Ethics in Business: Interview with Karl Hofmann on Private Sector Tools in Promoting Global Health

JULIA TAYLOR KENNEDY: Welcome to Global Ethics Forum. I'm Julia Taylor Kennedy, here with Karl Hofmann to discuss private sector tools in promoting global health.

As president and CEO of PSI, which stands for Population Services International, Hofmann is uniquely qualified to talk about issues of business and public health. After all, PSI has won Fast Company's Social Capitalist Award twice for using private sector marketing tools to raise awareness of global health.

The NGO has also created innovative ways to partner with multinational corporations and local developing-world organizations in an effort to avoid top-down solutions to health problems.

Karl Hofmann, welcome to Global Ethics Forum.

KARL HOFMANN: Thank you. A pleasure to be here, Julia.

JULIA TAYLOR KENNEDY: Let's start with a bit of background about PSI. What are the main health issues that you are confronting at your organization?

KARL HOFMANN: PSI just celebrated our 40th anniversary in 2010. We started in 1970, with the simple proposition that it made sense to use markets and marketing to reach poor and vulnerable people with health-care products and services. Specifically, in 1970, it was family-planning products and services, and using the sale of subsidized oral contraceptives, condoms, and so forth to reach people who were not being reached by the public sector. Of course, this is all overseas in the developing world.

Over the years, working in the social marketing of contraceptives, we got to be quite large in the condom business, which made us a natural player in the fight against HIV and AIDS. For a number of years we have also been active in the prevention aspects of the HIV fight and, in more recent years, have expanded our work to include the fight against malaria through insecticide-treated mosquito nets, child survival through such products as oral rehydration salts and safe drinking water solutions, tuberculosis treatment, and a number of other things relating to health in the developing world.

JULIA TAYLOR KENNEDY: How have your methods of marketing and working to fight diseases like HIV, malaria, pneumonia—how are those informed by the business world and private sector techniques?

KARL HOFMANN: Fundamentally. We take our cues, our guidance, and our inspiration from the way the private sector has approached its own marketing challenges. We are very loyal to the principle that marketing is a powerful tool. We know that the private sector has learned this truth through many years. Our approach is simply to use the power of that tool to encourage people to adopt healthy behaviors.

Sometimes that requires also a product, because it may not be accessible to them. Sometimes it simply involves a behavior. But we know that marketing is a powerful driver of behavior change, and so let's ensure that we can use that driver for good.

JULIA TAYLOR KENNEDY: Describe to me a typical marketing campaign that you have been involved with, how it unrolls, and how you evaluate to make sure that it's successful.

KARL HOFMANN: Very much like the private sector, we want to be evidence-based decision makers.

That requires us to use research and research tools, first to assess our target audience—their behaviors, practices, and what drives their behaviors. We then sometimes use our own in-house talent, but very often creative agencies in the countries where we work—the same as the private sector would do—to craft the right messages, packaging, and marketing approaches to reach the people that we are targeting.

At the end of a campaign and an intervention that may span many years—throughout that intervention, I should say—we are consistently tracking the behavior of our target population using research methodology, just like a private sector company would do, to see whether or not its message is getting through and having the intended results.

At the end of all that, we are able to describe for our donors—which may be governments, large international institutions, or private foundations—exactly what has been achieved and at what cost.

JULIA TAYLOR KENNEDY: What happens if something doesn't catch on?

So often in the developing world there is an intervention or a product that seems to be a no-brainer—malaria nets or another—that, for some reason, does not catch on in the community where it's introduced. How do you respond to that?

KARL HOFMANN: You're quite right. Just take the example of condoms. As I mentioned, we're a major supplier of condoms around the world. For a number of years—for too many years—many of us active in the HIV prevention work believed that it was simply a matter of getting enough condoms in the hands of people.

For instance, in southern Africa where there are generalized HIV epidemics, we believed that it was simply a matter of getting enough condoms out there and that would have a good effect on the epidemic.

But we have seen, in fact, that condoms were not enough.

That has caused us to modify our strategy. For instance, we are now involved in the provision of male circumcision services, because that has been shown to be a highly effective intervention to reduce the transmission of HIV, and also the much tougher work of trying to reduce what's known as multiple concurrent partnering, overlapping sexual relationships that may be considered to be trusting, and therefore don't involve the use of condoms, but which are nonetheless, in many cases, a sort of superhighway for HIV transmission.

That's an example of a way in which we've had to change and evolve over time, because the marketing mix that we had really wasn't achieving the intended outcome.

JULIA TAYLOR KENNEDY: You have a regular column in The Huffington Post, and you wrote in 2010 about clean drinking water. You wrote, "Whenever possible, we embrace a total market approach to leverage both the private and public sectors to grow an entire market for a healthy product or service."

I'm curious what that entails, to get the private and public sectors aligned. You hear so often, especially with pharmaceuticals and other health-related products, that the profit margin is so low in the developing world that it's sometimes hard to get the private sector on board.

How have you been able to do that in your projects?

KARL HOFMANN: It is a big challenge because, as you indicate, the markets themselves may not be of great interest to the private sector, although usually, in almost anyplace you can imagine, there is an indigenous private sector that is interested in some aspect of what we're doing.

The idea behind the total market approach is this. We are being funded by donors—in our case, to use social marketing approaches—to try and save or improve the lives of poor and vulnerable people. That could be through a product, service, or a behavior. The public sector is also working in those areas. We're using a private sector approach, but with a highly subsidized price, because we're trying to reach poor and vulnerable people.

Let's again turn to the example of condoms. If we're successful in growing the demand for condoms, then over time that becomes an attractive market for the for-profit private sector. There's always going to be a space for the public sector, which may be providing free condoms at health clinics. There's probably always going to be a space for social marketing, which, for instance, might involve highly subsidized sale of condoms, but still using nontraditional outlets. Then, if the market expands enough, there is a genuine for-profit business opportunity there.

If we're successful with a total market approach that tries to grow the market—not just our category, not just our brand, our condom, but the entire market—then we will draw the private sector in, in ways that are good for the private sector, the market, the buyers, the consumers, and donors.

JULIA TAYLOR KENNEDY: You have a long list of corporate partners that you're working with—Procter & Gamble, Nike, ALDO, Levi, Anthropologie. The list goes on and on.

Are they coming to you with this market idea or is it mostly, for them, that this is their corporate social-responsibility arm and this is them giving back to the community?

KARL HOFMANN: There is certainly some of that. The CSR part of the work that we do with corporations is primary to some of those relationships. But there are definitely big exceptions.

You mentioned Procter & Gamble. We also have an expanding partnership now with Unilever. P&G and Unilever are two gargantuan, fast-moving consumer goods companies. I think P&G is the world's largest advertiser, and Unilever has similarly outsized ways in which it measures its work.

They are interested in working with us, increasingly, because they know we are accessing the bottom of the pyramid. That's a market potential for them. They have seen that for many years. They are interested in how we approach that part of the market.

We, from our side, see these large corporations that are highly efficient at reaching consumers and at getting products into the hands of people and encouraging them to use them—we see those as powerful ways for us to improve our own approaches.

There is a symbiotic relationship that we have with some corporations that is much more substantive than what might be a simple CSR relationship.

JULIA TAYLOR KENNEDY: What is your typical exchange like with these corporate partners that you are working with? Are they helping you craft your programs? What does that dialogue look like?

KARL HOFMANN: It takes a variety of forms. In the case of Procter & Gamble, for a number of years we've been helping them to utilize one of their remarkable products, PUR, which is a water purifier that comes in the form of a sachet. It is highly effective in emergency situations, such as after a flood, earthquake, or some other natural disaster. It can also be marketed on its own, although it does have a heavy behavior-change communication component to it.

That has tended to be around a particular product that P&G was interested in getting out into the market and where we found lots of occasions where it made sense to do so, even at no cost, in emergency settings.

With Unilever we're looking at specific products that are of interest to them, but also may be of interest to our consumers, again in terms of household water treatment, ways for families to keep their environment cleaner and avoiding the disability that comes with diarrhea, which is such a large killer of kids in the developing world. So it has a product focus to it.

We benefit simply from rubbing up against the hardnosed corporate core marketing decision-making functions that these organizations have: How do they do it? How do they inform their decision making? How do they check the validity of their decisions? For us, that allows us to sharpen our own toolset.

JULIA TAYLOR KENNEDY: Do you find that their marketing techniques translate to the developing world? Do you use the same campaigns, and do they have the same efficacy in branding in the developing world?

KARL HOFMANN: I don't want to make a sweeping generalization, but these are powerful archetypes. P&G and Unilever are just a couple of examples. One can think of Coca-Cola and many others. These are powerful examples of the use of brands and all the discipline that goes with marketing to drive behavior.

That behavior may be to drink a carbonated beverage, in the case of Coca-Cola. Obviously, the behavior that we seek, again, is a health-oriented behavior, maybe associated with a product, maybe not. But the ability of those organizations to reach consumers with consistent, clear messages and to drive behavior is something that anyone working responsibly in public health needs to pay attention to. It's a powerful driver.

JULIA TAYLOR KENNEDY: That's what's happening on one end. You're partnering with these corporations, which help fund some of your projects. You also get a lot of funding from donors and institutions as well, such as the World Health Organization, et cetera.

On the other end, how do you work with local affiliates, as you call them, local partners, local companies, to ensure that you're sensitive to the particular cultural variables in the different countries where you're working?

KARL HOFMANN: Excellent question. There are two aspects of that for us. We operate in about 60 countries around the world. In many of those places, we have been operating for decades. In the donor community in general, the approach tends to be large international NGOs, like ourselves, are funded for a particular project and then the donor assumes that the NGO will leave.

Our approach has been a much longer-term one. We've put down roots in each of the places where we work. We are operating as a nonprofit business, essentially, in each place where we work. We do that consciously, because we think that orients us toward the long-term needs of our consumers, our beneficiaries.

We don't think we can really make a difference in three to five years anywhere. We don't think anybody can. We do know that the health challenges that face our clients, customers, consumers, and beneficiaries, are long-term, and so we need to be there long-term. Our own institutional approach to our work is focused on putting down roots.

But I mentioned also—and I think what your question was referring to is the need to work with local partners. There are the P&Gs and the Coca-Colas of the world, but, as I said earlier, there are also creative advertising agencies; there are packaging, transportation, warehousing, and bottling companies. Whenever we can, we're making use of those local institutions to produce, package, and market our products. That keeps us close to the local consumer.

You have to be careful about quality, of course. You want to be sure that you're providing a quality product and that your branding and packaging of it connotes that it's quality. It's important to ensure that you are getting consistent high use of your product.

But, for instance, in a place like Kenya, where we source a lot of our creative work for our African operations, there are top-quality local ad agencies that produce fantastic spots for us in radio, television, and print media. We use a lot of local partners in that sense.

JULIA TAYLOR KENNEDY: I'm curious how the costs work for that. Is it less expensive because they're in the developing world and, for some of the distribution channels, I would imagine, closer to the consumer? Or is it more expensive because it's not as efficient in some cases?

KARL HOFMANN: No. If it's more expensive, we shouldn't be using it. In most cases, for our business model, it's going to be less expensive. We're not talking about the most sophisticated products in terms of what we are distributing. These are not terribly high-tech interventions. Many of them are within the reach of local organizations to even manufacture. Our safe drinking water solutions, for example, chlorine solutions, in some environments where we operate can be sourced, bottled, and packaged right there. Everything can be done locally. That has a lot of development sense when you can do that.

JULIA TAYLOR KENNEDY: Do you have any policies or requirements for your local affiliates in terms of how they run their business and how they treat their workers, et cetera?

KARL HOFMANN: Absolutely. We term them "local affiliates;" internally we call them platforms. This is the PSI operating presence in each country.We pay a lot of attention to our own brand equity, the standards that each of our platforms, each of our affiliates, must comply with, and the way in which they operate business. That involves performance standards, financial management, and research rigor.

It's critically important for us to be able to honestly count the impact that we're having and convey that to donors. So there's a whole range of ways in which we ensure that our platforms are maintaining the quality that we hope we're associated with.

JULIA TAYLOR KENNEDY: One of those elements that I read about online and that I would love for you to expand on for me is that you have certain health-care policy requirements that are tailored to your local affiliates.

How does that work, since you are experts in the health sector, and what kinds of programs have you been able to implement with these local employers that you're working with?

KARL HOFMANN: We hope that we are a model employer in each of the environments where we're working. We're a low-cost operation, so we may not have all the resources that we want in order to do what we would like to do. But in terms of the policies, we're always trying to strike a balance between consistency and a high level of overall quality, on the one hand, and, on the other hand, some sensitivity to local realities and local operating truths.

Each of the platforms has some leeway. In fact, our model is designed with a lot of leeway built in for our country representatives to make decisions about what makes the most sense in each operating environment.

Every platform will have a set of policies and procedures that relate to the health of the staff. That may involve insurance coverage. Depending on where we're operating, it may involve workplace HIV testing and counseling. We're trying to run enlightened workplace environments with an eye on the cost, obviously, of our operations, because we owe that to our donors.

JULIA TAYLOR KENNEDY: Tell me a little bit about how you got involved with PSI. You have a background as a diplomat. I'm wondering, why health and why PSI, after you finished your diplomatic career?

KARL HOFMANN: I consider it to be exceptionally lucky for me to have found this second chapter in my professional life. Most of my time as a U.S. State Department diplomat was in Africa. I got exposed to PSI's work in West Africa, where I found it to be a really creative organization that was doing exciting work in the fight against HIV.

I had been very interested in HIV issues since my second tour in the Foreign Service, which was in the mid-1980s in Rwanda, which then was sort of the epicenter of the HIV epidemic. PSI, to me, was a really interesting, exciting implementing partner for the U.S. government.

When it came time for me to look at opportunities after the Foreign Service—frankly, it was a little bit sooner than I expected. I wasn't planning to leave the Foreign Service, but this opportunity at PSI came up, and I didn't have to think twice about it. As I said, I had a very positive impression of the organization.

Also there's something wonderfully liberating about being able to completely embrace every aspect of your work. Everything that PSI does is something that I'm proud of and I believe in. As a U.S. diplomat, I was highly honored and proud of the work I did to represent the United States, but, honestly, there are some aspects of our work and the U.S.'s role in the world in recent years that have been tough to defend, talk about, and deal with. I don't have to worry about any of that now. I have the sensitivity that comes from talking about things like condoms, sexual partners, and reproductive health, but those are good topics to be engaged with for me, and I'm proud of it.

JULIA TAYLOR KENNEDY: You have set an ambitious goal for PSI in your time there, which is to double its health impact by 2012. When was that goal started and how are you measuring impact?

KARL HOFMANN: We started that in 2007. We adopted a five-year plan at the end of 2006 that said we should double our health impact over the course of five years. It said a number of other things as well, but that was sort of our top-line objective.

JULIA TAYLOR KENNEDY: That's the goal you really started with when you started at PSI.

KARL HOFMANN: Yes, exactly.

JULIA TAYLOR KENNEDY: Daunting.

KARL HOFMANN: I'm pleased to say that it's going well. We are on target. I am hopeful that by the end of 2011 I will be able to report to my boss, the Board of Directors, that we have, in fact, achieved that doubling of our health impact.

How do we measure that? We use something called DALYs, disability-adjusted life-years. It's a measuring tool that was developed by the World Bank and World Health Organization some years ago. It was designed to help governments make hard choices about where to invest their resources in health. We have found it a very effective way to measure what we're doing overall and the cost-effectiveness of what we do.

All the modeling that we use there is externally validated. We don't want to be accused of self-dealing. We are constantly revising downward what we think our regional starting point was in terms of the impact we were having.

But by the end of this year, we hope to be averting—as the phrase goes—about 20 million DALYs every year. What that means in layman's terms is that we hope to be able to say, by the end of 2011, that annually there are 20 million years of healthy life that would have been lost to death or disease because of what we've been able to do. That's something I'm very proud of.

JULIA TAYLOR KENNEDY: Do you think this incorporation of entrepreneurial and bottom-up business methods—you're incorporating actually a lot of corporate methods as well in your work in the developing world—is this trying to bring private sector values into NGOs? Do you think it's here to stay? Is it a passing fancy? Are there limits to what can be accomplished there?

KARL HOFMANN: Great question. Let's be honest. Over the last couple of years, in many ways, markets and the private sector have been somewhat devalued in the eyes of many. We have never subscribed either to an idealistic view of what markets and the private sector can do on their own, nor are we among those who don't have faith in the power that markets and the private sector represent. We have our eyes open.

But in the development space, we strongly believe that markets can be made to work for the poor in ways that far surpass the ability of the public sector and other interventions to really have the impact that we need at scale.

Markets have always existed. They have been better or less well regulated at different periods of time. They have succeeded for some and in other periods have succeeded for the majority. But the point is, they have always existed. Let's find ways to make them work to ensure that poor and vulnerable people in the world get access to health.

Most of the poor people in the world are using the private sector to get their health care anyway, because, by definition, the public sector in the parts of the world where we work is weak. If the public sector were not weak, these wouldn't be developing countries. But the public sector is weak. The private sector is there and is a tool that can be used to reach people in need.

We see that as a long-term possibility. It can be optimized. It can be improved. We hope we're making our own small contribution in doing that. But it's there for the long term. Let's make it shine.

JULIA TAYLOR KENNEDY: Karl Hofmann, thank you so much for joining me here on Global Ethics Forum. It has been a real pleasure to pick your brain on some of these issues.

KARL HOFMANN: Thank you, Julia. I've enjoyed it.