Economic growth must be inclusive for the benefit of all – business and people

EDITOR’S note:

China’s rapid economic growth — amongst the fastest in the world — has made many people better-off. And in its campaign to pull millions out of poverty, China has made it clear that no one should be left behind.

As co-developer of the balanced scorecard, Robert Kaplan focuses on those left behind in the world’s development process in one of his recent articles in the Harvard Business Review (HBR).

The balanced scorecard looks at more than the bottom line of business. It also looks at more social aspects. In the HBR article, “Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality,” co-authored with George Serafeim, a professor of business administration at Harvard, and Eduardo Tugendhat, director of thought leadership at the Palladium consultancy, Kaplan discussed strategies for firms to build a new ecosystem to lift people out of poverty.

Here, he shares his ideas of inclusive growth with Shanghai Daily staff writer Cao Xinyu.

Q: In your recent article, you said traditional corporate social responsibility programs have limited impact. Why? How can the inclusive-growth design principles bring a difference to CSR programs?

A: CSR programs are all well-meaning, but they are limited by the size of the budget. When things get difficult with the company — sales go down, and profits go down — the CSR program is likely to be cut, because it doesn’t affect the business.

What we’re advocating is to make your social impact a part of your business strategy. In this way, you can make money and improve the lives and conditions of people in the community.

You make more money, you keep going, and more people are impacted. You unleash the dynamics of profitable strategy.

Q: You mentioned in your HBR article that to create an inclusive and profit-generating ecosystem, a corporation needs to partner with a catalyst, which can be an NGO or a consulting company. Is there any standard in selecting the catalyst?

A: Ecosystems don’t form by themselves naturally. Getting people to do things that are not part of their normal business is not easy.

I specifically use the word “catalyst.”

It’s chemistry. And chemistry about building bonds. We try to create chemistry to bring different parts together.

The catalyst, which can be an NGO, has to be the one that is respected and trusted.

It has to have integrity.

It’s really doing this for the benefit of people who have not been included in growth.

It needs to have this motivation. It also has to have deep knowledge about the condition of local communities.

Another role the catalyst needs to play is to organize and develop scorecards as measurement and governance to keep everybody in the ecosystem.

Q: Company leaders often look for short-term paybacks, and leaders come and go. So how can even a sound ecosystem built over a long time withstand the shifts of leadership and business ideas?

A: Most times you set up an alliance, it deteriorates over time.

Two companies come together to create more than they can being separate.

But always, each one tries to maximize the profit out of the alliance, and the collaboration breaks down.

So the idea I have as we set up this ecosystem — which involves companies, governments, NGOs, local communities — to think of the balanced scorecard for each player.

We’ll describe each player’s need with the balanced scorecard. They won’t be independent scorecards. They will be linked. It’s like a governance system for the ecosystem, ensuring that strategies are implemented well.

Q: Can the inclusive-growth principle be implemented by governments as well?

A: Sure. Try to think about this approach (the inclusive-growth) as a general version of public-private partnership. Maybe the government can put in the initial investment to try out one of these projects with the company.

That will lower the risk for the company. And if the economic activity is created and starts making money, then companies can take over, adapt the business model and repay the government.

One of the projects we described in the article is about farmers in Uganda. That money came from an intergovernmental aid agency. It could’ve come from the government to improve agricultural production and make local farmer better off, but the government of Uganda didn’t have the money and vision. The point is that we want to give opportunities to businesses to get engaged and develop a profitable model.

It will be interesting for governments to think about being the initial investor and taking the risk away from companies.

There are great opportunities for public-private partnership projects.