Purpose drives performance, helps retain talent and creates long term value for your customers. But what’s yours? Do you have one? And why does it matter?
Milton Friedman’s iconic essay, “The Social Responsibility of Business Is To Increase Its Profits,” was published over 50 years ago and remains just as polarizing today as it was five decades ago. Friedman introduced the theory in 1970 in an essay for The New York Times. He argued that a company has no social responsibility to the public or society; its only responsibility is to its shareholders. He goes on to justify his views by considering to whom a company and its executives are obligated.
Whilst “Shareholder theory” has undeniably had a significant impact on the corporate world, there is a contrary declaration that’s moving away from such an exclusively shareholder-focused perspective. It suggests that the purpose of business is to deliver value to all company stakeholders, spanning beyond the narrow shareholders’ circle; that it is now time to redefine what it means to be a successful company in the 21st century.
As business faces an accelerated change of pace, they are at the same time experiencing increasing consumer expectations that are reshaping the responsibilities of organisations. Demands from a new generation of employees for purpose in their work is bringing about wider debate concerning the role business should play in society.
The goal of all businesses is of course to make money, but could it possibly be true that those that have a purpose beyond profit tend to do better?
In a study titled “The Business Case for Purpose”, a team from Harvard Business Review together with EY’s Beacon Institute reported that “in those organizations where purpose had become a driver of strategy and decision-making, executives reported a greater ability to deliver revenue growth and drive successful innovation and ongoing transformation.” And, “Those companies able to harness the power of purpose to drive performance and profitability enjoy a distinct competitive advantage”.
The study defines purpose as “an aspirational reason for being which inspires and provides a call to action for an organisation and its partners and stakeholders, and provides benefit to local and global society”.
A declaration of this kind signals a welcome shift in mindset in doing business in general and highlights a change in corporate culture. Could much of the corporate world be starting to unite under this common principle? Are we ever going to row in the same direction?
For meaningful transformation, it’s critical that purpose be embedded in the heart of the business. Establishing clarity about purpose, values, and the business model makes it work in practice. This may mean putting a social or environmental purpose as the core driver of the business. For others, it may mean delivering social impact alongside commercial goals.
Whichever direction, it needs to be deeply embedded, so that businesses have a legal commitment to social purpose and in turn can reap the benefits of a more sustainable approach in the long term.
2020 was a turbulent year. Most of us alive today have seen nothing like it. From a global pandemic that upended the lives of virtually everyone on the planet to the recurrence of natural disasters that confirm just how much we have betrayed nature to the changing face of both work and wellbeing.
Whilst the last 12 months will cast a shadow stretching far beyond COVID-19, we have the opportunity to make some dramatic changes. Here are some of the challenges that now undoubtedly demand our attention.
Climate change has a new urgency
To meet the global climate goal established by the Paris Conference of net zero CO2 equivalent emissions by 2050, we need to cut emissions in half by 2030, which is about a seven or eight percent reduction a year.
Accounting for climate change vulnerabilities
Climate change has become an investment consideration impossible to ignore. With natural disasters growing in frequency and intensity, and global financial regulatory activity gaining momentum, investors are waking up to the implications of climate change. There is increasing acknowledgement that climate risk equals investment risk. This awareness is changing the shape of future investments, with environmental, social, governance (ESG) becoming a core criteria for investors, leading to new opportunities for people, products and services that provide a boost to the planet, as well as yield profitable results.
Climate change and the construction industry
The building and construction sector play a central role in the shift towards a low-carbon economy. The sector’s greenhouse gas (GHG) emissions account for approximately 40% of global GHG emissions (WBCSD 2018). The major contributors to these emissions are the materials used as well as the heating, cooling, and lighting of buildings and infrastructure.
The construction sector should take care to manage climate change challenges actively and take responsibility for its direct or induced carbon emissions.
Consumers appeal that purpose surpasses profit
Whilst the concept of purpose-led business is nothing new, profit with purpose is set to become the new norm. With rising pressure from millennials (now making up more than 40% of all consumers and influencing about £30billion in annual sales), it’s perhaps becoming clearer that business cannot thrive in a world where people don’t.
More support than ever to achieve the Sustainable Development Goals
There are a huge number of resources out there for companies looking to brush up their knowledge of the goals, and advance toward the UN’s ambitious targets set by 2030.
SDG Academy, an online platform of free educational resources compiled by some of the world’s leading sustainability experts. Plus, the SDG Action manager, a free tool that walks you through the process of assessing your own performance toward the SDGs, including gaps in performance and suggestions for improvement.
The concept of wellbeing has taken on new meaning
Even prior to the pandemic, a focus on individual health and wellbeing was set to be a major agenda. However, with the stress and instability created by the pandemic — plus the sudden remoteness of managers from their teams — the duty of care between companies and their employees has taken on a whole new dimension of importance, especially in relation to mental health and health inequalities.
Why do we build? Why develop society? Who reaps the benefit? This podcast looks at the new interest the construction industry is taking in quantifying and appreciating social value.
One of the biggest challenges for industry practitioners in creating social value on their projects is being able to understand what social value means for that project and what best practice delivery looks like.
Guests Penny Anderson, Associate Director Social Value, Atkins, Peter Masonbrook, Head of Social Value, Faithful + Gould, and Simon Toplass, CEO, Pagabo, try to define what it is, talk about new legislation, and we hear from a framework provider that is putting social value at the core of its projects.
Social value has long been considered a ‘nice to have’ when it comes to construction projects, but thanks to the introduction of the government’s Construction Playbook in December 2020, that is starting to change according to our industry expert. Chief operating officer here at Social Profit Calculator, Sarah Coughlan, says that the playbook has given public organisations across the board confidence to demand social value is embedded into their schemes – and that the private sector is also starting to take note.
There is no doubt that the construction industry has slowly been embracing social value and working hard to include it within the scope of a project, but it hasn’t necessarily been put at the heart of delivery. Instead, it was seen as something that ‘should’ be included but wasn’t essential – unless delivery was taking place via a framework where social value forms a key part of reporting.
Embracing a change in ethos
Since the introduction of the playbook, however, this is starting to change. The difference when it comes to publicly procured works really is like night and day. Social value is already of huge importance when it comes to framework appointments with providers such as Pagabo requiring it, but this approach hasn’t necessarily been replicated elsewhere.
However, we are now very much starting to see that shift from social value being something that must be ‘considered’ to that which must be ‘explicitly evaluated’ and built into a project from the outset – across the whole of the public sector, not just those schemes being procured by central government.
We are starting to see that the playbook has had a really positive impact on local authorities too. While it relates specifically to centrally procured public works, it has given many local authorities added confidence to demand that their suppliers deliver against the policies outlined by central government and put social value at the heart of delivery. This isn’t something we have seen before and it is an important shift.
It isn’t just the public sector that is making change either. The private sector is also becoming increasingly keen to ‘do good’ through development – there is a recognition that social value isn’t just something that those working in the public sector do, but also something the wider industry must take responsibility for, and provides an opportunity for the private sector too.
Understanding social value
In the past, social value has been somewhat of a mystery that often wasn’t fully understood, but again this is really starting to change now. Previously, a monetary figure would have been put against it for a project, but that simply didn’t cover the full breadth of what social value means and the impact it has on local communities in terms of things like job creation, environmental issues and the long-lasting legacy left behind. This is probably the biggest change that is taking place at the moment; there is a real move away from the need to monetise everything as we look towards a much more holistic view of what social value entails.
“Organisations procuring works can now much more easily consider what it is that is important to them and the communities in which they are active.”
Annex A of the playbook outlines five key themes for considering social value: COVID-19 recovery, tackling economic inequality, fighting climate change, equal opportunity and wellbeing, and make it very clear what ‘good’ looks like within those different areas which is a much-needed change that will undoubtedly help shape what social value looks like for a particular scheme.
In giving structure to social value calculation, much of the mystery that has previously enshrouded it has been removed. Organisations procuring works can now much more easily consider what it is that is important to them and the communities in which they are active and consider their priorities more effectively within the matrix outlined by the playbook – something which aligns well with the early engagement of local supply chain and its knowledge of local priorities.
We know that social value looks different to everyone and what benefits one community wouldn’t suit another, but there is now clarity that was lacking previously and that has already started to have a positive impact. In legislating at central government level, we are seeing a ‘trickle down’ effect to local authorities and into the private sector as the discussion about social value has been brought to the fore.
Legislation to require ‘doing good’
This drive towards really understanding what social value means for our communities and the requirement for ‘explicit evaluation’ of social value is a hugely important one – and it is very encouraging that we are seeing local authorities and other organisations taking on board the new guidance.
However, if this progress is something we want to see continued and replicated across the industry, it is vital that the legislation extends to cover all public sector procurement. While we have certainly seen many local authorities embracing it, only by legislating will we see changes adopted wholesale.
Measuring social impact
The progress that has been made since the release of the playbook has been significant and is paving the way towards a more responsible built environment sector which puts social value at the heart of delivery, but it is important that we continue to move forwards and see the industry embrace real social value and demonstrating its real impact.
This is what we’re always striving to do with our software, ensuring that we work to make improvements in line with the latest updates and trends so that we can provide the true measurement on social value. We’re also looking at this more closely with a future-forward vision through the development of our ‘Smart Construction Calculator’. This sees us working with companies from throughout the supply chain to gain historical data on Modern Methods of Construction (MMC) projects in order to create a benchmark moving forwards for new and upcoming projects.
The key is collaboration. If businesses are more forthcoming with existing information, and work as a collaborative collective to develop these benchmarks, we can get a true picture of what good and true social value means to every area of the country.
Of course, this has been a year unlike any other: a year where many have lost loved ones, jobs, and social connections: 2020 has been difficult. There are indications that 2021 might be better: the news of a safe and effective COVID vaccine as well as an economy that looks more robust than we had feared means that a return to normalcy looks like an achievable goal.
Despite it all, social value has had something of a bumper year. During the last twelve months, we have gained more and more serious proof that our industry is maturing. No longer is social value simply something to be “considered” – we are now operating in a world that makes assessing the social value of a procurement one of its central pillars. And, it isn’t just the government’s Procurement Policy Note that has the sector excited. The Construction Playbook’s release this month, coupled with the work at the Construction Innovation Hub on Procuring for Value mean that the signs point very firmly to social value taking centre stage.
PPN 06/20 – Roadmap to Recovery
This year’s Procurement Policy Note 06/20 – taking account of social value in the award of central government contracts is doubtlessly the biggest transformation this year for our sector. The document, which comes into effect on 1st January 2021, will formalise the requirement for central government bodies to award contracts by weighting 10% of a tender to social value. Though the document only makes this a requirement for central bodies, the evidence we are seeing makes it clear that local authorities are set to follow suit, as are private bodies. Aside from formalising the role of social value in the procurement process, PPN 06/20 also sets out a new reporting framework for social value. This framework focuses on delivering targeted social value against all procured contracts. The five pillars that make up the framework are: Covid-19 recovery, tackling economic inequality, fighting climate change, equal opportunity and wellbeing. After the year we have all had, these priorities come as no surprise. Although delivering these will be a challenge for bidders everywhere, the new framework should go a long way towards ensuring that next year’s projects focus on delivering the social value that will make the most impact.
Construction Innovation Hub – Procuring for Value
Taking up that question of delivering maximum impact, the work that the Construction Innovation Hub (CIH) have been undertaking for their Procuring for Value strategy echoes many of the themes reflected in PPN 06/20. The work at CIH is all about maximising value in the broadest sense. We at Social Profit Calculator have been proud to be part of the team that is working with Social Value UK to map out a detailed, sophisticated understanding of what social capital will look like in the coming years, and the groups working towards similar definitions and best practices for human, produced and natural capital. This is a move towards a greater understanding of the whole life value of procurements and is another welcome advancement for the industry. We expect the new four capitals model to quickly begin gaining traction in the new year.
The anticipated release of the Construction Playbook has been welcomed this month across the board. The Playbook focusses on many of the themes being driven by the Construction Innovation Hub, and perhaps particularly in their shared ambition to deliver value-driven procurement. Gone are the days where cost, quality and speed would be the only considerations for decision makers. What the Playbook, and Procuring for Value, both emphasise is that as we move into 2021 and beyond, “value” is more than a question of cost. The Playbook is clear:
“When considering ‘outlay’ the key factor is whole life cost, not lowest purchase price.”
Here again we see the emerging theme of whole life cost and whole life value. This means that understanding the basics: cost, quality and time, will need to go hand in hand with an understanding of social value, economic and environmental impacts and whole life operational costs. The Playbook insists that, moving forwards, we will see a consistent approach running through policy intent, project selection, approval, initiation and into procurement, evaluation criteria, contracts, delivery and operations. This, together with the increased focus on social value through PPN 06/20 means that understanding what we mean when we say “value” will be the all-important question in 2021.
The Year That Was
For a year that has left a nation grappling with the question of how substantial a scotch egg is and Googling the whereabouts of Barnard Castle, it has been a welcome relief for us at Social Profit Calculator to have been hard at work in a sector that has gone from strength to strength. We are looking forward to a truly valuable new year.
From 1st January 2021, the government is introducing a new public procurement model that takes greater account of the additional social value created by contractors who are bidding for work.
Businesses that are seeking to procure government work must set out how they intend to deliver on the government’s social value priorities.
Currently, social value is only required to be ‘considered’ in central government procurement. However, with the new measures coming into place at the start of the new year, social value should now be ‘explicitly evaluated’ where the requirements are related and proportionate to the subject-matter of the contract.
The social value model on which departments will assess contracts includes:
Supporting Covid-19 recovery, including helping local communities manage and recover from the impact of Covid
Tackling economic inequality, including creating new businesses, jobs and skills, as well as increasing supply chain resilience
Fighting climate change and reducing waste
Driving equal opportunity, including reducing the disability employment gap and tackling workforce inequality and promoting community integration.
Sarah Coughlan, Chief Operating Officer here at SPC says that this new policy is an ‘opportunity for local businesses and communities as well as governments to take seriously and do good in communities, especially locally.’
Social value is proving to be an ever-increasing part of corporate social responsibility within the procurement process. Eight years on, we see the evidence of the growing importance of social value, now accounting for around 20% of bid and tender evaluations.
The new model states that a ‘minimum weighting of 10% of the total score for social value should be applied in the procurement to ensure that it carries a heavy enough score to be a differentiating factor in bid evaluation’. All bidders will be tested, and bidders must demonstrate the full extent of the social value they will generate.
Whilst the new policy does not make it compulsory for local clients and businesses it does, however, emphasise the importance of social value-driven projects and calls for local clients to start getting serious about delivering real social value in partnership with communities to “build back better’.
Sarah Coughlan believes this is a big move forward in embedding social value in procurement on central government contracts. She commented, ‘we await the detailed guidance, but look forward to seeing central government move towards standard award criteria, delivery objectives that describe ‘what good looks like’, and metrics for contract management and reporting.
This new government model inspires people to adopt a renewed focus on ‘what good looks like’ in the policy note. The new model has a focus on COVID-19 recovery improving work conditions and helping those unemployed due to the pandemic which in turn increases social value generated.
Social value is often met with the suspicion that the numbers aren’t completely reliable as it is oftentimes unclear how the figures are calculated. This new policy, however, signals a real opportunity to develop better-defined data, therefore creating a clearer understanding of the social value delivered and its statistics. There are now also more widely accepted benchmarks endorsed with historical data, forging an opportunity to build more trust among clients and contractors alike. Something we have seen repeatedly from our clients is a sincere desire to “positively disturb” the way that pounds-and-pence figures are applied to the social value of a project.
Construction Leadership Council’s Procuring for Value Toolkit provides helpful insight on how government, clients and the industry can maximise impact with a change in approach to procurement. Procuring for Value is a key theme of the sector deal and attempts to provide guidance, information and contact details as a support to suppliers when considering their ‘offer’ and delivery of social value. These are some helpful anchor points as the industry adapts and adopts new ways of working, which are all important steps towards improvement.
Enhancing community resilience
The policy note also stresses that clients will be free to target their social value requirements to the communities they reflect. In order to make the most of this, clients and constructors alike will need to renew their focus on engaging with local communities to deeply understand their real, rather than perceived needs, which will allow them to recover from COVID-19 together.
Without this engagement, the risk is that social value is reduced to just a box-ticking exercise and not a factor that will actually help create a strong sense of social purpose with the potential to enhance community resilience.
Targeted social value programmes should become the new industry standard in order to grow social value and truly make an impact to unite and level up the country while keeping local communities and businesses firmly at the heart of the recovery. Along these lines, social value will become a vital priority on the back of which we will hopefully see the creation of a whole new social contract.
National framework provider Pagabo is celebrating hitting its latest social value milestone, marking £3bn in social value being enabled by works procured through its frameworks since 2017.
This marks another milestone in a hugely successful year for the firm, which saw the launch of its new Major Works and Professional Services frameworks go live in April, the appointment of several members of staff and the announcement of a transformational research collaboration with The University of Sheffield Advanced Manufacturing Research Centre to name but a few.
The figures have been enabled through Pagabo’s full suite of frameworks. As well as figures relating to the financial benefit to local economies, the measurement includes the creation of more than 2,750 jobs and the safeguarding of more than 11,000 jobs, as well as 900 work placements and more than 700 apprentice roles.
Simon Toplass, chief executive officerat Pagabo, said: “Driving positive social impact for individuals, communities and businesses up and down the country is one of our core business values at Pagabo, so hitting this landmark £3bn enabled figure is a really proud moment for us.
“Social value is firmly at the heart of everything we do, and we make a conscious effort to be as directly involved as possible in order to help our clients generate the best social return possible from their projects. And there is, of course, no doubt that social value is set to play a bigger part than ever in the future following COVID-19 – especially when it comes to job safeguarding, job creation and the development of employment opportunities in the immediate future.”
Simon said: “Most organisations will already be delivering some form of social value through their employment of staff, skills development programmes and through working with local supply chains. The important next step is knowing how to measure these things and how they equate to true benefit for local communities. This is something that SPC is perfectly placed to do, accurately calculating the financial value of the social, economic and environmental impact of your work.
“It’s highly likely that we are going to see a significant push over the coming years regarding industry standards of data collection for social value – especially when it comes to regional differences. Tools like SPC will continue to grow in importance – as will the need for cross-industry collaboration to build a picture of what good social value looks like around the country for clients.”
Pagabo is set to announce the successful applicants for its brand-new developer-led framework – worth £47bn – in December.