5 Steps Towards Core Strategic Impact

Earlier this month, at the Latin American Impact Investing Forum for Central America and the Caribbean (FLII CA&C) hosted in Antigua, Guatemala by Alterna Impact and New Ventures on November 16-17th, I facilitated a workshop designed to help companies better understand how a social and environmental mission can fit with their core business DNA. While it’s becoming more widely recognized that doing good is good for business, it can be difficult to fathom what a viable impact business model looks like. Businesses attending the workshop – from a biogas distributor to an ecotourism agency – all had this same concern; Or, in the words of one participant: “we care about our impact, but we also have a business to run”.

Distinguishing between impact and the rest of a business’ day-to-day operations remains a common pattern.

Oftentimes, corporate sustainability falls under the realm of a siloed division, separate from the rest of the company’s core operations. CSR departments typically oversee philanthropic initiatives that are designed to create a strong communication effect, but are rarely tied to hard metrics. In contrast, departments like sales, HR and procurement have a clear role towards business performance and bottom line. Not only does this separation significantly reduce the role and influence of CSR departments in company decision-making, but the association of CSR with peripheral activities also suggests that companies are able to continue with “business as usual” without questioning the actual sustainability or impact of their operations.

While there is no one approach for companies to have a positive impact, there is increasing consensus that the CSR model is becoming obsolete. A number of pioneer companies like Marks & Spencer, Patagonia and Eileen Fisher are now shifting the paradigm and making the leap towards more holistic models – by re-designing their operations, products, and use of inputs, to ensure a more sustainable impact on people and the planet; Not to mention the rapid boom of social enterprises who’s core business it is to tackle social and environmental challenges.

At I-DEV, when we help businesses to design impact strategies, we take two important factors into consideration:

• The alignment of that strategy with the company’s core business and existing operations
• Its commercial viability, i.e. can it not only cover its own costs but also drive earnings?

So how can a company achieve this? These are some of the critical steps to take that we set out to clarify in this workshop.

1. Start with your Core Business

This seems logical enough, yet countless companies launch into expensive impact initiatives that “sound good” on paper and seem to tick off all the right boxes, but without first doing the necessary introspection to clarify what makes sense for their business to pursue.

When we work with a business, we start with a 360° review of their model and operations, aiming to answer questions such as: What do you want to be known for in 5 or 10 years? What do you know how to do inside out? Why do customers choose you over others? Who are the stakeholders that your business relies on to do well? The goal is to clarify what keeps the engine running and what success means for this company. An impact strategy cannot be designed independently from that.

2. Take a Bottom-Up Approach

Again, it may seem quite intuitive to design an impact strategy that is aligned with the on-the-ground realities of the environment and communities that a business works with. Yet we see many companies hasten or altogether skip this step because they’ve already formed certain assumptions on what “impact” should look like. This top-down approach is not only misguided, it can be a costly mistake, as one company we worked with experienced after building a daycare center for the employees of its production facilities in Peru, only to shut it down a year later due to underutilization. Companies that invest in a human-centered process to involve their customers, suppliers and employees in their impact strategy have much higher chances of succeeding than those who don’t. For example, the CEOs of companies like Estufa Doña Dora, Viogaz, Kingo and Colibrí – all providers of clean energy solutions to low-income populations in Central America – spend up to a good third of their time in the field speaking to end users of their products, as they understand that the impact that they have on families is a critical driver of their own companies’ success.

3. Reconcile Impact and Business Objectives

Next, companies need to define a “problem” space at the intersection of social/environmental impact and business impact. For example, how can we make our product or service affordable to low income customers, while opening up new markets and revenue streams? Or, how can we reduce or recycle our consumption of a critical community resource, like plastic or water, all the while driving down business costs?

An illustration of this was provided at the workshop by Nutrissam, a recognized brand of spices and condiments in Guatemala, who’s management realized that they could train local farmers to produce key inputs rather than importing them, effectively cutting their costs and lead times while providing market opportunities to communities.

The question that guides this step is essentially: how can social or environmental impact boost success for a business? Another way to think about it is, rather than profits enabling impact (the classic corporate philanthropy model), how can corporate impact unlock profits and new market opportunities, making it a driver of bottom line? Involving every business division (purchasing, HR, production, etc.) throughout this idea-generation process will help to create an internally aligned strategy that everyone is behind and incentivized to see succeed.

4. Run the numbers

No organization – whether for profit or non profit – can deliver the long-term impact they want if they are not financially sustainable. This means that while the brainstorming and innovation part is crucial, so is making sure that the idea that has come out of it is viable and will not suck up more resources than it can generate.

We typically work with our clients to define areas of the business that stand to benefit from an impact strategy, for example in the form of stronger farmer loyalty, reduced costs of resources, or increasing the lifetime value of a customer. For example, when Green Mountain Coffee Roasters (today known as Keurig Green Mountain) asked us to work on an initiative to strengthen their relationship with over 200 coffee cooperatives in Nicaragua, we designed a program that increased communication, negotiation capacity and in-person training for their suppliers, while generating a positive ROI for the company through cost reductions in supplier management, quality control and a decrease in the number of rejections upon delivery.

Defining how an impact strategy will pay for itself and funnel tangible and intangible value back to the business is therefore one of the most important elements for long-term strategic impact.

5. Close the feedback loop

Last but not least, just like any other part of the business, an impact strategy is not static; and just like any other business strategy, it becomes more competitive through regular scrutiny, iteration and re-engineering, to make sure your company is not losing ground to more innovative players. Building accountability, and creating space for feedback and iteration by making corporate impact a regular item on the agenda of team and management meetings will allow you to take stock of what’s working and what isn’t, and make those crucial continuous improvements.

This blog is part of a mini series on inclusive business and Impact Investing in Central America. Don't miss the blog from Alterna's Brooke Latham on Impact Investing in Central America.