Creating Shared Value
Encyclopedia
Creating Shared Value is a concept first introduced in Harvard Business Review article Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility and further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society . Michael E. Porter
, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School
, and Mark R. Kramer, Kennedy School
at Harvard University and co-founder of FSG . The article provides insights and relevant examples of companies that have developed deep linkages between their business strategies and corporate social responsibility. Moreover the concept is remarkable in their last article "Creating Shared Value".
The central premise behind creating shared value is that the competitiveness of a company and the health of the communities around it are mutually dependent. Recognizing and capitalizing on these connections between societal and economic progress has the power to unleash the next wave of global growth and to redefine capitalism
.
Companies can create shared value opportunities in three ways:
• Reconceiving products and markets- Companies can meet social needs while better serving existing markets, accessing new ones, or lowering costs through innovation
• Redefining productivity in the value chain - Companies can improve the quality, quantity, cost, and reliability of inputs and distribution while they simultaneously act as a steward for essential natural resources and drive economic and social development
• Enabling local cluster development - Companies do not operate in isolation from their surroundings. To compete and thrive, for example, they need reliable local suppliers, a functioning infrastructure of roads and telecommunications, access to talent, and an effective and predictable legal system
Many approaches to CSR pit businesses against society, emphasizing the costs and limitations of compliance with externally imposed social and environmental standards. CSV acknowledges trade-offs 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/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. This ecocommerce shared value process accounts for and includes positive [environmental] externalities within the economic system.
Companies can also improve the competitive context in which they operate by investing in their communities. Nestlé, for example, worked closely with the farmers of the Moga Milk District
in India, investing in local infrastructure and transferring world-class technology to build a competitive milk supply chain that simultaneously generated social benefits through improved health care, better education, and economic development
.
In conclusion, CSV encourages each company to create economic and social value simultaneously by focusing on the social issues that each is uniquely capable of addressing.
Michael Porter
Michael Eugene Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally...
, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School
Harvard Business School
Harvard Business School is the graduate business school of Harvard University in Boston, Massachusetts, United States and is widely recognized as one of the top business schools in the world. The school offers the world's largest full-time MBA program, doctoral programs, and many executive...
, and Mark R. Kramer, Kennedy School
John F. Kennedy School of Government
The John F. Kennedy School of Government at Harvard University is a public policy and public administration school, and one of Harvard's graduate and professional schools...
at Harvard University and co-founder of FSG . The article provides insights and relevant examples of companies that have developed deep linkages between their business strategies and corporate social responsibility. Moreover the concept is remarkable in their last article "Creating Shared Value".
The central premise behind creating shared value is that the competitiveness of a company and the health of the communities around it are mutually dependent. Recognizing and capitalizing on these connections between societal and economic progress has the power to unleash the next wave of global growth and to redefine capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
.
Companies can create shared value opportunities in three ways:
• Reconceiving products and markets- Companies can meet social needs while better serving existing markets, accessing new ones, or lowering costs through innovation
• Redefining productivity in the value chain - Companies can improve the quality, quantity, cost, and reliability of inputs and distribution while they simultaneously act as a steward for essential natural resources and drive economic and social development
• Enabling local cluster development - Companies do not operate in isolation from their surroundings. To compete and thrive, for example, they need reliable local suppliers, a functioning infrastructure of roads and telecommunications, access to talent, and an effective and predictable legal system
Many approaches to CSR pit businesses against society, emphasizing the costs and limitations of compliance with externally imposed social and environmental standards. CSV acknowledges trade-offs between short-term profitability and social or environmental goals, but focuses more on the opportunities for competitive advantage from building a social value proposition
Customer value proposition
In marketing, a customer value proposition consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment ....
into corporate strategy
Strategic management
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
.
A significant challenge of CSV resides in accounting for ecological values/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
Eco commerce
Eco commerce is a business, investment, and technology-development model that employs market-based solutions to balancing the world’s energy needs and environmental integrity...
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. This ecocommerce shared value process accounts for and includes positive [environmental] externalities within the economic system.
Examples
GE’s Ecomagination strategy is yielding environmental innovation is across its appliance to aviation business, reached $18 billion is sales in 2009 and is predicted to grow twice as fast as overall company revenues over the next five years. Dow AgroSciences has developed a line of Omega-9 rich canola and sunflower oils, with zero trans fats and the lowest levels of saturated fats. Since 2005 Omega-9 Oils have eliminated nearly a Billion pounds of trans fat and 250 million pounds of saturated fat from North American foods.Companies can also improve the competitive context in which they operate by investing in their communities. Nestlé, for example, worked closely with the farmers of the Moga Milk District
Moga District
Moga district is one of the Twenty districts in the state of Punjab in North-West Republic of India. It became the 17th district of Punjab State on 24 November 1995. It is also known as NRI district. Most Punjabi Non-resident Indians belong to rural areas of Moga District, who immigrated to the...
in India, investing in local infrastructure and transferring world-class technology to build a competitive milk supply chain that simultaneously generated social benefits through improved health care, better education, and economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
.
In conclusion, CSV encourages each company to create economic and social value simultaneously by focusing on the social issues that each is uniquely capable of addressing.
See also
- Competitive advantage
- Corporate Social ResponsibilityCorporate social responsibilityCorporate social responsibility is a form of corporate self-regulation integrated into a business model...
- SustainabilitySustainabilitySustainability is the capacity to endure. For humans, sustainability is the long-term maintenance of well being, which has environmental, economic, and social dimensions, and encompasses the concept of union, an interdependent relationship and mutual responsible position with all living and non...
- Social responsibilitySocial responsibilitySocial responsibility is an ethical ideology or theory that an entity, be it an organization or individual, has an obligation to act to benefit society at large. Social responsibility is a duty every individual or organization has to perform so as to maintain a balance between the economy and the...
- eco commerceEco commerceEco commerce is a business, investment, and technology-development model that employs market-based solutions to balancing the world’s energy needs and environmental integrity...