[MUSIC]. So we've seen that the win win promise of shared value can be tremendously motivating. But we've also seen that this kind of instrumental approach privileges benefits to the existing system. And as a result, is primarily designed to benefit the bottom line rather than giving equal footing to the interests of an impact on other stakeholders. My view is that, we need to expand beyond instrumental views of stakeholder management. While the idea that there might be win win solutions lying all over the place is deeply appealing. It doesn't give us much guidance in situations where the magic combination is hard to find. Mode to simply isn't enough for a company in the 21st century. Further, pursuing social goods can be sources of innovation and new sources of competitive advantage. A company can get to the win win, but not with the current ways of doing business. Instead, it has achieved through the path of innovation. That's why mode three action, which is about innovating around trade offs, is central to being a 360 corporation. If you're reading along in the book, you can find more about mode three in chapters five and 6. Let me talk about the case of Nike and they're outsourced manufacturing. They had a big wake up call in the 1990s when activist groups began to protest the poor working conditions in factories, in places such as China and Vietnam. They pointed out that Nike shoes went for $100 or more, but that the workers who produce those shoes were paid a few cents per hour. And had sometimes toxic and unsafe working conditions. The New Hork Times reported that, workers at a factory near Ho chi Minh city were exposed to carcinogens that exceeded local legal standards by 177 times in parts of the plant. And 77% of the employees suffered from respiratory problems. Employees at the site were forced to work 65 hours a week. Far more than Vietnamese law allows for $10 a week. Nike initially resisted change. And then when it did act, it focused primarily on trying to improve compliance within the factories. But eventually, they realized that they could use the trade off surface by their outsourced manufacturing business model, as an opportunity to look at how the upstream processes of design, commercialization and sourcing might have been weakening the efforts to improve practices downstream. For example, price pressure and consumer fads translate into pressure on suppliers. It takes a lot to get the right product, on the right shelf, in the right store. Just in time delivery and lean manufacturing mean that suppliers need to comply not only with price demands, but also with changes in orders or rush jobs to match consumers changing buying patterns. As a result, workers might have to work forced overtime or under other stressful conditions. So even if a company like Nike invest in programs to improve worker conditions in the factories, they might simultaneously be undermining those efforts with their own upstream practices. Nike admitted as much to themselves, in their 2009 corporate social responsibility report. They began to focus on understanding root causes of such problems as excessive overtime, or work without breaks, or toxic chemicals in the workplace. They found that increased numbers of styles and requirements to switch between them capacity miscalculations, long approval processes and merchandising. Which then contributed to rush orders and last minute changes in colors and fabrics were all directly correlated with over time. At the same time, Nike's choices about materials and blues lead plans to produce more toxic environmental waste and subjected workers to potential physical harm. While recognizing that poor management at plants also caused these problems. Nike found that their actions at headquarters, far away from the factories contributed heavily to their factory conditions. Their CEO at the time, Mark Parker said, ignorance is not bliss. You have to understand the systemic issues and work with factory partners to solve them. So they engaged a team of academic researchers along with labor advocacy organizations to come up with innovative solutions. Where have these insights led the company? This process has led them to work closely with the factories to build capacity and lean manufacturing. Rather than creating flexibility and responsiveness to production demands on the backs of workers. The goal was to help plants run just in time systems effectively as part of what Nike called a manufacturing revolution. Perhaps even more importantly, the insights led them to rethink their planning processes to enable more lead times in ordering. And they created as many global products as possible, rather than multiple products tailored to each local market, in order to reduce the number of styles. In the end, Nike's whole product design process ended up being implicated. The many choices made in Beaverton Oregon and design, materials assortments and demand forecasting, were reshaped by a commitment to improving conditions for workers in Ho chi Minh city, Vietnam and elsewhere around the world. Tough conversations and expansive innovation have been signatures of the approach that Nike has developed over the years. Nike may not yet be perfect, but their efforts to look at systemic issues ended up with transformations in their business practices, that went well beyond what had happened in the factories. What is clear from this example is that, there is not always an immediate win win! Building a business case for better worker conditions, flies directly in the face of delivering products to consumers at reasonable prices. The demands created by those prices are often used as an excuse by global brands and local vendors not to take action, or to not be as aggressive in making change as stakeholders would like. If the stakeholder concerns get immediately incorporated into a conversation about the business case for action, it may be hard to find solutions that work for everyone. In the case of factory conditions in the global supply chain, the fixes are sometimes expensive, so expensive as to make it potentially difficult to justify action at the outset. The conversation needs to hold that business case logic in a bubble. While the innovation process is allowed to unfold. A key observation is that the innovation came from working with, and not just for the stakeholders. It's impossible to even know what the pain points are for different stakeholders, such as factory workers without consulting them and engaging them. Creating platforms to work with stakeholders is useful for both identifying the problems and also generating the solutions. The state of the art is embedded innovation and innovation process, in which the stakeholders are at the center of the inquiry. Nike's big step forward in addressing factory conditions was when they started working with the factory owners and workers to come up with solutions. These efforts pointed to opportunities to change work processes within the factories. But it also pointed to the ways that Nike headquarters was creating the conditions for factory time crunches and stresses. Finally, we learned from this example that you will need to look more broadly than you think you need to. If Nike had tried to solve the problem of worker conditions and factories by just focusing on factories, they would have never gotten there. The more they examine the root causes of the pressures on factories in places like Ho chi Minh City, the more they realized that they stem from what was happening at headquarters in Beaverton. The result was innovation and design processes, order processes and global product mixes. Nike had to let go of its current business model. It also meant that headquarters had to shift his mindset from compliance to innovation. So every tension created by a compliance demand, needed to be transformed into an innovation question. And that's how companies can start to think about innovating around trade offs. [MUSIC]
