SOCIAL INNOVATION:FUTURE SOCIAL VALUE AND CAPITAL CREATIONReana RossouwNext Generation Consultants

2016: WORLD ECONOMIC FORUM

• 3 Distinct pieces of work:• The Fourth Industrial Revolution• The Future of Jobs• Social Innovation – Achieving corporate and societal value

• What does this mean and why is it important?• There has never been a time of greater promise or greater peril. • Business and labour markets will be effected.• By 2020 - 5 000 000 jobs would have been lost due to technological

advances.

FOURTH REVOLUTION CONCEPT

FOURTH REVOLUTION CONCEPT• The First Industrial Revolution: Our reliance on animals, human effort and

biomass as primary sources of energy to the use of fossil fuels and the mechanical power this enabled.

• The Second Industrial Revolution: Major breakthroughs in the form of electricity distribution, both wireless and wired communication, the synthesis of ammonia and new forms of power generation.

• The Third Industrial Revolution: The development of digital systems, communication and rapid advances in computing power, which have enabled new ways of generating, processing and sharing information.

THE FOURTH REVOLUTION• The Fourth Industrial Revolution has the

potential to raise global income levels and improve the quality of life for populations around the world.

• To date, those who have gained the most from it have been consumers able to afford and access the digital world; technology has made possible new products and services that increase the efficiency and pleasure of our personal lives.

• In the future, technological innovation will also lead to a supply-side miracle, with long-term gains in efficiency and productivity. Transportation and communication costs will drop, logistics and global supply chains will become more effective, and the cost of trade will diminish, all of which will open new markets and drive economic growth.

• BUT: The revolution could yield greater inequality, particularly in its potential to disrupt labour markets. As automation substitutes for labour across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labour.

• Inequality represents the greatest societal concern associated with the Fourth Industrial Revolution.

• The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital—the innovators, shareholders, and investors—which explains the rising gap in wealth between those dependent on capital versus labour. 

• In the end, it all comes down to people and values. We need to shape a future that works for all of us by putting people first and empowering them.

• In order to thrive, business leaders will have to actively work to expand their thinking away from what has been traditionally done, and include ideas and systems that may never have been considered. Business leaders must begin questioning everything, from rethinking their strategies and business models, to discovering the right investments in training and potentially disruptive R&D investments.

A PERFECT STORM: SOUTH AFRICA2015-2016 COMPETITIVENESS REPORT

Good• Strength of auditing and reporting

standards (1st)• Efficacy of boards (3rd)• Protection of minority shareholders

(3rd)

Bad• Health (128)• Quality of Education (138)• Quality of Maths and Science (140)• Cooperation in Labour relations (140)• Flexibility in wage determination

(137)• Hiring and Firing practices (138)

Innovation must be pursued relentlessly and on an ongoing basis

2 POINTSRealisation

• Understand the changing contextual and transactional environments

• Take on the responsibility of influencing broader societal issues

• Aspects such as health and education are too important to leave to government

Action• A key strategic issue will be to focus on

• Reskilling current employees • Investing in future employees

• Greater systems awareness (the power of interconnectedness, collaboration and co-creation)

• Agility and resilience – cultures of possibilities

• Innovation and creativity – doing things differently

• Futures thinking and sustainability

FUTURE OF JOBS CONCEPT

JOBS - 2020• Technological disruption is interacting with socio-economic,

geopolitical and demographic factors to create a perfect storm in labour markets in the next five years.

• Jobs gains in the next five years will not be enough to offset expected losses, meaning we have a difficult transition ahead. 

• Even as jobs shrink, companies will find it harder to recruit.• Regardless of the job you are in, expect to face pressure to

constantly modify your skills. 

THE ISSUE?• On average, by 2020, more than a third of the desired core skill sets of most occupations will be comprised of skills that are not yet considered crucial to the job today.

• In addition, technical skills will need to be supplemented with strong social and collaboration skills.

CONUNDRUM• Businesses worldwide say there is an acute shortage of skilled workers even

though 73 million young adults are looking for jobs.• For job recruiters, relevant job-related knowledge is more important than degrees. • Job seekers are beginning to realise that several years of learning at university no

longer suffice to succeed in the world of work. • Universities worldwide churn out millions of graduates each year. A handful from elite

colleges and universities succeed in becoming part of the professional but a staggering majority lag behind.

• Because once in the job market, more than 50% of new graduates around the world say that they were unhappy with their chosen field of study.

• On current trends, the global economy could face a potential surplus of 95 million low‐skill workers and a shortage of about 38 to 40 million high‐skill workers by 2020.

10 JOBS THAT DID NOT EXIST 10 YEARS AGO

• Application developer• Social media manager• Uber driver• Drive-less car engineer• Cloud computing specialist

• Big data analyst/data scientist• Sustainability manager• You Tube content creators• Drone operators• Millennial Generational expert

TOP 10 SKILLS YOU NEED FOR THE FUTURE2016

• Complex problem solving• Coordinating with others• People management• Critical thinking• Negotiation• Quality control• Service orientation• Judgement and decision-making• Active learning• Creativity

2020• Complex problem solving• Critical thinking• Creativity• People management• Coordinating with others• Emotional intelligence• Judgement and decision-making• Service orientation• Negotiation• Cognitive flexibility

WHAT SKILLS WILL CHANGE THE WORLD?Creativity that supports innovation!

THE SOCIAL INNOVATION CONCEPTReducing inequality and accelerating real, meaningful and

widespread inclusive growth are the most urgent challenge of our age

SOCIAL INNOVATION• Social innovation means being more strategic, more ambitious and

more collaborative in how access and opportunity can be provided for billions of low-income people to participate in the global economy.

• What distinguishes social innovation from traditional (business) approaches is the pursuit of societal challenges in ways that create tangible business benefits.

• Social innovation is:• Directly aligned with a company’s innovation agenda and business strategy. • It leverages a company’s core for-profit assets, such as human capital, value

chains, technology or distribution systems. • It is managed from within a company’s core operations or business units to

become a competitive differentiator to create future economic value.

SOCIAL INNOVATION LEADS TO SOCIAL CAPITALAnd financial capital and environmental/natural capital and

manufactured capital and intellectual capital and individual capital and cultural capital and political capital

A HOST OF NEW TERMINOLOGIES

• Social Capital:• Social capital is the capacity of individuals, businesses, organisations and societies to

access resources through social networks of trust, reciprocity and information.

• Social Enterprise:• A social enterprise is an organisation, whether non-profit, for-profit or hybrid, which

applies business principles and models to solving social problems.• Social Innovation:

• Social innovations are ideas, practices or initiatives that challenge the status quo to catalyse systemic social change.

• Inclusive economy / Circular economy / Social Economy / Conscious capital• Shared/Blended value / Social enterprises / Socio Economic/Enterprise Investment

and Development / Impact Investment / Socially responsible investment• Collective impact

CASE STUDIES SOCIAL INNOVATION THAT CONTRIBUTES TO SOCIAL VALUE THAT LEADS TO SOCIAL

CAPITAL

SOCIAL/COMMUNITY INVESTMENT / DEVELOPMENT• Proctor & Gamble - The Pampers hospital’s/mobile

clinic program has been running for about 10 years beginning in Kenya. The program has spread to Uganda, Angola, Zimbabwe, Cameroon, Ivory Coast, Senegal and Ghana. Every year the program educates over 1 million mums with information on nutrition, immunizations and vaccinations. The program is ran with trained nurses who also advise mums as well as answer any questions and concerns they may have. The babies are checked, immunized and weighed- thus bridging a health care gap. This program is also run in partnerships with the Ministry of Health who attest to the contribution the program is making on increasing the number of children with full immunizations as per the immunization schedule.

• The program is supported by the Safeguard schools program (hygiene and sanitation), safe drinking water program, the Always keeping girls in Schools program and the Ariel Laundry Rooms, as well as Kibera community multipurpose center.

SOCIO ECONOMIC DEVELOPMENT• Wildlands Trust Sustainable Communities –

Treepreneurs - Indigenous Trees for Africa• Orphans and vulnerable communities grows trees and

collect waste for reforestation. • Rewards are in the form of credits for purchasing food, pay

school fees/stationary, bicycles and building materials• 23 communities - 7 000 tree growers - 1 000 000 trees• R1 800 000 goods bartered• 75 environmental educators earning more than R5 000 per

month• Collects more than 1 000 000 tonnes of waste• 100 shop keepers• 60 tonnes of carbon sequestrated• 1 000 drivers licences• 100 university students• 532 water tanks purchased• 15 students studying environmental studies• 3 have become fundraisers for rhino poaching• Maths and science studies increased by 15%• School attendance and pass rates improved by 25%• 37 New businesses created• 1 350 Treepreneurs created – working and owning 35

nurseries

Shanduka Black Umbrellas

• When William Mokgethi, the Director of Montamaisa Bosigo Transport (MBT) joined the Shanduka Black Umbrellas (SBU) programme, his business was focused solely on public transportation (taxis).

• Under the training programme of the incubator he was capacitated into seeing the ‘bigger picture’ of business. This motivated him to diversify his business portfolio and widen his customer base to enhance sustainability.

• During this period, the SBU Mooinooi incubator gave the company a one year contract for the transportation of staff members and clients, which was renewed in 2016. Through the motivation of the incubator, William conducted market research to understand his potential customers better and then branded his company vehicles to improve visibility. All his efforts paid off as Montsamaisa Bosigo Transport acquired a contract with GTSM, facilitated by SBU-Mooinooi in 2016.

• The contract is for the provision of courier services to GTSM. MBT couriers  packages and machines for GTSM from Lonmin, for repairs and/or for collection of new ones after being purchased.

• Speaking on this progress, William confirms that such developments have built the company’s confidence and they are currently approaching more companies with this product with the main aim of reducing their transportation costs. The growth of the company will be seen in the following quarters.

ENTERPRISE DEVELOPMENT

CIRCULAR ECONOMY• Adidas  unveiled the world’s first shoe with an upper made entirely of

ocean plastic waste.•  Terracycle upcycles various kinds of waste into uniquely-branded

consumer products, furniture, decoration and other material assets ready for a new life.

• Waste to Wear creating textiles, bags, accessories from plastic bottles.

SOCIAL INNOVATION• MPESA – MKOPA – KENYA• M-Kopa customers put down a small deposit for

the $200 solar pack that consists of three lights, a radio and a solar panel. They go home, set it up themselves and immediately start reaping the benefits of having electricity. The cost of the solar pack is then paid off in weekly instalments over a year.

• And it is here that M-Kopa's partnership with M-Pesa has proved so crucial – to be able to control the solar power supply so that it worked when people paid off their weekly instalment but stopped working when they didn't has been key to success.

• "We started to realise we could get our customers to pay us through M-Pesa in small amounts based on what they could afford,".

• When the repayments have been paid off in full, the electricity supply is free and the customer takes full ownership of the solar power system.

SOCIAL ECONOMYSABMiller has focused on improving the livelihoods of the people its products depend on. • Supporting small business—from shareholder farmers who

supply ingredients to mom-and-pop shop owners who sell their brews—is embedded in SABMiller’s strategy. 

• In Uganda there’s Eagle, the brewer’s locally developed sorghum beer that now provides a market for 20 000 community farmers (and an affordable—and now market-leading—product for the masses).  At its heart the strategy is to bring down the cost of beer by replacing expensive imported raw materials with locally-sourced ingredients, and then engaging with Uganda’s government to secure excise concessions for beer brewed using home-grown ingredients and helping improve livelihoods.

• In Latin America, where 780 000 tiendas and other small retailers account for roughly 40% of SABMiller’s sales, business training and assistance with financing have helped lift shop keeper sales in the region by an average 12.8% across product lines, since 2013.

INCLUSIVE ECONOMY• Living Goods supports networks of village health

entrepreneurs who go door-to-door teaching families better health practices while selling basic health products including simple treatments for malaria and pneumonia, fortified foods, healthy pregnancy kits, and solar lights.

• Living Goods works in rural areas of Africa and Southeast Asia where doctors and clinics are scarce, and where more than two-thirds of the children who die before their fifth birthday could survive and thrive if their families had information and counselling about pregnancy, new-born care, and nutrition; access to products like bed nets, oral rehydration salts, and water filters; and health professionals to consult about common diseases.

• Living Goods is solving a major obstacle in public health—recruiting and supporting local health workers—through a franchise system that provides quality care and performance incentives for health workers. Smartphone apps automate diagnoses, send treatment reminders, and track key metrics.

SOCIAL ENTERPRISES

BRANDS FOR GOOD

CONSCIOUS CAPITAL / IMPACT INVESTMENT

Low-income HousingA private equity fund based in Brazil closed with $75 million in assets. Investments target market-rate financial returns and social benefits to rural communities in South America. The fund’s investors include large financial institutions, private family offices, development organisations, and large-scale foundations.Clean Drinking WaterAn India-based impact investing fund manager started investing in microfinance institutions more than ten years ago. After delivering 14% returns to investors, the fund manager decided to raise a second fund to target businesses across a broader set of sectors, including renewable energy, agriculture, health, and education. The fund provides risk capital and support to early stage ventures with investments averaging $50 000 in size.

Eco-InvestingRenewable energy sources such as wind, solar, hydroelectric and geothermal. Energy-storage technology such as batteries for hybrid or electric cars. Biofuels made from non-petroleum sources. Green and energy-efficient building materials. Other technologies related to eco-investing are those used for organic farming, including green pesticides and fertilizers, and green consumer products such as cosmetics, foods, healthcare products and pharmaceuticals.

NEW SOCIAL CAPITAL

Reinvented supply chains

Bill boards – from sweat to dead mosquitos

Glow in the dark highways

SHARED VALUE: FINANCIAL SERVICES INDUSTRYCreating financial products that address specific needs of poor or vulnerable populations: (ICICI Lombard):• ICICI Lombard provides products that are customised to suit the specific needs of rain-dependent farmers in India, helping protect

their livelihoods in the event of a drought. ICICI developed weather-based insurance to protect farmers against financial losses arising from adverse weather conditions. Under ICICI Lombard’s system, farmers do not file claims. Rather, payments are triggered by deviations from normal conditions as measured by certified weather data collected from independent third parties (such as the Indian Meteorological Department).

• Between 2003 and 2010, ICICI implemented a weather-based insurance model in 14 Indian states, comprising 64 districts and covering 26 crop varieties. Weather insurance has a multiplier effect on the economy, because protection offered through the insurance enhances the risk-taking capacity of farmers, banks, micro-finance lenders, and agro-based industries. Greater risk taking in turn boosts the entire regional economy. The Indian government now pays ICICI Lombard to expand services to new customers. As of 2011, ICICI Lombard served 2.2 million farmers across 7.6 million acres of land with weather-based crop insurance; weather-based products contributed to $72 million, or 7.8 percent of the company’s direct business.

Transforming service delivery to increase financial access: (Equity Bank):• Equity Bank identified several rural locations with low-income populations who could benefit from financial services. However, Equity

Bank also recognized that starting a branch in these locations would not be economically viable, as they would not have enough foot traffic. The Bank devised a strategy targeting low-income clients in underserved territories through mobile banking units. Branded, armored trucks are affiliated with existing branches and provide customers with the same financial services found in normal branches, including deposits and savings, money transfers, remittance processing, and loans. This service helps to reduce congestion in Equity’s existing branches and increases the bank’s penetration without the added cost of a brick and mortar solution.

• Financial inclusion levels in Kenya were visibly higher due to Equity Bank’s efforts. The number of Equity Bank’s branches increased from 44 to 112 between 2006 and 2009, representing an expansion of 155%. By 2011, Equity Bank had more than 7.15 million customers—nearly half of all bank accounts in Kenya. The business also saw phenomenal results; between 2006 and 2010, the assets of Equity Bank increased seven-fold while its customers and customer deposits increased by a factor of six.

SHARED VALUE FINANCIAL SERVICES INDUSTRY

• Proactively offering financial services to companies in non-financial sectors so those companies can better serve low-income populations: (Grupo Martins/Tribanco:

• Grupo Martins, Brazil’s largest wholesaler, distributes food, electronics, home improvement supplies, and pet food to more than 300 000 micro, small, and medium enterprises (MSMEs) in Brazil. As large foreign retailers began entering the Brazilian market and taking share away from domestic retailers, the company realised that it needed a new strategy to maintain its market position. Grupo Martins recognized that its customers needed financial support in order to compete with new entrants. Grupo Martins did not see itself solely as a traditional distribution company, but rather as a logistics company in the business of helping its customers become more competitive.

• Driven by the philosophy that its customers’ growth would drive its own growth, Grupo Martins created a bank—Tribanco—to provide financial and management solutions to its MSME retail clients. Tribanco provides credit and non-credit services to Grupo Martins’ MSME retailers, who use the service for purchases and store renovations. Tribanco also provides Tricard, a credit card for MSMEs to offer their customers, thus enabling low-income individuals to smooth their consumption. Finally, Tribanco trains MSMEs on how to check the credit worthiness of customers. Today, MSME retailers view Tribanco not merely as a traditional bank, but as an important “partner” in the success of their businesses.

• By offering credit services and training to retailers through Tribanco, Grupo Martins helped its customers remain profitable and in many cases, expand. Over half of Grupo Martins’ MSME retailers reported increases in store invoicing because of Tribanco’s services. Tribanco has issued approximately four million Tricard credit cards to shoppers, most of whom are first time credit card users. Grupo Martins has maintained its own growth and market presence as the distributor to these retailers. Further, Grupo Martins has also strengthened its brand loyalty because of the value-added services it offers.

SHARED VALUE FINANCIAL SERVICES INDUSTRY

• Creating financial products that address specific needs of poor or vulnerable populations and providing product-linked or mass education programs to improve individuals’ financial capability: Standard Chartered in South Africa:

• Through its unique Input Financing Model, Standard Chartered Bank uses farmers commodities (maize, wheat, soya, rice, etc.) as collateral, rather than traditional fixed assets. This practice empowers farmers to increase their funding potential and frees up other physical assets, such as cattle and equipment, for additional ventures. The Bank’s Africa Agri-finance Division, plays a key role in managing the Bank’s $2 billion regional agricultural financing portfolio.

• Transforming service delivery to increase financial access M-PESA in Kenya:• M-PESA is an SMS-based money transfer system that allows people to deposit, send, and withdraw funds using

their cellphones. M-PESA, conceived by Vodafone and developed by Safaricom, demonstrates that financial services institutions have an opportunity to proactively partner with telecommunications and other technology-based companies in order to reduce transaction costs and improve access and markets. Since its launch in March 2007, the service has acquired more than 9 million customers—40% of Kenya’s adult population. As of June 2010, M-PESA customers could conduct transactions at approximately 17 900 retail outlets, more than half of them in rural areas.

SOCIAL INNOVATION CONTINUUM

• The nature of innovation is changing dramatically as economies shift from the industrial age to the knowledge age. No longer is innovation exclusively associated with commercially exploitable technological products. Social innovation is emerging as a critical part of the innovation ecosystem. The focus of social innovation is on finding solutions to local and global social problems and creating new values for society, a task traditionally associated with government and non-profit organisations.

• Social innovation is multifaceted and an integral aspect of a new innovation paradigm. Simultaneous social and economic value creation is aptly demonstrated by the emergence of hybrid innovators and the blurred boundaries of social innovation. Complex problems, such as youth underemployment, quality health care, shelter for all (access to housing) and environmental challenge demand cross-sector collaboration, a more universal appreciation of shared value and a holistic understanding of innovation.

• It is not about: Sharing the value that has already been created – that is philanthropy.

• It is about a deliberate attempt to address social/economic/environmental needs through new, innovative and commercially viable opportunities and it must be purposeful.

• A new philosophy or a bridging strategy?• Using social investment funds as seed capital to

drive social innovation• Design new products and services that meet social and

environmental needs while simultaneously delivering a financial return

• New approaches to secure access to new markets• Reconfigure and secure the value chain by tapping new

or better resources and partners to improve productivity• Improve the capabilities (skills, knowledge,

productivity) of suppliers• Create local clusters to strengthen and capture

economic and social benefits at the community level

• Deploy corporate assets to achieve scale and spur investment

• Led by the board and executive/senior management teams and individual champions across the company in close collaboration with corporate affairs and sustainability departments

KEY QUESTIONS• Where are the key opportunities for you to be more innovative and socially inclusive? • Can social innovation help manage risks that will affect your business? • How can you use existing assets and capabilities to solve societal challenges? • Can you engage and collaborate with your key stakeholders – customers, suppliers, distributors,

retailers, governments, NGOs – to create greater financial and social value? • How can you embed the social innovation agenda into the strategic vision? • How can you mobilise the creativity and entrepreneurship of your business teams to identify and

pursue opportunities? • Have you spent enough time to understand the new stakeholders you are trying to serve? Can you

serve them through existing capabilities and business models? • Are existing structures blocking socially innovative ideas from progressing? What new structures could

you create to support the design process? • What can you do to incubate more socially innovative ideas (e.g. ring-fenced funding, longer incubation

times)? • Is the business model ready to be replicated to new contexts? What elements should you review and

adapt regularly to keep it relevant over time? • Can you find new sources of value in an already successful social innovation initiative?

REANA ROSSOUW: NEXT GENERATION

CONSULTANTS• Website: www.nextgeneration.co.za• Linkedin: https://www.linkedin.com/company/next-generation-

consultants and https://www.linkedin.com/in/reanarossouw• Google+: https://plus.google.com/+reana rossouw• Pinterest: https://www.pinterest.com/reanarossouw/• Facebook: https://www.facebook.com/nextgenerationconsultants/• Slideshare: http://www.slideshare.net/Reana1• Twitter: https://twitter.com/180AMG• E-Mail: rrossouw@nextgeneration.co.za