Wednesday, April 29, 2015

CSV: Creating Shared Value or Conning Societal Values?

The article “Creating Shared Value” (CSV) does great at exploring the strengths of the concept of creating shared societal values by a business that benefit a larger audience than just the corporation itself. However, there are a few holes that can be poked thorough the logic usually used to support the theory of creating shared value.

Most importantly, the idea of CSV ignores the inherent tensions between societal and economic goals. Many decisions, it can be argued, are not clear win-wins but often pose themselves in terms of dilemmas. In many cases, the idea that the organization should pursue financial good which would automatically lead to societal good is severely improbable, if not impossible. Companies that produce products of questionable social good (e.g. tobacco products) present a pertinent example as considerable financial gains can be enjoyed by the company at the expense of giving up social gain.

Secondly, the idea of CSV relegates CSR as a concept that does not create value. That may not always be the case as organization’s investment in CSR may create immense societal value, most of which may be indirect and many of which may not directly impute to the firm organizing the CSR program. Merck Pharmaceuticals has undertaken a lifelong aim of distributing Mectizan – a drug that cures river blindness in Africa – free of cost to all areas where it is needed where all expenses of production and distribution are borne by the company.  Whereas the value that the company benefits from in terms of enhanced brand value might not be great, the societal value of having generations upon generations of healthy, productive, disease-free individuals would be immense and far exceed the private cost incurred by Merck. A narrow focus on pursuing activities according to the CSV principle ignores the immense incremental societal value created. Even Porter and Kramer had claimed in an earlier article that: “CSR can be much more than a cost, a constraint, or a charitable deed - it can be a source of opportunity, innovation, and competitive advantage”.

Thirdly, CSV is seemingly based on a narrow perception that places a great deal of emphasis on business compliance and completely ignores the naiveté of such a suggestion. It accounts for a shallow perception of an organization’s role in society and perpetuates the profit-maximizing belief that has doggedly maligned capitalism for much of history. The notion that CSR was valuable because it involved organizations viewing their societal role as more than profit maximization and as an active contributor towards improving societal values and creating social good irrelevant of the maxim of profit maximization. CSR enabled firms to push the envelope beyond compliance and towards societal elements irrelevant to their core business.

The inherent criticism here indicates that whilst there is great merit in the idea of creating shared value; often, industrial capitalism destroys natural capital created over thousands of years of evolution. To generate real value, CSV needs to recognize the fact that capitalism is not always a benign process and can play a role in consuming natural resources and destroying social value.

Sources
1.      http://www.dirkmatten.com/Papers/C/Crane%20et%20al%202014%20in%20CMR.pdf
2.      Porter and Kramer (2006), op. cit., p. 78-92.
3.      http://www.merck.com/about/featured-stories/mectizan1.html
4.      J.L. Badaracco, Defining Moments: When Managers Must Choose Between Right and Right (Boston, MA: Harvard Business School Press, 1997).
5.      http://www.theguardian.com/sustainable-business/sustainability-with-john-elkington/corporate-social-resposibility-creating-shared-value
6.      http://www.theguardian.com/sustainable-business/sustainability-with-john-elkington/shared-value-john-elkington-sustainability

7.      http://craneandmatten.blogspot.com/2014/03/four-big-problems-with-creating-shared.html

The Benefits of a Corporate Conscience

In Creating Shared Value, the authors implore leaders to consider the importance of both societal and economic progress, and the important link between them.  The authors remind leaders that prioritizing societal progress in addition to economic progress is not an act of philanthropy, its good business sense.  Economic value can be created in a way that also creates value for society by addressing societal needs and challenges.   
Can a company have a conscience?  Based on the recent Supreme Court decision that determined corporations could have religious beliefs, the answer is absolutely, they can.  While it might be hard to evaluate the conscience of a run-of-the-mill, profit-driven organization, we certainly seem to recognize the absence of conscience.  When companies defraud and exploit, as in the cases of Enron and Madoff Securities, they are not just considered failed businesses but examples of dishonor and malice.    
Twenty four states have modified incorporation laws to encourage companies to priorities environmental and societal benefits in addition to economic success.  Referred to as ‘benefit corporations,’ they value contribution to social progress as a measure of business success (PEW).  Legal protection might seem unnecessary, but Ben & Jerrys learned the hard way.  They originally declined a purchase offer from Unilever and accepted a lesser offer from a bidder that promised to honor their corporate mission and uphold their very strong sense of corporate responsibility.  Unilever sued and won, because Ben & Jerrys had an obligation to shareholders to maximize return.  B Corp laws protect organizations from these types of shareholder lawsuits by affording them special status (MASHABLE).
Nonprofit ‘B Lab’ has even developed a certification process for businesses that meet rigorous standards of social and environmental performance, accountability, and transparency.  There are a thousand so far (bcorporation.net).  And ‘b companies’ report having expanded access to capital, finding that investors and ‘impact investment’ groups want to invest in companies that care (SALON).  They also report enjoying networking with like-minded individuals, and wanting to demonstrate publicly their commitment to running an ethical business (MASHABLE). 
Devotion to a cause can help define a brand.  Patagonia donates money and resources to environmental projects.  Etsy educates entrepreneurs.  Seeing a company demonstrate its commitment to causes embraced by its target customers is likely to inspire brand loyalty and may even make consumers less sensitive to price (PEW). 
Organizations that demonstrate a desire to elevate society likely also helps employee retention.  Working for an organization with a conscience appears to be of particular importance to millennials, who often list meaning and mission as work objectives (SALON).


But most of all, it's good business sense.  Raj Sisodia, recognized as a leading figure in the 'Conscious Capitalism' movement, examined the numbers of 28 companies over 15 years that he identified as having the 'most conscience' based on stated purpose, generosity of compensation, and investment in community/environment.  Eighteen of them were 10 times more profitable than the S&P 500 index (AOL).
 
http://mashable.com/2012/03/02/benefit-corporations/

A win, win, win: Social, Sustainable and profitable!


A win, win, win: Social, Sustainable and profitable!
ITC brings the idea of a social farm forestry program to India and shares its benefits.   The innovative and unique farm forestry program was introduced to secure fiber, create profits and show commitment to a sustainable India. 

ITC specialized in wood pulp, paper and board. Without any company having the ability, in India, to buy plantations the segmented process would bring many partners into the process; or develop a new approach.  What visionaries these ITC people were.  To develop wastelands into machines to increase living conditions of some of India’s poorest tribal communities, bring wastelands to be useful, connect the Bhadrachalam Paperboards Ltd. extension of ITC to new profits.

To bring potential revenue into a for profit model with NGO’s and the local Andhra Pradesh government was amazing.  The key was the planted product:  Saplings that were quick growing, disease -resistant and evergreen that could grow in a wasteland.  Combine that with a commitment to retrain the locals to plant, care for and appreciate this long game brought many into the WOW of the plan including the United Conference on Sustainable Development, India (of course) and the rest of the world!   Bravo!

Traditional thinking brings its benefits and non traditional thinking brings some too!  Intercropping with an indigenous community.  They know the land they get to stay there and make a better living. Its environmentally friendly and brings in more opportunity for partners to the non plantation owning ITC.
Once a crop turned up to three to four times in the same timeline, bringing huge wins for the environment at large, the regional economies and a design for the world to follow. A huge gift.

A carbon positive: 9 consecutive years.
Water positive: 12 consecutive years
Solid waste recycling Positive: last 7 years. 

ITC’s watershed development initiative brings water to over 150000 hectares where water is needed and not often present.  
If that was not enough…
The social renewable energy benefit:  they use make 38% of the energy they make!
http://www.itcportal.com/sustainability/sustainability-report.aspx
We all win from the outcome of business restraints, economic intensives, and a goal to better the planet.  

How could Panasonic enter Chinese market?

Since the reform and open up in 1979, Chinese market has aroused great attention of developed countries. While western household appliance enterprises gave up expanding into the Chinese market in 1980s due to the low income and low consumption ability of Chinese families, Japanese appliance companies, like Panasonic, gained huge profit. And their success largely depended on their comprehensive diagnosis of the institutional contexts of China.

In regard to the political and social system, while western enterprises highly doubted that the government intervention could impede their development, Panasonic noted that the policies have been adjusted from political campaigns to economic construction. Considering that, they anticipated a stable economic development and an open market in the following decades in China. And this would finally lead to a strong market demand for home appliances or other products.

As for the product markets, Panasonic thought that the western household consumption patterns would have a significant impact on Chinese families in virtue of the increasing communication. Chinese families would experience from a period of bicycles, watches, sewing machines and radios to a time with washing machine, television sets, tape recorders and electric fans. And this process could be much faster than situation in Japan or the western countries.

And their investigation went far more intensive. On the one hand, they acknowledged the low-income level of Chinese families. On the other hand, they were also aware of the consumer psychology and the consumption habits of Chinese. Contrary to the western families, Chinese are more inclined to economical consumption and deposit. Therefore, Panasonic anticipated that within a few years of economic development, Chinese families could afford the cheap durable goods ($30-$50), like television. And even if the amount spent on appliances for each household is small, the huge population and the large amount of households would promote a huge market. Specifically speaking, if every household spends $ 35, the gross sale would be more than $100 million.

Considering the above, Panasonic finally entered the Chinese market and gained a huge profit.


Employee productivity and shared value – can women in the workplace finally “have it all”?

Among professional women there are two camps:

1. You can’t have it all
These women state that women who are mothers and also top professionals are the exception, not the rule. They’re rich, they’re self-employed or entrepreneurs who enjoy higher levels of job flexibility, or they’re just plain lying.

2. You can have it all
These women state that they’ve never had to compromise, and that their kids turned out great. They also say that internal factors are a big part of what causes women to feel they have to trade-off in one area or another.

The concept of “shared value” teaches us that companies can simultaneously enhance competitiveness and improve their community. 

“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.”

While the opinions on women in the workplace may vary, one fact that can’t be denied is that many women are leaving the workforce. Given that companies with increased gender diversity do better financially, it behooves them to figure out how they can retain more women. Could Porter’s concept of shared value be applied in a way that keeps more women in the workplace?

Porter provides a lot of different examples about how creating shared value can benefit the bottom line, the community and employees. While Porter alludes in a few places to the idea that more women working often has a powerful effect on local communities, he does not provide any examples of how creating shared value for women internally within these companies might give them a competitive edge and also help communities.

In the same way that employee health programs help to increase productivity, companies need to find more employee programs that work for working mothers. Flexible schedules, telecommuting and subsidized day care are a start. I think a big problem is the loss of career momentum that many women can feel when they take more time out for their children – in demanding roles like consulting companies like A.T. Kearney are exploring temporary customization of women's roles to allow for more time spent at home. 


The idea of “having it all” is, interestingly, only debated within the context of women when really it should be considered for both men and women who are parents. Last time I checked, having more good parents was good for society. I think if companies expand their employee productivity “shared value” to include programs designed for working moms, they might work for dads too. 

A Positive Final Thought for the Last Reading

Rachael Swetnam

As I read the "Creating Shared Value" piece this week, I once again wanted to write that nonprofits can again learn from the business sector in this way. I can't help but preoccupy myself with the inefficiencies of small nonprofits with such big hearts that fail within a few years due to poor management. Far too often do small nonprofits focus on their mission to the point of failure. This article clearly offers a way out of that conundrum: "value is defined as benefits relative to costs, not just benefits alone."

Nonprofits can now benefit from the analysis that has been done by the business sector on creating value in society.  Businesses now see the benefit in creating a profit from making the world around them a better place. They are able to offer jobs to their employees, offer a service to their customers, and improve their communities. I was intrigued by the comment that government and NGO's should focus more on creating value rather than "expending funds," however I also understand the perspective that public taxpayers expect tangible results, and want to see immediate feedback of what's being achieved with their tax funds. It's especially difficult for government and NGO's to pursue this avenue based on how they obtain their revenue stream. What the article suggests here, relating to environmental organizations for example, requires an ideological overhaul of our entire citizenry.

This has been one of my favorite pieces in the class. Instead of leaving me feeling discouraged about the state of affairs for the nonprofit sector, it left me feeling excited about the possibilities. You don't have to start a 501c3 to help the community. A social entrepreneur can do both with their small business. A millionaire can do it with their huge foundation, spun off of their highly successful company. Or, you can go ahead and create the small nonprofit. Applying these concepts to government and NGO's was also new to me, but exciting as I currently go out to interview for such organizations. Business, nonprofit and public sector management all have so much to learn from each other, and I appreciated this final reading because I think the most important thing to keep in mind is that no matter where we all go on to be CEO's after studying at Heinz, we should do our best to leave the world a better place.


Emerging Markets in India: From Fast Food to Fitness Centers


India's growth over the past decade has allowed many US based companies to enter various markets and compete successfully with local companies. The economic boom has led to a rapid increase in people's access to goods and services that were once classified as luxury. In particular, the fast food industry has reaped many benefits as the lifestyle and taste of the Indian middle class has continued to change. McDonalds, KFC, Dominos and Dunkin's Donuts are among the top players and are planning to open hundreds of stores to satisfy unmet needs in both large cities and big towns. The fast-food industry is expected to double in size within a three year period which means that many more people will be trading in their vegetarian curry dishes and for burgers and chicken nuggets. 

The growth of the fast food industry has a direct relationship with the increase in size of Indians' waist circumference. India is currently experiencing a double burden of communicable diseases like Tuberculosis and non-communicable diseases like Obesity that is expected to worsen in the coming years. Despite the negative effects that the fast food industry will have on the status of health in India, this growth also presents a great opportunity for companies in different sectors of the healthcare and health and wellness industry to develop solid strategies for entry. 

Since greater emphasis has been placed on curbing the obesity epidemic among both adults and children, numerous services, devices and products have surfaced in hopes of alleviating this obesity burden. Among many Zafgen, EntroMedics, Medifast and Life Time Fitness are a few names that saw growth opportunities around 2010. These companies provide products ranging from Beloranib, a pill that changes the way the body stores fat to pace-maker looking medical devices that modifies the amount of signals sent between the stomach and the brain. There are also a lot of profit to be made by the gym industry especially because of the trends and emphasis on body image in the US.   

Although there are so many opportunities, the success of companies in healthcare and the health and wellness industry must tailor their products, services and messaging to the Indian audience. Gyms like Gold's Gym must reorganize majority of their business, HR, management and retailing approach to fit the cultural and political context India. Although the fitness center industry is predominantly mom and pops owned, the Evolution of Fitness Industry in India article mentions the disorganized and segmented nature of the current players. Fortunately for Gold Gym, they have decided to enter the market by building up their own facility. 

Forgoing acquisitions and joint ventures was perhaps the best option for Gold's Gym because the industry is still in its infancy stages. Building their own facility will not only allow them to make a statement but also reinvent the idea of a gym in urban areas in India. Because Gold's Gym brings organization to the industry, wealthier people are more likely to purchase memberships as a symbolism of class and perhaps education.  Through creative messaging, diverse product and services offerings that are tailored to Indians, Gold's Gym is bound to be one of the major players in this industry. 


















http://www.cnbc.com/id/102119492
http://www.indiaretailing.com/7/23/27/12353
http://www.healthcare.siemens.com/news-and-events/mso-healthcare-in-emerging-markets

Change the world through Shared Value


This week the most profound article I’ve read would have to be “The Big Idea: Creating Shared Value.”  In it, the author proposes that our current understanding of the relationship between business and society, wherein business objectives are seen as contentious to societal objectives is flawed.  He further proposes that the reason for this misalignment is because the general scope of business strategy is often too narrow.  As an alternative the author paints a picture of a relationship in which business objectives are more closely aligned with society’s objectives, enabling the creation of value shared by both sides.   Our common sense tell us that we need businesses to provide us with goods and services while businesses depend upon society to purchase those goods and services. Business and Society are locked in a relationship wherein the advancement and wellbeing of one is bound to that of the other. We simply need to recognize this as fact and adjust our business strategies to focus on the creation of shared value.

The idea of shared value is not foreign to me, in fact I already try to optimize shared value creation in my day-to-day personal life.  For example, I try to purchase as many goods and services from local providers as I can.  When I want a bottle of wine I walk around the corner to my local wine shop and purchase a bottle even though I could potentially find the product for cheaper outside of my community.  Why, because I know that the act patronizing this local establishment will benefit me more than the money I would save from making my purchase outside of my community. But how do I know this? Well, I know that the store is owned by a young couple who also live in my community.  By supporting their business I am helping to drive up their revenue and hopefully increase their profit.  This could potentially enable them to expand, creating jobs (They are in the process of hiring a new manager because of the success they have experienced in their first year) and bringing even more money into our community.  More money for the business equates to more business taxes which should bring about better public services like education.  Better education tends to lead to lower crime and lower crime helps improve the property values which benefits me (not to mention the convenience of having a fabulous wine store within walking distance of my home).  To the author’s point, had I narrowed my consideration to just price, I would not have purchased the wine locally.  However, by fully understanding the breadth of consequences associated with my actions, I was able to see how the simple act of purchasing locally would afford me greater value in the long run. 

While I was already practicing shared-value creation in my personal life I was not educated on the theory enough to champion this type of thinking in my professional life as well.  However, armed with this article I am excited to explore new ways to do just that.

Companies Are Drooling over China’s Emerging Performing Arts Market

Under the rapid economic growth, China is now embracing the development of culture and arts industry. With an open-door policy and the “going out” strategy, Chinese government welcomes overseas companies to enter China’s performing arts market and encourages domestic projects to enter the global stage. China’s audience base is also dramatically growing, not only because of a stronger purchasing power, but also thanks to the globalization and Internet, through which Chinese audience are easily exposed to various forms of art and culture. All these political and social systems as well as the openness to foreign investment pose vast opportunities for overseas companies to enter China’s performing arts market, from Beijing and Shanghai to second- and third-tier cities.

Natural to performing arts, touring may be the most frequently adopted strategy to enter a new market, mostly with a goal to make a good profit in that one short period, both from performances and byproducts, as well as to gradually cultivate an overseas audience base with more and more exported shows. In the context of musicals, for example, there has been more and more musicals touring to China in the past decade, especially world-famous musicals such as Les Miserables, Phantom of the Opera, and Mama Mia.

Partnership is another emerging model for overseas companies to enter China’s performing arts market and obtain mutual benefits for both sides in the long run. For example, Nederlander World Entertainment, “one of the international pioneers in the emerging Chinese cultural industry” (NWE website), initiated a joint venture with China’s performing art industry in 2005. Since then, it has presented four Broadway shows (42nd Street, Aida, Fame and Luma) across China. Under this partnership, a new project called “China on Broadway” was also initiated in 2009, with an aim to “bring the best of Chinese culture to Broadway, featuring annual presentations on Broadway and elsewhere of the finest theatrical events in China”. Viewing China as “one of the biggest, but least-tapped markets for classical music and dance – as both an importer and exporter” (The New York Times), IMG Artist, a major representative of classic musicians in the U.S., announced a partnership with the China Arts and Entertainment Group in 2013, with an aim to “create new paths for performances and marketing in both countries”.

Though flourishing with vast opportunities, China’s performing arts market also poses various challenges to overseas entrants. In addition to variable policies and social trends, some challenges also come from inadequate product and labor markets, because many things are still developing in this emerging market. For examples, many old Chinese theatre venues may not meet the requirements to put on a Broadway show. There is also a shortage of local production and management professionals. The cancellation of the musical Chicago tour in China would be a good example. More efforts still need to be made from different aspects by companies. Through whichever method or model, companies have to adapt, bring a change, or stay away.

References:
[1] Website of Nederlander Wordwide Entertainment, http://www.nederlanderworld.com/aboutned.aspx
[2] Michael Cooper, "New Musical Partnership in China", The New York Times, Nov 23, 2013
[3] Zhang Kun, "Chicago Cuts Tour Short", China Daily USA, Jan 17, 2014