Capitalism at the Crossroads
The unlimited business opportunities in solving the world’s most difficult problems
By Stuart Hart
Wharton School publishing, $27.95
What better time to read Capitalism at the Crossroads than the month in in the wake of which General Electric’s announcement that said it would invest big bucks in eco-friendly technology? The granddaddy grandfather of industrial conglomerates believes it can make good good profits from products that that promote fuel efficiency and environmental protection.
Stuart Hart, professor of sustainable global enterprise at Cornell’s Johnson School of Management, has been imploring companies to look seriously at such initiatives since the early 1990s. In 1997, he authored wrote Beyond Greening: Strategies for a sustainable world, an influential Harvard Business Review article that told chief executives CEOs they needed to do more than simply clean up their smoke-stacks.
Economic growth would be sustainable in the long run, he argued, if they developed products and services that promoted sustainable growth by, for example, helping to close the gap between rich and poor nations.
But how to approach this daunting task? The answer came in a second HBR article, Fortune at the Bottom of the Pyramid, published in 2002 and coauthored this time with CK Prahalad, strategy guru and Prof Hart’s mentor.
Prof Prahalad expanded on the vision in a book of the same title published last year. Capitalism at the Crossroads is Prof Hart’s chance to paint a broad canvas.
As you might expect, his views of means and ends is fairly similar to those of his sometime collaborator. Thus both writers disagree with Jeff Immelt, GE chairman and CEO, when he says that investing in sustainable technology is just good business. Prof Hart believes that much more is at stake:
“Without a significant change of course, the future for globalisation and multinational corporations appears increasingly bleak.”
The arguments in support of this claim are familiar enough: the widening gulf between the haves and have-nots; signs of growing political unrest; depletion of natural resources; reminders of global interdependence such as Aids and the Ebola virus.
But where some commentators (David When Corporations Rule the World Korten is an influential example) doubt that the global economic system can be reformed in ways that start to deal with these problems, Prof Hart is optimistic.
He sees potential for a private-sector-led approach to development that creates profitable businesses while also serving to “raise the quality of life for the world’s poor, respect cultural diversity and conserve the ecological integrity of the planet”.
The obvious rejoinder is that development driven by profits will not help those in extreme poverty. Subsistence farmers, for example, have no income with which to buy even rudimentary products. They are excluded effectively from the market economy.
To be fair, Prof Hart does not advocate dismantling the existing apparatus of government-led aid and development. Rather, he believes it can be supplemented by profit-seeking companies prepared to seek out new customers and opportunities.
The snag is that most of today’s multinational corporations are woefully ill-equipped to rise to the challenge. It is one thing recognising the potential for business in developing economies. It is quite another having the will and expertise to do something about it.
The example of Nike’s World Shoe is instructive. The US sports shoe company saw clearly that China’s consumers presented an enormous potential market for trainers priced at $10 to $15 (£5.50 to £8.30) a pair. But it chose to use the same factories, business partners and channels as for its $150 Air Maxx. The product never took off.
There are rudimentary errors, you might think. But how many multinationals have the skills to discern the unexpressed needs of consumers in distant, developing economies? How many have business models that can be readily adapted to deliver the right products and services in these markets at an appropriate price?
The challenge facing GE – developing fuel-efficient, low emissions versions of its existing products – is simple by comparison.
The way to start, argues Prof Hart, is by actively engaging with the customers of the future. This means learning about not only about local market conditions but also about cultures, attitudes and aspirations.
Companies need to move well beyond transparency towards “radical transactiveness” – an ugly phrase meant to signify that is, a willingness to engage and learn from people who hold fundamentally different world views. Thus the biotechnology advisory panel set up by DuPont, the US chemicals group, includes not only enthusiasts but also sceptics and opponents. Muhammad Yunus, founder of Grameen Bank in Bangladesh, asked every employee to recruit a beggar as a customer.
Such mind-broadening exercises tend not to appeal to managers focused on hitting quarterly targets. It is easier for them to concentrate on short-term opportunities. So leadership and direction has to come from the top.
The high-profile launch of GE’s “Ecomagination” initiative is an example of the kind of campaign required to get big companies mobilised behind a new idea.
If you read a lot of business books, some of Prof Hart’s case studies will seem a little stale. Inevitably, Hindustan Lever crops up. So does Cemex, the Mexican cement group used by management writers to illustrate everything from leadership genius to innovation.
Still, there is much here to admire. Two hundred pages are hardly enough to solve the world’s ills, but they are plenty to sketch out the nature of the management challenge.