What is the Role of Business in Public

Basic Education?
17 October 2012

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McKinsey & Company

Shaping the Future: Solving

Social Problems through
Business Strategy:
Pathways to Sustainable Value Creation in 2020

NBI presentation
October 2012

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited

Shaping the Future: Solving Social Problems through Business Strategy

In 2010 we completed a
research effort together with
the CECP with the aim of
addressing the following
future-oriented questions

What will the next decade

look like, and what are the
implications for corporate
involvement in solving
social issues?

How can corporations

position themselves now to
maximize their profitability
and societal impact?

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Chapter of Contents

Global Forces

Four Scenarios

Preparing for the future

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Who would have thought that we could come so far in ten years?
Cellular-telephone adoption increase from
738 million in 2000 to over 4.6 billion in 2010

Warren Buffet and Bill Gates lead the world in

philanthropy

Investments in renewable energy technologies

overtake investments in fossil fuel technologies

Greenpeace partners with multiple multinational corporations

SOURCE: United Nations Environment Programme (UNEP), Sustainable Energy Finance Initiative, International
Telecommunication Union (ITU), US Chamber of Commerce, organization website

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There are powerful examples of companies that are reflecting this

changing environment in their strategies
GlaxoSmithKline incorporates social
issues into business strategy

General Mills employs core

competencies for social development

Developed innovative strategies for

reducing the cost of medicines that are
sold in the Least Developed Countries

Partners with USAID to improve the

capacity of small and medium-sized food
businesses across Sub-Saharan Africa

Nestle manages supply chain risks for

sustainable value

Alcoa sets ambitious social and

environmental targets

Works directly with farmers to promote

development in farming communities

Reports specific company wide targets

for ensuring a diverse workforce and
reducing environmental footprint

SOURCE: Interviews, Company websites

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The world continues to change dramatically, shaped predominantly by five

transformative global trends
The Great Rebalancing

Emerging markets gaining

larger share of global GDP

Growth of a multipolar
global economy

The Productivity Imperative

The Global Grid

Economic growth in
developed economies
increasingly dependent
on productivity gains

Insufficient supply of
highly trained talent for
rising global demand

Increasing interconnection
of markets, trade, and
technology

The Market State

Pricing the Planet

Significant increase in
resource demand as
emerging markets surge

Growing need of states to

compete for economic
growth and innovation

Growing environmental
pressures on business
and society

Competition to attract
business activity

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Business has the opportunity to help shape the implications

of these trends
Global forces :

: are shaping a new world for business and society

The great
rebalancing

The rise of emerging

markets

Pricing the
planet

Climate change and

resource scarcity
(water, food, energy)

Towards a fundamentally
different operating
environment, where

Governments struggle
to find solutions

Global grid

Spread and influence

of information
technology

Productivity
revolution

Talent shortage

Market state

New role for

governments

Trust in business is
decreasing

Businesses are
increasingly expected
to address social and
environmental issues

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Chapter of Contents

Global Forces

Four Scenarios

Preparing for the future

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Depending on the role that business chooses to play in society,

there are 4 different scenarios that might play out
Higher Expectations for
Business Across Geographies

Dangerous
Mismatch

Sustainable
Value Creation

Business is
Reactive on Social
Issues

Business is
Proactive on Social
Issues
Vicious
Cycle

Dual Capitalism

Stagnant Expectations for

Business

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If business is reactive on social issues and society maintains uneven

expectations for business, a vicious cycle will emerge

Business is reluctant to engage in social and

environmental issues

Governments and NGOs struggle to find solutions

on their own

Trust in business bottoms out

Environmental and social issues worsen

Economy suffers from increasingly pressing social
problems and unpredictable policy environment

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If business is proactive in addressing social issues and society adheres to

more consistently high expectations, sustainable value is created

Business develops robust voluntary standards

that address social and environmental issues

Business builds partnerships with

governments, NGOs, and other businesses

Trust in business is high

Business innovations drive improvement in
social and environmental issues

Economy benefits from robust business climate

and innovation

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CEOs recognize that business has a unique role to play in addressing

social problems
Complete this sentence:
"Taking a proactive approach in solving social
problems that are important to my business is :"
Percent
Necessary because we are in a unique
position to make a difference

60

Necessary because our consumers

and employees expect it

29

Necessary because it creates opportunities to innovate our products/services

Necessary to mitigate the risk

of public criticism

Unnecessary and/or impractical

SOURCE: CECP Board of Boards CEO conference, February 2010.

"There are more

ways to make a
difference than just
writing a check. We
can also move the
needle on important
social issues
through involving
our time, brand,
and resources."
Duncan
Niederauer, CEO of
NYSE Euronext

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Chapter of Contents

Global Forces

Four Scenarios

Preparing for the future

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CEOs agree that engagement in social issues is critical

What do you think is the appropriate role of a
company in solving a social problem that is
important to its business?
Percent
Drive the Solution: Take leadership
and ownership over getting results

50

Be Part of the Solution: Collaborate

in problem solving without seeking a
leadership role

42

Fund the Solution: Primarily

contribute cash/resources
Invest Pragmatically: Address
a social problem only if it connects
directly to shareholder value
Do Not Engage: Business should
have a negligible role in
solving social problems

SOURCE: CECP Board of Boards CEO conference, February 2010

5
3
0

"More will be
expected from
market leaders and
globally successful
companies, and
those companies
who are most
involved will be most
successful, creating
an upward spiral."
Mike Duke,
President and Chief
Executive Officer,
Wal-Mart Stores,
Inc.

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Corporations can respond at an individual level to address social issues

critical to their business

In 2005, Wal-Mart committed the company

to the following environmental goals

To be supplied 100 percent by renewable

energy

To create zero waste

To sell products that sustain people and
the environment

Western Union advocates for migrant rights

and has commissioned the studies on
remittances to examine the power of
remittances to promote long-term economic
development
Western Union funds "Our World Our Family"
to provide migrants with community
orientation, basic language skills, job preparedness tips, and personal finance support

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But in some cases independent action will be neither appropriate nor

adequate

Act alone if the

company :

Collective response
appropriate when :

Derives a competitive
advantage from being
the first among their
peers to get involved

A combined approach
can accomplish ends
that no one single
player can achieve

Has an opportunity to
play a unique catalytic
role

Must respond
immediately to protect
the company from an
impending threat

The complexity of the

targeted social issue
requires broad skills
and experience

A large constituency
(of which the company
is a member) benefits
from unified action

SOURCE: McKinsey analysis

Act alone

Social
issue

Collaborate

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Finding solutions for some issues requires collaboration across a

WATER SCARCITY EXAMPLE
diverse and complex set of stakeholders
Rising global water demand is
expected to exceed currently planned
water supply by 40%...

:affecting a complex set of

stakeholders across government,
business and civil society
NON EXHAUSTIVE

Business

Billion m3/year
6,900

-40%
4,200

Municipal,
Planned
domestic, industry supply, 2030
and agriculture
demand, 2030
Forecast demand will exceed supply
in many countries unless capacity or
efficiency are improved

SOURCE: 2030 Water Resource Group; McKinsey

Solving
the water crisis
requires strong
collaboration
to ensure
connectivity,
ownership,
transparency,
accountability
and efficiency

EPC companies
Utility operators
Equipment

manufacturers
Agricultural, food
processing,
power, industrial
infrastructure
sectors

Civil society

Government

Local and

national gov.
Donor gov.
Planning
commission
Water,
agriculture,
energy,
industry
ministries

Multilaterals
NGOs
Interest groups
Academia
Think-tanks

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Real-world examples of sustainable value creation partnerships

Establishing Voluntary Industry
Standards

Setting Up Region-Specific
Partnerships

A public-private initiative that promotes a

global voluntary anticorruption standard for
the oil, gas, and mining sectors

An initiative with over 30 partners from

public and private sector aimed at
improving education through ICT

Convening Diverse Groups to Solve

Problems

Aligning Competencies in PublicPrivate Partnerships

Hosts a yearly gathering where world

leaders in the private and social sectors
convene to brainstorm solutions to
important global challenges

A public private partnership dedicated to

attracting and disbursing resources to
prevent and treat AIDS, tuberculosis, and
malaria

SOURCE: Organization websites; interviews

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The next decade will see the advancement of new collaborative models with
innovative groupings of partners, organization structures, and activities

Partners

Organization
structure

Activities

SOURCE: McKinsey analysis; expert interviews

Build a group of natural allies

Create a partnership aligned

around the root causes of an
issue

Ensure partners trust one

another and have the ability
to work together

Meet in a safe space to

communicate and measure
progress

Take early steps to show

progress and build trust

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Embedding social engagement into business strategy is seen as the most

important action that a CEO can take to prepare for 2020
Which one of the following actions could you, as CEO,
initiate today to best prepare your company to address
the social problems that will affect your business in
2020?

11%

Done right, social

engagement is
incorporated into the
mission of the
Company.

9%

--Ken Powell, General

Mills

Embed social engagement into our strategy

and organizational structure
Commit to long-term collaborative
partnerships with other stakeholders
Promote measurement standards
to quantify the business and social
impact of our engagement
Improve feedback loops on social
engagement with consumers,
suppliers, and others
Help shape voluntary social engagement
standards for corporations

SOURCE: CECP Board of Boards CEO conference, February 2010.

77%

3%

0%

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Conclusion: Business has the power to shape the future and move us
toward sustainable value creation
Higher Expectations for
Business Across Geographies

Dangerous
Mismatch

Sustainable
Value Creation

Business is
Reactive on Social
Issues

Business is
Proactive on Social
Issues
Vicious
Cycle

Dual Capitalism

Stagnant Expectations for

Business

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1 Collaboration

As you reflect on the notion that collaboration is necessary to address

social problems, what do you think collaborations have to look like if
they are going to work? What collaborations do you see your
company involved with in 2020? What will make them successful?

Rules of the
2 game

When have you been able to push forward to help create standard
rules of the game for your industry, either through regulation or
voluntary standards? How did you do this?

3 Impact

As you reflect on the global trends we've discussed today and the
other social issues on your mind, on what issue do you hope to have
really made a difference by 2020?

"Win-win
4 solutions"

When have you been able to tackle a major social issue through your
business strategy? Do you feel it has been successful? What made
it work?

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APPENDIX

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THE GREAT REBALANCING

The rise of emerging market players: Global businesses will be

challenged to flatten an uneven playing field
With the rise of emerging market players,
businesses will need to:

Explore new opportunities:

Expand products and services into growing
markets
Lead by example, influencing global
adoption of social and environmental
standards

Compete on an uneven playing field:

Maintain company-wide standards and

The next decade will be the first in

200 years in which emerging markets
drive more than 50% of the global
growth, in industries like
construction, agriculture, mining

SOURCE: McKinsey analysis

participate in activist supply chain

management,
Establish industry-wide social and
environmental standards
Lobby for enforcement of regulations in
emerging markets

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THE PRODUCTIVITY IMPERATIVE

Talent shortage: Companies will need to become increasingly

involved with educating the next generation of workers

Talent shortages will require companies to:

Find opportunities to develop their own
workforce

Become more directly involved in
educating their own workforce

Reconsider retirement policies

Explore further outsourcing options

Seek growth from labor productivity
gains
In the 1970s, 80 percent of overall
economic growth came from a
growing labor force, and 20 percent
from gains in worker productivity. In
the next decade, this relationship will
invert due to a shrinking labor pool
SOURCE: McKinsey analysis

Protect the pipeline

Engage in advocacy for public
education systems

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PRICING THE PLANET

Resource scarcity: Businesses will need to integrate environmental

sustainability innovations into their business plans
In a world of increasing resource scarcity and
climate change, businesses will need to:

Take advantage of the opportunity to

Create innovative products and services to

address resource constraints

Develop and brand more sustainable products
that meet growing consumer desire for
sustainability

Protect the core business

Lean and green their supply chains

Work in partnership to establish industry


To note, global resource demand
will grow by over 1/3 in the next
10 years, 90% from emerging
markets
SOURCE: McKinsey analysis

standards for natural resource use

Advocate for stronger and more universal
government regulation on resources (e.g.,
carbon emissions, water protection, etc.)

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THE MARKET STATE

Market State: Businesses have the opportunity to partner with

governments to develop economies and create new business

In a world where governments are increasingly

involved in developing business opportunities,
businesses will need to:

Find opportunities to partner with government to

build regional economies

Take advantage of incentives to innovate

Partner with other industry players to help shape
regulation and develop voluntary standards
In the US with stimulus money
being used to advance green
technology ; and both here and
abroad, the huge deficit spending
and regulatory change in process
SOURCE: McKinsey analysis

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GLOBAL GRID

Global Connectivity: An increasingly connected citizenry creates

opportunities for innovation, but also requires increased transparency and
accountability from business
In an increasingly connected world,
businesses will need to:

Find opportunities to utilize technology to

engage more closely with their consumers
and employees

Develop products that reach their

consumers at their doorsteps (e.g. mobile
money)

Share information about business activities

and compliance with social and
environmental standards
If Facebook were a country, it
would have the third largest
population in the world

SOURCE: McKinsey Analysis

Improve their community and customer

radar to stay ahead of concerns and
maximize opportunities

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For more information contact:

Marianne Scott, Director: Schooling
+27(0)11 544 6000; scott.marianne@nbi.org.za

www.nbi.org.za

McKinsey & Company