Engagement and the value chain

A quiet revolution is underway that is transforming business practice. For years we talked about the supply chain. Companies can do good and enhance profitability by converting their supply chains to value chains. To keep it really simple, I believe the key difference between these chains is that various parts of the supply chain seek to extract value creating winners and losers. The various stakeholders in the value chain seek to create value, and ideally, create shared value.

The graphic below contrasts the supply chain and the value chain. It deliberately polarises the two concepts to illustrate how the value chain can transform business. If you want a deeper understanding of the value chain, try Bob Willard’s blog. I am going to focus on giving some diverse examples to illustrate the how a value chain ethos can transform business and create multiple benefits.

Supply chain – parks and reserves

Going back two or three decades, most city councils in my country (New Zealand) had in-house parks and reserves departments. As financial reforms swept through the country, this function was contracted out. In the first years, the councils had a number of suppliers, but over time, using their power in the relationship, the contractors were encouraged to “sharpen their pencils” when tendering for contracts. While this was good for the ratepayers, as it drove down costs and the training infrastructure embodied in the old system was severely damaged. Now in a user pays age, staff employed by contractors, have to pay for their own training if they want qualifications.

The supply chain and value chain in gold

Here is an extract from Harriet Lamb’s Fighting the Banana Wars and Other Fair Trade Battles (page 170 – 171).

The most vulnerable people mining gold are getting ripped off, they earn absolutely nothing – and so work in the most appalling conditions…. the men go deep underground hacking out the ore. Kids as young as six then stands on a huge granite rock rolling it over the ore mixed with water and mercury, which gradually absorbs the gold.

 

Then these kids scoop it up with their bare hands into cut off plastic bottles and take it to their homes. There, on their kitchen stoves they evaporate the mercury, so releasing poisonous gasses, to leave the gold.

Mercury is incredibly toxic – just small amounts will kill over time. I imagine these children have to work, because their parents are busy doing the heavy work extracting the ore, and the financial returns are so poor. Do you think these people know that the price of gold has gone through the roof – probably not. I imagine that some of this gold goes to gold plating in the mansions of the opulent, or for rapper “bling”. These consumers would have no idea of the suffering they are complicit in (is that too harsh?).

The Fairtrade movement seeks to extract miners from the supply chain and embed them in a value chain. A major difference will be that those making the purchase will know the good that their purchase creates. Here is a video telling the story of Fairtrade and Fairmined gold. Note the children grinding the ore.

Walmart’s value chains

Earlier blogs have identified how Walmart is created shared value in supplier relationships with companies such as Peterbilt. The massive trucks Peterbilt sells to Walmart are at the heart of their strategy to reduce their emissions 100% by 2015. Peterbilt will benefit both from this long-term relationship with Walmart, and in creating technology to make their vehicles more environmentally friendly – probably opening up other markets.

Another value chain strategy is Walmart’s intention to reduce sugar and sodium content and eliminate transfats from the foods they sell. As they supply 25% of the food in the U.S., they benefit the consumer and the wider community by, hopefully reducing the burden on the health system. Here is Daniel Goleman commenting on the Walmart value chain.

Here are just three examples of the supply and value chain. Feel free to comment and add further examples.

image credit: http://www.officialpsds.com/Pac-Gold-Bling-Gun-PSD50321.html 

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Engagement explosion

If you consider the relatively recent development of stakeholder engagement, its fair to say that there has been an engagement explosion. Edward Freeman first articulated stakeholder theory in his 1984 book Strategic Management: A Stakeholder Approach. It took a decade or so to emerge from obscurity and the concept had to survive criticism from those that saw it as a threat to the status quo – the primacy of the shareholder.

Engagement’s advantage is that it is organic in nature. People engaging become networked and engaging with others, opening further possibilities for engagement. Thus grow is exponential.

Fair trade

The growth of the Fair Trade movement is impressive. Harriet Lamb’s book Fighting the Banana Wars and Other Fair Trade Stories reveals explosive growth in Fair Trade sales.

The Fair Trade movement is a great example of the growth of engagement networks. The great achievement of fair Trade is in connecting the polar ends of the supply chain, the producer and the consumer. Before Fair Trade came along, most of us gave little thought to the origin of the bananas, or coffee or chocolate we consumed. But through the advocates of Fair Trade promoters we have learned that growers of these crops are often exploited by distribution and marketing systems. We have learned, for example that young people in African countries work as slaves on cocoa farms. Some of us know that coffee grown in the canopy of tropical forests creates great coffee in conditions that supports the ecosystem and is supported by that system. We don’t personally know the growers, but we learn that the Fair Trade system enables some of the money we pay for our coffee to help provide education for their families.

The Fair Trade example is just one example of the conversion of supply chains to value chains. I haven’t accessed product information using quick response (QR) codes with a cell phone, but the technology is there to provide more information about products and the people involved in their production, collapsing the supply chain and connecting producers and consumers.

The Internet   

The red line in the above graph shows the explosive growth of the Internet. We are still too close to the advent of this remarkable technology to fully appreciate the impact it is having on human interaction. I recall when I was writing my first book in the late nineties, I came across the Grameen story. I found Muhammad Yunus’s email address and asked his permission to use his story. He responded next day and a few days later the relevant chapter was written. More recently, I was able to connect with John Elkington through Twitter and ask for an endorsement of the revised edition of my book. He graciously agreed. Living at the bottom of the world, in New Zealand, I have been able to make connections that would have either been much more laborious or impossible in earlier times. Like many of you I engage with people in online communities across the globe. My potential to connect has exploded. Distance has been nullified and social levels flattened.

These are just two examples of greater engagement and connection and notice that they have happened in less than two decades. Profound changes are happening that will radically transform business and society for the better. I would be interested to know how greater engagement is happening in your life.

Stakeholder engagement – what are the drivers

If you want your organisation to engage better with stakeholders take some time to understand why. This blog explores three levels of commitment to stakeholder engagement – self-interest, enlightened self-interest and altruism. As with any classification system, these levels are arbitrary and could be endlessly debated – they are simply offered to stimulate thinking about your motives and drivers.

Implementing an initiative, such as stakeholder engagement is more likely to be successful if there is congruence between your thoughts and your actions. According to Sue Knight, our behaviours (what we say and do) are driven by the sub-surface factors of purpose, identity, beliefs, values and capabilities (see The heart of sustainability for more detail). So, for example, if you are just desperate to make money, and for your business to survive, your behaviours will reflect this.

Self-interest, enlightened self-interest and altruism

Self-interest: These are businesses that want to make money and survive – and that includes most business. But those who pursue this solely, will use any means within their ethical and legal boundaries (most of the time). Broader considerations are sublimated to the profit motive.

Enlightened self-interest: Businesses that want to make money and be more sustainable attempt to operate in ways that are not just financially sustainable, but also factor in the well-being of others and care of the environment. They look for synergy in these aspirations.

Altruism: These organisations are either established with altruistic missions or develop those as their owners turn from business-success to deeper motivations.

In this diagram, these levels are presented in a matrix. Notice that the self-interested motive persists in the other two levels – all organisations want to survive. And enlightened self-interest is compatible with altruism – successful businesses have more resources to give. Following blogs will look at examples of each of these levels of business and the behaviours they engender.

What drives your organisation?

Here is a series of statements based on the factors in the diagram above. They can be used as discussion starters, or for a quick evaluation of your organisation. If you want to add numbers:

  • 0 = my organisation is not like this
  • 1 = my organisation is a little like this
  • 2 = my organisation is like this
  • 3 = my organisation is a lot like this

Singular focus on profit: Our primary motivation is to contribute to a better world.

Transactional relationships: The success of our organisation depends on our ability to create great relationships with our stakeholders.

Public relations focus: Good public relations are important to us, but more important is open and transparent engagement.

Engagement focus: We see engagement as a core organisational competency that underpins our success.

Value chain:  We work with staff and suppliers to add value for both parties, valuing long-term relationships.

Sustainability aspirations: We are driven to maximise the triple-bottom line, for prosperity, people and the planet.

Values driven decision-making: Our values guide our decision-making – if an opportunity doesn’t sit well with our higher values, we won’t pursue it.

Driven by the greater-good: Our primary motivator is to contribute to the well-being of humanity.

Results:

  • 0 to 8: At the low range, your organisation has a singular focus on profit, if you are at the higher, perhaps your organisation is on the cusp of enlightened self-interest.
  • 8 to 16: Your organisation shows signs of enlightened self-interest and could well be on a trajectory towards sustainability.
  • 16 to 24: Your organisation is manifesting altruism.

There are clear examples of organisations in each of these three categories. We will look at them more closely in following blog posts. And I would love to hear of your organisation’s journey towards altruism.