What Difference Can a Multinational Make? With the Right Management Practices in Place, a Lot.

By Marcos Neto, Director Finance Sector Hub, UNDP
Sep 27, 2019 3:40 PM ET
Article

The potential for multinational companies to tackle global issues such as poverty, climate change and gender inequality is immense. With their reach, they have the ability to transform low income markets through innovative business approaches and help lift millions – even billions – out of poverty. Inclusive business is one such model, but numerous internal barriers are preventing multinationals from adopting or scaling this approach.

In the latest Business Call to Action (BCtA) report, launched today at the BCtA 9th Annual Forum, we examine how to overcome these organisational barriers, drawing from examples of successful companies who are already doing this, and offer steps that companies can take to adapt their management practices to become more inclusive business friendly.

Business experts predict that top performing global companies will be those who reach out to new markets while simultaneously addressing some of the world’s biggest social and environmental challenges. Trends such as demographic shifts and automation are already changing the landscape of the global workforce, presenting both new business opportunities and risks. According to McKinsey, by 2025, half of the world’s largest companies will be based in developing countries. Innovative corporates from the Global South will be the ones leading social change, creating jobs and servicing the yet-untapped markets at the base of the economic pyramid (BoP).

However, looking at the market today, replication of inclusive business (IB) is ​not yet happening widely amongst multinational corporations (MNCs). In addition to market-based challenges, there are often internal constraints that limit the uptake and growth of inclusive businesses.

Our two years of research, conducted in close collaboration with our members, led us to identify cross-cutting IB management practices which allow companies to gain critical insights to improve their models and better communicate impact and business value to investors, stakeholders and customers, thus gaining greater internal support for the sustainability and replication of IB initiatives.

We found a strong correlation between the adoption of ​specific inclusive business management practices ​and the continuity and growth ​of inclusive business initiatives​.

Our research shows that successful inclusive businesses apply principles that are quite different from business-as-usual, including in-depth stakeholder engagement, value-based talent management practices that build skilled loyal staff and focus on their wellbeing, coherent performance incentives for management tied to inclusive business success, target-setting consistent with long-term value creation objectives and a sharp understanding of ESG risks and opportunities within the inclusive business. Management practices tailored to address the Base of the Pyramid (BoP) market can constitute a valuable source of competitive advantage, ensure better understanding of and responsiveness to key stakeholders, increase IB impact, both social and environmental, and balance short-term stability with long-term viability and achievement to Sustainable Development Goals (SDGs).

In our report, we introduce a typology of management practices found by large corporations leading IB globally as critical to the growth and success of inclusive business. The typology builds on BCtA’s decade of experience engaging with companies implementing IB across sizes, sectors and regions, BCtA’s State of Inclusive Business Survey and interviews with executives from over 25 MNCs across regions including Essilor, Mastercard, Gap, Sanofi and Ikea.

So, what’s in it for your company?

Adopting inclusive business friendly management practices supports companies to achieve the following results:

  1. Overcome organizational barriers: Initiatives are better integrated into overall business plans, and supported by the whole organisation, from senior management to operational teams. Removing organizational barriers means they have a greater chance of succeeding when adopted or scaled.
  2. Increase impact: Tailoring management practices to address the specificities of BoP markets ensures a better understanding of and responsiveness to key stakeholders, meaning IB impact and SDG contribution is increased. It also helps balance short-term stability with long-term viability.
  3. Gain competitive advantage: This approach can help a company establish competitive advantage, as companies can better recognize and communicate the impact and business value of their IBs, particularly in relation to their social good, which they can articulate through their contribution to the SDGs.
  4. Maximize inclusive business value creation: Companies that are implementing IB well apply principles that differ from business-as-usual, including in-depth stakeholder engagement, value-based talent management practices that build skilled loyal staff and focus on their wellbeing, coherent performance incentives for management tied to inclusive business success, target-setting consistent with long-term value creation objectives and a sharp understanding of economic, social and governance (ESG) risks and opportunities within the inclusive business.

Along with this report, we also launched an online tool that can be used by companies to better understand how they can improve their own inclusive business Management Practices, compare themselves to peers, and develop a concrete and practical improvement plan to strengthen areas of weakness.

We hope that this publication and tool will have an impact on companies that consider tapping into the exciting business opportunities that exist at the BoP or look to scale their existing inclusive business models.