Shared Value

= creating economic value in a way that also creates value for society by addressing its needs and challenges [1]

Description

by Michael E. Porter and Mark R. Kramer:

"Companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core.

The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.

The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.

The concept rests on the premise that both economic and social progress must be addressed using value principles. Value is defined as benefits relative to costs, not just benefits alone. Value creation is an idea that has long been recognized in business, where profit is revenues earned from customers minus the costs incurred. However, businesses have rarely approached societal issues from a value perspective but have treated them as peripheral matters. This has obscured the connections between economic and social concerns.

In the social sector, thinking in value terms is even less common. Social organizations and government entities often see success solely in terms of the benefits achieved or the money expended. As governments and NGOs begin to think more in value terms, their interest in collaborating with business will inevitably grow.

A growing number of companies known for their hard-nosed approach to business—such as GE, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart—have already embarked on important efforts to create shared value by reconceiving the intersection between society and corporate performance. Yet our recognition of the transformative power of shared value is still in its genesis. Realizing it will require leaders and managers to develop new skills and knowledge—such as a far deeper appreciation of societal needs, a greater understanding of the true bases of company productivity, and the ability to collaborate across profit/nonprofit boundaries. And government must learn how to regulate in ways that enable shared value rather than work against it.

Capitalism is an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth. But a narrow conception of capitalism has prevented business from harnessing its full potential to meet society’s broader challenges. The opportunities have been there all along but have been overlooked. Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face. The moment for a new conception of capitalism is now; society’s needs are large and growing, while customers, employees, and a new generation of young people are asking business to step up.

The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again." (http://hbr.org/2011/01/the-big-idea-creating-shared-value/)

Discussion

Panel discussion at 2011 Net Impact Conference

Ali Hart:

“At the 2011 Net Impact Conference, shared value was the focus of a session topic, proving that this idea is bubbling up in business. Participating on the panel was Enterprise Holdings, Inc., which owns and operates Alamo, Enterprise Rent-A-Car and National Car brands. Lee Broughton, Head of Corporate Sustainability for Enterprise Holdings, Inc., relayed that Enterprise is the largest owner of passenger vehicles in the world, with a fleet of 1.6 million in the US alone. As recently reported here, Enterprise released its first sustainability report and has taken on the challenge of improving urban mobility. Not only is the company investing in alternative fuel research, but also it’s investing in EVs.

Enterprise Rent-A-Car invested in and committed to 500 Nissan LEAFs and instead of scattering them throughout the country, the organization partnered with 30 of its locations in major markets, clustering the vehicles in an effort to socialize them. The company views this as a win-win-win: more people will have the opportunity to drive Nissan LEAFs or see them driving around which will potentially inspire them to purchase one; Enterprise Rent-A-Car will bolster its sustainability cred; and Nissan will save money on advertising. This partnership creates value for all parties involved – Enterprise Rent-A-Car, Nissan and society, since EVs are more environmentally friendly than gas-guzzlers.

Also on the panel was Starbucks, which just announced its new initiative, Create Jobs for USA in partnership with the Opportunity Finance Network (OFN). Starbucks donated the first $5 million to launch the Create Jobs for USA program and is asking Starbucks customers to donate at least $5. Donations will go directly to OFN, which funds small businesses, including social enterprises and nonprofits. According to OFN, $3,000 in donations creates or maintains a job in a community. While exciting, this is arguably more of a philanthropic partnership than an example of shared value.

Starbucks also discussed how it’s achieving shared value with an initiative to recycle all customer cups by 2015. Interestingly, Starbucks invited competitors in its supply chain to come up with innovative ways to achieve this goal. What Starbucks found was that when the competitors were invited, their existing suppliers showed up with potential solutions; nothing like a little competition to get the innovation flowing. While clearly beneficial to the Starbucks brand and the communities in which the company operates, the economic benefits remain to be seen. If the recyclable cups cost more to produce, Starbucks might make up for the cost in increased sales as people vote with their dollars to support the effort. Only time will tell.

All in all, it’s inspiring to see so many large brands finding value in shared value. That these efforts are being incorporated into company strategies means that we really can do well from doing good.” (http://www.triplepundit.com/2011/11/shared-value-partnerships-makings-collaborative-economy/)

More Information

Article: Michael E. Porter and Mark R. Kramer. Creating Shared Value. Harvard Business Review, 2011 URL = http://hbr.org/2011/01/the-big-idea-creating-shared-value