strategy: creating and sustaining competitive...
TRANSCRIPT
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); On Competition (Harvard Business School Press,
2008); and “Creating Shared Value” (Harvard Business Review, Jan 2011). For a more concise summary for Professor Porter’s work, please see
Understanding Michael Porter (Gildan Media, 2011) by Joan Magretta. 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, and FSG website, www.fsg.org.
Strategy: Creating and Sustaining
Competitive Advantage
Professor Michael E. Porter
Harvard Business School
WOBI Strategy Series
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 2
Introduction to Strategy
• Strategy is a topic of fundamental importance, having a profound
impact on the performance and prosperity of companies, society,
and citizens.
• Strategy is not a formula. It must be unique based on company
circumstances.
• Strategy is becoming more complex topic due to technological
change, the new role of social impact, and disruption by COVID.
Agenda
-Strategy
-Digital
-Changing Nature of Competition
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Thinking Strategically
COMPETING
TO BE THE BEST
COMPETING
TO BE UNIQUE
• There is no one best way to compete
• The worst error in strategy is to compete with
rivals on the same dimensions
• Increasingly, delivering unique value involves not
just conventional business activities and economic
performance, but also societal impacts
3
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• Strategy is more than just aspirations, it is the how
– “Our strategy is to be #1 or #2…”
– “Our strategy is to grow…”
• Strategy is more than particular actions, it is inherently holistic
– “Our strategy is to merge…”
– “Our strategy is to cut costs…”
• Strategy is different than good execution: it defines how companies can
compete in a distinctive way
• Strategy is the set of long term choices that an organization makes to
distinguish itself from competitors, and create superior performance.
• Strategy defines a company’s distinctive approach to competing, and the
competitive advantages on which it will be based
• Strategy also defines the customers or customer segments that a company
chooses to serve
• Strategy also involves choosing what not to do
4
What Do We Mean by a Strategy?
• Strategy is often not well understood. Organizations need a common
framework and language
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Corporate Strategy
Business Strategy
Group Strategy
5
• Strategy for an overall multi-
business corporation
‒ The scope of businesses
‒ The synergy across
businesses
• An integrated strategy for sets of
closely related businesses
within the portfolio (e.g. Disney, to
be discussed)
• A strategy for each distinct
business
Levels of Strategy
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
III. Integrating Strategy and Society
II. Group and Corporate Strategy
Strategy Questions for Leaders
I. Business Strategy
Strategy for the company overall
IV. The CEO’s Role in Strategy
How to compete in each distinct business
6
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Product Scope Geographic Scope
Business Definition Defining the Company’s Distinct Businesses
• What products or product
groups constitute distinct
businesses?
− Trucks vs. heavy trucks
• Is the business local,
national, regional (e.g.
Europe), or global?
− Commercial aircraft vs.
retailing
7
• A common mistake in strategy
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• Business units need to focus both on the attractiveness of the
industry as well as their own competitive position
Business Strategy Drivers of Business Unit Performance
Industry
Structure
Strategic Positioning
Within the Industry
- Drivers of Competition and
Attractiveness in each distinct
business
- Having a Sustainable
Competitive Advantage
8
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Industry Structure
Bargaining
Power of
End Users
Bargaining
Power of
Channels
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Threat of Substitute
Products or Services
Threat of New
Entrants
Rivalry Among
Existing
Competitors
Bargaining Power
of Suppliers
Buyers Suppliers
Substitutes
New Entrants
Industry structure determines the average profitability of industry rivals
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• Types of suppliers
‒ Size of purchases
‒ Proportion of cost
‒ Influence on differentiation
• Drivers of supplier power
‒ Volume by each type of
supplier
‒ Supplier brand identity
and differentiation
• Types and their sources of
potential entrants
• Barriers to entry
• Types of competitors
• Dimensions on which
competition takes place
• Customer segments or groups of distinct customer types
• Drivers of customer power
‒ E.g., Volume of purchases
• Drivers of price sensitivity
‒ E.g., Influence of the company’s product or services on customer cost
• Types of substitutes
• Relative value proposition for each substitute
Bargaining Power of
Suppliers
Rivalry Among
Existing Competitors
Bargaining Power
of Buyers
Threat of New Entrants
Threat of Substitute
Products or Services
Analyzing Industry Structure The Five Competitive Forces
10
1. What is the industry structure today?
2. How is it changing?
3. What are the disruptors that could shift competition?
4. Can the company influence the path of industry
structural change?
• COVID disruption
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• Large, independent,
branded suppliers of
engines, drive train
components, and other
inputs
- Pull through from
end users
• Unionized labor
• Limited entry barriers for
assembly
• Significant barriers to
assembling a dealer and
service network
• Vigorous price competition
on standard models
• Rising environmental and
energy efficiency
requirements
• Importance of brand and
differentiation
• Consolidation of trucking companies into large fleets
• Large leasing companies are accounting for substantial truck volume
• Owner operators account for about 30% of the market
• Railroads
• Water transportation
Understanding Industry Structure U.S. Heavy Trucks
11
Bargaining Power
of Suppliers
Rivalry Among
Existing
Competitors
Bargaining Power
of Buyers
Threat of New
Entrants
Threat of Substitute
Products or
Services
BUYER SEGMENTS
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Achieving Superior Profitability Within the Industry The Basic Economics of Strategy
Differentiation
(Premium Price)
Lower Cost
Competitive
Advantage
12
• Relative Price
• Relative Cost
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• Creating a unique
competitive position
• Assimilating and
extending best practices
Operational
Effectiveness
Doing the same things better
Doing things differently
Strategic
Positioning
13
Operational Effectiveness Is Not Strategy
• Operational effectiveness is a given
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Strategic Positioning
Unique Value
Proposition
Distinctive
Value Chain
– The Operating Model
14
• There is no one best way to compete in any business
• Zero sum competition, on the same dimensions, is rarely
successful and depresses profitability
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• The value chain is the set of activities involved in delivering value to customers
• Activities vary in importance to competitive advantage
• Strategy is reflected in the choices about how activities are configured and linked together
Positioning and the Value Chain
15
Support
Activities
Marketing
& Sales
(e.g., Sales force,
Promotion,
Advertising,
Channel
management)
Inbound
Logistics
(e.g., Incoming
Material
storage,
Service)
Manufacturing
(e.g., Branch
operations,
Assembly,
Component
fabrication)
Outbound
Logistics
(e.g., Order
processing,
Warehousing)
After-Sales
Service
(e.g., Installation,
Customer support,
Complaint
resolution, Repair)
M
a
r
g
i
n
Primary Activities
Firm Infrastructure (e.g., Financing, Planning, Investor relations)
Procurement (e.g., Components, Services, Machinery, Advertising Media, Data)
Technology Development (e.g., Product design, Process design, Market research)
Human Resource Management (e.g., Recruiting, Training, Compensation system)
Value
What
buyers are
willing to
pay
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Defining the Value Proposition
What Relative Price?
What Target
Customers? Which Needs?
• What end users?
• What channels?
• What products?
• What features?
• What services?
• Finding a unique value proposition often involves identifying new needs, new ways of
segmenting the market and customers, and/or innovation in product attributes, and
service approaches
• A novel value proposition often expands the market, through serving new customers
or new needs
• Premium Price? Parity?
Discount?
16
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Strategic Positioning IKEA, Furniture
17
Distinctive Activities
• Wide range of styles which are all displayed in huge
warehouse stores with large on-site inventories
• Modular, ready-to-assemble, easy to ship furniture
designs
• In-house design of all products
• IKEA designer names attached to related products to
inform coordinated purchases
• Self-selection by the customer, with minimal
in-store service
• Extensive customer information in the form of
catalogs, mobile app, website, explanatory ticketing,
do-it-yourself videos, online planning tools, and
assembly instructions
• Self-delivery by most customers
• Suburban and urban locations with large parking lots
• Long hours of operation
• On-site, low-cost restaurants
• Child care provided in the store
Value Proposition
• A wide line of compatible stylish, functional and good
quality furniture and accessories
• Customers with smaller living spaces, who are style
and design conscious, but have a limited budget
• Limited ancillary services beyond the products
themselves (e.g. in store service, customer service,
delivery and repairs)
• Very low price points
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Sustainability of Strategy The Need for Tradeoffs
IKEA, Sweden
IKEA
Product • Low-priced, modular, ready-to-assemble designs
• No custom options
• Design driven by style, compactness, manufacturing cost
and assembly simplicity
Value Chain • Centralized, in-house design of all products
• All styles on display in huge warehouse stores
• Large on-site inventories
• Limited sales help, but extensive customer information
• Long hours of operation
• No delivery included
18
Typical Furniture Retailer
Product • Higher priced, fully assembled products
• Customization of fabrics, colors, finishes, and sizes
• Design driven by image, materials, varieties
Value Chain • Source some or all lines from outside suppliers
• Medium sized showrooms with limited portion of available
models on display
• Limited inventories / order with lead time
• Extensive sales assistance
• Traditional retail hours
• Delivery part of product
• Tradeoffs create the need for choice
• Tradeoffs make a strategy sustainable against imitation by established rivals
• A critical element of strategy is choosing what not to do
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• Highly customized heavy trucks targeted at
owner-operators, offering superior amenities but
low cost of operation along with extensive
customer after sale support
• Commands a 10% premium price
• Customized features and amenities geared
toward owner-operators (e.g., luxurious sleeper
cabins, plush leather seats, noise-insulated cabins,
sleek exterior styling, etc.)
• Products designed for durability and resale value
for owners
• Industry leader in fuel efficiency and emissions
reduction, including hybrids
• Provide diagnostic services for customers (e.g.,
fuel efficiency, remote service analysis)
• Offer truck financing, leasing and insurance
services
• Flexible manufacturing system configured for
customization
• Built trucks to order, not to stock
• Extensive dealer network (1,800 locations) to
provide extensive customer contact and
aftermarket support
• Extensive roadside assistance network
• 24-hour parts distribution system, providing rapid
repair and uptime
Value Proposition Distinctive Activities
Strategic Positioning PACCAR, Heavy Trucks
19
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Corporate Strategy: The Essential Questions
• What are the distinct businesses in the portfolio?
• Does the company have the right portfolio of businesses?
– Is each business structurally attractive?
– Value of synergies across the businesses?
• Is there a compelling strategic logic for how all the businesses fit
together?
• Is the company the best owner for each business?
• Is the company actually capturing the synergies across related
businesses?
• Are there gaps or adjacencies in the portfolio that could extend
the company’s competitive advantage?
• Does the corporate organizational structure reinforce the
strategy and synergies?
20
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Creating Synergy: Integrating Across Value
Chains
21
• Synergy comes from advantages that cut across business unit value chains
– E.g. serving common customers or channels (to leverage marketing and common brands)
– E.g. sharing key operating activities to leverage scale (e.g. manufacturing, sales force,
customer support, technological development)
– E.g. sharing proprietary reputation, knowledge, and skills across businesses
• Sharing corporate overhead is not enough
• Achieving synergy requires aligning strategies, culture, and incentives across units
M a
r
g i
n
M
a r
g i
n
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Corporate Strategy The Walt Disney Company
22
Acquired
Through Cap
Cities / ABC
Merger
• Shared characters • Shared brand • Shared family values • Cross-promotions
Marvel
Television
Stations
Broadway
Theater
Pixar
ESPN
Adult
Cable
Channels
LucasFilm
Motion
Picture
Production
Television
Networks
Radio
Stations
Walt Disney
Pictures
Direct
Marketing
Cruise
Line
Multi-
media
Productions
Broadway
Productions
Real
Estate
Develop-
ment
Time
Sharing
Hollywood
Records
Disney
Records
Retail
Stores
Television
Program-
ming
Theme
Parks
Disney
Interactive
Media
Adult
Publishing /
Newspapers
Hyperion
Books
Resort
Hotels
Golf
Courses
Consumer
Products
Youth
Books and
Educational
Materials
Traveling
Shows Animated
Feature Films
Family
Motion
Pictures
Disney
Channel
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• The essence of strategy is making
choices
Evaluating a Strategy Tests of a Successful Strategy
23
1. A unique value proposition relative to competitors
2. A distinctive value chain, involving clear choices about how the
company will operate differently to deliver on its value proposition
3. Making clear tradeoffs and choices, regarding what not to do
4. Integrating choices across the activities in the value chain so that the
activities fit together and are mutually reinforcing
5. Continuity of strategic direction, with continuous improvement in
realizing and enhancing the unique value proposition
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
• How has the company integrated social,
environmental, and community issues into core
strategy − Versus treat social impact as CSR
III. Integrating Strategy and Society
II. Group and Corporate Strategy
Strategy Questions for CEOs
• What are the distinct businesses the
company competes in?
• For each business, what is the competitive
environment, and how it is changing?
• Is there a clear and robust strategic
positioning for each business?
I. Business Strategy
Strategy for the company overall
IV. The CEO’s Role in Strategy
• Has the company built a rigorous overall strategic
planning framework and process?
• What is the CEO’s personal role in the strategy
process at the business and corporate levels?
How to compete in each distinct business
• Does the company have the right portfolio of
businesses? Is each business structurally
attractive?
• Is there a compelling strategic logic for how the
businesses fit together?
• Is the company capturing the synergies across
the businesses?
24
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 25
• Societies everywhere are facing significant social, environmental
and economic development challenges
• Government and NGOs usually lack sufficient resources and
capabilities themselves to fully meet these challenges
• Business is the only institution that can actually meet customer
needs efficiently at scale, while creating wealth and prosperity
• As societal problems continue to grow, and business is seen as
contributing to these issues, the legitimacy of business has fallen
The Role of Business in Society
Business needs a new approach
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 26
A Corporate
Purpose
• Addresses
the question
“why do we
exist?” as a
company
Beyond CSR
Philanthropy
Corporate Social
Responsibility
(CSR)
• Compliance with
ethical and
community
standards
• Good corporate
citizenship
• “Sustainability”
initiatives
• Mitigating risk and
harm
• Improving trust
and reputation
• Donations to
worthy social
causes
• Volunteering
Evolution of Corporate Thinking About Social Impact
• Broadening corporate
accountability – B-Corporations (2006)
Building on Sustainability
Benefit Broader Stakeholders
– Inclusive Capitalism
(2002)
– Conscious Capitalism
(2013)
• Serve all major
stakeholders, not
just shareholders
(BRT)
Creating Shared
Value
(CSV)
• Addressing
societal needs
and challenges
through the
business itself,
with a
business
model
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 27
• Yet, social needs represent the largest unserved market opportunities
• Societal challenges and environmental impacts create economic costs for companies
• Weaknesses in the local business environment affect company productivity and
profitability
The Opportunities for Shared Value
Company
Productivity
and Success
Environmental
Improvement Energy
Efficiency
Water Use
Economic
Development
Affordable
Housing
Worker
Safety
Health
Workforce
Skills
Education
Jobs for Lower
Income Citizens
• There has been a common view that there is a tradeoff between
business success and social success
Diverse
Workforce
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 28
• Accessing and utilizing
resources, energy,
suppliers, logistics, and
employees differently
and more productively
2 Redefining Productivity in
the Value Chain
• E.g., improving skills,
local suppliers, and
supporting
institutions in the
areas where the
company operates
• Enhancing cluster
development
3 Improving the Local Business
Environment/ Ecosystem
Levels of Shared Value
1
• Products and services
that meet societal needs
• Open new markets by
providing products
to unserved or
underserved customers
and communities
Reconceiving Needs,
Products, and Customers
• Pursuing a shared value strategy starts with asking two key
questions: – What social issues does my business touch?
– What common resources and social conditions does my business depend on?
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 29
Level 1 Shared Value
Shared Value Through Products Discovery Health Insurance
• Discovery pioneered the concept of pairing a health plan with a
wellness incentive program, called Vitality
• Combining health coverage with Vitality membership allowed
Discovery customers to achieve better health results, which allows
Discovery to offer health coverage at lower premiums
• Discovery is one of the world’s fastest growing and most profitable
health insurance companies globally
• Discovery has also applied the shared value concept to other kinds of
insurance (e.g. life insurance, automotive) and financial services
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 30
Shared Value in the Value Chain
• Procurement that enhances supplier
quality, capabilities and efficiency
• Improving resource efficiency across the value
chain that improves the environment
• Redesigning or recycling to minimize
or eliminate waste
• Minimizing logistical intensity and hence energy
cost and climate impact
• Improving employee health and safety
• Better wages, benefits, training and career paths
for lower income employees, which raises
productivity and retention
• Recruiting that reflects the diversity of customers
and the served communities
• Others…
Support
Activities
Marketing
& Sales (e.g., Sales
Force,
Promotion,
Advertising,
Proposal
Writing,
Website)
Inbound
Logistics (e.g., Customer
Access, Data
Collection,
Incoming
Material
Storage,
Service)
Operations (e.g., Branch
Operations,
Assembly,
Component
Fabrication)
Outbound
Logistics (e.g., Order
Processing,
Warehousing,
Report
Preparation)
After-Sales
Service (e.g.,
Installation,
Customer
Support,
Complaint
Resolution,
Repair)
M
a
r
g
i
n
Primary Activities
Firm Infrastructure (e.g., Financing, Planning, Investor Relations)
Procurement (e.g., Components, Services, Equipment, Advertising, Data)
Technology Development (e.g., Product Design, Process Design, Market Research)
Human Resource Management (e.g., Recruiting, Training, Compensation System)
Value
What buyers are
willing to pay
Level 2 Shared Value
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 31
• Yara is a world leading fertilizer company which serves smallholder farmers through custom
product offerings and educational programs
• In 2009, Yara working with the Norwegian government, catalyzed a $3 billion cross-sector
initiative (SAGCOT) to establish an agricultural cluster in Tanzania, involving:
- NGOs: World Bank and USAID funded infrastructure
- Local Government: upgraded infrastructure, and also changed policies, tariffs and tax structures
- Partner Companies: invested capital and expertise in key suppliers, channels, processing, and
infrastructure
- Yara: trained farmers and agro-dealers, and also expanded its operations in the area with a new fertilizer
plant and additional distribution warehouses
• The program has raised productivity for over 100,000 smallholder farmers, doubling yields and
increasing net profit per hectare by 90%
• By 2017, over 1,200 new jobs had been created by partner companies operating in the cluster
• This allowed Yara to increase fertilizer sales volume by 50% and grow its market share from
35% to 52% in Tanzania
Building an Agricultural Ecosystem Yara in Tanzania
Level 3 Shared Value
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Products Addressing Unmet Needs
and Underserved Customers
Redefining Productivity
in the Value Chain
Improving the Local Business
Environment/ Business
Ecosystem
• The leader in organic, fresh and
healthy food at Every Day Low
Prices
• Low cost financial services including
Walmart Pay, money orders, etc.
providing financial access to
unbanked and underbanked
customers
• Low cost generic drugs and
affordable OTC/personal care
• Piloting low cost in-store health
clinics, including diagnostic
services, that target lower income and
uninsured families
• Large and growing businesses
• Comprehensive programs to increase
resource efficiency including energy,
logistical efficiency, packaging, and
food waste
• Investing in higher starting wages,
improved benefits, extended education
and training, and career paths for entry
level associates
• A leader in employee health and wellness
programs that enhance health through
better quality care at lower cost
• Foster inclusion through diverse sourcing
• Major savings (billions per year)
• Better associate productivity and
retention
• Substantially lower health care cost and
cost of poor health
Shared Value as Core to Strategy Shared Value Journey
• Collaborate with suppliers and
conservation groups to improve
sustainability in supply chains
(Project Gigaton, blockchain pilots)
• Lead collaborations to improve lives
of those working in supply chains
• Enhanced market access for
smallholder farmers in LatAm
and India
• Lead collaborations in the retail sector
to strengthen workforce
development and foster upward
mobility of entry-level employees
• Better quality, lower cost sourcing
• Better employee access and retention
in the retail sector
1 2 3
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 33
Shared Value has Become a Crucial New
Element in Strategy and Competition • Shared value reveals new needs, new customer segments, and new ways of
producing and delivering
• Shared value creates new value propositions, new opportunities for strategic
positioning, and new competitive advantages
• Shared value opens up new ways of configuring value chains by drawing
advantages from positive social impact (both OE and strategy)
• Shared value creates new opportunities to enhance competitive advantages from
ecosystem improvement
• Shared value opens up new synergies across businesses, and new corporate
portfolio opportunities
• Shared value strategies are often more sustainable than conventional cost, feature,
and quality advantages
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 34
A Corporate Purpose
• Addresses the
question “why do
we exist?” as a
company
The Role of Corporate Purpose
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 35
• “Purpose is not a mere tagline or marketing campaign;
it is a company’s fundamental reason for being –
what it does every day to create value for its
stakeholders.”
• “Purpose is not the sole pursuit of profits but the
animating force for achieving them.”
• “Profits are in no way inconsistent with purpose - in fact,
profits and purpose are inextricably linked.”
• “When a company truly understands and expresses its
purpose, it functions with the focus and strategic
discipline that drive long-term profitability.”
• “Purpose guides culture, provides a framework for
consistent decision-making, and, ultimately, helps
sustain long-term financial returns for the
shareholders of your company.”
2019
Purpose and Profit 2018
A Sense of Purpose
Perspectives on Purpose vs. Profit Are Evolving BlackRock CEO’s Annual Letter to CEOs of Portfolio
• “Without a sense of purpose, no company, either
public or private, can achieve its full potential.”
• “It will ultimately lose the license to operate
from key stakeholders”.
• “It will succumb to short-term pressures to
distribute earnings and sacrifice investments in
employee development, innovation, and capital
expenditures that are necessary for long-term
growth.”
• “The company will remain exposed to activist
campaigns that articulate a clearer goal, even if
that goal serves only the shortest and narrowest
of objectives.”
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series
Pursuit of Corporate Purpose The Majority of Purpose Statements
Lack Clarity and Connection with the Companies’ Core
Business Activities
36
“We are equally dedicated to strengthening our business and
improving the world around us - an approach we call Purpose-
led Performance (PLP). It exemplifies our commitment to
deliver industry-leading financial performance while doing
what’s right, with responsibility to the long-term vitality of
people, communities, and the planet we share.”
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 37
Defining a Corporate Purpose That Matters Discovery Health Insurance
WHY DO WE EXIST?
To make people healthier and
enhance and protect their lives
Core Strategy
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 38
The Evolving Purpose of Business
• The purpose of business is to create economic value in a way
that also creates shared value for society
• Businesses acting as businesses, not as charitable givers, are
the most powerful force for addressing many of society’s
pressing issues
• Shared value opens up major strategic opportunities to create
competitive advantage, while driving the next wave of
innovation, productivity, and economic growth
• Shared value creates a synergistic connection between social
impact and excellence in company performance
• Building company strategy around shared value gives greater
purpose to the corporation and in capitalism itself
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 39
1. Qualcomm
2. MasterCard
3. BYD
4. TE Connectivity
5. Walmart
6. Santander Brasil
7. Centene
8. Bank of America
9. Schneider Electric
10.TerraCycle
11.Go-Jek
12.Viasat
13.Walgreens
14.EY
15.BD
16.Apple
17.EsilorLuxottica
18.Chr. Hansen
19.Anheuser Busch
20.Skanska
21.Accenture
22. IBM
23.Xylem
24.Intel
25.Vodacom
26.Dow, Inc.
27.GoodRx
28.MOD Pizza
29.L'Oréal
30.Prudential Financial
31.Lloyds Banking Group
32.Best Buy
33.Narayana Health
34.Poet
35. Illumina
36.Duolingo
37.Alibaba
38.JPMorgan Chase
39.Baidu
40.Corvus Energy
41.Hilton
42.Etsy
43.Philips
44.Vinte Vivienas Integrales
45.Land O’Lakes
46.NTT
47. Icon Group
48.Patagonia
49.Salesforce
50.eBay
51. Impossible Foods
52.Beyond Meat
Companies That Do Well By Doing Good
Fortune Change the World List 2019
A total of 52 companies have been selected annually for the Change the World list since it
was established in 2015. Companies are evaluated and selected based on four factors:
measurable social impact, business results, degree of innovation, and corporate integration.
Only Walmart has made the list all five years.
Copyright 2020 © Professor Michael E. Porter November 2020 – WOBI Strategy Series 40
• Leaders, CEOs in particular, are the only people in the company with
the proper overall perspective to take ownership of strategy
• The CEO must be the Chief Strategy Officer
– Lead the process, though not all of the work
• Strategy is the most powerful alignment tool
– It ensures that everyone’s work within and across businesses, and
across the portfolio, aligns with, and reinforces that of others
– Strategy also motivates and inspires employees and customers
• Strategy must come from within. The organization’s leaders and
management must understand strategy and reinforce it.
The Crucial Role of Strategy for Leaders