Economic and Social Development: The New Learning
Professor Michael E. Porter Harvard Business School VII Americas Competitiveness Forum Panama City, Panama October 4, 2013 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).
The Dual Challenges of Development
Social Development
Economic 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 20131004—Panama Development Presentation—FINAL
2
Copyright 2013 © Professor Michael E. Porter
Economic and Social Development: The New Learning 1. Strategy for Economic Development 2. Measuring Social Development
3. Business as a Driver of Social and Economic Development
20131004—Panama Development Presentation—FINAL
3
Copyright 2013 © Professor Michael E. Porter
Prosperity Performance Latin America and the Caribbean
PPP-Adjusted GDP per Capita, 2011 ($USD) $20,000
Average: 4.68% Bahamas Mexico
$18,000
Chile
Panama Argentina Suriname (11.79%, $16,670)
St Kitts & Nevis
$16,000
Uruguay Antigua & Barbuda
$14,000
Venezuela
$12,000
Trinidad and Tobago
Costa Rica
$10,000
Grenada
$8,000
Guatemala
Brazil
St Vincent & The Grenadines
Dominican Republic Colombia Dominica Ecuador
Belize St Lucia
Cuba Peru
Average: $10,583
Guyana
$6,000
El Salvador Jamaica
Paraguay Bolivia
$4,000 Nicaragua
$2,000 $0 0.0%
Honduras
Haiti
1.0%
2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Growth in Real GDP per Capita (PPP-adjusted), CAGR, 2001-2011
9.0%
10.0%
Source: EIU (2012), author’s calculations 20130711—UNDP Competitiveness Presentation — v2 — July 1st, 2013
4
Copyright 2013 © Professor Michael E. Porter
Competitiveness and Economic Development • Successful economic development only occurs by improving competitiveness
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 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
20130711—UNDP Competitiveness Presentation — v2 — July 1st, 2013
5
Copyright 2013 © Professor Michael E. Porter
What Determines Competitiveness?
Endowments
•
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
20131004—Panama Development Presentation—FINAL
6
Copyright 2013 © Professor Michael E. Porter
What Determines Competitiveness?
Macroeconomic Competitiveness Sound Monetary and Fiscal Policies
Endowments • 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 20131004—Panama Development Presentation—FINAL
7
Copyright 2013 © Professor Michael E. Porter
What Determines Competitiveness? Microeconomic Competitiveness Quality of the Business Environment
State of Cluster Development
Sophistication of Company Operations and Strategy
Macroeconomic Competitiveness Sound Monetary and Fiscal Policies
Endowments • 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 20131004—Panama Development Presentation—FINAL
8
Copyright 2013 © Professor Michael E. Porter
Improving the Quality of the Business Environment Context for Firm Strategy and Rivalry
• Local rules and incentives that encourage investment and productivity Factor (Input) Conditions
• Access to high quality business inputs – – – –
Qualified human resources Capital availability Physical infrastructure Scientific and technological infrastructure
– e.g. incentives for capital investments, IP protection, sound corporate governance standards
Demand Conditions
• Open and vigorous local competition − Openness to foreign competition − Strict competition laws
• Sophisticated and demanding local needs
Related and Supporting Industries
– e.g., Strict quality, safety, and environmental standards
• Availability and quality of suppliers and supporting industries
• 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 20131004—Panama Development Presentation—FINAL
9
Copyright 2013 © Professor Michael E. Porter
Developing Clusters Tourism in Cairns, Australia Public Relations & Market Research Services
Travel Agents
Tour Operators
Food Suppliers
Attractions and Activities
Hotels
Government Agencies e.g., Australian Tourism Commission, Great Barrier Reef Authority
Local Transportation
e.g., theme parks, casinos, sports
Souvenirs, Duty Free
Property Services
Maintenance Services
Local Retail, Health Care, and Other Services
Airlines, Cruise Ships
Restaurants
Banks, Foreign Exchange
Educational Institutions
Industry Groups
e.g., James Cook University, Cairns College of TAFE
e.g., Queensland Tourism Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden 20131004—Panama Development Presentation—FINAL
10
Copyright 2013 © Professor Michael E. Porter
What Determines Competitiveness?
Microeconomic Competitiveness Quality of the Business Environment
State of Cluster Development
Sophistication of Company Operations and Strategy
Macroeconomic Competitiveness Human Development and Effective Political Institutions
Sound Monetary and Fiscal Policies
Endowments
20131004—Panama Development Presentation—FINAL
11
Copyright 2013 © Professor Michael E. Porter
Geographic Influences on Competitiveness
Nation
Regions and Cities
• Regions are the most important economic unit for competitiveness in larger countries, especially countries beyond subsistence development 20131004—Panama Development Presentation—FINAL
12
Copyright 2013 © Professor Michael E. Porter
Prosperity of Mexican States $180,000
Campeche
Mexico Real Growth Rate of GDP per Capita: 1.36%
(-4.9%, $333,700)
$160,000
Distrito Federal
Nuevo Leon
Gross Domestic Product per Capita , 2010 (in constant 2003 Mexican Pesos)
$140,000
$120,000 Tabasco Coahuila
$100,000
Baja California Sur Querétaro Aguascalientes Sonora
Quintana Roo Tamaulipas Colima
Chihuahua
$80,000
Jalisco
Baja California Durango
Guanajuato Yucatán
Morelos
$60,000
Mexico GDP per Capita: $77,212
Sinaloa San Luis Potosí
México
Puebla
Michoacán
Nayarit Veracruz
Zacatecas
Hidalgo Tlaxcala Chiapas
$40,000
Guerrero Oaxaca
$20,000
$0 -1.5%
-0.5%
0.5%
1.5%
2.5%
3.5%
4.5%
Real Growth Rate of GDP per capita, 2003-2010 Source: INEGI. Sistema de Cuentas Nacionales de México 20131004—Panama Development Presentation—FINAL
13
Copyright 2013 © Professor Michael E. Porter
Traded Cluster Composition of the Puebla Economy 16.0%
Overall change in the Puebla Share of Mexican Traded Employment: +0.09%
14.0%
Construction Materials
Textiles
Puebla’s national employment share, 2008
Apparel
12.0% Automotive
10.0%
Employment 2003-2008 Added Jobs
8.0%
Building Fixtures, Equipment and Services
Lost Jobs
Processed Food
Furniture
6.0% Education and Knowledge Creation
4.0%
Leather and Related Products
Forest Products
Puebla Overall Share of Mexican Traded Employment: 4.20%
Distribution Services Heavy Machinery
2.0%
0.0% -2.0%
Information Technology
Chemical Products
-1.0%
0.0%
1.0%
Change in Puebla’s share of National Employment, 2003 to 2008
2.0%
3.0% Employees 5,000 =
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. 20131004—Panama Development Presentation—FINAL
14
Copyright 2013 © Professor Michael E. Porter
The Role of Regions in Economic Development • 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
20131004—Panama Development Presentation—FINAL
15
Copyright 2013 © Professor Michael E. Porter
Geographic Influences on Competitiveness
Neighboring Countries
Nation
Regions and Cities
• Economic coordination and integration with neighboring countries is a major force of productivity and competitiveness 20131004—Panama Development Presentation—FINAL
16
Copyright 2013 © Professor Michael E. Porter
Economic and Social Development: The New Learning 1. Strategy for Economic Development 2. Measuring Social Development
3. Business as a Driver of Social and Economic Development
20131004—Panama Development Presentation—FINAL
17
Copyright 2013 © Professor Michael E. Porter
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
20131004—Panama Development Presentation—FINAL
18
Copyright 2013 © Professor Michael E. Porter
Driving Social Development • 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
20131004—Panama Development Presentation—FINAL
19
Copyright 2013 © Professor Michael E. Porter
Social Progress Index Model
Social Progress Index
Basic Human Needs
Foundations of Wellbeing
Opportunity
Nutrition and Basic Medical Care
Access to Basic Knowledge
Personal Rights
Air, Water, and Sanitation
Access to Information and Communications
Personal Freedom and Choice
Shelter
Health and Wellness
Inclusion and Equity of Opportunity
Personal Safety
Ecosystem Sustainability
Access to Higher Education
Does a country provide for its people’s most essential needs?
20131004—Panama Development Presentation—FINAL
Are the building blocks in place for individuals and communities to enhance and sustain wellbeing?
20
Is there opportunity for all individuals to reach their full potential?
Copyright 2013 © Professor Michael E. Porter
Social Progress Index: 2013 Rankings 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.
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 Dominican Republic Colombia Thailand Peru Mexico
20131004—Panama Development Presentation—FINAL
26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 21
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 Copyright 2013 © Professor Michael E. Porter
Social Progress Index vs. GDP per Capita 70 Sweden
65
United Kingdom
Social Progress Index
South Korea
60
Costa Rica
Spain
Japan France
Chile
Switzerland Canada United States Germany Australia
Poland Israel
Argentina Bulgaria
55
Dominican Republic Thailand Brazil Paraguay Colombia Turkey 50 Philippines Jordan Peru Mexico Georgia Tunisia Russia Vietnam China Kazakhstan Sri Lanka Morocco Botswana 45 Indonesia Egypt Ghana South Africa Senegal
40
India
35
Kenya Bangladesh Rwanda Mozambique Uganda Nigeria Ethiopia
United Arab Emirates
30 $0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
PPP-Adjusted GDP per Capita, 2011 ($USD)
20131004—Panama Development Presentation—FINAL
22
Copyright 2013 © Professor Michael E. Porter
Brazil Social Progress Scorecard Overall Rank 18 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 Depth of food deficit Maternal mortality rate Stillbirth rate Child mortality rate Prevalence of tuberculosis
29 31 25 23 24 24
Adult literacy rate Primary school enrollment Secondary school enrollment Women's mean years in school
32 25 19 30
Political rights Freedom of speech Freedom of assembly/association Private property rights Women's property rights
17 12 1 18 1
Air, Water and Sanitation
28
Access to Information and Communications
20
Personal Freedom and Choice
16
Indoor air pollution attributable deaths Outdoor air pollution attributable deaths Access to piped water Rural/urban access to improved water source Access to improved sanitation facilities Access to wastewater treatment
31 18 16 34 29 24
Mobile telephone subscriptions Internet users Fixed broadband subscriptions Press Freedom Index
14 20 22 17
Basic religious freedoms Contraceptive prevalence rate Access to childcare Freedom over life choices
26 3 17 13
Shelter
23
Health and Wellness
31
Inclusion and Equity of Opportunity
Availability of affordable housing Access to electricity
28 22
Personal Safety
46
Homicide rate Level of violent crime Perceived criminality Political terror
47 39 36 38
Life Expectancy Obesity Cancer death rate Deaths from cardiovascular disease & diabetes Deaths from HIV Availability of quality healthcare
27 27 27 22 45
Equity of opportunity for ethnic minorities Women treated with respect Community safety net Tolerance of immigrants Tolerance for homosexuals
1 43 9 13 6
Ecosystem Sustainability
21
Access to Higher Education
33
Ecological footprint of consumption CO2 emissions per capita Energy efficiency (use per $1,000 GDP) Water withdrawals per capita
29 20 29 20
Tertiary school enrollment Female tertiary enrollment
33 31
*
2
Brazil GDP per capita rank is 24th among sample of 50 countries *Safety net, tolerance and respect for minorities, women, and disadvantaged 20131004—Panama Development Presentation—FINAL
23
Copyright 2013 © Professor Michael E. Porter
Social Progress vs. Government Expenditure (% of GDP) 70
65
Switzerland
Sweden Canada United States
Social Progress Index
60
Australia
Costa Rica
55 Dominican Republic
Peru
50 Philippines
45
Chile Bulgaria
Thailand
Colombia
Turkey
Georgia Mexico Tunisia China Jordan Viet Nam Kazakhstan Botswana Sri Lanka South Africa Morocco
France
Spain Poland Israel
Brazil
Paraguay
Indonesia
India
40
Japan Argentina
United Arab Emirates
United Kingdom Germany
Korea, Rep.
Bangladesh
Ghana
Egypt, Arab Rep. Senegal Kenya Rwanda
Uganda
35
Russian Federation
Mozambique
Nigeria
Ethiopia
30
25
20 10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
Government Expenditure (% GDP) Government Expenditure Source: 2013 Index of Economic Freedom 20131004—Panama Development Presentation—FINAL
24
Copyright 2013 © Professor Michael E. Porter
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
20131004—Panama Development Presentation—FINAL
25
Copyright 2013 © Professor Michael E. Porter
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.
20131004—Panama Development Presentation—FINAL
26
Copyright 2013 © Professor Michael E. Porter
Economic and Social Development: The New Learning 1. Strategy for Economic Development 2. Measuring Social Development
3. Business as a Driver of Social and Economic Development
20131004—Panama Development Presentation—FINAL
27
Copyright 2013 © Professor Michael E. Porter
The Role of Business in Society • 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
20131004—Panama Development Presentation—FINAL
28
Copyright 2013 © Professor Michael E. Porter
The Role of Business in Society Evolving Approaches
Philanthropy
• Donations to worthy social causes
• Volunteering
20131004—Panama Development Presentation—FINAL
29
Copyright 2013 © Professor Michael E. Porter
The Role of Business in Society Evolving Approaches
Philanthropy
Corporate Social Responsibility (CSR)
• Donations to worthy social causes
• Compliance with community standards
• Volunteering
• Good corporate citizenship • “Sustainability”
• Mitigate risk and harm
20131004—Panama Development Presentation—FINAL
30
Copyright 2013 © Professor Michael E. Porter
The Role of Business in Society Evolving Approaches
Corporate Social Responsibility (CSR)
Creating Shared Value (CSV)
• Donations to worthy social causes
• Compliance with community standards
• Volunteering
• Good corporate citizenship
• Address societal needs and challenges with a business model
Philanthropy
• “Sustainability”
• Mitigate risk and harm
20131004—Panama Development Presentation—FINAL
31
Copyright 2013 © Professor Michael E. Porter
CSR versus Shared Value Fair Trade
CSR
CSV
Fair Trade
Transforming Procurement
• Paying a higher price to farmers for the same products
• Collaborate with farmers to improve quality and yield
• Certification as a fair trade company
• Supporting investments in technology and inputs • Higher prices for better quality • Higher yield increases quantity produced
20131004—Panama Development Presentation—FINAL
32
Copyright 2013 © Professor Michael E. Porter
Social Needs and Economic Value Creation Environmental Improvement Energy Efficiency
Education
Water Use
Company Productivity Community Economic Development
Workforce Skills
Health
Affordable Housing
Worker Safety
• Social deficits and environmental impact create economic costs for companies • Community weaknesses affect company productivity • Social needs represent the largest market opportunities 20131004—Panama Development Presentation—FINAL
33
Copyright 2013 © Professor Michael E. Porter
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
20131004—Panama Development Presentation—FINAL
34
Copyright 2013 © Professor Michael E. Porter
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
20131004—Panama Development Presentation—FINAL
35
Copyright 2013 © Professor Michael E. Porter
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
20131004—Panama Development Presentation—FINAL
36
Copyright 2013 © Professor Michael E. Porter
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
20131004—Panama Development Presentation—FINAL
37
Copyright 2013 © Professor Michael E. Porter
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
20131004—Panama Development Presentation—FINAL
38
Copyright 2013 © Professor Michael E. Porter
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 microentrepreneur 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 20131004—Panama Development Presentation—FINAL
39
Copyright 2013 © Professor Michael E. Porter
Integrating Across Levels Novartis in Rural India
Reconceiving Products and Markets • 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-ofpocket on healthcare
20131004—Panama Development Presentation—FINAL
Redefining Productivity in Value Chain
Enabling Local Cluster Development
• 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
• A community health education program to address lack of healthseeking behavior • Frequent health camps for physicians in rural areas • Microfinance partners to improve healthcare infrastructure and access to working capital
40
Copyright 2013 © Professor Michael E. Porter
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
NGOs
• Receive grants to deliver social services
• Partner in implementing new shared value business models
Governments
• Tax and regulate business; operate social programs
• Make platform investments and support shared value strategies; regulate to encourage shared value solutions
Philanthropists
• Donate to charitable causes
• Partner with companies and NGOs to catalyze shared value initiatives
20131004—Panama Development Presentation—FINAL
41
Copyright 2013 © Professor Michael E. Porter
Creating Shared Value: Deciding Where to Concentrate Nestlé
Nutrition
Rural Development
Water
• Opportunities to create shared value are inevitably tied closely to a company’s particular businesses 20131004—Panama Development Presentation—FINAL
42
Copyright 2013 © Professor Michael E. Porter
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 20131004—Panama Development Presentation—FINAL
43
Copyright 2013 © Professor Michael E. Porter
Shared Value and Company Strategy Whole Foods Markets Value Proposition • • •
Distinctive Activities •
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
• Whole Foods is the most economically successful food retailer in North America • Successful strategies in the future will embody a significant shared value dimension 20131004—Panama Development Presentation—FINAL
44
Copyright 2013 © Professor Michael E. Porter
Purpose Based Strategic Positioning
Traditional Positioning
New Positioning
Nestlé
• Food and Beverage Company
• Nutrition Company
Nike
• Footwear and Apparel Company
• Health and Fitness Company
Thermo Fisher
• Scientific and Laboratory Instruments Company
• Making the World Healthier, Cleaner, and Safer
• A clear social purpose opens up new opportunities for growth and profitability, while motivating and attracting consumers, business partners, employees, shareholders, and the public
20131004—Panama Development Presentation—FINAL
45
Copyright 2013 © Professor Michael E. Porter
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
20131004—Panama Development Presentation—FINAL
46
Copyright 2013 © Professor Michael E. Porter
