2005, Nexera canola and sunflower seeds, used for making cooking oils, have become one of Dow
Chemical’s best-selling product lines. The seeds and the oils offer many advantages: The seeds yield more than twice as much oil per hectare as soybeans, making them an attractive crop for farmers. The oils’ longer shelf and
“fry” lives lower the operating costs of food manufacturers and food service companies. And, last but not least, the oils have lower levels of saturated fat than competing products and contain no trans fats.
Dow’s breakthrough shows business at its best: innovating to meet society’s needs and build a profitable enterprise. In “Creating Shared Value” (HBR
January–February 2011), our FSG colleagues Michael
Porter and Mark Kramer argue that achieving those twin goals represents the next competitive frontier for companies.
Corporate leaders have awakened to that fact.
They realize that social problems present both daunting constraints to their operations and vast opportunities for growth. But many are struggling to implement the shared value concept. To assist them, we have studied more than 30 companies that, like Dow, innovate to create scalable models for delivering social benefts and business value (see the exhibit “Who’s Creating Shared Value”). We have found that these companies consistently rely on fve mutually reinforcing elements, whose optimal form and balance depend on a frm’s culture, context, and strategy.
Embedding a Social Purpose
Leaders of companies that are making significant progress in building large-scale social enterprises consider solving major social problems in proftable ways to be a, if not the, raison d’être. Food companies such as Nestlé, Unilever, and Danone are repositioning themselves as nutrition and health companies.
Carmakers such as Nissan and Toyota are redefning their purpose as providing low-emissions mobility. And technology and telecommunications frms such as IBM, Intel, and Verizon have made improving education and health care and making cities more livable their central missions. (Many of the companies discussed in this article are FSG clients or have fnancially supported FSG’s research.)
Creating shared value entails embedding a social mission in the corporate culture and channeling resources to the development of innovations that can help solve social problems. In some cases, this is a matter of reemphasizing a frm’s founding social mission. That is what Franck Riboud, Danone’s
CEO, did in 2000, when he realized that the company had drifted away from its origins as a manufacturer of healthful food. Recognizing that stakeholders were increasingly concerned about nutrition, he stressed four themes (innovation, people, nature, and “Danone for All”); sold off Danone’s beer, meat, and cheese units; refocused on other dairy products and water; and acquired baby food and medical nutrition businesses.
In other cases, a leader can draw on a diferent legacy to direct the organization toward a social purpose.
Dow’s launch of canola and sunfower seeds didn’t emerge by chance from a rogue R&D initiative.
It came from the combination of a strong tradition of innovation and leaders’ recognition that many global social issues represent technological challenges as well as market opportunities. What ensued was the Breakthroughs to World Challenges program, a bid to business units to propose solutions to a range of global problems related to the UN’s Millennium
Occasionally, purpose emerges from within organizations, when managers spot and then champion opportunities for social innovation. In 1988 a team at Becton Dickinson developed the world’s frst syringe engineered to protect health workers from needlestick injuries, which spread HIV and other infections. Buoyed by its success, BD devoted resources to driving further innovations in this area.
Today needleless injection systems are a $2 billion business for BD, accounting for 25% of the company’s revenue.
Turning the pursuit of shared value opportunities into a regular activity requires defning a clear social purpose, publicizing it internally and externally, and embedding it in core processes such as strategic planning and budgeting. This establishes a culture that unleashes the best in employees and helps mobilize external partners that have similar goals.
To reinforce the social purpose of the company, leaders should relentlessly describe and quantify the business threats and opportunities inherent in global challenges. Peter Brabeck-Letmathe, the chairman of Nestlé, spent two decades hammering away internally and externally at the profound link between the company’s long-term prospects and the health of rural agricultural communities (the source of many commodities used in the company’s products), water resources (essential to maintaining global food security), and consumers. Today every country manager is expected to craft a business plan that delivers progress on those issues as well as profts for shareholders.
Defining the Social Need
Many frms recognize the importance of gaining insight into the needs they seek to address, but some go deeper in order to understand the underlying social conditions and how best to change them. They conduct extensive research to develop a comprehensive view of the problem, the people afected and their numbers, the barriers to progress, the options for driving change, and the parties that can help. Such knowledge provides the basis for anticipating resource requirements, developing the business case, and identifying the necessary execution capabilities inside and outside the company.
Consider Nestlé’s focus on malnutrition. Before the company launched Maggi Masala-ae-Magic, a micronutrient-reinforced spice product priced for low-income consumers in India at three rupees, researchers at the company studied the nutritional situation and the most prevalent micronutrient defciencies in the country. They discovered that 70% of children under the age of three and 57% of women sufered from anemia. They then visited 1,500 poor households to understand cooking customs and diets, and realized that spices—the most commonly used item—offered an optimal vehicle for hiding the bad taste of crucial micronutrients: iron, iodine, and vitamin A. Following an intense period of development and the upgrading of manufacturing lines,
Nestlé launched the product. In just three years, the company sold 138 million servings of Masalaae-
Magic, using both existing and new nonprofit distribution channels to reach the most remote and afected areas of India.
As was the case with Nestlé, a clearly defined need allows companies to design scale into the business model from the outset because they understand how many people are afected by the problem they seek to address and the economics and other issues involved in solving it—for example, the price constraints on a spice packet aimed at rural areas and the delivery innovations needed to reach target customers.
If a company doesn’t devote time and resources to developing a deep understanding of a social problem, it risks pursuing inefective solutions. Mars, for example, has long connected the dire conditions in cocoa communities in West Africa with collapsing cocoa yields and looming global shortages. For years the company funded numerous community projects, building schools and training farmers. But through research and engagement with cross-sector stakeholders, Mars came to understand that these investments alone would not solve the region’s development challenges. A collective efort to reform the entire cocoa sector was needed.
In Ivory Coast the company has committed itself to working with government, industry partners, and
NGOs for 10 years to address the problem at scale. At the heart of the efort is the adoption of innovations developed by Mars scientists and agronomists: the frst-ever grafting of superior cocoa clones in West
Africa (which return old trees to full yields within four years) and a network of demonstration farms connected to entrepreneurial “cocoa doctors” who deliver training, grafting services, and fertilizer to farmers. By adapting those innovations to local circumstances,
Mars and its partners built a scalable model.
Measuring Shared Value
Companies seeking to deliver scalable social and business benefits need to be able to monitor their progress. No universal system for doing this exists yet. The Sustainability Accounting Standards
Board is trying to create industry-based standards that will allow investors and other stakeholders to compare frms’ environmental and social impacts, but it remains to be seen whether those standards can also be tied to value creation. The International
Integrated Reporting Council is developing a common framework for submitting integrated reports on fnancial, environmental, social, and governance performance. But it, too, remains very much a work in progress.