NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, January 6, 2015

In the world of management research, Michael Porter is a rockstar. His “Five Forces” framework is a key tool in the field of strategy and his books have canonical status within MBA programs (even if most students haven’t actually read all 592 pages of Competitive Advantage). In an industry known for fast-talking gurus, Porter—who teaches at Harvard Business School—is an intellectual.

More recently, however, Porter has been less interested in how companies can get a leg-up on their rivals and more concerned with improving the planet. His theory is called “shared value,” and it says that companies can and should solve social problems—and they can make money doing it. He believes that companies are entering a third phase in their relationship with society. The first was about philanthropy, where business donates money to causes. The second was about “corporate social responsibility,” or minimizing their social or environmental harm. The third is about solutions: actual products and services with a social purpose.

“The ultimate impact businesses can have is through the business itself,” he says in an interview. “There are huge unmet needs in the world today. The question now is how to get capitalism to operate at its best because capitalism is fundamentally the best way to meet needs. If you can meet needs at a profit, you can scale.”

This is actually been what many in international development have been saying for a while—that you can have more impact selling a product than giving it away. By enabling local entrepreneurs to create businesses, you establish a sustainable chain of sales, distribution and customer service that charities or international agencies can’t match. (See for examplethis milk can for African dairy farmers, which is being sold at a profit even though it is funded by billionaire Bill Gates.)