WHEN private equity firm NPM Capital and the current management bought out a sleepy Dutch carpet manufacturer called Desso in 2007, they were seeking to do what all successful investors do: to find a gap in the market from which they could profit. And profit they have.
Following the buy out, Desso’s market share rose from 15 to 23 per cent and its profit margins have climbed to almost 10 per cent. As well as selling a whole lot of carpet tiles, it has fixed the problem that was the Wembley pitch, and supplied the playing surfaces for a host of Premiership clubs including Arsenal and Liverpool.
How have they done it? Relentless innovation. Inspired by the ecological “cradle to cradle” philosophy of American architect Michael Braungart and German chemist William McDonough, the new chief executive Stef Kranendijk set about making Desso’s production a closed-loop system – allowing the materials used in the carpet tiles it manufactures to be continuously and safely recycled. This conscious – even ostentatious – commitment has provided a spur and a focus for product innovation.
It was management guru Charles Handy who said that “a good business is a community with a purpose”. As Kranendijk’s sense of mission has permeated the whole company, it has fostered a more engaged and happy workforce. It has opened up new markets, and distinguished the brand in old ones. It has become the company’s key source of competitive advantage.
The new owners took a company that had unrealised potential. They transformed its focus, its operations, its entire sense of itself. In doing so, they have transformed its performance. People talk about profit with purpose. Here, purpose has been the route to profit.
There are many examples of UK companies leading the world in fields from biotech to business services, and from architecture to advanced manufacturing. Innovative companies, building value for the long term. To pay its way in the future, the UK will need more businesses like this: able to succeed in tough global markets, out-competing not just lower-cost Chinese firms, but higher-value ones like Desso, too.
There is a lively debate among UK business leaders, commentators and academics about which business models can create, build and sustain market leading companies. The particular answers will differ from sector to sector and market to market. But from Andrew Witty at GSK to Dalton Philips at Morrisons, business leaders across all sectors of our economy are demonstrating how purpose is increasingly important to how you deliver profit.
Desso shows that this is not a matter of good intentions placed ahead of good business. The work of Harvard Business School professors Michael Porter and Mark Kramer on shared value – “creating economic value in a way that also creates value to society by addressing its needs and challenges” – draws on examples from some of capitalism’s most hard-nosed exponents, from GE and Google to Unilever and Wal-Mart.
Businesses that are already pursuing these kinds of long-term, value-creating, socially responsible strategies are doing so because it makes good business sense. But the policy environment – the rules of the game – does not always encourage and support these choices. The challenge for policy makers is to create the framework so that business which is most socially valuable and economically sustainable is also most profitable.
In myriad ways, government policy shapes the environment in which businesses choose their strategies. From procurement to taxation, from the availability of long-term finance to the regulatory regime, government policy can make a vital difference. In contrast to the impotent hand-waving of this government, the next Labour government will use every tool at its disposal to support innovative businesses, large and small, building value for the long term.
With the economy stagnating, shops boarded up on every high street and unemployment at its highest level for 17 years, it is clear the government’s economic policies aren’t working. It should adopt a more responsible deficit reduction strategy, implement Labour’s five point plan for growth – including a one year national insurance tax break for every small firm which takes on extra workers – and get our economy moving again. But we aspire to even more. We must lay the foundations for the transformed economy our future success depends on: competitive abroad, fair at home, and underpinning the society we want to see. The British people and British businesses deserve nothing less.
Chuka Umunna is the shadow business secretary and Labour MP for Streatham.