'Shared Value, Collective Impact and the Art of Business Strategy.' A mini-masterclass with Professor Mark Kramer.

Humble, charming and whip-smart, Professor Mark Kramer is co-creator of both Shared Value and Collective Impact, two of the most seminal concepts in sustainability and social impact of the last 20 years. 

But, while the words are thrown around regularly, how many of us really understand what these concepts mean and how to apply them?

In this special edition bonus episode, Goodtrepreneur has teamed up with the Shared Value Project to bring you a 30 minute Mini-Masterclass with Mark where he explains them once and for all. 

He also outlines the fundamentals of a smart business strategy as well as what he thinks it will take the workd to get back on track when it comes to prioritising the health of people and our home planet. 

Here's a quick summary to get you in the mood: 

🤨 What is Shared Value?

Shared Value recognises that the success a company depends on the sustainability of the environment in which it's operating: a healthy and educated workforce, consumers that have enough money to buy your product, the natural resources needed to make it. Therefore there is a business benefit and competitive advantage to be had in helping solve social and environmental problems.

🤨 What are three kinds of Shared Value?

1. Creating a profitable new product or market, such as sunglasses made out of what would have been waste plastic

2. Improving efficiency, such as reducing costs by going solar

3. Strengthening the supply chain, such as training farmers to improve their soil in a way that also improves yield

🤨 What is Collective Impact?

A framework for systems change that recognises most social and enviro challenges are too big for any one organisation to tackle alone, so companies, govt and nonprofits benefit from working together to do so.

🤨 What are the five fundamentals?

1. Common agenda - we all have the same goal

2. Shared measurement - we all measure impact the same way

3. Mutually reinforcing activities - everyone has a clear role

4. Continuous communication - everyone knows what everyone is doing

5. Backbone support - it’s someone’s job to lead the team effort

🤨 What makes a smart business strategy?

A smart business strategy recognises that if you do the same as your competitors, you will end up competing on price and sooner or later that will end in an unattractive business model. So you want to aim for superior profitability. To do that, you need a competitive position that is serving a specific type of customer and delivering them value in a way no competitor can by tailoring everything you do to deliver that. As Michael Porter says, ‘if you're not making some customers unhappy, you don't have a strategy.’

We gave AI a listen and here's what it had to say:

The biggest mistake we make about “doing good” is treating it like a side project. Mark Kramer joins us for a sharp, practical conversation on why social impact and corporate performance are already linked, whether leaders admit it or not. When the workforce is unhealthy, when communities are unstable, when climate risk hits supply chains, profitability takes the hit too. Mark explains shared value as a way to stop managing harm at the edges and start building business models that solve real problems while creating competitive advantage.

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Transcript

Welcome And Mark’s Journey

Singers 0:00

I'm gonna change this world today. Make those bad things go away.

Ben 0:05

Every so often an idea comes along that changes the world. Mark Kramer has penned not one but two of these ideas, and that's just the ones I know about. If you work in the corporate world, you'd have to have spent your career hiding in the stationer cupboard not to have heard the concept of shared value, an idea embraced by clever companies the world over. Meanwhile, the wonderfully named collective impact framework is used by change makers the world over to bring people together and organizations from all walks of life to solve the trickiest of tricky social and environmental problems. When he's not coming up with world-changing ideas, Mark is Impact Investing, walking the halls of Harvard or chairing FSG, the world famous consultancy he co-founded. It's an absolute coup that we have him here with us today, and I thank him dearly for it. And it's my pleasure, Ben. Well, welcome, Mark. Thank you. So let's start with you. At face value, you're very much a man of business. You've been a senior lecturer at Harvard Business School and have a jurisdoctorate in law, and I I've never seen you out of a suit. How on earth does help solving the world's social and environmental problems fit into all this?

Why Shared Value Matters

Mark Kramer 1:05

Well, uh, first of all, I didn't really need to wear a suit today, but I didn't want to disappoint you, so I thought I better put it on. You know, I grew up in Cleveland, Ohio. My family had a controlling interest in a public company that my grandfather had started, and we had a family foundation. And so we gave away money. And so I was involved in the foundation. Uh, my mother ran it and reviewing grants, talking to nonprofits, going on some nonprofit boards. So I was very involved in the sort of philanthropic and nonprofit community for many years. And over time, it became clear to me that for all the money we were giving away, we weren't really changing anything. We were certainly helping people, but there wasn't any sort of fundamental change. And so I became very interested in understanding more deeply why philanthropy works the way it does and what might make it more effective.

Ben 1:56

So could you give me a bit more about shared value, this concept of shared value? Could you break it down into its simplest form for me?

Reinventing Outdated Business Models

Mark Kramer 2:04

Sure. Well, you know, we we start, and I started with an assumption that social issues need to be addressed through the social sector, through philanthropy, maybe through government, but that that has really nothing to do with business. And business is focused on making money, but really shouldn't be paying too much attention to the social impact or the social issues that surround the company, because these things are separate. And either you're making money and you don't think about impact, or you're trying to do good in the world and you don't want to think about making money. And what I've come to see is that that's fundamentally wrong, that companies have much more impact on social issues than foundations and nonprofits ever do. And that we've assumed that what we need companies to do is to hold themselves back, is to try and diminish the harm that they cause. And what we've missed is the fact that the success of companies depends on the sustainability of the environment in which it's operating. It depends on a healthy and educated workforce. It depends on consumers that have enough money to buy your product. It depends on a strong educational system. So all of these issues that we thought were just social issues are actually business issues as well. And correspondingly, we found that companies can be very powerful in creating social change when they set their minds to it because they have many more resources than the social sector has. When you ask a CEO, almost any CEO, about what they see three or five years out in the future, you hear about sustainability issues. But when you ask them about next quarter, you don't. And it's true what you've said about a mature company having a business model and simply trying to replicate it. But most companies have business models that were developed decades ago, in some cases centuries ago. Banking, life insurance are a couple hundred years old or more. And what has changed in the intervening time is that we now know about climate change. We now know that smoking causes cancer. We now that social behavior determines your health outcomes to a significant degree. We know all kinds of things about human behavior, about the environment, and so on, that we didn't know when the business model was first developed. And so the question is: do you keep with your outdated business model, or do you find that the changing state of knowledge gives you an opportunity to innovate in new ways? And I'll give you a quick example. So if you look at uh some of the soft drink and fast food companies, Coca-Cola, Pepsi, Co., and so on, they are struggling because they developed their business model at a time when we didn't think that sugar and fat and salt was bad for you. And of course, these things are attractive to consumers. And so they maximized those things. Now we know those things are bad. And most of the companies are trying to stick with their old business model and just hang on for a few more quarters till that CEO retires. But Nestle, which is a controversial company in many ways, really began to focus about 15 years ago on this idea that nutrition and health are related and created an entirely new division called Nestle Health Science, which does randomized control trials and clinical studies on nutritional supplements that actually have medical outcomes, that one product can be administered in the hospital before and after surgery and reduces the risk of post-surgical infection by 50%. So it's taken them to innovate in whole new areas. And this is now about a six or seven billion dollar business for Nestle that is their fastest growing business. And so, as opposed to Coca-Cola saying, well, we're just keep selling sugar water as long as we can, Nestle's doing some of that too, to be sure. But they also realize that what we know about health today is very different than what we knew when Nestle was started 100 years ago. And we can find new innovations and new sources of profit by recognizing that and rethinking our business model. This sounds existential for big businesses. But it's very hard for companies to do that. And that extent existential challenge is a risk that most CEOs don't want to take. So what we see, unfortunately, most companies doing is trying to sort of make changes around the margin, partly for ESG reporting purposes, partly for communications campaigns, partly really because they're trying to improve things, but they're afraid to touch the fundamental business model. And that is a huge problem because the change we need is not marginal change around the edge. It is really for every major company and industry to rethink their business model and reinvent it based on what we know today about social and environmental factors that we didn't know when they first set up that business model. Whether that's the entire problem, I'm not sure. I, you know, I think there's an even more fundamental piece, which is that as members of a society, as members of the economy, as members of the world, we are tied to a common fate. And you can go for a period of time where my success isn't impacted by your failure, or vice versa. But ultimately, we all depend on each other for this to function. And we've kind of lost that recognition and begun to sort of focus on our own isolated circumstances, income, return, profit, whatever you name, and just lost the sense that we're accountable to others or that the welfare of others affects our own well-being.

Ben 9:10

And that's a big that's far bigger than business. You're talking about how we see each other and how we see the role of society in our own success. Yeah.

Mark Kramer 9:18

And of government. Fundamentally, I've while I started off focused on philanthropy, I've come to believe that the corporations and government are the ones that really determine the fairness and sustainability of society. The nonprofit sector is really quite small and quite powerless. There are wonderful things that happen and great examples of impact for a handful of people, typically. But it's very hard to make society level change unless you work through government and through companies.

Ben 9:49

So when we start to talk like this, we're talking about the greater good, the common good, actually. But shared value as a concept is actually really got quite a selfish motive, an individualistic motive for companies. Yes, it's about solving bigger world problems, but it's about doing so because there's a profit involved.

Shared Value Requires Partnerships

Mark Kramer 10:08

Yeah. And you know, when we talk about creating shared value, we talk about it at different levels. One part is around innovation, new products and markets, you know, Tesla, whatever Elon is doing now, but initially certainly was a fundamental innovation that changed the auto industry worldwide. And of course, very successful economically. We talk about changing the operations of the company in a way that can improve social and environmental impact, but also create greater profitability. When Walmart, the retail chain, decided to increase entry-level pay for its employees, it reduced turnover dramatically, increased productivity, and turned out to be a more profitable move for the company. And then the third thing we talk about when we think about shared value is improving the competitive context. And that's really where the vision has to go beyond the individual company. There is a benefit to the company, but it's about changing the circumstances in the regions where the company operates to improve the health and well-being of the workforce, or improve the health and well-being of customers, or change the regulatory environment, or improve the environmental impact in ways that make the company more sustainable. To do those kinds of things, the company typically needs partners and typically needs to be working with nonprofits, with government agencies, with other companies, sometimes even with competitors. I mentioned Nestle earlier. Another issue for them is sourcing cocoa. And most cocoa comes from Cote d'Ivoire in Ghana, where it's grown by very poor smallholder farmers, and it's not a very good livelihood. And as a result, their kids aren't going into it. And as a result, the average age of cocoa farmers is 55 years old. And unless we do something about it, there won't be cocoa in the future. So this is a critical business issue for Nestle. But to solve it, they have to work with all the other cocoa companies to change the conditions under which cocoa is grown and to help ensure that there is a reasonable livelihood for cocoa growers.

Collective Impact Beats Isolated Grants

Ben 12:13

So that's interesting because this collective, the working together, there are what we what you're identifying there, is there are some problems that are just too big. Doesn't matter how big your company is, it's still too big for you to solve it. And I believe that starts to move into your second one or your second great theorem, the one of um collective impact, which I've always been a great fan of. And we've actually applied it a few times, extremely successfully.

Mark Kramer 12:37

And it's not always successful. So that's great credit to you that it actually worked. Tell me about it. Yeah. Well, you know, this starts from the philanthropy side and the recognition that the way philanthropy seems to work is very much around an isolated impact. We pick an issue, and then we pick a single nonprofit organization or a handful of them that have a particular approach and say, gee, we hope if we fund this one organization, they'll be able to innovate, find the solution to this very difficult entrenched problem, and then scale it up to society-wide scale. But that really almost never happens. And we get stuck with this model of isolated impact, where we're trying to fund one small intervention in the hope that that is going to change a really large, complex social problem. I mean, if you think about education, well, you know, we can have work with a company that's a nonprofit that's trying to improve the curriculum. We could work with one that's trying to train teachers, we could work with one that's doing after-school programs, we could work. No single thing here is the solution to the problem we have with education. But all of these dimensions are important. The second thing is that philanthropy tends to work just through the social sector. We want to make grants to nonprofits. We don't want to work with companies. Those are, you know, greedy corporate people. And we don't want to work with government, which is too messy and complicated. We just want to make grants to nonprofits. But any social problem is impacted by the behavior of government, the behavior of corporations, the behavior of nonprofits, and the behavior of individuals. And it turns out if you actually want to solve one of these problems, you have to bring together all of these different players. And in many ways, collective impact is a version of systems change because it's about bringing everybody who's part of the system together. And it enables people to begin to see how the system operates. And then that enables them to make changes that turn out to be sometimes very simple, but quite profound in their impact because they're beginning to actually work together and see what's working and align their efforts. And we've sort of said there are five key components to making collective impact work. The first one is a common agenda. You know, it's easy to say we all want to improve education, but when we begin to really talk about it, it turns out that your idea of better education is different than my idea of better education. And then there's the teachers' union, and then there's the student, and then there's, you know, all these other considerations. And so we don't actually have a common agenda for solving the problem. And it so you need to bring people together and forge that common agenda. The second thing you need is a shared measurement system. Right now, every organization working on an issue addresses the issue in their own way and measures their success in their own way. And so you can't actually compare and see which approach works better. And so what we found is when you again bring the system together, you can come up with a fairly simple set of metrics that enable you, that everybody is collecting and defining the same way and looking at together, and then begins to see where you're getting traction, what's working, what isn't working, and put more resources behind the things that create traction. I think the um the third component of collective impact is this idea of mutually reinforcing activities. Again, right now, every nonprofit, every government agency, every corporation that's working on an issue is doing it independently on their own. And their efforts don't add up because they're not aligned with the efforts of other organizations. And so begin to focus on how one's efforts support the work of others that are part of this coalition. The last two things are continuous communication. This isn't a one-time conference or gathering where we've seen collective impact work. We've had leaders of organizations meeting together every few weeks for several years. It takes time. And of course, social change does take time. And then the last piece is what we call having a backbone organization. There needs to be somebody who's managing this process, who's facilitating it, who's gathering the data and the impact performance, ensuring that this group continues to function, that people are held accountable for doing what they say they're going to do, and just making the whole thing work. And so what we found is that when you begin to think about problems, not like here's the isolated solution I want to fund, but here's a process for change that we can create and support. It's a very different model, but it turns out to be much more effective.

Backbone Leadership And School Reform

Ben 17:21

I love everything you say there. One of the things I always always like about it, particularly, is the idea of mutually reinforcing activities because it stops people competing. And I think that's, I mean, you don't compete to save the world, right? You collaborate.

Mark Kramer 17:36

It is particularly important. But then the the one example that comes to mind is work we did around some early education reform. And what we found is, you know, there's all kinds of preschools and informal childcare and stuff before kids start kindergarten. There's actually no common definition of being kindergarten ready. What are the skill sets you need, and so on. Well, and the kindergarten teachers aren't particularly in touch with the daycare providers at all. And so what we found is we could actually get kindergarten teachers across the city together to define what are the requirements that would lead students to succeed when they start kindergarten and then begin to work with the preschool folks to help them build that into a curriculum. And we actually had, you know, kindergarten teachers volunteering to go to preschool to show them what to do and how to develop. And so, in the course of about a year, this particular city was able to put in place a citywide agenda, a definition of kindergarten readiness. And all of the early childhood childcare centers across the city adopted the same program for training for readiness for kindergarten. And so this is an example of the preschool program was there, the school was there, but there was no alignment or mutually reinforcing activity.

Ben 18:55

And I imagine as individuals, it helps them actually reach the individual KPIs out of the collective interest. Absolutely.

Mark Kramer 19:02

It makes the kindergarten teachers more successful and it makes the preschool folks have a much more interesting job because they now actually have a curriculum and something they're trying to accomplish.

Ben 19:11

When you talk about backbone support, if it's everyone's job, it's no one's job, right? It's um who do you find is best? Does it matter?

Mark Kramer 19:19

First, it it's critically important. And really the personality of the person who is leading the backbone effort, who is facilitating this, is the single biggest factor we've found in whether the collective impact effort succeeds or fails. And it takes a certain kind of person who is firm enough to make sure that things happen and people do what they say they're going to do, but also isn't imposing his or her own agenda, but is letting the group develop the common agenda, the approach, the learning, et cetera. And so it's a particular skill set that is not easy to find.

Ben 19:57

So it's interesting, find the right person rather than the right organization. Yes. And look back to shared value, because obviously things, things are entirely connected. So it is quite possible for an organization to have that person within them, I find basically not allowed to talk about any of these topics without mentioning Patagonia. You see them almost being a backbone for activism, and they train activists and they fund activists, and then they make movies to spread the word about activism. So I wonder in that sense, have you seen that work where these sort of small upstart companies or organizations go, right, we're going to like be not just be a company solving this, we're going to be center of this.

Mark Kramer 20:34

Well, you know, we had a conversation earlier about the carrot and the stick and the idea that it is very hard for large companies to change, and that the pressure from the startups that are much freer to innovate and to experiment and can be both a competitive threat and a new economic opportunity, a new business model for the large companies. So I think the role of the startups is tremendously important in stimulating this change. Whether they themselves get to scale is an interesting question. What surprised me so much about Patagonia is not that large a company. Their revenues are one and a half billion.

Ben 21:14

Yeah, it's amazing that one and a half billion is actually quite small in the scheme of things, isn't it?

Mark Kramer 21:19

Well, it is quite small. I mean, you look at Nestle, it's uh closer to 100 billion. And so the startups that are really purpose-driven rarely scale. And I've seen an interesting study that I think it was Bain uh and company did, that said these startups, about 80% of their customer base early on are people who care about the purpose. But if they're actual actually able to cross the chasm to mass market, that's only about 20% of their customers. And so if you really want to build a company at mass market scale, and most of the large corporations in the world are operating at mass market scale, you've got to deliver a value proposition to the customer. That is rooted in price and value, the things that matter to them. And the purpose piece, again, can be a source of innovation and differentiation, but it's very hard to get to commercial mass market scale because of your social impact or the way in which you're communicating it.

Ben 22:21

Just as a little aside, strategy is one of those things that if I ask 10 people, they'll give me 10 answers. And I've heard you describe strategy once in the most beautiful terms. Could you give us your in a nutshell version of what is strategy?

Mark Kramer 22:34

Yes. Well, I'm racking my brain to figure out what I said back then that so impressed you. But and this really all is uh what I learned from Michael Porter, who is the founder of the idea of competitive strategy. And he said, look, if you're doing the same thing as your competitors, your product's going to be the same. And the only way you can compete is on price. And sooner or later, you're going to drive each other's prices down to the point that it's not a very attractive business anymore. What you really want is not to worry about market share, the share price in the stock market. You want just superior profitability. That's your goal as a company. And the only way to do that is either to have lower cost or to have people pay more. And to do that, you have to be doing things that are different than your competitors because you won't have lower cost if you're doing the same thing, and people won't pay more if it's the same product. So instead of thinking about what's the best automobile, there is no best automobile. Some people can afford a Rolls-Royce and they want it, and that's great. Some people want the least expensive possible car. Some people need a van or a truck or some want an electric vehicle. So there are all these different customer needs. And strategy is about identifying a particular customer segment and then tailoring every aspect of your operation to meet the needs of that customer better than anyone else. And so IKEA is a great example, the cheap furniture store. Their customer base is typically young people who don't have a big budget but are style conscious. And they operate completely differently than any other furniture store. First of all, they sell the furniture knocked down in boxes, and they're in these big stores, and there's no one to help you. You have to serve yourself and all of these things, which are fine for their customer base. I wouldn't want to go into an IKEA myself. And one of Porter's famous quotes is if you're not making some customers unhappy, you don't have a strategy. And so what IKEA has done is tailor every aspect of what they do, from the design of the furniture to the what it's made of and the sourcing and how it's delivered to the customer, to be the least expensive high design solution for this particular customer base. And Crate and Barrel can't compete because Crate and Barrel is selling pre-assembled furniture and they need to be in different locations. They can't have as big a store as IKEA. They need to be on the high street. And if they wanted to try and compete with IKEA, they would lose their existing customer base. And so it's about trade-offs and having a competitive position that is serving, delivering a particular type of value to a particular customer base and tailoring everything you do to deliver that. Now, I have no idea if that's what you thought I said before, that was such a good definition of strategy, but it is exactly. Oh, all right.

The Next Sustainability Wave

Ben 25:25

Congratulations. It's in there. We talked about this briefly, but I just want to cover it very quickly. Obviously, we are in somewhat of a sustainability uh ebb or a trough to put it mildly. But the problems are not going away. Do you see can be depressingly disappointing when companies go to the edge and we all think we're there and suddenly this wave will continue and then the wave backs off. What's it going to take to provoke this next wave? And and and your crystal, when you're a Mark Kramer crystal wall, when's it gonna happen?

Mark Kramer 25:56

Well, I do think at some point reality interferes. The problems, as you say, whether it is poverty and inequality, whether it is the environment, these things are not going away. And they do have consequences for society and for companies. And so sooner or later, I have to believe that reality will reassert itself and people will begin to have to respond to actually solve the problems and do things in a way that is consistent with the interest of their shareholders for companies or the interest of society for nonprofits and others.

Ben 26:33

One of the things I've seen over the years is it seems almost like it's not until we get a slap in the face that we go back to common agenda. You know, we had in Australia really intense bushfires maybe five years ago, and suddenly everyone's talking climate.

Mark Kramer 26:46

Yeah, I think that's right. I do think that as we get clearer about concepts like creating shared value and approaches like collective impact that I think are more effective than the way we have been working using philanthropy before or using ESG ratings for companies or so on, we can actually make progress in solving social problems because we've got some new and better tools. But the desire, the incentive, the willingness to do it and to, you know, go out on a limb and do something different, that's rare. Courage is what we need in many ways, I think.

Ben 27:22

And one very quick last question, one piece of advice for someone who wants to follow in your footsteps. Oh, God, don't.

Mark Kramer 27:29

I don't know why I don't want to. Um my career has kind of been a random walk, you know. Look, I think the first thing is to know that you don't have to make a trade-off, that you can have a successful and economically rewarding career and also work to make the world a better place. And that's a much better career. And then secondly, I think you do have to find the right colleagues, whether it's the CEO who has a commitment to shared value, whether it is others you're working with at a nonprofit, whatever it might be. I think the most important thing in career is what you're able to learn from the people you're working with. And so finding an organization with a strong good culture that does care about sustainability, does care about reality, has the courage to do things differently than others, is gonna put you in a place where you can grow and learn and develop that I think is much better than you could other elsewhere.

Ben 28:25

That's great advice, Mark. You've been crystal clear in making these things make sense and super inspiring as always. I thank you very much. Ben, thank you. It's been a pleasure to talk to you.

Singers 28:35

I'm gonna change this world today, make those bad things go away.