Businesses exist because they address the needs of the society they serve. This is what legitimizes their existence and guarantees their survival. To respond to those needs, they use material, financial, and human resources in a transformation process that results in products and services.
Over the course of this transformation process, business activity may have positive and negative impacts on society. Positive impacts include creating employment and wealth, or the actual fulfillment of society’s needs; and, frequently, negative impacts arise due to the exploitation of scarce resources or by harming the environment.
Whatever the case, businesses are responsible to society on, at least, three levels of performance[i]: to be economically viable and sustainable; to operate legally, complying with the legislation that regulates their activity; and finally, to act in accordance with what society deems to be ethical behavior.
Today, we live in times of change, and what is deemed to be socially responsible has evolved, with society placing greater demands on companies, which manifest themselves in three clear social requirements: on one hand, to responsibly identify all those elements in the value chain where actions can be taken to minimize negative impacts and maximize positive impacts; secondly, to provide greater transparency regarding the actions that have been implemented and their results; and, finally, to actively participate in meeting the UN’s Sustainable Development Goals (SDGs) as set out in the 2030 Agenda [ii].
Similarly, we live in a context in which customer and consumer needs are also evolving. It is no longer sufficient to fulfill the primary need that justifies the existence of the product or service, but rather, equally important is how it has come about. So much so that, as reflected in Forética’s 2018 report on the evolution of Corporate Social Responsibility (CSR) and Sustainability, “68.5% of Spanish citizens state they have stopped buying products or services that come from companies they believe are not ethical or responsible.” In the same vein, “89% of those surveyed state that, when given a choice between two equal products, they would buy the one from the more responsible company. Of these, 63.9% would be willing to pay a higher price.”
In these times of change, factors that help companies attract and retain talent are also changing, especially as younger generations join the job market. In fact, the main reason new employees choose an employer is because they perceive that the corporate values are consistent with their own and because the corporate culture encourages transparency, flexibility (these two resonate with millennials), and has a social mission or includes CSR as an active part of their operation[iii].
Therefore, as ever, the companies that will survive will be those that know how to respond to the needs of the society they serve; currently this is only possible through innovation in products, processes, and socially responsible business models. Innovation is no longer essential just for differentiation; it’s essential for survival.
In fact, at present the only sustainable competitive advantage is the ability to adapt to change. For many, the S&P 500 index best represents the market’s real situation and is the best indicator of North American economic trends. The 500 companies listed on the S&P represent approximately 80% of the total market capitalization on the United States stock market. The average tenure for companies on the index has dropped from 33 years in 1964 to 14 today; and it is estimated that in the next 10 years, 50% of companies on the S&P will have been replaced, an indication of the adaptability that is required to maintain a position on the index. To a large extent, this decreased tenure is due to an inability to adapt to changes, whether technological or related to customer behavior and expectations.
Confronted with this situation, innovation in general, and social innovation in particular, have become imperative for businesses. This has resulted in stronger ties between social organizations and businesses, the appearance of social businesses, and corporate social responsibility coming to be seen as a valued shared between business and society. In all cases, business management has been placed at the service of society, maximizing the value of both through the efficient use of its resources and capacities.
This is social innovation, the key to a business’ competitiveness and survival, no longer for the future, but for today.
[i] Caroll (1991) approaches today’s concept of Corporate Social Responsibility by including philanthropic responsibility (being a good citizen) alongside economic, legal, and ethical responsibility, as a desirable level of corporate responsibility fulfillment. [ii] The 2030 Agenda is the global plan to eradicate poverty, fight climate change, and reduce inequality, unanimously approved in 2015 by the United Nations’ 193 member states. The member states approved 17 Sustainable Development Goals (SDGs) and 169 related targets that indicate the complexity of development, emphasizing its social, economic, and environmental aspects. The SDGs are integrated and indivisible, meaning that to advance with the fulfillment of any one, the advancement of all is necessary. [iii] For more information (in Spanish) please see the studies of the Observatorio de Generación y Talento (Generation and Talent Outlook). https://generacciona.org/observatorio/