ADI IGNATIUS: Now, your article is meant to fix a problem. What is the problem?
MICHAEL PORTER: Well, the problem is I think we've gotten into a very vicious cycle in thinking about the relationship between business and society. And really, the purpose of capitalism, and the benefits of the capitalist system to society, and to meeting society's needs-- needs like improving people's lives, and improving the health of communities. We've gotten into a cycle where, I think, business has evolved and thinking about business management has evolved, in a direction that we've narrowed the scope of how you create economic value. And increasingly, companies are being perceived as ...view middle of the document...
That was enough. That was sufficient. So what was good for business was axiomatically good for society.
But I think-- as we've seen the effect of business practices on things like health and nutrition and the mortgage crisis-- there's example after example where, actually it's much more complicated than that. And yes, profit is not inconsistent with society's needs. But if you think about creating economic value in a narrow way, if you don't understand the broader and more subtle and longer-term influences on the ultimate sustainability of affirmed success, you can get into a situation where that profit really does come at the expense of society.
And I think there's a backlash of society saying, wait a minute. We don't like this profit. All these companies right now, as you know, are reporting increasing profits, but there's no jobs. The communities are saying, gee, it's great that XYZ Corporation is making more money, but what's in that for us? We can see the layoffs. And we can see our local suppliers who have been cut off and have to go out of business. We can see all this development and pollution and strain on resources. And we understand the profits are good, and somehow that we need capitalism. But yet there's this increasing tension between these, ultimately, partners who actually are mutually dependent on each other.
ADI IGNATIUS: Now, the term you use is creating shared value, so talk a little about how that would work, if it were.
MICHAEL PORTER: Yes. The basic premise of this article is that we once thought if business just increases its profit, what's good for business is then good for society. I think what this article tries to say is, we need to kind of think differently. What's good for society is actually good for business. And that sounds like a play on words, but it's really quite a profound difference in perspective.
The concept of shared value says that, actually, creating societal benefit is really a powerful way to create economic value for the firm. And that we've missed, by and large, many of these opportunities to create profit-- let's call it, the right way-- profit that actually comes from meeting fundamental, human, societal needs. The most obvious example of that would be the environment. We used to think that being environmentally friendly was a good thing to do, that if you were a good person, in a good company, and you were being responsible, that you'd worry about the environment. Well, we have companies now that are understanding that if they think about the environment, they actually save gobs of money-- by reducing energy cost, and minimizing unnecessary logistics that they somehow convinced themselves was a good idea in some theoretical view of how to globalize.
We're seeing all kinds of examples that, by creating products that are actually dealing-- not just with contrived needs or trying to force products onto the customer-- but if we create products that are actually good for the customer--...