Danone: Building a socially focused multinational
When Nobel prize winner Muhammad Yunus, the father of microcredit, gets fired up about a big idea, things just seem to happen.
A couple of years ago, Yunus, best known for his revolutionary microcredit big idea that launched Grameen bank and lifted millions out of poverty, partnered with Danone to begin his latest innovation–a social (multinational) enterprise.
Social business is not a new idea…but embedding a “social unit” into a traditionally profit focused Global Consumer Goods company is pretty new.
Back in 2005, Yunus and Danone CEO Franck Riboud met in Paris. Yunus asked Riboud if Danone would come to Bangladesh and build his first social business enterprise. Riboud said yes and the idea of selling yogurt via Grameen Danone was born.
The yogurt was priced affordably at 7 cents per unit and Danone fortified the mix with vitamins in order to help curb malnutrition. All the profits from the joint venture with Grameen were reinvested in the operation. According to this comprehensive 2007 CNN article about the venture, Danone only planned to take out its initial cost of capital, about $500,000, after three years.
The entire model works to advance social good in the region. The factory is supplied by cows from Grameen microborrowers, and Grameen microvendors (typically entreprenurial sales ladies) sell the yogurt door to door. Danone estimates that it will provide income for 1,600 people within a 20-mile radius of the plant. Biodegradable cups made from cornstarch, solar panels for electricity generation and rainwater collection vats make the enterprise environmentally friendly. (again, see the CNN article for details)
Clearly, every big consumer oriented company is looking for growth and innovative ways to get their brand(s) into emerging markets in unique ways. So, critics might look at this case cynically and say that over time the social (and locally integrated) model will probably morph into a pure profit play for the giant multi-national. I prefer, however, to think about this as an excellent experiment that helps create jobs and opportunity in a completely neglected region. I am impressed by Danone’s willingness to think differently about business within a multi-national.
Another part of the experiment for Yunus and Danone is about figuring out how to measure all this social good and getting business leaders and investors to think about success differently. Instead of focusing solely on rev./profit metrics, Yunus has pushed the organization to consider the # number of children rescued from malnutrition, etc. The Grameen Danone website currently notes that the project will also be judged on non-financial criteria: the number of direct and indirect jobs created (milk producers, small wholesalers, door to door sellers), improvements to children’s health, protection of the environment etc…
This is a valiant, but tall, order (especially in today’s climate). It is tough for most operationally minded business people to see success beyond the standard metrics, however, I would put my money on Yunus finding a way over time.
A model for the future?
Hats off to the folks at the Danone. They have chosen to partner with a proven social entrepreneur, who has proven that he can do good through the power of business. No doubt the partnership with be a huge learning opportunity for Danone. If it is successful, it will be 1 step ahead of competitors. The partnership seems to be a real win/win./win Danone learns how to serve some of the poorest consumers in the world. Grameen learns how to work with a multinational (and expands to consumer products) and the bottom of the pyramid consumer gets a product they can afford that provides key nutrients. In addition, this “proximity based business model” is deeply integrated into the local economy, helping to grow independent businesses
Time will tell if Yunus’s hypothesis–that companies can raise “social capital” and invest it in sustainable businesses without a profit motive–will work, enabling new reach into emerging markets and allowing for the expansion of core multi-national businesses + improving lives. One thing is for sure, if the venture works and is scaled rapidly across the region, Danone will be a role model and others may seek to replicate the model around the world.
P.S. If you have not read Yunus’s book on social entrepreneurship called Creating a World Without Poverty, go check it out…
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