Michael Porter Shared Value
Faustina Bartsch
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, and legitimize business again as a powerful force for positive change.
There are numerous ways in which addressing societal concerns can yield productivity benefits to a firm. Consider, for example, what happens when a firm invests in a wellness program. Society benefits because employee and their families become healthier, and the firm minimizes employee absences and lost productivity. The graphic depicts some areas where connections are strongest.
The focus on social impact unites the goals of companies, NGOs, and government. Shared value fosters new relationships between companies, philanthropists, NGOs, and government in addressing social issues.
Critics, on the other hand, argue that "Porter and Kramer basically tell the old story of economic rationality as the one and only tool of smart management, with faith in innovation and growth, and they celebrate a capitalism that now needs to adjust a little bit".[citation needed] One critic regards the CSV concept as a "one-trick pony approach", with little chance that an increasingly critical civil society will buy into such a story.[6]
In 2012, Kramer and Porter, with the help of the global not-for-profit advisory firm FSG,[3] founded the Shared Value Initiative to enhance knowledge sharing and practice surrounding creating shared value globally.
Many approaches to CSR put businesses against society, emphasizing the costs and limitations of compliance with externally imposed social and environmental standards. CSV acknowledges tradeoffs between short-term profitability and social or environmental goals, but focuses more on the opportunities for competitive advantage from building a social value proposition into corporate strategy.
A significant challenge of CSV resides in accounting for ecological values and costs that are generated within the realm of agricultural production. Up to 90% of the ecological footprint in food processing can be attributed to land management activities outside the control of corporations. An eco commerce model that accounts for ecosystem services at the production unit (farm) level allows "shared value" to emanate from the production unit outward. Centering the shared value at the farm level allows for utilities, biomass processors, food processors, environmental liability insurers, landlords, and governments to participate in the shared value process.[7] This ecocommerce shared value process accounts for and includes positive [environmental] externalities within the economic system.
Corporate social responsibility (CSR) differs from Creating Shared Value, although they share the same ground of "doing well by doing good".[8] Mark Kramer, the co-writer of Harvard Business Review article on Creating Shared Value,[9] states in his "Creating Shared Value" blog that the major difference is CSR is about responsibility, whereas CSV is about creating value.[10] Whether it is an extended "new form of CSR" or "shared value", CSV is fundamentally different from the CSR activities of the past.[11]
CSV is a transition and expansion from the concept of CSR. Business responsibility has evolved from Traditional CSR 1.0 (Stages: Defensive, Charitable, Promotional and Strategic), Transformative CSR 2.0 and to CSR 3.0 what is similar to CSV.[12] Such development of stages by redefining CSR has laid theoretical foundations for companies and society to sustainably and communally overcome societal issues. As capitalism matures, it is companies' duties to break itself out of the traditional CSR by realizing its limitations and try to restructure and pursue new market strategies that value both economic and societal development.
The CSV concept supersedes CSR for it is a way for corporations to sustain in the competitive capitalistic market. Whereas CSR focuses on reputation with placing value in doing good by societal pressure, it generates both economic and societal benefits relative to cost in real competition of maximizing the profits. Instead of being pushed by external factors, CSV is internally generated not confined to financial budget as CSR is. With the advent of CSV and following strong worldwide advocacy for it, companies started to overthink about their vision for their sustainable growth.[13]
Relational contracting and collaborative business models, including vested outsourcing, have incorporated Porter's and Kramer's shared value principles as the basis for implementing collaborative relationships that creates, shares and expands value for parties in a business or outsourcing relationship.[14]
A literature review was conducted into the important early work of 'shared value'. Researchers found some literature focusing on the development of shared value by Porter and Kramer (2006) with most work coming from few sources like the Monitor Group.[15]
More extensively the literature is from development organisations focusing on case studies into the interrelated area of business ventures at the bottom of the pyramid or inclusive business strategies/models.[16]
Outside these case studies, limited literature was found so the paper presented lessons learnt from shared value and interrelated business models to show how they developed and business strategies to engage with the bottom of the pyramid.[15]
The term "shared value" is found in Porter and Kramer's (2006) article, "Strategy and society: the link between competitive advantage and corporate social responsibility" and was a development by Porter of previous thinking on business strategy.[15] This article was the winner of the McKinsey Award for the best Harvard Business Review article in 2006.[1]
From the Corporate Social Responsibility perspective, they observed companies could have worked harder reflecting flaws in CSR that business is pitted against society rather recognising their interdependence; and second, CSR is viewed in a generic sense rather than strategically.[15]
To boost innovation and competitive advantage they say companies need to make CSR part of their core business strategy and researchers saw this as development of Porter's 1985 'Competitive Advantage' work where firms' activities were redefined through their value chains to boost competitive advantage through cost improvements or differentiation.[15]
Social value activities can overlap with traditional CSR. Efforts to promote sustainability through CSR may cut costs for the company and boost profitability, CSR and core business processes can become indistinguishable from one another, moving to what the authors' term "corporate social integration." By drawing attention to the way society impinges on business (rather than only business on society) it provides justification for solving society's problems as a core business strategy.[15]
Porter and Kramer (2002) "The Competitive Advantage of Corporate Philanthropy", seeks to address the tension of addressing the demand for greater levels of CSR with the demand for short term profits focusing on how a society's 'competitive context' impacts business arguing it is possible to see long term economic and social goals as connected.[15]
They claim a slight development was Porter and Kramer's 2011 attempt to broaden the concept of shared value beyond the arena of corporate social responsibility with a greater focus on the nature of capitalism and markets, noting dislocations with current capitalism, emphasising the inherent social nature of markets, and suggesting that by adopting shared value principles business and society will be reconnected creating new innovation and socially imbued capitalism.[15]
Whilst it can be argued that capitalism would certainly change if businesses en masse re-orientated their core frameworks to focus on shared value, there is little analysis on how this would occur. The authors themselves recognise this.[15]
Through innovation in new technologies, operating methods, and management approaches a firm can improve society while increasing their productivity and profitability.[15] Porter and Kramer identify GE, Google, IBM and Unilever as having adopted shared value principles but note that "our recognition of the transformative power of shared value is still in its genesis", and argue that addressing social constraints does not necessarily raise internal costs for firms. In a 2013 article, Pfitzer et al. add Dow Chemicals, Nestl, Novartis, Mars and Intel to their "Who's Creating Shared Value" list. They cite, for example, a "cross-sector coalition" in Ivory Coast supported by Mars, which was established to "avoid looming cocoa shortages".[17]
The researchers found little evidence of an overall business perspective on the shared value framework, not surprising given the relatively newness of the concept as firms may have been pursuing shared value practices without it being realised as such, especially outside of the US and it was not clear how to measure if a business is pursuing shared value as opposed to overlapping areas of CSR or philanthropic activities. Counterfactuals of non SV approaches in case studies were not offered and tools and strategies to integrate, operationalise and measure shared value are only now being developed.[15]
They found authors that have promoted shared value provide case studies from US based Multinational Corporations (MNCs) that are explicitly pursuing shared value principles and that resource flows could be significant as GE are investing $6bn to improve health-care access through there 'Healthymagination' programme. They found little analysis as to how much this represents of total GE investment or how shared value investment in a sector compares with nonshared value- investment.[15]
They found little documentation outside success stories of influence elsewhere. Porter noted in "Measuring shared value; how to unlock value by linking social and Business Results" that without clear evidence of the impact of the shared value proposition (and tools to measure it) it will be difficult to attract investors.[15]
64591212e2