What if businesses could both make money and do good through the same actions? Businesses leaders who subscribe to the idea of corporate shared value believe they can. Many proponents even say it redefines and revitalizes capitalism. Michael Porter, a professor at Harvard Business School, and Mark Kramer, managing director of the global social impact consulting firm FSG, kicked off the corporate shared value trend in 2011 with an article in Harvard Business Review. Corporate Shared Value (or Shared Value) is a new generation business thinking which enhances the competitive position of the company while at the same time advances the society in which it operates.
The article, titled Creating Shared Value, started a global discussion of the authors’ idea. Capitalism, the authors wrote, was in trouble. Trust in businesses had dropped to an all-time low, and most people believed they caused more harm than good.
Part of the reason for this, they said, was that companies tended to focus on short-term approaches to creating value and, by doing so, ignored long-term impacts and unmet needs in the market.
Businesses could change that, Porter and Kramer argued, by focusing instead on creating shared value.
What Is Corporate Shared Value?
Kramer and Porter defined shared value as a method of creating economic value, so it also adds value to society and addresses additional challenges.
By taking this approach, companies could realign their success with social progress, they said. It enables them to see social issues as businesses opportunities and profit from them, while also making positive social changes. Profit and doing good don’t have to be separate according to the corporate shared value (CSV) argument.
This concept is different than corporate social responsibility (CSR) or philanthropy. These efforts focused on giving back or minimizing the harm that a company does. CSV isn’t meant to replace CSR. Instead, it builds on the idea by making positive actions an integral part of a business’ everyday operations. It adds value for both society and investors.
How Businesses Can Create Shared Value
In their article, Porter and Kramer outlined three ways in which companies can create shared value.
Reimaging Products and Markets
The first method involves a company’s products. It includes creating or redesigning products, so they meet societal needs. These products often help unserved or underserved customers.
One example of the successful use of this tactic comes from healthcare company Novartis, which launched an initiative aimed at reaching people in rural India in need of healthcare services. The program offers medicines that address regional health issues, sells them in smaller packages to increase affordability, employs local sales staff in its distribution system, provides health education and improves healthcare infrastructure through partnerships with micro-finance organizations.
The initiative has tripled the percentage of people who go to the doctor in the areas in which it operates and became profitable after 31 months of operation.
Redefining Productivity in the Value Chain
This tactic involves improving practices to utilize resources better. It could include enabling more efficient or productive use of material resources, financial resources, employees’ skills and business partners’ capabilities.
Wal-Mart frequently engages in these types of initiatives, which both conserve resources and boost the company’s profitability. In 2005, it set a goal of doubling its fleet’s efficiency by 2015. By improving its processes for loading, routing and driving and investing in new technologies, it increased efficiency by 102.2 percent from 2005 to 2015 and created approximately $1 billion in savings annually.
Creating Supportive Industry Clusters
Businesses can also create shared value by improving the supporting institutions, supplier base and available skills in the communities in which the company operates. These changes can increase productivity, support innovation and foster growth.
Famous mainly for its chocolate and other candy, Mars depends on the cocoa industry to succeed, which is primarily made up of smallholder farms in countries like Ivory Coast.
The company’s Vision for Change initiative focuses on improving farmer incomes in Ivory Coast by boosting average yields to one metric ton per hectare and achieving social and environmental benefits through these productivity gains. It aims to improve planting material and soil management in part through training and engagement with farmers.
While not everyone agrees on the significance of corporate shared value, growing numbers of companies are integrating it into their operations. Will CSV transform capitalism, or will it be more of a passing trend? Only time will tell.