Shared Value And Long-Term Competitiveness
Shared value – the idea that social issues can be incorporated into core business strategies to benefit both society and a firm’s financial success – has received renewed attention with the recent publication of Michael Porter’s article in the Harvard Business Review (I highly recommend the read).
The shared value message is not very different from that of sustainability; however, there is a key dimension to shared value that permeates – the idea that corporate value creation is not incompatible with social value and can indeed be mutually reinforcing.
Porter and his co-author, Mark Kramer, go as far as saying that shared value has the potential to reinvent capitalism as it delineates between growth that is good for companies and society alike, and growth that depends on exploiting the latter.
Shared Value In Perspective
Casting our minds back 5-10 years ago, it was common to see sustainability activities that were a mere add-on to a business.
The idea that sustainability could deliver value to an organisation was implicit; but value creation was very seldom explicitly articulated as the motive.
The result was often a nebulous and nice-to-have peripheral sustainability effort focused on complying with market expectations and boosting reputations.
Nowadays, though, there are many examples of organisations embracing sustainability from a business perspective and reinventing the traditional view of value creation to generate shared value opportunities.
Porter and Kramer illustrate three ways in which a shared value approach is implemented.
Three Ways Of Shared Value Approach
Re-conceiving products and markets
Here companies look to innovate products / services and create markets which address social needs such as housing, healthcare, nutrition and financial security.
The process usually starts with the most basic of questions: Is the product good for our customers and are we responding to the needs of society? Many forerunners in this space have seen significant tangible benefits which are driving their growth and increasing their competitive advantage.
For example, GE’s Ecomagination strategy, which focuses on reengineering and deploying GE products with a low environmental impact, generated $17 billion in revenues in 2008.
Following the success of the strategy, the company has now committed $6 billion investment to the Healthymagination programme which aims to lower the cost of healthcare whilst increasing access and quality of health services and products.
Other leading examples in innovative shared value product development and market creation include Nestle and Hewlett Packard
Redefining the value chain
This area has received the most attention from companies as it directly responds to the costs associated with poor practices and inefficient deployment of resources in the value chain.
In the past the cost of wasting natural resources / energy in the value chain, or exploiting labour were seldom internalised as firms could often get away with it.
Increased scrutiny resulting from burgeoning regulation and heightened consumer awareness has meant that these costs are now being felt on the balance sheet.
Shared value opportunities naturally arise as companies start evaluating their value chains from an efficiency perspective, and exploring opportunities in areas such as distribution, procurement, resource use and labour practices.
For example, Wal-Mart was able to reduce their environmental impact and save significant costs by tackling inefficiencies in their value chain.
The company has reduce packaging saving millions in lower disposal costs, and invested in better route planning for its huge fleet of trucks which cut out 100 million miles from their 2009 delivery routes, saving $200 million.
Other firms such as Coca Cola and Marks and Spencer’s are experiencing similar business benefits from redefining their value chain
Enabling local cluster development
Companies have always used clusters to develop and support their growth – be it from an infrastructural perspective or through leveraging geographic concentrations of supporting networks such as suppliers, distributors, academic institutions, governments, communities etc.
Although seldom explored from a sustainability perspective, a shared value approach recognises that clusters offer companies huge potential in leveraging relationships outside the organisation to drive shared economic and development opportunities.
I recently caught up with Sharath Jeevan, CEO of Global Giving, a not-for-profit that enables individuals and organisations to support well-vetted, grassroots development projects. Sharath explained to me how Global Giving is pioneering new approaches to shared value by leveraging the skills of employees in leading corporates.
For example, Global Giving have partnered with Standard Chartered to help with the monitoring of their charitable projects.
Standard Chartered employees provide structured evaluations of projects through local site visits which allow Global Giving to access and vet many more charities than would be feasible if they were to do it themselves.
In the process, Standard Chartered benefit as they can provide their employees with exciting and meaningful training experiences, whilst developing networks – which may lead to further client opportunities – in the local communities in which they operate.
Challenging The Traditional View Of Value Creation
Shared value challenges the traditional view of value creation (i.e. one that focuses on generating shareholder value at potentially all costs) to provide an approach which aligns economic imperatives with social needs (i.e. growth in shareholder value by benefiting society).
The approach calls into question the position of where a company’s responsibility begins and ends – a relevant area to consider given the social impact associated with the recent financial meltdown and BP oil spill disaster.
The message from the shared value camp is clear:
Businesses should not invest in sustainability activities which don’t explicitly focus on shared value creation.
To do so will require a refined approach that leverages a company’s strengths and intelligence to rethink shared value opportunities.
By definition, the approach needs to be marshalled from the top and supported with commensurate investment and resources. Philanthropic activities with no clear strategic purpose or token investments that place a band aid on a gaping wound will not lead to a shared value outcome.
It is yet to be seen how shared value affects the long-term value of a company.
However, given the success stories to date, it is quite probable that companies that have the foresight in adopting a shared value approach will likely be at a competitive advantage to those who are slow to respond.
About the Author Jess Nielsen
Jess has spent years travelling the world full-time. Nothing else comes close to the reaches of this emotive activity...