Sunday, April 30, 2017

The Idea Behind Shared Value

The basic idea behind shared value is an age-old concept.  Simply put, it’s the idea that if one postpones immediate gratification and strategizes for the long run, they will generate more overall benefit.  Just like creating a savings account for retirement is an excellent idea, the concept of shared value is an excellent idea for generating more overall benefit for companies and society alike.  However, I wonder how likely it is for companies to ubiquitously employ shared value strategies.  This skepticism is in part due to precedent, and in part due to the rapidly changing context of our world.
Based on empirical evidence, humans have difficulty postponing gratification for the distant future.  Take, for instance, a more primal study of human instinct in which Walter Mischel tested children’s ability to delay gratification.  In this famous experiment, children were left alone with a marshmallow for fifteen minutes.  The children were told that if they waited the full 15 minutes without eating the marshmallow, they would get two marshmallows instead.  Less than 30% of the children were able to wait the full 15 minutes.[i]  Of course, one might argue that adults are better than children at preparing for the long-term.  But in fact, in 2013 the median American retirement savings account was a paltry $5,000.[ii]  If it is inherently difficult for humans to plan for value in the distant future, how can large companies find a way to do this?
As another example of how difficult it can be to plan for long-term benefits, take the American government.  Government officials are beholden to their constituents.  Betray their constituents, and the official will be voted out of office.  Thus, representatives often must support policies that result in short-term, tangible benefits rather than indirect, long-term ones.  Similarly, companies are beholden to their shareholders.  If a CEO takes a strategy that generates less wealth for the shareholders than another one would have, the board of directors will reappoint the CEO.  Thus, as the article points out, it is difficult for CEOs to corral support for shared value strategies.
Finally, what does shared value mean in the context of our rapidly changing world?  For example, software has been developed for self-driving trucks that could save the truck-driving industry $168 billion in fuel efficiency, wages, and productivity.  It could also reduce human errors leading to 87% of truck accidents.  On the other hand, in as little as 10 years, such software could put millions of drivers out of work, which would be a blow to an industry that serves as the biggest job sector in 29 states.[iii]  Is such software promoting shared value, or does the social impact of lost jobs outweigh any value created?  These are one of the many questions shared value has yet to answer.  But, as the article says, more research and exploration of shared value must be done in order to determine such answers.



[i] http://www.whatispsychology.biz/deferred-gratification-stanford-marshmallow-experiment
[ii] CNBC Article (2016): http://www.cnbc.com/2016/09/12/heres-how-much-the-average-american-family-has-saved-for-retirement.html
[iii] The Economist short film (2017): https://www.youtube.com/watch?v=DClcrd-2T7g

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