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April 22, 2014 11:20 am

The MBA blind spot

Business schools overlook that the success of business is linked to its social impact

Most MBA programmes today limit success as much as they enhance it: they ignore powerful opportunities to improve economic performance through social impact. Some schools such as Michigan, Berkeley, Cornell and Insead are heading in the right direction, but for the most part, courses in corporate social responsibility (CSR), philanthropy and ethics teach the constraints under which businesses should operate. Few students would consider these courses core to their studies, if they even take such courses at all. In the wake of the financial crisis, the 2009 graduating class of MBAs at Harvard Business School went further and proposed that all graduates take the MBA Oath, a business equivalent of the Hippocratic Oath, swearing not to use their knowledge for harm. Like most CSR courses, the focus of the oath is on what not to do.

Teaching business school students to act ethically is important, of course. But it is no longer enough. More and more, we are discovering that the success of business is tightly linked to its social impact in ways that business schools have overlooked. As Michael Porter and I have written, the opportunities to succeed in business by creating shared value for society are among the most promising avenues of competitive advantage and wealth creation in the world today. Recognising and managing shared value opportunities, however, requires knowledge and skills that most business schools today do not teach. Consider the following examples:

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Discovery, a highly successful South African health insurance company (operating in the UK through a joint venture known as Pruhealth), has gained a competitive and economic advantage by using behavioural economics to incentivise healthy behaviours among its customers, resulting in healthier lives, lower medical costs and higher profit margins.

Nestlé designed Maggi-al-Masala bouillon cubes with the specific micronutrients needed to prevent stunted growth in children in poor regions of India and now sells tens of millions of the cubes profitably every day.

Coca-Cola Brasil has created a programme to teach retailing skills to more than 60,000 unemployed youth in the favelas, creating jobs for the youth and additional distribution capacity for the company.

Mars is helping to lead a public-private coalition to triple the yields of more than 150,000 smallholder cocoa farmers in Côte d’Ivoire, raising the farmers’ families out of poverty and stabilising the supply of one of the company’s most important raw ingredients.

Walmart is re-engineering its stores and distribution system, cutting hundreds of millions of dollars per year out of its energy costs while reducing its carbon footprint.

Cisco operates Network Academies in more than 160 countries, expanding its market and creating new employment opportunities by training more than one million network administrators every year.

GS Sustain, a division of Goldman Sachs, has outperformed the global stock index for a decade by selectively considering social and environmental factors in its investment selections.

These are just a few of the examples that will be discussed in New York next month when more than 300 corporate, non-profit and government leaders gather at the Shared Value Leadership Summit. Corporate leaders already feel an urgency to master the social dimensions of their business strategies. These companies are finding that they can improve their economic performance and hone their competitive edge by addressing the social problems that are most relevant to their businesses. And in so doing, they are improving the lives of millions of people around the world.

But here’s the challenge: Discovery’s leaders need to understand what incentivises healthy behaviours; Nestle’s researchers need to understand the nutritional deficiencies and consumer tastes of poor rural populations; Coca-Cola’s managers need to recognise how to motivate and engage youth in the favelas; Cisco needs to partner efficiently with educational and civil society organisations around the world; Walmart needs to be at the forefront of energy conservation techniques; Goldman’s analysts need to accurately assess major social and environmental trends. Each of these businesses needs to understand how to increase its earnings by identifying and solving social problems. And these lessons are not currently being taught to our MBAs.

Business schools can continue to treat social issues as mere peripheral constraints on the core skills of business, but this blind spot will yield graduates that lack the knowledge to recognise immense opportunities and the skills to meet their future employers’ needs. Or, business schools can develop courses in social impact – how to identify opportunities, understand social needs, design products, rethink value chains, measure social impact and build social purpose into competitive positioning. Those courses will look nothing like the current offerings in CSR and ethics; they will teach knowledge and skills, not constraints and admonitions.

More than the success of our MBAs rests on this curriculum reform. A recent global poll of 33,000 consumers in 27 countries by Edelman has shown that consumers trust business more than government to solve social problems. Not only that, they expect companies to lead change and favour those companies that do. The future of business is interwoven with social progress; our business curriculum must be too.

Mark Kramer is co-founder and managing director at FSG and senior adviser to the Shared Value Initiative, a global community of professionals who see market opportunities at the intersection of business goals and societal challenges.

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