Is this Sustainability in Practice? Make Money and Do Good

Harvard Business School’s Michael Porter and
Mark R. Kramer of the Kennedy School of Government, make a strong case for “Creating
Shared Value: How to Reinvent Capitalism — and Unleash a Wave of Innovation and
Growth.” They are championing the shared-value thesis in conferences, meetings
with corporate leaders, and even a conversation with White House advisers. Companies
like GE have adopted this with their ecomagination programme as cross the
board. Read More

First, Make Money. Also, Do Good.

By STEVE LOHR

New York Times

Published: August 13, 2011

CORPORATE social responsibility efforts have
always struck me as the modern equivalent of John D. Rockefeller handing out
dimes to the common folk. They may be well-intentioned, but they often seem
like small gestures at the margins of what companies are really trying to do:
make money.

As well they should, an argument most
famously made by the Nobel laureate Milton Friedman decades ago. He called
social responsibility programs “hypocritical window-dressing” in an article he
wrote for The New York Times Magazine in 1970, titled “The Social
Responsibility of Business Is to Increase Its Profits.”

But Michael E. Porter, a Harvard Business
School professor, may have an answer to the Friedman principle. Mr. Porter is
best-known for his original ideas about corporate strategy and the economic
competition among nations and regions. Recently, however, he has been promoting
a concept he calls “shared value.”

Earlier this year, Mr. Porter and Mark R.
Kramer, a consultant and a senior fellow in the corporate social responsibility
program at the Kennedy School of Government at Harvard, laid out their case in
a lengthy article in the Harvard Business Review, “Creating Shared Value: How
to Reinvent Capitalism — and Unleash a Wave of Innovation and Growth.” Since
then, Mr. Porter and Mr. Kramer have been championing the shared-value thesis
in conferences, meetings with corporate leaders, and even a conversation with
White House advisers.

Shared value is an elaboration of the notion
of corporate self-interest — greed, if you will. The idea that companies can do
well by doing good is certainly not new. It is an appealing proposition that
over the years has been called “triple bottom line” (people, planet, profit),
“impact investing” and “sustainability” — all describing corporate initiatives
that address social concerns including environmental pollution,
natural-resource depletion, public health and the needs of the poor.

The shared-value concept builds on those
ideas, but it emphasizes profit-making not just as a possibility but as a
priority. Shared value, Mr. Porter says, points toward “a more sophisticated
form of capitalism,” in which “the ability to address societal issues is
integral to profit maximization instead of treated as outside the profit
model.”

Social problems are looming market
opportunities, according to Mr. Porter and Mr. Kramer. They note that while
government programs and philanthropy have a place — beyond dimes, Mr.
Rockefeller created a path-breaking foundation — so, increasingly, does
capitalism.

The shared-value concept is not a moral
stance, they add, and companies will still behave in their self-interest in
ways that draw criticism, like aggressive tax avoidance and lobbying for less
regulation. “This is not about companies being good or bad,” Mr. Kramer says.
“It’s about galvanizing companies to exploit the market in addressing social
problems.”

The pair point to promising signs that more
and more companies are pursuing market strategies that fit the shared-value
model.

Several years ago, executives at General
Electric began looking across its portfolio of industrial and consumer
businesses, eyeing ways to apply new technology to reduce energy consumption.
They were prompted by corporate customers voicing concerns about rising
electrical and fuel costs, and by governments pushing for curbs on carbon
emissions.

The result was G.E.’s “ecomagination”
program, a business plan as well as a marketing campaign. In recent years, the
company has invested heavily in technology to lower its products’ energy
consumption, and the use of water and other resources in manufacturing.

To count in the program, a product must
deliver a significant energy savings or environmental benefit over previous
designs. G.E. hired an outside environmental consulting firm, GreenOrder, to
help in measuring performance. To date, more than 100 G.E. products have
qualified, from jet engines to water filtration equipment to light bulbs. In
2010, such products generated sales of $18 billion, up from $10 billion in
2005, when the program began.

“We did it from a business standpoint from
Day 1,” says Jeffrey R. Immelt, G.E.’s chief executive. “It was never about
corporate social responsibility.”

Technology has opened the door to markets
that have shared-value characteristics. For decades, I.B.M. sold its computers,
software and services to city governments around the world, though mainly for
back-office chores like managing payrolls. But the Internet, the Web,
electronic sensors and steady advances in computing have helped transform
I.B.M.’s role, as it now helps cities track and analyze all kinds of data to
improve services.

“We’ve moved from the back office to the core
mission of cities — managing traffic, monitoring public health, optimizing
water use and crime-fighting,” says Jon C. Iwata, a senior vice president.

I.B.M. is now working with about 2,000 cities
worldwide as part of its “Smarter Cities” business, which began three years
ago. One advanced project is in the sprawling city of Rio de Janeiro, where
I.B.M. is designing a computerized command center. It is intended to pull data
from dozens of city agencies, as well as weather stations and webcams. One
assignment is to closely track heavy rainfall and to predict its impact — where
flooding might occur, how traffic should be rerouted, and what neighborhoods
may need to be evacuated. The goal is to predict and prepare for the kind of
mudslides and floods that killed hundreds of people in April 2010 and left
15,000 homeless.

THE evolution of low-cost Internet and mobile
phone technology has also let Intuit pursue opportunities with shared-value
attributes. The company offers free online income-tax preparation software and
filing services for lower-income households (now earning $31,000 or less).
Since 1999, nearly 13 million people have taken advantage of the service.

The cost is relatively inexpensive for
Intuit, as the service exploits the efficiency of online distribution; the
charge for paying customers is $20 to $50. And the program blurs the line
between charity and marketing, because millions of people who are sampling the
company’s product, may well become paying customers as their incomes rise.

In India, Intuit has begun offering a free
information service for farmers that can be accessed on any cellphone.
Part-time workers check crop prices at local markets and send the information
to Intuit. The company then relays the latest, local price quotations in text
messages to subscribing farmers. As a result, the farmers can make smarter
decisions about when and where to sell their produce.

The service in India began last year, and
300,000 farmers now use it. In follow-up surveys, farmers report that their
earnings are up 25 percent, says Scott Cook, the founder of Intuit and chairman
of the executive committee. The company, he adds, is testing ways to make money
off the service, perhaps with text ads for simple tractors and fertilizers.

Mr. Cook points to other new business forays
that are part of the same strategy. One is an Intuit health debit card for
American small businesses that want to pay for some of their employees’ medical
care but cannot afford conventional health insurance.

“We look for places we can use our strengths
as a company to help solve big problems,” he says. “You can call that shared
value if you like. But I look at it as the business we’re in.”

A version of this article appeared in print
on August 14, 2011, on page BU3 of the New York edition with the headline:
First, Make Money. Also, Do Good..

Source: www.nytimes.com