While the success or failure of R&D activities is generally judged over the long term, companies often expect CCI programmes to deliver ‘bottom-line’ outcomes in unrealistically short periods of time. What would CCI look like if we expected it to contribute to a company’s long-term development in the same way as R&D?
Corporate success is based on two things working concurrently: good ideas and effective commercial application (the ability to make use of the ideas). It was once sufficient to be good at one or the other, but as competition in every sector has intensified, so has the need for companies to link innovation and application strategically and to integrate their further development so as to achieve a full product or service life cycle from conception to delivery. The big question for companies is where and how to get the ideas and application processes that will give them competitive advantage, market strength, and a continuous flow of products and services – everywhere.
‘We need ideas from everywhere’
Companies have to develop innovation and application prowess both within their halls and externally, beyond their structures and direct operations. Thomas Edison’s disciplined approach to innovation was twofold: experiment based on what you already know – predictable patterns – and experiment further bringing in elements of the unknown. This ‘we need ideas from everywhere’ attitude captures the valuable role that corporate community involvement (CCI) can play in long-term business development and success.
CCI involvement – or strategic social investment, as it is sometimes called – has great potential as an engine of R&D, and is relevant to each stage of business development. Achieving this potential requires a company to ‘re-engineer’ its approach to the goals, substance and practice of CCI and social investment. How different would a company’s CCI look if we expected it to contribute in the same kinds of ways that commercial-product R&D contributes to overall business success and development?
Near the market vs long-term market
Since the early development of formal corporate philanthropy, the activity has primarily been considered charity – charity made possible by profitability. This placed the activity at the end of the commercial process, a gesture of thanks and ‘giving back’ to communities for providing infrastructure and other inputs for business success. Companies typically held few expectations for this ‘charity’ beyond hoping that it would enhance corporate image and make friends of influential people. Such limited objectives were frequently met.
More recently, companies have sought to align their philanthropy and broader CCI directly with their business, particularly through links with products and services. This ‘near-the-market’ approach serves advertising and marketing efforts, and often helps serve employment needs too. Because of this more direct relationship to the business, companies have increasingly sought ways to measure the results of CCI, wanting quantitative assurance that there are bottom-line benefits from the activity. While this approach has forced companies to internalize CCI activity far more than is required by the end-of-the-pipeline charity approach, it often challenges CCI to deliver bottom-line outcomes in unrealistically short periods of time.
Near-the-market CCI activities deliver more results than charity alone, and will remain important to companies as competition increases because of their obvious value in generating name recognition, market development, consumer preference and corporate image benefits. Yet even these activities fall short of the potential that CCI has for enhancing business results and contributing positively to the communities in which business operates.
Another approach is to position CCI as strategic R&D, implemented in varying ways throughout a company’s structure and operations, but always with an expectation that it will contribute to company learning, product development and long-term competitiveness. A 1990 California Business article by Ann Kyle stated, ‘Many believe that social investment is better perceived in the way that a company views long-term investments in R&D, advertising, customer relations and employee loyalty.’
CCI as R&D?
Companies expect a great deal from R&D:
- experimentation and risk-taking;
- learning and knowledge development;
- high performance in terms of outcomes with commercial application and a percentage of ‘failures’ that contribute to learning none the less;
- outcomes with varying gestation periods, many of which are long-term;
- internal channels for funnelling its ‘products’ and outcomes so they can be applied;
- external relationships and activities that help monitor and check the ‘field’s’ progress on related or new issues.
R&D requires a sustained financial commitment. Even more importantly, it requires an ethic, or corporate culture, that places great value on the idea-generating activity and provides an environment conducive to innovation.
As successful as R&D has been, it is under pressure in today’s highly competitive environment to deliver results almost instantaneously. An executive from a division of DuPont recently stated that 20 per cent of that division’s worldwide revenues came from products that had entered the market within the last three years. This illustrates the pressure on R&D to deliver results quickly. None the less, the time accorded standard R&D activities remains more consistent with the time needed to achieve and understand the outcomes of many kinds of CCI.
So, what might an R&D-type CCI look like? There are examples from companies that are taking, or have taken, more of an R&D approach. In addition, there are cases where one clearly sees the opportunity for CCI activities to deliver to strategic business development.
Examples of CCI-type R&D
The Whirlpool Corporation
Headquartered in Benton Harbor, Michigan, Whirlpool is a leading manufacturer and marketer of major home appliances. The company manufactures in 13 countries and markets products in 140 countries. In 1994 the Whirlpool Foundation launched a research and programme effort to gain a deeper understanding of contemporary family issues. The aim was to provide the foundation with direct information to guide a progressive grant-making strategy in the US and internationally, but the effort has also identified issues relevant to women, who happen to comprise the majority of Whirlpool’s workforce and product users. The information generated from the research and direct involvement in projects addressing women’s issues has given the company valuable tools and partners that have direct business application. The activities have also provided important data and support for women’s and family issues in the eight countries involved.
A multinational oil company and one of the largest companies in California, ARCO drastically altered its philanthropic giving in the 1980s, positioning it to provide information, experience, partners and employees relevant to the company’s long-term interests. ARCO’s education contributions prior to 1980 were directed primarily to private research universities. By 1990 60 per cent of the education budget was going to advancing pre-collegiate education reform, and 75 per cent of ARCO’s overall CCI budget was geared towards under-represented minority populations. These important shifts were based on the ARCO Foundation’s demographic data analysis relating to its future employment and customer base, leadership within the company, and programme experience.
California-based Sun Microsystems’ CEO Scott McNealy has directed the company’s CCI to invest in ‘capacity-building’ programmes for emerging ethnic populations. CCI activities focus on economics education, job training, leadership development and business enterprise development: ‘All are critical investments in the long-term mutual interests of the company and of the multicultural community that is its future.’
Hitachi Ltd endowed a foundation in the US as part of a three-pronged approach to its business development in North America. The Hitachi Foundation has invested in activities advancing multicultural education, asset-based community development, youth community service, business–community partnerships, and corporate citizenship more generally. A project with the World Resources Institute yielded a valuable accounting framework that challenges companies to identify the full range of their environmental costs on the assumption that business decisions based on full knowledge of environmental costs will yield more environmentally friendly products and processes. The exercise prompted several case-study firms to change production processes and products which had high true costs because of environmental implications that had been invisible or less visible in the standard accounting systems. Since the foundation is not linked to Hitachi’s corporate R&D, the channelling of results like this becomes more challenging. The foundation ‘off-shored’ the study in a way that results could be picked up by Hitachi, other companies and other environmentally oriented organizations.
Begging for an R&D approach?
It is also worth outlining examples of opportunities that seem to beg for an R&D approach. As the telecommunications giants in the US began to expand globally, they sought to market products like calling cards in new countries and cultures. Prior CCI activities with related cultural groups in the US could have been valuable in identifying the messages, contexts and languages that would have tailored products appropriately for foreign markets. For example, merely translating US advertising messages into Spanish did not prove effective in selling telephone cards and related services in Latin American countries. Instead, it was important to develop messages and products that fitted the language and telephone use patterns in the many varied countries of Latin America. CCI activities and employee recruitment within the diverse Latino populations in New York city alone would have provided important insights and marketing data for these US telecommunications companies, and would probably have provided partners and employees well equipped to help develop the Latin American business.
The Kodak company dominated the film and processing market in South Africa prior to anti-apartheid economic sanctions. Since the company observed the boycott and left South Africa for a number of years, its main competitor Fuji Film became the dominant film supplier and processor. Upon returning to South Africa, Kodak faced tremendous challenges trying to earn back precious market share. A breakthrough came when it began to take its business out to the townships. Neither Kodak nor its competitors had ever devoted much attention to the black population and its market potential. Suddenly, this population became Kodak’s opportunity. The company soon found that its film and processing chemistry, in its treatment of colour and lighting combinations, was designed for white people. To pursue this marketing opportunity, the company developed film and processing that was tailored to black complexions. It is interesting to ponder why this innovation – indeed revelation – was so long in coming to any of the major film companies. R&D-oriented CCI might have made a difference, in that it can help companies identify and develop long-term markets.
Implementing R&D-oriented CCI
How do companies implement R&D-oriented CCI? Many elements are critical:
- predictable, sustained support and leadership;
- established structures and policies for undertaking activity, analysing results and channelling results appropriately throughout the business;
- a philosophy and environment that encourage and reward risk-taking, long-term strategic thinking, learning, and making connections;
- tools for evaluating short-, medium-, and long-term potential and results;
- employment practices that recruit and retain a truly diverse workforce. This will bring different perspectives, different ways of asking the questions and applying the results.
The time factor
R&D-oriented CCI is by its very nature designed to provide investment returns at some time in the future. Trying to measure its results prematurely undermines the whole exercise. If at least a portion of a company’s full investment in CCI is considered ‘patient capital’ or venture capital, then the expectations for ‘bottom-line’ results can likewise be framed with a longer-term perspective and with the objective of gaining market knowledge. The returns are amortized over a longer period. An investment of $5,000 per student in a high-school student entrepreneurship programme, for example, might be fully repaid and yield substantial returns in 6 to 15 years when the young people complete school, enter the job market or create their own businesses, become taxpayers, and even hire employees.
The ‘people’ factors
‘Prototype’ employee recruiting is not likely to yield the highest-performing CCI team. Diversity of background, experience, training, and perspective ensures that questions, issues and results are considered in many ways. Innovation often comes from asking the same old question in a new way. For example, psychological research into people’s resilience was greatly advanced when researchers started asking why some people survived a set of circumstances rather than the more traditional question of why some did not survive.
The other important ‘people’ element is leadership. At many levels there must be people who can anticipate, based on their knowledge of the present and past, and who can act and motivate others to act accordingly. Effective R&D is largely the ability to anticipate, innovate and apply.
Adopting an R&D attitude to CCI and strategic social investment enhances the company’s learning tools and opportunities. Direct involvement with communities that may not be today’s customers, but that are likely to be tomorrow’s customers and workforce, is probably the most effective way for companies to prepare for what promises to be an even more intensely competitive twenty-first century.
Laurie Regelbrugge is Vice President of the Hitachi Foundation.
1 California Business, July 1990, p 40.