The social purpose of an organization is to create value by reallocating resources to a higher valued use. There are essentially three ways to accomplish this: 1) reallocate existing resources from an existing use to an innovative new product or service that has higher value to the user, 2) produce an existing product or service with fewer resources, allowing those freed up resources to be put to other use, or 3) introduce an existing product or service to a new market. Any effective business model will adopt one or more of these three approaches.
Perhaps the most notable example of the first was the introduction of the iPhone by Apple in 2007. Cellular telephones, PDA, and even early smart phones existed as early as the mid-1990s, but by combining its button free screen, powerful operating system, and intuitive user interface, Apple essentially created what has become a multi-hundred-billion-dollar industry. Former industry leaders Palm (in handheld computing) and Blackberry (in mobile communications) were displaced and the resources they once commanded reallocated to better use. There are numerous examples of companies that owe their success to product or service innovation: Tesla, Netflix, Square, Dyson, Beyond Meat, and CRISPR Therapeutics.
Social value is also (potentially) created when a company can provide equivalent value but with the use of fewer resources or less scarce resources. A prime example of this is Walmart. By focusing on hyper efficient sourcing, distribution, and inventory management, Walmart has grown from a single store in Bentonville to a worldwide giant with over ten thousand stores and over two million employees. I added “potentially” because Walmart may also produce social externalities that might partially or even largely offset the other social benefits. Other examples of companies that owe their success to operational efficiency include Amazon, Ryan Air, Southwest Airlines, Dell Computer, McDonalds, and Toyota.
Finally, a company can create value by introducing an existing product or service using current technology to a new market. Coke and Pepsi both have pursued this strategy as they expanded outside the United States. Combined the two companies now share over sixty percent of the world cola market. Excluding some adaptation to local tastes, both companies have created enormous social value by taking an existing product and technology and introducing them to new markets. Of course, as with Walmart, we must be aware that there may be social externalities created that might offset this. Spotify, McDonalds, Starbucks, and IKEA are other companies that, once established, have used market expansion as their primary driver of value creation.
In these examples, I intermingle the concepts of social value and market value. On one hand, to the extent that markets are efficient, the two should coincide. A positive customer response is indicative of a better allocation of resources, at least in the mind of the customer. But markets are not always and everywhere efficient. Financial success may instead be due to the existence of monopoly power or unregulated externalities. So, at best, economic success is only indicative of possible social benefit. Still, if a company is unsuccessful, this is more certainly indicative of a failure to create net social value.