Speaking at the Porter Prize Event, Michael Porter shared his views on Shared Value, Social Progress and on the synergies between governments and the private sector.
What is of paramount importance is how to get this philosophy embedded in the national strategy for development instead of it being implemented separately.
While you can measure social progress at the national level, the real action that a country like India goes into is not national. It is indeed different for every state, every city and ultimately for every region.
We need to create serious incentives for the shared value opportunity to have the business community much more engaged in solving some of the nation’s biggest problems.
How can the government be more proactive in supporting the whole process of Shared Value?
I think governments from all around the world are gradually beginning to learn how to collaborate with business to create shared value. Numerous examples can be quoted which clearly demonstrate that there is no reason why a government cannot accelerate the shared value movement if it is able to take some enabling steps to open up the opportunity. In India, we are aware of the huge housing problem that exists where there are certain group of the citizens who cannot afford basic housing. Typically, it is the philosophy that government should step into building affordable housing for all but now what we see is that it is for the businesses to figure out the greatest problems associated with housing and come up with shared solutions for the same. It is business that can create a model for delivering large-scale affordable housing by re-engineering the process as to how to provide a very efficient low-cost housing with more space and better amenities. The government, in this case, should create tremendous motivation for companies to innovate and come up with solutions.
The rules pertaining to land assembly, financing and the other permissions that are involved must be simplified, which would essentially give the private sector an opportunity to compete with the traditional delivery mechanisms. The obstacles to a fair and an open market would have to be taken out to create incentives for the private sector so that they innovate to deliver better housing solutions without having to take government revenue. The result would then be a shared value solution rather than the government doing it by itself thinking as one of its responsibilities. Hence, what is of paramount importance is how to get this philosophy embedded in the national strategy for development instead of it being implemented separately. I personally was disappointed with the rule of companies giving two percent towards pure philanthropy rather than thinking creatively about innovation and shared value. There must be a way to modify this rule that encourages shared value strategies and makes them an alternative to the conventional giving method.
What is your take on social progress?
To clearly understand the level of economic progress that the countries are making, we have been measuring economic success for many years now. We have also had decent ways of determining how well countries are doing on competitiveness based on GDP or growth in GDP per capita and by all the other matrix of an economy. Defining and measuring the social sector, however, requires a far better understanding of what social progress looks like because of the many dimensions that it incorporates ranging from health to environment to inclusion and so on. While looking at the societal landscape, I came to understand that social issues tend to be siloed and the economy is often looked at as a whole. Since there was no accepted framework for thinking rigorously about social progress, we created the social progress index as a comprehensive measurement framework of all the dimensions and then benchmarking the way of progress a given society or a given region was making in moving towards the kind of society that we want to have. Launched about four to five years ago and measuring social progress in 133 countries including India, the framework includes three fundamental dimensions of basic human needs, foundations of wellbeing, and opportunity. While the first two dimensions relate to meeting the basic requirements and allowing for the citizens to improve the quality of their lives respectively, the last dimension measures the extent to which a society allows any citizen to achieve their bests in the society. Moreover, using some fifty-six different indicators of all the dimensions based on the best available data it was found that economic progress is positively correlated with social progress. The established relationship, however, is not automatic; countries that are economically successful often lag in making their societies progress whereas we also find some countries delivering remarkable social progress given their level of economic success.
A very interesting point to note here is that while you can measure social progress at the national level, the real action that a country like India goes into is not national. It is indeed different for every state, every city and ultimately for every region. It is indeed different for every state, every city and ultimately for every region. Therefore, we are now in the process of creating and disseminating a social progress index for each Indian state showing what are the real strengths and what all are the weaknesses. I am hopeful for India that the index gets developed at the city level too and goes down even lower on the spectrum over time to be able to measure societal progress in the country comprehensively and robustly. The question of what social progress is has been a big gap globally in our ability to drive positive change in the world. Hence, measuring Social Progress can become as important as measuring GDP in any economy. The idea can be more than a fascinating window in the years to come as to having the visibility into how society is progressing and getting away from the siloed view that we have traditionally.
Do you think there is another way to get corporates involved and engaged in shared value apart from a law mandating some percent to go into CSR activities?
Traditionally, businesses started with the whole process by engaging in philanthropy. However, many Indian companies today have not even reached the starting line of taking any responsibility for the society around them. So, to oppose having some threshold level of donation would be a bad idea. The thing that disappoints here is that it does not necessarily maximize the platform for companies to move towards the opportunities that matter for the society in a meaningful manner and hence create shared value. Having discussed the two percent rule with some of the policymakers here in India, I came to understand the practical motive behind such a move given the tremendous needs of this country, but the scenario, unfortunately, is not yet focused in totality.
We need to create serious incentives for the shared value opportunity to have the business community much more engaged in solving some of the nation’s biggest problems. Perhaps India could have a Shared Value prize that can go on to become the highlight of the year showcasing all companies that have made the biggest difference. This way businesses will have to measure and scale their moves in creating shared value and it will no longer remain to be a side issue. A whole movement starting at the state level and then working its way up to the national level can be thought of to tap the potential of the corporate sector in addressing various issues. This can work as an alternative since one can imagine a different approach meeting a task by using a shared value strategy that can be documented to show that you are contributing meaningfully to the economy. Then there are indeed a variety of ways to proceed but the key thing should be to not get stuck with just philanthropy and that it is the most important way any business can make a difference to this country. Citizens while looking at the efforts made by businesses will start to respect them in a way that they had never done before and will come to acquire a new mindset towards the business community as being premium institutions of the society. Of course, the campaign is going to take several years and I am searching for an approach that will be better aligned with what I think the most powerful strategy is.
Do you feel that the concepts of your Five Forces Framework and Shared Value converge from an organization’s point of view? If no, then are they elusive to each other?
I think the opportunity to differentiate or to reduce your cost gets fundamentally affected by social opportunities and issues. So, in effect, the shared value thinking is one of the most powerful ways to lead you to a true strategy in this era that helps create new opportunities to bring down your relative cost position and open up new needs to grow the business. To think that the shared value concept is unlocking opportunities that are totally different from the traditional goals and purposes of business is wrong because it is these ideas and the opportunities that converge and reinforce each other. The idea to not just look narrowly at our traditional economic opportunities but open it up a little bit and think about including nutrition, health, housing, environment, etc. is the reason we can see exceptional examples of shared value strategies by an increasing number of corporates all over the world and in India. It is indeed more wonderful to hear examples such as the GSK wherein the company realized that the old style of the pharma business was getting saturated and that a whole new style opened opportunities that had never existed before. Rather than having conventional high prices leading to a very small market, imagine bringing down the prices and the costs to a level where we still make a decent margin. That essentially would expand the opportunity dramatically by serving people in ways never served before. Many other companies have overlooked the synergies between our traditional frameworks and the concept of strategy. This is because they have been focused more narrowly towards the older economic opportunities, the traditional customers, and their needs rather than the much broader set of conditions that we face today in our world. I am hoping that now people will be inspired to think about their business again as to how they can make an impact by touching upon a critical area of their society where the community does much better and the skills of the workforce are improved to provide benefit even further. We can surely move India to even a higher path of improvement given all the businesses and some big corporates making use of these new ideas and working better.
Do you think that the corporates are contributing enough to the education sector? If no, then how to get them involved in a sector which is not for profit?
In my view, education and health have all the plausible issues yet at the same time can have the most leverage for the broader society. As far as the non-profit and for-profit distinction is concerned, the idea seems somewhat artificial because we have for-profit healthcare as well as the non-profit healthcare with the latter making a profit too in order to not go out of business. Additionally, I myself strongly believe that both education and health should not be viewed as a government issue alone. This is because it reflects nothing but a missed opportunity in the sense that governments all around the world struggle for a variety of reasons like unionization, rigidity, politics, etc. and that many countries are now supplementing their government systems with private alternatives to expand the opportunity and the quality of services such as healthcare for all citizens. The basic idea centers on creating enough competition in healthcare and making the organizations accountable for quality. Here, while the government sets the rules of the game, the private sector can have a profound impact when we hold them accountable for delivering good value to the patient. One can also not ignore the number of resources that the corporates can put in. So, then we have a world where there is a government system that is available and a private system as well which compete to provide value to their citizens.
The same kind of picture could hold for the education sector too. Since India has a massive need for education to be made available for all, the idea of the private sector taking over the universal delivery mechanisms does not sound right but there is no reason as to why the private sector cannot play at least a role in managing different educational systems. A model wherein the government sets the rules while in the process creates incentives for the private sector is definitely capable of delivering results in a better, faster and a cheaper way and we already are witnessing some tremendous innovative and low-cost high-quality parallel education systems in some countries. Therefore, it takes a lot to innovate in thinking about how to deliver services like education and health. Even the United States of America have been struggling, and the problem partly lies with the public system getting stuck with the rigidity and the complications that go into defining the whole setup. I think we should not have any rigid distinction between private and public though. Being open to trying different approaches and models will accelerate the movement of providing both education and healthcare in India and in other countries as well.