Shaping the Future: Solving
Social Problems through
Business Strategy:
Pathways to Sustainable Value Creation in 2020




...
Shaping the Future: Solving Social Problems through Business Strategy




                                     We recently...
Chapter of Contents




 ▪   Chapter 1: Global Forces

 ▪   Chapter 2: Four Scenarios

 ▪   Chapter 3: Preparing for the f...
Who would have thought that we could come so far in ten years?


                                              Cellular-te...
In addition to the trends and individual stories, there are powerful
examples of companies that are reflecting this changi...
The world continues to change dramatically, shaped predominantly by five
transformative global trends
 The Great Rebalanci...
Poll Question #1


          Thinking about your corporation over the next 10 years,
          which one of the following ...
These global forces will require businesses to adapt to a different
operating environment

Five transformative forces
 The...
Business has the opportunity to help shape the implications
of these trends
Global forces …        … are shaping a new wor...
Chapter of Contents




 ▪   Chapter 1: Global Forces

 ▪   Chapter 2: Four Scenarios

 ▪   Chapter 3: Preparing for the f...
Depending on the role that business chooses to play in society,
there are 4 different scenarios that might play out

     ...
If business is reactive on social issues and society maintains uneven
expectations for business, a vicious circle will eme...
If business is proactive in addressing social issues and society adheres to
more consistently high expectations, sustainab...
Poll Question #2




           Which scenario do you think we are headed for now?


           A Scenario 1: Sustainable ...
CEO Response: CEOs recognize that business has a unique role
to play in addressing social problems
 Complete this sentence...
Chapter of Contents




 ▪   Chapter 1: Global Forces

 ▪   Chapter 2: Four Scenarios

 ▪   Chapter 3: Preparing for the f...
Corporations can respond at an individual level to address social issues
critical to their business


 In 2005, Wal-Mart c...
Poll Question #3



           What do you think is the appropriate role of a company
           in solving a social probl...
CEO Response: CEOs agree that engagement in social issues is critical

 What do you think is the appropriate role of a
 co...
Determining whether to tackle the issue independently or collectively



 Act alone if the                                ...
Real-world examples of sustainable value creation partnerships

  Establishing Voluntary Industry                Setting U...
The next decade will see the advancement of new collaborative models with
innovative groupings of partners, organization s...
Conclusion: Business has the power to shape the future and move us
toward sustainable value creation

                    ...
As you reflect on the notion that collaboration is necessary to address
1 Collaboration   social problems, what do you thi...
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Shaping the Future: Solving Social Problems through Business Strategy:Pathways to Sustainable Value Creation in 2020

  1. 1. Shaping the Future: Solving Social Problems through Business Strategy: Pathways to Sustainable Value Creation in 2020 Presentation document May, 2010 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
  2. 2. Shaping the Future: Solving Social Problems through Business Strategy We recently completed a research effort together with CECP with the aim of addressing the following future-oriented questions ▪ What will the next decade look like, and what are the implications for corporate involvement in solving social issues? ▪ How can corporations position themselves now to maximize their profitability and societal impact? McKinsey & Company | 1
  3. 3. Chapter of Contents ▪ Chapter 1: Global Forces ▪ Chapter 2: Four Scenarios ▪ Chapter 3: Preparing for the future McKinsey & Company | 2
  4. 4. Who would have thought that we could come so far in ten years? Cellular-telephone adoption increase from 738 million in 2000 to over 4.6 billion in 2010 Warren Buffet and Bill Gates lead the world in philanthropy Investments in renewable energy technologies overtake investments in fossil fuel technologies Greenpeace partners with multiple multi- national corporations SOURCE: United Nations Environment Programme (UNEP), Sustainable Energy Finance Initiative, International McKinsey & Company | 3 Telecommunication Union (ITU), US Chamber of Commerce, organization website
  5. 5. In addition to the trends and individual stories, there are powerful examples of companies that are reflecting this changing environment in their strategies GlaxoSmithKline incorporates social General Mills employs core issues into business strategy competencies for social development Developed innovative strategies for Partners with USAID to improve the reducing the cost of medicines that are capacity of small and medium-sized food sold in the Least Developed Countries businesses across Sub-Saharan Africa Nestle manages supply chain risks for Alcoa sets ambitious social and sustainable value environmental targets Works directly with farmers to promote Reports specific company wide targets development in farming communities for ensuring a diverse workforce and reducing environmental footprint SOURCE: Interviews, Company websites McKinsey & Company | 4
  6. 6. The world continues to change dramatically, shaped predominantly by five transformative global trends The Great Rebalancing The Productivity Imperative ▪ Emerging markets gaining ▪ Economic growth in larger share of global GDP developed economies increasingly dependent ▪ Growth of a multipolar on productivity gains global economy The Global Grid ▪ Insufficient supply of highly trained talent for ▪ Increasing interconnection rising global demand of markets, trade, and technology Pricing the Planet The Market State ▪ Significant increase in ▪ Growing need of states to resource demand as compete for economic emerging markets surge growth and innovation ▪ Growing environmental ▪ Competition to attract pressures on business business activity and society McKinsey & Company | 5
  7. 7. Poll Question #1 Thinking about your corporation over the next 10 years, which one of the following is most likely to keep you awake at night? A Center of economic activity shifting away from the West B Scarcity of natural resources and climate change C Scarcity of highly trained talent D Unpredictable policy landscape (nationally and/or internationally) E Increased connectivity between consumers and markets McKinsey & Company | 6
  8. 8. These global forces will require businesses to adapt to a different operating environment Five transformative forces The Great The Productivity ▪ Cover new territory Rebalancing Imperative ▪ Achieve more with less The Global grid ▪ Tap top talent Pricing the The Market ▪ Engage new voices Planet State ▪ Win on an uneven playing field ▪ Partner on regulation McKinsey & Company | 7
  9. 9. Business has the opportunity to help shape the implications of these trends Global forces … … are shaping a new world for business and society The Great The rise of emerging Rebalancing markets Towards a fundamentally different operating Climate change and environment, where Pricing the resource scarcity Planet (water, food, energy)  Governments struggle to find solutions The Global Spread and influence  Trust in business is Grid of information decreasing technology The  Businesses are Productivity increasingly expected Imperative Talent shortage to address social and environmental issues The Market New role for State governments McKinsey & Company | 8
  10. 10. Chapter of Contents ▪ Chapter 1: Global Forces ▪ Chapter 2: Four Scenarios ▪ Chapter 3: Preparing for the future McKinsey & Company | 9
  11. 11. Depending on the role that business chooses to play in society, there are 4 different scenarios that might play out Higher Expectations for Business Across Geographies Dangerous Sustainable Mismatch Value Creation Business is Business is Reactive on Social Proactive on Social Issues Issues Vicious Dual Capitalism Circle Stagnant Expectations for Business McKinsey & Company | 10
  12. 12. If business is reactive on social issues and society maintains uneven expectations for business, a vicious circle will emerge  Business is reluctant to engage in social and environmental issues  Governments and NGOs struggle to find solutions on their own  Trust in business bottoms out  Environmental and social issues worsen  Economy suffers from increasingly pressing social problems and unpredictable policy environment McKinsey & Company | 11
  13. 13. If business is proactive in addressing social issues and society adheres to more consistently high expectations, sustainable value is created  Business develops robust voluntary standards that address social and environmental issues  Business builds partnerships with governments, NGOs, and other businesses  Trust in business is high  Business innovations drive improvement in social and environmental issues  Economy benefits from robust business climate and innovation McKinsey & Company | 12
  14. 14. Poll Question #2 Which scenario do you think we are headed for now? A Scenario 1: Sustainable value creation B Scenario 2: Dual capitalism C Scenario 3: A dangerous mismatch D Scenario 4: The vicious circle McKinsey & Company | 13
  15. 15. CEO Response: CEOs recognize that business has a unique role to play in addressing social problems Complete this sentence: "Taking a proactive approach in solving social problems that are important to my business is …" "There are more Percent ways to make a difference than just Necessary because we are in a unique writing a check. We 60 position to make a difference can also move the Necessary because our consumers needle on important 29 social issues and employees expect it through involving Necessary because it creates oppor- our time, brand, 8 tunities to innovate our products/services and resources." Necessary to mitigate the risk – Duncan 3 of public criticism Niederauer, CEO of NYSE Euronext Unnecessary and/or impractical 0 SOURCE: CECP Board of Boards CEO conference, February 2010. McKinsey & Company | 14
  16. 16. Chapter of Contents ▪ Chapter 1: Global Forces ▪ Chapter 2: Four Scenarios ▪ Chapter 3: Preparing for the future McKinsey & Company | 15
  17. 17. Corporations can respond at an individual level to address social issues critical to their business In 2005, Wal-Mart committed the company Western Union advocates for migrant rights to the following environmental goals and has commissioned the studies on  To be supplied 100 percent by renewable remittances to examine the power of energy remittances to promote long-term economic development  To create zero waste  To sell products that sustain people and Western Union funds "Our World Our Family" the environment to provide migrants with community orientation, basic language skills, job pre- paredness tips, and personal finance support McKinsey & Company | 16
  18. 18. Poll Question #3 What do you think is the appropriate role of a company in solving a social problem that is important to its business? A Drive the Solution: Take leadership and ownership over getting results B Be Part of the Solution: Collaborate in problem solving without seeking a leadership role C Fund the Solution: Primarily contribute cash/resources D Invest Pragmatically: Address a social problem only if it connects directly to shareholder value E Do Not Engage: Business should have a negligible role in solving social problems McKinsey & Company | 17
  19. 19. CEO Response: CEOs agree that engagement in social issues is critical What do you think is the appropriate role of a company in solving a social problem that is "More will be important to its business? expected from Percent market leaders and Drive the Solution: Take leadership globally successful 50 companies, and and ownership over getting results those companies Be Part of the Solution: Collaborate who are most in problem solving without seeking a 42 involved will be most leadership role successful, creating Fund the Solution: Primarily an upward spiral." 5 contribute cash/resources Invest Pragmatically: Address – Mike Duke, a social problem only if it connects 3 President and Chief directly to shareholder value Executive Officer, Do Not Engage: Business should Wal-Mart Stores, have a negligible role in 0 Inc. solving social problems SOURCE: CECP Board of Boards CEO conference, February 2010 McKinsey & Company | 18
  20. 20. Determining whether to tackle the issue independently or collectively Act alone if the Collective response company … appropriate when … ▪ Derives a competitive ▪ A combined approach advantage from being can accomplish ends the first among their that no one single peers to get involved player can achieve ▪ Has an opportunity to Social ▪ The complexity of the Act alone Collaborate play a unique catalytic issue targeted social issue role requires broad skills and experience ▪ Must respond immediately to protect ▪ A large constituency the company from an (of which the company impending threat is a member) benefits from unified action SOURCE: McKinsey analysis McKinsey & Company | 19
  21. 21. Real-world examples of sustainable value creation partnerships Establishing Voluntary Industry Setting Up Region-Specific Standards Partnerships A public-private initiative that promotes a An employer-led alliance that drives global voluntary anticorruption standard for economic development in Minneapolis and the oil, gas, and mining sectors St. Paul Convening Diverse Groups to Solve Aligning Competencies in Public- Problems Private Partnerships Hosts a yearly gathering where world A public private partnership dedicated to leaders in the private and social sectors attracting and disbursing resources to convene to brainstorm solutions to prevent and treat AIDS, tuberculosis, and important global challenges malaria SOURCE: Organization websites; interviews McKinsey & Company | 20
  22. 22. The next decade will see the advancement of new collaborative models with innovative groupings of partners, organization structures, and activities ▪ Build a group of natural allies ▪ Create a partnership aligned Organi- around the root causes of an issue Partners zation structure ▪ Ensure partners trust one another and have the ability to work together ▪ Meet in a safe space to Activities communicate and measure progress ▪ Take early steps to show progress and build trust SOURCE: McKinsey analysis; expert interviews McKinsey & Company | 21
  23. 23. Conclusion: Business has the power to shape the future and move us toward sustainable value creation Higher Expectations for Business Across Geographies Dangerous Sustainable Mismatch Value Creation Business is Business is Reactive on Social Proactive on Social Issues Issues Vicious Dual Capitalism Circle Stagnant Expectations for Business McKinsey & Company | 22
  24. 24. As you reflect on the notion that collaboration is necessary to address 1 Collaboration social problems, what do you think collaborations have to look like if they are going to work? What collaborations do you see your company involved with in 2020? What will make them successful? When have you been able to push forward to help create standard Rules of the 2 game rules of the game for your industry, either through regulation or voluntary standards? How did you do this? As you reflect on the global trends we've discussed today and the 3 Impact other social issues on your mind, on what issue do you hope to have really made a difference by 2020? When have you been able to tackle a major social issue through your "Win-win 4 solutions" business strategy? Do you feel it has been successful? What made it work? McKinsey & Company | 23

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