Companies should approach social issues through a portfolio approach. Many companies engage in philanthropy. It’s an important part of a company’s obligation to its communities.However, all too often, companies limit their engagement in their communities to traditional philanthropy
Most companies do CSR to mitigate risk; activities are often disconnected from the core business.Discuss the importance of a portfolioPhilanthropy and CSR serve as platform investments for CSV, helping incubate CSV solutionsCompanies are trying to engage their communitiesThe question is how?How to do it well?Aligned with businessFocus (lots of causes are worthy)Value not just amount of givingBut what is the impact???
What is shared value? Shared value is: policies and practices that enhance competitiveness while advancing economic and social conditionsShared value is differentShared value is about solving societal problems through core business activities, while creating economic value for your company.It is exciting to see that companies are making this shift from more traditional philanthropic activities to shared value as part of a portfolio.We see even the most advanced companies who are pursuing shared value, still have a portfolio. They understand the importance of allocating resources and making investments in each of these areas, and they coordinate them, so that they are mutually reinforcing and supporting the same overall goals.
** Social includes environmental and social issues togetherTradeoffs not thereNot “externality”Expand boundariesHigher form of capitalism and what matters_____________________________________________________________________________________________________________________As we learn more about social issues – we see the big points of congruenceList of social issues here, not exhaustiveWorkplace SafetyOld way to look at this was to think about the optimum number of accidents; how to have a good balance with the cost of safety programsNew way to look at this involves CEOs who now understand that investing in eliminating accidents has one of the highest ROI they can makeImproves process, making them more rationalZero accidents = higher profitsThis is not a tradeoff – but a win-win situationEnvironmentOld way: if you meet strict environment standards you become less competitive. Companies should fight all environmental standardsNew way: sign of wasted / underutilized resources. Can make profit in the short term, but results in catastrophe over the long-runSaving energy makes companies more competitive; reduce pollution / discharge / waste means that resources are being used more effectivelyConception of productivity drivers is deepening. It used to be about “beating up your suppliers. Now we know that you won’t be productive if your suppliers aren’t productive. Make suppliers better/more productive, and they can provide you with better inputsEmployee HealthOld: was cost, should minimize health benefits – beat down premiumsNew: cost of poor health is 3 times the cost of health benefitsEroded benefits for health is counterproductive for a firm’s productivityNow firms are expanding the idea of employee health: Wellness programs; exercise programs; on site clinics, etc.Lending: if cannot pay back, punitive fees, etc to make money vs. allowing customer to restructureDanger of self-contained idea of the companyEverything outside of the firm used to be considered a costNow we must think about how to increase productivity including by engaging outside agentsOld approaches costly in the long termMigrating jobs to lower wage countries ->Retraining, additional capital investmentsDe-skilling through automation->Lack of innovation, more training needed for value added activitiesLax environmental standards->Costs of cleanup, high costs of polluting inputs (e.g., oil)New emphasis on a living wage, retention and training, eliminating pollution, improving quality, and reducing rework
These 3 levels are important to understand because they take the theory of shared value to a more practical level. These levels are important because they help to explain how SV is different from sustainability, philanthropy, CSR or other language that is out there to describe corporate social engagement. STEP 1: AVOID DESTROYING SOCIAL VALUE TO GET ECONOMIC VALUE
Updated 8/6/2013Company/ ProductJain Irrigation Systems Limited (JISL) works with individual farmers to develop a micro-irrigation system (MIS) that is tailored to their crops, soil and local weather patterns to maximize the production potential of their land. It also has segments in PVC pipe and plastic sheet production, as well as food processingJain not only sells MIS, but provides after sales agronomic and technical supports for getting better crop returnsImpactUse of MIS has recorded increases in yield up to 230%Saves water up to 70% compare to flood irrigationFertilizer use efficiency increases by 30%Jain serves more than 4 million farmers worldwide as of 2012Over the past 15 years, JISL has trained over 100,000 people (farmers and other stakeholders) at the Jain R&D development centers In March 2012, JISL and Enterprise Solutions to Poverty (USA) held a symposium, “Building Shared Value in Agribusiness,” keynoted by Dean NitinNohria, Dr. Ray Goldberg, and Dr. KasturiRangan from HBSIndustry/ PerformanceIn 2012, JISL was the largest MIS company in India with over 55% market share, and second largest worldwide with 15% total global market shareJISL share of the sprinkler irrigation (SIS) industry in India is about 35% (different from micro drip irrigation)JISL revenue in 2012 was $822 million. MIS and SIS contribute 51% ($419 m) of turnover and has been growing at a CAGR of 39%Estimates of the Micro and Sprinkler Irrigation industry in India are around half a billion USD. Currently only 5 million Ha (7% of the possible farm land in India) uses micro or sprinkler irrigation, but growth is very strong - partially driven by a government task force. 17 million Ha are expected to be added by the end of 2012The prospect for global growth of MIS is very strong. Experts estimate that by 2025, most developed countries will confront issues resulting from a scarce water supply
Patient education programs include:Television, radio, and print media campaigns about diabetes prevention, detection, and treatmentChangingDiabetes Bus program to raise patient awareness and provide on-site adviceNovoCare telephone hotline and NovoCare Club providing ongoing support to members
In any business company performs many different activities (every company is a value chain)All differentiation comes from something you do in the Value Chain that customer is willing to pay for, or which lowers costPrice + cost advantage emanates from value chainAll competitive advantage comes from the value chainHigher price? (b/c you give some higher benefit to clients)Lower cost? (b/c of specific activities that the company does especially/uniquely Strategy is choices about how to conduct activities in the value chainHow to generate superior position?How can configure each activity?How relate to other activities?Set of choicesFor each business how configure each activity, then relate activities.Key systemic tool is the value chain identifies where competitive advantages/disadvantages come fromValue chain lays out systematically the activities performed by the businesswell)Must tie competitive advantage to value chain“Business Model” value chain is more rigorousPerformance emanates from value chain
IHG EXAMPLECompany Overview – Largest hotel company in the world with over 4500+ hotels globally in over 100 countries – Crowne Plaza, Holiday Inn, InterContinental Hotels; >80% operate under franchise agreementsBusiness Issues – Environmental and energy assessment leads company to realize that energy represents the second highest cost in a hotelSocial Issues – Environmental issues of water, waste and energy usage; greater societal / customer understanding of the importance of these issuesShared Value Program ElementsTested dozens of energy reduction options within a hotel operating environment from cooling/warming systems to solar panels to automatic computer shutdown applicationsProvided a detailed ranking of all possible energy investments linked to environmental issues in terms of returns to IHG’s hotels as well as those of its franchisesAreas with high environmental impact and return became distinguishable from other areas popular with the public, such as solar energy, which yielded fewer emissions reductions or economic valueFranchise owners then make the investment decisions based on transparent investment and ROI dataInvestments are tracked by franchisees and fed back to IHG improving the initial model with realized returnsLinkages to CompetitivenessImprovements in cost position versus competitors – some hotels have reduced energy expenditures by 25%Improve engagement with / commitment from customers – individual and corporate
Shared value is different. Shared value is about solving societal problems through core business activities, while creating economic value for your company.It is exciting to see that companies are making this shift from more traditional philanthropic activities to shared value as part of a portfolio.We see even the most advanced companies who are pursuing shared value, still have a portfolio. They understand the importance of allocating resources and making investments in each of these areas, and they coordinate them, so that they are mutually reinforcing and supporting the same overall goalsOvercome/mitigate market failuresDiscuss the importance of a portfolioPhilanthropy and CSR serve as platform investments for CSV, helping incubate CSV solutionsCompanies are trying to engage their communitiesThe question is how?
As we spend time with lots of companies, there are often topics that come up about “how” to create shared value:“Where to concentrate” in terms of social issuesHow to find resources to “incubate shared value”New roles and relationships for government and NGOsHow to measure shared valueWhere to Concentrate: When we work with companies, we often talk about shared value initiatives and what is needed to accelerate shared value at the enterprise level. Nestle took an important step when it articulated the areas of focus where they would concentrate – they picked three areas that are of paramount importance to business and society: Water, Nutrition, and Rural Development
Updated 8/6/13ProductOmega-9 Oils is a category of oils that are high in monounsaturated fatty acids, which help reduce heart disease and risk of type 2 diabetes. Omega-9 Oils are free of trans fat and containing the lowest saturated fat content of any vegetable oil, about half that of olive oilOmega-9 Oils are distributed through leading oil supply partners and their respective brands. Dow AgroSciences works with 80 percent of the North American canola processing capacity, and capacity continues to grow. Currently, six major oil suppliers offer these oils under their own brand namesCanola is an optimal oilseed crop, yielding around 42 percent oil versus only 18 percent for soybeans. An acre of canola produces approximately 1,500 to 1,800 lbs of seed, which yields about 650 to 750 lbs of oilImpactSince 2005 Omega-9 Oils have eliminated nearly a Billion pounds of trans fat and 250 million pounds of saturated fat from North American foodsIndustry/ PerformanceGlobal sales for all vegetable oils: $81B in 2012Over the last five years, canola has become the second largest oil used by food manufacturers and foodservice companies and is one of the leading oils purchased by consumers in grocery stores. North America processing capacity has doubled since 2007, adding more than 3 million metric tons to meet the growing demandMany food and restaurant companies have made the switch to Omega-9 oils, including Taco Bell, Denny’s, White Spot and KFC
Companies that fail to align their strategic positioning with shared value principles will be left at a competitive disadvantageAdditional Examples: Thermo Fisher Scientific’s mission is “to enable our customers to make the world healthier, cleaner and safer.”Zip Car moved from a traditional positioning of car rental service to a CSV positioning of “rethinking urban mobility”
Note MM: Corporate changes started in 2000, year when Danone started selling its beer, meat and cheese business
Porter Prize India | Prof. Michael E. Porter Presentation
The ideas drawn from ―Creating Shared Value‖ (Harvard Business Review, Jan 2011) and ―Competing by Saving Lives‖ (FSG, 2012). No part of this
publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of Michael E. Porter. For further materials, see the website of the Institute for Strategy and
Competitiveness, www.isc.hbs.edu, and FSG website, www.fsg.org.
Professor Michael E. Porter
Harvard Business School
Porter Prize India
Boston, MA / Gurgaon, India
October 11, 2013
The New Competitive Advantage:
Creating Shared Value