Michael Porter of Harvard has long been famed as a “guru” of corporate strategy. His work over the last thirty years helped redefine how corporations achieve success and the role of competition in successful economies. I was in New Zealand in the early 1990’s working with a telecommunications company my firm had purchased when Porter visited the country and did a tour promoting his famous book The Competitive Advantage of Nations. It had a major impact on New Zealand and many other countries in terms of how they viewed regulation and economic policy.
The concepts Porter has traditionally focused on were built more around how companies create value for their shareowners, how they can compete in an increasingly global market, and how nations can take advantage of their key strengths to compete most effectively where they are the strongest. I think few would have seen Porter promoting a new definition of corporate success around the concept of “shared value” but he is doing just that in a new piece entitled “The Big Idea: Creating Shared Value.”
No Porter is not abandoning the notion that corporations must be focused very strongly on creating competitive advantage and earning profits. But his core concept in this new article is that economic value creation cannot be seen as self-contained within the firm. Instead, it must be rooted in helping build broader and linked clusters of economic and social dynamism around the firm.
The concept of shared value as Porter describes it is about creating economic and societal value and the notion that the best corporate strategies consider the social utility of the business’ activity. The social - economic link is a perspective that he believes is often missed. This link has been evident, in his view, through corporate initiatives around environmental improvement and in economic development in his past work on environmental improvement and work he has done on economic development in distressed urban communities. Companies simply benefit more deeply and intensely by working with others in the world around them whether collaboratively with business partners or in the communities that affect them and their customers and employees.
This is not a new concept in some ways but Porter has taken the idea to a deeper level. As he explains it:
“Shared value holds the key to unlocking the next wave of business innovation and growth. It will also reconnect company success and community success in ways that have been lost in an age of narrow management approaches, short-term thinking, and deepening divides among society’s institutions. “
He recognizes that companies will be most successful in building such “shared growth” strategies in the markets and environments most closely related to their business models and strengths. He is not suggesting that companies go far afield from what gives their business its strength and fuels their success.
I really believe Porter is on to something because I see evidence of this new approach to “shared growth” in the Internet ecosystem of which we are a part. At the recent Consumer Electronics Show, Lowell McAdam, President and COO put it this way:
“Now no single company will make this happen by itself. Innovation on this kind of scale can only happen through collaboration between strategic partners with a shared view of the future.”
Ivan Seidenberg, our CEO, added this thought to Lowell’s:
“The answer won't come from any single company. It will come from partnerships between hardware and software, computing and communications, technology giants, and the thousands of entrepreneurs who are collaborating to make this one of the most innovative years in the history of technology.”
So Porter points to the need for companies to change their approach to creating value by being more inclusive and helping promote initiatives that strengthen the communities and industry segments that they work with. And he notes that this change will not only benefit corporations and help them become more successful, it will also help society more generally and benefit segments of our economy that have not always seen the fruits of capitalism.
But he also notes that in order for these business models to be successful, government must change its approach to regulation and policy as well. As he puts it:
“Regulations that enhance shared value set goals and stimulate innovation. They highlight a societal objective and create a level playing field to encourage companies to invest in shared value rather than maximize short-term profit. Such regulations have a number of characteristics:
First, they set clear and measurable social goals, whether they involve energy use, health matters, or safety.
Second, they set performance standards but do not prescribe the methods to achieve them—those are left to companies.
Third, they define phase-in periods for meeting standards, which reflect the investment or new-product cycle in the industry.
Fourth, they put in place universal measurement and performance-reporting systems, with government investing in infrastructure for collecting reliable benchmarking data (such as nutritional deficiencies in each community).
Finally, appropriate regulations require efficient and timely reporting of results, which can then be audited by the government as necessary, rather than impose detailed and expensive compliance processes on everyone.
Regulation that discourages shared value looks very different. It forces compliance with particular practices, rather than focusing on measurable social improvement. It mandates a particular approach to meeting a standard—blocking innovation and almost always inflicting cost on companies. When governments fall into the trap of this sort of regulation, they undermine the very progress that they seek while triggering fierce resistance from business that slows progress further and blocks shared value that would improve competitiveness.”
While I do not think all of these points apply to the Internet ecosystem we have described in recent filings and speeches, I do think on balance they reflect very much the approach we have been advocating over the last few years, particularly as reflected in this speech by Tom Tauke and in our joint filing with Google last January. What Porter is describing is not only a new, productive and modern vision for business but a similar vision for government. Business and government must work collaboratively to create policy frameworks that encourage innovation and enhance competitiveness, helping our economy to remain dynamic and ensuring more Americans benefit from economic growth.