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Promoting Shared Value Creation Within and Across Companies

Sunday, October 16th, 2011

Many companies have donated to social causes for years. For the most part, however, these philanthropic activities were viewed as nice things to do or as ways of improving the company’s image as a member of a local community, rather than as an investment in the business. Recently, however, a growing number of companies have come to recognize that advancing social causes is not only good PR, it can also be good business. Well designed and executed social programs can provide “shared value”—delivering at least as much value to the donor corporation and its shareholders, as to the recipients.

This practice, which has been aptly dubbed “Creating Shared Value”, is already being adopted by a growing number of companies. Maximizing this value, however, is not easy. It is difficult to build commitment through all levels of the organization, develop a true Shared Value culture and, especially, maintain focus and commitment in good times—and even tougher in today’s challenging economy. Most companies, therefore, need help in making a convincing business case to their executives and their boards, getting buy-in, building commitment through all levels of their companies and in understanding the ways in which partnering with other organizations can multiply the value delivered to all parties.

The last week of September saw three separate forums in which leading Shared Value proponents have attempted to provide exactly this type of help by sharing their visions, their experiences and their best practices with other companies and institutions.

One example is a webinar sponsored by FSG, a non-profit social impact consulting firm whose Managing Director (Mark Kramer) joined with Harvard Business School professor Michael Porter to explain the concept of Creating Shared Value (CSV) in a January 2011 Harvard Business Review article. After FSG set the stage by briefly explaining the evolution of corporate philanthropy toward Shared Value Creation and by laying out its Ten Building Blocks, it introduced Corporate Social Responsibility executives from three companies, each of whom provided an overview of how they made the business case and built commitments for CSV within their own companies. For example:

  • Hewlett-Packard explained the need to align and continually reinforce vision, strategy, delivery and performance across all levels of the organization, from the board to branch executives and individual employees;
  • Intercontinental Hotels demonstrate how its four-pronged model for a Shared Value sustainability program gained commitment, not just from its own executives and employees, but also from its franchisees and its customers;
  • Houghton-Mifflin Harcourt showed how aligning its social commitment with its business objective (of “selling educational achievement”) and assisting its business leaders with the tactical requirements for managing such programs allowed it to maintain its program across the regimes of three CEOs in less than two years.

Although these and a number of other companies have certainly demonstrated commitments to Shared Value, as explained in previous blogs, I see two companies—IBM with its Smarter Planet initiative and General Electric with Ecomagination—as most embodying the ways in which companies can effectively integrate social value with their own business objectives.

IBM has been particularly active in both:

  • Explaining the metrics it uses to assess the benefits of its social and philanthropic activities and the need to continually demonstrate the strategic value these efforts deliver to IBM as a means of “ensuring sustained support for these programs within its own company”; and in
  • Evangelizing the importance of aligning business and social strategies and helping all types of for and not-for-profit organizations, academic institutions and governments work together to create mutual value.

In the last week of September, for example, IBM sponsored two forums to evangelize the value of and help other companies build their own programs—both individually and in concert with other organizations:

  • THINK: A Forum on the Future of Leadership brought panels of industry leaders together with up-and-coming leaders from government, business, academia and science to examine the structural changes that will affect all organizations in the coming decades and the ways in which these organizations can, jointly and independently, reinvent themselves to improve the world in which we will all live.
  • Regional Upward Spirals: The Co-Evolution of Future Technologies, Skills, Jobs and Quality of Life in which it convened leaders from leading institutions including think tanks (McKinsey Global Institute, Institute for the Future), universities (MIT, Berkeley and Michigan State), corporations (Boeing, IBM) non-profits (IEEE and CAEL) and regional technology clusters (Washington Economic Development Commission) to examine how technology will reshape the nature of learning and jobs, the skills that will be required in the new economy, the types of jobs that will be created (and those likely to face a shortage of qualified employees) and the opportunities for leaders in all segments to work together to create the jobs, the employees and the academic/industry clusters that will be capable of addressing the needs of tomorrow.

FSG and a couple of its clients, meanwhile, is already on the agenda for another webinar that will explain the ways in which numerous companies and organizations can work cooperatively to address societal needs—an approach they call Collective Impact (see FSG’s recent book, Do More than Give) and the Winter 2011 Stanford Social Innovation Review article). This approach, as it will discussed in a November 9 webinar, depends on each party applying a common set of measures to evaluate performance and track progress.

Forums, such as those recently sponsored by FSG and IBM, play critical roles in explaining the payoff—both corporate and social—and of providing guidelines for managing such initiatives. Hopefully, we will see many, many more by FSG, IBM and many other organizations, over the next couple years.

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GE Smart Grid: Ecomagination in Action

Sunday, May 1st, 2011

This is a summary of the report “GE Smart Grid: Ecomagination in Action”. For information on how to obtain the entire report, email the author, Tom Kucharvy, at TomK@Beyond-IT-Inc.com

General Electric (GE) launched its ecomagination initiative five years ago. Although GE certainly intended ecomagination to promote the company’s social consciousness, the initiative’s primary goal was much deeper—to recast GE’s overarching value proposition and establish it as the leader in what CEO Jeff Immelt saw as some of the biggest growth markets of the 21st century, including those around alternative energy generation and energy efficiency. While ecomagination efforts are spread across every division of the company whose products range “from turbines to toasters”, nowhere are the company’s efforts more focused and concentrated than in GE Digital Energy Services, the group that is responsible for General Electric’s Smart Grid program.

Smart grids promise to redefine how electricity is generated, transmitted, used and managed. They will create a new, much more flexible energy infrastructure that:

  • Enables the integration and optimization of more renewable energy (such as wind and solar) and plug-in electric vehicles into the grid;
  • Drives significant increases in the efficiency and reliability of the network; and
  • Empowers consumers to make smarter decisions in managing their energy usage and saving money without compromising their lifestyles.

General Electric pretty much encircles most of the major components of, and a range of devices that will be powered by tomorrow’s smart grids, all the way from the power plants that generate the electricity, through the batteries that store it and the appliances and light bulbs (not to speak of the MRI and wastewater treatment equipment) that consume it. It is also writing software that will be required to manage these grids, and is creating services that will be necessary to design, install, manage and finance these grids.

Although GE certainly has a broad line of smart grid hardware, software and services, it has no intention of providing all the tools required for a comprehensive solution. It does not and will not, for example, provide the ERP, data management or analytics software that utilities will need to manage their businesses, or most of the services that will be required to integrate energy management and distribution systems into their business systems. Rather than build such products and services itself, it is actively building an ecosystem of partners to address these needs.

GE’s ecosystem began with companies that designed software, and sometimes hardware and services, for utilities and other power generators. It is now expanding its smart grid ecosystem to incorporate more commercial and consumer-based software, including ERP, analytics and home electricity management. But while ISVs account for the largest number of GE’s smart grid partners, the companies relationships with systems integrators are rapidly emerging as among its most strategic. These partners, after all, can provide the:

  • Connections to and credibility with the type of C-level and business executives who will drive large-scale transformation projects within their organizations, but with whom GE does not typically engage;
  • Strategic consulting to construct the business cases and provide the change management guidance these customers will require in migrating to smart grids;
  • Integration services to link third-party IT components and other non-GE products into these solutions; and
  • Outsourcing and managed services for grid/back office integration and for the type of complex, multivendor grids that GE cannot itself support.

This, of course, is not to suggest that benefits of such partnerships are uni-directional.

SIs, for example, gain from access to GE’s hardware and software, its deep domain knowledge, its ability to finance huge implementations and from its strong credibility and deep relationships with power generation and distribution executives and managers. Moreover, while GE hopes that SIs will increasingly provide it with access to new customers and to additional decision influencers in current customers, GE claims that as of now, it is more likely to pull its partners into deals, than partners are to pull in GE.

Although all of the parties recognize the potential benefits of working together, effective partnering is never easy. Partners face particular risks in dealing with huge partners, such as GE. The closer the partnership, the greater the risk that smaller partners’ value add and customer relationships may be subsumed by or eventually subjugated to those of the giant., There is also always a potential that big, multi-faceted vendors may decide that software and services for which they initially relied on partners, are too strategic or too profitable for them to cede to partners.

Moreover, GE Energy has far more experience in working with customers and suppliers, than it does with go-to-market partners. It lacks a deep partnering culture and is still in the early stages of building a formal partner organization and program.

Such limitations, however, have the potential of working in General Electric’s favor. Its current lack of a partnering philosophy and structure gives it the flexibility to strategically think through its software and services objectives, to communicate these objectives to its partners and to develop a partnering program, in conjunction with these partners, from scratch. Just as importantly, since the group does not currently have large or comprehensive software or services businesses to protect and feed, it has more flexibility to strategically align its visions with those of its partners.

GE Digital Energy does appear to have a genuine desire to partner and to learn from the experiences of other industries (especially the IT industry) that have already gone through the trials and errors of creating synergistic partnering models. It must, however, decide exactly which forms of value—hardware and especially software and services—it wishes to retain for itself, and which will remain the province of partners.

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GE’s Ecomagination: From Business Commitment to Business Philosophy and Social Contract

Sunday, April 17th, 2011

Five years ago, when General Electric first launched its ecomagination program, many, including some within the company, saw it primarily as a marketing and PR effort. As discussed in my April 3rd post, the company has long since proven that it was much more than a marketing program. It has now become a fundamental part of its business. And, judging from its commitments to extending the program, ecomagination is on the path to being core to GE’s business.

In fact, ecomagination appears to be more than a central part of GE’s business. Ecomagination is expanding the company’s view of and approach to partnering and is  beginning to become integral to the way GE views its business and even to its contract with society.

The Growing Ecomagination Partner Ecosystem

This, however, is not to suggest that GE believes that it can field all the technology required for its ecomagination solutions. As I discuss in greater depth in a recent report I wrote on GE’s work in building an ecosystem around its Smart Grid program, GE’s divisions are working more closely with each other to facilitate the development of and to support standards that facilitate interoperability across multiple industries (energy, aircraft, healthcare, etc.) as well as to leverage technologies and processes developed in one, to support others.

This being said, each division is also building partner ecosystems around their own ecomagination offerings—ecosystems that consist of combinations of customers, governments, academia and all types of large and small businesses. The company is also forging relationships with other global innovation leaders, exemplified by partnerships with:

  • Honda, to bring the smart grid to aerospace;
  • Better Place, with which it shares a vision to accelerate the global deployment of electric vehicles;
  • Masco, to help builders design and build more energy-efficient homes that use ecomagination home technologies,
  • Cities, including Portland, Oregon and Orlando, Florida to help them meet sustainability goals while simultaneously creating jobs; and with
  • Leading research universities, like Columbia, to realize the next generation of clean energy innovation.

And, where the partners do not yet exist, GE is helping to create them. The company’s ecomagination Challenge is an open call for breakthrough ideas to create a cleaner, more efficient and economically viable grid and to accelerate the adoption of smart grid technologies that leverage GE infrastructure. Like IBM’s Global Entrepreneur Initiative, it provides entrepreneurs with access to GE technical and commercial experts, introductions to VCs and other partners, and opportunities for ongoing technical and go-to-market relationships. The Challenge came with a pledge of $200 million (of which GE funded about half, with the other half coming from its VC partners), to be invested in promising start-ups. The winners, who were announced in December 2010, include:

  • ElectricRoute, which created a communications gateway point for electric transmission and distribution systems;
  • WinFlex, which produces rotors for wind turbines from light, flexible and inexpensive composite materials; and
  • Capstone Metering, which applies remote communications technology to water meters.

GE recently extended the ecomagination Challenge with call for solutions for home energy creation, management and use.

Ecomagination as Integrating Umbrella

Ecomagination serves as both an inspiration to and obligation of GE’s businesses. Led by Jeff Immelt’s conviction that investment in ecomagination will be good for all of GE’s stakeholders, the ecomagination goals for R&D spend, revenue growth and environmental responsibility (energy efficiency and greenhouse gas reduction) ensure that all the company’s businesses contribute. Ecomagination provides corporate leadership, not only by providing the structure for the product approval process, but also by providing continuous feedback on best practices, environmental trends, and the continual monitoring of claims to ensure GE leadership.

Ecomagination also serves as a central coordinating group for key stakeholder outreach, with executive-level, strategic customer engagements; employee engagement; and collaboration with NGOs, governments and other corporations. Furthermore, ecomagination.com raises topical and sometimes controversial issues, and invites the public to participate in the conversation.

This year, ecomagination is expanding its role in driving cross-business initiatives. GE’s heritage with electric vehicles dates back nearly 100 years to Charles Steinmetz and is entrenched in many GE businesses. GE Capital’s Fleet Services is a world leading leasing company. GE’s Licensing & Trading works with automotive manufacturers to improve fuel efficiency. And of course, GE Energy designs and manufacturers electrical equipment from the WattStation EV charger, through all of its local distribution equipment, to the generating technology itself. The company is aggressively endorsing electric vehicles (EVs) through its normal channels, and especially through its commitment to put 25,000 EVs on the road by 2015, both in its own fleet and in those of key customers. The ecomagination team is leading the company’s coordination of these activities.

Given all this, there can be little doubt that ecomagination is far more than an advertising program. It has become a fundamental precept of General Electric’s business philosophy and its social contract. Nowhere is this more evident than in the company’s Digital Energy group’s Smart Grid program (which I discuss in more depth in my aforementioned report).

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GE’s Ecomagination: From Marketing Campaign to Business Commitment

Sunday, April 3rd, 2011

Most of us have seen General Electric’s ecomagination advertisements. But while ecomagination may make for a catchy slogan and an interesting, and even compelling advertising campaign, it is much more than a marketing program. It is a totally new way of viewing General Electric’s value proposition, of defining markets and conceiving products and of allowing GE to “Create Shared Value”—a set of business policies and practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.

GE CEO Jeff Immelt has spoken directly and often of the private sector’s responsibility to the country. He believes that the private sector must embrace the realities of environmental, national security, and other societal concerns; and that it must assume responsibility for addressing these challenges.

The company’s ecomagination initiative is a central component of his willingness to stake General Electric’s future on this proposition. His recent acceptance of President Obama’s invitation to chair the newly created Council on Jobs and Competitiveness is indicative of his believe that business must partner with the government to jointly address such needs.

The Genesis of Ecomagination

One may be forgiven for assuming that GE’s five-year old ecomagination initiative, which has been at least partially promoted around GE’s concerns for the environment and a desire to “leave the earth as they found it”, has its roots planted firmly in the clouds.

This, however, is not the case. The initiative, which is intended to promote the development and sale of energy-efficient products is, in fact, a hard-headed business decision. It is based primarily on Jeff Immelt’s conviction that energy efficiency and alternate energy are becoming big growth markets and that most resources, and especially energy resources, will become increasingly scarce, costly and subject to government regulation. And since GE is already so ensconced in so many related markets (from water purification to jet engines and all stages of the electricity chain, from huge nuclear plants through home appliances and light bulbs (or as one exec poetically puts it, “from turbines to toasters), it was ideally situated to stake out a leadership position.

This vision of proactive business opportunity is bolstered by another, much more defensive calculation—that Americans’ perception of big business is in a “dark cycle” where the people who can make our economy better (including corporate executives) are considered its worst enemies. With citizens’ trust in big business at an all-time low, Immelt is concerned that “populism will turn to protectionism”, harming not only economy as a whole, but GE in particular.

To some, ecomagination was initially perceived primarily as a marketing campaign. The program, however, is a corporate business strategy built upon the belief that one doesn’t have to choose between economic viability and environmental responsibility; you can have both. The program has steadily gained momentum as public awareness and commitment grew around sustainability, as GE doubled down on its investments, and as the market has come to accept—and indeed demand—a growing number of energy-efficient products. Over the program’s first five years, GE:

  • More than doubled its investment in cleaner technologies, from $700 million in 2004 to $1.5 billion in 2009;
  • Earned more than $70 billion in revenue from ecomagination; and
  • Introduced more than 90 ecomagination products. (Note: Ecomagination products must be both significantly and measurably better in operating performance and in environmental performance. GE business applications are audited by GreenOrder, a sustainability strategy consulting firm. Compliance is measured by a GE corporate approval council.)

GE surpassed a number of its initially, publically-stated ecomagination goals and has now committed to going further—re-doubling its ecomagination investments over the next five years to $10 billion and growing ecomagination revenues at twice the rate of the company’s top line. Employees and investors have long since come to recognize that what’s good for the environment can be good for business—and vice versa.

Ecomagination Initiatives

Ecomagination initiatives now pervade the company. General Electric has and will be dedicating $15 billion over 10 years to work on new ecomagination-related projects and virtually every division of the company is involved, with many introducing new product categories, in addition to fielding more energy-efficient versions of traditional offerings.

The company’s power and energy groups, in particular, are commercializing smart grid solutions, sodium and lithium battery technology, offshore wind, multi-fuel gas turbines and new generations of nuclear reactors and clean coal technology. Examples across GE groups, as shown at www.ecomagination.com/technologies, include:

  • GE Appliance’s ENERGY STAR qualified washers, refrigerators, dishwashers and GeoSpring water heaters;
  • GE Aviation’s GEnx Aircraft Engines and Fuel and Carbon Services consulting solutions and ecomagination-certified TrueCourse™ flight management system to help airlines optimize jet fuel use;
  • GE Energy’s 7FA and LMS 100 gas turbines, wind turbines, nuclear generators, and Integrated Gasification Combined Cycle coal gasification process;
  • GE Lighting’s compact fluorescent and LED lights;
  • GE Rail’s Trip Optimizer throttle control systems and especially its Evolution series of locomotive;
  • GE Software + Services, which pulls together offerings from multiple groups, including GE Digital Energy, with its Digital Energy UPS system, and GE Intelligent Platforms, with its Proficy software platform, that helps industrial and commercial companies improve energy efficiency;
  • GE Water’s line of advanced water and wastewater treatment systems, which cut water consumption, energy usage and its associated greenhouse gas emissions); and
  • GE Healthcare, which is generally focused on the company’s parallel (to ecomagination) vision of “Healthymagination,” is also improving the energy efficiency and reducing emissions and paper usage attributable to products by going digital, including through its use of Digital X-Ray, Digital Mammography, High Efficiency MR (Magnetic Resonance) Systems and Voluson ultrasound technology.

Then there is the rapidly growing number of specialized ecomagination products, including a growing portfolio of solar- and wind-powered alternative energy systems, smart meters and recently announced Nucleus home energy management hub and Wattstation electric car charging station.

Even the company’s Finance units get in on the ecomagination action. Its Business Finance group, for example, finances purchases of the company’s locomotives and jet engines and the building of solar and wind farms. It also earns money from eco-friendly assets by investing in third-party verified carbon offset projects that would not have been viable without the offsets. GE Energy Financial Services now counts on renewable energy investments for 30% of its $26 billion portfolio.

In fact, GE Broadcasting is one of the few divisions that is not in the ecomagination act (unless, that is, you count the ecomagination commercials that are run on NBC and other GE networks). But now that 51% of NBC Universal is being sold to, and will be operated by Comcast, it no longer counts. Smile

Whatever one believes may have been the original motivation for ecomagination, there can be little doubt that it is now fundamental to the General Electric’s business. But, as discussed in my next post, it is now becoming more than a core part of the company’s business. It is becoming part of the company’s Business Philosophy and its Social Contract.

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Shared Value Creation: The Next Evolution of Corporate Social Responsibility and of Capitalism

Sunday, February 6th, 2011

Corporate social responsibility (CSR) and corporate philanthropy (CP) used to be managed separately from the business. They consisted largely of cash contributions that companies viewed, at best, as an effort to give back to the communities in which they operated and their employees lived. At worst, they were seen as a subtle form as extortion that companies had to pay to appease and demonstrate their “commitments” to their communities.

This is changing. A growing number of companies now recognize that:

  • CSR and CP initiatives can deliver big business benefits to their organizations; and that
  • They can often deliver much greater value to society by contributing technology and expertise than they can by contributing just money.

Many companies, for example, now recognize that reputations for social responsibility can burnish the company’s brand, attract new customers, aid in recruiting employees and improve employee commitment to the organization. Some even claim that their CSR and CP activities have increased their share prices by attracting incremental new investments from the growing number of Social Investment Funds.

This, however, is only the tip of a value proposition that can go much deeper—a value proposition that can directly help the corporation enter new markets, improve economies in existing markets and create totally new business opportunities. In fact, Michael Porter and Mark Kramer, in their January 2011 Harvard Business Review article, argue that companies must recast narrowly defined CSR and CP programs around a proposition for creating shared value—an approach designed to deliver as much value to the company as to society. They insist that a structured approach to Shared Value Creation (the latest non-intuitive buzzword for efforts intended to deliver both business and societal value) can, for example, yield:

  • Big cost savings, as in the $250 million savings (a $2.71 return on every dollar it spent on these programs from 2002 through 2008) that Johnson & Johnson attributed to its employee wellness programs (not to speak of demonstrated improvements in employee attendance and productivity);
  • Big revenue gains, as in the $18 billion that General Electric derived from the sale of Ecomagination products in 2009, a category of offerings that is expected to grow at twice the rate of total company revenues over the next five years (an issue that I will discussed in my February 20th blog on GE’s Smart Grid strategy); and
  • Big improvements to employee leadership development and retention, as with IBM’s Corporate Service Corps (as I examined in my January 23 blog and accompanying report), which deploys teams of high-potential employees on 30-day projects to help emerging countries address some of their most pressing societal needs.

Porter and Kramer, in fact, go further, much further. Not only do they view Shared Value Creation as the next evolution of CSR and CP, they also view it as the next evolution of capitalism—a more sophisticated form of capitalism that “arises not out of charity but of a deeper understanding of competition and economic value creation.” It is a form of “self-interested behavior” that creates economic value to the company, by the very process of creating societal value. A form of behavior that will also help mend badly frayed corporate and capitalist reputations and facilitate a more productive relationship between business and governments.

This “Harvard School” view of Shared Value Creation appears diametrically opposed to the “Chicago School” view in which Milton Friedman famously equated the spending of shareholders’ money for any purpose other than to advance the interests of the business as a form of “theft.”

Perhaps, however, these views are not as philosophically opposed as they may appear. After all, even Friedman was not opposed to all corporate giving. He admitted that corporate philanthropy could be justified if it served a business objective, such as increasing customer loyalty, improving employee teamwork and motivation or strengthening the marketing of a company’s brand.

But whichever side of the supposed philosophical divide on which one may fall, the issue is becoming increasingly moot. A rapidly growing number of very large, and very influential corporations (including virtually all of the largest technology companies) have instituted large CSR and CP programs and most have conceived and are managing these programs in way that is intended to create shared value. And this does not include the hundreds of small companies that have built their entire business models around addressing societal needs or the growing number of social entrepreneurs who are creating hybrid organizations that blur the line between for-profit and non-profit organizations.

In other words, regardless of whether you consider social value creation to be a new generation of capitalism, or just a new generation of corporate social responsibility, one thing is clear. More and more companies—and especially technology companies—are becoming convinced that they can, do quote another well-known economic philosopher, Benjamin Franklin, “do well by doing good.”

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