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Keogh: Is the solution to failed outsourcing more failed outsourcing?



A&E

Sir Bruce Keogh has published a report on the first stage of his review of urgent and emergency care in England. You can read more about the review as it progresses on NHS Choices.

There are various potential causes of the current A&E problems. One reason might be that many people anecdotally seem to have trouble in getting a ‘routine’ GP appointment.

Labour says the crisis has been made worse by job cuts under this Government — such as the loss of 6,000 nursing posts since the election, and decisions to axe NHS Direct and close walk-in centres.

Sir Bruce says the current system is under “intense, growing and unsustainable pressure”.  This is driven by rising demand from a population that is getting older, a confusing and inconsistent array of services outside hospital, and high public trust in the A&E brand.

Invariably, the response, from either those of are of a political inclination, or uneducated about macroeconomics, or both, is that “we cannot afford it”. This is dressed up as “sustainability”, but the actual macroeconomic definition of sustainability is being bastardised for that purpose.

Unite, which has 100,000 members in the health service, said this year that it wanted the “Pay Review Body” to “grasp the nettle” of declining living standards of NHS staff.  “The idea behind the flat rate increase is that the rise in the price of a loaf of bread is the same whether you are a trust chief executive or a cleaner. Why should the CEO get a pay increase of more than ten times that of the cleaner, as would be the case if you have a percentage increase,” said Unite head of health Rachael Maskell.

According to one recent report, the boss of a failing NHS trust was awarded a £30,000 pay rise as patients were deprived of fluids and forced to wait in a car park because A&E was full. Karen Jackson, chief executive of Northern Lincolnshire and Goole Hospitals NHS Foundation Trust, is reported to have accepted a 20% increase last year, taking her salary from £140,000 to £170,000.

Even if you refute that the global financial crash was due to failure of the investment banking sector, it’s impossible to deny that the current economic recovery is not being ‘felt’ by many. Indeed, some City law firms have unashamedly reported record revenues in recent years. Many well-known multi-national companies have yet further managed to avoid paying corporation tax in this jurisdiction.

Sir Bruce Keogh has himself admitted that extra money and “outsourcing” of some services to the private sector will be used to attempt to head off an immediate crisis, but will say the whole system of health care needs to be redesigned to meet growing long-term pressures.

This is on top of an estimated £3bn reorganisation of the NHS which the current Government has denied is ‘top down'; in their words, it is a ‘devolving’ reorganisation; similar to how the ‘bedroom tax’ should be a ‘spare room subsidy’ according to the Government and the BBC.

A poet who uses language far better than either the current Coalition or the BBC is Samuel Taylor-Coleridge. One of his poems, “The Rime of the Ancient Mariner”, relates the experiences of a sailor who has returned from a long sea voyage.

The poet uses narrative techniques such as repetition to create a sense of danger, the supernatural, or serenity, depending on the mood in different parts of the poem.

Water, water, every where,
And all the boards did shrink;
Water, water, every where,
Nor any drop to drink.

Like the manner of this poem, the mood of the NHS changes with the repetition of certain language triggers such as ‘sustainability’.

More than £4bn of taxpayer funds was paid out last year to four of Britain’s largest outsourcing contractors – Serco, Capita, Atos and G4s – prompting concerns that controversial firms have become too big to fail, according to the National Audit Office.

But according to the National Audit Office, increasingly powerful outsourcing companies should be forced to open their books on taxpayer-funded contracts, and be subject to fines and bans from future contracts in the event that they are found to have fallen short. The report estimates that the four groups together made worldwide profits of £1.05bn, but paid between £75m and £81m in UK corporation tax. Atos and G4S are thought to have paid no tax at all.

“[This report] raises some big concerns: the quasi-monopolies that have sprung up in some parts of the public sector; the lack of transparency over profits, performance and tax paid; the inhibiting of whistleblowers; the length of contracts that taxpayers are being tied into; and the number of contracts that are not subject to proper competition,” said Margaret Hodge, chair of the public accounts committee, who commissioned the NAO to carry out the study.

As for the NHS, Keogh describes it as ‘complete nonsense’ that his proposals are a ‘downgrading’ or ‘two tier system’. As an example, Keogh says there has been 20% increased survival rate in major trauma by treatment in a specialist treatment on the basis of his 25 designated trauma centres. Keogh’s focus is on major trauma, stroke or heart attack.

This is a perfectly reasonable observation, in the same way that the existence of the tertiary referral medicine centres for clinical medicine, such as the Brompton, the Royal Marsden or Queen Square, for highly specialist medical management of respiratory, palliative and neurological medicine should not be interpreted as the NHS Foundation Trust ‘tier’ offering a second-rate service on rare conditions. Developed after an extensive engagement exercise, the new report proposes a new blueprint for local services across the country that aims to make care more responsive and personal for patients, as well as deliver even better clinical outcomes and enhanced safety.

Keogh advocates a system-wide transformation over the next three to five years, saying this is “the only way to create a sustainable solution and ensure future generations can have peace of mind that, when the unexpected happens, the NHS will still provide a rapid, high quality and responsive service free at the point of need.”

But it is highly significant that this ‘beefed up system’ is building on the rocky foundation for the NHS since May 2010, where the Coalition has ‘liberalised the market’. Far from giving the NHS certainty, the Health and Social Care Act (2012), as had been widely anticipated, has liberated anarchy and chaos.

There are many more private providers delivering profit for their shareholders.

However, the National Health Service has been propelled at high speed into a fragmented, disjointed service with numerous providers not sharing critical information with each other let alone the public.

Only this week, Grahame Morris, Labour MP for Easington, warned yet again about how private providers are able to hide behind the ‘commercial sensitivity’ corporate veil when it comes to freedom of information act requests. This wouldn’t be so significant if it were not for the fact that ‘beefing up’ the NHS 111 system is such a big part of Keogh’s plan.

NHS 111 was launched in a limited number of regions in March 2013 ahead of a planned national launch in April 2013. This initial launch was widely reported to be a failure. Prior to the launch the British Medical Association – affectionately referred to by the BBC as “The Doctors’ Union” – had sufficient concern to write to the Secretary of State for Health requesting that the launch be postponed. On its introduction, the service was unable to cope with demand; technical failures and inadequate staffing levels led to severe delays in response (up to 5 hours), resulting in high levels of use of alternative services such as ambulances and emergency departments. The public sector trade union UNISON had also recommended delaying the full launch.

The service has run by different organisations in different parts of the country, with private companies, local ambulance services and NHS Direct, which used to operate the national non-emergency phone line, all taking on contracts last year. The problems led to the planned launch date being abandoned in South West England, London and Midlands (England). In Worcestershire, the service was suspended one month after its launch in order to prevent patient safety being compromised. The 111 non-emergency service has faced criticism since a trial was launched in parts of England last month. Some callers said they had struggled to get through or left on hold for hours.

Andy Burnham, Labour’s shadow health secretary, at the time accused the Government of destroying NHS Direct, “a trusted, national service” in an “act of vandalism”. “It has been broken up into 46 cut-price contracts,” he said. “Computers have replaced nurses and too often the computer says ‘go to A&E’.”

Clare Gerada, also at the time, said that the introduction of 111 had “destabilised” a system that was functioning well under NHS Direct and called for non-emergency phone services to be operated in closer collaboration with local GP services.

“The big problem about 111 is of course money,” she said. “It was the lowest bidders on the whole that won the contracts… If you pay £7 a call versus £20 a call you don’t have to be an economist to see that something’s going to be sacrificed. What’s sacrificed is clinical acumen.”

Keogh is keen to put a different gloss on the situation now. He admits that people wish to talk to clinician if they are worried, rather than an “unqualified call handler”. He says that this is possible ‘but we need to put the infomatics in place’. 40% of patients need reassurance, according to Keogh. Keogh then argues that, if there is a concern, an ambulance can be called up, or a GP appointment can be arranged.

However, for this system to work, people offering out-of-hours services will not just be dealing with a third degree burn in the absence of any previous medical history at all. There will be patients with long-term conditions like diabetes, asthma and chronic heart disease, who might not have to use A&E services so frequently if they were supported to manage their health more effectively.

Some of these patients will be ‘fat filers’, where it’s impossible to know what a medical presentation might be without access to complex medical notes; e.g. a cold in a profoundly immunosuppressed individual is an altogether different affair to a cold in a healthy individual. Likewise, individuals with specific social care needs will need to be recognised in any out-of-hours service.

The aim of ‘beefing up’, as Keogh puts it, the ‘National Health Service’ was to make it a coherent service across all disciplines, with clinicians – as well as top CEOs – adequately resourced out of general taxation.

As it is, it is pouring more money into people who have not delivered the goods thus far.

The solution to failed outsourcing cannot be more failed outsourcing. As one interesting article in ‘Computer Weekly’ explained recently, the “NHS 111 chaos is a warning to organisations outsourcing”.

The report has also made a case for improved training and investment in community and ambulance services, so that paramedics provide more help at the scene of an incident, with nurses and care workers dispatched to offer support in the home, so fewer patients are taken to hospital. This can work extremely well, provided that resources are allocated to such services first, and there is a proven improvement in quality (which seems very likely.)

And if somebody tells you it’s all about sustainability – tell them there’s water water everywhere, and there’s not a drop to drink as this recent event provoked.

David Cameron at Lord Mayor's Banquet

 

Sustainability: a hopelessly misused word in English health policy, popular for its misleading potential



The world

 

 

For Twitter or Google, whose revenue potential is stratospheric, analysts have difficulty in defining how ‘sustainable‘ their business model is.

Turning the NHS into a Darwinian ‘survival of the fittest’ always implied that there were bound to be winners and losers. With recent legal decisions firmly deciding that NHS Foundation Trusts, as “enterprises”, cannot merge on purely economic competition law grounds is a profoundly significant decision, you can certainly say we are living in dangerous times.

And yet ‘sustainability’ is possibly the most misused word in English health policy. It means different things to different people. Its ambiguity means that it is highly popular, particularly for its midleading potential.

I was having dinner with a senior lawyer in Stockwell the other evening, and we both decided that, for many, the word had become synonymous with a meaning of ‘maintained’. We felt this usually led to a discussion of ‘we can’t go like this’, thus softening up the discussion to save money.

There is some method behind this madness, however. Rather than spreading money thinly around various hospitals, possibly there can be fewer hospitals with a ‘safe’ level of resources.

This argument clings onto the idea that the NHS funding is finite, and increasingly ‘unaffordable’. This of course is a perfectly rationale argument if you assume that the Government is incapable of producing economic growth. And for the last three years, the Government has taken us on a turbulent rollercoaster ride of GDP when the UK economy had been recovering in May 2010.

It is currently argued by some  that the most successful healthcare organisations are those that can implement and sustain effective improvement initiatives leading to increased quality and patient experience at lower cost. Indeed, the NHS itself has produced a “Sustainability Model and Guide” to support health care leaders to do just that.

Next year, the “NHS Sustainability Day 2014” will feature tools and case studies with proven technologies, methods and projects that have yielded promising results.  Technology is often cited  as a potential source of the ballooning NHS budget, but the NHS simply has to learn how to order and use technology which is most appropriate for the needs of employees.

So why have the media and other professionals actually lost sight of the actual definition of ‘sustainability’? The politicians have an agenda to make the NHS more ‘affordable’, given the parties en masse wish to embrace ‘savings’ and not be THE parties of high taxation. This, however, means that politicians are being somewhat economical with the truth, and a responsible media here is critical.

Sustainability is the “capacity to endure“. In ecology the word describes how biological systems remain diverse and productive over time. Long-lived and healthy wetlands and forests are examples of sustainable biological systems. For humans, sustainability is the potential for long-term maintenance of well being, which has ecological, economic, political and cultural dimensions. It usually comes from an idea that you look after the people involved, and the environment.

Thee most widely quoted definition of sustainability, as a part of the concept sustainable development, is that of the Brundtland Commission of the United Nations. It was provided on March 20, 1987: “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

However the neoliberal approach taps into the oft-quoted saying, “The richer get richer; the poor get poorer.” Power always gets in the way of fairness in the game of sharing. With ‘finite resources’, unfortunately there will always be winners and losers. For parties which claim to offer ‘comprehensive, free-at-the-point-of-need’ NHS, clearly it is impossible to square this particular circle.

Irrespective of the ageing population, which is a sensitive argument as it implies that aged individuals are a ‘burden’ on the rest of society despite the value that they have generated over their lifetime, “demand” appears to be fundamentally outstripping “supply”.

According to the 2008 revision of the official United Nations population estimates and projections, the world population is projected to reach 7 billion early in 2012, up from the current 6.9 billion (May 2009), to exceed 9 billion people by 2050.

In 2009, McKinsey says the NHS can save an initial £6bn-£9.2bn a year over the next three years through “technical efficiencies”. This produces a cumulative three year saving close to the £20bn NHS chief executive David Nicholson has been talking about since his annual report in May.

But the McKinsey report went further, suggesting the NHS could save a further £10.7bn a year on top by improving quality and shifting care to the most cost effective settings. Sir David Nicholson, as in effect the NHS’ CEO, grabbed the bull by the horns. Unfortunately, some Foundation Trusts have used ‘efficiency savings’ to run skeleton staff who are always a number of patients ‘behind’ in the Medical Admissions Unit or A&E.

According to a previous report from the National Audit Office, in 2011-12 there was a large gap between the strongest and weakest NHS organisations. The difference was particularly marked in London. At the time, there were 10 NHS trusts, 21 NHS foundation trusts, and three Primary Care Trusts (PCTs) reported a combined deficit of £356 million. The NAO estimated, based on their census of PCTs, that without direct financial support, a further 15 NHS trusts and seven PCTs would have reported deficits.

Sustainability is an issue in the Lewisham case (judgment here). Judge Silber remarked that on occasions it has proven impossible to improve speedily the performance of a failing NHS organisation sufficiently to secure an adequate quality of care for its patients within sustainable resources. For that reason, an exceptional bespoke procedure was introduced to deal with situations which arise,

At paragraph 3, Silber describes it as follows:

“in the words of a senior official of the Department of Health, Dr. Shaleel Kesevan, “where very occasionally it proves impossible to improve the performance of an NHS organisation sufficiently to secure adequate quality of care within sustainable resources”. This regime is entitled the “Unsustainable Providers Regime” (“the UPR”), which as its name shows was intended to deal with failing NHS organisations.”

It is clear then that some of the basic, actual, definition of ‘sustainability’ has got lost in translation. This is unfortunate given that the primary purpose of politicians, of all shades, should not to be to mislead the general public whether intentionally or unintentionally.

Above all, the NHS should be in touch with its wider environment. This does mean that the NHS should look to the forests or trees for inspirations. It means that when 50,000 protest lawfully in Manchester, there is no news blackout and people are genuinely concerned about why people are so upset.

It means listening to local residents in Lewisham. It does not mean instinctively using hardworking taxpayers’ money to appeal against a decision from the High Court in the Court of Appeal.

It also means listening to the views of nurses when they’re in a job, and listening meaningfully to them if you need to sack them. It is not as if the NHS is actually short of work to do, which is why some find it objectionable that there are staff cuts with ever-increasing demand.

That is the true meaning of ‘sustainable’. Unfortunately, the current Government is producing amendments to the insolvency regime to make neoliberal closures easier for the State, quicker than you can say, “Earl Howe”.

The NHS might be truly ‘sustainable’ if you pay especial attention to hardworking hedgies, as per the Royal Mail privatisation. To take the neoliberalisation of the NHS to the limit, you could sell it off as an initial public offering (or flotation). But is this another difficult choice the public are being shielded from?

The word “sustainable” has been bastardised. It has been taken away from its true meaning from the macroeconomics. Such abuse of language is symptomatic of an abuse of political power.

 

Many posts like this have originally appeared on the blog of the ‘Socialist Health Association’. For a biography of the author (Shibley), please go here.

Shibley’s CV is here.

Sustainability: a hopelessly misused word in English health policy, popular for its misleading potential



The world

 

 

For Twitter or Google, whose revenue potential is stratospheric, analysts have difficulty in defining how ‘sustainable‘ their business model is.

Turning the NHS into a Darwinian ‘survival of the fittest’ always implied that there were bound to be winners and losers. With recent legal decisions firmly deciding that NHS Foundation Trusts, as “enterprises”, cannot merge on purely economic competition law grounds is a profoundly significant decision, you can certainly say we are living in dangerous times.

And yet ‘sustainability’ is possibly the most misused word in English health policy. It means different things to different people. Its ambiguity means that it is highly popular, particularly for its midleading potential.

I was having dinner with a senior lawyer in Stockwell the other evening, and we both decided that, for many, the word had become synonymous with a meaning of ‘maintained’. We felt this usually led to a discussion of ‘we can’t go like this’, thus softening up the discussion to save money.

There is some method behind this madness, however. Rather than spreading money thinly around various hospitals, possibly there can be fewer hospitals with a ‘safe’ level of resources.

This argument clings onto the idea that the NHS funding is finite, and increasingly ‘unaffordable’. This of course is a perfectly rationale argument if you assume that the Government is incapable of producing economic growth. And for the last three years, the Government has taken us on a turbulent rollercoaster ride of GDP when the UK economy had been recovering in May 2010.

It is currently argued by some  that the most successful healthcare organisations are those that can implement and sustain effective improvement initiatives leading to increased quality and patient experience at lower cost. Indeed, the NHS itself has produced a “Sustainability Model and Guide” to support health care leaders to do just that.

Next year, the “NHS Sustainability Day 2014” will feature tools and case studies with proven technologies, methods and projects that have yielded promising results.  Technology is often cited  as a potential source of the ballooning NHS budget, but the NHS simply has to learn how to order and use technology which is most appropriate for the needs of employees.

So why have the media and other professionals actually lost sight of the actual definition of ‘sustainability’? The politicians have an agenda to make the NHS more ‘affordable’, given the parties en masse wish to embrace ‘savings’ and not be THE parties of high taxation. This, however, means that politicians are being somewhat economical with the truth, and a responsible media here is critical.

Sustainability is the “capacity to endure“. In ecology the word describes how biological systems remain diverse and productive over time. Long-lived and healthy wetlands and forests are examples of sustainable biological systems. For humans, sustainability is the potential for long-term maintenance of well being, which has ecological, economic, political and cultural dimensions. It usually comes from an idea that you look after the people involved, and the environment.

Thee most widely quoted definition of sustainability, as a part of the concept sustainable development, is that of the Brundtland Commission of the United Nations. It was provided on March 20, 1987: “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

However the neoliberal approach taps into the oft-quoted saying, “The richer get richer; the poor get poorer.” Power always gets in the way of fairness in the game of sharing. With ‘finite resources’, unfortunately there will always be winners and losers. For parties which claim to offer ‘comprehensive, free-at-the-point-of-need’ NHS, clearly it is impossible to square this particular circle.

Irrespective of the ageing population, which is a sensitive argument as it implies that aged individuals are a ‘burden’ on the rest of society despite the value that they have generated over their lifetime, “demand” appears to be fundamentally outstripping “supply”.

According to the 2008 revision of the official United Nations population estimates and projections, the world population is projected to reach 7 billion early in 2012, up from the current 6.9 billion (May 2009), to exceed 9 billion people by 2050.

In 2009, McKinsey says the NHS can save an initial £6bn-£9.2bn a year over the next three years through “technical efficiencies”. This produces a cumulative three year saving close to the £20bn NHS chief executive David Nicholson has been talking about since his annual report in May.

But the McKinsey report went further, suggesting the NHS could save a further £10.7bn a year on top by improving quality and shifting care to the most cost effective settings. Sir David Nicholson, as in effect the NHS’ CEO, grabbed the bull by the horns. Unfortunately, some Foundation Trusts have used ‘efficiency savings’ to run skeleton staff who are always a number of patients ‘behind’ in the Medical Admissions Unit or A&E.

According to a previous report from the National Audit Office, in 2011-12 there was a large gap between the strongest and weakest NHS organisations. The difference was particularly marked in London. At the time, there were 10 NHS trusts, 21 NHS foundation trusts, and three Primary Care Trusts (PCTs) reported a combined deficit of £356 million. The NAO estimated, based on their census of PCTs, that without direct financial support, a further 15 NHS trusts and seven PCTs would have reported deficits.

Sustainability is an issue in the Lewisham case (judgment here). Judge Silber remarked that on occasions it has proven impossible to improve speedily the performance of a failing NHS organisation sufficiently to secure an adequate quality of care for its patients within sustainable resources. For that reason, an exceptional bespoke procedure was introduced to deal with situations which arise,

At paragraph 3, Silber describes it as follows:

“in the words of a senior official of the Department of Health, Dr. Shaleel Kesevan, “where very occasionally it proves impossible to improve the performance of an NHS organisation sufficiently to secure adequate quality of care within sustainable resources”. This regime is entitled the “Unsustainable Providers Regime” (“the UPR”), which as its name shows was intended to deal with failing NHS organisations.”

It is clear then that some of the basic, actual, definition of ‘sustainability’ has got lost in translation. This is unfortunate given that the primary purpose of politicians, of all shades, should not to be to mislead the general public whether intentionally or unintentionally.

Above all, the NHS should be in touch with its wider environment. This does mean that the NHS should look to the forests or trees for inspirations. It means that when 50,000 protest lawfully in Manchester, there is no news blackout and people are genuinely concerned about why people are so upset.

It means listening to local residents in Lewisham. It does not mean instinctively using hardworking taxpayers’ money to appeal against a decision from the High Court in the Court of Appeal.

It also means listening to the views of nurses when they’re in a job, and listening meaningfully to them if you need to sack them. It is not as if the NHS is actually short of work to do, which is why some find it objectionable that there are staff cuts with ever-increasing demand.

That is the true meaning of ‘sustainable’. Unfortunately, the current Government is producing amendments to the insolvency regime to make neoliberal closures easier for the State, quicker than you can say, “Earl Howe”.

The NHS might be truly ‘sustainable’ if you pay especial attention to hardworking hedgies, as per the Royal Mail privatisation. To take the neoliberalisation of the NHS to the limit, you could sell it off as an initial public offering (or flotation). But is this another difficult choice the public are being shielded from?

The word “sustainable” has been bastardised. It has been taken away from its true meaning from the macroeconomics. Such abuse of language is symptomatic of an abuse of political power.

#BBCApprentice 2012 was much about business strategy as business plans; Ricky deserved to win



Of course, some successful businesses don’t even produce business plans. In these business plans, some don’t even describe a business strategy, although many do using the standard techniques such as SWOT or PESTEL.

Last night’s final of the #BBCApprentice involved senior business professionals interviewing the finalists on the basis of their business plans. Recruitment manager Ricky Martin came out the eventual winner, with Tom Gearing’s plan for a fine wine hedge fund coming a close second.

Lord Sugar was correct to query the viability of the business model of the one-click ingredients-buying business mechanism proposed by Nick Holzherr. It is very difficult in business to monetise successfully, in other words make profitable, one-click business models. In fact, much of the capital in that intangible asset probably lies in the intellectual property of the implementation of this idea legally through a patent, so I would advise Nick to think about patent protection for this straight away. 1-click models can be the subject of complicated legal challenges, as Amazon will testify.

Tom Gearing’s hedge fund for fine wines seems like a way for Lord Sugar to make a ‘fast buck’, but this might have incurred a wrath of Ed Miliband (particularly as Lord Sugar is a Labour peer.) Indeed, the return on this risk might have been enormous, by virtue of this being a very high risk transaction with a high beta index. Lord Sugar put this simply as him not wishing to gamble with other people’s money, and indeed in Lord Sugar’s conscience it might have been difficult for Lord Sugar to make the winner of the BBC Apprentice 2012 a ‘fast buck’ business idea, interesting though it is. Of course,  it is not a bad idea, for example Daniel Capocci in Journal of Management Science has provided that sustainable hedge fund models can outperform equity and debt finance, but concerns about the sustainability of hedge funding exist in the corporate world.

In contrast, Ricky Martin’s idea does have legs. I would indeed go as far as to agree with Claude, and to say it is a very clever idea. The technology and pharmacological industries continue to produce growth, in Scandinavia and the USA particularly. Personally, I wouldn’t inject too much of a ‘greenwash’ element into it, unless the green credentials are genuine and not simply a marketing fad. However, I do like very much the idea of enmeshing sustainability in it. Ricky Martin was cut short very quickly at the beginning of the episode when he referred to it, but I feel that the business literature is now picking up on the idea of sustainability in business recruitment, an idea which, in fact, the legal profession could do with listening to.

And yes – this may not have been Lord Sugar’s intention, but I loved the final episode of the series firstly as a Leftie and as a MBA graduate. I think I know Lord Sugar’s opinions of both categories of people!

 

Wednesday's meeting of LegalAware: CSR and competitive advantage



This Wednesday’s meeting is on corporate social responsibility (CSR) and competitive advantage.

I will be giving a short presentation based on the famous paper by Porter and Kramer (2006) in the Harvard Business Review on the subject. We will then discuss the actual paper.

 

Competition and competitive advantage: introduction

Corporations are not responsible for all the world’s problems, nor do they have the resources to solve them all. Each company can identify the particular set of societal problems that it is best equipped to help resolve and from which it can gain the greatest competitive benefit.” (Porter and Kramer, 2006)

 

Overview

In 2005, 360 different CSR-related shareholder resolutions were filed on issues ranging from labour conditions to global warming.

Government regulation increasingly mandates CSR reporting.

Pending legislation in the UK, for example, requires every publicly listed company to disclose ethical, social, and environmental risks in its annual report.

These pressures  highlight the potentially large financial risks for any firm whose conduct is deemed unacceptable.

 

The case for CSR

Broadly speaking, proponents of CSR have used four arguments to make their case: moral obligation, sustainability, license to operate, and reputation.

The principle of sustainability appeals to enlightened self-interest, often invoking the so-called triple bottom line of ‘people, planet, profit’.

The principle works best for issues that coincide with a company’s economic or regulatory interests.

Examples

DuPont, for example, has saved over $2 billion from reductions in energy use since 1990.

Changes to the materials McDonald’s uses to wrap its food have reduced its solid waste by 30%.

These were smart business decisions entirely apart from their environmental benefits.

“In other areas, however, the notion of sustainability can become so vague as to be meaningless.”

License-to-operate

The license-to-operate approach, by contrast, is far more pragmatic.

It offers a concrete way for a business to identify social issues that matter to its stakeholders and make decisions about them.

This approach also fosters constructive dialogue with regulators, the local citizens, and activists – one reason, perhaps, that it is especially prevalent among companies that depend on government consent, such as those in mining and other highly regulated and extractive industries.

Corporations and society

Safe products and working conditions not only attract customers but lower the internal costs of accidents.

Efficient utilization of land, water, energy, and other natural resources makes business more productive.

Good government, the rule of law, and property rights are essential for efficiency and innovation.

Strong regulatory standards protect both consumers and competitive companies from exploitation.

Ultimately, a healthy society creates expanding demand for business, as more human needs are met and aspirations grow.

At the same time, a healthy society needs successful companies. No social program can rival the business sector when it comes to creating the jobs, wealth, and innovation that improve standards of living and social conditions over time.

Porter’s notion of ‘competitive advantage’

The competitive advantage and CSR

Value chain social impacts are those that are significantly affected by the company’s activities in the ordinary course of business.

Social dimensions of competitive context are factors in the external environment that significantly affect the underlying drivers of competitiveness in those places where the company operates.

Within an industry, a given social issue may cut differently for different companies, owing to differences in competitive positioning.

The car industry

“In the auto industry, for example, Volvo has chosen to make safety a central element of its competitive positioning, while Toyota has built a competitive advantage from the environmental benefits of its hybrid technology.

For an individual company, some issues will prove to be important for many of its business units and locations, offering opportunities for strategic corporate-wide CSR initiatives.”

Strategic CSR

For any company, Porter and Kramer (2006) argue that strategy must go beyond best practices. It is about choosing a unique position. They say, however, that their effect is inherently limited, however.

No matter how beneficial the program is, it remains incidental to the company’s business.

Mitigating the harm arising from a firm’s value chain activities–is essentially an operational challenge.

The Global Reporting Initiative, which is rapidly becoming a standard for CSR reporting, has enumerated a list of 141 CSR issues, supplemented by auxiliary lists for different industries assessing their ‘value chains’.

Competition and competitive advantage: conclusion

Corporations are not responsible for all the world’s problems, nor do they have the resources to solve them all. Each company can identify the particular set of societal problems that it is best equipped to help resolve and from which it can gain the greatest competitive benefit.” (Porter and Kramer, 2006)

 

 

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