Pamela Hartigans tal
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Combining Markets and Meaning : Why Social Entrepreneurship is more than a passing trend Pamela Hartigan, Knowledge Foundation Conference, February 2009 - Stockholm
I must confess that when I received this invitation, I was curious to learn that there is an emerging interest in social entrepreneurship in Sweden. Why? Because the practice of this kind of entrepreneurship in my experience is very slow to evolve in welfare states where the government is supposed to take care of everything and where citizens pay a considerable portion of their earnings in taxes to make sure that government does its job. And Sweden has always been held up as the model to be emulated in relation to a state being responsive to the needs of its citizens. So what is going on in Sweden, I wondered, that would explain this budding interest in what you are calling "societal entrepreneurship"? That is a question I am hoping you can shed light upon, but I suspect that part of the answer lies in the fact that, similar to all countries around the world - including ones as remarkable as your own, Sweden is finding that the organizational structures it set up to meet the economic, social and environmental challenges are no longer up to the job.
And so I am pleased to be here to share with you a number of models which to my mind are harbingers of the kinds of human systems that will profoundly alter the architecture of how organizations operate. These entities have astounding results in terms of their efficiency and impact. But there is something else going on as well, as you will soon discern.
So let me start with my first example, one I have known and admired for the last ten years - and which I just visited again in November in India. On the surface, India is a mess. It has a population of 1 billion and growing- most of them living in squalor. Raw sewage flows through many streets and traffic is so chaotic that getting into a car is a death defying act. Yet India is touted as the frontier of the new economy, and on my visit I understood again why this is so.
It is not because of its pioneering ICT service industry or Bollywood. Rather, India is home to some of the most innovative business models that showcase what new organizations in a new economy should be based upon - a combination of markets and values where values take precedence. As we search our way out of the present global economic mess, we would do well to examine business models that seek to do more than pad the pockets of company managers.
And you cannot find a better example of what such an organization might look like and how it might perform than Aravind Eye Care Hospital where I spent several days in November. Aravind's efficiency and cost effectiveness astounded the investors with me on this trip, - who were amused to learn that its operational model is based on McDonalds. But Aravind isn't about selling hamburgers all over the world - it is about giving sight to the blind. Aravind's productivity is staggering. On a daily basis, 6,000 outpatients come to its 5 hospitals, and every day it performs 850 to 1,000 sight restoring surgeries. It reaches out to the reluctant vision impaired poor through its screening eye camps in remote areas, examining 1,500 people a day and transporting 300 of them to the hospital for surgery. And it runs classes for 100 residents and fellows and 300 technicians and administrators. All in one day's work.
But the most amazing aspect of Aravind is that 55% of its patients receive their eye care - including examinations, diagnosis, surgeries, hospitalization and follow up - for free. Another 22% receive these services at a highly subsidized rate. The remaining 30% pay about US$1 per consultation and have their choice of accommodations, much like what airlines do in offering first, business and economy class. First class rooms go for US$3 a day, the other two for $1.50 and $1 a day, respectively. Surgery for paying clients is between $110 and $240, depending on the nature of the surgery. To give a point of comparison, it costs Aravind about $10 to conduct a cataract operation. It costs hospitals in the US about $1,650 to do the same.
One of the reasons Aravind has managed to keep costs down is its creation in 1992 of Aurolab, a pioneering initiative that produces high quality, low costs intraocular lenses, sutures, surgical instruments and eye-care related pharmaceuticals. How affordable? Aurolab has reinvented pricing, bringing the cost of IOLs, for example, from US$ 150 to US$2, creating pressure on mainstream pharmaceuticals to reduce their prices. Aurolab today has ISO 9001 certification, US FDA approval and CE Mark certification and exports to 120 countries.
Since its inception thirty years ago, Aravind has performed over 3 million vision restoring operations - and despite the fact that 70% pay nothing or next to nothing, the hospital has a gross margin of 40%, freeing it of donor dependency for expansion and R & D costs.
I have given you a taste of Aravind's astounding efficiency. Yet it is its HUMANITY that makes it an illustration of what a new organization structure in a different economy could look like. Its founder, Dr. Venkataswamy (Dr. V), did not set out to run a profit-maximizing business. He set out to restore sight to the blind. A deeply spiritual man, his leadership began with the pursuit of self-knowledge and a vision bigger than what defines present day corporations. The question that propelled him was "How can my work make me a better human being and make a better world?" If only corporate leaders on Wall Street could ask the same question.
Dr. V died in 2006 at the age of 86. Aravind started as an eye care service with 11 beds. Today it has grown to a chain of hospitals in India. How does it maintain its quality and keep attracting paying patients who cross subsidize the poor? Aravind offers a service so good that it creates its own demand. In that respect you could compare it to IKEA, FedEx, the Gap or Starbucks, but only if you didn't care about how ridiculous that comparison would make you sound.
Part of Aravind's service package includes love, courage, and total care. "You identify with the people with whom or for whom you work", says Thulsi Ravilla, Dr. V's successor. "it is not out of sympathy that you want to help. The sufferer is part of you" And that philosophy is evidenced across Aravind, from the most senior staff to the receptionist who greets the hordes of people who come on a daily basis. Aravind's retention rate is the envy of any organization. The key is, Aravind employees don't work for the salary or the perks. They are inspired by the knowledge that they are truly contributing to improve the conditions of their countrymen and women.
So let's go on to the second example. And here I would like to bring in the concept of "market driving" is a term coined by Philip Kotler, a professor at Northwestern's Kellogg Graduate School of Management. It refers to the creation of a market that didn't exist before. What all market-driving companies have in common is that they are guided by a vision or a radical idea rather than by traditional market research. These visions involve high risk - and unlimited potential rewards.
And with the concept of "market drivers" in mind, and what Aravind has achieved in building a market, I turn now to a very different example but also revolutionary in its vision, organizational set up and impact. Endeavor is based in New York City - but it executes a highly successful global mission driven by Linda Rottenberg, its pioneering co-founder and CEO.
The saying goes "If you are looking for a big opportunity, find a big problem" - and Linda found both. The big problem she identified was as follows: in the US, there is a wealth of resources available to business entrepreneurs - no where else in the world is it so easy for someone with an idea to set up a business, access angel investors or venture capital, and recruit talent. This is not the case in emerging markets. The majority of folks who get their ventures off the ground are those who come from the right families, have gone to the right schools and therefore have the right connections. Yet economic and social development in these countries depends on growing a healthy diversity of medium and larger business enterprises.
And that was the big opportunity Linda tapped into when she set up Endeavor. Linda was convinced that the best way to catalyze sustainable economic growth in emerging markets was to identify and support high-impact entrepreneurs in those countries. She was basing her hunch on studies in industrialized countries proving that high-impact entrepreneurship and new venture creation are essential drivers of economic growth and social mobility. But entrepreneurship as an engine of economic growth was largely absent from emerging and developing countries where aid, not entrepreneurship, has dominated development thinking. Her plan was to supply the missing ingredients to encourage entrepreneurship as a tool for development by creating the support systems to nurture entrepreneurial talent to emerge and grow, by providing exposure to investors, encouraging the audacity to think big, and building a network of role models and mentors.
But rather than going to USAID or the World Bank to secure the funds to get Endeavor off the ground, she opted for a strategy that everyone thought was completely crazy. Why? Because she decided that if Endeavor was to work, it had to secure the commitment of the handful of successful business entrepreneurs in a given country - precisely those who had made it because of family, education and connections. Few thought this would be possible.
Determined to prove the naysayers wrong, Linda stalked her potential investors at the gym and outside restrooms. She logged over a million airline miles and ultimately convinced top business leaders first in Chile, Argentina and Uruguay, and then onto Brazil, Mexico, Colombia, South Africa, Jordan, Turkey, Egypt and India - and still growing, convincing these highly successful businessmen not only to invest funds to set up Endeavor in their respective countries, but also to dedicate their time and passion to the organization and its entrepreneurs. And she did it.
But before I give you some results, let's look at why Endeavor is an interesting example from an organizational development perspective.
First of all, Endeavor is a non-profit organization that is focused on stimulating and growing for-profit businesses in emerging markets. Many have asked why Linda opted to set up a non-profit, given that she could have made millions if she had set up a consultancy. But the decision was a strategic one. For one, Endeavor did not want to be seen by its selected entrepreneurs as competing with them for capital. But as importantly, Endeavor's non-profit status created what are perhaps its two most important assets - on the one hand, it generated a high level of trust between Endeavor, its supporters and the entrepreneurs it selected. And secondly and closely linked to the trust, it conferred neutrality. Unlike a venture capital company that has financially invested in an enterprise, Endeavor's commitment to its selected entrepreneurs has never been financial. It is tactical. Endeavor opens doors to investors, to talent and to huge opportunities.
And in doing that, it has garnered enormous respect worldwide, with business entrepreneurs in emerging markets around the world clamouring for Endeavor to consider setting up operations in their country.
So let's look at how it does that. Endeavor operates a mixed model that combines a franchise with a hub and spokes models. Endeavor Global, based in New York City, is the hub and is overseen by Global Board headed by Edgar Bronfman Jr. the media tycoon and entrepreneur. Endeavor Global initially set the standards, and - as it was based in the US, opened the doors of US based investors, banks, entrepreneurs and talent to its selected and highly promising Endeavor entrepreneurs all over the world.
But Endeavor Global does not run its country spokes. Each office independent and mobilizes its own funds. And so there is an Endeavor Argentina, and Endeavor Brazil, Endeavor Jordan, Endeavor South Africa and so on. Each has its own board comprised of the leading businessmen and women in the country - giving Endeavor huge visibility in that country. The Managing Director of each office is selected through a national competition, and Endeavor Global participates in that process but decisions are collectively taken. The same is the case for the rigorous national search and selection processes for Endeavor Entrepreneurs.
The point is, Linda and her colleagues have succeeded in securing a sense of ownership and commitment in each of the countries where Endeavor has operations. To illustrate, Linda proudly tells the story of a recent trip to Brazil where she was introduced to a leading government official as the founder of Endeavor, to which he replied: "Endeavor? But that is a Brazilian organization that supports business entrepreneurs".
What does it cost to run Endeavor? Endeavor Global and its 10 offices do all they do with 6.8 million dollars a year. Considering that in 2007 Endeavor Entrepreneurs had generated 2.5 billion dollars in revenues in their respective countries, we are looking at an order of magnitude of about 290 times its operating budget. And by the way, 96% of Endeavor supported enterprises are still operating and growing. In fact, these entrepreneurs have been so successful that many have turned into "country benefactors", supporting their mother ship that was responsible for their success. And Endeavor is ramping up to reach 25 countries by 2015.
And now let's turn to Japan for our last example - a dramatically different one from the first two but no less in its impact. What I will describe to you is not an organization - think of a spider web where Takao Furuno, a lone Japanese farmer in Fukuoka, Japan, sits in the middle of the web and transforms agricultural practices through a vast network of interlinked farmers throughout Asia. Together, this collective has taken on the agro-chemical industry and has started what Furuno calls the "duck revolution"
Consider the following: The Green Revolution method of agriculture was introduced 35 years ago in Asia, facilitated by northern research aid, World Bank credit and the Food and Agriculture Organization's (FAO) technical assistance. It swept through Asia, and by 1990, 75% of Asian rice areas made use of this technological package of "miracle" seeds which sharply raised farm yields in the short run because of their high response to big doses of inorganic fertilizers and chemical pesticides. Yet over the years, several trends emerged that forced the World Bank and FAO to retract their support for this massive agricultural production method, including increasing soil infertility, chemical pollution of water resources, pesticide poisoning and pest infestation caused by growing immunity to pesticides.
When Furuno started his work in organic rice farming 30 years ago, Japanese farming was caught up in the Green Revolution and his work was considered nothing short of heretical. In Japan, rice farming has become mechanically and chemically-dependent, resulting in increased costs, decreased income and environmental degradation. Prior to that time, severe physical labor was the salient characteristic of traditional farming, and farmers spent hours weeding in the paddies.
But despite the huge challenges, Furuno had been inspired by Rachel Carson's seminal work, Silent Spring, published in the 1970s and ushered in the environmental movement. Furuno was determined to turn his farm organic. He spent ten years doing the backbreaking work of pulling out weeds by hand so as not to use the chemicals his neighbors relied on. And then in 1988, he came upon a centuries old Chinese practice of using ducklings to protect rice. Placing the ducklings in the rice paddies when the rice is first seeded, the ducks eat insects, pests and snails. They also use their feet to dig up weeds, in the process oxygenating the water and strengthening the roots of rice plants. The Furuno farm is 2 hectares, 1.4 of which are rice paddy fields, while the rest is devoted to growing organic vegetables. As a result of the duck rice method, the small farm yields annually 7 tons of rice, 300 ducks, 4,000 ducklings and enough vegetables to supply 100 people.
Furuno's duck-rice system is the result of continuous study of a natural symbiotic relationship after years of trial and error adjustments. The end result is the successful marketing of duck rice, which now sells at a 20-30% premium over conventionally grown rice in Japan and other countries and does not use any chemicals.
"We want to help", Furuno and his wife agree, "financial success is unimportant. We did not patent the method because we want it to be widely adopted". The method has been researched and perfected over the years in the Furunos own field and elsewhere in Asia. Although he is a farmer, Furuno is an agricultural scientist as well, and continuously investigates every facet of the method and its comparative advantages over others.
But to do so, Furuno did not set up a resource intensive organization. Rather, he has set up a human network of farmers, agricultural research institutes and ministries of agriculture with a common mission. He travels throughout Asia to spread the knowledge of the integrated duck-rice method. Currently, about 75,000 farmers have taken up his method, including around 10,000 Japanese farmers. His biggest impact has been in Korea, where the government was so impressed with the method that it supported its spread through favorable policies. Likewise in Vietnam, the Mekong Delta is filled with farmers using the duck-rice system as a result of Furuno's engagement. He has also supported farmers in the Philippines, Laos, Cambodia and Malaysia to introduce the method, using ducks and fish from the area. Field trials have also begun in Tanzania. Farmers have increased their yields by 20 to 59% in the first year alone.
So with these three examples in mind, let's step back and consider some of the elements common to all three and what the lessons might be how the organizations of the future might look like.
First of all, all three strategies have focused on changing the status quo and accompanying beliefs, attitudes and organizational structures to better fit emerging challenges.
- Aravind reinvented pricing and delivery of sight restoring medical interventions - not as a product, but as a care system that encompasses a human being - not just an eyeball.
- Endeavor created a thriving entrepreneurial culture where it did not exist, secured the commitment of top business leaders and inspired a nation of closet entrepreneurs who had never had the access needed to get their ventures kick started.
- Furuno took on the agrichemical industry in a very pragmatic way - not by parading outside big chemical companies holding placards with protest messages - but by proving that an effective, high yielding alternative is possible - and working through a wide network of like-minded agricultural practitioners.
Second, none of these leaders were "command and control" types. Rather, their strategy has been to inspire others to tap into their respective strengthens and passions. None will have so called "succession challenges" or need to continuously restructure their organizations - the excuse so many companies resort to when trying to bide time for failed leadership.
The nature of leadership in these new human systems is best captured by two of my favorite and iconoclastic business school teachers out of your own University of Stockholm, Jonas Ridderstrale and Kjell Nordstrom. They note that "The traditional hierarchical firm won't be a problem in the 21st century - it won't be around. The new organization will be heterarchical - containing many hierarchies of different kinds. So forget organizational pyramids with the CEO sitting atop them. Who wants to work in pyramids, the greatest tombs ever created by man? Playgrounds must gradually replace pyramids."
In the case of Aravind, Dr. V -who started Aravind at the age of 58 - he died two years ago leaving in place a cadre of talented and inspired leaders at all levels of the Aravind network. Likewise, Linda may be the Global CEO - but she has managed to infect all who come into contact with Endeavor with a burning desire to commit themselves to advance an entrepreneurial culture in their own countries. And of course Furuno has only his ducks to boss around - perhaps he is one of the first truly networked farmers in the world.
According to Kouzes and Posner, gurus on the subject of leadership, they define it as "... the art of mobilizing others to want to struggle for shared aspirations. All leadership involves inspiration, vision, competence and interpersonal skills." And that is exactly what Dr. V, Linda and Furuno have achieved. It takes courage, imagination and persistence to drive through the kinds of fundamental changes needed to respond to new challenges and opportunities. And that can only be done through a more open style of leadership that combines intellectual humility and personal confidence which doesn't confuse ambition with omniscience. As a leader, enhancing the architecture of participation means imposing limits on one's ego, overcoming the know-it-all style of leadership that seems to be the default mode in most companies. You can think big without having to think of everything yourself. Dan Weiden, who set up one of the most respected advertising agencies and is known for its iconic work for Nike, including the tag line, "Just Do It", notes that "Whatever day it is, something in the world changed overnight, and you better figure out what it is and what it means. You have to forget what you just did and what you just learned. You have to walk in stupid every day."
"Walking in stupid every day" means questioning personal and long-held assumptions, expertise and experience - the very cornerstones of what traditional careers are built upon. But the ability to "unlearn" also ushers in openness to creative, innovative and market-generating ideas that no one else has detected.
And that is why all three of these are market driving organizations. That is, to create the changes they have sought, they have to educate all in their respective "ecosystems", so to speak, in order to change mindsets and attitudes. It is not enough to change the internal workings of an organization. The wider context also must be influenced, and they have understood this. In the case of Aravind, it does this through community work and outreach camps which its doctors and technicians routinely undertake. They set out for remote villages sometimes driving for days. Once there, they work round the clock examining people and working to identify those who will need to be taken for surgery. In this way, they influence community leaders to encourage the reluctant poor into seeking help for vision problems - instead of assuming that diminishing visual acuity is their lot.
In the case of Endeavor it reaches out to business and business school talent in the US and in its 10 countries of operations, changing the perception that successful entrepreneurial ventures in emerging markets are rare, and those that are successful are only so because of connections, not merit. And Furuno has created a thriving organic market for rice and other foodstuffs where these simply did not exist in Asia.
Fifth, I want you to note that none of these organizations is solely focused on the financial bottom line. They refuse to dichotomize how they make their money from how they improve society. Social entrepreneurs and their ventures thrive where markets and governments haven't stepped up to the plate. They work precisely at the market fringe neglected by mainstream companies - because the perceived risks are too high in comparison to potential financial returns. And in responding to these opportunities, they are the harbingers of the new business models and what could hopefully be a way of combining markets and meaning, something we have lost sight of over the last few decades and which has blown up in our faces in the last twelve months.
I know over the last few months, many professionals working in large, medium and small businesses have had good reason to worry. With access to credit significantly restricted, consumer spending plunging and unemployment skyrocketing, we all have reason to worry. But I would like to take an historical perspective.
How many of you have heard of Nikolai Dmitriyevich Kondratiev - or how many of your have heard of the "Kondratiev waves"? And if the name or the term doesn't ring a bell, how many of you remember hearing about Josef Schumpeter?
Both these economists offer clues to what is happening today - and highlight the opportunities for us to reconstruct a new economy - a phoenix economy one might call it - rising from the ashes of rampant profit maximizing capitalism that has allowed for the worst of human traits to come to the fore.
Nikolai Kondratiev was a Russian economist who lived in the early 1900s. He proposed a theory that Western capitalist economies have a long term cycle of boom that lasts between 40 and 60 years, followed by depression. These business cycles are now called Kondratiev waves and they revolve around innovations, capital investment, war and capitalist crisis. According to innovation theory, these waves arise from the bunching of basic innovations that launch technological revolutions that in turn create leading industrial or commercial sectors. Kondratiev's ideas were taken up by Schumpter in the 1930s.
Schumpeter starts The Theory of Economic Development with a treatise of circular flow which, excluding any innovations and innovative activities, leads to a stationary state of equilibrium. However, the central focus of Schumpeter's story is the entrepreneur. The entrepreneur disturbs this equilibrium and is the prime cause of economic development.
According to Schumpeter, the impetus for the capitalistic system comes from individuals of courage who risk their fortunes to implement new ideas, who dare to innovate, to experiment, and to expand. He believes "the function of entrepreneurs is to reform or revolutionize the pattern of production". They can do this in a variety of ways: "by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new ways, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on"
Schumpeter, who some have described as a romantic economist, decried the emergence of a new kind of business figure-the "manager". For him, big business meant conservative, risk-averse business. In sum, for Schumpeter, most managers and civil servants deal with what is. Entrepreneurs do exactly the opposite. They focus on creating things the world has never seen. Entrepreneurs think ahead of the curve, transcend established thinking and practice to create new perspectives, actions and solutions.
So what is the way forward for sustainable capitalism? First of all, it requires changing mindsets, and that is the biggest challenge of all. But it can be done. It is hard for us who have been born and raised in the context of capitalism and the large corporation - to reflect on the fact that not many centuries ago, humankind finally began to achieve a surplus, something more than the necessities for survival..
The central precept of all early corporations that began to take shape around the 16th century was that even though they were chartered as private entities and possessed special privileges and monopoly rights, they were still expected to carry out activities with a public purpose.
There is no doubt that the modern corporation as we know it today has empowered individual genius and bestowed great social benefits. Yet it has also done social harm.
Many of the ills of modern life - non-sustainable levels of personal and institutional debt, toxic air and water, workplace injury, loss of livelihoods for communities, political bribery - can be traced to corporate lack of responsibility to one or more constituencies. This is not intentional. No one wants to cause poverty, pollution, disease, unemployment and corruption. Rather, they want to make profits. But in that pursuit, they may find anti-social behavior pays. To achieve profits in the short term, corporations exact a "social and environmental price" and that price is high and rising.
Over the last two months I have spoken to a number of journalists writing for mostly US- based publications. The focus has been the current economic situation. One of them asked me, "But if we do change the way our markets work so that we focus on combining profits and principles, won't it have significant negative implications for the incredible global economic growth we have experienced in the last few decades?"
To which I countered: have you had a look at who is benefitting from that "incredible economic growth"? The current gap in wealth - taking all assets into account, including home ownership, stocks, bonds and pension plans - is actually far greater and increasing more rapidly than the much highlighted gap in income. The wealthiest 2% of adults own more than 50% of global wealth while the bottom 50% barely own 1%. Over the course of the 1990s in the USA alone, the top 1% saw their average wealth increase by 63%. In contrast, the average wealth of the poorest 40% actually declined by 44%. The enormous gap in assets has contributed to the gap in home ownership and to the US vulnerability to the current global crisis which unfolds.
The key to sustainable capitalism is reasonable profits as opposed to maximizing profits. In the current system, a segment of society is trying to maximize profits without concern for the impact on the well being of the society as a whole, while another segment of social organizations have to deal with the fall out. The system is not working. But even intelligent people still want to believe we only need to manipulate things a bit to get it right again. It hasn't been right for a very long time, and fixing it to where we were before is not the path to take. We need to completely rethink our system, and fortunately, the economic crisis is forcing us to do exactly that.
And now a word about governments and social entrepreneurship. Most don't understand that these entrepreneurs are not simple service delivery subcontractors like many non-profit organizations. Quite the contrary. Social entrepreneurs are change agents, system's changers. Like business entrepreneurs who are the innovators in the corporate sector, social entrepreneurs are the innovators of the public sector. Governments should create the needed support systems to allow them to innovate and scale, without wanting to take over the innovation process and kill it as a result.
Social entrepreneurship is not a new field or discipline. It is a term that captures a unique approach to applying market principles to problems of unsustainable livelihoods, an approach that cuts across sectors and disciplines. It is this approach that sets the social entrepreneur apart from the rest of the crowd of well-meaning people and welfare based organizations who dedicate themselves to social improvement. It is also that approach that distinguishes them from companies who seek first and foremost to maximize profits, and worry about the social and environmental fallout later - and only when pressured to do so.
We now have the opportunity to rebuild our economy from its ashes and shape an economy that combines markets and values. The role of each of you in this process cannot be minimized. People will turn to you for guidance. And when they do, make sure you do not rebuild the house on the same weak foundations, but seek to draw inspiration from the growing number of mavericks who know that all of us want to work for a company that is fundamentally innovative, morally compelling and philosophically positive.
«Americas 25 most fascinating entrepreneurs: Dan Weiden» by Warren Berger, Inc., April 2004.
