Harvard Case - Verdeagua: What Is At Stake When Investing in a Certified B Corporation?
"Verdeagua: What Is At Stake When Investing in a Certified B Corporation?" Harvard business case study is written by Luis Silva Domingo, Enrique Kramer, Fiorella Polcaro. It deals with the challenges in the field of Strategy. The case study is 32 page(s) long and it was first published on : Mar 13, 2021
At Fern Fort University, we recommend that Verdeagua pursue a strategic path focused on sustainable growth through business model innovation and strategic partnerships. This approach will enable Verdeagua to leverage its core competencies in environmental sustainability and innovation while navigating the complexities of the B Corp certification. We recommend a phased approach emphasizing market penetration and product development within existing markets, followed by measured market development into new regions.
2. Background
Verdeagua is a Mexican company specializing in the production and distribution of organic and fair-trade coffee. The company is committed to environmental sustainability and social responsibility, which is reflected in its pursuit of B Corp certification. This certification, while valuable, presents challenges in terms of balancing profitability with social impact. The case study highlights the company's strategic dilemma: whether to prioritize growth through traditional business models or to maintain its B Corp values and potentially limit expansion opportunities.
The main protagonists are:
- Pablo: The founder and CEO, passionate about environmental sustainability and committed to B Corp principles.
- Maria: The CFO, focused on financial performance and concerned about the potential impact of B Corp certification on profitability.
- The Board of Directors: Concerned about the company's long-term growth strategy and the implications of B Corp certification on competitive advantage.
3. Analysis of the Case Study
To analyze Verdeagua's situation, we can utilize a combination of frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: The organic coffee market is growing, attracting new entrants. However, Verdeagua's brand recognition and supply chain relationships create a barrier to entry.
- Bargaining Power of Buyers: Buyers have limited negotiating power due to the increasing demand for organic and fair-trade coffee.
- Bargaining Power of Suppliers: Verdeagua's commitment to fair-trade practices strengthens its relationship with suppliers.
- Threat of Substitutes: Other beverage options exist, but the growing consumer preference for organic and sustainable products weakens this threat.
- Competitive Rivalry: The market is competitive, but Verdeagua's unique value proposition focused on sustainability and ethical sourcing provides a competitive advantage.
b) SWOT Analysis:
Strengths:
- Strong commitment to environmental sustainability and social responsibility.
- B Corp certification enhances brand image and attracts environmentally conscious consumers.
- Established supply chain with fair-trade producers.
- Strong brand recognition in Mexico.
Weaknesses:
- Limited geographic reach beyond Mexico.
- Potential for higher production costs associated with B Corp standards.
- Financial constraints may limit expansion efforts.
Opportunities:
- Growing global demand for organic and fair-trade coffee.
- Potential for market expansion into new regions.
- Opportunities for product diversification into related sustainable products.
Threats:
- Increasing competition from other organic coffee brands.
- Potential for price fluctuations in coffee beans.
- Economic instability in emerging markets could impact expansion efforts.
c) Value Chain Analysis:
Verdeagua's value chain is characterized by its commitment to vertical integration and sustainable practices throughout the process, from sourcing coffee beans to distribution. This creates a strong value proposition for consumers seeking ethically sourced and environmentally friendly products.
d) Business Model Canvas:
Verdeagua's business model can be analyzed using the Business Model Canvas framework, highlighting its value proposition, customer segments, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.
4. Recommendations
- Focus on Market Penetration and Product Development: Verdeagua should prioritize market penetration within existing markets by leveraging its brand recognition and value proposition. This can be achieved through enhanced marketing efforts, product innovation, and customer loyalty programs.
- Strategic Partnerships and Alliances: Verdeagua should explore strategic alliances with complementary businesses, such as retailers, distributors, and NGOs, to expand its reach and enhance its value proposition.
- Phased Market Development: Verdeagua should adopt a phased approach to market development, starting with neighboring countries with similar consumer preferences and expanding strategically into new regions.
- Invest in Technology and Analytics: Verdeagua should leverage technology and analytics to optimize its supply chain, improve operational efficiency, and gain insights into consumer behavior.
- Embrace Digital Transformation: Verdeagua should embrace digital transformation to enhance its online presence, improve customer engagement, and explore new revenue streams through e-commerce and online marketing.
- Continuous Innovation: Verdeagua should prioritize product development and innovation to maintain its competitive advantage and appeal to evolving consumer preferences. This can include exploring new product lines, sustainable packaging solutions, and innovative brewing methods.
- Develop a Clear Sustainability Strategy: Verdeagua should develop a comprehensive sustainability strategy that aligns with its B Corp values and addresses potential trade-offs between profitability and social impact. This should include clear metrics for measuring and reporting on sustainability performance.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of Verdeagua's core competencies, external environment, and internal capabilities. They are aligned with the company's mission to promote environmental sustainability and social responsibility while ensuring long-term growth. The recommendations consider the following:
- Core Competencies and Consistency with Mission: The recommendations leverage Verdeagua's core competencies in sustainable sourcing, product quality, and brand recognition, while remaining consistent with its commitment to B Corp values.
- External Customers and Internal Clients: The recommendations address the needs of external customers seeking sustainable products and internal clients seeking growth and profitability.
- Competitors: The recommendations aim to differentiate Verdeagua from competitors through its unique value proposition, innovation, and strategic partnerships.
- Attractiveness: The recommendations are based on a balanced scorecard approach, considering financial performance, customer satisfaction, internal processes, and environmental sustainability.
6. Conclusion
Verdeagua faces a strategic dilemma in balancing profitability with social impact. By embracing sustainable growth through business model innovation and strategic partnerships, Verdeagua can achieve both financial success and its B Corp values. This approach will enable the company to leverage its core competencies in environmental sustainability and innovation while navigating the complexities of the B Corp certification.
7. Discussion
Alternative strategies include:
- Aggressive Expansion: Prioritizing rapid expansion through traditional business models, potentially compromising B Corp values.
- Limited Growth: Maintaining strict adherence to B Corp standards, potentially limiting growth opportunities.
Risks associated with the recommended strategy include:
- Competition: Increased competition from other sustainable brands could impact market share.
- Economic Fluctuations: Economic instability in emerging markets could disrupt expansion plans.
- Operational Challenges: Implementing new business models and strategic partnerships can be challenging.
Key assumptions include:
- Continued growth in the organic and fair-trade coffee market.
- Consumer willingness to pay a premium for sustainable products.
- Ability to secure strategic partnerships and alliances.
8. Next Steps
- Develop a detailed strategic plan: Outline specific goals, timelines, and resource allocation for each recommendation.
- Conduct market research: Gather data on consumer preferences, competitive landscape, and potential new markets.
- Identify and evaluate potential strategic partners: Explore partnerships with complementary businesses and NGOs.
- Develop a sustainability strategy: Define clear metrics for measuring and reporting on sustainability performance.
- Invest in technology and analytics: Implement systems and tools to optimize operations and gain insights into consumer behavior.
- Communicate the strategy to stakeholders: Ensure alignment and support from employees, investors, and customers.
By taking these steps, Verdeagua can embark on a path of sustainable growth while remaining true to its B Corp values. This will enable the company to achieve both financial success and positive social impact in the long run.
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Case Description
Simultaneously to creating economic value, the two founders were committed to creating social value and respecting the environment. Social value stemmed from employing mostly women from the poorest segments of the population on a full-time, unlimited basis -while the industry largely employed workers on a temporary basis. Furthermore, wages, benefits, and shared decision-making created a unique organizational culture where fairness, learning, and personal development were paramount. At the same time, hydroponic technology, specialized infrastructure, and internal processes resulted in the industry's lowest environmental impact. By taking up a USD 300k bank loan, the founders had recently purchased a 25-acre lot and set up an up-to-date greenhouse. They had plans to continue growing the company and enlarging their market presence but were unsure of their business skills and if the business' cash-flows would be enough to pull this initiative through. They started looking for investors. Would investors accept their unwavering commitment to their triple bottom-line way of doing business? How would they relate to a purely business-oriented management philosophy? How could the company grow profitably and simultaneously maintain its commitment to the creation of social value without impacting their return on investment? Would the founders and the organizational culture respond satisfactorily to the severe demands of growth?
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