Wednesday, April 29, 2015

Shared value provides sustainability

The conventional opinion that societal benefits are often sacrificed by the economic benefits has been studied by many. Among all, Milton Friedman’s doctrine and concept of shared value seem to stand at two extremes. Friedman advocates that “the social responsibility of business is to increase its profits” [1]; “shared value” recognizes that “the societal needs, not just conventional economic needs, define markets”. However, in my opinion, these two concepts can converge. Companies can realize economic benefits by identifying societal needs as market potentials. But at the same time, they should not take a role of a non-profit organization by donating their revenues directly to non-business-related activities.

Companies should shift their mindset, regarding the societal needs as potential markets. The example of ITG illustrates how shared value leads to profitability and large market potentials. In recent years, both Facebook and Google launched initiatives (internet.org and google.org), aiming to remove barriers to Internet access. Internet access has a significant impact on GDP on developing countries. However, without concrete numbers for profits, critics have used Friedman’s opinion to oppose these two companies’ approaches that they are using shareholders’ money to act as philanthropy (Facebook’s Shared Value Status: It’s Complicated). Indeed, the problem with the current business environment lies on management’s short-term pressures. Too often, companies give up good projects due to the high upfront costs (a potential large write-off at the first year end) and non-immediate results. But for Facebook and Google, these social programs are also a market development opportunity. Those people benefited from the program will become Facebook and Google’s prospective users, which ultimately drive incremental profits for the companies.

Furthermore, I do agree with Friedman’s notion that companies should not conduct non-profit activities unrelated to their business, known as CSR (corporate social responsibility). In that sense, they are sacrificing shareholders’ benefits for unknown values. In Porter’s article, it recognizes that a more sophisticated form of capitalism with a social purpose should be adopted, but should be out of a deeper understanding of competition and economic value creation (, not out of charity). Essentially, two scholars say the similar thing. The relationship between societal and economic benefits are not opposed, but intertwined. When the first entrepreneur — a craftsman — appeared in the world, he wanted to realize some benefits by serving social needs. Since its birth, society is the root of the business and should never be ignored.


However, currently people still mistrust businesses and regard companies as enemies to societal benefits. The path to realize shared value requires collaborations among businesses, government, and non-profit organizations. Particularly, the business school’s education should focus on developing shared value concept instead of merely working on the balance sheets and NPVs. The curricula should include more courses around customer behavior, human needs, innovation, economies, and public policies. 



[1] Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times.

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