Michael Porter: Why business can be good at solving social problems

Summary

The speaker addresses the persistent social issues faced globally, questioning why progress is slow despite awareness. He challenges the traditional view that business is part of the problem and argues that, in fact, businesses, through profit-making solutions, can be a powerful force for social good. The concept of 'shared value' is introduced as a way for businesses to create economic and social value simultaneously, emphasizing the potential for collaboration between NGOs, government, and businesses to drive meaningful change.

Takeaways

• 🌏 The world is facing numerous pressing problems such as poor nutrition, climate change, and lack of healthcare, which are widely recognized and discussed.
• 🤔 The speaker questions why society struggles to address these problems despite heightened awareness and asks if there is a role for businesses in finding solutions.
• 💼 The speaker's background is in business and finance, not social work, which provides a unique perspective on the issue of social problems and their solutions.
• 🏭 Historically, businesses have been seen as part of the problem, contributing to social issues like pollution and unsafe working conditions.
• 🤝 Solutions to social problems have traditionally been sought through NGOs, government, and philanthropy, but these approaches have not been able to scale effectively.
• 📉 The speaker identifies a lack of resources as the fundamental barrier to addressing social problems at scale, with current models insufficient to meet the challenges.
• 💡 The realization that businesses are the primary creators of wealth in society, as they generate profits by meeting needs, is key to understanding how to tackle social issues.
• 🔄 The concept of 'shared value' is introduced, where businesses address social issues through profitable business models, creating a synergy between social and economic progress.
• 🚀 The speaker argues that there is no inherent trade-off between social performance and economic performance, and that businesses can profit from solving social problems.
• 🌱 Examples are given of companies that have successfully implemented shared value strategies, such as Dow Chemical, Jain Irrigation, and Fibria, showing the potential for business to lead social change.
• 🤝 The importance of partnerships between businesses, NGOs, and governments is emphasized for effectively scaling solutions to social problems and creating a new era of collaborative capitalism.

Q & A

What is the main challenge the speaker identifies in addressing the world's pressing problems?

The main challenge identified is the difficulty in scaling solutions to social problems due to a lack of resources, which is a fundamental issue in making a large-scale impact.

Why does the speaker suggest that business is often seen as part of the problem rather than the solution?

Business is seen as part of the problem because in many cases, bad actors have contributed to worsening social issues, such as pollution and unsafe working conditions, for profit.

What role have NGOs and government traditionally played in solving social problems according to the script?

NGOs and governments have traditionally been seen as the primary entities to address social problems, with NGOs experiencing a significant rise in innovation, energy, and talent mobilization towards these challenges.

What is the 'awkward reality' the speaker refers to regarding the progress made in solving social problems?

The 'awkward reality' is that despite decades of effort, progress has been slow, and solutions achieved are small and incremental, with the problems remaining daunting and intractable.

Why does the speaker argue that business is the key to addressing the resource scarcity for solving social problems?

The speaker argues that business is key because it is the primary creator of wealth in society. Business generates resources when it meets needs at a profit, which leads to taxes, incomes, and charitable donations.

What is the 'magic' of profit according to the speaker, and why is it important for solving social problems?

The 'magic' of profit is that it allows solutions to be infinitely scalable. If a business can make a profit, it can self-sustain and expand its solution to a larger scale, addressing social problems more effectively.

What conventional wisdom has historically suggested about the relationship between business profit and social performance?

The conventional wisdom has suggested that there is a tradeoff between social performance and economic performance, with businesses profiting by causing social problems.

How does the speaker's experience with social issues contradict the conventional wisdom about business and social problems?

The speaker's experience shows that businesses can actually profit from solving social problems, such as reducing pollution and improving workplace safety, which contradicts the conventional wisdom.

What is the concept of 'shared value' as introduced by the speaker?

Shared value is the concept of addressing social issues with a business model, creating social value and economic value simultaneously. It represents a higher form of capitalism that meets important societal needs.

What examples does the speaker provide of businesses successfully addressing social problems and creating shared value?

Examples include Dow Chemical leading the move away from unhealthy fats, Jain Irrigation providing drip irrigation technology to farmers, Fibria using eucalyptus for more sustainable forestry, and Cisco training people in IT skills.

How does the speaker believe we can change the world by rethinking the role of business in social problems?

The speaker believes that by changing how businesses see themselves and by fostering partnerships with NGOs and governments, we can tap into the power of business to scale solutions to social problems and create a fundamental synergy between social and economic progress.

Outlines

00:00

🌐 The Awareness and Scale of Global Problems

The speaker acknowledges the widespread recognition of serious global issues such as poor nutrition, water scarcity, climate change, and healthcare deficiencies. Despite decades of awareness, progress has been slow and incremental due to a fundamental problem of scale. The speaker, coming from a business background, questions the role of business in these social challenges and the traditional view that business is part of the problem rather than the solution. The paragraph highlights the limitations of NGOs and government efforts in addressing these issues at scale due to resource constraints.

05:04

💼 Business as a Resource Generator and Profit's Role in Scaling Solutions

This paragraph delves into the realization that businesses are the primary creators of wealth in society, meeting needs at a profit. The speaker argues that the profit generated by businesses is what allows solutions to scale infinitely, making them self-sustaining. The conventional wisdom of a trade-off between social performance and economic performance is challenged, suggesting that businesses can and should be more responsible without sacrificing profitability. The speaker's personal journey from a strategy professor to engaging with social issues illustrates the evolving understanding of the potential for businesses to address societal problems.

10:05

🌿 The Synergy Between Social Progress and Economic Efficiency

The speaker presents a paradigm shift from the belief that businesses profit from causing social problems to the understanding that they actually profit from solving them. Examples such as reducing pollution and improving workplace safety are given to illustrate how addressing social issues can lead to increased productivity and efficiency. The paragraph emphasizes the long-term benefits of this approach, suggesting that there is no fundamental trade-off between social and economic progress. The speaker calls for a reevaluation of the role of business in society, advocating for a new model of capitalism that creates shared value by addressing social issues through business models.

15:06

🤝 The Collaborative Approach to Shared Value Creation

In the final paragraph, the speaker envisions a future where businesses, NGOs, and governments work in partnership to create shared value by addressing social problems. He highlights successful examples of companies that have embraced this concept, such as Dow Chemical's move away from unhealthy fats and Cisco's IT training initiatives. The speaker calls for a change in the perception of business and encourages collaboration as the key to unlocking the potential of shared value. He concludes with a note of optimism, inspired by the engagement of young people and the ongoing shift in business practices towards social responsibility.

Keywords

💡Problems

The term 'problems' in the script refers to the various societal challenges that the world is currently facing, such as poor nutrition, lack of access to water, climate change, and pollution. It is a central theme of the video, emphasizing the urgency and complexity of these issues. The speaker discusses the difficulty in addressing these problems despite widespread awareness.

💡Awareness

Awareness, as mentioned in the script, signifies the collective recognition and understanding of the social and environmental issues at hand. It is highlighted as a distinguishing factor of the present time compared to the past, indicating that while people are cognizant of the problems, there is a struggle in effectively dealing with them.

💡Business

Business is a key concept in the script, initially presented as part of the problem due to the actions of some industries contributing to social issues. However, the speaker later posits that businesses, through their capacity for wealth creation and innovation, can also be part of the solution to societal problems, particularly when they adopt models that create shared value.

💡NGOs

NGOs, or non-governmental organizations, are discussed as traditional entities that have been tasked with addressing social problems. The script mentions the rise of NGOs and their role in mobilizing resources and efforts to tackle challenges. However, the speaker points out that despite their efforts, the scale of impact has been limited.

💡Scarcity of Resources

The concept of 'scarcity of resources' is critical in the script, indicating the insufficiency of funds and other necessary assets to address social problems at a large scale. The speaker argues that this scarcity is a fundamental barrier to progress and suggests that businesses are the primary source of wealth creation in society.

💡Wealth Creation

Wealth creation is defined in the script as the process by which businesses generate wealth by meeting societal needs at a profit. It is highlighted as the only sustainable way to create the resources necessary to tackle social issues. The speaker suggests that the profit motive can drive scalable solutions to problems.

💡Shared Value

Shared value is a central concept introduced by the speaker as a new paradigm for business, where companies address social issues through their business models, creating economic value while also generating social benefits. Examples given in the script include companies like Dow Chemical and Jain Irrigation, which have developed profitable solutions to social problems.

💡Profit

Profit is presented in the script as a critical factor that allows business solutions to be scaled up and become self-sustaining. The speaker challenges the conventional wisdom that business profits from causing social problems, instead arguing that businesses can and do profit from solving these problems.

💡Synergy

Synergy in the script refers to the mutually beneficial relationship between business success and social progress. The speaker suggests that there is a deep, underlying connection where addressing social issues can actually enhance economic performance, contrary to the traditional trade-off view.

💡Innovation

Innovation is mentioned in the context of businesses developing new products, services, and technologies that can solve social problems. The script cites drip irrigation technology and IT training as examples of innovative approaches that have both commercial and social benefits.

💡Collaboration

Collaboration is emphasized in the script as a necessary component for effectively addressing social issues. The speaker argues that businesses, NGOs, and governments need to work together, leveraging their unique strengths and capacities to create shared value and make a larger impact on societal challenges.

Highlights

The world today is facing numerous serious problems such as poor nutrition, climate change, deforestation, and lack of skills.

There is a heightened awareness of these problems compared to any time in the past.

The speaker, a business-oriented individual, questions the role of business in addressing social problems.

Business is often seen as part of the problem rather than the solution in social challenges.

NGOs and government entities have been the traditional approach to solving social issues, but progress has been slow.

The speaker emphasizes the inability to scale solutions to social problems due to resource limitations.

Business is identified as the primary creator of wealth and resources in society.

Profit is the key to scaling solutions because it makes them self-sustaining.

The conventional wisdom that there's a tradeoff between social performance and economic performance is challenged.

Businesses can actually profit from solving social problems, contrary to popular belief.

Examples given include Dow Chemical leading the way in reducing unhealthy fats and Jain Irrigation introducing water-saving technology.

The concept of 'shared value' is introduced as a business model that addresses social issues.

Shared value represents a higher form of capitalism that creates economic and social value simultaneously.

The need for businesses to change their perception of their role in society is emphasized.

NGOs and governments that collaborate with businesses are more effective in driving social change.

The speaker expresses optimism about the potential for businesses, NGOs, and governments to work together to solve social problems.

The importance of a new generation of business thinkers who understand the concept of shared value is highlighted.

Transcripts

I think we're all aware

that the world today is full of problems.

We've been hearing them

today and yesterday and every day for decades.

Serious problems, big problems, pressing problems.

Poor nutrition, access to water,

climate change, deforestation,

lack of skills, insecurity, not enough food,

not enough healthcare, pollution.

There's problem after problem,

and I think what really separates this time

from any time I can remember in my brief time

on Earth is the awareness of these problems.

We're all very aware.

Why are we having so much trouble

dealing with these problems?

That's the question I've been struggling with,

coming from my very different perspective.

I'm not a social problem guy.

I'm a guy that works with business,

helps business make money.

God forbid.

So why are we having so many problems

with these social problems,

and really is there any role for business,

and if so, what is that role?

I think that in order to address that question,

we have to step back and think about

how we've understood and pondered

both the problems and the solutions

to these great social challenges that we face.

Now, I think many have seen business

as the problem, or at least one of the problems,

in many of the social challenges we face.

You know, think of the fast food industry,

the drug industry, the banking industry.

You know, this is a low point

in the respect for business.

Business is not seen as the solution.

It's seen as the problem now, for most people.

And rightly so, in many cases.

There's a lot of bad actors out there

that have done the wrong thing,

that actually have made the problem worse.

So this perspective is perhaps justified.

How have we tended to see the solutions

to these social problems,

these many issues that we face in society?

Well, we've tended to see the solutions

in terms of NGOs,

in terms of government,

in terms of philanthropy.

Indeed, the kind of unique organizational entity

of this age is this tremendous rise of NGOs

and social organizations.

This is a unique, new organizational form

that we've seen grown up.

Enormous innovation, enormous energy,

enormous talent now has been mobilized

through this structure

to try to deal with all of these challenges.

And many of us here are deeply involved in that.

I'm a business school professor,

but I've actually founded, I think, now, four nonprofits.

Whenever I got interested and became aware

of a societal problem, that was what I did,

form a nonprofit.

That was the way we've thought about how to deal

with these issues.

Even a business school professor has thought about it that way.

But I think at this moment,

we've been at this for quite a while.

We've been aware of these problems for decades.

We have decades of experience

with our NGOs and with our government entities,

and there's an awkward reality.

The awkward reality is we're not making

fast enough progress.

We're not winning.

These problems still seem very daunting

and very intractable,

and any solutions we're achieving

are small solutions.

We're making incremental progress.

What's the fundamental problem we have

in dealing with these social problems?

If we cut all the complexity away,

we have the problem of scale.

We can't scale.

We can make progress. We can show benefits.

We can show results. We can make things better.

We're helping. We're doing better. We're doing good.

We can't scale.

We can't make a large-scale impact on these problems.

Why is that?

Because we don't have the resources.

And that's really clear now.

And that's clearer now than it's been for decades.

There's simply not enough money

to deal with any of these problems at scale

using the current model.

There's not enough tax revenue,

there's not enough philanthropic donations,

to deal with these problems the way we're dealing with them now.

We've got to confront that reality.

And the scarcity of resources

for dealing with these problems is only growing,

certainly in the advanced world today,

with all the fiscal problems we face.

So if it's fundamentally a resource problem,

where are the resources in society?

How are those resources really created,

the resources we're going to need to deal

with all these societal challenges?

Well there, I think the answer is very clear:

They're in business.

All wealth is actually created by business.

Business creates wealth

when it meets needs at a profit.

That's how all wealth is created.

It's meeting needs at a profit

that leads to taxes

and that leads to incomes

and that leads to charitable donations.

That's where all the resources come from.

Only business can actually create resources.

Other institutions can utilize them

to do important work,

but only business can create them.

And business creates them

when it's able to meet a need at a profit.

The resources are overwhelmingly

generated by business.

The question then is, how do we tap into this?

How do we tap into this?

Business generates those resources

when it makes a profit.

That profit is that small difference

between the price and the cost it takes to produce

whatever solution business has created

to whatever problem they're trying to solve.

But that profit is the magic.

Why? Because that profit allows whatever solution

we've created

to be infinitely scalable.

Because if we can make a profit,

we can do it for 10, 100, a million,

100 million, a billion.

The solution becomes self-sustaining.

That's what business does

when it makes a profit.

Now what does this all have to do

with social problems?

Well, one line of thinking is, let's take this profit

and redeploy it into social problems.

Business should give more.

Business should be more responsible.

And that's been the path that we've been on

in business.

But again, this path that we've been on

is not getting us where we need to go.

Now, I started out as a strategy professor,

and I'm still a strategy professor.

I'm proud of that.

But I've also, over the years,

worked more and more on social issues.

I've worked on healthcare, the environment,

economic development, reducing poverty,

and as I worked more and more in the social field,

I started seeing something

that had a profound impact on me

and my whole life, in a way.

The conventional wisdom in economics

and the view in business has historically been

that actually, there's a tradeoff

between social performance and economic performance.

The conventional wisdom has been

that business actually makes a profit

by causing a social problem.

The classic example is pollution.

If business pollutes, it makes more money

than if it tried to reduce that pollution.

Reducing pollution is expensive,

therefore businesses don't want to do it.

It's profitable to have an unsafe working environment.

It's too expensive to have a safe working environment,

therefore business makes more money

if they don't have a safe working environment.

That's been the conventional wisdom.

A lot of companies have fallen into that conventional wisdom.

They resisted environmental improvement.

They resisted workplace improvement.

That thinking has led to, I think,

much of the behavior

that we have come to criticize in business,

that I come to criticize in business.

But the more deeply I got into all these social issues,

one after another,

and actually, the more I tried to address them

myself, personally, in a few cases,

through nonprofits that I was involved with,

the more I found actually that the reality

is the opposite.

Business does not profit

from causing social problems,

actually not in any fundamental sense.

That's a very simplistic view.

The deeper we get into these issues,

the more we start to understand

that actually business profits

from solving from social problems.

That's where the real profit comes.

Let's take pollution.

We've learned today that actually

reducing pollution and emissions

is generating profit.

It saves money.

It makes the business more productive and efficient.

It doesn't waste resources.

Having a safer working environment actually,

and avoiding accidents,

it makes the business more profitable,

because it's a sign of good processes.

Accidents are expensive and costly.

Issue by issue by issue, we start to learn

that actually there's no trade-off

between social progress

and economic efficiency

in any fundamental sense.

Another issue is health.

I mean, what we've found is actually

health of employees is something

that business should treasure,

because that health allows those employees

to be more productive and come to work

and not be absent.

The deeper work, the new work, the new thinking

on the interface between business and social problems

is actually showing that there's a fundamental,

deep synergy,

particularly if you're not thinking in the very short run.

In the very short run, you can sometimes

fool yourself into thinking

that there's fundamentally opposing goals,

but in the long run, ultimately, we're learning

in field after field that this is simply not true.

So how could we tap into

the power of business

to address the fundamental problems

that we face?

Imagine if we could do that, because if we could do it,

we could scale.

We could tap into this enormous resource pool

and this organizational capacity.

And guess what? That's happening now, finally,

partly because of people like you

who have raised these issues now

for year after year and decade after decade.

We see organizations like Dow Chemical

leading the revolution away from trans fat

and saturated fat with innovative new products.

This is an example of Jain Irrigation.

This is a company that's brought drip irrigation technology

to thousands and millions of farmers,

reducing substantially the use of water.

We see companies like the Brazilian forestry company Fibria

that's figured out how to avoid

tearing down old growth forest

and using eucalyptus and getting much more yield

per hectare of pulp

and making much more paper than you could make

by cutting down those old trees.

You see companies like Cisco that are training

so far four million people in I.T. skills

to actually, yes, be responsible,

but help expand the opportunity

to disseminate I.T. technology

and grow the whole business.

There's a fundamental opportunity for business today

to impact and address these social problems,

and this opportunity

is the largest business opportunity

we see in business.

And the question is, how can we get business

thinking to adapt this issue of shared value?

This is what I call shared value:

addressing a social issue with a business model.

That's shared value.

Shared value is capitalism,

but it's a higher kind of capitalism.

It's capitalism as it was ultimately meant to be,

meeting important needs,

not incrementally competing for

trivial differences in product attributes

and market share.

Shared value is when we can create social value

and economic value simultaneously.

It's finding those opportunities

that will unleash the greatest possibility we have

to actually address these social problems

because we can scale.

We can address shared value at multiple levels.

It's real. It's happening.

But in order to get this solution working,

we have to now change how business sees itself,

and this is thankfully underway.

Businesses got trapped into the conventional wisdom

that they shouldn't worry about social problems,

that this was sort of something on the side,

that somebody else was doing it.

We're now seeing companies

embrace this idea.

But we also have to recognize business

is not going to do this as effectively

as if we have NGOs and government

working in partnership with business.

The new NGOs that are really moving the needle

are the ones that have found these partnerships,

that have found these ways to collaborate.

The governments that are making the most progress

are the governments that have found ways

to enable shared value in business

rather than see government as the only player

that has to call the shots.

And government has many ways in which it could impact

the willingness and the ability of companies

to compete in this way.

I think if we can get business seeing itself differently,

and if we can get others seeing business differently,

we can change the world.

I know it. I'm seeing it.

I'm feeling it.

Young people, I think,

my Harvard Business School students, are getting it.

If we can break down this sort of divide,

this unease, this tension,

this sense that we're not

fundamentally collaborating here

in driving these social problems,

we can break this down,

and we finally, I think,

can have solutions.

Thank you.

(Applause)