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Workshop no. 2
Clusters and the aspects of sustainable and social innovation
First presentation: Input to the concept of Shared Value
by Prof. Dr. Peter Abplanalp
Workshop no. 2
Clusters and the aspects of sustainable and social innovation
One of the reasons why companies link to clusters is their hope to benefit from innovation processes that are initiated in such way. However, the maximisation of profits is not anymore the only driver of these innovation efforts. The content of this workshop is therefore about responsible innovation. In particular, it addresses concepts such as shared value or barter between cluster members.
Source: Program European Cluster Conference 2015
Workshop no. 2
Clusters and the aspects of sustainable and social innovation
Capitalist System under Siege
• Business is no longer seen as problem solver, but rather as major cause of social, environmental, and economic problems.
• Companies are widely perceived to be prospering at the expense of the broader community
Porter/Kramer (2011)
Limited Model of Economic
Value Production
• Problems of society => not part of business thinking
• CSR tries to reconnect business and society
• Business often overlooks fundamental needs of the society
• Profit increase mainly built on outsourcing, downsizing, relocation and globalization
• Companies disconnected with the site where they are located
• Short time horizons are at the root of all this
• Growth and innovation suffer
Is Corporate Shared Value a Concept of Sustainable and
Social Innovation?
… or is CSV just one more of these popular business fads that will move from the current sudden prominence to obscurity within the next few months?
Sourcer:http://www.jarnot.com/archives/2007/03/the_latest_management_fad.php
What is Corporate Shared Value (CSV)?
A concept by Michael E. Porter and Mark Kramer
What is CSV?
Policies and practices that enhance the competitiveness of a company while simultaneously advancing economic and social conditions in the communities in which it operates.
Porter/Kramer (2011, p.66)
What is CSV?
CSV means to create and share additional value . The point is not to merely share the already achieved value.
Some Misconceptions
of CSV?
• CSV is not philanthropy or business ethics
• It’s not giving something back to somebody or mere mitigation
• It is not (only) sustainability
• CSV does not comply with the «Triple Bottom Line» (three pillars of sustainability: economic, ecological, social)
• It is not only «balancing of stakeholder interests»
CSV is different from CSR
CSR
CSV
Reactive (answering to public pressure)
Proactive (increasing competitiveness)
Main motivation: charity and improving corporate image Main motivation: create value for the company and the society
Maximizing profits is secondary
Maximizing profits is part of the concept
Treated as separate from the core business agenda
Part of core business: drive the next wave
of innovation, productivity, and growth
Hard to sustain in times of economic pressure
Purpose of business is to create economic value and value for the society
Limited by budget restrictions
Few limiting factors
H 1: Inevitable links between business and society
Diamond
Environment
Company
Value Chain
Company structure
H 2: Competitiveness Depends
on Favorable Diamond
The quality of the business environment (incl. social and community conditions) resp. “Diamond conditions” affect the competitiveness of any company.
Source of illustration: Wikipedia
H 3: Value Chains of Companies Affect Diamond
H 4: Societal Needs Are
Important Part of Markets
Societal needs, not just conventional economic needs, define markets, and social harms can create internal costs for firms.
Ad H1:
Links Business ‐ Society
Shared value creation focuses on identifying and expanding the connections between societal and economic progress.
Ad H 2:
CSV and the Diamond
© Michael E. Porter, Harvard University
Ad H2: CSV => Compensate Weaknesses in the
Diamond
Qualified Human Resources
Education/ Training
Infrastructure
Context of firm
strategy and rivalry
Factor (Input)
Conditions
Availability of suppliers and supporting industry
Rule of law
Open competition
Transparency
Intellectual property protection
Demand Conditions
Related and
supporting industry
Quantity/quality of local demand
Regulatory standards (environment, safety)
adapted from Poreter (2009)
Ad H 3:
CSV and the Value Chain
Source: Michael E. Porter, From CSR to creating Shared Value, November 2009
Ad H 4:
Social problems => new markets
Energy
use
Gender
Equity
Water use
Employee
health
Environ
mental
Impact
Company
Productivity
Workforce
Qualification
Work
Safety
Source: Michael E. Porter, From CSR to creating Shared Value, November 2009
Why Should Business Care
About This?
• Social deficits create cost for the enterprise
• External conditions affect productivity of the enterprise
• Social needs provide many possibilities for the development of new markets
• There is a growing correspondence between economic value creation and goals of the society
Why Should Business Care
About This?
Calculations by Prof. M.E. Porter; Corporate revenue was estimated based on the 9.1% percent net profit margin for U.S. private companies. Slurce: Bureau of Economic Analysis, 2013, Sageworks Private Company Indicator
Why Should Business Care
About This?
Companies tend to be more effective in finding marketing solutions for social problems than governments and NGOs.
Levels of “Shared Value”‐
Creation
• Needs of clients, new understanding of products and markets
• Redefine productivity in the value chain
• Facilitate and/or support local cluster development
Needs of Clients: New
Products and Markets
• Design products and services that meet social needs (e.g. environment, safety, health etc.)
• Develop new markets by offering products and services that cover open needs in underserved communities
• Spot new opportunities for differentiation and for innovation and growth
Redefine Productivity
in the Value Chain
•
•
•
•
•
Procurement
Use of resources (energy, raw material, recycling etc.)
Efficiency of logistics
Productivity of employees (safety, health etc.)
Location of elements of the supply chain
Facilitate and/or Support
Local Cluster Development
• A strong local cluster will improve productivity of companies (e.g. more efficient supply chain, less pollution, better access to trained employees)
• By cooperation, companies can generate significant improvements in the local environment
• The development of a local cluster reinforces the connection between business and community and enhances their mutual success
Conclusion
• CSV has the potential not to end as a fade, but as a template for the improvement of business–society relations.
• CSV ‐ in order to succeed ‐ needs managers on the company side and officials on the government or NGO side that have a clear understanding of the concept.
• CSV cannot solve all the problems. But keep in mind: Even long and ambitious journeys start with small steps. A Final Thought
“No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable. ” Adam Smith (1723‐1790)
Sources and References
Matthias Kiese (2011), Ruhr Universität Bochum, Presentation Expertenworkshop Cluster & Competitiveness , Leipzig, 30. September 2011
Luiz Leandro et al. (2012), Is the integration of Shared Value Creation (SVC) with strategy management of productive organizations an innovative approach to environmental challenges faced by companies today? International Journal of Business Management and Economic
Research, Vol 3(2),2012,484‐489
Laura Michelini, Daniela Fiorentino(2012), New business models for creating shared value, Social Responsibility Journal, Vol. 8, No. pp. 561‐577
Michael E. Porter: Several presentations (Inner City Capital Connections ICCC, New York, November 19, 2009; Shared Value Leadership Summit New York, NY, May 13th, 2014; Microeconomics of Competitiveness Faculty Workshop, December 14, 2010)
Michael E. Porter, Mark E. Kramer (2011) Creating Shared Value. Rethinking Capitalism, HBR January/February 2011
Heiko Spitzeck, Sonja Chapman (2012): Creating Shared Value as a Differentiation Strategy – the
example of BASF in Brazil, Corporate Governance, Vol. 12, No. 4, pp. 499‐513
Sources and References
http://www.isc.hbs.edu/Creating_Shared_Value.htm
http://www.businessweek.com/smallbiz/content/may2010/sb2010055_195618.htm
http://www.fsg.org/Portals/0/Uploads/Documents/PDF/CSV_Webinar.pdf?cpgn=Webinar%20DL
%20‐%20Creating%20Shared%20Value%20in%20Action%20ppt
http://www.fsg.org/Portals/0/Uploads/Documents/PDF/Shared_Value_Guide.pdf :
http://www.forbes.com/sites/csr/2011/06/14/three‐great‐examples‐of‐shared‐value‐in‐action/