Disruption, innovation, inclusion. These days, there is a multitude of business school jargon used to discuss development, both in the realm of the public and private sector. But here is another one for you: contextual intelligence, achieved through innovation and inclusion.
Contextual intelligence is the ability to understand the limits of our knowledge and to adapt that knowledge to an environment different from the one in which it was developed. It is important because it is the only way businesses can perform competitively on a global scale, and especially in emerging markets, which are radically different from the developed markets where our business school classes are taught. Moreover, emerging markets offer an incredible growth opportunity. By 2025, McKinsey has predicted that annual consumption in emerging markets will reach $30 trillion. Consequently, we need to grasp the significance of innovation and inclusion and how they translate into contextual intelligence right from the start in business schools and prepare our future business leaders for the various contexts in which they’ll operate and where they’ll encounter the highest growth.
Let’s take innovation as the first element of contextual intelligence. For most business leaders, this still means product innovation. For them, it comes down to how it’s going to grow sales and satisfy shareholders. There are some holistic and enlightened leaders who think about innovation in a broader sense of the term, but they are very much a minority. These people embrace the idea that innovation could involve doing something radical in terms of how businesses include society and the context in which they operate.
Unilever, for example, innovate their products so that they can be used in the context in which they are sold, such as concentrated detergents where there is little available water. Olam, on the other hand, innovates by reaching out to a wider community and working with governments, helping them to develop infrastructure that is necessary to transport commodities. These companies innovate in different ways and are equally creative.
The other part of contextual intelligence involves inclusion. Inclusion benefits not only shareholders, but also stakeholders in the communities in which a business operates. It is hard to find unmet needs in the developed world, but if you look towards the developing world there is plenty of scope for businesses to solve real problems there. The developing world is also where the bulk of the growth is, whether you’re a consumer, agribusiness, healthcare business or technology products company.
Business leaders in developing countries have to think way ahead. They need to recognise that there is very a large segment of the population that currently can’t afford their product, but with the right investments made today, may be able to do so in the future.
This vision of inclusive growth means that investments have to be made not only downstream for seemingly unprofitable consumers, but also upstream, closing the gaps in the supply chain and in the wider context. In a lot of these countries, there is a weak political system and a lack of transparency in ethical and intellectual property standards. Companies need to invest in these areas to close the gaps, whether through partnerships with other companies and public sector institutions or international institutions.
This holistic business model can sometimes just seem like a list of unattractive investments. However, if we don’t use the right strategies to operate in emerging markets we will not be able to reap the maximum benefits possible as those markets develop and opportunities and incomes increase.
So far contextual intelligence – these broad concepts of innovation and inclusion – has not reached our business schools. Business schools tend to like linear, formulaic approaches, yet businesses don’t in reality operate in a vacuum, they need to be embedded in a wider context.
Societies and economies are undergoing rapid transformations and we need to examine a wider social, political and economic context to incorporate a global outlook in these classes. Too often we push these things into the background, whereas in fact they need to become the core of business school education. Our faith in technologically and algorithmically-led business has collapsed.
Business education has not yet caught up with reality. We have to fundamentally rethink the way we teach competitive strategy and the way we think about investments and marketing. There is a lot of talk about ethics, leadership and corporate and social responsibility, but ultimately these are pushed to the periphery of education. Contextual intelligence should be at the core, where business leaders understand the context in which they need to compete and survive. This includes issues to do with politics, culture and history, which we seldom talk about.
Businesses need to be increasingly comfortable with the idea that doing well for the societies and environments in which they operate is good for them too. Being able to make the link between innovation and inclusion is crucial for this. There are many similar characteristics between the two: investments in innovation today will only pay off over time. That payoff is somewhat uncertain, shareholders will not see an immediate benefit, and Wall Street analysts will complain because they will want returns straight away.
There is one big difference between innovation and inclusion which presents a challenge. Investments in inclusion will not just benefit the business’s shareholders, but also competitors’ shareholders. But this is the direction in which society is moving, where we make joint commitments, such as the Sustainable Development Goals and the COP21 agreement, for the good of all.