Putting Purpose into Shared Value
27 November 2013 at 9:50 am
Purpose must underpin the integration of creating shared value (CSV) principles into corporate strategy, international keynote speaker Marc Pfitzer has told the 2nd Australian Creating Shared Value Forum.
Presenting his keynote address at the Melbourne event, Pfitzer, author of the recently released paper Innovating Shared Value, hailed innovation driven by the purposeful tackling of social need as the key for business to achieve shared value returns.
“Purpose is defining the landscape of where to look for needs and specific problems,” he said.
“Once we have need we can understand how we can deliver results, deliver value, and create those structures that drive social innovation.”
CSV, originated by Pfitzer’s colleagues Michael Porter and Mark Kramer in 2011, sees the embedding of social challenges into core business strategy to generate both business and social value.
Pfitzer’s company of the future was one “not abandoning shareholders but being successful by addressing challenges,” he said.
He spoke of a paradigm shift where companies who had adopted CSV to date had focused “innovative power on the social issues most connected with their capabilities or context in ways that unleashed their own growth or productivity”.
“They’re defining markets not just in economic terms but in social needs. They’re measuring progress not just in how they create value but in terms of social progress,” he said.
Pfitzer’s "purpose" was not merely the reasoning behind individual projects or strategies, but the overarching addressing of a specific social problem as the main reason for a company’s existence.
He spoke of Scandinavian chemical company Kemira’s refocusing of their entire business model to focus on the need for water solutions.
“The fundamental thing about purpose is that it’s affecting corporate strategy. What’s happening is a shift from what you do as a business to why you do it,“ he said.
The food industry was used to demonstrate the need to be purposeful to match market competition.
A shift to a purpose mindset in the food industry, he said, means “it’s not just about intake of calories, it’s about the values of those calories”.
“If you were in the food business and your competitors were in the health and nutrition business….you might find yourselves a dinosaur,” he said.
Pfitzer said it was a matter of going after defined needs.
“Shared value only gets created when the change happens, when there’s a change in that social condition, that’s what unleashes the potential for growth in the business…but to do that, you’ve got to go a lot deeper,” he said.
“It’s not about understanding what people want but what they need.”
Pfitzer spoke of how the corporate social responsibility movement had raised issues in the food industry around fat, calorie and sugar content and addressed weaknesses in the way business had approached the issue.
“They did it kind of blindly across the world … we assume it’s having an impact, but we don’t know for sure because its not addressing a specific problem or a specific need,” he said.
“It fails to sustain building a competitive advantage around addressing that problem.”
Nestle did so by driving a nutrition and health strategy in India, he said.
They developed an iron fortified spice packet for three rupees designed to meet the needs of the Indian market, where 57 per cent of women are anaemic. One hundred million servings have sold.
Pfitzer said initiatives needed to appeal to the legacy of business – the foundation businesses began from and the values that were driving them initially.
They were driven “by an idea, by passion,” he said. “Return to that passion and that legacy.”
There was work to be done to define industries of purpose, he said.
He spoke of a health industry where medical companies competed in terms of saving lives.
“Is it a product problem, is it a behavioural problem, how can we address it? We need to think about that industry by industry,” he said.
Yet Pfitzer was under no illusions about the difficulties facing the CSV movement in creating a direct line of sight between meaningful social results and its benefits to business.
“In some cases businesses are shielding those innovation programs from the core of their business as there is uncertainty as to how business case will be realised," he said.
“We are sensing the potential but we can’t really measure or anticipate the business case because there’s too many unknowns.
“For hundreds of companies that are doing shared value it is a transformative way for their business, but if we look across world that wave is just a tremor.
“Millions of businesses are still meeting conventional needs in traditional markets.
“We have tremendous inertia in business.”
Businesses, he said, needed to concede that if they were going to invest in changing individual behaviours and capacity at the point of care, it could initially cost a substantial amount.
“It’s the process of anticipating how investing in those barriers is going to grow the business case,” he said.
Pfitzer said with innovative products and services, businesses needed to go after volume, not margin, in order to unlock even more value arising out of the implementation of strategy on the ground.
The conference, in its second year after its inaugural showing in 2012, brought together sustainability and business practitioners, corporate representatives and and Not for Profit leaders to discuss the CSV movement in Australia.