Inclusive growth: Profitable strategies for Tackling Poverty and Inequality

The Harvard Business Review article focuses on the implementation of inclusive business initiatives and stresses the need to move from CSR to core business activities. The authors encourage companies to think big in regional eco-system scale rather than local project scale to achieve systemic impact and profitable scale of operations.

Key recommendations

• Corporations must reach beyond their own capabilities and partner with other private sector entities, governments, communities and non-profits to create new ecosystems that will deliver value to all

Importance for companies

• Management guru Robert S. Kaplan, co-creator of the Balanced Scorecard and thought leader of Palladium Consulting provides guidance for corporations to pursue profitable inclusive growth strategies

Importance for policymakers

• Gives insights for possible actions to support inclusive growth 
• Shows the effects of successful public-private partnerships for improving socioeconomic conditions at regional scale

Kaplan, Serafeim and Tugendhat article Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality seeks to motivate corporations to reimagine their often limited CSR projects as core business opportunities in a regional ecosystem context to increase their business opportunities and impact. They develop a road map helping corporations to pursue profitable strategies to transform poor communities into vibrant, sustainable economies. The strategies are aiming to replace economically and socially inefficient supply chains with ones that are both more profitable and capable of bringing more people into the formal economy. The roadmap contains three phases:

1. Search for systematic, multisector opportunities: Many companies implemented corporate social responsibility programmes, however, these have had limited impacts. This is due to the origin of the motivation behind the traditional corporate approach to engage with socioeconomic problems: programmes are positioned as a social or an environmental programme; however, they should be positioned as a profit-generating one. Corporations should search for projects that generate economic benefits for themselves while creating socioeconomic gains for other actors.
2. Mobilise complementary partners: To achieve an improved ecosystem, it is important that actors from multiple sectors work together and pursue one common aim. Therefore, the actors must strengthen their mutual trust and minimize misunderstandings. Companies cannot create a transformational ecosystem on their own, therefore, corporations need to group together with catalyst organisations and mobilise complementary partners. Catalyst organisations are NGOs, project management or consulting companies, which have deep country knowledge and expertise in the sector, create a new ecosystem on the ground and work as an independent player who respects all participants.
3. Obtain seed and scale-up financing: Organisations, which already have a mission to create inclusive growth ecosystems, can serve as seed capital provider. Corporations can scale up the project by providing additional funds. Impact investment funds and foundations or private offices of wealthy families also serve as a source for additional funds. The main function of companies is to be an engaged partner, to lower the risk and guarantee that a minimum quantity of products will flow through the new ecosystem. Therefore, catalysts play a key role initially; however, when the projects become commercially viable, corporations assume responsibility. For example, Carana collaborated with Walmart and the government to implement training programmes, which Walmart expanded later on.

For the durability of the programmes, it is crucial to align and govern the ecosystem participants, since inclusive growth strategies are orders of magnitudes more complex than traditional private-sector strategic partnerships. Helpful tools are strategy maps, which specify common goals for all stakeholders and describe how to achieve them. Moreover, a balanced scorecard helps specifying financial and nonfinancial performance metrics for all participants. Shared metrics provide accountability and the foundation for governing the ecosystem.