Tag Archives: social value impact

Redefining Corporate Purpose – Is It Time For Boards To Adopt ‘Total StakeHolder Value’?

Major challenges such as spiralling inequality and climate breakdown are putting corporations under pressure to rethink their very purpose. The Maturity Institute has developed a ‘responsible business model’ that puts people at the heart of business and produces best value for stakeholders as well as shareholders.

Is your company facing an existential crisis?

To provoke discussion at a recent Procurious CPO roundtable, I suggested that each participant was working for a company that was already in the midst of one.

Why did I say this? From the London Financial Times calling for a re-setting of capitalism to US CEOs shattering the prevailing paradigm of profit maximization, to investment firms in the City of London calling for a renewal of stakeholder-focused value creation, the purpose of corporations is under intense scrutiny – and facing pressure to change.

The questioning of corporate purpose is putting firms into a state of flux.

If shareholders (or owners) are no longer to be accorded primacy in setting strategies designed to deliver the best financial returns, then what else should be driving them? 

How, and for whom, a firm creates value has become a boardroom conundrum like no other.

Text Box: “This topic blew my mind…my question is now – which organizations are going to take the big leap forward on this?” 
Procurious CPO Roundtable participant, November 2019

A Host Of Challenges

Environmental and human problems arising from business and economic activity have continued to surface at an alarming rate. Poverty, human rights, slavery and growing inequality have become more acute.

Climate breakdown is now impacting all around us. Polluting plastic swirls around in our oceans, contaminating marine life, while toxic pesticides find their way into our bodies via food systems, and poisonous air may be undermining our health every day.

Customers, investors and workers are not just asking questions about their involvement with firms that do not seek to address and resolve these problems, they are increasingly avoiding them altogether.

Governments and regulators are also under growing pressure to restrict or revoke licenses where firms do not work to address such issues or fail to provide real benefit to local communities. 

So what should your own company do to meet these challenges?

It is evident that firms that understand how to simultaneously serve society and perform financially will be the ones that can survive and thrive.

Shareholders And Stakeholders: A Common Purpose

Since 2012, the Maturity Institute (MI) has been building a responsible business model that shows how companies can produce the very best stakeholder and shareholder value by putting people at their heart.

By aligning management systems to leverage and realize the potential value of all their human stakeholders, companies can competitively differentiate themselves from their peers.

For procurement heads, this specifically includes suppliers. This is an area in which value-based relationships (as opposed to those driven more by cost parameters), together with appropriate system design, should lead to superior outcomes.

Moving from a ‘shareholder’ to a ‘stakeholder’ business system requires an understanding of what this entails across an organization’s whole system – including workers, customers, investors, suppliers and wider society.

It also requires engaging everyone in the pursuit of a common purpose.

Total Stakeholder Value

Our work is designed to act as a practical guide, to set out a way forward for boards, C-suites and managers to pursue a goal focused on creating healthy organizations through what we call Total Stakeholder Value (TSV).

This is not based on a theoretical perspective but on existing, exemplary ‘mature’ organizations.

At MI, we teach the invisible factors that have enabled organizations like Toyota, Handelsbanken and Mercadona to lead the world in a direction that is in everyone’s interests. These are companies that have a central purpose rooted in serving society.

Alongside financial outperformance, they have consistently delivered the best-quality products and customer service ahead of peers.

In achieving this, they have deliberately designed high-value management systems, including supplier relationships, and have also led others on managing out harm, in either environmental or human terms.

Organisational maturity

To help companies identify how these factors play out within their own organization, we deploy Organizational Maturity Ratings (OMR) to uncover the intrinsic value and risk arising from the company’s whole human ‘ecosystem’.

Our open-source OM30 diagnostic looks at 32 inter-related questions and is able to identify and predict the likelihood of material human value and risk arising from critical causal drivers, such as:

  • Formulating and articulating a corporate purpose of Total Stakeholder Value (TSV) maximization
  • Identifying whether an organization’s business strategy and operating model are predicated on reconciling its (market) value with changing societal values
  • Checking the extent of trust placed in the leadership and management team by customers, employees and other key stakeholders
  • Determining whether the organization is planning to maximize the value it generates from all of its human capital value (both internal and external, e.g. supply chain)
  • Considering the evidence of any never-ending, continuous improvement philosophy being operationalized.

By examining these factors across their whole system, companies can, at last, gauge a baseline of true corporate responsibility and how it affects total value generation.

Strategies For Transition

This also enables executives and managers to identify key strategies that will help the transition to a corporate purpose of TSV – one that drives financial, human and environmental performance that can also be measured and monitored.

For CPOs, the OM30 also has a specific additional application – in helping to assess the suitability of suppliers. Here it acts as a measure of alignment with parent-company culture and human systems, and can be used to determine levels of supplier responsibility and fit, above and beyond any compliance requirements.  

MI is using its methodology and building its evidence base by working with corporations, investment managers and academic institutions to help them understand the relationship between the OM30 and a range of value and risk outcomes.

Recent academic testing of our data has shown:

“…the benefits to shareholders and stakeholders are not mutually exclusive; in other words, the value to business, shareholders, stakeholders and society are aligned. A company can maximize profits and create wealth for shareholders mainly by establishing a mature institution that enhances well-being for all legitimate stakeholders as well as create positive externalities to the environment and the wider society. 

Cambridge Judge Business School, March, 2019 

We can all participate in encouraging, demanding, designing, building and facilitating the process of change that is now necessary; to help create many more mature, exemplary firms that can lead others.

MI is actively helping stakeholders to play their part.

Stuart Woollard is Council Member at the Maturity Institute. The Mature Corporation – A Model of Responsible Capitalism, co-authored with Paul Kearns, is available with a 20% discount using code Corporation20 from Cambridge Scholars Publishing https://www.cambridgescholars.com/the-mature-corporation.

Swiping Right for Social Enterprise

Procurement should be swiping right for Social Enterprise to create broader outcomes. It’s not the easiest change to make, but it’s a vital one for the future.

Photo by Clark Tibbs on Unsplash

Doing things in new ways can be awkward. It’s like dating, there is nervous tension about expectations versus reality and how you will be perceived. Will you be able to “sell” your positive traits well? Will the other person measure up to your idea of success? Do you split the bill or pay for the whole thing? All of the rules from your last relationship have gone out the window – this is new territory.

In New Zealand, the Government has recently changed the procurement rules by shifting the focus towards ‘Broader Outcomes‘.

“Broader outcomes are the secondary benefits that are generated by the way a good, service or works is produced or delivered. These outcomes can be social, environmental, cultural or economic benefits, and will deliver long-term public value for New Zealand.

Broader outcomes require you to consider not only the whole-of-life cost of the procurement, but also the costs and benefits to society, the environment and the economy”

New Zealand Government Procurement Rules

There is no longer a focus on value for money, which is sometimes treated by some as getting the lowest price. The focus is on public value which is multifaceted.

What Else is New?

There have been other subtle changes to the Procurement Rules which have removed barriers whether they were real or perceived. The direction is set, the path has been cleared and now we must dust off our dating profiles and learn to do business in different ways.

We must actively seek commercial outcomes that derive social impact. This is not to say that was not in the consciousness before, but it was not quite as front of mind as it is now. 

Challenges of Putting Yourself Out There

This welcomed change brings about some challenges. There are varying degrees of experience and knowledge of working in a more agile or lean manner within procurement ecosystem. Applying new ways of working to the core machinery of Government can be even more challenging.

While the appetite is there, it can take some time to grease the entire wheel to move. There are many sectors and government agencies where these types of models and ways of approaching procurement have been around for eons.

It’s about bringing together the case studies of what has worked well and applying them more liberally to other opportunities.

Procurement functions can feel pulled, with one foot stuck in the traditional process driven tendering world and the other foot in the new procurement world. The new world focuses on early engagement and co-designing solutions more than ever before.

In the new world, procurement adds value at the beginning of the process and through effective contract and supplier relationship management. Procurement is not the process, in fact this will be largely automated in the not so distant future.

The new world suits the smaller businesses, the start up’s, the social enterprises as it makes Government more easily accessible.

Who are we Swiping Right for?

There has been a marked increase in interest in social enterprise or purpose driven businesses. This does not mean discriminating for these types of businesses but rather, deliberately bringing them on the journey or slicing up parts of projects that may be better delivered by these types of businesses.

It’s about giving them a voice at the concept stage or joining them up with other larger businesses who can bring in the big guns and who are sometimes better placed to take on larger risk.

The Awkward Social Enterprise Disco

Generically speaking the large buyer (particularly government) can look at start-up’s or small businesses with a high degree of risk and uncertainty.

  • Can they met all of our requirements?
  • Can they grow to meet the evolving capacity demands that successful projects often breed?

The smaller supply side of the fence often look at government as impossible to break in to, focused on lengthy tenders, slow to move and offer contracts that require extreme liability stances or loaded risk that shifts the balance towards the supplier. A small start up or social enterprise, for example, might not have the knowledge to begin to deal with our often seemingly fixed ways of working.

What’s Working?

The movement is happening, here is what I see:

  • Agencies working together
  • Buyer and supply side meeting and connecting
  • Different sectors of the supply side engaging to work together
  • More and more green lights everywhere: internal buyers, management, stakeholders, suppliers and the rules are more supportive
  • Procurement functions are helping to facilitate the gap by connecting supply markets and private sector with internal buyers
  • Procurement functions are working with the internal buyers by showing different ways of managing the process, e.g. co-design, agile, sprints, early supply market engagement.
  • Starting small, not tackling the significant contracts first.

Why Bother?

Because we should, because it’s the right thing to do and because spending the same dollar twice by making an impact and providing tangible social good with taxpayers’ money. Just. Makes. Sense. 

Dollars and Sense: What are we Really Saving?

It might have started with dollars and cents, but what should procurement really be saving now? It’s time to shift the dial.

Photo by Kat Yukawa on Unsplash

For years, procurement was stuck in the old ways of doing business. It was the role of the profession to beat down suppliers and the only consideration was cost, but the proponents of this methodology are fast becoming extinct as procurement undergoes a new evolution. While savings will always be an important element in what we do, the important question we now need to address is: what are really trying to save?

I’ve previously spoken about how strategic sourcing in procurement can help us to change the world, but it’s easy to believe that issues like modern slavery and environmental pollution are still beyond our reach. They’re buzz words or problems too big to solve, they’re issues that are unlikely to find a solution within a single career.

But that’s not true. Every day we’re seeing political mandates, new regulations and social pressures that are driving change at an unprecedented pace. However, the window for change to actually solve environmental issues is closing just as fast – meaning we can’t sit back and focus on cost alone if we’re really committed to making change.

Saving vs the Social Good

When we talk about optimising our supply chains, there will never be a time where cost doesn’t form part of the conversation. Even if you’re not solely focussed on cost-cutting measures, there needs to be the ability to invest in solutions that will drive positive outcomes in the years that follow – and that can’t come without the budget to back it up.

In fact, when we look at how much money we’re able to save through strategic sourcing for large multi-million dollar companies, compared with how much their net value can fluctuate on the stock market from day to day, the savings are actually negligible.

What we’re really able to do when we’re effectively reducing costs within our supply chain is reinvest that money back into the organisation. This macro-level approach to cost-saving lets you support the needs, beliefs or even employees of your company to help bring about changes that will actually have an impact. Whether you’re looking for widespread industry reform or to bolster your own company initiatives, cost will always join the conversation.

Saving and the Successful Supply Chain

At Source One, a Corcentric company, we counsel our customers to constantly be improving and optimising the way their companies develop relationship with suppliers. To get the best results and a positive, long-lasting supplier relationship, there needs to be an element of a partnership between procurement professionals and their supply chain.

Good supplier relationships help to create value for both sides of the agreement – whether it’s a new product, process or an improvement that can make everything more efficient. The key piece of supplier and vendor management that is often overlooked is the ability to be creative and innovative to help challenge the status quo.

We’ve seen that by following and developing procurement best practice, and encouraging our suppliers to think about the problem we’re trying to solve together, we can enable these things to have a bigger impact in a tangible and evident way.

What changes the way a company acts?

Not all companies are started with a social responsibility guidebook in place. The organisational stance on environmental, social or political issues usually develops with time and as such, there is rarely a budget set aside for supporting global issues. New regulations or social pressure can both have an impact on the way a company acts.

Its reaction to these pressures is either going to change the way the company is perceived – in market share or reputation – or it will change how the company will need to do business going forward.

For example, a new worldwide mandate will come into effect on 1 January 2020, where all ships and vessels operating anywhere in the world will be required to use fuel with a sulphur content of less than 0.5 per cent, compared with the current regulation of 3.5 per cent.

While those operating in the shipping industry can change to a cleaner type of fuel, they’ll now find these are more expensive due to increased worldwide demand, likewise they could utilise ‘scrubbers’ to essentially clean their current fuel source, but this will come with its own ongoing investment.

Those who don’t comply with these new regulations will face hefty fines – so no matter which solution each company implements we’re looking at $30 billion dollars worth of investment across the industry.

What We’re Really Saving

This type of regulation will fundamentally change how that company does business as they’ll now have to factor in the increased cost of fuel to operate once it comes into effect. This also presents an opportunity for procurement to support the ability for shipping companies to comply, which will present its own positive solutions to environmental issues, while also absorbing some of the cost or finding other ways to mitigate, diversity or reduce their exposure and help lead the way to a more sustainable future.

Procurement really can make a difference, but these outcomes are best achieved when they’re working with and are supported by our cost saving measures rather than being seen as the antithesis to an optimised supply chain. Sure, you can have one without the other, but by reinvesting in the future of the world around us we’ll find the best way forward.

Source One, a Corecentric company, were one of the key sponsors for the Big Ideas Summit Chicago 2019 and Diego was one of our great keynote speakers. If you want to catch up on Diego’s Big Ideas for procurement and saving the world, join the Summit’s group. Click here to join in and catch up now!

Successfully Procuring Social Value

If procurement is going to get serious about social value, then it needs to ensure that it is fully integrated into strategic plans.

Public spending through procurement practices and contracts can be shaped in a way that benefits both the economy and society – but too often this is not the case.

Since the implementation of the Public Services Social Value Act 2012, not enough has been done by commissioning organisations to ensure they are obtaining maximum social value from contracts.

What is Social Value?

Social value is a way of thinking about how scarce resources are allocated and used. It involves looking beyond the price of a contract, and prompts organisations to consider the collective benefits a contract could deliver.

Implementation shouldn’t be a trade off against cost or quality. It is possible to deliver a triple bottom line through procurement activity. A combination of three factors – social, environmental and financial – should improve the quality of delivery, which in turn will almost always result in an improvement in efficiency.

It’s essential that when commissioning services, organisations are focused on achieving the best value, as opposed to focusing solely on cost. The strategic power of social procurement can be extremely influential, particularly when decisions are aligned to a business strategy which supports an organisation’s wider corporate mission and values.

How can social value be achieved?

There are a number of ways to ensure that social value can be fully integrated as a part of procurement plans. The Public Services Act 2012 asks organisations to only consider it at the point of commissioning. However, to realise maximum benefits, social value should be considered past this point.

Fusion21 delivers procurement services for built assets to over 180 public sector members, and we ensure social value is delivered through our programmes by measuring the performance and delivery on contracts.

To date £56 million of social impact has been delivered, and over 2400 jobs have been created. Last year alone we achieved over £13 million of efficiency savings for our members.

So, at the point of commissioning, how can you ensure considering social value will make a difference? Including it within the award criteria, and assigning weighted sections as part of a supplier’s quality submission during a tender process, is one option.

Fusion21 attribute a proportion of a tender evaluation to social value – resulting in this having a direct impact on the final scoring. This approach ensures that social enterprises, SME’s and socially driven suppliers, stand a better chance of winning work through the procurement process.

It also provides an opportunity for organisations to demonstrate the added value they can deliver on a contract, and enables the commissioner to evaluate this based on project objectives.

Avoid Best Endeavours

Organisations should always avoid a ‘best endeavours’ approach to social value implementation within contracts. Instead, commissioners should stipulate how their objectives will be managed, and consider how performance will be evaluated. One way to do this includes asking successful bidders to produce SMART action plans, listing the outputs they can generate.

Once this is complete, social value performance should be integrated into standard contract management procedures.

Fusion21 also issues Regeneration and Local Economic Benefit Plans to every member who has commissioned a contract through us. These plans contain clear objectives and set targets – in addition to providing analysis and detailed progress reports.

By placing a financial figure on the value generated, our members can see the clear benefits of social value activity.

Finally, if social value can become engrained in a supplier’s contractual obligations, it is easier to ensure that goals will be met. At Fusion21, we put a contract in place between our member and supplier, which states an employment opportunity, must be created for every £500k of contract value.

It’s fair to say that procuring for social value needs to have a higher priority in the public sector – and to retain competitive advantage, suppliers should be considering their approach to delivering this.

Fusion21 is an award winning social enterprise who’ve gained national recognition for collaborative working with suppliers and members. We provide a wide range of procurement services and procurement frameworks for built assets that meet the unique requirements of public sector organisations.