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April 10, 2007
Porter and Kramer Framework Melding CSR with Business Strategy Wins Harvard Award
by Bill Baue
The Harvard Business Review grants the 2006 McKinsey Award to an article arguing companies create
competitive advantage by integrating social and environmental issues into core strategy.
SocialFunds.com --
The late free enterprise maven Milton Friedman crystallized the conventional wisdom of the
traditional business community in his 1970 New York Times Magazine
article, encapsulated in its title: "The Social Responsibility of Business is to Increase its
Profits." On the other side of the coin, social responsibility advocates have long questioned
whether capitalism's foundational dependence on perpetual profit growth pits it irrevocably against
society and the environment and ultimately the company itself. The corporate social responsibility
(CSR) movement has slowly shifted these two sides closer to common ground within the past decade or
so.
Nongovernmental organizations (NGOs)
that once campaigned against companies have developed inside/outside approaches of partnering with
companies to promote best practices--while maintaining the threat of campaigning against poor
practices. Companies have adopted CSR practices, first as window-dressing, then as patchwork
policies, and now, thought-leaders are arguing the necessity of integrating CSR with core business
strategy. The latest sign of this trend came last week when the Harvard Business Review
announced the 2006 McKinsey Award winner for the year's most significant article in its pages: "Strategy and
Society: The Link Between Competitive Advantage and Corporate Social Responsibility" (published
in December.)
"This article clearly articulates that sustainability really lives at the
intersection of the interests of society and the interests of business," said Gene Kahn, vice
president of sustainable development at General Mills. He joined General
Mills in 1999 when it acquired the organic food company he founded in 1972, Cascadian Farm. "It
illustrates the potential and necessity for systemic change in the corporation and links it to the
formation of competitive advantage."
"Personally, the article opened new horizons for me
in my work at General Mills," Mr. Kahn told SocialFunds.com. "Yes, we can and need to reduce
energy, water, and waste, but perhaps a more significant goal at General Mills is the promotion of
human health. We can make a larger societal contribution thru activities that are intimately tied
to our business activities. I believe that the integration of CSR into business strategy is the
only approach that will result in achieving true social and environmental sustainability."
Authors Michael Porter, a Harvard business professor, and
Mark Kramer, a senior fellow in the CSR Initiative at Harvard's Kennedy
School of Government, propose a framework for shifting CSR from a paradigm pitting business
against society to one leveraging their interdependence.
"Leaders in both
business and civil society have focused too much on the friction between them and not enough on the
points of intersection," they write. "The mutual dependence of corporations and society implies
that both business decisions and social policies must follow the principle of shared value"
(emphasis in original.)
"That is, choices must benefit both sides," they continue. "To
advance CSR, we must root it in a broad understanding of the interrelationship between a
corporation and society while at the same time anchoring it in the strategies and activities of
specific companies."
The interdependence between business and society takes two forms in
Porter and Kramer's framework: "inside-out linkages" where company operations impact society, and
"outside-in linkages" where external societal forces impact companies. The framework also
categorizes three general ways corporations intersect with society. First, "generic social issues"
where a company's operations do not significantly impact society and the issue is not material to
the company's long-term competitiveness. Second, "value chain social impacts" where a company's
normal operations significantly impact society. And third, "social dimensions of competitive
context," where social issues affect the underlying drivers of a company's competitiveness.
Porter and Kramer then divide these three categories into two primary modes. Responsive CSR
addresses "generic social impacts" through good corporate citizenship and "value chain social
impacts" by mitigating harm from negative corporate impacts on society. Strategic CSR transforms
"value chain social impacts" into activities that benefit society while simultaneously reinforcing
corporate strategy and also advances strategic philanthropy that leverages areas of
competitiveness.
The framework draws its strength from applying corporate strategic
thinking to both leverage positive social and environmental benefits and mitigate negative social
and environmental impacts in ways that enhance competitive advantage.
"Efforts to find
shared value in operating practices and in the social dimensions of competitive context have the
potential not only to foster economic and social development but to change the way companies and
society think about each other," Porter and Kramer state. "NGOs, governments, and companies must
stop thinking in terms of 'corporate social responsibility' and start thinking in terms of
'corporate social integration.'"
A prime example of shared value and integration is the
Ecomagination initiative GE launched in early
2005 to benefit society through environmentally beneficial products (such as compact fluorescent
light bulbs) while benefiting the company's bottom line. The initiative boosted revenue on such
products from $6.2 billion in 2004, before the initiative began, to $10.1 billion in 2005, over
halfway to the goal of $20 billion by 2010. GE CEO Jeff Immelt is delivering the keynote address
at the May 1 ceremony for the McKinsey Award, which will also feature a panel discussion on CSR and
the future of competitive advantage.
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SRI World Group, Inc. All Rights Reserved.
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