Tuesday, May 1, 2012

The Breakdown of “Creating Shared Value”


Porter and Kramer’s article, “Creating Shared Value,” brought up a number of hot buttons for me, particularly in relation to my background as a solicitor of corporate gifts for the arts.  A nonprofit leader could read this article in one of two ways: first, with fear, believing that for-profit shared value will devalue social sector businesses; or with excitement, thanking God that the for-profit sector finally recognized the value in the social sector and hoping for fruitful future partnerships.  Ultimately, although idealistic, I think that Porter and Kramer successfully argue for the latter.  Shared value is more about how companies can benefit communities on a much broader scale than how nonprofits generally operate, paving the way for the work of nonprofits to reap a greater impact.  Here, I suggest that shared value is not, in fact, a novel idea and will offer some “words to the wise” to companies as they endeavor to create it.

Will a Focus on Shared Value Put Nonprofits Out of Business?

Given Porter and Kramer’s description of shared value, it’s easy to see how this might happen.  Most alarmingly, they state, “It does not matter what types of organizations create the value.”1  Nonprofit leaders may think, “If for-profit entities create the value more effectively, there will be no room for me to compete in the marketplace.”  “Shared value,” say Porter and Kramer, is “creating economic value in a way that also creates value for society by addressing its needs and challenges.”1  Strangely enough, that sounds similar to the definition of a nonprofit organization, which is, “A corporation or an association that conducts business for the benefit of the general public...”2 Both definitions focus on the broad wants and needs of a larger community.  Porter and Kramer go one step further.  “Businesses,” they state, “will often be more effective than governments and nonprofits are at marketing that motivates customers to embrace products and services that create societal benefits.”1  Nonprofits have been creating these benefits for years, and now Porter and Kramer are urging companies to foray into the same space, even acknowledging for-profits’ marketing prowess.  By now, nonprofit leaders may be left thinking, “Great.  So now I have to compete with the resources and scale of for-profit companies in my own overly-saturated industry?”

Probably Not.

The authors are careful to point out the place for nonprofits in their vision for a community of the future.  This vision is more compelling, and more probable.  They recognize that nonprofits have endeavored to serve society’s needs for quite some time and suggest that “creating shared value” is about partnering.  As an example, Porter and Kramer idolize Nestlé as a leader in creating shared value by working with local farmers to design effective procedures to produce coffee beans.  The company partnered with a “leading international NGO” as part of this effort.  I learned that Nestlé goes beyond simply practicing shared value creation in that it motivates others to do so as well.  Each year, the company awards the Nestlé Prize in Creating Shared Value, which is open to any type of organization (for-profit, non-profit, or otherwise) and is selected by a CSV Advisory Board.    

I might add one other salient example of a for- and non-profit partnership that also “expanded the pie” in its community. Timberland and City Year (a nonprofit organization based in Boston that places students in community service opportunities) formed a partnership by integrating their entire operations for one of City Year’s program areas, from finances to staffing to communications.3  For both sides, this is an example of Porter and Kramer’s “Enabling Local Cluster Development,” as it expanded connections within the cluster and up and down the distribution and procurement chains.  In the words of City Year, the two companies, “seek to build the ethic of service as a global resource for positive change.”4  This encapsulates much of Porter and Kramer’s description of shared value as working toward societal good.  In the process, the initiative has resulted in “a powerful national youth corps as a sustainable force for positive community change;” increased capacity for strategic planning within City Year; and national recognition from three U.S. presidents and the Harvard Business School.4 

Porter and Kramer’s focus on “creating shared value” also extends beyond the traditional operations of nonprofits.  More strategic than tactical, Porter and Kramer emphasize that companies should align various parts of their business to meet community needs, from energy use to resources, distribution, and location.  Even in reconceiving products and markets, for-profits create additional opportunities for nonprofits to serve the community or even benefit from companies’ superior marketing.  Indeed, nonprofits have already recognized the need to “look more like for-profit companies.”  The emergence of the low-profit limited liability company (L3C) is one example of how nonprofits are interested in merging the two structures by investing in the corporate marketplace.  Therefore, if the concept of “creating shared value” emphasizes a historically nonprofit mission of addressing societal needs and nonprofits are moving toward for-profit structures, perhaps there is a place in the middle where everyone agrees organizations should operate.  If we gravitate to a place where the distinction between for- and non-profit companies no longer exists, would that be a good thing or a bad thing?

But We’ve Been Talking About Shared Value For A Long Time Now!

There is a bit of a catch to all of this.  The idea of “shared value” for companies is not a novel idea.  As Porter and Kramer state, it is “about expanding the total pool of economic and social value” and “better connecting companies’ success with societal improvement.”1  The thing is, in the arts industry, we have been using this argument for years to motivate corporate philanthropy and government support.  We are constantly quantifying our value to show how the arts are a catalyst for economic activity and how partnerships can generate further activity.  For example, the Greater Pittsburgh Arts Council reveals on its website that, “the economic impact of the nonprofit arts and culture sector [is] $162 billion nationally; nearly $2 billion in Pennsylvania; and $341 million in Allegheny County.”5  Americans for the Arts further argues that in partnering with the arts, companies will enjoy greater success and in return, society will benefit.  In speaking directly to companies, it states, “The arts can educate the public and your employees about core business issues such as informing them about your products or teaching them to make healthy choices.”6  Therefore, Porter and Kramer’s rhetoric about framing a company’s objective as something other than (or in addition to) profit aligns with years of nonprofit communications to for-profits.

If we assume that nonprofits actually ahead of for-profits in thinking about business from a social perspective, then I recommend that businesses take a closer look at what nonprofits have been doing that for-profits consider ineffective.  I understand that Porter and Kramer distinguish between philanthropy and “creating shared value,” so what part of nonprofits’ rhetoric needs to change to maximize the partnership potential of this new corporate trend?

Sources Cited
1Porter, Michael E., and Mark R. Kramer. "Creating Shared Value." Harvard Business Review January-February (2011): 1-17. Print.
2"Nonprofit Organization." TheFreeDictionary.com. Web. 01 May 2012. <http://legal-dictionary.thefreedictionary.com/Non-profit organization>.
3Nickbarg, Susan. "Anatomy of a Partnership: City Year & Timberland." PR News for Smart Communications. Web. 01 May 2012. <http://www.prnewsonline.com/itsthepr/casestudy3/>.
4"Timberland and City Year: Celebrating 15 Years of Doing Well by Doing Good." E-Newsletter. City Year. Web. 01 May 2012. <http://www.cityyear.org/pressroom/NatEnews.cfm?Date=03-05>.
5"Economic Impact Reports." Greater Pittsburgh Arts Council. Web. 01 May 2012. <http://www.pittsburghartscouncil.org/research/economic-impact-studies>.
6"The Movement." The Partnership Movement. Americans for the Arts. Web. 01 May 2012. <http://www.partnershipmovement.org/the-movement/>.

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