Strategy and Society:

From CSR to Creating Shared Value

Professor Michael E. Porter

Harvard Business School
Inner City Capital Connections (ICCC), New York City

November 19, 2009

This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard Business
Review, March 2001) and On Competition (Harvard Business Review, 2008). 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. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: Nov 12, 1:30pm

20091017 – Turkcell (Strategy).ppt 1 Copyright 2009 © Professor Michael E. Porter

 Corporate Social Responsibility
A Growing Agenda

• External pressures for CSR continue to grow

• Numerous organizations monitor, rank, and report social

performance

• The legal, business and reputation risks are great for companies
engaging in practices deemed unacceptable

• Few companies have integrated society into strategy in a way that

reinforces competitive advantage for the business

YET

• Concern with social issues will be a defining characteristic of the

post-crisis era

20091017 – Turkcell (Strategy).ppt 2 Copyright 2009 © Professor Michael E. Porter

 History of CSR

Charity / Giving /
Pressure Politics Improve Corporate
Image

20091017 – Turkcell (Strategy).ppt 3 Copyright 2009 © Professor Michael E. Porter

 CSR in Practice

• Company practice on the social agenda leaves much room for

improvement
– Reactive
– Unfocused
– Rankings oriented
– PR / Corporate image driven

• CSR and community issues are treated as separate from the

core business agenda

• Limited measurable social impact or benefit to the business

• With little business benefit, CSR initiatives are hard to sustain

20091017 – Turkcell (Strategy).ppt 4 Copyright 2009 © Professor Michael E. Porter

 History of CSR

Charity / Giving /
Pressure Politics Improve Corporate ?
Image

20091017 – Turkcell (Strategy).ppt 5 Copyright 2009 © Professor Michael E. Porter

 Integrating Company and Community

Company Social
Competitiveness Development

• There is an inevitable link between business and society

• A healthy business depends on a healthy community to create
demand for its products and provide a supportive business
environment
• A healthy society depends on competitive companies that can
create jobs, support high wages, build wealth, buy local goods, and
pay taxes

• There is a long-term synergy between economic and social objectives

20091017 – Turkcell (Strategy).ppt 6 Copyright 2009 © Professor Michael E. Porter

 Competitiveness and Social Issues

Worker
Education and
Poverty in Skills
the Company’s Worker Safety
Communities

Environmental Company Gender Equity

Impact Productivity

Employee
Energy Use
Health

Water Use

20091017 – Turkcell (Strategy).ppt 7 Copyright 2009 © Professor Michael E. Porter

 The Concept of Shared Value

Shared Value: Policies and practices that enhance the

competitiveness of a company while simultaneously
advancing economic and social conditions in the
communities in which it operates

• Find and expand the points of convergence between economic and

social objectives, not assume tradeoffs or the need for redistribution
– These points of convergence are growing

• Achieving shared value requires new thinking, new technologies,

and new approaches to management

• Shared value opportunities are even greater in developing countries

• Shared value applies equally to NGOs and governments

20091017 – Turkcell (Strategy).ppt 8 Copyright 2009 © Professor Michael E. Porter
 Foundations of Strategic Positioning

Differentiation
(Higher Price)

Competitive
Competitive
Advantage
Advantage

Lower Cost

20091017 – Turkcell (Strategy).ppt 9 Copyright 2009 © Professor Michael E. Porter

 Competitive Advantage and the Value Chain

• Competing in any business involves performing a set of discrete

activities, in which competitive advantage resides

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

Human Resource Management

Support (e.g. Recruiting, Training, Compensation System)
Activities
Technology Development
(e.g. Product Design, Testing, Process Design, Material Research, Market Research) M
Value
Procurement a
(e.g. Components, Machinery, Advertising, Services) r What
g buyers are
Inbound Operations Outbound Marketing After-Sales i
willing to
Logistics Logistics & Sales Service pay
n
(e.g. Incoming (e.g. Assembly, (e.g. Order (e.g. Sales (e.g. Installation,
Material Component Processing, Force, Customer
Storage, Data Fabrication, Warehousing, Promotion, Support,
Collection, Branch Report Advertising, Complaint
Service, Operations) Preparation) Proposal Resolution,
Customer Writing, Web Repair)
Access) site)

Primary Activities

20091017 – Turkcell (Strategy).ppt 10 Copyright 2009 © Professor Michael E. Porter

 The Value Chain and Shared Value
• Recruiting
• Relationships with colleges and • Diversity
universities • Financial reporting practices
• Governance practices • Employee education and job
• Research practices
• Transparency training
(e.g. animal testing, GMOs)
• Product safety • Use of lobbying • Safe working conditions
• Product environmental impacts • Employee health
• Compensation and employee
Firm Infrastructure benefits (e.g., savings)
(e.g. Financing, Planning, Investor Relations)

Human Resource Management • Layoff policies

Support (e.g. Recruiting, Training, Compensation System)

Activities Technology Development

(e.g. Product Design, Testing, Process Design, Material Research, Market Research)
M
Value
Procurement a
(e.g. Components, Machinery, Advertising, Services) r What
• Procurement practices g buyers are
(e.g. farmer pricing and Inbound Operations Outbound Marketing After-Sales i willing to
education, child labor, supplier Logistics Logistics & Sales Service n pay
diversity) (e.g. Incoming
Material (e.g. Assembly, (e.g. Order (e.g. Sales Force, (e.g. Installation,
• Use of particular inputs Storage, Data Component Processing, Promotion, Customer
Collection, Fabrication, Support,
(e.g. hazardous materials, Service, Branch
Warehousing, Advertising,
Complaint
• Recycling
Report Proposal
animal fur) Customer
Access)
Operations) Preparation) Writing, Web Resolution, • Disposal of obsolete products
site) Repair)
• Reuse of materials (e.g. motor oil,
printing ink
Primary Activities

• Marketing and advertising (e.g. truthful

• Transportation impacts
(e.g. emissions, congestion,
logging roads)
• Emissions and waste
advertising, advertising to children)
• Biodiversity and ecological
• Pricing practices (e.g. price
impacts
discrimination, anticompetitive pricing
• Energy and water use • Packaging use and
practices, pricing policy to the poor)
• Worker safety and labor disposal
• Consumer information
relations • Transportation impacts
• Customer credit
• Hazardous materials

• Many activities in the value chain touch social issues in the communities where a
company operates. These social impacts can be positive or negative.
20091017 – Turkcell (Strategy).ppt 11 Copyright 2009 © Professor Michael E. Porter
 Competitiveness and the Business Environment

Context
Contextforfor
Firm
Firm
Strategy
Strategy
and
andRivalry
Rivalry

 Local rules and incentives that

encourage investment and
productivity
Factor
Factor – e.g. salaries, incentives for Demand
Demand
(Input)
(Input) capital investments, Conditions
Conditions
Conditions
Conditions intellectual property protection
 Open and vigorous local
 Access to high quality competition
and efficient business  Size and sophistication of local
inputs demand
Related
Relatedand
and – e.g., quality, safety, and
– Natural endowments
Supporting
Supporting
– Human resources environmental standards
Industries
Industries
– Capital availability
– Physical infrastructure  Availability of suppliers and
– Administrative infrastructure supporting industries
(e.g. registration, permitting)
– Information infrastructure
(e.g., transparency)
– Scientific and technological
infrastructure

20091017 – Turkcell (Strategy).ppt 12 Copyright 2009 © Professor Michael E. Porter

 Creating Shared Value
Weaknesses in External Context
• Availability of qualified human
resources
• Rule of law (e.g., security, protection of
• Access to specialized
property, legal system)
education and training
• Fair and open local competition (e.g., the
programs
absence of trade barriers, fair regulations)
• Stable access to natural
• Intellectual property protection
resources Context
Context for
for • Transparency (e.g., financial reporting,
• Availability of efficient physical
infrastructure
Firm Strategy
Firm Strategy corruption)
and
and Rivalry
Rivalry

Factor
Factor Demand
Demand
(Input)
(Input) Conditions
Conditions
Conditions
Conditions

Related
Related and
and • Quantity and quality of local
demand
Supporting
Supporting • Fair and progressive regulatory
Industries
Industries standards (e.g., nutrition,
• Availability of local environmental, safety)
suppliers and support
services
• Access to local support
services

• Every company operates in a competitive context that is inevitably affected by social

and
Source: community
Michael conditions
Porter, The Competitive
20091017 – Turkcell (Strategy).ppt
Advantage of Nations, 1990
13 Copyright 2009 © Professor Michael E. Porter
 Clusters and Competitiveness
Tourism Cluster in Cairns, Australia
Public
Public Relations
Relations && Local
Local retail,
retail,
Market
Market Research
Research Travel health
health care,
care, and
and
Travel agents
agents Tour
Tour operators
operators
Services
Services other
other services
services

Food
Food Local
Local
Suppliers
Suppliers Attractions
Attractions and
and Transportation
Transportation
Restaurants Activities
Activities
Restaurants e.g.,
e.g., theme
theme parks,
parks,
casinos,
casinos, sports
sports
Property
Property Souvenirs,
Souvenirs,
Services
Services Duty
Duty Free
Free

Airlines,
Airlines,
Hotels
Hotels Banks,
Banks,
Maintenance
Maintenance Cruise
Cruise Ships
Ships
Foreign
Foreign
Services
Services Exchange
Exchange

Government
Government agencies
agencies Educational
Educational Institutions
Institutions Industry
Industry Groups
Groups
e.g.
e.g. Australian
Australian Tourism
Tourism Commission,
Commission, e.g.
e.g. James
James Cook
Cook University,
University, e.g.
e.g. Queensland
Queensland Tourism
Tourism
Great Barrier Reef Authority
Great Barrier Reef Authority Cairns
Cairns College of TAFE
College of TAFE Industry Council
Industry Council

Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
20091017 – Turkcell (Strategy).ppt 14 Copyright 2009 © Professor Michael E. Porter
 Creating Shared Value
Principles
• Businesses cannot solve all of society’s problems, nor bear the cost of
doing so
• Businesses must approach the social agenda proactively and
strategically
• Business must address society and social issues where they can add
the most value

• Select the social issues that are most tightly linked to a company’s
business
• Reconfigure the value chain to create shared value while reinforcing
the company’s strategy
• Improve the economic and social context that affects productivity and
makes the business more sustainable
• Build functioning clusters to create self-sustaining economic
development
20091017 – Turkcell (Strategy).ppt 15 Copyright 2009 © Professor Michael E. Porter
 Creating Shared Value
ChoicePoint

• ChoicePoint’s (Reid Elsevir) core business is providing personal

identification, screening, and credit verification
– e.g., employment background screening, credit verification, DNA identification,
drug testing
• The company’s CSR shared value initiatives focus on providing services
and advice to social organizations:
– e.g., background checks of volunteers working with children
– Identity verification for disaster victims
– Assisting NGOs to find missing children and prevent identity theft

• ChoicePoint’s CSR is aligned with its founding principle: creating a

safer and more secure society through responsible use of information
• ChoicePoint leverages its skills, data, technological knowledge, and
staff to maximize social impact
• CSR activities are not just charity but improve the company’s
capabilities around identity issues
20091017 – Turkcell (Strategy).ppt 16 Copyright 2009 © Professor Michael E. Porter
 Creating Shared Value
Nestlé

Nutrition

Water Rural
Development

20091017 – Turkcell (Strategy).ppt 17 Copyright 2009 © Professor Michael E. Porter

 Creating Shared Value
Nespresso

• Reconfiguring the value chain

– Reconceiving procurement

• Upgrading the cluster

– Supporting cluster development including cluster institutions

• Partnering with stakeholders

Shared Value
Farmers Community Nespresso
• Better yields • Environmental • Better quality
• Better prices sustainability • Stable supply
• Better processing • Economic • Reinforces
development strategy

20091017 – Turkcell (Strategy).ppt 18 Copyright 2009 © Professor Michael E. Porter

 Strategy and Society
Other Case Studies

• General Electric Ecoimagination

• Toyota Energy efficient vehicles

• Starbucks Coffee procurement

• Swiss Re Enabling the market for investments in

renewable energy and climate change

20091017 – Turkcell (Strategy).ppt 19 Copyright 2009 © Professor Michael E. Porter

 Implementing Shared Value

• Treat as a core business function

• Partnership model

• Explicit goals and reporting

20091017 – Turkcell (Strategy).ppt 20 Copyright 2009 © Professor Michael E. Porter

 Creating a Social Dimension of Strategy

• Customers value social performance, not just economic performance

• Companies can have the greatest social impact in areas tightly
connected to their business
– Social performance and economic performance are connected
• Social improvements create shared value for the business

• Companies should incorporate a social dimension to their value

proposition
• Shared value should reinforce the company’s unique strategic
positioning
• This social dimension may be more sustainable than conventional
cost and quality advantages

20091017 – Turkcell (Strategy).ppt 21 Copyright 2009 © Professor Michael E. Porter

 The Moral Purpose of Business

• The most important thing a corporation can do for society is to

contribute to a prosperous economy
– Business has no need to be defensive about its role
• However, corporations depend on a healthy society to sustain
competitiveness
• Companies have the tools, capabilities, and resources to have a
major impact on social issues
• Each company should identify the particular set of societal
problems that it is best equipped to help resolve, and from which will
arise the greatest long term synergy with its business
• Addressing these issues using the principles of shared value will
lead to self-sustaining solutions
• Businesses are invaluable strategic partners for NGO’s,
government and other institutions to achieve society’s most cherished
aims

20091017 – Turkcell (Strategy).ppt 22 Copyright 2009 © Professor Michael E. Porter