Judy Malan, Partner McKinsey Towards a greater impact for CSR

McKinsey & Company |

What is the Role of Business in Public

Basic Education?

17 October 2012

Venue sponsored by: Research sponsored by:

Shaping the Future: Solving

Social Problems through

Business Strategy:Pathways to Sustainable Value Creation in 2020

October 2012

NBI presentation

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McKinsey & Company | 2

Shaping the Future: Solving Social Problems through Business Strategy

In 2010 we completed a

research effort together with

the CECP with the aim of

addressing the following

future-oriented questions

▪ What will the next decade

look like, and what are the

implications for corporate

involvement in solving

social issues?

▪ How can corporations

position themselves now to

maximize their profitability

and societal impact?


Chapter of Contents

▪ Global Forces

▪ Four Scenarios

▪ Preparing for the future

McKinsey & Company | 4SOURCE: United Nations Environment Programme (UNEP), Sustainable Energy Finance Initiative, International

Telecommunication Union (ITU), US Chamber of Commerce, organization website

Who would have thought that we could come so far in ten years?

Cellular-telephone adoption increase from

738 million in 2000 to over 4.6 billion in 2010

Greenpeace partners with multiple multi-

national corporations

Investments in renewable energy technologies

overtake investments in fossil fuel technologies

Warren Buffet and Bill Gates lead the world in

philanthropy


There are powerful examples of companies that are reflecting this

changing environment in their strategies

SOURCE: Interviews, Company websites

Works directly with farmers to promote

development in farming communities

Partners with USAID to improve the

capacity of small and medium-sized food

businesses across Sub-Saharan Africa

Developed innovative strategies for

reducing the cost of medicines that are

sold in the Least Developed Countries

Reports specific company wide targets

for ensuring a diverse workforce and

reducing environmental footprint

GlaxoSmithKline incorporates social

issues into business strategy

General Mills employs core

competencies for social development

Nestle manages supply chain risks for

sustainable value

Alcoa sets ambitious social and

environmental targets


The world continues to change dramatically, shaped predominantly by five

transformative global trends

The Great Rebalancing

▪ Emerging markets gaining larger share of global GDP

▪ Growth of a multipolar global economy

The Productivity Imperative

▪ Economic growth in developed economies increasingly dependent on productivity gains

▪ Insufficient supply of highly trained talent for rising global demand

The Global Grid

Pricing the Planet

▪ Significant increase in resource demand as emerging markets surge

▪ Growing environmental pressures on business and society

The Market State

▪ Growing need of states to compete for economic growth and innovation

▪ Competition to attract business activity

▪ Increasing interconnection of markets, trade, and technology


Productivity

revolution

Market state

Pricing the

planet

Business has the opportunity to help shape the implications

of these trends

Global forces : : are shaping a new world for business and society

Global grid

Towards a fundamentally

different operating

environment, where

� Governments struggle

to find solutions

� Trust in business is

decreasing

� Businesses are

increasingly expected

to address social and

environmental issues

The great

rebalancing

New role for

governments

Spread and influence

of information

technology

Talent shortage

The rise of emerging

markets

Climate change and

resource scarcity

(water, food, energy)


Chapter of Contents

▪ Global Forces

▪ Four Scenarios



Depending on the role that business chooses to play in society,

there are 4 different scenarios that might play out

Higher Expectations for

Business Across Geographies

Stagnant Expectations for

Business

Sustainable

Value Creation

Dual CapitalismVicious

Cycle

Dangerous

Mismatch

Business is

Reactive on Social

Issues

Business is

Proactive on Social

Issues


If business is reactive on social issues and society maintains uneven

expectations for business, a vicious cycle will emerge

�Business is reluctant to engage in social and

environmental issues

�Governments and NGOs struggle to find solutions

on their own

� Trust in business bottoms out

�Environmental and social issues worsen

�Economy suffers from increasingly pressing social

problems and unpredictable policy environment


If business is proactive in addressing social issues and society adheres to

more consistently high expectations, sustainable value is created

�Business develops robust voluntary standards

that address social and environmental issues

�Business builds partnerships with

governments, NGOs, and other businesses

� Trust in business is high

�Business innovations drive improvement in

social and environmental issues

�Economy benefits from robust business climate

and innovation

McKinsey & Company | 1212SOURCE: CECP Board of Boards CEO conference, February 2010.

Complete this sentence:

"Taking a proactive approach in solving social

problems that are important to my business is :"

CEOs recognize that business has a unique role to play in addressing

social problems

"There are more

ways to make a

difference than just

writing a check. We

can also move the

needle on important

social issues

through involving

our time, brand,

and resources."

– Duncan

Niederauer, CEO of

NYSE Euronext

Percent

0

3

8

Unnecessary and/or impractical

Necessary to mitigate the risk

of public criticism

Necessary because it creates oppor-

tunities to innovate our products/services

Necessary because our consumers

and employees expect it29

Necessary because we are in a unique

position to make a difference60


Chapter of Contents

▪ Global Forces

▪ Four Scenarios


McKinsey & Company | 1414SOURCE: CECP Board of Boards CEO conference, February 2010

CEOs agree that engagement in social issues is critical

What do you think is the appropriate role of a

company in solving a social problem that is

important to its business?"More will be

expected from

market leaders and

globally successful

companies, and

those companies

who are most

involved will be most

successful, creating

an upward spiral."

– Mike Duke,

President and Chief

Executive Officer,

Wal-Mart Stores,

Inc.

Percent

0

3

5

Be Part of the Solution: Collaboratein problem solving without seeking aleadership role

42

Drive the Solution: Take leadership

and ownership over getting results50

Fund the Solution: Primarily

contribute cash/resources

Invest Pragmatically: Addressa social problem only if it connects directly to shareholder value

Do Not Engage: Business should have a negligible role in solving social problems


Corporations can respond at an individual level to address social issues

critical to their business

Western Union advocates for migrant rights

and has commissioned the studies on

remittances to examine the power of

remittances to promote long-term economic

development

Western Union funds "Our World Our Family"

to provide migrants with community

orientation, basic language skills, job pre-

paredness tips, and personal finance support

In 2005, Wal-Mart committed the company

to the following environmental goals

� To be supplied 100 percent by renewable

energy

� To create zero waste

� To sell products that sustain people and

the environment


But in some cases independent action will be neither appropriate nor

adequate

SOURCE: McKinsey analysis

Social

issueAct alone Collaborate

Collective response

appropriate when :

▪ A combined approach

can accomplish ends

that no one single

player can achieve

▪ The complexity of the

targeted social issue

requires broad skills

and experience

▪ A large constituency

(of which the company

is a member) benefits

from unified action

Act alone if the

company :

▪ Derives a competitive

advantage from being

the first among their

peers to get involved

▪ Has an opportunity to

play a unique catalytic

role

▪ Must respond

immediately to protect

the company from an

impending threat


Finding solutions for some issues requires collaboration across a

diverse and complex set of stakeholders

SOURCE: 2030 Water Resource Group; McKinsey

Rising global water demand is

expected to exceed currently planned

water supply by 40%...

:affecting a complex set of

stakeholders across government,

business and civil society

Civil society

Government

▪ Multilaterals

▪ NGOs

▪ Interest groups

▪ Academia

▪ Think-tanks

▪ Local and

national gov.

▪ Donor gov.

▪ Planning

commission

▪ Water,

agriculture,

energy,

industry

ministries

NON EXHAUSTIVE

▪ EPC companies

▪ Utility operators

▪ Equipment

manufacturers

▪ Agricultural, food

processing,

power, industrial

infrastructure

sectors

Business

4,200

6,900

Planned

supply, 2030

Municipal,

domestic, industry

and agriculture

demand, 2030

-40%

Billion m3/year

Forecast demand will exceed supply

in many countries unless capacity or

efficiency are improved

Solving

the water crisis

requires strong

collaboration

to ensure

connectivity,

ownership,

transparency,

accountability

and efficiency

WATER SCARCITY EXAMPLE


Hosts a yearly gathering where world

leaders in the private and social sectors

convene to brainstorm solutions to

important global challenges

An initiative with over 30 partners from

public and private sector aimed at

improving education through ICT

A public-private initiative that promotes a

global voluntary anticorruption standard for

the oil, gas, and mining sectors

A public private partnership dedicated to

attracting and disbursing resources to

prevent and treat AIDS, tuberculosis, and

malaria

Real-world examples of sustainable value creation partnerships

SOURCE: Organization websites; interviews

Establishing Voluntary Industry

Standards

Setting Up Region-Specific

Partnerships

Convening Diverse Groups to Solve

Problems

Aligning Competencies in Public-

Private Partnerships


The next decade will see the advancement of new collaborative models with

innovative groupings of partners, organization structures, and activities

SOURCE: McKinsey analysis; expert interviews

Partners

Organi-

zation

structure

Activities

▪ Build a group of natural allies

▪ Create a partnership aligned

around the root causes of an

issue

▪ Ensure partners trust one

another and have the ability

to work together

▪ Meet in a safe space to

communicate and measure

progress

▪ Take early steps to show

progress and build trust


Help shape voluntary social engagement

standards for corporations0%

Improve feedback loops on social

engagement with consumers,

suppliers, and others

3%

Promote measurement standards

to quantify the business and social

impact of our engagement

9%

Commit to long-term collaborative

partnerships with other stakeholders11%

Embed social engagement into our strategy

and organizational structure77%

SOURCE: CECP Board of Boards CEO conference, February 2010.

Which one of the following actions could you, as CEO,

initiate today to best prepare your company to address

the social problems that will affect your business in

2020?

Embedding social engagement into business strategy is seen as the most

important action that a CEO can take to prepare for 2020

“Done right, social

engagement is

incorporated into the

mission of the

Company.”

--Ken Powell, General

Mills


Conclusion: Business has the power to shape the future and move us

toward sustainable value creation

Higher Expectations for

Business Across Geographies

Stagnant Expectations for

Business

Business is

Reactive on Social

Issues

Business is

Proactive on Social

Issues

Sustainable

Value Creation

Dual CapitalismVicious

Cycle

Dangerous

Mismatch


As you reflect on the notion that collaboration is necessary to address

social problems, what do you think collaborations have to look like if

they are going to work? What collaborations do you see your

company involved with in 2020? What will make them successful?

Collaboration1

When have you been able to push forward to help create standard

rules of the game for your industry, either through regulation or

voluntary standards? How did you do this?

Rules of the

game2

As you reflect on the global trends we've discussed today and the

other social issues on your mind, on what issue do you hope to have

really made a difference by 2020?

Impact3

When have you been able to tackle a major social issue through your

business strategy? Do you feel it has been successful? What made

it work?

"Win-win

solutions"4


APPENDIX


The rise of emerging market players: Global businesses will be

challenged to flatten an uneven playing field


With the rise of emerging market players,

businesses will need to:

▪ Explore new opportunities:

– Expand products and services into growing

markets

– Lead by example, influencing global

adoption of social and environmental

standards

▪ Compete on an uneven playing field:

– Maintain company-wide standards and

participate in “activist” supply chain

management,

– Establish industry-wide social and

environmental standards

– Lobby for enforcement of regulations in

emerging markets

THE GREAT REBALANCING

The next decade will be the first in

200 years in which emerging markets

drive more than 50% of the global

growth, in industries like

construction, agriculture, mining


Talent shortage: Companies will need to become increasingly

involved with educating the next generation of workers


Talent shortages will require companies to:

� Find opportunities to develop their own

workforce

� Become more directly involved in

educating their own workforce

� Reconsider retirement policies

� Explore further outsourcing options

� Seek growth from labor productivity

gains

� Protect the pipeline

� Engage in advocacy for public

education systems

THE PRODUCTIVITY IMPERATIVE

In the 1970s, 80 percent of overall

economic growth came from a

growing labor force, and 20 percent

from gains in worker productivity. In

the next decade, this relationship will

invert due to a shrinking labor pool


Resource scarcity: Businesses will need to integrate environmental

sustainability innovations into their business plans


In a world of increasing resource scarcity and

climate change, businesses will need to:

� Take advantage of the opportunity to

� Create innovative products and services to

address resource constraints

� Develop and brand more sustainable products

that meet growing consumer desire for

sustainability

� Protect the core business

� Lean and green their supply chains

� Work in partnership to establish industry

standards for natural resource use

� Advocate for stronger and more universal

government regulation on resources (e.g.,

carbon emissions, water protection, etc.)

PRICING THE PLANET

To note, global resource demand

will grow by over 1/3 in the next

10 years, 90% from emerging

markets


In a world where governments are increasingly

involved in developing business opportunities,


� Find opportunities to partner with government to

build regional economies

� Take advantage of incentives to innovate

� Partner with other industry players to help shape

regulation and develop voluntary standards

Market State: Businesses have the opportunity to partner with

governments to develop economies and create new business


THE MARKET STATE

In the US with stimulus money

being used to advance “green

technology” ; and both here and

abroad, the huge deficit spending

and regulatory change in process


Global Connectivity: An increasingly connected citizenry creates

opportunities for innovation, but also requires increased transparency and

accountability from business

SOURCE: McKinsey Analysis

In an increasingly connected world,


� Find opportunities to utilize technology to

engage more closely with their consumers

and employees

� Develop products that reach their

consumers “at their doorsteps” (e.g. mobile

money)

� Share information about business activities

and compliance with social and

environmental standards

� Improve their community and customer

“radar” to stay ahead of concerns and

maximize opportunities

GLOBAL GRID

If Facebook were a country, it

would have the third largest

population in the world

McKinsey & Company |

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