The Theory and Practice of Social Innovation
April 6, 2021
Social innovation is a relatively new concept but has already had a significant impact on corporate management, enabling companies to fulfill their social responsibilities while simultaneously enhancing their competitiveness.
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Innovation has traditionally been eyed as the key to propelling sustained growth for many private enterprises. In recent years, though, companies have increasingly been called not only to secure profits for themselves but to apply their business resources to address challenges confronting society. Such integration of private capital with public and philanthropic support is called social innovation.
Efforts to build a more sustainable society through social innovation have yet to fully enter the mainstream, though, and the theoretical underpinnings of this concept are still being developed. In this essay, I will examine the major ideas advanced to date and apply them to the findings of the latest questionnaire survey on CSR conducted by the Tokyo Foundation for Policy Research. I will also identify the major hallmarks of social innovation from both a theoretical and practical point of view by examining a number of positive manifestations.
What Is Social Innovation?
Many people equate innovation with a novel product, but this is only one aspect of the concept. Economist Joseph Schumpeter identified five categories of innovation, namely, the introduction of a new product; the introduction of a new production process; the opening of a new market; the securing of a new source of supply for raw materials; and the creation of a new organization. To Schumpeter, the driving force for innovation was the integration of these categories in “new combinations.”
New combinations occur in the ways a company relates to the market, a concept that also underlies the theory of “disruptive innovation” proposed by Harvard Business School’s Clayton Christensen and the idea of “reverse innovation” developed by Vijay Govindarajan of Dartmouth College. The former describes how creative, new businesses can trigger dramatic changes to the existing industrial structure, while the latter refers to the technologies, products, and business models that were originally developed in or for emerging markets being imported back into developed countries. The focus of both is on leveraging innovation to gain a competitive advantage and win over new customers. Social innovation takes this traditional concept of innovation a step further, charting new paths in the way businesses relate to society.
Companies maximize their resources to develop goods and services that are superior to those offered by the competition, thereby creating new value and helping improve people’s lives. In addition to being players in a market, businesses are also members of society. And it is this aspect of their existence that has increasingly come under scrutiny over the past two decades, both from a theoretical and practical perspective, to induce greater corporate efforts in addressing society’s myriad problems. Initially, this materialized as a call for companies to assume their share of social responsibilities in addition to undertaking profit-motivated activities. Subsequently, businesses were urged to integrate CSR into their management policies, and they are now being provided with tools to position CSR at the core of their value creation endeavors.
There is lingering debate, though, including in Japan, on exactly what social innovation entails. Ikujiro Nonaka, Ayano Hirose, and Toru Hirata, for instance, describe it in rather broad terms as an attempt to refashion the relationships between people in a particular region or organization with a new system of values. Jun’ya Sano sees it as a way of resolving social issues with creative solutions that are more effective, efficient, and sustainable than existing approaches and that result in benefits for society as a whole. The aim of such solutions, he adds, is to change how people relate to one another. Nobuyoshi Omuro, meanwhile, highlights the corporate dimensions of social innovation, noting that it consists of new products and services, as well as the means of their delivery, that address societal issues using market forces.
Combining Schumpeter’s idea that innovations consist of “new combinations” and the statement made elsewhere in this white paper that “resolving societal challenges requires the spawning of innovative ideas and mechanisms,” I will define social innovation as a mechanism to resolve societal challenges through new combinations.”
The questionnaire survey conducted by the Tokyo Foundation for Policy Research for its CSR White Paper 2020 asked businesses about their social innovation policies and initiatives. An overwhelming majority, 83%, claimed to have implemented social innovation—the combined total of companies saying that they had either “carried out” or “carried out to a certain degree” an innovative initiative to address at least one of many societal issues. Of these respondents, 55% said that they worked closely with other organizations in the private, public, or social sector, pointing to the importance collaboration with outside groups plays in a company’s self-perception of its social innovation achievements.
Far fewer respondents claimed to have either entered a new market or created one, suggesting that introducing a product or market innovation to address a social need is a more daunting task. This is not surprising, though, given that the economic value of a company’s social outreach efforts does not receive adequate market attention. At the same time, collaboration—by encouraging “new combinations”—can serve as a wellspring of new ideas and result in the emanation of new principles.
On the other hand, providing innovative goods and services that could lead to the mitigation of society’s challenges assumes that a company has the capability to produce such offerings and that they are recognized by the market as being socially innovative. Unlike collaboration with outside groups, businesses will need to not only develop a broader awareness of society’s issues but also enhance their own competencies.
I would also add that achieving social innovation requires an understanding of the highly diverse nature of the challenges confronting society, as suggested by the 169 separate targets identified for the 17 SDGs. The seriousness of those issues can also vary from one region to the next. To effectively address those challenges, businesses must have an accurate grasp of their underlying, structural causes and ascertain the approaches that can produce the biggest impact. Private enterprises are designed to maximize the efficiency of profit-making operations, not necessarily to undertake structural analysis of social issues. To advance social innovation, they should first embrace what is called systems thinking, seeing the societal challenges as resulting from a web of complex, intertwined factors and outlining concrete narratives toward their resolution.
Businesses are now being tasked with finding new combinations to tackle social issues in novel and innovative ways. Japanese companies appear to recognize the merits of collaborating with other organizations in implementing social innovation, but they also need to work harder to turn such efforts into tangible, market offerings. Here, I will introduce two case studies of integration that have produced real, positive results.
There are three major types of collaborative initiatives: (1) philanthropic, (2) transactional, and (3) integrative. Typical of the first stage are contributions of money, goods, and other resources to various charities. The flow of benefits is largely unidirectional, and there is little room for private companies to engage with the nonprofit sector. The second stage represents a deeper level of interaction and presumes a relationship marked by trust, mutual understanding, and nearness of values. The third category can be described as a strategic alliance leading to the integration not only of operations but also goals and values and the transformation of the organizational culture on both sides.
The first example involves Pasco Shikishima, Japan’s second-largest bread maker, which launched the Yumechikara project to produce bread from 100% domestically grown wheat. The impetus for the project came from Pasco President Atsuo Morita’s desire to mitigate Japan’s food self-sufficiency crisis. By partnering with government agencies, distributors, flour makers, and wheat producers, Pasco was able to test market and then commercialize bread made using domestically grown wheat—a goal that, until then, had not advanced beyond the agricultural research stage. The new bread products have become a source of Pasco’s competitiveness and are examples of social innovation engendered through collaboration with a range of outside groups.
A second example is the project to reduce marine debris, spearheaded by Seven-Eleven Japan, Coca-Cola Japan, and the Nippon Foundation. The public gained new awareness of the problem of plastic waste spilling into the world’s oceans when retailers began charging a fee for plastic shopping bags. The surcharge, according to government reports, was designed to address concerns about the impact of plastic debris on marine ecosystems, ship navigation, the tourism and fishing industries, and the lives of coastal residents.
The innovative project involved private- and social-sector organizations pooling their respective strengths in “new combinations.” Between April and December 2019, Coca-Cola and the Nippon Foundation conducted a study to identify routes of plastic waste inflows into waterways in Kanagawa, Toyama, Okayama, and Fukuoka Prefectures. The findings showed that 70%–80% of marine debris was discharged in inland areas and came from two main sources: littering and leaking, with the former accounting for 10 times the volume of the latter.
In parallel with these developments, the Nippon Foundation also partnered with Seven-Eleven Japan to install “reverse vending machines” at stores to collect used PET beverage bottles. The initiative builds on the study conducted with Coca-Cola and is aimed at preventing plastic waste from flowing into rivers and eventually into the sea.
And in June 2019, Coca-Cola and Seven-Eleven launched a new line of “Seven Premium” green tea sold in bottles recycled 100% from store-collected PET containers. By drawing on the strengths of the three partners, this initiative spawned a social innovation to address the problem of ocean debris on a scale and timeline that would have unachievable had the parties been working alone.
These examples of integrating resources in new combinations were not the byproducts of a fortuitous accident; they were fostered by a shared desire among private businesses and other groups to address problems confronting society and build a brighter future. The pooling of strengths in cross-sector partnerships can help overcome obstacles that may be hard to surmount on one’s own and generate innovative new ideas and approaches.
When partners possessing different skills collaborate on a social engagement project, they are advancing a form of open innovation—which normally refers to corporate research labs embracing external cooperation to develop and market new goods and services, rather than relying on closely guarded in-house competencies and resources. Strictly speaking, though, the case studies go beyond open innovation in that they seek to integrate their resources with outside groups in addressing social problems. Advancing social innovation requires ascertaining not only market trends but also conditions in society at large and partnering with stakeholders with the assets that are unavailable internally. More companies henceforth will need to similarly shift their working paradigms and integrate their operations with outside organizations to achieve positive social change.
While still a new concept, social innovation is already making significant inroads into corporate management. Companies have hitherto needed to perform a balancing act, showing compassion through corporate citizenship and social responsibility, on the one hand, and achieving market competitiveness through traditional forms of innovation, on the other.
Social innovation represents the convergence of these dueling demands and holds the key to ensuring long-term survival, enabling companies to further nurture core competencies while simultaneously exploring opportunities for expansion into new domains.
Translated from “Sosharu inobeshon no riron to jissen,” CSR hakusho 2020, Tokyo Foundation for Policy Research.
 Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business School, 1997.
 Vijay Govindarajan and Chris Trimble, Reverse Innovation: Create Far from Home, Win Everywhere, Harvard Business Review Press, 2012.
 Ikujiro Nonaka, Ayano Hirose, and Toru Hirata, Jissen sosharu inobeshon, Chikura Shobo,2014.
 Jun’ya Sano, “Regional Social Innovation as an Endogenous Development and Its Ecosystem,” Doshisha University Policy & Management Review, vol. 21, Policy and Management Association of Doshisha University, pp. 87–100
 Nobuyoshi Omuro, “Sosharu inobeshon: Kino, kozo, manejimento,” 21 seiki foramu, no. 105, Institute for Policy Sciences, pp. 20–27.
 Michael Polanyi, The Tacit Dimension, Doubleday, 1966.
 David Peter Stroh, Systems Thinking for Social Change, Chelsea Green Publishing, 2015.
 James E. Austin, The Collaboration Challenge: How Nonprofits and Businesses Succeed through Strategic Alliances, Jossey-Bass, 2000.
 Atsuo Morita, Yume no chikara (Power of Dreams), Diamond Inc., 2014.
 Henry William Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology, Harvard Business Review Press, 2003.