Endowments - The Social Progress Imperative

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Transcript Endowments - The Social Progress Imperative

DEVELOPMENT STRATEGIES FOR THE 21ST CENTURY: SOCIAL PROGRESS AND COMPETITIVE GROWTH

Professor Michael E. Porter Asunción, Paraguay September 5, 2013 Social Progress Imperative

#socialprogress

HOW DO WE MEASURE A NATION’S DEVELOPMENT?

Social Progress Imperative

#socialprogress

THE DUAL CHALLENGES OF DEVELOPMENT

Economic Development Social Development

• • • In both

economic

and

business development

our understanding of success has been incomplete There is a powerful connection between

economic

and

social

development, both positive and negative Separating business and competitiveness from social progress and societal issues is a

serious mistake

3 Social Progress Imperative

#socialprogress

ECONOMIC DEVELOPMENT DEPENDS ON COMPETITIVENESS

A nation (or state) is competitive to the extent that firms operating there are able

to compete successfully

in the regional and global economy while supporting

high and rising wages and living standards

for the average citizen • Competitiveness depends on the

long-run productivity

of a location as a place to do business Productivity of existing firms and workers Ability to achieve high participation of working age citizens in the workforce • Competitiveness is

not

: Low wages A weak currency Jobs per se Social Progress Imperative

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

• Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation use of endowments

for prosperity, but true prosperity arises from

productivity in the

Social Progress Imperative

Endowments

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

Macroeconomic Competitiveness Endowments

• • Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation

for prosperity, but true prosperity arises from

productivity in the use of endowments

Social Progress Imperative

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

Macroeconomic Competitiveness Sound Monetary and Fiscal Policies Endowments

• • Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation

for prosperity, but true prosperity arises from

productivity in the use of endowments

Social Progress Imperative

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

Microeconomic Competitiveness Macroeconomic Competitiveness Sound Monetary and Fiscal Policies Endowments

• • • Productivity ultimately depends on improving the

microeconomic capability

of the economy and the

sophistication of local competition

revealed at the level of firms, clusters, and regions Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation of endowments

for prosperity, but true prosperity arises from

productivity in the use

Social Progress Imperative 8

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

Microeconomic Competitiveness Sophistication of Company Operations and Strategy Macroeconomic Competitiveness Sound Monetary and Fiscal Policies Endowments

• • • Productivity ultimately depends on improving the

microeconomic capability

of the economy and the

sophistication of local competition

revealed at the level of firms, clusters, and regions Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation of endowments

for prosperity, but true prosperity arises from

productivity in the use

Social Progress Imperative 9

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

Quality of the Business Environment Microeconomic Competitiveness Sophistication of Company Operations and Strategy Macroeconomic Competitiveness Sound Monetary and Fiscal Policies Endowments

• • • Productivity ultimately depends on improving the

microeconomic capability

of the economy and the

sophistication of local competition

revealed at the level of firms, clusters, and regions Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation of endowments

for prosperity, but true prosperity arises from

productivity in the use

Social Progress Imperative 10

#socialprogress

IMPROVING THE QUALITY OF THE BUSINESS ENVIRONMENT Context for Firm Strategy and Rivalry Factor (Input) Conditions

• Access to high quality

business inputs

– Qualified human resources – Capital availability – Physical infrastructure – Scientific and technological infrastructure • Local

rules and incentives

that encourage investment and productivity – e.g. incentives for capital investments, IP protection, sound corporate governance standards • Open and vigorous

local competition

− Openness to foreign competition − Strict competition laws •

Demand Conditions Sophisticated and demanding

local needs – e.g., Strict quality, safety, and environmental standards

Related and Supporting Industries

• Availability and quality of

supporting industries suppliers

and •

Many things matter

for competitiveness • Successful economic development is a process of

successive upgrading

, in which the business environment improves to enable increasingly sophisticated ways of competing Social Progress Imperative 11

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

Quality of the Business Environment Microeconomic Competitiveness Sophistication of Company Operations and Strategy Macroeconomic Competitiveness Sound Monetary and Fiscal Policies Endowments

• • • Productivity ultimately depends on improving the

microeconomic capability

of the economy and the

sophistication of local competition

revealed at the level of firms, clusters, and regions Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation of endowments

for prosperity, but true prosperity arises from

productivity in the use

Social Progress Imperative 12

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

Quality of the Business Environment Microeconomic Competitiveness State of Cluster Development Sophistication of Company Operations and Strategy Macroeconomic Competitiveness Sound Monetary and Fiscal Policies Endowments

• • • Productivity ultimately depends on improving the

microeconomic capability

of the economy and the

sophistication of local competition

revealed at the level of firms, clusters, and regions Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation of endowments

for prosperity, but true prosperity arises from

productivity in the use

Social Progress Imperative 13

#socialprogress

DEVELOPING CLUSTERS: TOURISM IN CAIRNS, AUSTRALIA Public Relations & Market Research Services Travel Agents Tour Operators Local Retail, Health Care, and Other Services Food Suppliers Local Transportation Hotels Attractions and Activities

e.g., theme parks, casinos, sports

Property Services Maintenance Services Restaurants Airlines, Cruise Ships Souvenirs, Duty Free Banks, Foreign Exchange Government Agencies

e.g., Australian Tourism Commission, Great Barrier Reef Authority

Educational Institutions

e.g., James Cook University, Cairns College of TAFE Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden Social Progress Imperative 14

Industry Groups

e.g., Queensland Tourism Industry Council

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GEOGRAPHIC INFLUENCES ON COMPETITIVENESS

Nation

Social Progress Imperative

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GEOGRAPHIC INFLUENCES ON COMPETITIVENESS

Nation Regions and Cities

• Regions are the

most important economic unit for competitiveness

in larger countries, especially countries beyond subsistence development Social Progress Imperative

#socialprogress

GEOGRAPHIC INFLUENCES ON COMPETITIVENESS

Neighboring Countries

“The Neighborhood”

Nation Regions and Cities

• Regions are the

most important economic unit for competitiveness

in larger countries, especially countries beyond subsistence development Social Progress Imperative

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

• • • Productivity ultimately depends on improving the

microeconomic capability

of the economy and the

sophistication of local competition

revealed at the level of firms, clusters, and regions Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation of endowments

for prosperity, but true prosperity arises from

productivity in the use

Social Progress Imperative

#socialprogress

WHAT DETERMINES COMPETITIVENESS?

• • • Productivity ultimately depends on improving the

microeconomic capability

of the economy and the

sophistication of local competition

revealed at the level of firms, clusters, and regions Macroeconomic competitiveness sets the

economy-wide

not sufficient

to ensure productivity context for productivity to emerge, but Endowments, including

natural resources, geographical location, population

, and

country size

, create a

foundation of endowments

for prosperity, but true prosperity arises from

productivity in the use

Social Progress Imperative

#socialprogress

MEASURING NATIONAL DEVELOPMENT

•

There has been a growing recognition of the need to go

beyond GDP

in measuring a nation’s performance

• -

A series of indexes have been introduced to do so: Human Development Index Millennium Development Indicators Happy Planet Index OECD Better Life Indicators Legatum Prosperity Index

Social Progress Imperative

#socialprogress

SOCIAL PROGRESS INDEX: DESIGN PRINCIPLES

•

Separate from economic indicators

•

Holistic framework

•

Outcomes rather than inputs

•

Relevant to all countries

Social Progress Imperative 21

#socialprogress

WHAT IS SOCIAL PROGRESS?

Social progress is the capacity of a society to meet the

basic human needs

of its citizens, establish the

building blocks

that allow citizens and communities to enhance and sustain the quality of their lives, and create the

conditions for all individuals to reach their full potential

.

Social Progress Imperative

#socialprogress

SOCIAL PROGRESS INDEX MODEL

Social Progress Index Basic Human Needs Nutrition and Basic Medical Care Air, Water, and Sanitation Shelter Personal Safety

Does a country provide for its people’s most essential needs?

Foundations of Wellbeing Access to Basic Knowledge Access to Information and Communications Health and Wellness Ecosystem Sustainability

Are the building blocks in place for individuals and communities to enhance and sustain wellbeing?

Opportunity Personal Rights Personal Freedom and Choice Inclusion and Equity of Opportunity Access to Higher Education

Is there opportunity for all individuals to reach their full potential?

Social Progress Imperative

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SPI RANKINGS: 2013

Sweden United Kingdom Switzerland Canada Germany United States Australia 8.

Japan France 10. Spain 11. Korea, Rep.

12. Costa Rica 13. Poland 14. Chile 15. Argentina 16. Israel 17. Bulgaria 18. Brazil 19. United Arab Emirates 20. Turkey 21. Dominican Republic 22. Colombia 23. Thailand 24. Peru 25. Mexico

Social Progress Imperative 24

26. Philippines 27. Paraguay 28. Tunisia 29. Georgia 30. Viet Nam 31. Jordan 32. China 33. Russian Federation 34. Kazakhstan 35. Botswana 36. Sri Lanka 37. Morocco 38. Indonesia 39. South Africa 40. Egypt, Arab Rep.

41. Ghana 42. Bangladesh 43. India 44. Senegal 45. Kenya 46. Rwanda 47. Mozambique 48. Uganda 49. Nigeria 50. Ethiopia

#socialprogress

SPI RANKINGS: 2013

Sweden United Kingdom Switzerland Canada Germany United States Australia Japan France 10. Spain 11. Korea, Rep.

12. Costa Rica 13. Poland 14. Chile 15. Argentina 16. Israel 17. Bulgaria 18. Brazil 19. United Arab Emirates 20. Turkey 21. Dominican Republic 22. Colombia 23. Thailand 24. Peru 25. Mexico

Social Progress Imperative 25

41. Ghana 42. Bangladesh 43. India 44. Senegal 45. Kenya 46. Rwanda 47. Mozambique 48. Uganda 49. Nigeria 50. Ethiopia

#socialprogress

SOCIAL PROGRESS INDEX VS. GDP PER CAPITA

Social Progress Imperative 26

#socialprogress

SOCIAL PROGRESS INDEX VS. GDP PER CAPITA

Social Progress Imperative 27

#socialprogress

SOCIAL PROGRESS INDEX VS. GDP PER CAPITA

Social Progress Imperative 28

#socialprogress

SOCIAL PROGRESS INDEX VS. GDP PER CAPITA

Social Progress Imperative 29

#socialprogress

OVERALL SPI VS. GOVERNMENT EXPENDITURE (% OF GDP)

Government expenditure source: 2013 Index of Economic Freedom Social Progress Imperative 30

#socialprogress

THE SOCIAL PROGRESS INDEX: KEY FINDINGS

• Economic development is

necessary but not sufficient

measure of national performance as a • Some approaches to economic development are

less effective

than others in advancing social progress, and even counterproductive • Just as economic development helps social progress, social progress can enable

sustainable economic development

• The amount of government spending (as a percent GDP) is an

incomplete explanation

for social progress performance Social Progress Imperative

#socialprogress

SOCIAL PROGRESS INDEX VS. GDP PER CAPITA

Paraguay

Social Progress Imperative 32

#socialprogress

SOCIAL PROGRESS PARAGUAY SCORECARD OVERALL RANK 27 Basic Human Needs

Nutrition and Basic Medical Care

Undernourishment Depth of food deficit Maternal mortality rate Stillbirth rate Child mortality rate Prevalence of tuberculosis

Air, Water and Sanitation

Indoor air pollution attributable deaths Outdoor air pollution attributable deaths Access to piped water Rural/urban access to improved water source Access to improved sanitation facilities Access to wastewater treatment

Shelter

Availability of affordable housing Access to electricity

Personal Safety

Homicide rate Level of violent crime Perceived criminality Political terror 34 37 24 16 23

36 44 42 34 38 32 25 38 28 5 31 45 34 36 17 20 25

Foundations of Wellbeing

Access to Basic Knowledge

Adult literacy rate Primary school enrollment Secondary school enrollment Women's mean years in school

37 23 46 36 29

Opportunity

Personal Rights

Political rights Freedom of speech Freedom of assembly/association Private property rights Women's property rights

Access to Information and Communications

Mobile telephone subscriptions Internet users Fixed broadband subscriptions Press Freedom Index 34 29 37 38 17

Personal Freedom and Choice

Basic religious freedoms Contraceptive prevalence rate Access to childcare Freedom over life choices

Health and Wellness

Life Expectancy Obesity Cancer death rate Deaths from cardiovascular disease & diabetes Deaths from HIV Availability of quality healthcare 24 33 26 27 19 30 22

Ecosystem Sustainability

Ecological footprint of consumption CO2 emissions per capita Energy efficiency (use per $1,000 GDP) Water withdrawals per capita 30 31 11 49 8

Inclusion and Equity of Opportunity

Equity of opportunity for ethnic minorities Women treated with respect Community safety net Tolerance of immigrants Tolerance for homosexuals

Access to Higher Education

Tertiary school enrollment Female tertiary enrollment * 13 48 43 20 2 13 27 25 27

Paraguay GDP per capita rank is 35th among sample of 50 countries

27 1 9 43 36

22 26 12 1 35 1 *Safety net and tolerance and respect for minorities, women, and disadvantaged Social Progress Imperative

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SOCIAL PROGRESS INDEX VS. GDP PER CAPITA

Social Progress Imperative 34

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OVERALL SPI VS. GOVERNMENT EXPENDITURE (% OF GDP )

Government expenditure source: 2013 Index of Economic Freedom Social Progress Imperative 35

#socialprogress

THE SOCIAL PROGRESS IMPERATIVE: DRIVING TO ACTION

The Social Progress Imperative is not just an Index, but a global effort designed to

catalyze action at the country level

. It aims to form and support National Committees of leaders and stakeholders in each country, and work jointly with them to mobilize policy changes and private sector initiatives.

Social Progress Imperative

#socialprogress

THE ROLE OF THE NATIONAL COMMITTEE

• Interpret and disseminate country level priorities for social progress improvement • Pursue policy changes in priority areas for social progress, through cross-sector collaboration • Foster improvements in local data collection and relevant research Social Progress Imperative

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THE ROLE OF BUSINESS IN SOCIETY

• Only business can

create wealth

and

prosperity

• Business is facing

growing scrutiny

as the cause or a contributor to many of today’s societal challenges • Corporate social responsibility efforts are greater than ever, but the

legitimacy of business has fallen

• Government and NGO’s alone

lack sufficient resources and capabilities

to fully meet social challenges Social Progress Imperative

We need a

new approach

#socialprogress

THE ROLE OF BUSINESS IN SOCIAL AND ECONOMIC PROGRESS Philanthropy

• • Donations to worthy social causes Volunteering Social Progress Imperative

Corporate Social Responsibility (CSR)

• • • Compliance with community standards Good corporate citizenship “Sustainability” • Mitigate risk and harm

Creating Shared Value (CSV)

• Address societal needs and challenges

with a business model

#socialprogress

SOCIAL NEEDS AND ECONOMIC VALUE CREATION Energy Use Environmental Improvement Education Water Use Skills Company Productivity Community Economic Development Affordable Housing Worker Safety Health

• •

Social

deficits create

economic

costs for companies Social needs represent the

largest market opportunities

Social Progress Imperative 40

#socialprogress

CREATING SHARED VALUE IN PRODUCTS AND MARKETS JAIN IRRIGATION SYSTEMS

• •

Drip irrigation equipment

for small farmers in Africa and India Serves

more than 4 million farmers

worldwide as of 2012 • • Reduces

water use

by over 40% Enables

higher crop yields

that improve food security while raising farmers’ income • Jain is now a

$820 million

company that is rapidly growing Social Progress Imperative

#socialprogress

SHARED VALUE IN THE VALUE CHAIN FIBRIA, BRAZIL

• Fibria, a large manufacturer of pulp for paper, utilizes

trees

rather than native and old growth forests

planted eucalyptus

• The company supports and encourages technical training and inputs

small-scale producers

near its mills to plant eucalyptus in conjunction with other crops, assisting them with • Fibria achieves far greater resource efficiency versus old growth forest production, with eucalyptus yielding

30 times higher

yield per acre of wood pulp • Small scale producers contribute 27% of the

raw material

Fibria mills, improving efficiency volume utilized in •

4000 households

have significantly increased their income Social Progress Imperative

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PARTNERING FOR SHARED VALUE

• • • • •

NGOs

Hold business accountable Seek donations • •

Government

Regulate how businesses operate Operate social programs Tax businesses

Foundations

Donate to charitable causes

Competitors

“Brand” social initiatives • Partner with business to implement and

scale

shared value solutions • • • • Regulate to

encourage

market solutions

Partner

to deliver shared value solutions to social services

Jumpstart market solutions

through minimum purchases or subsidies Invest in

infrastructure

to enable shared value approaches (e.g. roads, skills) • Invest

with

companies, NGOs and government to enable shared value solutions •

Partner

on business environment improvements Social Progress Imperative

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CREATING SHARED VALUE: DECIDING WHERE TO CONCENTRATE NESTLÉ Water Nutrition Rural Development

• Opportunities to create shared value are

inevitably tied closely

to a company’s particular businesses Social Progress Imperative 44

#socialprogress

FROM PRODUCT TO PURPOSE

Traditional Positioning Nestlé Nike

• Food and Beverage Company • Footwear Company

Thermo Fisher

• Scientific and Laboratory Instruments Company

New Positioning

• Nutrition Company • Health and Fitness Company • Making the World Healthier, Cleaner, and Safer • A

broader sense of social purpose

profitability, while

motivating

and opens up

attracting new opportunities

for growth and employees, consumers, business partners, shareholders, and the public Social Progress Imperative

#socialprogress

REDEFINING CORPORATE PURPOSE DANONE

• Danone realized that it had drifted away from its origins as a manufacturer of

healthy foods

• • • •

Sold off

its beer, meat and cheese units Refocused the company on

dairy

and

water

Acquired

medical nutrition

and

baby foods

businesses Created

Innovation Committees

people as possible ” in business units to provide “healthy food for as many

Vision

The ‘dual economic and social’ project, creating economic value by creating social value

Social Progress Imperative 46

Mission

Bringing health through food to as many people as possible by refocusing on four complementary business lines and expanding into fast-growing new regions #socialprogress

THE PURPOSE OF BUSINESS

• Our purpose in business is to

create shared value for society

, not economic value for its own sake • Businesses society

acting as businesses

, not as charitable givers, are arguably the most powerful force for addressing many of the pressing issues facing our • Shared value will give rise to

far broader opportunities

for economic value creation • Shared value thinking will drive the next wave of

innovation

productivity

, and

economic growth

• A transformation of business practice around shared value will give

purpose

to the corporation and represents our best chance to

legitimize business again

Social Progress Imperative

#socialprogress

THE SOCIAL PROGRESS COMMITTEE IN PARAGUAY

• Paraguay has taken the lead among countries applying the SPI as a formal measure of national performance • The government issued a Presidential Decree on July 26, 2013, making the SPI an official measure of national performance Social Progress Imperative

#socialprogress

T

S

OCIAL

P

ROGRESS

N

ETWORK

: P

ARAGUAY

C

OMMITTEE

Paraguay has already organized a local committee to deploy SPI at all levels • • • • • • • La Asociación de Empresarios Cristianos (ADEC) La Federación de la Producción, la Industria y el Comercio (FEPRINCO) La Fundación Paraguaya La Fundación Moisés Bertoni La Fundación Desarrollo en Democracia (DENDE) Fundación Avina La Universidad Católica- Programa de Maestría en Administración de Empresas Social Progress Imperative

#socialprogress

THE SOCIAL PROGRESS COMMITTEE IN PARAGUAY

• • • The local social progress committee has already started work in three priority areas If we get more of you to join the effort, we could expand and deal with many more.

These priorities are: – Nutrition (meet the nutrtional needs of 1,000,000 additional paraguayans ) – – Water and sanitation Shelter Social Progress Imperative

#socialprogress

THE ROLE OF BUSINESS IN SOCIAL PROGRESS

• Now it is time for business leaders in Paraguay to walk alongside government in fostering social progress, in creating many instances of shared value, and in developing the competitive strategies that will lift this country to its full potential • The new government creates an opportunity for a new public private relationship Social Progress Imperative 51

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Twitter: @socprogress #socialprogress

Social Progress Imperative

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