Ankit Gupta 1 Roll no: 023, PG-Marketing

Business Policy Assignment-2 Michael Porter and Mark Kramer try to discuss through this article how economic success and societal development can go together and companies need not choose just one trading off the other. They define the purpose of shared values as something not just social responsibility, philanthropy or even sustainability, but its a whole different thing for economic success. Porter & Kramer criticize neoclassical thinking on the trade-off between societal needs and economic success, and the way the concept of externalities have shaped corporate and policy strategy. They use fair trade as an example of describing something which is not shared value. A fair trade is more about redistribution rather than enhancing the overall value. Business and society need to move away from the idea that there is a trade-off between these two entities; business and society. A business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment. A community needs successful businesses to provide jobs and wealth creation opportunities for its citizens. Shared value thinking recognizes that social harms frequently create internal costs for firms, such as wasted energy or raw materials, costly accidents, and the need for remedial training to compensate for inadequacies in education. And that this doesnt necessarily raise costs for firms because they can innovate through using new technologies, operating methods, and management approaches and as a result, increase their productivity and expand their markets. Porter is proposing a change in previous thinking, away from the neoclassical perspective which he believes is false. Shared value is not about sharing value which already exists its about expanding the current pool of value which benefits everyone. It is applicable to both developed and developing countries. The trend of blurring for-profit/non-profit boundaries is a strong sign that creating shared value is possible. Social entrepreneurs are leading the way on creating shared value because they are not locked into traditional business thinking. Real social entrepreneurship should be measured by its ability to create shared value, not just social benefit. Societal needs are the greatest unmet needs in society. When businesses build products around society, then both business and society benefit. Productivity and societal progress heavily linked so called externalities usually become internal costs to the firm. Today there is a growing consensus that major improvements in environmental performance can often be achieved with better technology at nominal incremental cost and can even yield net cost savings through enhanced resource utilization, process efficiency, and quality. Costs must be looked at in a long term perspective, and no longer short term. Porter & Kramer show many examples of creating shared value in activities along the supply chain. Coca-Cola reduced worldwide consumption of water by 9% from a 2004 baseline. Nestle providing advice to its farmers, guaranteeing bank loans and guaranteeing bank loads. Hindustan Unilever creating new direct-to-home distribution system, run by underprivileged female entrepreneurs doubling their household income. By investing in employee wellness programs, Johnson & Johnson has saved $250 million on health

Ankit Gupta 2 Roll no: 023, PG-Marketing

care costs. Olam International has cut costs 25% by bringing cashew nut processing back to location where they are grown in Africa, providing direct employment to impoverished rural areas. Success of every company is affected by the supporting companies and infrastructure around it. Productivity and innovation are strongly influenced by clusters, or geographic concentration of firms, related businesses, suppliers, service providers, and logistical infrastructure. Clusters include not just businesses, but institutions such as academic programs, trade associations and standards organizations. They also require public assets in the community: education, utilities, competition policy, and a strong legal framework. Firms create shared value by building clusters to improve company productivity while addressing gaps or failures in the framework conditions surrounding the cluster. Cluster development benefits both the company and society. Example: Nestle provided substantial assistance to build agricultural, technical, financial and logistical firms and capabilities in its coffee regions, thereby developing its local clusters, and as a result Nestles productivity improved. To support cluster development companies need to identify gaps and deficiencies in the community that have an effect on their own productivity and growth. This is where shared value comes from. This is different to CSR initiatives where there is minimal relationship between the firm and the societal need, thereby shared value is not created. Creating shared value is a change of thinking, discounting the term externality and treating societal problems as an internal cost to the firm. It is a far more effective and sustainable strategy than both traditional businesses thought as proposed by Milton Friedman, and current CSR practices. The three opportunities for creating shared value are mutually reinforcing, for example enhancing the cluster will enable more local procurement and less dispersed supply chains. Shared Value creation can only exist with a change in mind set particularly with regard to changing short term investment mentalities towards longer term investment with sustainability in mind. Creating shared value will require concrete and tailored metrics for each business unit it each of the three opportunities described. While some shared value opportunities are possible for a company to seize on its own, others will benefit from insights, skills, and resources that cut across profit/ nonprofit and private/public boundaries. Here, companies will be less successful if they attempt to tackle societal problems on their own, especially those involving cluster development. Major competitors may also need to work together on precompetitive framework conditions, something that has not been common in reputation-driven CSR initiatives. Successful collaboration will be data driven, clearly linked to defined outcomes, well connected to the goals of all stakeholders, and tracked with clear metrics. The principle of shared value creation cuts across the traditional divide between the responsibilities of business and those of government or civil society. CSV regulations are different to traditional regulation because it focuses on measurable social improvement and sets standards rather than imposing a particular approach which stifles innovation.

Ankit Gupta 3 Roll no: 023, PG-Marketing

After discussing the HBR article by Michael Porter and Mark Kramer, we will try and analyze the corporate social responsibilities of Honeywell and Seimens, two conglomerates which compete in same industries all across the world. Honeywell produces a variety of commercial and consumer products, engineering services, and aerospace systems for a wide variety of customers, from private consumers to major corporations and governments. Building on a century long tradition of corporate citizenship, Honeywells efforts focus on societal needs that align with its heritage: Science and Math Education, Family Safety and Security, Housing and Shelter, Humanitarian Relief and Environment and Sustainability. Honeywell has set environment and safety goals where they have outlined their milestones about green house gas emissions and energy efficiency implementations. They have reduced global greenhouse gas emissions by more than 30% and improving energy efficiency by more than 20% between 2004 and 2011. Honeywell is running water conservation projects at their sites that are significant water consumers in areas that are experiencing water stress as defined by the World Resources Institute. Honeywell tries to maintain our company-wide global Total Case Incident Rate (the number of occupational injuries and illnesses per 100 employees) at less than half of the combined U.S. averages of the businesses in which we operate. The companys Health, Safety, Environment, and Sustainability (HSES) matters are managed by a global team of approximately 700 trained professionals with extensive knowledge of the use and disposal of toxic substances, and hundreds of years of collective experience in occupational health, hydrology, geology, engineering, safety engineering, industrial hygiene and remediation. Honeywell has affiliation and memberships in various CSR programs like the Global Energy Efficiency Building Retrofit Program, a project of the Clinton Climate Initiative, Responsible Care program of the American Chemistry Council, a voluntary program to achieve improvement in environmental, health and safety performance beyond levels required by the U.S. government. They are linked with the State University of New York College of Environmental Science and Forestry (ESF) and McKinsey & Company and The Conference Board titled Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost? in regards to subjects like generation of new source of sustainable energy and reduction of greenhouse gases. In India, Honeywell run campaigns to set up science labs in rural schools. They also encourage young students for aviation engineering in the future, they have setup Honeywell Aero Club program in Delhi. The School Fire Safety Program with the Fire Safety Association of India has reached 56,200 children across 71 schools from 2009-11 in Delhi, Mumbai, Bangalore, Chennai and Pune. Seimens which is business house from Germany has Corporate Social Responsibility as an integral part of business philosophy- Giving back graciously to society a piece of our success.