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 Review, 2008);

and “Creating Shared Value” (Harvard Business Review, Jan 2011). 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.

Professor Michael E. PorterHarvard Business School

Poznań University of Economics and Business March 19th, 2019

The New Competitive Advantage:

Creating Shared Value

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 2

• Societies everywhere are facing significant social,

environmental and economic development challenges

• Government and NGOs lack sufficient resources and

capabilities themselves to fully meet these challenges

• Business is the only institution that can actually create

wealth and prosperity

• Company engagement in society continues to grow, but the

legitimacy of business has fallen

The Role of Business in Society

We need a new approach

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 3

Corporate Social

Responsibility

(CSR)

Creating Shared

Value

(CSV)

Philanthropy

• Donations to worthy

social causes

• Volunteering

• Addressing societal

needs and

challenges through

the business itself,

with a business

model

– Making a profit

• Mitigating risk and

harm

• Improving trust and

reputation

• Compliance with

ethical and

community standards

• Good corporate

citizenship

• “Sustainability”

initiatives

The Role of Business in SocietyEvolving Approaches

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 4

Company

Productivity

and

Success

• There has been a common view that there is a tradeoff between

business success and social success

• Yet, social needs represent the largest unserved market opportunities

• Societal deficits and environmental impacts create economic costs

for companies

• Community weaknesses affect company productivity and profitability

The Opportunity for Shared ValueEnvironmental

Improvement

Energy

Efficiency

Water Use

Economic

Development

Affordable

Housing

Worker

Safety

Health

Workforce

Skills

Education

Jobs for Lower

Income Citizens

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 5

Levels of Shared Value

1

• Products and services

that meet societal

needs

• Providing products

to unserved or

underserved

customers and

communities

Reconceiving Needs,

Products, and Customers

• Accessing and

utilizing resources,

energy, suppliers,

logistics, and

employees differently

and more

productively

2Redefining Productivity in

the Value Chain

• E.g., improving skills,

local suppliers, and

supporting

institutions in the

areas where the

company operates

• Enhancing cluster

sophistication in the

sector

3Improving the Local

Business Environment

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 6

Shared Value in the Value Chain

• Procurement that enhances supplier

capabilities and efficiency

• Resource efficiency across the value

chain that improves the environment

• Redesigning or recycling to minimize

or eliminate waste

• Minimizing logistical intensity

• Improving employee health and safety

• Better wages, benefits, training and career paths

for lower income employees 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., Services, Machines, 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

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 7Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

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

What is a Cluster?Tourism Cluster in Cairns, Australia

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 8

The Shared Value JourneyWalmart

• Organic, fresh, healthy

foods

• Locate smaller

neighborhood stores in

food deserts

• Low cost financial

services for underbanked

families

• Low cost in-store health

clinics for low income

and uninsured families

• Low cost generic drugs

Reconceiving Needs,

Products, and Customers

1

• Local sourcing

• Comprehensive programs

to reduce energy usage,

water usage,

packaging, and waste

across the value chain

• Created a path to higher

wages and benefits for

lower income associates,

as well as training and

career pathways

• Extensive health and

wellness program for

employees

Redefining Productivity

in Value Chain

2

• Introduced Sustainable

Value Networks to

collaborate with suppliers

to improve sustainability

and quality of supply

chains

• Lead collaboration in the

retail sector on

workforce development

Improving the Local

Business Environment

3

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 9

Reconceiving Products and MarketsPartnership for Health

• Danone led the establishment of the Partnership in 2006 together with the

Instytut Matki i Dziecka (IMiD) in order to prevent undernourishment in

young children and to spread the principles of proper nutrition

• The partnership examined Poles’ dietary habits with the goal of developing

a food product that was both affordable and nutritious

• Findings showed that 57% of children aged 6 to 10 eat a wheat cereal

served with milk at least three times a week

• The partnership built on this by co-developing Milky Start (Mleczny Start), a

porridge with milk enriched with minerals and vitamins following the 12

principles of proper nutrition developed by IMiD

• Since launching the Milky Start brand, 50 million portions have been sold

with nearly one-third sold to low-income families

• Profits from product sales are reinvested in the ongoing development of

similar nutrition related initiatives

• Surveys of Polish consumers show a positive impact on brand perception

and in attracting socially-conscious shoppers to retailers

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 10

Improving the Business EnvironmentAviation Valley Cluster, Southeast Poland

• In 2003, the Podkarpackie region of southeastern Poland had the nation’s

lowest GDP per capita and was among the 15 poorest EU regions

• To help alleviate local labor shortages in the aviation cluster and advance the region’s

economic and social conditions, business and public sector leaders formed the

Aviation Valley Association (AVA) in 2003

• The number of company participants went from 18 in 2003 to 140 by 2018. Companies

have made significant and coordinated investments in cluster development

activities, and executives have dedicated 7%-12% of their working time

• The programs focus on addressing critical training gaps through:

– Targeting skills: Matching curricula in technical schools with industry needs

– Capital investment: Building training centers with cutting-edge machines and tools

– Hands-on training: Developing internship programs to increase rates of apprenticeship

– Diversity: Promoting technical disciplines to young students from all backgrounds

• Companies in the region, many of them SMEs, show 1B euros in total annual sales

• After AVA’s first 10 years, unemployment in the region declined by 4%, average

monthly salaries increased, the rate of outmigration was reduced by nearly half,

and company access to labor improved

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 11

Shared Value is a Growing Part of Strategy

• 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 or unlocking internal advantages from enhancing

external 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 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 12

Change the World List 201850 Companies That Do Well By Doing Good

11.Danone

12.Alphabet

13.Wesfarmers

14.Braskem

15. Intel

16.Walmart

17.Vmware

18.JPMorgan Chase

19.Safaricom/Vodafone

20.Johnson & Johnson

21.NextEra Energy

22.Humana

23.Mahindra & Mahindra

24.Apple

25.Stryker

26.DSM

27.Salesforce

28.Enel

29.Henry Schein

30.Johnson Controls

1. Reliance Jio

2. Merck

3. Bank of America

4. Inditex

5. Alibaba Group

6. Kroger

7. Xylem

8. ABB

9. Weight Watchers

10.Hughes Network

Systems

31.Toyota Motor

32.TE Connectivity

33.Bidvest Group

34.Prudential Financial

35.99 Cents Only Stores

36.Grab

37.Levi Strauss

38.Natura Cosmeticos

39.Microsoft

40.Bank Rakyat Indonesia

41.Allstate

42.Barclays

43.Cisco Systems

44.Tyson Foods

45.JD.com

46.Hilton

47.Adidas

48.PayPal

49.Siemens

50.McDonald’s12

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 13

The 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 arguably the most powerful force for addressing many of

society’s pressing issues

– Innovation and scalability

• Shared value opens up major strategic opportunities to

create competitive advantage, while driving the next wave of

innovation, productivity, and economic growth

• Building company strategy around shared value gives greater

purpose to the corporation and to capitalism itself

Copyright 2019 © Professor Michael E. Porter20190319 – Poznan University of Economics and Business 14

Key Resources

• 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 Review, 2008)

• “Creating Shared Value” (Harvard Business Review, Jan 2011)

• Porter, Michael E., and Jorge Ramirez-Vallejo. "Walmart:

Navigating a Changing Retail Landscape." Harvard Business

School Case 717-474, March 2017