Keynote Address: Social Enterprise Conference

Keynote Address
Social Enterprise Conference
Harvard University
Boston, MA
February 26, 2012

I came here hoping I could offer you a bit of inspiration on the subject of leadership and innovation.  But I have to say, being at this conference, it’s your leadership and your innovation that I find inspiring. And, having spent my life before Rockefeller at Yale and Penn, I love that this is a student-driven gathering. This is where impact is born.

I’ve been asked to focus on how social enterprise and social change are driven by the interplay between innovation and leadership. Of course, I have to begin by stating the obvious. Rarely do we think of our leaders as innovators, and rarely do we think of innovators as leaders. In fact, these days it’s hard to know what some people even mean when they use the word “innovation.” It’s become a favorite buzzword. For instance, we’re bombarded with products that brand themselves as innovative, and it’s not just the way we describe our products. It’s how we describe ourselves.

In 2010, “innovative” was the second most used term on LinkedIn — second only to “extensive experience.” And, of course, one of the most perceptive commentaries on the subject of innovation that I’ve seen of late came from that hotbed of cutting-edge journalism, The Onion: “Panicked Keynote Speaker Suddenly Can’t Remember What Future of Innovation Is”. We might conclude that people are pretty confused about what innovation is, and how it works. Of course, that isn’t true in these hallowed halls.

There is a great academic literature on the subject of innovation and its definition. Generally speaking, an integration of that literature suggests that it is best defined as a new product, process, or service that is discontinuous from previous practice, and that yields new avenues for solving acute problems or fulfilling an organization’s mission. And in the social realm, the literature suggests that innovations that best speed up society’s ability to address pressing needs are often “recombinant.” That is, they are a hybridization of existing elements that are combined in new ways leaving stronger solutions in their wake. This definition allows us to see how leadership and innovation could work together in extraordinarily powerful and meaningful ways. In my view, they are the twin pistons that power the engine of social progress, and just like the crankshaft in a car, these pistons are interconnected. They are both integral to the mechanics of social change in the sense that real leadership must drive innovation, and innovation can drive powerful new tools for leadership.

This period of great global dynamism is no time for our best and brightest to spin their wheels. In the next 40 years, the planet will host more people, who will be more connected physically and technologically than ever before, and distributed around the world in new ways. This rapid, restless growth across regions is weakening traditional systems. Crises are becoming increasingly complex, and growing inequities are unlikely to abate without intervention. The theorist Jeffrey Conklin calls this new brand of interconnected global challenges — appropriately for this Boston audience — “wicked problems.” They can only be understood by peeling back layers and solving them, one by one. And solving them will take creativity and innovation — a wicked fast engine powered by leaders and innovators who understand how to draw insight from the complex interdependence of our world. Let me put this metaphor in gear, so to speak.

First off, let’s consider what leadership means in the context of driving innovation. I know you have fantastic courses at HBS and the Kennedy School devoted to the question of what makes a great leader, but I’m limited to under thirty minutes, so let me just say that leaders who innovate possess very distinct traits. To me, two things define these leaders:  the courage to take risks, and the vision to see things in new ways, often from an invention, to an innovation, to real change. What does that mean?

Since I’m on an engine kick today, I think about it in terms of that famous Henry Ford quote: “If I had asked people what they wanted, they would have said faster horses.” In fact, at America’s first car race in 1896, cars were still so slow that hecklers yelled, “Get a horse!” But Ford took that existing invention, the internal combustion engine, saw an innovative transportation application, then scaled his idea into a system of mass production that utterly reshaped American life. And whether it’s an innovative new process, as Ford created, or an innovative new product, like the ones Steve Jobs created — what we know from these different types of innovation is that they all take vision and courageous risk-taking.

This isn’t academic to me. I learned the hard way, when I became president of Penn, during a ten-year process of innovation to transform the struggling, deeply disadvantaged neighborhood surrounding our campus. By the time I had the great privilege of leading the University of Pennsylvania, the University City neighborhood on the western edge of campus was in dreadful shape. Crime had soared. One in five residents lived below the poverty level. Shops and businesses had closed. The streets were literally filled with trash. Some of us believed that the campus and community could not coexist poles apart. Either the neighborhood would improve — or the university would deteriorate.

Others scoffed at this. After all, Penn was a great Ivy League university. We were rich in endowment, boasted a world-renowned faculty, and, I should add, completely dominated Harvard’s football team at the time. Many felt that the university would thrive regardless of what happened outside its gates, and I was strongly advised that this was not what I should focus on leading Penn. But I believe that urban universities are a special kind of urban citizen – and good citizenship means taking responsibility, not just taking advantage of tax privileges.

Urban universities have an important obligation to drive positive change and to serve a greater social good – at the same time as they do well for their students, faculty, employees, and institutional mission. After all, how can we exhort our students to become socially engaged if we do not model civic engagement ourselves as important institutions and institutional leaders? So I assembled a team focused on this, at the highest levels of leadership, including the Board. To create a livable community around campus, we acquired scores of abandoned and rundown neighborhood homes and apartments, rehabbed them, and sold or rented them to the public. Oftentimes, we sold them at a loss, to maintain the economic diversity of the neighborhood.

And good neighborhoods need good public schools. So we brought together, for the first time as real collaborators, the Philadelphia Federation of Teachers, the city, the school district, and parents to build, together, a new neighborhood public school, and to transform the other schools in West Philadelphia. To strengthen the local economy, we developed several deserted commercial corridors to create a diversity of goods and services. We focused on an explicit strategy to train and hire neighborhood residents. In fact, we reoriented all of the university’s purchasing power to creating and buying from local business in new powerful models of economic development. Together, over time, these overlapping innovations began to work synergistically and dramatically. In fact, our work won the Urban Land Institute Award for Urban Innovation – the first time a university had ever been honored in this way.

All this happened because my team’s visionary and creative leadership drove innovation. We had the audacity to dream, and the tenacity to deliver. It was an unforgettable experience, and the lessons I learned then, stay with me at the Rockefeller Foundation. We draw on a century of experience, but we still approach the world’s problems from the vantage of a start-up, social venture capital fund. As we work to ensure that the benefits of globalization are more broadly shared and its burdens more robustly and resiliently weathered, we’re always looking to support leaders who innovate and scale their most exciting and successful ideas.

Early Rockefeller researchers didn’t use the word innovation or venture capital; they called it “scientific philanthropy.” But whatever they called it, they achieved significant breakthroughs: a Nobel-prize-winning vaccine for yellow fever, a Green Revolution in agriculture that reduced hunger for a billion people in Asia, the creation of the field of public health – including the establishment of the School of Public Health here at Harvard. And when a young Albert Einstein requested $500 for his research, John D. Rockefeller told his deputy, “Let’s give him $1,000.  He may be onto something.” That’s the kind of experimentation that is now the future of social enterprise.

Today we all hear about those at the cutting edge of business so let me mention some of the exciting leaders pushing innovation who – believe it or not – are in government. One such leader I’ve had the pleasure to work with is New York City Mayor, Michael Bloomberg. More than almost any other elected official, Mayor Bloomberg has successfully experimented with institutionalizing innovation. He believes that this is the moment, with public resources scarcer than ever, when we need government innovation the most. So he has created a culture that encourages creative risk-taking to achieve far-sighted goals. Mayor Bloomberg has established, for instance, a Center for Economic Opportunity – you’ll notice its acronym is CEO – specifically tasked with implementing innovative ideas to reduce poverty. In one of its signature initiatives, the Center, funded by the Rockefeller Foundation, launched a conditional cash transfer program, which incentivizes certain behaviors – like keeping a child in school, or visiting a doctor for preventative healthcare, with financial rewards. If all of these behaviors are engaged in consistently, the incentives are financially significant, so this innovative program encourages the kind of activities that can actually break the cycle of poverty for low-income individuals and families.

Another innovation focused on new financing mechanisms for affordable housing. In New York, and growing cities the world over, this is a critical issue. To meet its goal of building 30,000 units of affordable housing in all five boroughs, the city of New York needed for-profit and not-for-profit developers to assemble land and invest preconstruction dollars before it could deliver offsets. But this pre-investment was just too high risk for most commercial lenders. Working with the Bloomberg administration, we created an innovative new financing mechanism in which a group of foundations put up the first, high risk tier of about $50 million in capital. This allowed commercial lenders such as JP Morgan, HSBC, and other large banks with lower risk tolerance, to provide the second tier of debt, about $250 million. As a result, in only a few short years, this partnership enabled the city to build thousands of units of affordable housing, with more in the pipeline. The Kennedy School’s Ash Center for Democratic Governance and Innovation has twice recognized Mayor Bloomberg’s administration for these and other innovations.

Today, governments seem to be always short of money, but that is precisely what leads to innovation. HBS’ own Professor Clay Christensen believes that “breakthrough innovations come when the tension is greatest and the resources are most limited,” because that’s when we fundamentally rethink existing paradigms. And in fact, companies investing in innovation during the last recession came out of the downturn far stronger than their less innovative competitors. That’s why it’s heartening when leaders recognize the need not just for innovative ideas, but also for innovative financing – just not the Credit Default Swap kind.

Across the pond, the UK is piloting an innovative approach to reducing juvenile criminal recidivism, creating Social Impact Bonds. With the support of Rockefeller and others, a UK non-profit called Social Finance acts as a broker, raising private investment dollars for implementing social programs that have a proven track record in helping former prisoners find employment and rebuild their lives. If the Social Finance-funded programs measurably reduce recidivism, the British government will repay the Impact Bond investors, with interest. If these social programs fail to meet their predicted benchmarks, the government pays nothing. This is the kind of high-risk, creative problem solving and leadership that drives innovation. And now, right here in Massachusetts, Governor Deval Patrick has committed to developing similar social impact bonds, using private capital to invest in proven social programs that address chronic homelessness and reduce recidivism rates for juveniles just out of jail.

Promising social enterprise and innovations are also being demonstrated by the leadership of NGO’s. A few months back, Mark Tercek, the President of the Nature Conservancy, sent me an excited email about their work promoting sustainable fishing along the central coast of California. After making little headway advocating for years for small fisherman to undertake more environment-friendly fishing practices, the Conservancy completely reframed the paradigm. They bought out all the local fishing boats and licenses, then leased them back to those fishermen who agreed to meet certain sustainability conditions, including quotas for endangered species. The Conservancy equipped all the fishermen with iPads and a new, real-time “eCatch” app, which allows fishermen who accidentally overfish sensitive populations to mark the area on online maps so other boats steer clear. These tools have facilitated what Mark calls “a no-nonsense, entrepreneurial approach to protecting nature.” And the innovation is taking root, and spreading. Here in Massachusetts, scallop fishermen have partnered with UMass to develop a similar “eCatch” application that would protect endangered yellowtail flounder. We know that if you give someone a fish, you feed him for a day, and I suppose if you give someone an app, you can protect our oceans for generations to come. That’s leadership driving innovation and powering social change in a very real and very new way.

Let’s now ask how it works the other way around. Can Innovation also drive leadership? In fact, it must, in order to make the wheels of progress turn. It’s the other piston powering our engine of social change, because innovation is not only a top-down process. It’s also a bottom up, collaborative, and user-generated process – the kind of process that, as we’ve seen lately, can reshape an entire nation, or solve a fundamental social or commercial problem.

I said earlier that leaders who drive innovation must have the courage to take risks and the vision to see things in new ways. On the flip side, innovations that drive leadership inspire new possibilities to mobilize and channel social change. One powerful example is the use of crowdsourcing to enable leaders to work in new ways. Crowdsourcing is a process innovation that engages thousands of minds, each approaching a problem in a different way, in the generation of cutting-edge ideas to address complex social challenges. Rockefeller funded the G20 to put crowdsourcing to work as a means of identifying new, game-changing ideas for how to give small and medium sized enterprises, the financing structures they need to grow and scale. Instead of a top-down process to identify ideas, we worked with Bill Drayton, whom you’ve been fortunate to hear from earlier today, and used the Ashoka Web-based platform, to present this problem to the world. Well, let’s just say that the world responded, and the raft of innovative responses they produced has driven the leaders of the G20 in a completely different direction.

One finalist was an organization called the Entrepreneurial Finance Lab, which is pioneering methods to evaluate and finance companies in developing countries where credit information is unavailable so traditional credit scoring models don’t work. They’ve developed a statistically proven tool that assesses credit risk instead by looking at an entrepreneur’s intellectual and psychological characteristics. This is fascinating stuff, and a far cry from what the G20 might have otherwise focused on. In fact, the G20 was so impressed by the ideas they received that they picked 17 winners and committed half a billion dollars to fund them. In other words, these innovation processes led government leaders to be bold – to take risks in finding and funding social entrepreneurs who could catalyze real social change. That’s innovation driving leadership.

But the innovative application of new ideas and technologies by everyday people can drive leadership in another way, as well — it can drive leadership out of power. I’m referring, of course, to the Arab Spring. Look at Egypt. Hosni Mubarak held power for 30 years, the longest serving ruler since Egypt was part of the Ottoman Empire. He survived six assassination attempts, but then, caught up in the democratic wave that began in Tunisia, the Egyptian people — young people — showed us the power of innovation when paired with democratic passion. In their hands they held smartphones and computer keyboards. They texted and tweeted and posted on Facebook, they mobilized and marched into Tahrir Square, and held their ground against all the desperate violence of the regime. Eighteen days later, Mubarak was gone. I think Bill Maher nailed it when he observed, “This whole revolution was started by a Facebook page, so, really, Mubarak wasn’t so much deposed as ‘de-friended.’” The bravery and determination of the Egyptian people, and their application of new technology to guide their revolution, showed the world the power of innovation to drive leadership to change. But now, a year later, we’re seeing that the Tahrir movement needs more than just technology to sustain social change. It needs innovation around techniques to coalesce, to grow the long term power of collective action.

In a different part of the African continent, a less heralded but equally heroic effort is showing how disenfranchised people can organize and agitate in a more sustained way. This is the story of a Kenyan slum — and, just to confuse you, it’s called Kosovo. For years, the residents of Kosovo had been ignored and maltreated by the local government and local companies. They deeply resented the actions that ignored the harsh realities of their lives. When the Nairobi City Water and Sewage Company found illegal water hookups they simply cut off water and electricity service, but they had never sent bills because people in a slum have no official addresses.  And, when the government proposed an initiative that would have razed informal water hook ups close to the Nairobi River, the slum-dwellers began to organize. They realized that since they were uncounted in any census and not displayed on city maps, the government and businesses could literally act as if they didn’t count.  So they began gathering valuable systematic information about themselves — literally forcing government to count them. They used their collective power to obtain formal connections to the water supply for the first time ever. They organized street committees to ensure that everyone pays their fair share, and, now, other utilities are expanding coverage into the Kosovo. They forced the municipal government to take notice, and when the World Bank invested $100 million in upgrading the human settlements in Nairobi, the slum-dweller leaders were at the table.

These slum dwellers are now part of a growing global movement to translate innovative models of community empowerment into sustainable tangible gains. They’re proving that even the world’s most disenfranchised people can join creatively together — upending entrenched systems, holding leadership accountable, bringing stakeholders together, facilitating the spread of new ideas and new ways of thinking. We are in the midst of a strengthening, borderless, frequently digital, movement that is showing its potential to disrupt and transform powerful institutions, whether they are political regimes or corporate enterprises.

So let me bring this talk full circle.  And to do so, in closing, let me turn to the most iconic innovator of our era, Steve Jobs.  Could I give a talk about innovation and leadership without commemorating the man who transformed our digital lives? There may in fact be more Apple gadgets in this room than there are people. Let’s look at Apple’s famous “Think Different” ad, of the 90’s. Jobs wanted you to believe that all you needed to change the world was your own ideas, your own inventiveness, your own vision, and, of course, one of their products. Years ago, it was an advertising campaign, but, today, the view that you can change the world with ideas is becoming a well-established reality of the early 21st century.

You are the leaders who will experiment with and incentivize new innovations. You are the innovators who will lead social enterprise and new revolutions. You’ve got to keep that change engine running.  Because we desperately need you to drive us further, and faster, toward social progress. And I, for one, can’t wait to see in what direction you’ll take us.