Every action has a cause and effect. Every business activity impacts the people and planet, whether the consequences are intended or not.
Today many companies give back or contribute to the community or the environment in some way. The activities range from emergency relief support to innovative sustainable products and services. Some activities arise because of natural disasters and emergencies that result in the loss of homes and lives. Donations of food and other essential items provide support to victims while they find their feet. Other business activities are more strategic to make a positive impact on the lives of the community in which the company operates or the environment. This can take the form of using renewable energy in their facilities or recycled materials in their products. But is impact equal?
What is the four-level impact model?
The model is a strategy framework to understand the effect of various business activities that a company undertakes. The activity may target symptoms, causes, or systems change of a particular global issue or wicked problem.
When a company makes a systemic change that affects multiple groups or causes, the scale of impact is much larger in contrast to a company that chooses to operate within the law—they don’t break any rules, but they don’t do anything more either.
The size of the impact is dependent on whether symptoms, causes, or systems are targeted—which is directly related to how long the effect lasts. Donations during emergencies provide temporary relief but do not stop natural disasters from occurring, or future loss of lives.
How should you use the impact model?
The model can be used to categorize business activities and understand where the company’s resources are allocated.
It can also be used to understand where business can affect change. The ability to affect sizeable impact at the systems level depends on what capabilities the business has.
One of the factors that drive this is the size of the business. The larger the company the more market power they have to influence multiple stakeholders and policy to transform the system. Smaller companies may build partnership networks and ecosystems to bring together multiple industry players.
What does the model not do?
The model does not indicate where the business should invest their resources to maximize value creation. A business can’t tackle all the wicked problems in the world, nor should it. A company should first identify its purpose and this can determine which global issues are relevant for them to tackle.
What is Level 1 Impact?
Level 1 impact occurs when a company behaves within their legal walls. For example, proper disposal of harmful waste or accurate filing of their financial and tax information. Minimal value is created—rather, the impact comes from the fact that no harm is done to the community and the planet by the business’s activities.
This should be the minimum level that businesses operate under. When Milton Friedman argued that the social responsibility of business is to increase profits, he added that this should be done within rules and regulations. The metrics under Pillar 1 of the proposed Stakeholder Capitalism metrics related to governance fall under Level 1.
Example: A company sets up processes to prevent workplace discrimination, including steps to take when transgression occurs.
What is Level 2 Impact?
Level 2 impact may be planned or adhoc. A company may have recurring donations to a particular organization or decide to support when a tragedy occurs such as during natural disasters. These activities provide support but tend not to address the source of the problems themselves.
Many Corporate Social Responsibility (CSR) activities tend to be philanthropic and to that extent shorter-term in its impact. At times these activities are necessary and other times this fits with the company’s capabilities and resources.
Example: A company partners with a women’s shelter to provide monetary donations and volunteers to help run the shelter for a few hours a week.
What is Level 3 Impact?
A company that identifies causes to a wicked problem, and develops and implements solutions to address those causes, operates at a strategic Level 3 impact. They create value for at least one stakeholder—whether it is their customer, employees, suppliers, or the planet. Because the solution addresses the cause, the size of the wicked problem will start to reduce. In this instance, the company likely has particular expertise or assets related to the problem or the cause that facilitates the company to successfully implement the solution. Example: A company identifies the lack of flexible work arrangements discourages some mothers from working with them. They change their policies and benefits to support working mothers. They also set up mentoring programs so that working mothers have the sponsorship that they need to succeed.
What is Level 4 Impact?
When a company affects shifts in the ecosystem, that is when systemic change happens. This is Level 4 impact. At this level, potentially multiple wicked problems and their related causes are addressed. Different stakeholders within the ecosystem collaborate to transform the mindset, culture, and structure that they operate under.
The business looks for complementary partners and combines their resources for the greater good. This mindset is needed to create sustainable change.
Example: Goldman Sachs 10,000 Women initiative that invests in women entrepreneurs in developing economies, enables their women participants to create financial independence which has ripple effects on their local communities.
How can the impact model benefit you?
A company does not always need to operate at Level 4 Impact for every business activity, or for every global problem. They may choose to affect change at Level 4 for wicked problems that are relevant to their purpose and based on resources and what they are good at doing. Every act has an effect—choose wisely.