New Profits from Non-Profits? (Part 2)

The world’s most successful capitalists and corporations are finding new sources of profit and shareholder value where they didn’t expect it – in the global expertise of non-profits and governments. In Part 2 of the article, we will be dicsussing specific examples of successful  partnership models - and why they work. By Thera N. Kalmijn and R. Paul Herman

Cemex, one of the world’s largest construction materials firms, wanted to sell cement to impoverished populations in Mexico to build houses, but didn’t have the network to reach their market.  Cemex turned to the social-entrepreneur network of Ashoka Fellows for expertise.  Agreeing to pay a referral commission, Cemex accessed a new market by leveraging Ashoka Fellow Patricia Nava’s existing network of safe-sex educators in Mexico to promote the availability of cement – which also resulted in a decrease of domestic violence by up to 40% when single-room houses doubled in size – generating both good and gain.

Clorox’s GreenWorks products, developed with the partnership of Sierra Club, are generating $200 million in revenue and the leading market share in the green cleaning products segment.  This was achieved by deploying these products to Walmart’s and Target’s retail shelves.  Seventh Generation and Method, both pioneers in the space, are also expanding their products to everyday shoppers, while growing their top-line revenues by tens of millions.

Sustainability Consulting from Non-Profits Manages Risk and Accelerates Change

When faced with wastewater management problems in their China-based supply chains, brands Levi Strauss, Gap Inc., and Nike approached San Francisco-based, Business for Social Responsibility (BSR), a non-profit consultancy, for advice.  The BSR Water Group helped Levi Strauss, Gap Inc., and Nike to mitigate reputational and operational wastewater risks at contract textile factories in China where spotty regulations and guidelines left brands exposed.

According to Linda Hwang, Manager, Environmental Research and Innovation at BSR, its Water Group worked with brands to develop factory water quality indicators, wastewater management practices, and awareness training.  While brands carefully guard specific economic benefits of supply chain work in China, they benefited from reduced risk through better wastewater management and improved transparency. Contract factories were better able to attract and retain branded contracts hope to streamline their reporting costs.  Further, Hwang says, “Alliances increased the speed and scale of sustainability solutions.”

Stakeholder Engagement and Coalitions Shift Industries

The Rainforest Action Network’s (RAN) boycott of the Mitsubishi corporate brand over old-growth timber in the mid-1990s helped reshape an entire industry.  What started out as a polarized battle between RAN and Mitsubishi over use of old-growth products, evolved into facilitated stakeholder discussions, and ended with what was a relatively small change for Mitsubishi, but ultimately a sea change for the timber industry.  Mitsubishi stopped using old-growth products and then hundreds of other companies joined them creating a new and expanding market for sustainable timber.

San Francisco-based NGO, The Future 500, was born out of the RAN and Mitsubishi conflict and continues work as a “matchmaker” between NGOs and for-profit organizations. Erik Wohlgemuth, VP of Strategic Operations at Future 500, describes their efforts as “match-making, forging common ground between corporations and NGOs by focusing them on systemic solutions to sustainability challenges.  We employ an adaptable, informal engagement process guided by strategic objectives to humanize the dialogue and cultivate trusting relationships.”  Wohlgemuth cites building brand reputation and anticipating long-term risks and opportunities as the main drivers of corporate interest in engaging NGOs.   

The Sustainable Packaging Coalition and newly formed Sustainability Consortium are also engaging Global Fortune 500 companies to change markets through NGO and company collaboration around a set of sustainability challenges in the value chain. 

According to Dow’s Tony Kingsbury, Executive in Residence at the UC Berkeley’s Haas School of Business, and a key member of both the Sustainable Packaging Coalition and Sustainability Consortium, “People tend to think about what we know today.  Coalitions can help get beyond the current agenda and protective mentality to drive whole industries forward toward longer-term triple bottom line benefits.  Consortiums bring a voice to an issue and member companies pay to join in order to influence solutions or to share the costs of innovation.”

New Markets and Development through Public-Private Partnerships

Another model for driving change and opening markets is the public-private partnership.  Coke realized that working with governments and NGOs was better than working around them.  As part of the United Nations Development Program (UNDP), Coke also implemented “Manual Distribution Centers (MDCs)” in Tanzania and Ethiopia.  The MDCs leveraged push-carts to service densely populated urban areas not easily reached by trucks and offered micro-finance opportunities to individual entrepreneurs.  Since inception in 1999, the MDC model in Tanzania and Ethiopia has grown to 80% of area sales, providing income for base-of-the-economic-pyramid citizens while also growing Coke’s top line in a high-growth, though lower-income economy.
 
Global networking and technology leader Cisco partnered with USAID to promote international development and create new labor markets through its Networking Academy, a technical school founded in 45 developing countries.  The program focuses on women’s advancement and expanding ICT reach – expanding both labor pools and markets for Cisco in developing countries, which the company can later hire.  Infosys, based in India, has developed curriculum for high schools to better prepare students for the skills that they will need in the technology industry.  With those skills and training at a younger age, Infosys could benefit from lower training, more successful recruiting and ultimately higher productivity.  In addition, its brand will benefit from the close relationship with building life-long skills, which lead to higher income and quality of life – in other words, both human impact and profit.

Leading companies today see the world’s problems as solvable – with an open mind about creating solutions with partnerships across sectors, from business to government to academia. Those leaders create new products and grow revenue and profit in new ways that competitors don’t yet see.  How will you create more gain and good in your organization?  Start by looking outside of it – you can create new opportunities to yield both a net positive Human Impact as well as stronger and increasing Profit.