In Conversation with Michael Porter

In an interaction with Wilfried Aulbur, Managing Partner, Roland Berger Strategy Consultants, Michael Porter, Professor, Harvard Business School, spoke about a range of themes including the shared value movement, the role of small companies in progress and the proposed idea of creating a level playing field for individuals instead of companies.

A system which is transparent and much simplified is what is needed to lay the ground for smaller companies to be able to catch up with big giants and make progress.

If the businesses want their business model to stand out as distinct from others then it is crucial to invest and work towards shared value strategies.

Does the self-interested approach amongst countries and within countries have an impact on the shared value movement? If yes, then what needs to be done?

I must agree that it does have an impact. Today we find increasing divisions between institutions in different societies, and the associated political landscape only reinforces such divisions thereby leading to complicated setups. So, those in business must get away from this and understand as to how to go about reducing the conflicts between them and the communities that they cater to. To make sure that politics does not stand in the way of societal progress, businesses need to take the lead to recognize the hidden opportunities and work towards better ways of serving their customers.

Talking about the disparity between large companies and small companies, what needs to be done to enable a more level playing field for the latter?

If we look at India as an example, because of the complexity of all the rules and the regulations, smaller companies are the ones that suffer the most while enterprises that are big enough have at their disposal certain gateways of escaping that the smaller ones can only dream of. So, I believe this is one of the many challenges that India faces and is seen in other parts of the world as well. While a line is always drawn between the for-profit businesses and the not-for-profit organizations, there are some new generation of “social” enterprises that have ventured into creating value in a true sense. These are the enterprises clearly blurring the usual distinction who, instead of using the traditional philanthropic model, put in place a business model to deal with societal problems. Similarly, we can now find NGOs working with businesses on sharing various strategies to serve their people in even better ways. Therefore, a system which is transparent and much simplified is what is needed to lay the ground for smaller companies to be able to catch up with big giants and make progress.

What do you feel about small companies facing problems in getting access to funds?

Access to capital is the most basic barrier for small companies to make it big in the business world. Again, this is true for the Indian economy as well as most of the other countries in the world. So, currently we have a wave of FinTech revolution wherein with new technology, it is possible to make relatively small business models in a much more efficient manner. However, the basic problem with India is that the financial sector suffers primarily from the ills of bad debts. There is a clear need for better bankruptcy laws to be put in place to make the functioning system more transparent and better. Of course, governments keep on working towards this major issue but what I strongly feel is that there is a need to move into certain unconventional models of small business financing to deliver solutions that have not been achieved in the past. These models must be identified to help the smaller scale business community play a part in the progress of this country.

Do you think the 2% rule on CSR can be an opportunity not only in India but also in other parts of the world to leverage the shared value venture fund?

Businesses have now started to figure out that if they want their business model to stand out as distinct from others, then it is crucial to invest and work towards shared value strategies. This is why there are several examples where we can see shared value venture funds coming up. We now have investors looking for companies which they think are going to be great companies in bringing about an impact because if those companies are indeed successful in having an impact then we have the entire industry dealing better in investment-related prospects. I think it is great for such innovation going on in funding models for this kind of work, and these models must be tapped to unlock different opportunities in India and in other countries as well.

Should companies work in isolation from the government or should there be synergies between the two?

Those in business have a goal of satisfying their customers’ needs while making a reasonable margin of profit. Here the government sets some rules to make sure that we have a fair and transparent competition leading to a level playing field for all. The result is that the companies that are most productive win the game. However, modern setups often turn out to be much more complex than what one initially thinks. Then what it means essentially is that governments regulating industries and companies are not bad but those governments engaging in over-regulations are bound to thwart even those business activities that are in fact genuine. So, it is the business community that must take more initiatives and see through more opportunities to widen the traditionally narrow boundaries. We need governments to set the rules of the game but we also need companies to cooperate and help put in place the right kind of regulatory environment to allow them to perform their business.

Currently, there is a certain amount of dissatisfaction in mature markets as compared to emerging markets with respect to globalization and in India, it has come to be discussed that it is important to create a level playing field for individuals instead of companies. What is your take on this?

I believe that the idea of a level playing field for citizens can be very intriguing. The problem with globalization is not globalization per se, but with the individual systems that are inherently part of a bigger system in any economy. For instance, in the US one of the basic problems that we have is the failure to improve our education system which is no less than a shame for all of us. So, we have certain fundamental rights that we need to provide for our citizens which are a pre-requisite for participation in the modern economy but what we really do is stop making progress and get caught in the web of politics. Then it is the whole idea of democracy that must be taken up and reworked to create opportunities for the citizens. Although democracies around the world are not simple, at least we can take a step forward to improve the conditions that the citizens come to live in.

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