Wednesday, April 29, 2015

My own experience with Shared Value Creation

This is the fifth time I read Prof. Michael Porter’s Creating Shared Value article. The first time I found it to be revealing while I was studying a Sustainable Development program. The next readings were to find guidance in how to apply the concepts to my work. Before coming to CMU I worked at URBI, a company that is part of Intercorp. This corporation is one of the biggest economic groups in Peru. It’s President and C-level Executives are usually advised by Prof. Porter. Hence, this group tries to incorporate shared value in its businesses.

URBI is a strategic project developer for the subsidiaries of Intercorp, especially projects that involve building relations with the government and society. URBI leases state-owned land or unused government properties to build shopping malls, supermarkets, hotels, schools, among others, for their related companies’ business operations. Consequently, it negotiates agreements with the government, which are designed under innovative public-private partnerships approaches and shared value creation.

Also, URBI structures and manages projects under the Public Works for Tax Deduction framework for Intercorp’s subsidiaries and for non-related companies. This framework enables private companies to finance and execute public works projects in line with their Corporate Social Responsibilities activities. The incurred expenses are later deducted from companies’ income tax payments. The reason that inspired this framework is that the Peruvian government acknowledged that it lacks of the capacity (in a broad sense) to reduce the infrastructure gap alone. Hence, this system allows the government to join forces with the private sector. I was the Head of this Unit at URBI until I came to CMU, and the focus we gave to our work was to create shared value.

When I was appointed, URBI was helping the Regional Government of Arequipa (a southern Peruvian region) to structure a strategy for building the Chilina Bridge under the PWTD system. We brought together three companies to finance the project and selected a capable consortium of specialized contractors for its execution. With a $90 M budget the Chilina Bridge is by far the largest PWTD project and the largest bridge in Peru. Its construction was of supreme importance to the city of Arequipa, as it lacks a modern road infrastructure to attend its heavy traffic. Hence, the construction under the PWTD system was actually a novel way to practice shared value. The companies that invested in the project were of three different industries: mining, banking and beverages. Yet, they were helping their business by improving public assets (infrastructure) that will positively impact in their logistics efficiencies, while also giving societal benefits.
  

While we were working in this project Intercorp decided to give further support to the Region of Arequipa. Hence, through URBI the corporation hired Prof. Porter to perform a competitive analysis and develop a competitive plan for the future of Arequipa, of course under the scope of shared value creation. The target was to identify in which production chains two new clusters could be created. Arequipa main industries are mining, tourism and hoteling, agriculture, manufacturing, and dairy, but there are no articulated clusters that enable small firms to serve these big industries. I had the opportunity to attend the kick-off conference given by Prof. Porter in Arequipa as part of Intercorp’s delegation, and was thrilled when he mentioned that the PWTD system and the Chilina Bridge were world examples of how to create shared value. Finally, he said something that marked me: “successful development demands improving economic and social contexts simultaneously”. No country can aspire to be sustainable in the long run if there is a gap between this two contexts. I brought this statement in my mind to Pittsburgh and guides me through my public policy studies. 

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