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TEDGlobal 2013

Michael Porter: Why business can be good at solving social problems

June 14, 2013

Why do we turn to nonprofits, NGOs and governments to solve society's biggest problems? Michael Porter admits he's biased, as a business school professor, but he wants you to hear his case for letting business try to solve massive problems like climate change and access to water. Why? Because when business solves a problem, it makes a profit -- which lets that solution grow.

Michael Porter - Business strategist
Michael E. Porter wrote the books on modern competitive strategy for business. Now he is thinking deeply about the intersection between society and corporate interests. Full bio

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Double-click the English subtitles below to play the video.
I think we're all aware
00:12
that the world today is full of problems.
00:13
We've been hearing them
00:16
today and yesterday and every day for decades.
00:18
Serious problems, big problems, pressing problems.
00:23
Poor nutrition, access to water,
00:27
climate change, deforestation,
00:30
lack of skills, insecurity, not enough food,
00:33
not enough healthcare, pollution.
00:36
There's problem after problem,
00:39
and I think what really separates this time
00:41
from any time I can remember in my brief time
00:44
on Earth is the awareness of these problems.
00:48
We're all very aware.
00:50
Why are we having so much trouble
00:53
dealing with these problems?
00:55
That's the question I've been struggling with,
00:57
coming from my very different perspective.
01:00
I'm not a social problem guy.
01:04
I'm a guy that works with business,
01:07
helps business make money.
01:10
God forbid.
01:13
So why are we having so many problems
01:16
with these social problems,
01:19
and really is there any role for business,
01:22
and if so, what is that role?
01:25
I think that in order to address that question,
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we have to step back and think about
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how we've understood and pondered
01:35
both the problems and the solutions
01:38
to these great social challenges that we face.
01:40
Now, I think many have seen business
01:45
as the problem, or at least one of the problems,
01:47
in many of the social challenges we face.
01:50
You know, think of the fast food industry,
01:53
the drug industry, the banking industry.
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You know, this is a low point
01:56
in the respect for business.
01:59
Business is not seen as the solution.
02:02
It's seen as the problem now, for most people.
02:03
And rightly so, in many cases.
02:07
There's a lot of bad actors out there
02:09
that have done the wrong thing,
02:11
that actually have made the problem worse.
02:13
So this perspective is perhaps justified.
02:15
How have we tended to see the solutions
02:19
to these social problems,
02:21
these many issues that we face in society?
02:24
Well, we've tended to see the solutions
02:27
in terms of NGOs,
02:28
in terms of government,
02:31
in terms of philanthropy.
02:33
Indeed, the kind of unique organizational entity
02:35
of this age is this tremendous rise of NGOs
02:37
and social organizations.
02:42
This is a unique, new organizational form
02:44
that we've seen grown up.
02:47
Enormous innovation, enormous energy,
02:48
enormous talent now has been mobilized
02:52
through this structure
02:55
to try to deal with all of these challenges.
02:57
And many of us here are deeply involved in that.
03:02
I'm a business school professor,
03:06
but I've actually founded, I think, now, four nonprofits.
03:07
Whenever I got interested and became aware
03:11
of a societal problem, that was what I did,
03:14
form a nonprofit.
03:17
That was the way we've thought about how to deal
03:19
with these issues.
03:22
Even a business school professor has thought about it that way.
03:23
But I think at this moment,
03:28
we've been at this for quite a while.
03:30
We've been aware of these problems for decades.
03:32
We have decades of experience
03:35
with our NGOs and with our government entities,
03:37
and there's an awkward reality.
03:41
The awkward reality is we're not making
03:43
fast enough progress.
03:45
We're not winning.
03:48
These problems still seem very daunting
03:50
and very intractable,
03:53
and any solutions we're achieving
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are small solutions.
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We're making incremental progress.
03:58
What's the fundamental problem we have
04:02
in dealing with these social problems?
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If we cut all the complexity away,
04:08
we have the problem of scale.
04:12
We can't scale.
04:16
We can make progress. We can show benefits.
04:19
We can show results. We can make things better.
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We're helping. We're doing better. We're doing good.
04:25
We can't scale.
04:29
We can't make a large-scale impact on these problems.
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Why is that?
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Because we don't have the resources.
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And that's really clear now.
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And that's clearer now than it's been for decades.
04:44
There's simply not enough money
04:46
to deal with any of these problems at scale
04:50
using the current model.
04:53
There's not enough tax revenue,
04:56
there's not enough philanthropic donations,
04:59
to deal with these problems the way we're dealing with them now.
05:03
We've got to confront that reality.
05:05
And the scarcity of resources
05:10
for dealing with these problems is only growing,
05:14
certainly in the advanced world today,
05:18
with all the fiscal problems we face.
05:21
So if it's fundamentally a resource problem,
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where are the resources in society?
05:30
How are those resources really created,
05:34
the resources we're going to need to deal
05:36
with all these societal challenges?
05:38
Well there, I think the answer is very clear:
05:42
They're in business.
05:45
All wealth is actually created by business.
05:48
Business creates wealth
05:54
when it meets needs at a profit.
05:57
That's how all wealth is created.
06:02
It's meeting needs at a profit
06:04
that leads to taxes
06:07
and that leads to incomes
06:09
and that leads to charitable donations.
06:11
That's where all the resources come from.
06:13
Only business can actually create resources.
06:16
Other institutions can utilize them
06:19
to do important work,
06:21
but only business can create them.
06:22
And business creates them
06:25
when it's able to meet a need at a profit.
06:26
The resources are overwhelmingly
06:34
generated by business.
06:38
The question then is, how do we tap into this?
06:40
How do we tap into this?
06:45
Business generates those resources
06:47
when it makes a profit.
06:50
That profit is that small difference
06:55
between the price and the cost it takes to produce
06:58
whatever solution business has created
07:03
to whatever problem they're trying to solve.
07:05
But that profit is the magic.
07:09
Why? Because that profit allows whatever solution
07:15
we've created
07:20
to be infinitely scalable.
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Because if we can make a profit,
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we can do it for 10, 100, a million,
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100 million, a billion.
07:33
The solution becomes self-sustaining.
07:36
That's what business does
07:41
when it makes a profit.
07:43
Now what does this all have to do
07:47
with social problems?
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Well, one line of thinking is, let's take this profit
07:52
and redeploy it into social problems.
07:56
Business should give more.
08:01
Business should be more responsible.
08:03
And that's been the path that we've been on
08:04
in business.
08:06
But again, this path that we've been on
08:09
is not getting us where we need to go.
08:11
Now, I started out as a strategy professor,
08:15
and I'm still a strategy professor.
08:18
I'm proud of that.
08:20
But I've also, over the years,
08:21
worked more and more on social issues.
08:23
I've worked on healthcare, the environment,
08:25
economic development, reducing poverty,
08:29
and as I worked more and more in the social field,
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I started seeing something
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that had a profound impact on me
08:38
and my whole life, in a way.
08:41
The conventional wisdom in economics
08:45
and the view in business has historically been
08:49
that actually, there's a tradeoff
08:53
between social performance and economic performance.
08:57
The conventional wisdom has been
09:02
that business actually makes a profit
09:03
by causing a social problem.
09:06
The classic example is pollution.
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If business pollutes, it makes more money
09:10
than if it tried to reduce that pollution.
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Reducing pollution is expensive,
09:18
therefore businesses don't want to do it.
09:20
It's profitable to have an unsafe working environment.
09:25
It's too expensive to have a safe working environment,
09:28
therefore business makes more money
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if they don't have a safe working environment.
09:32
That's been the conventional wisdom.
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A lot of companies have fallen into that conventional wisdom.
09:37
They resisted environmental improvement.
09:40
They resisted workplace improvement.
09:43
That thinking has led to, I think,
09:48
much of the behavior
09:52
that we have come to criticize in business,
09:53
that I come to criticize in business.
09:55
But the more deeply I got into all these social issues,
09:58
one after another,
10:01
and actually, the more I tried to address them
10:04
myself, personally, in a few cases,
10:07
through nonprofits that I was involved with,
10:09
the more I found actually that the reality
10:11
is the opposite.
10:14
Business does not profit
10:17
from causing social problems,
10:18
actually not in any fundamental sense.
10:20
That's a very simplistic view.
10:24
The deeper we get into these issues,
10:26
the more we start to understand
10:29
that actually business profits
10:31
from solving from social problems.
10:33
That's where the real profit comes.
10:35
Let's take pollution.
10:37
We've learned today that actually
10:40
reducing pollution and emissions
10:43
is generating profit.
10:45
It saves money.
10:48
It makes the business more productive and efficient.
10:51
It doesn't waste resources.
10:52
Having a safer working environment actually,
10:54
and avoiding accidents,
10:56
it makes the business more profitable,
10:58
because it's a sign of good processes.
10:59
Accidents are expensive and costly.
11:02
Issue by issue by issue, we start to learn
11:06
that actually there's no trade-off
11:09
between social progress
11:12
and economic efficiency
11:16
in any fundamental sense.
11:19
Another issue is health.
11:21
I mean, what we've found is actually
11:22
health of employees is something
11:25
that business should treasure,
11:26
because that health allows those employees
11:28
to be more productive and come to work
11:30
and not be absent.
11:32
The deeper work, the new work, the new thinking
11:34
on the interface between business and social problems
11:37
is actually showing that there's a fundamental,
11:41
deep synergy,
11:44
particularly if you're not thinking in the very short run.
11:46
In the very short run, you can sometimes
11:50
fool yourself into thinking
11:52
that there's fundamentally opposing goals,
11:54
but in the long run, ultimately, we're learning
11:56
in field after field that this is simply not true.
11:59
So how could we tap into
12:03
the power of business
12:07
to address the fundamental problems
12:09
that we face?
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Imagine if we could do that, because if we could do it,
12:14
we could scale.
12:17
We could tap into this enormous resource pool
12:19
and this organizational capacity.
12:21
And guess what? That's happening now, finally,
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partly because of people like you
12:30
who have raised these issues now
12:34
for year after year and decade after decade.
12:36
We see organizations like Dow Chemical
12:39
leading the revolution away from trans fat
12:41
and saturated fat with innovative new products.
12:43
This is an example of Jain Irrigation.
12:46
This is a company that's brought drip irrigation technology
12:48
to thousands and millions of farmers,
12:51
reducing substantially the use of water.
12:53
We see companies like the Brazilian forestry company Fibria
12:56
that's figured out how to avoid
13:00
tearing down old growth forest
13:01
and using eucalyptus and getting much more yield
13:03
per hectare of pulp
13:06
and making much more paper than you could make
13:08
by cutting down those old trees.
13:10
You see companies like Cisco that are training
13:12
so far four million people in I.T. skills
13:15
to actually, yes, be responsible,
13:19
but help expand the opportunity
13:21
to disseminate I.T. technology
13:23
and grow the whole business.
13:26
There's a fundamental opportunity for business today
13:27
to impact and address these social problems,
13:31
and this opportunity
13:36
is the largest business opportunity
13:37
we see in business.
13:40
And the question is, how can we get business
13:44
thinking to adapt this issue of shared value?
13:46
This is what I call shared value:
13:49
addressing a social issue with a business model.
13:51
That's shared value.
13:55
Shared value is capitalism,
13:57
but it's a higher kind of capitalism.
13:59
It's capitalism as it was ultimately meant to be,
14:01
meeting important needs,
14:05
not incrementally competing for
14:08
trivial differences in product attributes
14:11
and market share.
14:14
Shared value is when we can create social value
14:16
and economic value simultaneously.
14:18
It's finding those opportunities
14:21
that will unleash the greatest possibility we have
14:23
to actually address these social problems
14:26
because we can scale.
14:28
We can address shared value at multiple levels.
14:30
It's real. It's happening.
14:34
But in order to get this solution working,
14:37
we have to now change how business sees itself,
14:40
and this is thankfully underway.
14:44
Businesses got trapped into the conventional wisdom
14:47
that they shouldn't worry about social problems,
14:50
that this was sort of something on the side,
14:52
that somebody else was doing it.
14:54
We're now seeing companies
14:56
embrace this idea.
14:58
But we also have to recognize business
15:01
is not going to do this as effectively
15:03
as if we have NGOs and government
15:05
working in partnership with business.
15:07
The new NGOs that are really moving the needle
15:10
are the ones that have found these partnerships,
15:13
that have found these ways to collaborate.
15:16
The governments that are making the most progress
15:17
are the governments that have found ways
15:20
to enable shared value in business
15:21
rather than see government as the only player
15:25
that has to call the shots.
15:28
And government has many ways in which it could impact
15:31
the willingness and the ability of companies
15:34
to compete in this way.
15:36
I think if we can get business seeing itself differently,
15:38
and if we can get others seeing business differently,
15:41
we can change the world.
15:44
I know it. I'm seeing it.
15:46
I'm feeling it.
15:50
Young people, I think,
15:51
my Harvard Business School students, are getting it.
15:53
If we can break down this sort of divide,
15:56
this unease, this tension,
16:01
this sense that we're not
16:04
fundamentally collaborating here
16:06
in driving these social problems,
16:08
we can break this down,
16:10
and we finally, I think,
16:12
can have solutions.
16:14
Thank you.
16:17
(Applause)
16:20

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Michael Porter - Business strategist
Michael E. Porter wrote the books on modern competitive strategy for business. Now he is thinking deeply about the intersection between society and corporate interests.

Why you should listen

Fortune magazine calls Michael Porter simply "the most famous and influential business professor who has ever lived." His books are part of foundational coursework for business students around the world; he's applied sharp insight to health care systems, American competitiveness, development in rural areas. Now he's taking on a massive question: the perceived disconnect between corporations and society. He argues that companies must begin to take the lead in reconceiving the intersection between society and corporate interests -- and he suggests a framework, that of "shared value," which involves creating economic value in a way that also creates value for society.
 
Porter is a University Professor at Harvard Business School, where he leads the Institute on Strategy and Competitiveness, studying competitiveness for companies and nations -- and as a solution to social problems. He is the founder of numerous nonprofits, including The Initiative for a Competitive Inner City, a nonprofit, private-sector organization to catalyze inner-city business development.

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