Insight: Ideas for Change - Michael Porter - Creating Shared Value

I'm Jerry Baker, I'm the deputy editor-in-chief of The Wall Street Journal based in New York, and it's my pleasure to be here this morning with someone you all know very well, Professor Michael Porter of Harvard Business School. , who is one of the most eminent scholars in the area of ​​Business Economics, so Michael, thank you again. Tell us first if you expect there to have been as much debate about corporate social responsibility over the last decade or more now, but tell us. You have an improvement in the idea of ​​corporate social responsibility. Can you tell us a little about the idea you've been mulling over and how you came to develop the

insight

s you do?

Well, well, let's start with a basic idea, Jerry, the basic idea that we call

creating

shared

value

is to actually apply the capitalist model to address societal issues, issues like hunger, environmental issues, like water issues, like health, and, and, and me. I want to be clear that applying the capitalist model to create

shared

value

is pure, unadulterated capitalism, it's about making money, but the idea is that there is really no artificial need to limit the way you make money to just the type of conventional needs in the world. The conventional mainstream, you know, the kinds of consumer benefits that companies have been trying to create, that we can open up our thinking about economic value creation by understanding that there are enormous opportunities for companies to have fundamental impacts on almost all important problems of society and therefore the idea.

In reality, what it is about is making capitalism work not against the interests of society in the community, but rather integral to addressing society's problems in heating. There's a lot of things we can talk about, but instead of going on and on, I'd like to I'd like to make this a dialogue, yeah, well, how's that different? Where is Kim? She said we've heard a lot about corporate social responsibility. There has been an acceptance that companies somehow have something beyond the immediate profit motive as an obligation. Yes, but but. So, how is what you are proposing different from good?

I think we're in some kind of logical progression. I believe that CSR was an effort by companies to be responsible. That word responsible is a very important word for the

ideas

that companies have. a responsibility they need to be good corporate citizens they need to contribute to the community they need to meet community standards all of those things really constitute corporate social responsibility and everything that is right all of those things are important but ultimately that motivation for the companies are separated from the core of their businesses companies should be good they should be generous they should take money from their capitalist activity and invest it in other things the idea of ​​shared value says no, no, there is a greater opportunity that is not being discussed taking money Capitalism and investing is actually how we practice capitalism.

I think the original idea of ​​CSR was to do no harm and many companies set out to see if they could reduce the harm they were producing in variety. of ways the environment harms safety, you know, accidents, things like that, the idea of ​​

creating

shared value is not necessarily possible for all companies in all situations, but it's not about reducing harm, it's about create value, a value for a social issue, but at the same time a business model that generates profits. CSR is fundamentally about redistributing, taking the tape off the prosperous and donating, and that sometimes it's the only way to solve some of these problems and sometimes it's necessary, but The idea of ​​CSV says no, no, that's probably not You will ultimately succeed because there is so much you can give.

What if you could redesign the way you do your business so that you can create a business model to bring medicine to people in rural areas? areas, for example, then you have the magic of capitalism at work. Capitalism is where all wealth is created. There is no wealth created by the government. There is no wealth created by NGOs. It is where all the wealth is created when companies make profits. Magic happens. I'm not saying that all companies, in all situations, in all markets and in all aspects of their business, can create shared value, but if they open their thinking, what we find is that companies can expand their markets, expand to its consumers, to differentiate itself completely. different ways and, frankly, operate their value chains in a fundamentally different way.

Remember we were used to it. It wasn't too long ago when people in business thought that being environmentally responsible was expensive and that's the old mentality that there's a trade. between a social agenda and a business agenda we now understand that companies can save enormous amounts of money by saving energy and using resources better and thinking a lot about packaging and it's not about philanthropy, it's not about being a nice guy. We know it's about doing business in a smart way, so this idea of ​​shared value is just a way to open up companies to think about new ways to design, develop and market their products and also operate businesses and the trigger for it. , the impetus for The important thing is to think about how a company can really impact issues that have traditionally been defined as social issues.

Capitalism has been doing this forever, yeah, this is my point, I've been doing it forever, but, but, we have. We got stuck in a lot of businesses with a very narrow view of how to compete, of who our customer was, of how to serve that customer well, of how to operate a supply chain, we got stuck because we didn't understand all the opportunities that we were kind to. to leave it, I'm just trying to understand because I guess my point is that yes, this is what capital does, this is how capitalism has developed, you look for the needs that exist and you seek to satisfy those needs at the same time by obtaining profits by doing so, that's how the way the world works, which is, will develop, but isn't it interesting that capitalism has a bad name and is seen as dangerous to society?

The business can be seen as going against the interests of aasaiya T and and I think at least the conclusion we were coming to is that we didn't understand its power to really benefit society, isn't there a risk, although this is that If companies leave? In their own way, I explicitly see social gazes looking for opportunities where there appears to be a social need and where the primary motivation is the fulfillment of that social need and who will not actually be successful in the venture they won. If you can't make money doing it, you shouldn't do it, then it becomes becomes part of the CSR group and if it falls into the CSR group there is a lot you can do there is a lot you can donate there is a lot you can donate there is a limited number of NGOs that you can support and the idea here is how how much can we put things in the bucket of capitalism?

But capitalism means making money, so the other thing you should say about creating shared value is your specific business. There is no formula that applies to all companies. It is not a single solution. -all you know is that a pharmaceutical company thinks differently than a mining company, it thinks differently than Federal Express, it thinks differently than Marriott, it is a specific business because capitalism is a specific business. A little about how to develop the concept. I think you have particularly developed three three areas. Well then where CS but where can companies practice this? Yes, can you talk about that?

The idea is that of all the work we've done and all the companies we've worked with over the years there seem to be three categories. here one has to do with a product itself and what features or needs the product actually satisfies and the customers the company seeks to serve and the idea of ​​shared value says that there are many social dimensions that can be incorporated into a product and and often there are customers whose needs have not been met and who are available, so the product opportunity exists. The second opportunity has to do with what I call the value chain, the way the company actually conducts this business that has to do with supply. chain and procurement and operations and logistics and customer service and so on, if we look at that value chain with a kind of shared value perspective, can we open up new opportunities to save energy?

Saying that packaging has more beneficial impacts for our suppliers who benefit. them and their employees and then the third segment has to do with what I call a group, which are the companies and institutions around a company, any company does not do everything within the company, it depends on many other organizations. do your job well to be productive and efficient and grow your business and the third type of opportunity and shared value is to think about that ecosystem around the company and the better that eco system is, the more effective and competitive the company can be.

That those are the three groups that we find that most companies can discover new opportunities in each of those areas. A great example that I like to use and really illustrates the distinction between CSR and CSV is the whole way agricultural products are procured, particularly from small farmers now the CSR approach for low income small farmers the CSR approach is fair trade almost everyone in this room has probably bought a fair trade product fair trade is about making sure that those poor farmers get an adequate price for their crop it has to be done by the farmers and that's good, it's fair that those farmers get an adequate price for your harvest.

We are being good by making sure they get a proper price for their column and yes, that will improve farmers' income this, but, that is not a sustainable solution, it is just redistribution, i.e. paying more for the same, just passing income from one party to another, this other procurement model is very different, he says, if you act as a capitalist if you are a smart buyer if you work more closely with your supplier if you help your supplier improve that allows huge improvements in the income of the farmers the farmer can increase his yield he can increase his quality he gets higher prices and you increase your income not through charity not by being a good corporate citizen but you actually increase your income by being a better capitalist it is beneficial for everyone we owe your profitability we are falling short assign a couple with a couple more questions first of all How does a financial institution create Shiva?

You could argue that I would be cynical for a moment and say that maybe it's a great idea to develop something called subprime lending where you go out and find people who are unable to get Norbury regular access to the financial markets and you create these wonderful products and then maybe securitize them and who knows, but I mean they're stopping me, it's a big opening, but what an example, it's a big problem for the constitution. they do well I think you know I think your example is a wonderful example that this was a product that was not good for many of the customers who bought it, so here is an industry that made money, you know, in a way that in actually it was potentially harmful to your clients final question what are the policy implications here I mean, a lot of what you're talking about seems to be on that border between the role of government in an economy and private sector economics what should I say?

Should there be tax incentives to encourage companies to do this? Should there be areas where the government should say no, no, this is our area of ​​social responsibility? Well, I think, first of all, there is a great idea here: that government and NGOs will be much more successful in what they seek to do if they can enable shared value from the private sector and that often requires skills or investments in platforms or other types of pre-competitive investments that will then allow companies to get to this point. things of shared value if we can make capitalism work we get huge benefits number one it's scalable we can do it on infinite scale number two it pays for itself it doesn't require donations it doesn't require philanthropy number three it's kind of dispassionate If you're not creating a self-funding benefit then It's not worth doing.

So I think if we want to

change

the public's attitude towards business, this will be based on what we do in business. what we achieved what we achieved and this is a way to get companies thinking about that question Michael, we have done remarkably well and since we covered a lot more ground, but the surprising and unfortunate thing is that we ran out of time, but Damn and Gentlemen join me in thanking Michael. Pause.