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Judy Malan, Partner McKinsey Towards a greater impact for CSR


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Judy Malan, Partner McKinsey Towards a greater impact for CSR

  1. 1. What is the Role of Business in Public Basic Education? 17 October 2012Venue sponsored by: Research sponsored by: McKinsey & Company |
  2. 2. Shaping the Future: SolvingSocial Problems throughBusiness Strategy:Pathways to Sustainable Value Creation in 2020NBI presentationOctober 2012CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
  3. 3. Shaping the Future: Solving Social Problems through Business Strategy In 2010 we completed a research effort together with the 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 | 2
  4. 4. Chapter of Contents ▪ Global Forces ▪ Four Scenarios ▪ Preparing for the future McKinsey & Company | 3
  5. 5. 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 corporationsSOURCE: United Nations Environment Programme (UNEP), Sustainable Energy Finance Initiative, International McKinsey & Company | 4 Telecommunication Union (ITU), US Chamber of Commerce, organization website
  6. 6. There are powerful examples of companies that are reflecting thischanging 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 footprintSOURCE: Interviews, Company websites McKinsey & Company | 5
  7. 7. The world continues to change dramatically, shaped predominantly by fivetransformative 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 | 6
  8. 8. Business has the opportunity to help shape the implicationsof these trendsGlobal 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 Spread and influence Trust in business is Global grid of information decreasing technology Businesses are Productivity Talent shortage increasingly expected revolution to address social and environmental issues New role for Market state governments McKinsey & Company | 7
  9. 9. Chapter of Contents ▪ Global Forces ▪ Four Scenarios ▪ Preparing for the future McKinsey & Company | 8
  10. 10. 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 isReactive on Social Proactive on Social Issues Issues Vicious Dual Capitalism Cycle Stagnant Expectations for Business McKinsey & Company | 9
  11. 11. If business is reactive on social issues and society maintains unevenexpectations for business, a vicious cycle 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 | 10
  12. 12. If business is proactive in addressing social issues and society adheres tomore 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 | 11
  13. 13. CEOs recognize that business has a unique role to play in addressingsocial 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 0SOURCE: CECP Board of Boards CEO conference, February 2010. McKinsey & Company | 12
  14. 14. Chapter of Contents ▪ Global Forces ▪ Four Scenarios ▪ Preparing for the future McKinsey & Company | 13
  15. 15. 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 problemsSOURCE: CECP Board of Boards CEO conference, February 2010 McKinsey & Company | 14
  16. 16. Corporations can respond at an individual level to address social issuescritical 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 | 15
  17. 17. But in some cases independent action will be neither appropriate noradequate 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 actionSOURCE: McKinsey analysis McKinsey & Company | 16
  18. 18. Finding solutions for some issues requires collaboration across adiverse and complex set of stakeholders WATER SCARCITY EXAMPLE Rising global water demand is affecting a complex set of expected to exceed currently planned stakeholders across government, water supply by 40%... business and civil society NON EXHAUSTIVE Billion m3/year Business ▪ EPC companies 6,900 ▪ Utility operators Government Solving ▪ Equipment -40% the water crisis manufacturers ▪ Local and 4,200 requires strong ▪ Agricultural, food national gov. collaboration processing, ▪ Donor gov. to ensure power, industrial ▪ Planning connectivity, infrastructure commission ownership, sectors ▪ Water, transparency, agriculture, Municipal, Planned accountability energy, domestic, industry supply, 2030 and efficiency industry and agriculture Civil society ministries demand, 2030 ▪ Multilaterals ▪ NGOs ▪ Interest groups Forecast demand will exceed supply ▪ Academia in many countries unless capacity or ▪ Think-tanks efficiency are improvedSOURCE: 2030 Water Resource Group; McKinsey McKinsey & Company | 17
  19. 19. 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 initiative with over 30 partners from global voluntary anticorruption standard for public and private sector aimed at the oil, gas, and mining sectors improving education through ICT 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 malariaSOURCE: Organization websites; interviews McKinsey & Company | 18
  20. 20. The next decade will see the advancement of new collaborative models withinnovative 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 trustSOURCE: McKinsey analysis; expert interviews McKinsey & Company | 19
  21. 21. Embedding social engagement into business strategy is seen as the mostimportant action that a CEO can take to prepare for 2020 Which one of the following actions could you, as CEO, initiate today to best prepare your company to address the social problems that will affect your business in 2020? “Done right, social Embed social engagement into our strategy engagement is 77% and organizational structure incorporated into the mission of the Commit to long-term collaborative Company.” 11% partnerships with other stakeholders Promote measurement standards --Ken Powell, General to quantify the business and social 9% Mills impact of our engagement Improve feedback loops on social engagement with consumers, 3% suppliers, and others Help shape voluntary social engagement 0% standards for corporationsSOURCE: CECP Board of Boards CEO conference, February 2010. McKinsey & Company | 20
  22. 22. Conclusion: Business has the power to shape the future and move ustoward sustainable value creation Higher Expectations for Business Across Geographies Dangerous Sustainable Mismatch Value Creation Business is Business isReactive on Social Proactive on Social Issues Issues Vicious Dual Capitalism Cycle Stagnant Expectations for Business McKinsey & Company | 21
  23. 23. As you reflect on the notion that collaboration is necessary to address1 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 the2 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 weve discussed today and the3 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-win4 solutions" business strategy? Do you feel it has been successful? What made it work? McKinsey & Company | 22
  24. 24. APPENDIX McKinsey & Company | 23
  25. 25. THE GREAT REBALANCINGThe rise of emerging market players: Global businesses will bechallenged to flatten an uneven playing field With the rise of emerging market players, businesses will need to: ▪ Explore new opportunities: – Expand products and services into growing markets – Lead by example, influencing global adoption of social and environmental standards ▪ Compete on an uneven playing field: – Maintain company-wide standards and participate in “activist” supply chain management, The next decade will be the first in – Establish industry-wide social and 200 years in which emerging markets environmental standards drive more than 50% of the global – Lobby for enforcement of regulations in growth, in industries like emerging markets construction, agriculture, miningSOURCE: McKinsey analysis McKinsey & Company | 24
  26. 26. THE PRODUCTIVITY IMPERATIVETalent shortage: Companies will need to become increasinglyinvolved with educating the next generation of workers Talent shortages will require companies to: Find opportunities to develop their own workforce Become more directly involved in educating their own workforce Reconsider retirement policies Explore further outsourcing options Seek growth from labor productivity gains Protect the pipeline In the 1970s, 80 percent of overall economic growth came from a Engage in advocacy for public growing labor force, and 20 percent from gains in worker productivity. In education systems the next decade, this relationship will invert due to a shrinking labor poolSOURCE: McKinsey analysis McKinsey & Company | 25
  27. 27. PRICING THE PLANETResource scarcity: Businesses will need to integrate environmentalsustainability innovations into their business plans In a world of increasing resource scarcity and climate change, businesses will need to: Take advantage of the opportunity to Create innovative products and services to address resource constraints Develop and brand more sustainable products that meet growing consumer desire for sustainability Protect the core business Lean and green their supply chains Work in partnership to establish industry standards for natural resource use Advocate for stronger and more universal To note, global resource demand government regulation on resources (e.g., will grow by over 1/3 in the next carbon emissions, water protection, etc.) 10 years, 90% from emerging marketsSOURCE: McKinsey analysis McKinsey & Company | 26
  28. 28. THE MARKET STATEMarket State: Businesses have the opportunity to partner withgovernments to develop economies and create new business In a world where governments are increasingly involved in developing business opportunities, businesses will need to: Find opportunities to partner with government to build regional economies Take advantage of incentives to innovate Partner with other industry players to help shape regulation and develop voluntary standards In the US with stimulus money being used to advance “green technology” ; and both here and abroad, the huge deficit spending and regulatory change in processSOURCE: McKinsey analysis McKinsey & Company | 27
  29. 29. GLOBAL GRID Global Connectivity: An increasingly connected citizenry creates opportunities for innovation, but also requires increased transparency and accountability from business In an increasingly connected world, businesses will need to: Find opportunities to utilize technology to engage more closely with their consumers and employees Develop products that reach their consumers “at their doorsteps” (e.g. mobile money) Share information about business activities and compliance with social and environmental standards If Facebook were a country, it would have the third largest Improve their community and customer population in the world “radar” to stay ahead of concerns and maximize opportunitiesSOURCE: McKinsey Analysis McKinsey & Company | 28
  30. 30. For more information contact: Marianne Scott, Director: Schooling+27(0)11 544 6000; McKinsey & Company |