Executing Shared Value: Delivering Positive Impact in ... How Companies Create Shared Value Definition: Companies create shared value when they enhance their competitiveness while

1Copyright © Harvard Business School, 2013

Executing Shared Value:

Delivering Positive Impact in IndonesiaA One-Day Conference with Prof. Robert S. Kaplan

Jakarta | May 31st | 2016

Executing a Shared Value Strategy

May 2016

Robert S. (Bob) KaplanMarvin Bower Professor of Leadership Development, Emeritus

3Copyright © Robert S. Kaplan, 2016

The world is changing

Shared value – the corporate answer

Strategy Execution Tools – Executing Shared Value

Conclusions

Table of Contents


Global Capitalism at Risk

Research performed by for HBS 100th Anniversary (2008)

Conducted among HBS Alumni and Friends: CEOs of global

corporations and NGOs

Professors Joseph Bower, Herman (Dutch) Leonard, and Lynn Paine

“Global Capitalism at Risk: What Are You Doing About It?”

Harvard Business Review (September 2011).

Capitalism at Risk: Rethinking the Role of Business

Harvard Business Press, 2012.


The Study Identified 11 Disruptive Forces to the Global

Market System

1. Fragility of Financial System

2. Breakdowns in Global Trade

3. Inequality and Populism

4. Migration

5. Environment

6. Breakdowns in Rule of Law

7. Decline of Public Health and Education

8. State Capitalism

9. Radical Movements, Terrorism and War

10. Biological evolution and pandemics

11. Ineffectiveness of National and International

Institutions



• Inequality undermines faith that market-based

global growth benefits all

• Excessive CEO compensation (US, UK)

• High unemployment among youth (Europe,

Arab countries)



• Bruce Scott thesis: Countries can have any two but not all three ofo Democracyo Market Systemo Persistent inequality

• Democracy and persistent inequality can lead to populist leaders, such as those in Venezuela, Argentina, Greece, and Bolivia, who:

o Increase the role of state in the economyo Over-regulate market transactionso Violate property rightso Confiscate private property


5. Environmental Problems

• Over-fishing (fish stocks in most of world will collapse by

2050)

• Pressure on land (25% deforestation in Indonesia)

• Consuming more water, especially for agriculture, than supply

• Waste disposal (solid and also pollution of rivers and oceans)

• Accelerating soil degradation leading to declining yields and

productivity growth in agriculture: high food prices and

volatility


5. Environmental Problems: Climate Change

• 21st century expectation of 4ºC increase, but volatility of estimate

is extremely high; we are playing roulette with our climate

• High rate of species destruction and coral reefs, the breeding

grounds for fish

• Higher incidence of extreme weather events; hurricanes,

tornadoes, …

• Greatest impact will be on the most marginal populations


6. Breakdowns in Rule of Law

• Corruption

• Bribery

• Extortion

• Kidnappings

• Cyber-terrorism

• Theft of Intellectual Property


7. Decline of Public Health and Education

• Poor health and education are primary drivers of high youth

unemployment (in addition to restrictive labor regulations)

• Limits the quality of employees for businesses

• Challenge for company programs to enhance the education and

health of its work force


9. Radical movements, terrorism and war

• Self-explanatory; but capitalism and markets function best in

peaceful, lawful environments where all participants agree on the

“rules of the game”


11. Ineffectiveness of national and international

institutions

• Inability to cope with global problems (climate change,

trade, migration, finance, cyber-terrorism … )


Business Opportunity from Global Challenges

Society now expects more from business

• Most public institutions and NGOs are ineffective; they fail to

deliverable measureable, sustainable results

• Only business has a history of effectiveness and efficiency


CEOs had four different responses to the 11 global

challenges

1. Business as usual (denial)

o Acknowledge that the problems exist but they are not that

severe; capitalism system will do fine.

2. Business as bystander (Milton Friedman)

o Problems exist but governments must solve these

problems; the “business of business is business”

o Business advances society’s interest best by developing

great products and services that meet customers’

expectations, create jobs, and make money for

shareholders


The CEOs had four different responses (continued)

3. Business as Innovator

o Recognize the changing environment for business and develop new strategies, products and services that enable them to survive and prosper in the changing environment for business

o How to serve the “Bottom-of-Pyramid”

o Operate in a sustainable manner

4. Business as Activist

o Recognize benefits from collective action

o Participate in shaping public policy

o Encourage governments to solve society’s problems





Conclusions

Table of Contents


• Stage 1: Philanthropy

o Donate to worthy social causes

o Employees Volunteer

o Corporate Foundation Report

• Stage 2: Corporate Social Responsibility (CSR)

o Comply with community and environmental standards

o Be a good corporate citizen

o Launch “sustainability” initiatives”

o Publish annual CSR report, Integrated (triple bottom line) reporting

o Improve trust and reputation; “Greenwashing”

• Stage 3: Create Shared Value

o Make an economic profit while addressing societal needs within the

context of a sustainable business model

Role of Business in Society


How Companies Create Shared Value

Definition: Companies create shared value when they enhance their

competitiveness while advancing economic and social

conditions in the communities in which they operate

M. Porter and M. Kramer, “Creating Shared Value,” Harvard Business Review (Jan-Feb 2011)

Examples of creating shared value:1. Introduce new products and markets to meet societal needs

(nutrition, energy and water conservation, employee skills, health and safety, finance for bottom-of-pyramid, … )

2. Enhance productivity through reduced pollution, energy and water consumption

3. Facilitate local cluster development• Local infrastructure: ports, rail, roads, telecom, energy• More competitive local product and labor markets• More employment


Community And Business Interdependency

This interdependence means that public policies that undermine the productivity and competitiveness of businesses are self-defeating, especially in a global economy where facilities and jobs can easily move elsewhere.

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

Businesses Community

The competitiveness of a company and the health of the communities around it are closely intertwined:


Business Opportunities &

Challenges

Shared value is

the intersection

of business

opportunities &

challenges, social

needs and

corporate assets

and expertise.

Social Needs

Corporate Assets and Expertise

Social

Needs

Corporate

Assets and

Expertise

Identifying the OpportunityThe core value of Shared Value


• Dow Chemical: Nexera canola and sunflower seeds

• Nestlé: Micronutrient spices

• Novartis: Medicine and health services to rural India

• Mars: agricultural development in Ivory Coast

• Intel: training 10 million teachers in use of technology

• Cisco: training disadvantaged youths to be network administrators

• Becton Dickinson: protecting health workers with needle-less injection

devices

• Vodafone: mobile banking services in East Africa

Examples of companies attempting to create “Shared

Value” (Pfitzer et al, HBR September 2013)


• Corporate Social Responsibility phase

• Donated drugs for low-income populations

• Corporate Shared Value phase

• Implemented a new drug business model for low-income populations

• Developed new packaging for small quantities of drugs

• Contributed to patient education

• Improved local healthcare delivery infrastructure

Novartis Moved from CSR to CSV in Rural India


The Change Agenda: From Corporate Social Responsibility

(CSR) to Creating Shared Value (CSV)

CSR CSV

Value: Doing goodValue: Economic and societal

benefits relative to cost

Citizenship, philanthropy, sustainability

Joint company and community value creation

Discretionary or in response to external pressure

Integral to competing

Separate from profit maximization Integral to profit maximization

Agenda is determined by external reporting & personal preferences

Agenda is company specific and internally generated

Impact limited by corporate footprint and CSR budget

Realigns the entire company budget


Benefits of Creating Shared Value In Practice

The opportunity to create economic value through creating societal value will be one of the most powerful forces driving growth in the global economy.

Benefits of creating Shared Value in practice are broad, sustainable and far reaching:

Profits involving a social purpose will enable society to advance more rapidly while allowing companies to grow even more

The result is a positive cycle of company and community prosperity, which leads to profits that endure

Companies will make real strides on improving the environment when they treat it as a productivity driver rather than a feel-good response to external pressure

Shared Value approach leads financial services companies to create innovative products for bottom-of-pyramid customers


Shared Value As Part Of The Strategy

Shared Value will become an integral part of strategy

The essence of strategy is choosing a unique positioning and a distinctive value chain to deliver on it

Shared Value opens up many

New needs to meet

New products to offer

New customers to serve

New ways to configure the value chain

The cycle of imitation and zero-sum competition can be broken





Conclusions

Table of Contents


The Balanced Scorecard: The Central Component in a

Strategy Execution Management System

Private Sector Organizations

"If we succeed, how will

we look to our

shareholders?”

"To achieve our vision,

how must we look to

our customers?”

"To satisfy our customers

and shareholders, at which

processes must we excel?”

“How do we align our

intangible assets to

improve critical

processes?”

“How do we have a social

impact with our

citizens/constituents?”

Mission (Customer) Perspective

“To have a social impact and to

attract resources and support, at

which processes must we excel?”

“How do we align our

intangible assets to improve

critical processes?”

“How should we manage and

allocate our resources for

maximum social impact?”

Financial Perspective

Customer Perspective

Process Perspective

Learning & Growth

Process

Learning & Growth

Financial

“How do we attract resources

and authorization for our

mission?”

Support Perspective

Non Profit and Public Sector Organizations


The Balanced Scorecard:

Multiple Innovation Cycles Since Its 1992 Introduction

Measurement

and

Reporting

Office of

Strategy

Management

Strategy

Management

System

Leveraging

Intangible

Assets

1992 20001996 20041993 2005 2006

22 translations 18 translations 12 translations12 translations

Strategy

Maps

Aligning by

Strategic

Themes

10 Harvard Business Review articles

13 HBS Cases:Chemical Bank (1994)

Mobil (A)-(D) (1996)

United Way (1997)

Wells Fargo Online (1998)

City of Charlotte (1999)

New Profit, Inc (2000)

Montefiore Hospital (2001)

Boston Lyric Opera (2001)

First Commonwealth (2004)

Fulton County School System (2006)

Amanco: Sustainability Scorecard (2007)

Infosys Relationship Scorecard (2009)

Volkswagen do Brasil (2010)

2008

Strategy

Execution

System

17 translations

http://www.amazon.com/gp/product/images/1591396905/ref=dp_image_0/103-5374003-8048646?_encoding=UTF8&n=507846&s=books

http://www.amazon.com/gp/product/images/1591396905/ref=dp_image_0/103-5374003-8048646?_encoding=UTF8&n=507846&s=books

Palladium Balanced Scorecard Hall of Fame for Executing Strategy™

as of December, 2014


Jeollabuk-do Province, South Korea

• Population had decreased from 2.5 mm (1966) to 1.87 mm (2006)

• Last place in every index among the nation’s 16 provincial governments

Gross regional domestic product

Income per capita

Financial self-sufficiency

# of businesses and employed workers

Reliance on raw materials extraction and agriculture

© DMTHOTH via Wikimedia Commons


New Governor, Wanjoo Kim, Takes Office in July 2006, Re-Elected in 2010

• Adopts Balanced Scorecard as the Province’s performance management system

• Strong opposition from labor union and some employees

• Challenges to develop quantifiable performance goals

© www.jeonbuk.go.kr/

http://en.jeonbuk.go.kr/

http://en.jeonbuk.go.kr/


Goals achieved: 2007 to 2011

• Population has begun to increase, reversing 45 years of

decline

• 8.6% CAGR in GRDP; national average is 3.7%

• 1st among 16 provinces in growth rate of exports o Exports in 2011 = $12.8 bn

o Exports in 2006 = $ 5.4 bn

• Increase in percentage of GRDP from secondary

(value-added) industries from 23% to 29%

• 350% increase in number of businesses attracted (five

year average)

• Number of paying tourists increases 70%

• Fiscal self-reliance percentage increases from 15% to

21%


The Kaplan-Norton six-stage closed loop management

system for Strategy Execution

Process

Initiative

EXECUTION

1

3

45

6

• Mission, Values,

Vision

• Strategy Formulation

DEVELOP THE

STRATEGY

• Strategy Map/Themes

• Measures / Targets

• Initiative Portfolios

• Funding / Stratex

TRANSLATE THE

STRATEGY

ALIGN THE

ORGANIZATION

• Business Units

• Support Units

• Employees

PLAN OPERATIONS

• Key process

improvement

• Sales planning

• Resource capacity plan

• Budgeting

• Profitability Analysis

• Strategy

Correlations

• Emerging Strategies

TEST & ADAPT

• Strategy Reviews

• Operating Reviews

MONITOR & LEARN

2


Stage 1: Develop the Strategy

Process

Initiative

EXECUTION

1

3

45

6

• Mission, Values, Vision

• Strategic Analysis• Strategy Formulation

DEVELOP THE STRATEGY

• Strategy Map / Themes

• Measures / Targets• Initiative Portfolios• Funding / Stratex

TRANSLATE THE STRATEGY

ALIGN THE ORGANIZATION

• Business Units• Support Units• Employees• Board of Directors

PLAN OPERATIONS

• Key process improvement• Sales planning• Resource capacity plan• Budgeting


• Strategy Correlations


TEST & ADAPT



MONITOR & LEARN

2


Stage 2 of the Management System: Plan the Strategy

• Mission, Values, Vision • Strategic Analysis• Strategy Formulation

Process

Initiative

EXECUTION

1

3

45

6


• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex

PLAN THE STRATEGY



PLAN OPERATIONS





TEST & ADAPT



MONITOR & LEARN

2


#1. Financial performance, a lag

indicator, measures the tangible

outcomes from the strategy.

#2. The customer value proposition

defines the source of value.

#3. Strategic processes create value for

customers and shareholders.

Process Perspective

Financial Perspective

Customer Perspective

Sustained

Shareholder

Value

Operations

Management

Processes

Customer

Management

Processes

Innovation

Processes

Productivity Revenue Growth

Price Quality Time Function Relation Brand

Product/Service Attributes Relationship Image

Regulatory and

Social Processes

Learning & Growth Perspective

Human Capital

Information Capital

Organization Capital

#4. Aligned intangible assets drive

improvement in the strategic

processes

A Strategy Map links strategic objectives across the four

Balanced Scorecard perspectives.


Amanco: Creating Shared Value

Vision: To be recognized as the leading Latin American distributor of

plastic pipe systems for fluid (water) transportation; generate

economic value while operating in a framework of ethics, eco-

efficiency and with social responsibility to improve people's

quality of life.

Regions: South America

MEXICO

ANDINAR

(Argentina, Ecuador,

Peru, Venezuela)

BRAZIL

CENTRAL AMERICAN

REGION

(Costa Rica, El Salvador, Guatemala,

Honduras, Nicaragua, Panama)

COLOMBIA

Regions: South America

MEXICO

ANDINAR

(Argentina, Ecuador,

Peru, Venezuela)

BRAZIL

CENTRAL AMERICAN

REGION

(Costa Rica, El Salvador, Guatemala,

Honduras, Nicaragua, Panama)

COLOMBIA


Amanco’s Corporate Social Responsibility

• Triple bottom line performance focused on:

o Economic sustainability

o Corporate Social Responsibility

o Environmental Management

• Customers want products that improve society and protect

the environment

• Amanco created ‘Social and Environmental’ as a separate

dimension in its Scorecard to signal its importance


Amanco’s Strategy Map


Stage 3 of the Management System: Align the Organization

Process

Initiative

EXECUTION

3

4

5

6

• Mission, Values, Vision • Stretch Targets• Strategic Analysis• Strategy Formulation


• Strategy Map / Themes• Measures / Targets• Initiatives• Funding / Stratex




PLAN OPERATIONS





TEST & ADAPT



MONITOR & LEARN

21


Opera

tional

Excellence

Fin

ancia

l

Perf

orm

ance

Client

/ M

ark

et

Focus

Tale

nt

Managem

ent

Valu

es

/Eth

ics

Scale

Infr

a

Innovation Client Management Execution Excellence Risk Management

Enhance Shareholder Value

Improve Profits and Profitability

Achieve

Revenue Growth

Increase Revenue

Productivity

Grow Key / Large

Accounts

Acquire & Manage

Large Deals

Improve Rate

Realization

Leverage Solutions

& Alliances

Enhance Client Satisfaction

Strengthen Brand Position

Leverage & Reuse

Intellectual Property

Develop & Retain

Competencies

Develop Diversity in

Workforce

Strengthen

Performance Ethic

Improve Workforce Motivation

Improve Quality Of

Talent Recruited

Nurture Infosys Values Be A Responsible Corporate Citizen

Improve Return On

Capital Investment

Reduce

Operational Cost

Scale State-Of-The-Art Physical InfrastructureScale State-Of-The-Art Technology Infrastructure

Identify & Incubate

New Business Ideas

Broaden Business

Footprint

Conduct Business Legally & Ethically

Strengthen Internal

Collaboration

Strengthen Client

Facing Processes

Improve Resource

Utilization

Improve Quality &

Productivity

Improve BEF and Unit

Scalability

Reduce & Manage

Operational Risk

Develop Multiple Tiers Of Leadership

Optimize Onsite

Offshore Mix

Infosys Strategy Map


Infosys cascaded its corporate scorecard to key

executives and all business units and departments

Overall Business

Scorecard

Business Unit /

Department

Scorecards

Board Member’s

Scorecards

Target Actual Annual

Target

Annual

Actuals

Q1

Target

Q1

Actuals

Q2

Target

Q2

Actuals

Q3

Target

Q3

Actuals

Q4

Target

Q4

Actuals

Financial Performance

Revenue (MUSD) - Infosys standalone xxx.xx xxx.xx xxx.xx xxxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx Quarterly

% Forecast accuracy - - yy% yy% yy% yy% yy% yy% yy% yy% yy% yy% Quarterly

Sustain profitability % Net profit - Infosys standalone zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% Quarterly

Onsite revenue productivity (Billed) - xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx Quarterly

Offshore revenue productivity (Billed) - xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx Quarterly

Client / Market Focus

Grow key / global accounts % Increase in revenue from key / global accounts (QOQ) - yy% yy% yy% yy% yy% yy% yy% yy% yy% yy% yy% Quarterly

Differentiate solution sets # Of solution sets developed (Cumulative starting Q2) - - xx xx - - xx xx xx xx xx xx Quarterly

Deliver end-to-end services # Of clients using > 3 services above threshold $ yy yy yy yy yy yy yy yy yy yy yy yy Quarterly

Broaden geographical footprint % Revenue from non-North American geographies zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% Quarterly

Enhance client satisfaction Annual client satisfaction index (CSAT) - xx xx xx - - xx xx - - - Q2

Strengthen brand position Annual brand awareness / position index (Gallup Survey) - - TBD - - - - - - TBD Q4

Execution Excellence

# of units with expenses within budgets - - xx xx xx xx xx xx xx - xx xx Quarterly

Accounts receivables (DSO) xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx xxx.xx Quarterly

Leverage GDM Onsite - offshore ratio - xx% xx% xx% xx% xx% xx% xx% xx% xx% xx% xx% Quarterly

Leverage alliances Revenue with role of alliances (MUSD) - yy yy yy yy yy yy yy yy yy yy yy Quarterly

Improve quality & productivity % practices meeting benchmark Q & P goals - - zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% Quarterly

Integrate business processes Annual Malcolm Baldrige internal assessment score - xxx xxx xxx - - - - xxx TBD - xxx Q3

Improve internal partnerships Annual Internal partner satisfaction index (IPSAT) - xxx xxx xxx - - - - xxx xxxx - Q3

People Development

% Employees with required competencies (PM, PA, SE) xx% xx% xx% xx% - - xx% xx% - - xx% xx% Q2, Q4

% Attrition of high performers (Annualized) x% x% x% x% x% x% x% x% x% x% x% x% Quarterly

Develop global workforce Global employees as % of employees with overseas base location - yy% yy% yy% yy% yy% yy% yy% yy% yy% yy% yy% Quarterly

Develop 3 tiers of leadership # Of key leadership positions with defined successors (Start Q3) - - zz% zz% - - - - zz% zz% zz% zz% Quarterly

Strengthen performance ethic Annual employee Satisfaction with High Performance Work Ethic - - zz% zz% - - zz% zz% - - - Q2

Improve workforce motivation Annual Employee satisfaction index (ESAT) zz% - zz% zz% - - zz% zz% - - - Q2

Corporate Citizenship Contribution to Infosys foundation (MUSD) zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% zz% Quarterly

Frequency

Note: TBD = To be decided, Blue text = Annual Indicators, Green = Target met / exceeded, Yellow: Within tolerance, Red: Target not achieved

FY 03

Increase revenue productivity

Achieve revenue growth

FY 04

Control operational costs

Develop & retain competencies

Business Objectives Infosys Performance Measures


Target

Annual

Actuals

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Infosys Scorecard

CEO Scorecard CFO Scorecard COO Scorecard

Only Illustrative


Infosys Also Creates a Relationship Scorecard with its Key

Clients


Stage 5 of the Management System: Monitor and Learn

Process

Initiative

EXECUTION

1

3

5

6

2

• Key process improvement

• Sales planning• Resource capacity plan• Budgeting

PLAN OPERATIONS4

• Business Units• Support Units• Employees


• Strategy

Reviews

• Operating

Reviews

MONITOR & LEARN




TEST & ADAPT

• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex


• Mission, Values, Vision • Strategic Analysis• Strategy Formulation



Convene a Separate (Monthly) Strategy Review Meeting

Performance

Initiatives & Programsoutput

result

Strategy Review Loop

corrections

input

Strategy Review Meetings

• Why did we miss the target?

• What correcting actions should

we consider?

• Are initiatives on schedule?

• Do you need more resources?

• Would an multi-functional task

force help?


• Meetings preceded by distribution of accurate and timely information

o Color-coded strategy maps

o BSC measures and trends

o Summary reports on strategic initiatives

• Managers prepare in advance; Purpose of the meeting is not to report

on listen to performance results

• One version of the truth: Do not argue about the data or the measures

• Managers not blamed for reporting problems

o “The only thing worse than bad news is bad news late.”

• Purpose of meetings is to understand problems, react to them, and

develop solutions that can be implemented rapidly

• Accountability for follow-up clearly assigned

Critical Ingredients for Effective Strategy Review

Meetings





Conclusions

Table of Contents


Building a Strategy Map and Balanced Scorecard creates

trust and understanding among the participants

• Co-creating the strategy map and scorecard creates consensus,

commitment and a common agenda among the Executive Leadership

Team of the company, public sector agency, or NGO

Consensus

Com

mitm

ent

Successful Strategy

Implementation


Recall the closing words in Abraham Lincoln’s Gettysburg

Address (1863)

“We here highly resolve that these dead shall not have died in vain… and that government

of the people, by the people, for the people

shall not perish from the earth.”

Amanco and Novartis deliver social value for the people in the communities where they market, produce, and sell.

But what about introducing value created by the people or of the people?


The Future for Shared Value

• The multiple players in a shared strategy must concur on both the

vision and the plan to execute a shared-value strategy

successfully

• Bringing a company and its multiple community and

environmental stakeholders (local governments and NGOs)

together to co-create a strategy map and scorecard …

• will create consensus and commitment as well as accountability

and a governance structure … for a long-term, sustainable,

shared-value strategy.

© Palladium 2015

CONTACT:

Joan Cabezas

Asia-Pacific Regional Director, Strategy Execution

Ratu Plaza Office Tower 19th Floor,

Jl. Jend. Sudirman Kav 9, Jakarta Pusat, 10270

Indonesia

M+ 62 812 917 595 70

[email protected]

Skype Joan.Cabezas-palladium

Ratu Plaza Office Tower 19th Floor,

Jl. Jend. Sudirman Kav 9,

Jakarta Pusat, 10270, Indonesia.

Documents

Executing Shared Value: Delivering Positive Impact in ... How Companies Create Shared Value Definition: Companies create shared value when they enhance their competitiveness while