“Shared value is about tackling societal problems with a capitalist business model… When we can get the activity into the capitalism bucket, we create magic because we can scale!” – Michael Porter
In the past, companies always interacted with the society to go good in philanthropic terms. Simple donations for the good of humanity transformed into organizations strategically allocating their resources and aligning their core competencies to reduce the harmful effects caused by environmental and social problems. In the modern day – this is called Corporate Social Responsibility, or CSR. Michael Porter always said that CSR is the fundamental building block for shared value and but then shared value is something which has the distinct property of scalability.
How did Nestle transform itself from standard food and Beverage company into one focusing solely on nutrition? How has GE shifted from a standard electronic appliances company to that which now focuses on alleviating environmental and healthcare issues? Both these companies have some of their revenues dwelling into CSR activities but it is the distinction between the two which helps us understand what these large-scale organizations are actually doing in their businesses to create value for the society.
Within the article, the authors Michael Porter and Mark R. Kramer have identified three ways in which shared value can be created:
1. Reconceiving products and services – This point focuses on the gaps on the unmet needs of the society, the ills currently present which are taking the community backward instead of forward and the solutions being researched and developed which can alleviate these conditions.
a. Becton Dickinson and Company is an American medical technology company that deals in medical supplies and devices. In the mid 80’s, there were a number of needle-stick injuries and these were creating possibilities for easy transmission of the HIV virus amongst other infections. BD & C was the first to recognize this as a potential risk to the society and introduced the first safety syringe in the year 1988. This instantly became famous and grew to almost a $2bn product. It now accounts for at least a quarter of the company’s revenue.
2. Redefining productivity in the value chain – This point focuses on increasing the productivity of a particular company or its suppliers by addressing all of the social impacts within its own business chain.
a. An excellent example for this would be the research Walmart did in studying the toilet supply chain in the years between 2008 and 2010. Walmart primary goal was to reduce costs for the society at large and at the same time conserve water being wasted on a large scale. To do this, it selected a dual flush toilet from Quality Craft. This had two buttons, one for the disposal of solid wastes and the other for disposal of liquid wastes. Walmart assured its customers that by choosing such a toilet, they would be able to pay for it within three years due to the reduced water spillage. After further collaborated amendments to packaging as well, Walmart succeeded in achieving this motive. In Springfield, Missouri for example, 11.9 million fewer gallons of water were needed by households, thus saving the town approximately $23,000 in sewage costs as well.
3. Local cluster development – This point primarily focuses on the company’s core competencies which lead it to develop the impact of its operation in the regions where it currently exist.
a. A prime example of such a point would be the efforts that Windsor Electricals undertook in the state of Maryland so as to better enable itself with regard to construction trades. Initially Windsor Electricals was searching for a trained labor pool within other states and then relocating them to their headquarters. By partnering with a local school from Maryland itself, the company achieved innovative levels in improving the skillset of its own local labor pool and thus, generate a steady flow of well-trained worker for all jobs necessary. Not only did it drastically reduce costs in this effort, but it also helped tap into the job market and create a healthy number of professionals on the field.
Concluding, we can say that large-scale organizations have definitely done a lot to create shared value, but this is still in its nascent phase in the cycle. A lot still has to be done on a global scale so as to make this idea a full-fledged part of all company strategies.