Wednesday, December 9, 2015

Shared Value vs. Social Enterprise

Social enterprise is a catchall term used to describe for-profit institutions that have any kind of positive social activity. The process of creating shared value, as described by Porter and Kramer is a subset of social enterprise and not its equivalent.

An example of a social enterprise that does not create shared value is a company called Healthify ( It is known that much of health is based on social needs, not simply healthcare needs. It has been shown that people at risk of high-frequency emergency department (ED) use are less likely to need that resource if their social needs are met. Healthify created a smart, adaptable screening and referral tool for clinics and doctor’s offices that care for at risk patients. Since these organizations more often than not have very limited financial resources, Johns Hopkins Health System subsidizes dozens of software licenses. By screening and referring at-risk individuals, the Health System has reduced ED visits, which are rarely fully reimbursed with at-risk patients.
This is a model that providing a much-needed service to a group of people on the bottom rung of society, and clearly it is a viable value proposition. Heathify has expanded their services to many states. But it is not a creation of shared value—in fact, if Healthify were truly successful, there will be fewer at risk individuals and fewer end users o f their services. A laudable goal, without question, though this social enterprise does not have the ability or intent to reap benefits from the social impact it can potentially achieve.

Compare this to a corporation that aims to create shared value like ITC or IBM. By working to improve society and progress entire economies, these companies reap long-term benefits. ITC is able to reduce cost inputs and expand market potential from heavily investing and training agricultural workers. (It is worth noting that this company still obtain a large share of its revenues from tobacco.) IBM benefits from a well-educated population, but then again, so do many companies. This could be conceived as a free-rider problem: many companies benefit from an educated populous, so no single company will layout huge amounts of investments. More specific benefits are likely needed to spur companies to attempt to create shared value, like IBM helping utilities use new technology in order to economize on power usage. This directly helps IBM, and hopefully helps all the other consumers of power.

I think it is very interesting to note a key difference in the examples from the readings. Google and IBM and Intel and Unilever are created shared value through investment in processes. Whereas companies like ITC and Nespresso are investing directly in people. I think this has to do with the products that they sell—consumables requiring investment in people and more durable goods requiring investment in processes. 

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