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

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

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46 thoughts on “Michael Porter: Why business can be good at solving social problems

  1. Large scale Co-Op business can change the vital goods industries. It will take team work and time to make large changes happen to fix these issues. We do have the resources. We can make money helping people using today's technology.

  2. Two main arguments I don't agree on:
    1) 'Business is the only institution creating wealth, and it can do so infinitely because profit.' Porter's main flaw in argumentation is that he assumes wealth created by business is created out of the void. Creating something, out of nothing. But business creates no resources, it uses them, usurps them. Resources become property by adding labour, following Locke's idea of property, but labour adds only the right to own, it adds nothing physical. Thinking that, due to profit, business can infinitely expand their resource 'creation' is wrong, since resources are finite. This is the whole flaw in industrial thinking and we are going to face the consequences.
    2) 'Solving social problems is in the interest of business.' While I agree that this is true, social disasters are bad for business (sometimes, war for example is great), business's have a different concept of interests. Just like people: eating McDonalds is not in my best interest, still I do it. It is short term interests that guide business.

  3. For some minutes into this video this guy sounded kinda like milo from atlantis xD does anyone else hear that? Or is it just me? Lol

  4. Dr, Porter was totally right in all what he said although most of the audience didn't agree with this. Please let me explain how he was thinking in the solutions 4 years ago and how we are realizing the solutions just nowadays. one of the comments was that we should claim capitalism that allows big business companies and manufactures generate money, but unfortunately this is wrong, because those business sold there products or services for huge consumers (for us ) we buy there products or services since we need it, since we believe in it, so if we should claim someone, we should claim ourselves in the first level. Secondly he said "business profits from solving social problems, that is where profits come from" the real explanation of this now in 2017 is like this:
    MacDonald leads to obesity and health problems because it serves an unhealthy food, they introduce a new product (salad)
    tobacco companies were responsible also for health problems, people want to get rid of cigarettes because its smells bad and bla bla bla , they shift into a new type of cigarettes (electronic cigarettes with different fruits flavors) and its a good and profitable business nowadays.
    car companies starts to innovate electronic cars, taxi companies are buying it cause it dosent consume fuel, they can reduce cost and expand the profits.

  5. माइकल पोर्टर दाई संग ठ्याक्क कुरा मिल्यो है !
    हार्भाड का प्रोफेसर र म जस्तै साधारण नेपाली नागरिक को विचार बिज्ञान त उस्तै छ गाठे !

  6. This all makes sense if your talking about middle class businesses and the benefits they bring to our society such as local jobs so people stay off food stamps and can buy shoes and insurance. Once you "Scale" this up to the level of Corporations then you get just the opposite. You lose the middle class and all the benefits they bring to our communities. Corporations put people out of work like they have the farmers, fishermen, and the local store owners. You have a corpocracy where they use robots to do the work and go around the world raping the resources from third world nations and putting people out of work with their mechanization. Those who do work are paid less now than 30 years ago. Business is the answer but home grown business.

    If your viewpoint is any tiny bit right from extreme leftist totalitarianism, don't bother reading the comment section. It has given me a headache due to an extreme lack of sensibility.

  8. Is Porter really kidding? The resources are available. The reality is that the big companies make money at the expense of society, especially in the third world. Business just does not create wealth. He seems to forget about the public sector too.

  9. Some of the people disagreeing with Porter, saying that money should not be the main driver for fixing social problems must realize that money is extremely important in our society even if you like the fact or not. We can not radically change this fact so we have to live with it and do the best we can with it. And that is what Porter is doing- seeing solutions using the tools we have at our disposal today.

  10. Mr. Porter has a short-sighted view on social problems. Wealth is not created only by businesses. Let me resume your whole talk with one word that has nothing to do with business. CONSCIOUSNESS… is the revolution for social problems.

  11. Businesses pursue their own profits even they are against people source to live, because their objective is accumulation of money despite it could affect citizens health, so bussines in reality is not compatible with social interest.

  12. between 2:08 and 2:16 He said everything you need to know about modern business. What he said in next 2 seconds doesn't make situation easier, it's just a trick to make it look like "this is not the main point of all problems". It IS, my friend… It is the main cause of problems in the world dear Porter

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  14. In fact many (if not most) of today's social problems have their roots in corporate world. So businesses may have good planning or strategic framework but lets not forget that 'mission' of business world is solely to generate profits. Can we trust such organizations to be in leadership role while addressing social problems? Never!!! However their support can be of some help in resource sharing or contributing capacity.

  15. The most important frigging talk ever in the history of environmentalism or any other world-relevant issue.

    I actually saw this take place once. A big construction project displaced tons of precious top soil…soil filled with nutrients for supporting plant life. There were two contractors involved, both laid claim to who gets to keep that topsoil (it was a contract gray area). In fact they fought aggressively over it, it was quite funny…they were redneck contractors going at each other over the precious useful nutrient-rich topsoil. They moved fast and stated their cases hard, they were stubborn and selfish, and wouldn't yield to each other. They cared for the soil, they nurtured it. Because…that top soil was valuable, ideal for landscaping. Greenpeace was not required. Government intervention not required. Protesters not required. Volunteers not needed. Both parties wanted to be the supplier of landscaping soil. When there is a synergy of incentives business GETS IT DONE. Leveraging those synergies is the only real solution to big problems. Agreed!

  16. The Tata Group has been doing this in India and globally for years and years . That s why it's sustained so well for the past 150+ years . .

  17. Lord of strategy Michael Porter… maybe he needs Joan Magretta to make his thinking accessible to us mortals or maybe, like Dawkins, he had one brilliant intuition when relatively young and now he's struggling to keep up with himself; a bit like certain bands can't replicate the greatness of their first album

  18. 3 minutes in – ULCH ….. Poisonous Phenols all over my neck of the woods. PORT HOPE … pretty town on a big lake that feeds directly into the St Lawrence River.

  19. Would Capitalism address these ideas or think about just their own profit??!!!

    definitely, collaboration between business and social suffer from greed of the capitalists.

  20. Business is a problem because of the competitive advantages. The companies are trying to achieve to occupy the market worldwide. These companies intend to do whatever they can such as cutting trees, causing air pollution, burn forests, throw plastic into the oceans etc. So, In my opinion, business has an impact on this planet, in other word, business is destroying this planet.

  21. I am thankful for businesses every time I walk into the nearest Kmart (Australian Kmart – similar to Walmart etc) and find an abundance of affordable quality items. Without stores like that my purchasing power would be much lower. Capitalism has been so incredibly successful that its achievements are now invisible to people who take it for granted.

  22. I love this. Good dude. Thumbs. Y'all are so cynical and or backwards. STFU man just appreciate he is trying to move things forward in his own (mind you, practical) way.

  23. I would have had the slightest respect while listening to Porter, if tech companies like Canon did not sell plastics called cartridges for the price tag of 60€ that have 0.01€ worth of ink in them. I have read two of his books; yes he is what we call smart. But, nowadays the definition of smart correlates with how efficiently one can ripoff the innocent ones. First, they convince themselves that they are the good guys, and then try to convince others to that lie.

  24. This only works if there are INCENTIVES to do good. Lets not be naif. If business can earn money they will: that includes "if they can do well", AND "if they can get away with it (not doing well)". So we have to get the incentives right, and use the price mechanism: e.g. price on carbon emissions. But also we should "pressure" businesses "to do well": hold them accountable, and let them be accountable. Only than there will be an overall improvement possible.

  25. I saw a mobile game startup called vidribute. They share their profits with ngos. Look it up n please support them on facebook.com/vidribute or on instagram.com/vidribute

  26. Very impressive breakdown of the topic! Sure, business is the answer in the form of social and impact Investments! With these types of investments, there is an aspect of spending more than what is received in return. However, this is a big step in the right direction! Philanthropy and CSR are not the answers to social problems or NGOs and NPOs……..it is business! Business, meaning that utilizing business strategies to bring social impact and creating a critical synergy and balance between the two. This does not however include businesses that engage in "unethical activities" because then, these types of businesses have their "core" already flawed before they even set out to begin their operations. It's utilizing business principles, models and strategies to create social value in a lucrative way that is the crux of this discussion.

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