Creating Shared Value: An Inflection Point in the Making Summit/Shared... · •Finding a unique value proposition often involves identifying new needs,new ways of segmenting, or

This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); CompetitiveAdvantage (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, ortransmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Forfurther materials, see the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu, and FSG website, www.fsg.org.

Professor Michael E. PorterHarvard Business School

May 1st, 2018

Creating Shared Value:An Inflection Point in the Making

Copyright 2018 © Professor Michael E. Porter20180501 – Strategy and Shared Value 2

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

The Role of Business in SocietyEvolving Approaches


Investors and Social Impact

Ethical Investing

• Negative screens that exclude “bad” industries or companies

Sustainability Investing

• Rank companies on comprehensive sets of ESG criteria

• Unrelated to company financial performance

• Many ESG factors are not material to the company’s social or economic performance

Copyright 2018 © Professor Michael E. Porter20180501 – Strategy and Shared Value

“Society is demanding that companies, both publicand private, serve a social purpose. Without asense of purpose, no company, either public orprivate, can achieve its full potential.To prosper over time, every company must not onlydeliver financial performance, but also show how itmakes a positive contribution to society”

- Larry Fink, CEO BlackRockAnnual letter to CEOs, 2018

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“Several high-profile activists – including Cliff Robbins ofBlue Harbour Group and Barry Rosenstein of JanaPartners – see environmental and social factors as profitplay

Wall Street's activist investors, once known for pushingfor extreme cost-cutting or just about anything that wouldboost the bottom line, are starting to use their money topromote a different kind of corporate action: social andenvironmental change

They are doing this, they say, not only as a matter ofmoral responsibility, but for their original mission ofgenerating better returns for their clients”

- CNBC Online27th April 2018

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Getting Beyond CSR?

Better Capitalism

Environmental Performance

Bridge to Shared Value

• Circular Economy

• Green Capitalism

• Net Positive

• Inclusive Capitalism

• Conscious Capitalism

• Capitalism 2.0

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• Triple Bottom Line

• Social Entrepreneurship

• B-Corporation


Corporate Social Responsibility

(CSR)

Creating Shared Value(CSV)

CorporatePhilanthropy

• Donations to worthy social causes

• Volunteering

• Mitigating risk and harm

• Improving trust and reputation

• Compliance with ethical and community standards

• Good corporate citizenship

• Sustainability

Moving to True Shared Value

• Addressing anysocietal needs through the business itself, with a business model

• Harnessing capitalism itself


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 ValueEnvironmental Improvement

EnergyEfficiency

Water Use

Economic Development

AffordableHousing

WorkerSafety

Health

WorkforceSkills

Education

Jobs for Lower Income Citizens


Business

Government and NGOs

Shifting the Frontier Between Markets and Market Failures

Conventional Markets

Market Failures


• Strategy is the set of long term choices that an organization makes to distinguish itself from competitors

• Create a distinctive way of competing resulting in a competitive advantage versus rivals

Creating Shared Value is Strategy

• Strategy is not about doing good, or about company and personal values


• Business units need to focus both on the nature of competition in the industry as well as their own competitive position

Business Strategy

IndustryCompetition

Strategic Positioning Within the Industry

- Nature of Industry Competition - Sustainable Competitive Advantage

11


Achieving Superior Profitability Within the Industry

Differentiation(Premium Price)

Lower Cost

CompetitiveAdvantage

12


• The value chain is the set of activities involved in delivering value to customers

• Strategy is reflected in the choices about how activities are configured and linked together

Competitive Advantage and the Value Chain

13

SupportActivities

Marketing& Sales

(e.g., Sales Force,

Promotion, Advertising,

Proposal Writing, Website)

InboundLogistics

(e.g., Customer Access, Data

Collection, Incoming Material Storage, Service)

Operations

(e.g., Branch Operations, Assembly, Component Fabrication)

OutboundLogistics

(e.g., Order Processing,

Warehousing, Report

Preparation)

After-Sales Service

(e.g., Installation, Customer Support,

Complaint Resolution,

Repair)

Ma

rg

i

n

Primary Activities

Firm Infrastructure(e.g., Financing, Planning, Investor Relations)

Procurement(e.g., Components, Services, Machinery, Advertising Media, Data)

Technology Development(e.g., Product Design, Process Design, Market Research)

Human Resource Management(e.g., Recruiting, Training, Compensation System)

Value

What buyers are willing to pay


• A unique value proposition versus competitors• A unique value proposition versus competitors

What is a Successful Strategy?

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Defining the Value Proposition

What Relative Price?

What Customers? Which Needs?

• What end users?

• What channels?

• Which products?

• Which features?

• Which services?

• Finding a unique value proposition often involves identifying new needs, new ways of segmenting, or innovation in the product/service approach

• A novel value proposition often expands the market

• Premium? Parity? Discount?

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What is a Successful Strategy?

• A unique value proposition versus competitors

• A distinctive value chain, involving clear choices about how the company will operate differently to deliver on its value proposition

• Making clear tradeoffs, and choosing what not to do

• Integrating choices across the parts of the value chain so that the functions fit together and reinforce each other

• Continuity of strategic direction, with continuous improvement in realizing the unique value proposition

• The essence of strategy is making choices

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• Wide range of styles which are all displayed in huge warehouse stores with large on-site inventories

• Modular, ready-to-assemble, easy to ship furniture designs

• In-house design of all products• IKEA designer names attached to related

products to inform coordinated purchases• Self-selection by the customer, with minimal

in-store service• Extensive customer information in the form

of catalogs, mobile app, website, explanatory ticketing, do-it-yourself videos, online planning tools, and assembly instructions

• Self-delivery by most customers• Suburban and urban locations with large

parking lots• Long hours of operation• On-site, low-cost restaurants• Child care provided in the store

Value Proposition Distinctive Value Chain

• Customers with smaller living spaces, who are style and design conscious, but have a limited budget

• A wide line of stylish, functional and good quality furniture and accessories

• Limited ancillary services• Very low price points

Strategic PositioningIKEA, Sweden

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Shifting the Nature of Industry Competition

Zero Sum Competition

Positive Sum Competition

• Compete head to head on price, with similar products to the same customers

• One company’s gain requires another company’s loss

• Competition dissipates profitability and often undermines industry structure

• Compete on strategy

• More than one company can be successful

• Competition expands the customers served, allows needs to be better met, and increases overall value

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Shared Value and Strategy

• New needs, new customer segments, new value propositions, and new opportunities for strategic positioning

• New ways of purchasing, producing, delivering, and interacting with employees and communities

• Shared value strategies are often more sustainable than conventional cost, feature, and quality advantages


The Framework For Creating Shared ValueLevels of Shared Value

1

• Products and services that meet societal needs

• Providing products to unserved orunderserved customers and communities

Reconceiving Needs, Products, and Customers

• Accessing and utilizing resources, energy, suppliers, logistics, and employees differently and more productively

2Redefining 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

3Improving the Local

Business Environment


Shared Value Through ProductsDiscovery Health

• Discovery pioneered the concept of a health plan paired with a wellness incentive program, called Vitality

• Combining health coverage with Vitality membership allowed Discovery to achieve better health results and offer health coverage at lower premiums

• Discovery is one of the world’s fastest growing and mostprofitable health insurance companies

• It has spread the concept to other kinds of insurance and financial services


Shared Value in the Value Chain

• Procurement that enhances supplier capabilities and efficiency

• Resource efficiency across the value chain• Redesigning the value chain to eliminate

waste reduces cost

• Minimizing logistical intensity andemissions

• Improving employee health and safety• Recruiting that reflects the diversity of

customers and served communities• Retention and skill development through

career paths and living wages

Marketing& Sales

(e.g., Sales Force, Promotion, Advertising,

Proposal Writing, Website)

InboundLogistics

(e.g., Customer Access, Data

Collection, Incoming Material Storage, Service)

Operations

(e.g., Branch Operations, Assembly, Component Fabrication)

OutboundLogistics

(e.g., Order Processing,

Warehousing, Report Preparation)

After-Sales Service

(e.g., Installation, Customer Support,

Complaint Resolution, Repair)

Ma

rg

in

Firm Infrastructure(e.g., Financing, Planning, Investor Relations)

Procurement(e.g., Services, Machines, Advertising, Data)

Technology Development(e.g., Product Design, Process Design, Market Research)

Human Resource Management(e.g., Recruiting, Training, Compensation System)


The Shared Value JourneyWalmart

• Organic, fresh, healthy foods

• Locate smallerneighborhood stores 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 across the value chain

• Path to higher wages and benefits for low income associates

• Training and career pathways for associates

• Extensive health andwellness program for employees

Redefining Productivity in Value Chain

2

• Introduced Sustainable Value Networks to collaborate with suppliers to improve sustainability of supply chains

• Lead collaboration in the retail sector on workforce development

Improving the Local Business Environment

3


Building a better business ecosystem

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Millions of smallholders disconnected from input, financial and uptake markets

Transitioning energy production to renewables and decommissioning carbon-intensive power plants

Responsibly feed the world and protect the planet

New era. New energy

Soil and crop specific fertilizers suitable for smallholders in Africa

Complexity in connecting and engaging all stakeholders to find productive uses for dozens of de-commissioned power plants

Company Value propositions

Ecosystem barriers


Harvard MBA course since fall 2016 and Senior executive program on shared value (since 2014)

16K+ students, faculty, and executives worldwide read our shared value cases developed at HBS

200+ shared value conferences and workshops since 2011

15K+ scholarly citations for “shared value”

Growing community globally: Shared Value Initiatives and prizes in India, Japan, Korea, Australia, Hong Kong

The State of the Shared Value Movement

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• Growing SVI participation and membership• Expanding business school curriculum• Global Shared Value conferences and

workshops• Rising scholarly citations and TED views• Shared Value country initiatives• Shared Value prizes around the world


Change the World List 201750 Companies That Do Well By Doing Good

11. Levi Strauss12. SAS13. Bendigo & Adelaide Bank14. Nestlé15. Tencent16. Vodafone17. Go-Jek18. Cemex19. Centene20. Enel21. Unilever22. CH2M23. bKash24. Accenture25. Microsoft26. Vanguard27. Mobike28. Volvo Car Group29. Insurance Australia Group30. Tata Consultancy Services

1. JPMorgan Chase2. DSM3. Apple4. Novartis5. Leap Frog Investments6. Ant Financial7. Walmart8. Toyota Motor9. Johnson & Johnson10. Yara

31. Airbnb32. Ikea33. MTR34. Grohe 35. IBM36. Salesforce.com37. 23andMe38. CJ Group39. Allstate40. Woolworth Holdings41. American Express42. Amcor43. Marriott 44. Chobani45. Grupo Nutresa46. JetBlue47. Sodexo48. Dell Technologies49. Palo Alto Networks50. Land O’Lakes

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We are just beginning


The Purpose of Business• The purpose of 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, productivity, and scalability

• Shared value opens up major strategic opportunities to create competitive advantage, while driving the next wave of innovation, productivity, and economic growth in economies

• Building company strategy around shared value gives greater purpose to the corporation and to capitalism itself

Documents

Creating Shared Value: An Inflection Point in the Making Summit/Shared... · •Finding a unique value proposition often involves identifying new needs,new ways of segmenting, or