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Shared Value: Creating Competitive Advantage by Mark Kramer

Published in: Business
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  1. 1. 1© FSG | Shared Value: Creating Competitive Advantage 20 NOVEMBER 2015
  2. 2. 2© FSG | “Giving Back” Business must fulfill community obligations Business can engage with society in three ways Shared ValueCorporate Philanthropy “Finding business opportunities in social problems” Meeting social needs can be a source of profit and competitive advantage “Minimizing harm to society and the company” Business should be responsible Corporate Responsibility Past efforts have emphasized the friction between business and society instead of the synergy
  3. 3. 3© FSG | • The long-term competitiveness of companies depends on social conditions − An educated and skilled workforce − Safe working conditions − Sustainable use of natural resources − A flourishing local economy • Business has an essential role to play in solving social problems − Only companies can create prosperity that funds government and civil society − Companies can create solutions to many social problems in ways that governments and NGOs cannot − Companies have the incentive to take risk − Competitions fuels innovation, efficiency, and adoption − For-profit models are scalable and sustainable Societal and corporate success are inextricably linked
  4. 4. 4© FSG | • Shared Value is NOT: ‒ Sharing the value already created ‒ Personal values ‒ Balancing stakeholder interests • Shared Value IS: ‒ Strategies that simultaneously create value for the business and for society What is Shared Value?
  5. 5. 5© FSG | Shared Value is about Innovation & Strategy
  6. 6. 6© FSG | Eyeglasses without opticians
  7. 7. 7© FSG | Eyeglasses without opticians 700 million people in need of adjustable eyeglasses
  8. 8. 8© FSG | Crop insurance for smallholder farmers
  9. 9. 9© FSG | 12 million farmers insured Rainfall-based crop insurance
  10. 10. 10© FSG | Home ownership in the informal economy
  11. 11. 11© FSG | Apartment ownership for slum tenants US $250 billion market 80,000 homes already sold
  12. 12. 12© FSG | Life insurance for the poor
  13. 13. 13© FSG | Micro-life insurance sold by cellphone minutes 135 million people currently insured in Africa Global market estimated at 3 billion people
  14. 14. 14© FSG | • Redistribution of value to meet societal needs • Impact dependent on scale of finite resources Shared value is self-sustaining and scalable CSR and Philanthropy Shared Value • Creating new opportunities for the business by meeting societal needs • Impact scalable because shared value is self sustaining
  15. 15. 15© FSG | Social innovation is essential to break trade-offs between meeting social needs and maintaining profits Shared value is essential to invest sufficiently to overcome many social problems Innovation is essential to creating shared value Social Innovation at Scale Shared Value
  16. 16. 16© FSG | Shared value is found at the nexus of business opportunity, corporate assets and social need Social Need Business Opportunities Corporate Assets and Expertise Shared Value Opportunity
  17. 17. 17© FSG | 1 2 3 • Improving skills, supplier base, and supporting institutions in the communities where a company operates • Driving productivity through better utilizing resource, employees, and business partners • Meeting societal needs through products • Addressing underserved customers Redefining Productivity in the Value Chain Enabling Local Cluster Development Reconceiving Needs, Products, and Customers Shared value operates at three levels These levels are overlapping and mutually reinforcing
  18. 18. 18© FSG | Novartis Arogya Parivar Products Portfolio: 100 pharmaceutical products in all therapeutic areas Affordable: Sandoz generics Over-the-counter (OTC) medications & nutrients Custom small packs branded in local dialect Services Community health education: ~300 health educators Prevention, child & maternal health, symptom awareness Healthcare provider education: Address low level of medical training Supply chain management: Ensure continuity of supply Results & next steps Improved access to health education and medicines for 80 million patients in 60,000 villages Partnering with ~70 000 pharmacists and clinics Expanded to Indonesia, Vietnam and Kenya Partnering to expand access to health infrastructure financing
  19. 19. 19© FSG | Shared value creates a virtuous cycle
  20. 20. 20© FSG | Shared value is a competitive strategy • Strategy is different than aspirations – “Our strategy is to be #1 or #2…” • Strategy is more than particular actions – “Our strategy is to merge…” • Strategy is not the same as mission / values – “Our strategy is to serve our customers and communities while meeting the highest standards of integrity…” Strategy is the set of choices that define a company’s distinctive approach, and the competitive advantages on which it will compete
  21. 21. 21© FSG | • Creating a unique competitive position • Assimilating and extending best practices Operational Effectiveness Operational effectiveness versus strategic positioning Doing things well Doing things differently to deliver distinctive value Strategic Positioning
  22. 22. 22© FSG | Discovery Health Insurance • Discovery’s unique value proposition is health for its subscribers by incentivizing healthy behaviors • Extended into auto and life insurance • Vitality is now the largest wellness program of its kind, with 5 million members globally • Clinical studies show that Vitality members are healthier, live longer and have lower healthcare costs • Discovery is one of the fastest growing and most profitable health insurance companies in the world • Started in South Africa, expanded into China, Australia, Europe and U.S. Discovery offers lower premiums yet earns higher margins than its competitors
  23. 23. 23© FSG | Adding a Social Dimension to Strategy • Shared value opens up new needs, new markets, and new value chain configurations • This creates new strategic positions, and new opportunities for extending existing positions • Companies should incorporate a social dimension to their value proposition • Shared value can reinforce and even anchor a company’s strategy The social dimension of strategy can be more sustainable vs. competitors than conventional cost and quality advantages
  24. 24. 24© FSG | • A unique value proposition compared to competitors • A distinctive value chain involving clear choices about how the company will operate differently to deliver its value proposition • Making clear tradeoffs, and choosing what not to do • Integrating choices across the value chain so that activities fit together and reinforce each other • Continuity of strategic direction, with continuous improvement in realizing the unique value proposition Tests of a successful strategy The essence of strategy is making choices
  25. 25. 25© FSG | Implications for NGOs and Governments • A new role: Promote and enable shared value opportunities • NGOs – Identify shared value opportunities – Inform solutions – Become implementation partners – Subsidize complementary activities – Track social impact • Governments – Create policies and subsidies that encourage shared value initiatives – Require evidence of measurable and scalable impact – Set the ground rules for competition This does not replace the need for NGOs to act as advocates or for government to impose regulations
  26. 26. 26© FSG | All profit is not equal 2 • Profit involving shared value enables society to advance and companies to grow faster • Profit at the expenses of society is self-defeating • Incorporating societal issues into strategy and operations is the next major transformation in management thinking Shared value thinking represents the next competitive frontier of capitalism
  27. 27. 27© FSG | • There is an opportunity to transform thinking and practice about the role of the corporation in society • Shared value gives rise to far broader approaches to economic value creation • Businesses acting as businesses, not as charitable givers, are arguably the most powerful force for addressing many of the pressing issues facing our society • Shared value thinking will drive the next wave of innovation, productivity enhancement, and economic growth The Purpose of Business
  28. 28. 28© FSG |