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Respected business strategist, Professor Michael E. Porter, spoke to a packed house at the BFI Imax cinema. He shared his thoughts on the direction that business strategy will take over the next ten years and spoke about his work in progress, the shared value of strategy. Following the lecture, guests of the London Business Forum had unprecedented access to Porter during an extended Q&A session, where they quizzed him on industry specific queries and on his involvement with macroeconomic strategy on a governmental level.

Porter opened his talk with a recap of his work focussing on business strategy in the current economic crisis. While he recognises that many businesses are concerned with survival during this challenging time, he believes that the underlying foundations of good business practice still stand, and companies that neglect their strategy and become too concerned with cost cutting have lost their way. Porter then reiterated his first strategic principle: “Good strategy is not competing to be the best, but competing to be unique. The worst error in strategy is to compete with rivals on the same dimensions.”

Professor Porter wants us to be clear on the definition of strategy, because many businesses today are mistaken in their approach. Business strategy is not vision, nor is it a company’s aspirations; Strategy is more than a particular set of actions. “Strategy defines the company’s distinctive approach to competing and the competitive advantages on which it will be based.”

He also argues that many businesses have become obsessed with satisfying shareholder interests instead of securing a superior long term return on capital. Setting unrealistic profitability or growth targets can undermine business strategy. Porter argues that the shareholders must fit the company, not the other way round.

Porter’s new work, which he shared for the first time at the London Business Forum, deals with how strategy can deal with the massive societal problems that have recently arisen into popular consciousness. The new generation, he argues, has a radically different view on the responsibilities and scope of business and this needs to be factored into any long term strategy for a successful business.

“The best strategies of the next ten to twenty years will have a strong social element,” he says. “External pressures for CSR continue to grow.” But, he argues that corporate social responsibility programs (CSRs) are too divorced from the expertise and function of businesses to be truly effective. He believes that most, if not all, CSRs are unfocused, reactive, PR driven, and worst of all, ineffective. He sees this as symptom of the narrow perception of what a company’s role in society is. Porter sees value in CSR only when it is integrated with the business as a whole, i.e. a marriage between company and community.

This marriage would be cemented by something that Porter calls shared value: “Policies and practices that enhance the competitiveness of a company while simultaneously advancing the economic and societal conditions in the communities in which it operates.” If businesses start to realise that environmental impact ends up being a waste of resources and that societal deficits create economic costs, then minimising these issues will directly impact on their ROIC.

“As we get a deeper understanding about doing business, not charity, there are incredible opportunities for businesses to reengage and rethink their choices in this area; I believe that addressing these issues will be one of the great drivers of economic growth in the next twenty years.”