Improving Competitive Context Through Corporate Philanthropy

Social Enterprise Newsletter, Spring 2003

When most people hear the term "strategic philanthropy," they think of an approach to giving around a specific theme or focus. HBS professor Michael E. Porter and Mark R. Kramer of the Foundation Strategy Group give a new definition to the term and bring a new approach to corporate philanthropy in their December 2002 Harvard Business Review article "The Competitive Advantage of Corporate Philanthropy."

Porter and Kramer assert that "true strategic giving addresses important social and economic goals simultaneously [by] targeting areas of competitive context where the company and society both benefit because the firm brings unique assets and expertise." Corporations benefit because their charitable efforts improve their competitive context-the quality of the long-term business environment in the locations where they operate. Society benefits because the corporation's assets and expertise are used to address important social problems. Social and economic goals are integrally connected, not in conflict, so that corporate philanthropy and stakeholder interests converge.

In their article, Porter and Kramer cite the Cisco Networking Academy. Cisco Systems, the leading producer of networking equipment, found that its customers were encountering a chronic shortage of qualified network administrators. The corporate philanthropy efforts-a web-based distance-learning curriculum to train students in network administration-utilized Cisco's expertise and relationships with other companies in the field to train close to a half million students from secondary schools, community colleges, and community-based organizations in all 50 states and 147 countries, including some of the least developed countries in the world. Over half of Academy graduates have found jobs in Cisco's customer industries, benefiting society and also improving the firm's competitive context.

The four elements of competitive context (see sidebar) are drawn from Porter's work in The Competitive Advantage of Nations. His research has demonstrated how external factors affect long-term competitive success, and the crucial role of clusters. Clusters are geographic concentrations of firms, suppliers, specialized service provider and association institutions such as university research institutes in a particular field (such as money management in Boston and medical devices in Minneapolis). Over the past five years, Porter and Kramer's research into effective philanthropic practices by foundations and other donors led to the realization that targeted social investment often impacts the very same factors that lead to successful cluster development.

During a recent conversation with Social Enterprise, Professor Porter said that a shift to "context-focused" corporate philanthropy could have major benefits for the nonprofits with which corporations work. "Corporations would target their philanthropy toward a narrower set of issues, but take greater responsibility for helping devise and implement solutions," he explained. "There would be closer partnerships with nonprofits, in which companies would contribute their expertise, assets, and relationships in addition to financial support." Nonprofits involved in fields such as economic development, human resource development, environmental issues, and effective government, among others, would be prime candidates for corporate partnerships in the new model. "In order to enhance their impact," Porter added, "nonprofits need to understand the industry clusters in the regions they serve, and think about how their programs can better connect to them."

Moving in this new direction requires fundamental changes in the way companies approach their contribution programs, but can help their philanthropic activities achieve greater combined social and economic benefit. Porter and Kramer believe that their new approach, motivated by a clearer sense of purpose in companies, may well reverse the decline in corporate philanthropy and begin to increase corporate engagement in society.

Michael Porter is the Bishop William Lawrence University Professor, based at Harvard Business School, and Mark Kramer is managing director of the Foundation Strategy Group and cofounder with Porter of The Center for Effective Philanthropy. The Harvard Business Review article is reprint R0212D.

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Strategic philanthropy enhances corporations' competitive context-the quality of the business environment in the locations where they operate-to bring social and economic goals into alignment and improve their long-term prospects.

The four elements of competitive context