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This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic
Foundations of Competitiveness,” in The Global Competitiveness Report (World Economic Forum), “Clusters and the New Competitive Agenda for Companies and Governments” in On
Competition (Harvard Business School Press, 2008), “Creating Shared Value” (Harvard Business Review, Jan 2011), the Social Progress Index Report (Social Progress Imperative)
and ongoing related research. 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), FSG (www.fsg.org) and the Social Progress Imperative (www.socialprogressimperative.org).
Professor Michael E. Porter Harvard Business School
VII Americas Competitiveness Forum
Panama City, Panama October 4, 2013
Economic and Social Development:
The New Learning
Copyright 2013 © Professor Michael E. Porter 2 20131004—Panama Development Presentation—FINAL
The Dual Challenges of Development
Social
Development
• There is a powerful connection between economic and social
development, that goes in both directions
• Successful development requires improving the economic and social context
simultaneously
Economic
Development
Copyright 2013 © Professor Michael E. Porter 3 20131004—Panama Development Presentation—FINAL
1. Strategy for Economic Development
2. Measuring Social Development
3. Business as a Driver of Social and Economic
Development
Economic and Social Development: The New Learning
20130711—UNDP Competitiveness Presentation — v2 — July 1st, 2013 Copyright 2013 © Professor Michael E. Porter 4
Antigua & Barbuda
Argentina
Bahamas
Belize
Bolivia
Brazil
Chile
Colombia
Costa Rica
Cuba
Dominica
Dominican Republic
Ecuador
El Salvador
Grenada
Guatemala Guyana
Haiti
Honduras
Jamaica
Mexico
Nicaragua
Panama
Paraguay
Peru
St Kitts & Nevis
St Lucia
St Vincent & The Grenadines
Trinidad and Tobago
Uruguay
Venezuela
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
PPP-Adjusted GDP per Capita, 2011 ($USD)
Growth in Real GDP per Capita (PPP-adjusted), CAGR, 2001-2011
Prosperity Performance Latin America and the Caribbean
Average: 4.68%
Average: $10,583
Source: EIU (2012), author’s calculations
Suriname
(11.79%, $16,670)
20130711—UNDP Competitiveness Presentation — v2 — July 1st, 2013 Copyright 2013 © Professor Michael E. Porter 5
• Competitiveness depends on the long-run productivity of a location as a
place to do business
- Productivity of existing firms and workers
- Ability to achieve high participation of working age citizens in the
workforce
• Competitiveness is not:
- Low wages
- A weak currency
- Jobs per se
A nation (or state) is competitive to the extent that firms operating there are able
to compete successfully in the regional and global economy while supporting
high and rising wages and living standards for the average citizen
Competitiveness and Economic Development
• Successful economic development only occurs by improving competitiveness
Copyright 2013 © Professor Michael E. Porter 6 20131004—Panama Development Presentation—FINAL
• Endowments, including natural resources, geographical location, population, and country size, create
a foundation for prosperity, but true prosperity arises from productivity in the use of endowments
Endowments
What Determines Competitiveness?
Copyright 2013 © Professor Michael E. Porter 7 20131004—Panama Development Presentation—FINAL
What Determines Competitiveness?
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
Endowments
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Copyright 2013 © Professor Michael E. Porter 8 20131004—Panama Development Presentation—FINAL
What Determines Competitiveness?
• Productivity ultimately depends on improving the microeconomic capability of the economy and
the sophistication of local competition revealed at the level of firms, clusters, and regions
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but
is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country
size, create a foundation for prosperity, but true prosperity arises from productivity in the use
of endowments
Endowments
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Microeconomic Competitiveness
Quality of the
Business
Environment
Sophistication
of Company
Operations and
Strategy
State of Cluster
Development
Copyright 2013 © Professor Michael E. Porter 9 20131004—Panama Development Presentation—FINAL
Improving the Quality of the Business Environment
Context for Firm Strategy and Rivalry
Related and Supporting Industries
Factor (Input)
Conditions
Demand Conditions
• Sophisticated and demanding local
needs
– e.g., Strict quality, safety, and
environmental standards
• Many things matter for competitiveness
• Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing
• Local rules and incentives that
encourage investment and productivity
– e.g. incentives for capital investments,
IP protection, sound corporate
governance standards
• Open and vigorous local competition
− Openness to foreign competition
− Strict competition laws • Access to high quality business
inputs
– Qualified human resources
– Capital availability
– Physical infrastructure
– Scientific and technological
infrastructure
• Availability and quality of suppliers and
supporting industries
Copyright 2013 © Professor Michael E. Porter 10 20131004—Panama Development Presentation—FINAL
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
Restaurants
Attractions and Activities
e.g., theme parks, casinos, sports
Airlines, Cruise Ships
Travel Agents Tour Operators
Hotels
Property Services
Maintenance Services
Government Agencies e.g., Australian Tourism
Commission, Great Barrier Reef Authority
Educational Institutions e.g., James Cook University,
Cairns College of TAFE
Industry Groups e.g., Queensland Tourism
Industry Council
Food Suppliers
Public Relations & Market Research
Services
Local Retail, Health Care, and Other Services
Souvenirs, Duty Free
Banks, Foreign
Exchange
Local Transportation
Developing Clusters Tourism in Cairns, Australia
Copyright 2013 © Professor Michael E. Porter 11 20131004—Panama Development Presentation—FINAL
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophistication
of Company
Operations and
Strategy
Quality of the
Business
Environment
State of Cluster
Development
Endowments
Human Development
and Effective
Political Institutions
Sound Monetary
and Fiscal Policies
What Determines Competitiveness?
Copyright 2013 © Professor Michael E. Porter 12 20131004—Panama Development Presentation—FINAL
Geographic Influences on Competitiveness
Regions and Cities
Nation
• Regions are the most important economic unit for competitiveness in larger countries,
especially countries beyond subsistence development
Copyright 2013 © Professor Michael E. Porter 13 20131004—Panama Development Presentation—FINAL
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
-1.5% -0.5% 0.5% 1.5% 2.5% 3.5% 4.5%
Prosperity of Mexican States
Real Growth Rate of GDP per capita, 2003-2010
Gro
ss D
om
esti
c P
rod
uc
t p
er
Ca
pit
a , 2
01
0
(in
co
nsta
nt
2003 M
exic
an
Peso
s)
Source: INEGI. Sistema de Cuentas Nacionales de México
Mexico Real Growth
Rate of GDP per Capita:
1.36%
Mexico GDP per Capita:
$77,212
Campeche (-4.9%, $333,700)
Baja California Sur
Distrito Federal
Tabasco
Baja California
Querétaro Aguascalientes
Sonora
Zacatecas Nayarit
Veracruz Puebla
Coahuila
Chiapas
Tlaxcala
Quintana Roo
Tamaulipas
Chihuahua
Durango
Morelos
Colima
Jalisco
Sinaloa San Luis Potosí
Yucatán
Guanajuato
México
Hidalgo
Michoacán
Oaxaca
Guerrero
Nuevo Leon
Copyright 2013 © Professor Michael E. Porter 14 20131004—Panama Development Presentation—FINAL
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
-2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
Change in Puebla’s share of National Employment, 2003 to 2008
Pu
eb
la’s
nati
on
al
em
plo
ym
en
t s
hare
, 2
00
8
Employees 5,000 =
Traded Cluster Composition of the Puebla Economy
Overall change in the Puebla Share of
Mexican Traded Employment: +0.09%
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Contributions by Prof. Niels Ketelhohn.
Puebla Overall Share of Mexican
Traded Employment: 4.20%
Added Jobs
Lost Jobs
Employment
2003-2008
Education and
Knowledge Creation
Textiles
Apparel
Information
Technology
Construction
Materials
Automotive
Processed
Food
Building Fixtures,
Equipment and Services
Distribution Services
Heavy Machinery
Furniture Leather and
Related Products
Forest Products
Chemical
Products
Copyright 2013 © Professor Michael E. Porter 15 20131004—Panama Development Presentation—FINAL
• Many essential levers of competitiveness reside at the regional level
• Regions specialize in different sets of clusters
• Regions are a critical unit in competitiveness
• Each region needs its own distinctive strategy and action agenda
– Business environment improvement
– Cluster upgrading
– Improving institutional effectiveness
The Role of Regions in Economic Development
Copyright 2013 © Professor Michael E. Porter 16 20131004—Panama Development Presentation—FINAL
Geographic Influences on Competitiveness
Neighboring Countries
Regions and Cities
Nation
• Economic coordination and integration with neighboring countries is a major force of
productivity and competitiveness
Copyright 2013 © Professor Michael E. Porter 17 20131004—Panama Development Presentation—FINAL
1. Strategy for Economic Development
2. Measuring Social Development
3. Business as a Driver of Social and Economic
Development
Economic and Social Development: The New Learning
Copyright 2013 © Professor Michael E. Porter 18 20131004—Panama Development Presentation—FINAL
Social Development What is Social Progress?
Social progress is the capacity of a society to meet the basic
human needs of its citizens, establish the building blocks that
allow citizens and communities to enhance and sustain the
quality of their lives, and create the conditions for all
individuals to reach their full potential
Copyright 2013 © Professor Michael E. Porter 19 20131004—Panama Development Presentation—FINAL
• Economic progress has a positive impact on social progress, but
rising GDP per Capita does not guarantee social progress
• We must measure social progress directly in order to understand
performance and inform improvement
• The Social Progress Index is a new tool to do so
− Separate from economic indicators
− Holistic framework
− Outcomes rather than inputs
− Relevant to all countries
• By separating social and economic progress, we can better
understand overall country performance and how social and
economic performance are linked
Driving Social Development
Copyright 2013 © Professor Michael E. Porter 20 20131004—Panama Development Presentation—FINAL
Social Progress Index Model
Social Progress Index
Nutrition and Basic Medical Care
Air, Water, and Sanitation
Shelter
Personal Safety
Access to Basic Knowledge
Access to Information and
Communications
Health and Wellness
Ecosystem Sustainability
Personal Rights
Access to Higher Education
Personal Freedom and Choice
Inclusion and Equity of Opportunity
Does a country provide
for its people’s most
essential needs?
Are the building blocks in
place for individuals and
communities to enhance
and sustain wellbeing?
Is there opportunity for
all individuals to reach
their full potential?
Opportunity Foundations of Wellbeing Basic Human Needs
Copyright 2013 © Professor Michael E. Porter 21 20131004—Panama Development Presentation—FINAL
Social Progress Index: 2013 Rankings
1. Sweden
2. United Kingdom
3. Switzerland
4. Canada
5. Germany
6. United States
7. Australia
8. Japan
9. France
10. Spain
11. Korea, Rep.
12. Costa Rica
13. Poland
14. Chile
15. Argentina
16. Israel
17. Bulgaria
18. Brazil
19. United Arab Emirates
20. Turkey
21. Dominican Republic
22. Colombia
23. Thailand
24. Peru
25. Mexico
26. Philippines
27. Paraguay
28. Tunisia
29. Georgia
30. Viet Nam
31. Jordan
32. China
33. Russian Federation
34. Kazakhstan
35. Botswana
36. Sri Lanka
37. Morocco
38. Indonesia
39. South Africa
40. Egypt, Arab Rep.
41. Ghana
42. Bangladesh
43. India
44. Senegal
45. Kenya
46. Rwanda
47. Mozambique
48. Uganda
49. Nigeria
50. Ethiopia
Copyright 2013 © Professor Michael E. Porter 22 20131004—Panama Development Presentation—FINAL
Social Progress Index vs. GDP per Capita
Argentina
Australia
Bangladesh
Botswana
Brazil Bulgaria
Canada
Chile
China
Colombia
Costa Rica
Dominican Republic
Egypt
Ethiopia
France
Georgia
Germany
Ghana
India
Indonesia
Israel
Japan
Jordan
Kazakhstan
Kenya
Mexico
Morocco
Mozambique
Nigeria
Paraguay
Peru Philippines
Poland
Russia
Rwanda
Senegal
South Africa
South Korea Spain
Sri Lanka
Sweden
Switzerland
Thailand
Tunisia
Turkey
Uganda
United Arab Emirates
United Kingdom
United States
Vietnam
30
35
40
45
50
55
60
65
70
$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000
So
cia
l P
rog
res
s In
de
x
PPP-Adjusted GDP per Capita, 2011 ($USD)
Copyright 2013 © Professor Michael E. Porter 23 20131004—Panama Development Presentation—FINAL
Brazil Social Progress Scorecard Overall Rank 18
Brazil GDP per capita rank is 24th among
sample of 50 countries
Basic Human Needs 30 Foundations of Wellbeing 20 Opportunity 16
Nutrition and Basic Medical Care 27 Access to Basic Knowledge 26 Personal Rights 15
Undernourishment 29 Adult literacy rate 32 Political rights 17
Depth of food deficit 31 Primary school enrollment 25 Freedom of speech 12
Maternal mortality rate 25 Secondary school enrollment 19 Freedom of assembly/association 1
Stillbirth rate 23 Women's mean years in school 30 Private property rights 18
Child mortality rate 24 Women's property rights 1
Prevalence of tuberculosis 24
Air, Water and Sanitation 28 Access to Information and Communications 20 Personal Freedom and Choice 16
Indoor air pollution attributable deaths 31 Mobile telephone subscriptions 14 Basic religious freedoms 26
Outdoor air pollution attributable deaths 18 Internet users 20 Contraceptive prevalence rate 3
Access to piped water 16 Fixed broadband subscriptions 22 Access to childcare 17
Rural/urban access to improved water source 34 Press Freedom Index 17 Freedom over life choices 13
Access to improved sanitation facilities 29
Access to wastewater treatment 24
Shelter 23 Health and Wellness 31 Inclusion and Equity of Opportunity 2
Availability of affordable housing 28 Life Expectancy 27 Equity of opportunity for ethnic minorities 1
Access to electricity 22 Obesity 27 Women treated with respect 43
Cancer death rate 27 Community safety net 9
Deaths from cardiovascular disease & diabetes 22 Tolerance of immigrants 13
Deaths from HIV - Tolerance for homosexuals 6
Availability of quality healthcare 45
Ecosystem Sustainability 21 Access to Higher Education 33
Ecological footprint of consumption 29 Tertiary school enrollment 33
CO2 emissions per capita 20 Female tertiary enrollment 31
Energy efficiency (use per $1,000 GDP) 29
Water withdrawals per capita 20
*
*Safety net, tolerance and respect for minorities, women, and disadvantaged
Personal Safety 46
Homicide rate 47
Level of violent crime 39
Perceived criminality 36
Political terror 38
Copyright 2013 © Professor Michael E. Porter 24 20131004—Panama Development Presentation—FINAL
Social Progress vs. Government Expenditure (% of GDP) S
oc
ial P
rog
res
s In
de
x
Government Expenditure Source: 2013 Index of Economic Freedom
Government Expenditure (% GDP)
Sweden
United Kingdom
Switzerland Canada
Germany United States
Australia Japan France
Spain
Korea, Rep.
Costa Rica
Poland Chile Argentina
Israel Bulgaria
Brazil
United Arab Emirates
Turkey Colombia
Dominican Republic Thailand Peru
Mexico Philippines Paraguay Tunisia Georgia
Viet Nam Jordan China Russian Federation Kazakhstan Botswana
Sri Lanka Morocco Indonesia
South Africa
Egypt, Arab Rep. Ghana
Bangladesh India Senegal
Kenya
Rwanda Mozambique Uganda
Nigeria Ethiopia
20
25
30
35
40
45
50
55
60
65
70
10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%
Copyright 2013 © Professor Michael E. Porter 25 20131004—Panama Development Presentation—FINAL
The Social Progress Index: Key Findings
• Economic development is necessary but not sufficient as a
measure of national performance
• Just as economic development helps social progress, social
progress can enable sustainable economic development
• Some approaches to economic development are less effective
than others in advancing social progress, and even
counterproductive, and vice versa
• The amount of government spending (as a percent GDP) is an
incomplete explanation for social progress performance
Copyright 2013 © Professor Michael E. Porter 26 20131004—Panama Development Presentation—FINAL
The Social Progress Imperative: Driving to Action
The Social Progress Imperative is not just an Index, but a global
effort designed to catalyze action at the country level. It aims
to form and support National Committees of leaders and
stakeholders in each country, and work jointly with them to
mobilize policy changes and private sector initiatives to
advance social progress.
Copyright 2013 © Professor Michael E. Porter 27 20131004—Panama Development Presentation—FINAL
1. Strategy for Economic Development
2. Measuring Social Development
3. Business as a Driver of Social and Economic
Development
Economic and Social Development: The New Learning
Copyright 2013 © Professor Michael E. Porter 28 20131004—Panama Development Presentation—FINAL
• Only business can create wealth and prosperity
• Business is facing growing scrutiny as the cause or contributor to
many of today’s societal challenges, not the solution
• Corporate social responsibility efforts are greater than ever, but the
legitimacy of business has fallen
• Government and NGO’s alone lack sufficient resources and
capabilities to fully meet social challenges
We need a new approach
The Role of Business in Society
Copyright 2013 © Professor Michael E. Porter 29 20131004—Panama Development Presentation—FINAL
Philanthropy
The Role of Business in Society Evolving Approaches
• Donations to worthy
social causes
• Volunteering
Copyright 2013 © Professor Michael E. Porter 30 20131004—Panama Development Presentation—FINAL
Corporate Social
Responsibility
(CSR) Philanthropy
• Donations to worthy
social causes
• Volunteering
The Role of Business in Society Evolving Approaches
• Compliance with
community standards
• Good corporate
citizenship
• “Sustainability”
• Mitigate risk and
harm
Copyright 2013 © Professor Michael E. Porter 31 20131004—Panama Development Presentation—FINAL
Corporate Social
Responsibility
(CSR)
Creating Shared
Value
(CSV)
Philanthropy
• Donations to worthy
social causes
• Volunteering
• Compliance with
community standards
• Good corporate
citizenship
• “Sustainability”
• Mitigate risk and
harm
• Address societal needs
and challenges with a
business model
The Role of Business in Society Evolving Approaches
Copyright 2013 © Professor Michael E. Porter 32 20131004—Panama Development Presentation—FINAL
CSR CSV
Fair Trade
• Paying a higher price to farmers
for the same products
• Certification as a fair trade
company
Transforming Procurement
• Collaborate with farmers to
improve quality and yield
• Supporting investments in
technology and inputs
• Higher prices for better quality
• Higher yield increases
quantity produced
CSR versus Shared Value Fair Trade
Copyright 2013 © Professor Michael E. Porter 33 20131004—Panama Development Presentation—FINAL
• Social deficits and environmental impact create economic costs for companies
• Community weaknesses affect company productivity
• Social needs represent the largest market opportunities
Company
Productivity
Workforce
Skills
Worker Safety
Environmental
Improvement
Education
Water Use
Energy
Efficiency
Health
Affordable
Housing
Community
Economic
Development
Social Needs and Economic Value Creation
Copyright 2013 © Professor Michael E. Porter 34 20131004—Panama Development Presentation—FINAL
Levels of Shared Value
I. Meeting social needs through products and underserved
customers
II. Redefining productivity in the value chain
III. Improving the local and regional business environment
Copyright 2013 © Professor Michael E. Porter 35 20131004—Panama Development Presentation—FINAL
Creating Shared Value in Products and Markets Jain Irrigation Systems
• Drip irrigation equipment for small farmers in Africa and India
• Serves more than 4 million farmers worldwide as of 2012
• Reduces water use by over 40%
• Enables higher crop yields that improve food security while raising
farmers’ income
• Jain is now a $820 million company that is rapidly growing
Copyright 2013 © Professor Michael E. Porter 36 20131004—Panama Development Presentation—FINAL
Creating Shared Value in Products and Markets Becton Dickinson Health Worker Safety
• There is pressing need to protect health workers from needle stick
injuries that spread HIV and other infections
• BD redesigned syringes to prevent accidental sticks
• Substantial reduction in health worker injuries
• $2 billion in revenues in 2012, representing 25% of the company’s
revenues
• Largest source of company growth over the past two decades
Copyright 2013 © Professor Michael E. Porter 37 20131004—Panama Development Presentation—FINAL
Shared Value in the Value Chain Fibria, Brazil
• Fibria, the world’s leading manufacturer of chemical pulp, utilizes planted
eucalyptus trees rather than native and old growth forests, and cultivation
methods that incorporate partial native habitat
• The company also encourages small-scale producers near its mills to plant
eucalyptus in conjunction with other crops, assisting them with technical
training and inputs
• Fibria achieves far greater land and water efficiency versus old growth forest
production and traditional methods
• Small scale producers currently contribute 27% of the raw materials utilized in
Fibria mills, improving efficiency
• 4000 households have significantly increased their income
Copyright 2013 © Professor Michael E. Porter 38 20131004—Panama Development Presentation—FINAL
Shared Value in the Value Chain Consorcio Panamá Frío, Panamá
• Consorcio Panamá Frío, the largest food supplier in Panamá, is committed to
strengthening the cold value chain while improving the productivity of its
suppliers
• The company provides technical assistance to farmers to enable them to meet
minimum quality standards and efficient flow of products to Consorcio’s
collection centers
• The company has reduced waste of perishable food products and improved
quality
• Farmers have achieved an average of 21% improvement in good
agriculture practices, 26% improvement in proper use of agricultural
supplies and 68% improvement in cash management
Copyright 2013 © Professor Michael E. Porter 39 20131004—Panama Development Presentation—FINAL
Improving the Business Environment: Upgrading Channels Arca Continental
• Arca Continental is the second largest bottling company in Latin America,
and one of the largest Coca-Cola bottlers in the world
• Arca Continental established a program to train and invest in the micro-
entrepreneur retailers who sell more than 60% of the Company’s products,
including management, sales and marketing and merchandising
• Invests in low energy use coolers and fixture improvements
• Participating retailers register sales increases of 25% or more, with improved
customer satisfaction, leading to similar increases in the sales of Arca’s
products
• Arca Continental recovers its investment in 6 months or less
• Beginning in Mexico, the program is being extended to Argentina and
Ecuador
Copyright 2013 © Professor Michael E. Porter 40 20131004—Panama Development Presentation—FINAL
Integrating Across Levels Novartis in Rural India
Enabling Local Cluster
Development
Reconceiving Products
and Markets
Redefining Productivity
in Value Chain
• A community health
education program to
address lack of health-
seeking behavior
• Frequent health camps
for physicians in rural
areas
• Microfinance partners to
improve healthcare
infrastructure and access
to working capital
• Local sales teams that
know the culture and
speak the dialect,
understand needs and
reduce mistrust
• A dense network of local
distributors to reduce
stock-outs
• Portfolio of the
appropriate and
affordable medicines
from the company’s
patented, generics, and
over-the-counter (OTC)
businesses
• Packaging of OTC
medicines to address
consumers’ limited
ability to spend out-of-
pocket on healthcare
Copyright 2013 © Professor Michael E. Porter 41 20131004—Panama Development Presentation—FINAL
New Stakeholder Roles and Relationships
• The focus on social impact unites the goals of companies, NGOs, and government
• Shared value fosters new relationships between companies, philanthropists, NGOs, and
government in addressing social issues
Traditional Roles New Roles
• Donate to charitable causes • Partner with companies and NGOs to
catalyze shared value initiatives
Philanthropists
• Receive grants to deliver
social services
• Partner in implementing new shared value
business models
NGOs
• Tax and regulate business;
operate social programs
Governments • Make platform investments and support
shared value strategies; regulate to
encourage shared value solutions
Copyright 2013 © Professor Michael E. Porter 42 20131004—Panama Development Presentation—FINAL
Creating Shared Value: Deciding Where to Concentrate
Nestlé
Water Rural
Development
Nutrition
• Opportunities to create shared value are inevitably
tied closely to a company’s particular businesses
Copyright 2013 © Professor Michael E. Porter 43 20131004—Panama Development Presentation—FINAL
Putting Shared Value Into Practice Dow Chemical
• Dow has a legacy of innovation to solve problems (“solutionism”)
• It recognized that global social issues represent huge market opportunities
• The “Breakthroughs to World Challenges” program was created
– Each business unit is challenged to apply “solutionism” to a range of global
problems inspired by the MDGs
Example
• Dow developed Omega-9 canola and sunflower seeds that produce cooking
oil with no trans fats and low saturated fats
• The technology yields twice the oil per hectare for farmers than soybeans
• The oils have longer shelf life and usage life for food processors
• One of Dow’s biggest selling product lines with total revenues of approximately
$700 million
Copyright 2013 © Professor Michael E. Porter 44 20131004—Panama Development Presentation—FINAL
• Natural, fresh, organic, and freshly prepared foods and
health items with excellent service at premium prices
• Cater to specialized nutritional requirements (gluten
allergies, vegan, etc.)
• Serve educated customers who are passionate about
food and a healthy lifestyle
• Well-lit, inviting supermarket store formats with
appealing displays and extensive prepared foods
sections
• Produce section as “theater”
• Café-style seating areas with wireless internet for
meals and meetings
• Each store carries local produce and has the authority
to contract with the local farmers. Company provides
low-interest loans if needed
• Nutrition information and education provided to
shoppers along with products
• High touch in-store customer service via
knowledgeable, flexible, and highly motivated
personnel
• Flat compensation structure
• Own seafood procurement and processing facilities to
control quality, sustainability and price from the boat to
the counter
• Heavy emphasis on environmental sustainability in all
activities
• Emphasis on supporting community development
Value Proposition Distinctive Activities
• Whole Foods is the most economically successful food retailer in North America
• Successful strategies in the future will embody a significant shared value dimension
Shared Value and Company Strategy Whole Foods Markets
Copyright 2013 © Professor Michael E. Porter 45 20131004—Panama Development Presentation—FINAL
Purpose Based Strategic Positioning
Traditional Positioning New Positioning
• Food and Beverage
Company
• Nutrition Company Nestlé
• Footwear and
Apparel Company
• Health and Fitness Company Nike
• Scientific and Laboratory
Instruments Company
• Making the World Healthier,
Cleaner, and Safer
Thermo
Fisher
• A clear social purpose opens up new opportunities for growth and profitability, while
motivating and attracting consumers, business partners, employees, shareholders, and
the public
Copyright 2013 © Professor Michael E. Porter 46 20131004—Panama Development Presentation—FINAL
The Purpose of Business
• Our purpose in business is to create shared value for society, not economic
value for its own sake
• 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 will give rise to far broader opportunities for economic value
creation
• Shared value thinking will drive the next wave of innovation, productivity, and
economic growth
• A transformation of business practice around shared value will give purpose to
the corporation and represents our best chance to legitimize business again
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