Global corporations are increasingly finding ways to create shared value – pursuing business initiatives that improve social and environmental conditions while earning the company a profit and conferring a competitive advantage. Consider, for example, the recent remarkable developments in global health.
For only the second time in history, the UN held a high-level meeting on health issues. Unlike last year’s meeting on HIV/AIDS, this meeting is on the deceptively mundane category of non-communicable diseases: heart disease, cancer, diabetes and respiratory illness.
Surprisingly, non-communicable diseases are now responsible for more deaths worldwide than all other causes of death combined. Once the affliction of wealthy nations, these egalitarian diseases have now embraced poverty, where lack of a good diet, basic education and adequate healthcare has greatly magnified their devastating impact. As a result, non-communicable diseases have spread rapidly through the developing world and are now the leading causes of death on every continent except Africa.
What is strikingly different about the UN meeting, however, is the role that many healthcare companies have chosen to play. In the past, many companies stonewalled responsibility for the fate of poor populations that are unable to pay for the medicines and medical devices that were designed and priced for US and European markets. This year however, many companies have embraced the business opportunity of serving low income populations with specialised products, new distribution models and affordable pricing.
GE, for example, is inventing low-cost, portable medical devices such as a hand-held ultrasound machine that can be used in remote rural communities and transmit pictures to clinics in faraway towns. Merck has developed tiered pricing models for its drugs in emerging markets. Roche is piloting a new breast cancer screening process in Thailand. GlaxoSmithKline‘s emerging markets group sells more than £150m of product annually in emerging markets through tiered pricing and a newly designed low-cost sales force and risk-sharing arrangement. In short, companies have found new ways to create shared value through innovative products and business models to serve the 90% of the world’s population they have previously overlooked.
What is even more striking, however, is the shift we are seeing from companies as suppliers of pills and devices to active participants in shaping efficient and effective healthcare systems. Novartis, for example, discovered that they could not distribute their drugs in remote Indian villages unless people were first taught health-seeking behaviours, local providers were given basic medical training and rural clinics established more reliable supply chains. Rather than accept these fixed constraints, Novartis decided to address them, hiring hundreds of people to provide health education and developing a mobile phone-based system to monitor clinic inventories.
Medtronic is launching a major initiative to design medical devices that meet the needs of lower income populations in India, but also includes interventions to improve the entire eco-system of healthcare, including training, diagnosis and financing. And just last week, Eli Lilly & Co announced a $30m (£19.3m) initiative to educate healthcare providers and patients about non-communicable diseases, working with governments to improve conditions for chronic disease care in four emerging markets.
These companies exemplify the principles of shared value creation that professor Michael Porter of Harvard Business School and I articulated in Harvard Business Review earlier this year. They are reconceiving products and markets, re-inventing their value chain, and strengthening local healthcare clusters in ways that contribute both to the profitability of the business and the welfare of society.
To be sure, not all corporate activities create shared value – companies can and often do harm society in their efforts to maximise short-term profitability. But a growing cadre of companies is choosing to align their competitive strategies with the immense business opportunities hidden in the world’s urgent social and environmental problems.
My colleagues and I at the nonprofit consultancy FSG are working with such companies around the world to develop shared value strategies. We are studying the impact they achieve and working to develop management tools and business school cases that can encourage more companies to create shared value. Over the coming months, in this column, my colleagues and I will share stories drawn from our work to extend the global debate that has arisen about the role of creating shared value in corporate responsibility, sustainability and business strategy.