Deconstructing Porter & Kramer’s key sources of competitive advantage – Part 1

In 2011, Michael Porter and Mark Kramer published a paper in the Harvard Business Review that spelt out the concept of creating shared value, adding a deeper social context to Porter’s extensive works on competitive strategy.

Whilst this concept has been getting more airtime lately, the words shared value run the risk of (incorrectly) being interpreted as a voluntary activity for business, rather than a staple ingredient for success. As I argued in my recent piece published by the Centre for Social Impact and Business Spectator, shared value is just another name for ‘good business’.

Porter and Kramer identify three main activities that are sources of competitive advantage – and in this and the following two weeks I plan to look at each one in turn.

The first one is re-conceiving products and markets.

Essentially, it is about creating new product or market opportunities by addressing society’s greatest needs. In the past, too many businesses have been content to try and create ‘demand’ for goods and services that they produce, rather than focus on the unmet needs of society, such as improved health and nutrition.

For example, Nestle, as a global commodity food player, has chosen improvements in nutrition, water and rural development as its main areas of strategic focus, and is one of a handful of leading companies that explicitly refer to shared value in their corporate mantra.

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Who’s winning the Coca-Cola versus Pepsi race?

To keep an eye on how business is changing there are few better places to look than to high profile consumer companies like Coca-Cola and Pepsi. There is a pitched battle going on that highlights the complexities of brand management.

There are lessons for all organisations here: branding is about more than a logo. It is about the perceptions held by anyone who deals with or is affected by the business. Given that the flagship products of Coca-Cola and Pepsi consist of brown, sugary water, they need to be acutely aware of societal trends when forming their business strategy.

Pepsi took a break from its 23-year history of advertising during the Super Bowl this year. Instead it launched its “refresh everything” campaign, designed to fund ideas for improvement in local communities to the tune of $1 million per month. Naturally, you get more voting power if you buy certain Pepsi products!

The project has not been without its hiccups, but it does confirm a re-positioning strategy that Simon Mainwaring of We First refers to as a move from ‘celebrity’ to ‘celebrant’ brand. Pepsi wants to sit alongside its customers, recognising their aspirations and celebrating their successes, rather than coming across as a brash, attention seeking celebrity.

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Why investors will help drive social change

Last week’s feature article discussed the reasons why investors won’t fund social returns en masse. In that piece I did assert that, despite this, there is a powerful role to be played by private pension (or superannuation) savings in addressing social issues.

It comes down to direct versus indirect funding. Because superannuation fund trustees have a duty to maximise financial returns for their members, they are unable to directly fund social returns. The upside is that shareholders are starting to require more sophisticated management of social issues from the companies they invest in.
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