramid to the top. When traditional companies make a serious commitment to becoming involved in this “invisible market,” there are opportunities for generating growth, opportunities for local entrepreneurs, opportunities for millions to live better lives, and opportunities to preserve and restore the earth. In Nicaragua, for example, alternative energy pioneer E+Co is working with local entrepreneurs to cost-effectively deliver solar power to a region of the country where the average per capita annual income is less than $300. In Mexico, the cement making giant Cemex has created an innovative pricing and credit system to make it possible for millions of Mexicans to build affordable housing. In India, Hindustan Lever is marketing soap in single sachets so that the millions of people who live on under $1 a day can have access to a sanitary product that can literally save their lives. Before long, these sachets may well be made with biodegradable materials that can be collected and used as garden mulch, extending the social benefit of affordable soap into the natural world.

Becoming Partners with Nature
As companies expand the social dimension of commerce, creating partnerships throughout the economic pyramid, new products and services will continue to improve people’s lives. But to truly eradicate poverty we will need to create yet another new partnership: a partnership with the living earth. Too often business plans that deliver on the financial and social bottom line do not deliver on the ecological bottom line. To be sure, serving the entire economic pyramid improves the prospects of the natural world, but if an intention to restore the earth is not an explicit part of serving social needs, then the goods and services business provides will tend not to benefit people and nature.

A partnership with nature begins with an intention to enhance the human ecological footprint. Rather than trying to simply conserve resources, to take less, we try to celebrate the fecundity of the earth by generating positive, regenerative environmental effects—more clean air, more clean water, more habitat, more healthy soil, more natural and cultural diversity. The only way to do this is to create designs in harmony with nature’s laws. That means designing green roofs that create habitat and filter water; solar powered factories that produce perpetually recyclable products; biodegradable packaging that restores the soil; buildings that generate more energy than they consume; communities that restore wetlands with natural water flows.

Each design decision, then, can be seen as an opportunity to celebrate nature as a partner in creating a delightful, culturally rich human world. When the business models of today’s companies reflect this expansive view of serving social needs, then the things we make can truly serve our common future.


William A. McDonough, FAIA, and Michael Braungart are founders of McDonough Braungart Design Chemistry, a consultancy that works with a wide variety of companies to implement eco-effective design and commerce strategies. For more information, visit www.mbdc.com.


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