professor michael e porter: social progress imperative and development strategies for the 21st...

Social Progress Imperative #socialprogress

Professor Michael E. Porter

Asunción, Paraguay

September 5, 2013

DEVELOPMENT STRATEGIES FOR THE 21ST CENTURY: SOCIAL PROGRESS AND COMPETITIVE GROWTH


HOW DO WE MEASURE A NATION’S DEVELOPMENT?

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THE DUAL CHALLENGES OF DEVELOPMENT

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Economic Development

Social Development

• In both economic and business development our understanding of success has been incomplete

• There is a powerful connection between economic and social development, both positive and negative

• Separating business and competitiveness from social progress and societal issues is a serious mistake

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Social Progress Imperative #socialprogress4

ECONOMIC DEVELOPMENT DEPENDS ON COMPETITIVENESS

• 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

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


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

WHAT DETERMINES COMPETITIVENESS?



• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but is not sufficient to ensure productivity


Endowments

Macroeconomic Competitiveness





Endowments


Sound Monetary and Fiscal Policies



• 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



Endowments



Microeconomic Competitiveness






Endowments



Microeconomic CompetitivenessSophistication

of CompanyOperations and

Strategy






Endowments




Quality of the Business

Environment

Sophisticationof Company

Operations andStrategy


IMPROVING THE QUALITY OF THE BUSINESS ENVIRONMENT

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Context for Firm

Strategy and Rivalry

Related and Supporting Industries

Factor(Input)

Conditions

Demand Conditions

• Sophisticated and demanding local needs– e.g., Strict quality, safety, and

environmental standards

• 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

• Access to high quality business inputs– Qualified human resources– Capital availability– Physical infrastructure– Scientific and technological

infrastructure

• Availability and quality of suppliers and supporting industries

• Local rules and incentives that encourage investment and productivity– e.g. incentives for capital investments,

IP protection, sound corporate governance standards

• Open and vigorous local competition− Openness to foreign competition− Strict competition laws






Endowments





Environment








Endowments





Environment



State of Cluster Development


DEVELOPING CLUSTERS: TOURISM IN CAIRNS, AUSTRALIA

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Restaurants

Attractions andActivities

e.g., theme parks, casinos, sports

Airlines, Cruise Ships

Travel Agents Tour Operators

Hotels

PropertyServices

MaintenanceServices

Government Agenciese.g., Australian Tourism

Commission, Great Barrier Reef Authority

Educational Institutionse.g., James Cook University,

Cairns College of TAFE

Industry Groupse.g., Queensland Tourism

Industry Council

FoodSuppliers

Public Relations & Market Research

Services

Local Retail, Health Care, andOther Services

Souvenirs, Duty Free

Banks,Foreign

Exchange

Local Transportation

Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden


GEOGRAPHIC INFLUENCES ON COMPETITIVENESS

Nation



Regions and Cities

Nation

• Regions are the most important economic unit for competitiveness in larger countries, especially countries beyond subsistence development



Neighboring Countries

Regions and Cities

Nation

• Regions are the most important economic unit for competitiveness in larger countries, especially countries beyond subsistence development

“The Neighborhood”



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Endowments





Strategy


Environment




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Endowments


Human Development and Effective

Political Institutions




Strategy


Environment



MEASURING NATIONAL DEVELOPMENT

• There has been a growing recognition of the need to go beyond GDP in measuring a nation’s performance

• A series of indexes have been introduced to do so: - Human Development Index- Millennium Development Indicators- Happy Planet Index- OECD Better Life Indicators- Legatum Prosperity Index

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SOCIAL PROGRESS INDEX: DESIGN PRINCIPLES

• Separate from economic indicators

• Holistic framework

• Outcomes rather than inputs

• Relevant to all countries

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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.

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SOCIAL PROGRESS INDEX MODEL

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Social Progress Index

Nutrition and Basic Medical Care

Air, Water, and Sanitation

Shelter

Personal Safety

Access to Basic Knowledge

Access to Information and Communications

Health and Wellness

Ecosystem Sustainability

Personal Rights

Access to Higher Education

Personal Freedom and Choice

Inclusion and Equity of Opportunity

Does a country provide for its people’s most

essential needs?

Are the building blocks in place for individuals and communities to enhance and sustain wellbeing?

Is there opportunity for all individuals to reach

their full potential?

OpportunityFoundations of WellbeingBasic Human Needs


SPI RANKINGS: 2013

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1. Sweden2. United Kingdom3. Switzerland4. Canada5. Germany6. United States7. Australia8. Japan9. France10. Spain11. Korea, Rep.12. Costa Rica13. Poland14. Chile15. Argentina16. Israel17. Bulgaria18. Brazil19. United Arab Emirates20. Turkey21. Dominican Republic22. Colombia23. Thailand24. Peru25. Mexico

26. Philippines27. Paraguay28. Tunisia29. Georgia30. Viet Nam31. Jordan32. China33. Russian Federation34. Kazakhstan35. Botswana36. Sri Lanka37. Morocco38. Indonesia39. South Africa40. Egypt, Arab Rep.41. Ghana42. Bangladesh43. India44. Senegal45. Kenya46. Rwanda47. Mozambique48. Uganda49. Nigeria50. Ethiopia


SPI RANKINGS: 2013

1. Sweden2. United Kingdom3. Switzerland4. Canada5. Germany6. United States7. Australia8. Japan9. France10. Spain11. Korea, Rep.12. Costa Rica13. Poland14. Chile15. Argentina16. Israel17. Bulgaria18. Brazil19. United Arab Emirates20. Turkey21. Dominican Republic22. Colombia23. Thailand24. Peru25. Mexico

26. Philippines27. Paraguay28. Tunisia29. Georgia30. Viet Nam31. Jordan32. China33. Russian Federation34. Kazakhstan35. Botswana36. Sri Lanka37. Morocco38. Indonesia39. South Africa40. Egypt, Arab Rep.41. Ghana42. Bangladesh43. India44. Senegal45. Kenya46. Rwanda47. Mozambique48. Uganda49. Nigeria50. Ethiopia


SOCIAL PROGRESS INDEX VS. GDP PER CAPITA

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OVERALL SPI VS. GOVERNMENT EXPENDITURE (% OF GDP)

Government expenditure source: 2013 Index of Economic Freedom


THE SOCIAL PROGRESS INDEX: KEY FINDINGS

• Economic development is necessary but not sufficient as a measure of national performance

• Some approaches to economic development are less effective than others in advancing social progress, and even counterproductive

• Just as economic development helps social progress, social progress can enable sustainable economic development

• The amount of government spending (as a percent GDP) is an incomplete explanation for social progress performance

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Paraguay


SOCIAL PROGRESS PARAGUAY SCORECARDOVERALL RANK 27

*Safety net and tolerance and respect for minorities, women, and disadvantaged

Paraguay GDP per capita rank is 35th among sample of 50 countries

Basic Human Needs 32 Foundations of Wellbeing 32 Opportunity 19

Nutrition and Basic Medical Care 36 Access to Basic Knowledge 37 Personal Rights 22

Undernourishment 44 Adult literacy rate 23 Political rights 26Depth of food deficit 42 Primary school enrollment 46 Freedom of speech 12Maternal mortality rate 34 Secondary school enrollment 36 Freedom of assembly/association 1Stillbirth rate 38 Women's mean years in school 29 Private property rights 35Child mortality rate 32 Women's property rights 1Prevalence of tuberculosis 25

Air, Water and Sanitation 38 Access to Information and Communications 34 Personal Freedom and Choice 27

Indoor air pollution attributable deaths 28 Mobile telephone subscriptions 29 Basic religious freedoms 1Outdoor air pollution attributable deaths 5 Internet users 37 Contraceptive prevalence rate 9Access to piped water 31 Fixed broadband subscriptions 38 Access to childcare 43Rural/urban access to improved water source 45 Press Freedom Index 17 Freedom over life choices 36Access to improved sanitation facilities 34Access to wastewater treatment 36

Shelter 17 Health and Wellness 24 Inclusion and Equity of Opportunity 13

Availability of affordable housing 20 Life Expectancy 33 Equity of opportunity for ethnic minorities 48Access to electricity 25 Obesity 26 Women treated with respect 43

Cancer death rate 27 Community safety net 20Deaths from cardiovascular disease & diabetes 19 Tolerance of immigrants 2Deaths from HIV 30 Tolerance for homosexuals 13Availability of quality healthcare 22

Ecosystem Sustainability 30 Access to Higher Education 27

Ecological footprint of consumption 31 Tertiary school enrollment 25CO2 emissions per capita 11 Female tertiary enrollment 27Energy efficiency (use per $1,000 GDP) 49Water withdrawals per capita 8

*

Personal Safety 34

Homicide rate 37Level of violent crime 24Perceived criminality 16Political terror 23



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OVERALL SPI VS. GOVERNMENT EXPENDITURE (% OF GDP)

Government expenditure source: 2013 Index of Economic Freedom


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.

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THE ROLE OF THE NATIONAL COMMITTEE

• Interpret and disseminate country level priorities for social progress improvement

• Pursue policy changes in priority areas for social progress, through cross-sector collaboration

• Foster improvements in local data collection and relevant research

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THE ROLE OF BUSINESS IN SOCIETY

• Only business can create wealth and prosperity

• Business is facing growing scrutiny as the cause or a contributor to many of today’s societal challenges

• 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

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• Compliance with community standards

• Good corporate citizenship

• “Sustainability”

• Mitigate risk and harm

Corporate Social Responsibility

(CSR)

Creating Shared Value(CSV)

Philanthropy

THE ROLE OF BUSINESS IN SOCIAL AND ECONOMIC PROGRESS

• Donations to worthy social causes

• Volunteering

• Address societal needs and challenges with a business model

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SOCIAL NEEDS AND ECONOMIC VALUE CREATION

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• Social deficits create economic costs for companies

• Social needs represent the largest market opportunities

CompanyProductivity

Skills

Worker Safety

EnvironmentalImprovement

Education

Water Use

Energy Use

Health

AffordableHousing

CommunityEconomic

Development


CREATING SHARED VALUE IN PRODUCTS AND MARKETSJAIN IRRIGATION SYSTEMS

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• 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


SHARED VALUE IN THE VALUE CHAINFIBRIA, BRAZIL

• Fibria, a large manufacturer of pulp for paper, utilizes planted eucalyptus trees rather than native and old growth forests

• The company supports and 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 resource efficiency versus old growth forest production, with eucalyptus yielding 30 times higher yield per acre of wood pulp

• Small scale producers contribute 27% of the raw material volume utilized in Fibria mills, improving efficiency

• 4000 households have significantly increased their income


Government

• Regulate how businesses operate

• Operate social programs

• Tax businesses

PARTNERING FOR SHARED VALUE

NGOs

• Hold business accountable

• Seek donations• Partner with business to implement

and scale shared value solutions

• Invest with companies, NGOs and government to enable shared value solutions

Foundations

• Donate to charitable causes

• Regulate to encourage market solutions

• Partner to deliver shared value solutions to social services

• Jumpstart market solutions through minimum purchases or subsidies

• Invest in infrastructure to enable shared value approaches (e.g. roads, skills)

• Partner on business environment improvements

Competitors

• “Brand” social initiatives

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CREATING SHARED VALUE: DECIDING WHERE TO CONCENTRATENESTLÉ

WaterRural

Development

Nutrition

• Opportunities to create shared value are inevitably tied closely to a company’s particular businesses

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FROM PRODUCT TO PURPOSE

Traditional Positioning New Positioning

• Food and Beverage Company

• Nutrition CompanyNestlé

• Footwear Company • Health and Fitness CompanyNike

• Scientific and Laboratory Instruments Company

• Making the World Healthier, Cleaner, and Safer

Thermo Fisher

• A broader sense of social purpose opens up new opportunities for growth and profitability, while motivating and attracting employees, consumers, business partners, shareholders, and the public

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REDEFINING CORPORATE PURPOSEDANONE

• Danone realized that it had drifted away from its origins as a manufacturer of healthy foods

• Sold off its beer, meat and cheese units

• Refocused the company on dairy and water

• Acquired medical nutrition and baby foods businesses

• Created Innovation Committees in business units to provide “healthy food for as many people as possible”

Bringing health through food to as many people as possible by refocusing on four complementary business lines and expanding into fast-growing new regions

Vision Mission

The ‘dual economic and social’ project, creating economic value by creating social value

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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

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THE SOCIAL PROGRESS COMMITTEE IN PARAGUAY

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• Paraguay has taken the lead among countries applying the SPI as a formal measure of national performance

• The government issued a Presidential Decree on July 26, 2013, making the SPI an official measure of national performance


THE SOCIAL PROGRESS NETWORK: PARAGUAY COMMITTEE

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• La Asociación de Empresarios Cristianos (ADEC)

• La Federación de la Producción, la Industria y el Comercio (FEPRINCO)

• La Fundación Paraguaya

• La Fundación Moisés Bertoni

• La Fundación Desarrollo en Democracia (DENDE)

• Fundación Avina

• La Universidad Católica- Programa de Maestría en Administración de Empresas

Paraguay has already organized a local committee to deploy SPI at all levels


THE SOCIAL PROGRESS COMMITTEE IN PARAGUAY

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• The local social progress committee has already started work in three priority areas

• If we get more of you to join the effort, we could expand and deal with many more.

• These priorities are:

– Nutrition (meet the nutrtional needs of 1,000,000 additional paraguayans)

– Water and sanitation

– Shelter


THE ROLE OF BUSINESS IN SOCIAL PROGRESS

• Now it is time for business leaders in Paraguay to walk alongside government in fostering social progress, in creating many instances of shared value, and in developing the competitive strategies that will lift this country to its full potential

• The new government creates an opportunity for a new public-private relationship

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www.socialprogressimperative.org

Twitter: @socprogress

#socialprogress

professor michael e porter: social progress imperative and development strategies for the 21st...

Business

productivity endowments

social progress imperative

business productivity

workforce competitiveness

true prosperity

economywide context

business development

geographical location