This document discusses how companies can create shared value by strengthening clusters of interconnected businesses and institutions in specific geographic areas. It provides examples of companies that have improved social conditions and increased their own revenues by addressing needs within their supply chains and local communities. Key ways for companies to create shared value at a cluster level include increasing the competitiveness of local small- and medium-sized enterprises, closing skills gaps through workforce training programs, and collaborating to solve social and environmental problems that affect the cluster's long-term competitiveness.

1. Shared Value and Clusters
Dane Smith
Shared Value Creation
11 November

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Shared Value and Clusters
Dane Smith, Managing Director

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FSG.ORG
© 2014 FSG
FSG is a nonprofit consulting firm focused on finding
better solutions to social problems
• Consulting firm founded by Professor
Michael Porter and Mark Kramer
• Specializing in strategy, evaluation and
research in the social sector
• Over 160 employees in six offices
• Thought leader on corporate
engagement with society
Michael Porter Mark Kramer
Representative Corporate Clients

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FSG.ORG
© 2013 FSG
“Creating Shared Value”
– Porter/Kramer, HBR, 2011
Shared value holds the key
to unlocking the next wave of
business innovation and
growth…
An ongoing exploration of
social needs will lead
companies to discover new
opportunities … they previously
overlooked. ”
“

5. FSG.ORG
Evolving Perspectives on Corporate Social Engagement Approaches
“We should do
something”
“We see
opportunity”
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“Problems
could harm
us”
- Let’s donate
money to
minimize brand
damage
- Let’s create
dedicated CSR
efforts
“What
problems?”
- Let’s ignore the
problems
- Let’s
strengthen our
company by
solving societal
problems
relevant to our
business

6. FSG.ORG
Traditional CSR Shared Value
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• Corporate reputation
• External stakeholders
• Reactive
• Spending, standard ESG
metrics
• CSR / Public Affairs
• Risk reduction and goodwill
• Successful projects
• Competitive advantage
• Corporate strategy
• Proactive
• Social and economic value
created
• Across the whole firm
• New business opportunities
• Large scale sustainable
change
Motivation
Main Driver
Approach
Measurement
Management
Business Benefit
Social Benefit

7. Virtuous Cycle
By creating a “virtuous cycle,”
companies can maximize
social impact and
business returns
Shared Value is NOT:
• Sharing the value already
created (philanthropy)
• Personal values
• Balancing stakeholder
interests
• Compliance with local
regulations
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8. Shared value occurs in developed markets…
“Bad” fats causing
20’000 deaths
HIV co-infection from
needle stick injuries
Cooking oils Safety devices
600’000 tons of transfats
taken out of the U.S. diet,
# 1 product line for Dow
Protected millions of
health workers,
25% of BD’s revenues
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9. …and in developing countries
No access to financial
services
Mobile banking
service
70% of women, 57% of
children anemic in India
Reinforced spices
14M users in East Africa
18% of Safaricom’s
revenues
138M servings sold, 87%
growth
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10. There are three ways to create shared value
1
Reconceiving
Needs, Products,
and Customers
2
Redefining
Productivity in the
Value Chain
3
Enabling Local
Cluster
Development
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11. FSG.ORG
11 © 2010 FSG
Arogya Parivar
Strengthening Interrelated
Companies and Institutions
 Partnering with ~50 000
pharmacists and clinics
 Training 300 health
educators
 Continuity of supply to
rural villages
 Health infrastructure
financing
Nestlé Portugal 9/29/11
40 million
new customers
Results
 Improved access for 42
million patients in 28,000
villages
 Expanding to Indonesia,
Vietnam and Kenya

12. Barriers to Cluster Competitiveness
Shared Value by Design and Shared Value by Default
Traditional Challenges
• Technical
• Market
• Government / Regulatory
Shared Value Challenges
• Poverty
• Weak educational systems
• Weak health systems
• Environmental degradation
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13. Increasing SME Competitiveness
World Class Provider Program
Increase innovation and efficiency by creating a cluster of 250
world class suppliers by 2020
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14. Closing the Skills Gap
Consejo de Competencias Mineras
• Shortage of qualified human
capital: critical challenge for
the industry competitiveness
• Cluster level response: clarity
regarding skills gaps, defining
profiles and career paths
• New career opportunities for
students, increased focus for
public expenditures
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15. Increasing shared value by design at the cluster level
• Cluster-level efforts are needed to solve many problems
– Resources required
– Market power
– Institution building
• Significant challenges exist
– Lack of trust
– Desire to take credit
– Interest in building individual brands
• Next steps
– More deliberate effort
– Share success stories
– Build new tools
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