Creating Shared Value
Harvard Business scholars Michael E. Porter and Mark R. Kramer , recently called companies to take the lead in bringing business and society back together. Their article, published in the Harvard Business Review [Jan 2011], states that most companies have outdated views of “social responsibility” in which societal issues are peripheral, and not core. They declare that true change lies in “shared value” which they define as finding ways of achieving economic success through addressing social needs and challenges. Rather than social responsibility, philanthropy or sustainability, which share marginal focus in business planning, shared value lies at the core of the business model. This entails policies and practices which enhance the competetiveness of a company while also advancing economic and social wellbeing of the community in which it operates.
In the business sector, value principles, in terms of benefit relative to cost, are understood well and measured via profit margins. However value is not traditionally measured well in terms of societal issues. Socially responsible behaviour is often termed a constraint to a corporation, causing a rise in costs and a reduction in profits. Necessary costs, such as tax offsets, regulations or penalties, counteract negative social costs caused by businesses and thus, solving social problems has then been ceded to governments and NGOs. Corporate social responsibility programs have largely emerged to improve firms reputations and are considered a necessary expense. On the other hand, in the social sector, thinking of societal value in terms of cost is even more uncommon. Social organisations and governments tend to think more in terms of benefits achieved and how to access donations , rather than than thinking more like businesses in relation to value terms. Consequently, an uneasy relationship between the two sectors has existed for decades.
Shifting thinking of both parties to the notion of shared value should grow interest in collaboration between the two sectors. Porter and Kramer write, “Business acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face.” They foresee that creating shared value, not just profit, will drive the next wave of innovation, productivity and growth in the global economy. The notion of shared value, recognises that social needs, not just economic needs define and drive markets. Moreover, social harms or weaknesses frequently create internal costs for firms. Firms need not necessarily suffer higher costs by moving to a more impactful business model, but can innovate through new technologies and operating methods and management approaches, increasing productivity and expanding their market. Porter and Kramer admit that true recognition of the power of shared value is yet to be developed, and requires leaders and managers to develop new skills and knowledge, and an ability to collaborate acorss the profit/ non-profit boundaries.
If your company is interested in connecting with local NFPs and social enterprises, or would like to engage young leaders in professional development programs to benefit your firm, please contact Resonate for more information about our services.
The Resonate Team