In this lecture, I want to give you an overview of our focal topic, how companies drive impact. I'll stay at a pretty high level and focus on three questions. First, how do companies create impact? What's the process? Second, why did they do this? Why did they drive impact? And third, what's the nature of the impact they create? So first, how do companies create impact? This is a new area of business and research and scholarship as I've described, so there's no single model or framework to describe how businesses create impact. Still most observers and analysts who write about this topic suggest at least implicitly that businesses create impact in three ways. The first is through their practices, or operations. The second is trough their products and services. And the third is through their philanthropy. This is a framework that I've adapted from John Miller and Lucy Parker, the authors of the book Everybody's Business. But if you refer back to the previous module and the typology that I borrowed from Fred Keller of Cascade Engineering, you'll see that there are a lot of similarities. So it's common to focus on practices, products, and philanthropy as three ways that companies drive impact. The first category, the first means of impact, practices actually encompasses a variety of more specific practices and I'm going to focus in this module on four of them. The first is employment practices. Who does a company hire? How do they hire? What are the kinds of benefits and working conditions they offer? So the first practice is employment. The second is the production process used or operations inside the company. What are the resources they use to make their products. How much harm, waste or benefit do they create in the production process. The third is their supply chain management. How does the company buy, source the products it needs to make it's products? So a simple of example of the supply chain might be the supply chain for a hotel. The hotel is going to need to buy furniture from furniture suppliers, they're going to need to buy linen and uniforms, they're going to need to buy cleaning supplies, they're going to need to buy maintenance supplies. The company can have influence on all of those other companies through their supply chain management systems. And the last process or practice that I want to highlight is investment. Companies actually invest in other companies, so we don't talk about that so often but we're going to talk in this module about how companies are investing in other companies that have impact. Essentially companies are themselves engaging in impact investing. So that's driving impact through practices, and specifically through employment production practices, supply chain practices, and investment. Now the second way that companies drive impact is really through the products and services they create. Often that's products and services that have a beneficial environmental impact, or maybe they're products and services that have a positive social impact through effecting people's basic needs, fulfilling their basic needs, and creating opportunities for people who might not otherwise have access to those products and services. We'll talk soon about some of those examples of products and services through which companies create impact. And the third way that companies may create impact is through their philanthropy, the money or time that they give away to benefit individuals, to benefit charity, to benefit non profit organizations. And we'll also talk about how companies benefit in turn from their own philanthropy. So I've discussed how companies drive impact, and again it's through their practices, through their products and services, and through their philanthropy. I want to touch now on why companies drive impact. Why are companies trying to do this? And I talked a little bit about this in the preceding module. Certainly some of these companies are driven by a very committed leader, a purpose driven leader. We'll see that in some of the companies we describe. Other companies may be really thinking about how do they manage their own risks? How do they manage material risks? And these companies are particularly aware that, hey we may suffer from when their climate changes. If their climate changes, if there are forest fires, if there are rising tides, if there are hurricanes that hurts our business. If there's social unrest, that hurts our business. If there's increasing inequality, that hurts our business. So for companies that are thinking this way, driving impact is both about creating good in the world, but it's certainly about protecting the company as well. Other companies may be really focused on taking advantage of market opportunities. They're looking at a market failure, they're seeing people who are not getting their needs met, and they're thinking, how can we serve those people's needs? One of the examples that I like to give when talking about this is micro-finance. So the origin of micro-finance is the realization that there are people who could not get financial services, who could not get loans, and if you could figure out how to get them micro-loans, you could serve these people's needs and make money in the process. Yet another reason companies are trying to create impact is to strengthen employee engagement. It's very clear that when companies are purpose driven, when they have this larger social mission, when they create impact, they're more successful in attracting and retaining employees. They're also likely to be more successful in attracting and retaining customers, as well. So, lots of reasons why companies are trying to create impact. Many of them are trying to create impact for all of these reasons. Finally I want to discuss the nature of the positive social and environmental impact that businesses create. So in the next module of this course, I'm going to focus entirely on impact measurement, so I won't go into too much detail here. Still I think it's useful to think about the dimensions of impact that businesses create. So one dimension is valence. Valence is really just a fancy word for saying value or is the company's impact positive, is it negative or both? And again it's just important to remember that lots of companies have both a positive impact and a negative impact. A second dimension of impact is really focus. What is the focus of the company's impact? Is it environmental change, is it human needs, is it empowerment, where's that impact focused? A third element of impact or dimension of impact we might consider is depth. How deep or transformational is a company's impact on the people, communities, or geographies it targets? A fourth dimension is breadth. How broad is the company's impact? That is how many people, communities or geographies are touched by the company's products, practices and or philanthropy. And a last dimension is cost effectiveness, how much bang for the buck is there. I mean what does it cost, or what does it save for a company to have the impact that it has. So it's worth noting that these dimensions don't always move in lock step, they're not necessarily positively correlated. Perhaps most obviously, the greater a company's depth of impact, the lower its breadth is likely to be. You can probably influence a lot of people relatively superficially or a smaller group of people more deeply. Valence as I mentioned isn't straightforward or uniform. Some companies have a great deal of positive impact and a great deal of negative impact too. And of course we see a great deal of variability in the focus of a company's impact. Some companies have impact across all three areas I've described, the environment, human needs and empowerment. But most of the high impact companies we'll describe in the next lectures tend to have a focus on environment or human needs, one area of focus or another. These nuances begin to suggest how difficult it can be to measure a company's impact precisely and especially how difficult it is to compare different company's impact. So I'll say more about that in my video on the upcoming video on impact and financial performance. Can companies have a positive social impact and make money too? But first, I want to bring in my colleague Nick Ashburn, senior director of impact investing for the World and Social Impact Initiative. So Nick and I can have a conversation to discuss in more detail with more examples how companies drive impact.
