Presentation by Michael E Porter at Porter Prize 2017

1. This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); On Competition (Harvard Business Review, 2008);
and “Creating Shared Value” (Harvard Business Review, Jan 2011). 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.
The New Competitive Advantage:
Creating Shared Value
Professor Michael E. Porter
Harvard Business School
Mumbai,
May 24th, 2017

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• Societies everywhere are facing significant social,
environmental and economic development challenges
• Government and NGOs lack sufficient resources and
capabilities themselves to fully meet these challenges
• Business is the only institution that can actually create
wealth and prosperity
• Company engagement in society continues to grow, but the
legitimacy of business has fallen
The Role of Business in Society
We need a new approach

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The Role of Business in Society
Evolving Approaches
Philanthropy
• Donations to worthy
social causes
• Volunteering

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Corporate Social
Responsibility
(CSR)
Philanthropy
• Donations to worthy
social causes
• Volunteering
• Mitigating risk and
harm
• Improving trust and
reputation
• Compliance with
ethical and
community standards
• Good corporate
citizenship
• “Sustainability”
initiatives
The Role of Business in Society
Evolving Approaches

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Corporate Social
Responsibility
(CSR)
Creating Shared
Value
(CSV)
Philanthropy
• Donations to worthy
social causes
• Volunteering
• Addressing societal
needs and
challenges through
the business itself,
with a business
model
– Making a profit
• Mitigating risk and
harm
• Improving trust and
reputation
• Compliance with
ethical and
community standards
• Good corporate
citizenship
• “Sustainability”
initiatives
The Role of Business in Society
Evolving Approaches

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Fair Trade
• Paying a “fair” (higher) price to
farmers or small producers for
the same products
• Certification as a fair trade
company
CSR CSV
Transforming Procurement
• Collaborate with farmers to
improve quality and yield
• Supporting investments in better
methods and inputs
• Higher prices for better quality
• Higher yield increases quantity
produced
• Environmental impact also
improved
• Expanding the role of markets
CSR Versus Shared Value
Fair Trade

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Company
Productivity
and
Success
• Social needs represent the largest unserved market opportunities
• Societal deficits and environmental impacts create economic costs
for companies
• Community weaknesses affect company productivity
The Opportunity for Shared Value
Environmental
Improvement
Energy
Efficiency
Water Use
Economic
Development
Affordable
Housing
Worker
Safety
Health
Workforce
Skills
Education
Jobs for Lower
Income Citizens

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Business
Government
and NGOs
Shifting the Frontier
Between Markets and Market Failures
Conventional
Markets
Market
Failures

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Levels of Shared Value
1
Reconceiving Needs,
Products, and Customers
2
Redefining Productivity in
the Value Chain
3
Improving the Local
Business Environment

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Levels of Shared Value
1
• Products and services
that meet societal
needs
• Providing products
to unserved or
underserved
customers and
communities
Reconceiving Needs,
Products, and Customers

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Shared Value in Products and Markets
Jain Irrigation Systems
• Micro-irrigation equipment for small farmers in India
– Customized to the crop type, soil, and weather patterns
• Farmer agronomic and technical support
• Intensive training for farmers on more productive growing techniques
• Serves more than 4 million farmers worldwide as of 2012
• The company is the 2nd largest worldwide and has 55% market
share in India
• Annual revenue of $960 million; CAGR of 39%
• Crop yield increased by 230%
– Water usage decreased by 70%, compared to flood irrigation techniques

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Unlocking Shared Value in Products
and Customers
• Rethink the business around unsolved customer/societal
problems or needs, not traditional product
definition/segmentation
• Identify customer groups that have been poorly served or
overlooked by the industry
• Think in terms of improving lives, not just meeting
conventional needs
• Start with no preconceived constraints about product
attributes, channel configuration, or the economic model of
the business
- e.g., small loans are unprofitable

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Levels of Shared Value
1
• Products and services
that meet societal
needs
• Providing products
to unserved or
underserved
customers and
communities
Reconceiving Needs,
Products, and Customers
• Accessing and utilizing
resources, energy,
suppliers, logistics,
and employees
differently and more
productively
2
Redefining Productivity in
the Value Chain

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Shared Value in the Value Chain
• Procurement that enhances supplier
capabilities and efficiency
• Resource efficiency across the value chain
that improves the environment
• Redesigning or recycling to minimize or
eliminate waste
• Minimizing logistical intensity
• Improving employee health and safety
• Better wages, benefits, training and
career paths for lower income
employees raises productivity and
retention
• Recruiting that reflects the diversity of
customers and the served
communities, enhances effectiveness
• Others…

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Shared Value in the Value Chain
Fibria, Brazil
• World’s leading manufacturer of chemical pulp integrates planted
eucalyptus trees with native habitat to dramatically reduce the land
required for wood fiber cultivation and improve sustainability
• Encourages small-scale producers near its mills to plant eucalyptus
in conjunction with other crops, providing technical training and
inputs
• Far greater land and water efficiency compared to traditional
plantation methods. 35% of planted areas preserved as native
forest
• Small scale producers currently contribute 27% of raw material
volume used in Fibria mills
• Over 4,000 households have significantly increased employment
and incomes

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Integrating Plantation and Rainforest

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Shared Value in the Value Chain
Arvind Eye Care
• Cross subsidy model of healthcare delivery
– Customers choose between a paying hospital and free hospital; facilities and
service vary accordingly
– Doctors are rotated between paying and free hospital to maintain standard
quality of healthcare delivery
• Arvind introduced multiple innovations in the delivery of cataract
surgeries in India
– In house manufacturing of intraocular lenses
– Training for hospital administrators, and employees
• Establish Africa’s largest eye hospital (Nigeria) in 2015
• 32 million patients treated and 4 million cataract surgeries
– The hospital performs 5 times the average number of surgeries that are performed in
India; 16 times more than the U.S.
– Infection rate is 33% lower than international standards
• Single handedly responsible for decreasing cataract-related blindness in India

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Levels of Shared Value
1
• Products and services
that meet societal
needs
• Providing products
to unserved or
underserved
customers and
communities
Reconceiving Needs,
Products, and Customers
• Accessing and utilizing
resources, energy,
suppliers, logistics,
and employees
differently and more
productively
2
Redefining Productivity in
the Value Chain
• E.g., improving skills,
local suppliers, and
supporting
institutions in the
areas where the
company operates
• Enhancing cluster
sophistication in the
sector
3
Improving the Local
Business Environment

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Improving the Business Environment:
Japanese Tea Cluster
ITO EN
• ITO EN is the world's leading producer and marketer
of loose leaf and bottled green tea
• Partners with Japanese farmers and other stakeholders to
utilize abandoned agricultural land
• Provides assistance in modern farm management practices
to growers to meet ITO EN standards, and purchases farmers’ entire
crop to encourage investment and lower selling costs
• Motivates and trains young people for careers in tea growing
when older farmers retire
• Farmer incomes have risen due to increased quality and efficiency
• Land abandoned by retiring farmers has been restored to production
• Supply has expanded, quality is higher, and costs are lower

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Shared Value in the Local Business Environment
JSW Steel
• Established an integrated steel plant on 3,000 acres of
undeveloped land in Karnataka
– Developed in technology to produce high quality steel from low-grade
iron ore
– Built local infrastructure, such as roads and bridges
– Provided extensive training for local residents
– Introduced health benefit program for employee and their families,
including child immunizations and cataract surgeries
• Has become the largest steel plant in India, by capacity, and highly
profitable
• 45% higher productivity compared to industry average
• Reduced project delivery time by 50%
• 65% of the workforce from the local region

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Shared Value and Strategy
• Shared value opens up new needs and customer
segments, and new ways of producing and
delivering
• Shared value creates new value propositions, new
opportunities for strategic positioning, and new
competitive advantages
• Shared value strategies are often more sustainable
than conventional cost, feature, and quality advantages

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Creating Shared Value: Where is the Opportunity?
Water
Rural
Development
Nutrition
• Opportunities to create shared value are inevitably tied
closely to a company’s particular set of businesses

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Shared Value Journey
Walmart
• Organic, fresh, healthy
foods
• Locate neighborhood
markets in food deserts
• Low cost financial
services for
underbanked families
• Low cost in-store
health clinics for low
income and uninsured
families
• Low cost generic
drugs
Reconceiving Needs,
Products, and Customers
1
• Local sourcing
• Comprehensive
programs to reduce
energy usage, water
usage, packaging,
and waste
• Increase wages and
benefits for low
income associates
• Training and career
pathways for
associates
Redefining Productivity
in Value Chain
2
• Lead collaboration in the
retail sector on
workforce
development
• Introduced Sustainable
Value Networks to
collaborate with
suppliers to improve the
resilience of supply
chains
Improving the Local
Business Environment
3

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Integrating Across the Levels
Novartis in Rural India
• Portfolio of the
appropriate and
affordable
medicines drawn
from the company’s
patented, generics,
and over-the-counter
(OTC) businesses
• Packaging medicines
to reflect consumers’
limited spending
power
Reconceiving Needs,
Products, and Customers
1
• Localized sales
teams that know the
culture, speak the
dialect, and
understand needs to
build trust
• A dense network of
local distributors to
reduce stock-outs
Redefining Productivity
in Value Chain
2
• Community health
education programs to
address lack of health-
enhancing behavior
• Frequent health
camps bring
physicians to rural
areas
• Microfinance partners
improve healthcare
delivery infrastructure
and offer access to
working capital
Enabling Local Cluster
Development
3

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Change the World List 2016
50 Companies That Do Well By Doing Good
9. Coca-Cola
10.Intel
11.Munich Re
12.Fibria Celulose
13.Walmart
14.Bank of America
15.Crystal Group
16.Ito En
17.PayPal Holdings
18.Skandia
19.Siemens
20.National Australia Bank
21.Olam International
22.Schneider Electric
23.McDonald’s
24.Salesforce.com
27.Unilever
28.CVS Health
29.Accenture
30.Didi Chuxing
1. GlaxoSmithKline
2. IDE Technologies
3. General Electric
4. Gilead Sciences
5. Nestlé
6. Nike
7. MasterCard
8. United Technologies
9. Novozymes
10.First Solar
31.Johnson & Johnson
32.Banco de Crédito
33.Compass Group
34.mPedigree
35.LinkedIn
36.Smart Communications
37.Becton Dickinson
38.PepsiCo
39.Panasonic
40.Gap
41.Tribanco
42.DSM
43.Heineken
44.BTPN
45.Starbucks
46.Cipla
47.IBM
48.Godrej Group
49.Grupo Bimbo
50.Tesla Motors

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The Purpose of Business
• The purpose in business is to create economic value in a way that
also creates shared value for society
• Businesses acting as businesses, not as charitable givers, are
arguably the most powerful force for addressing many of society’s
pressing issues
– Innovation and scalability
• Shared value opens up major strategic opportunities to create
competitive advantage, while driving the next wave of innovation,
productivity, and economic growth
• Realigning company strategy around shared value gives greater
purpose to the corporation and to capitalism itself