Week 7: Creating Shared Value

            As a prospective college graduate in 2014, I, along with my peers, hoped to use my acquired skillset in an environment that positively impacted society. However, the majority of us ended up getting jobs at firms that had interesting missions and paid well, but that did not proactively impact society in a positive manner. Often, working at a social impact company involved making more self-sacrifices than most of us were comfortable making at that time. Although the dream of working at such companies has not wavered, our motivation to leave our comfortable jobs at exciting, growing firms has.

            After learning about companies’ ability to create shared value rather than using ‘corporate social responsibility’ to give back to the community in ‘Creating Shared Value’ by Michael Porter and Mark R. Kramer, I feel strongly that this is the path forward. ¹I have worked at two companies, both of different sizes and industries, which have implemented this idea of  corporate social responsibility. These efforts lay outside of the companies’ mission and strategy and often resulted in marginal impact on the surrounding community. For example, at Credit Suisse—a large multinational financial services company—every employee worldwide was required to complete at least one day of volunteering activity outside of the office. Credit Suisse was very proud of this effort, especially as they boasted about it publicly. Meanwhile, as it was going through some difficult financial times, it was continuously cutting costs and negatively impacting its surrounding community. Similarly, VTS—a medium-sized commercial real estate software company—prided itself on its volunteering efforts, encouraging its employees to consistently get out of the office and into the community. 

            Unfortunately, neither of these companies integrated these well-intentioned efforts into their business strategies to create shared value. In some ways, they have tried to do so: for example, Credit Suisse has gotten involved in the microfinancing space in the past few years. However, this involvement continues to be a quite small part of its large portfolio, despite how much it’s boasted about. VTS, a much younger company, is primarily concerned with becoming profitable by creating a product that meets its customers’ needs: creating shared value is currently very low on its list of priorities. However, I think it would greatly benefit from this line of thinking. For example, it could form partnerships with clean energy companies to improve the building management process for its clients—commercial real estate companies. Although this may not seem like the most profitable move in the short-term, this kind of innovative thinking would certainly sit well with clients and positively impact its surrounding community. 

Lastly, by increasing efforts in creating shared value, companies can attract better, more inspired talent, especially as Millennials and Generation Z-ers enter the work force looking to positively impact society.²

References

1.    Creating Shared Value (Porter and Kramer, Harvard Business Review, JanuaryFebruary 2011)

2.    Twelve Forces That Will Radically Change How Organizations Work (Bhalla, Dyrchs, and Strack, Boston Consulting Group, March 2017)

Win-win-winning with Social Innovation

This week’s readings focused on the future of strategy; with the rate of disruption, organizations need to embrace trends, and position themselves in anticipation for an unknown future. The reading that particularly drew me in was Creating Shared Value by Porter and Kramer. Corporate Social Responsibility was in a no way a new term for me; most companies today have at least a page touting their social responsibility efforts on their website. However, and I am a little embarrassed to admit, I was fairly unfamiliar with the concepts of a Corporate Social Value and Social Innovation. If I take nothing else from this class, I am glad that I learned more about the strategy of Social Innovation.

It was unusual, yet intriguing to learn that creating social value is not a zero-sum game, where providing societal benefits is an additional cost with little returns. In fact, strategy centered on providing social value can lead to profitability and “expand the pool of economic and social value”, according to Porter and Kramer. Companies are often reluctant to forgo profits in the short-term, due to shareholder and competitive pressures. Social innovation requires taking a long-term view on the organization, and the customers and communities they serve and operate in.

Neglecting to provide social value often has negative downstream consequences on the organization involved. One example that comes to mind is the ongoing Niger-Delta crisis in oil-producing region of Nigeria. These regions are oil-rich, sitting on billions of barrels of crude oil, yet the community lives in poverty. Oil and gas companies and the Nigerian government that benefit immensely from this resource have neglected to provide social value to dwellers. In fact, these organizations leave the communities worse off than before any exploration and extraction activities started; neglecting to clean up oil spills, the natural environment that the community depends on for livelihood (fishing, farming, forestry) has severely suffered. Failing to provide any social value led to asset and security costs with the insurgence of militant activity. Ultimately, this led to lost revenue for these companies, and the government. This was a missed opportunity for the Nigerian government, regulatory bodies, NGOs and companies to create shared value by building frameworks around this community for a thriving community and oil producing nation.

Coming from a developing country, where government leaders are incredibly corrupt and ineffective in providing social value, where the foundational sectors (education, health, infrastructure) of what makes a thriving economy are in shambles, I think the development of the country will rely on social entrepreneurship. Young, educated and empowered citizens should not continue to wait on the government to promote public welfare and provide social value.

KFC in China

Kentucky Fried Chicken (KFC), is the world’s second-large fast food chain following McDonald’s. KFC specializes in fried chicken and is a successful brand of its parent company, Yum! Brands [1]. Serving fresh fried chicken to consumers, KFC now has more than 750,000 employees and more than 18,000 restaurants around the globe in 120 countries [2]. Although McDonald’s has a stronger presence in the global fast food market, KFC is more dominant in China. KFC China has more than 250,000 employees with about 40% of the market share while McDonald’s has only 16% market share and fewer outlets [3]. The reason is that KFC has an excellent strategy implementation for the Chinese market and the company tailors the products based on local demand. However, I think KFC makes too much effort on localization.

KFC opened its first restaurant in China in Tiananmen Square in 1987. The executives of KFC China believed that KFC’s strategy in the U.S. market is good but not enough to bring the company the level of success they want in China. So, the company implemented a series of strategy to embrace the Chinese market.

First, the fast food giant keeps adding Chinese elements to its brand image. KFC China’s rapidly changing menu usually includes 50 items, while the U.S. menu typically consists of 29 items. Besides the signature dishes, KFC China keeps launching new products for a limited time frame. Many of their new products have strong Chinese characteristics. For instance, KFC China not only offers coffee for breakfast but also offers hot soy milk and fried bread stick with competitive price. For the lunch and dinner menu, a customer can have Chinese style taco, and rice served with fried chicken and sauce. Although the new products might not be as popular as the signature fried chicken, the variety does attract customers like students and young “white collars.”

Second, KFC China trains employees well.  Because of the more complex menu, the larger restaurants around the country, and the large Chinese population, KFC has to hire more employees at each store. All of the employees are well trained so that they are very efficient at the peak hours. After finishing ordering at the counter, a customer usually will not wait for more than three minutes to pick up the food. The high efficiency makes KFC a popular lunch choice for people who are busy.

However, the localization strategy also has some negative impact. To me, the KFC menu is changing too fast. They not only update the menu with new products but also change the prices of combo meals and the rules for combining foods as a combo. Almost for every year when I go back to China, I have to learn how to order with their new menu. The company also reduced the sizes of burger and fried chicken to promote its “new fast food” and “healthy living” concepts. But with the less amount of food per serving, the price is continually increasing over time. It disappoints customer constantly. Maybe KFC should invest more in R&D to cut cost instead of shrinking the food size again and again.

[1] https://en.wikipedia.org/wiki/KFC

[2] https://www.marketing91.com/marketing-strategy-of-kfc/

[3] https://hbr.org/2011/11/kfcs-radical-approach-to-china

How can companies get out of their own way?

There are tons of examples in the world where we have seen companies fail due to their failure to get out of their own way. Over the last few weeks, we have spoken about strategies that companies need to adopt to not only remain afloat but also succeed. However, there are times when companies miss out of pretty obvious signs in the market or underestimate the power of a rising competition that is creating a small stir in the market.

The best example of this scenario in the recent past has been the downfall of Blockbuster. For a movie rental company, one of the major competitors would be a cheaper and more accessible way to consume content. Video streaming websites, mainly Netflix, had been on the horizon for a very long time, time enough for Blockbuster to buckle up and get ready to fight the turbulence. But a single misstep in not considering Netflix a credible threat impacted them badly. And the rest is history! Much of the generation today does not even remember what Blockbuster was.

When should a company get out of its own way?

I believe that the issue for such problem lies a little bit in complacency. Companies, especially age old ones, are used to doing things a certain way. Their processes are set and their methodologies are deep rooted. In a scenario like this, sure, change is inconvenient. And potentially expensive too. But companies aiming to stay afloat in the market need to realize the potential of a rising competition and make the necessary changes to fall in line with the current trends in the market.

Yet another example is that of the delivery giant, Amazon. The time is not far that Amazon would have almost all sectors of production under its giant umbrella and form its own monopoly. Working its way through immensely tactful strategies, Amazon has taken over tonnes of businesses and put many out of business.

And yet, places like Wa-wa still manage to thrive? Wa-wa started as a family run grocery store working out of gas stations. Quickly, they have spread across a wide region in Pennsylvania. How has Amazon not yet destroyed their presence? Sure, we can get everything we need delivered to our doorstep today. But as long as there are gas stations, I think Wa-wa will continue to make profits and run smoothly? Why is that?

Could it be that having a limited growth strategy or the lack of over ambition is saving Wa-wa from going under? Or is it just a case of Amazon not looking at it as a credible competition?

The Future of Strategy: St. Louis Has Already Found It

In his HBR article, “Creating Shared Value,” Michael Porter writes about the “intertwined” nature of a company’s competitiveness and the health of its surrounding community—a community not just of businesses, but of academic institutions, industry-related organizations and incubator centers.

When it comes to creating shared value and investing in future growth, look no further than St. Louis-based Monsanto, the recent acquiree of Bayer. The biosciences company has been credited with providing St. Louis with the supportive infrastructure to help enable local cluster development in the agricultural technology (agtech) field. It began in 1998 when Monsanto provided $62 million in cash and land to create the Donald Danforth Plant Science Center, which is now the largest independent plant science research institute in the world.[1]  The establishment of the Danforth Center provided a research infrastructure that could more fittingly pair with other research and academic institutions in St. Louis, such as the Missouri Botanical Garden, Washington University and St. Louis University.

As a result, St. Louis now is home to the highest concentration of plant science Ph.D.’s in the world, at over 1000.[2] This influx of highly-educated human capital, matched with the commercial presence of Monsanto, has spurred an entrepreneurial wave of innovation. With recent additions of biotech incubators and an increased presence in agtech start-up firms around the Danforth Center campus, the area has since been rebranded as 39 North, an innovation district overseen by the St. Louis Economic Development Partnership.[3]

Monsanto continues to play an add-value role in the agtech startup scene, from the company’s concentration of talent, which feeds local innovation spillover through private-company spinoffs, to the investments made through either acquisitions or its corporate venture capital department, Monsanto Growth Ventures.[4] In return, the company has benefited from new tech-skilled labor pools and process innovations regarding genetic engineering. [5] And while this intertwined relationship between Monsanto and the community has benefited both parties, it has more importantly become an antecedent to the generation of real-world value through the cross-sector research discoveries and more advanced product development.

For example, the relationship between Monsanto and Divergence, a local private biotechnology startup headed by a former Monsanto director, has helped to solve for “one of the most challenging agricultural pests farmers face each year,” according to Robb Fraley, CTO of Monsanto.[6] Divergence was founded in 1999, and from early on, it was financially backed by Monsanto CEO Robert Shapiro.[7] Divergence’s goal was to find a cure for plant diseases caused by nematodes, or roundworms. [8] In 2004, the two companies established a business relationship in efforts to develop a nematode-resistant soybean, and by 2011, Divergence was purchased by Monsanto.[9] As recent as this year, Monsanto announced that the seed treatment technology offering roundworm control for corn, soybeans and cotton crops is expected to be available for sale soon.[10]  

Shared value comes in many forms. For Monsanto, that form is a heightened profit potential. For St. Louis, it is a world-class innovation district. And for farmers working to feed the population, the value comes in the form of a seed that yields three more bushels of soybeans per acre and seven-plus bushels of corn.[11]  

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[1] https://www.brookings.edu/wp-content/uploads/2018/07/201807_Brookings-Metro_Rethinking-Clusters-Initiatives_St-Louis-Agtech-final-version_JUL-25-2018.pdf

[2] https://stlpartnership.com/who-we-are/our-teams/39-north-agtech-district/

[3] https://stlpartnership.com/who-we-are/our-teams/39-north-agtech-district/

[4] https://agfundernews.com/stlouis-silicon-valley-for-agtech.html/

[5] https://www.brookings.edu/wp-content/uploads/2018/07/201807_Brookings-Metro_Rethinking-Clusters-Initiatives_St-Louis-Agtech-final-version_JUL-25-2018.pdf

[6] https://monsanto.com/news-releases/monsanto-acquires-agricultural-technology-leader-divergence-inc/

[7] https://www.danforthcenter.org/news-media/roots-shoots-blog/blog-item/Monsanto-Acquires-Agricultural-Technology-Leader-Divergence-Inc

[8] http://www.agrinews-pubs.com/news/nemastrike-offers-solution-for-greatest-unsolved-problem/article_f4ecb041-3fed-51aa-8f7f-d98ca03c739c.html

[9] https://www.danforthcenter.org/news-media/roots-shoots-blog/blog-item/Monsanto-Acquires-Agricultural-Technology-Leader-Divergence-Inc

[10] https://www.croplife.com/crop-inputs/monsanto-previews-current-future-pipeline-offerings/

[11] http://www.agrinews-pubs.com/news/nemastrike-offers-solution-for-greatest-unsolved-problem/article_f4ecb041-3fed-51aa-8f7f-d98ca03c739c.html

Companies need to update their work culture for strategies to work

Companies need to update their work culture for strategies to work

Strategy Development Weekly Reflections

A global change in the meaning and meaningfulness is at the horizon and as people are getting more connected, they are getting much more access to opportunities and thus have a far more freedom to chose who they what for and what that work represents. It is also imperative that employees in a company no longer accept where they are put at and these companies need to realign how they manage their resources to sustain their workforce and continue being an attractive option for them to work for.

There are many forces that are leading to this change in the supply of talent including the attitude of a young workforce towards the work they do and the fulfilment they seek from their work. The millennials are already passing on their entrant positions to the generation Z who is also being called as the culture creators. These are the people who would be constituting the major part of the workforce for the next few years which would be the most crucial times for most companies as they try to survive this shift in economies. For most companies that have taken over the position of the most valuable companies in the world, the same people are their target group of primary users. In the near future, these companies would not only be driving for but also be driven by Generation Z. 

Always connected to their peers via various social networks, this young population is hugely influenced by each other. And the many ever increasing influencers want to project a lifestyle where they are working on stuff that they are passionate about and something that they can own. They also want to project a lifestyle where they travel and explore the world while making a living out of what interests them. They want to be known as people who care for social change and are creating something meaningful that could benefit someone or that someone could learn from directly. Collaborating with each other is also a major trend where people leverage each other's talents and skills to create awesome stuff together.

Companies can use this knowledge to create work opportunities that would leverage the skills of these youngsters while providing them with the sense of accomplishment that they seek. Most companies align their operational plans with their strategies and hope to achieve milestones that take them to their goals. When employees are the fundamental units in an organisation, it is important to understand the direction they want to go so the whole organisation moves as a whole together towards the same goal. There are many different ways for companies to create an environment for young employees so they can both benefit each other. The most effective way for companies is to give ownership of projects to youngsters so they can fuel their entrepreneurship to be successful at accomplishing the task. The companies also need to give them the freedom to work in their own style at their own space and pace so they are able to maintain the work-life balance that they want and are not feeling constrained by their responsibilities in doing someone else's work. While many companies are opting the model of renting their employees on contract rather than employing them into full-time positions, this is helping them to rotate talent among projects so the pace of innovation doesn't slow down, the talent is also happy in this arrangement because they don't get bored of the work they are doing and are able to showcase a variety of projects which also helps them explore and pursue the kind of career they want to have. However, there is a gap in knowledge in such an arrangement, with the continuously rotating workforce, it is a challenge to manage knowledge resources and transfer knowledge to the new team. Some companies have adopted a structure where the key knowledge managers are more permanent and they are responsible for allocating tasks within the team using the young ones as resources.

This change in the work environment is new in all industries and a common challenge for Human Resources Managers everywhere. It is also a challenge and responsibility for career planners to discover talent and show them the right direction.

References

1. Bhalla, Vikram, et al. “Twelve Forces That Will Radically Change How Organizations Work: The New New Way of Working.” Https://Www.bcg.com, 27 Mar. 2017, www.bcg.com/en-us/publications/2017/people-organization-strategy-twelve-forces-radically-change-organizations-work.aspx.

Addressing Affordable Housing Shortages by Creating Shared Value

Every few months the affordable housing crisis will retake news headlines to report even further evidence that many residents of urban areas are struggling to afford a place to live[1]. One force behind this issue is stagnation in median wages[2]. While addressing wage growth is important, another approach is to focus on the other force contributing to affordable housing shortages – the number of housing units available.

This argument, based on simple principles of economics, is hardly new. However, it has yet to be implemented in an effective way[3]. Some of the barriers to implementation are opposition to new housing, and particularly affordable housing, units. This is driven both by the desire to maintain the “character” of neighborhoods and the incentive of homeowners and landlords to keep the value of their properties high. Many of these preferences are even formally codified in zoning and housing codes.

Such codes are the precise types of regulations that prevent innovation and growth. Creating Shared Value persuasively argues that capitalism is capable of creating more value for both the economy and society, but that a necessary condition for this to occur is appropriate government regulation[4]. Loosening zoning and housing regulations would allow the housing development industry to create greater economic value while also attending to the social need for affordable housing.

The housing industry has a clear interest in decreasing regulations and would likely agree that this step is necessary to improve the affordable housing shortage. But the authors of Creating Shared Value also outline key strategies that housing developers should embrace to maximize the social value created. These three strategies for shared values are, “…reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the company’s locations.”[5]

While it is not necessary to pursue all three strategies for shared value, the opportunity of reduced housing regulations gives opportunities for each strategy. First, developers can rethink housing types for different neighborhoods, potentially with recycled shipping containers in more urban neighborhoods and multi-unit buildings styled like single family homes in more traditional neighborhoods. Second, a redefined supply chain could include locally-sourced or sustainable physical materials or emphasize and reward the role of labor. Finally, companies should support a local cluster of construction training facilities, research and innovation in design and engineering, making construction materials, and creating a more welcoming culture.

The strategies in Creating Shared Value should guide the responses of both government and housing developers to the affordable housing shortage. Through a combination of deregulation and appropriate business strategies, the housing market can experience the growth and innovation necessary to meet the social and economic needs of millions of people.  

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[1] https://www.businessinsider.com/minimum-wage-worker-cant-afford-one-bedroom-rent-us-2018-6

[2] http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/

[3] https://www.washingtonpost.com/outlook/2018/09/18/why-do-so-many-affordable-housing-advocates-reject-law-supply-demand/?utm_term=.aef2e1b344d3

[4] https://hbsp.harvard.edu/download?url=%2Fcourses%2F563568%2Fitems%2FR1101C-PDF-ENG%2Fcontent&metadata=e30%3D

[5] ibid.