Monday, May 1, 2017

Creating Shared Value

Why should a company care about the society around it? Wouldn’t it be wasting its profits if it spends them on improving the society? Yes, if it is spending some amount of its profit towards corporate social responsibility, thinking of it as a charity or some unavoidable expenditure. This is often the reason why the corporate social responsibility contributions provide minimum benefit to the organizations or to the society around them.  So should a company simply ignore the society around it and focus on improving their profits? If a company makes products that no one wants, would it make any profits? No. There are several pressing needs in today’s society. By addressing these companies can make profits by reaching to large sections of the. This is called shared value creation, policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.

To create shared value, companies need to ask one fundamental question, is our product useful to our customers or to our customer’s customers? Creating new products or reconceiving the existing ones is the first step towards creating shared value. 60% of the agriculture in India is rain fed [1] and farmers desperately need accurate weather prediction. For a mere $5 quarterly fee, Thomson Reuters provides weather and crop pricing information and agricultural advice to an estimated 2 million farmers, and has helped increase the incomes of more than 60% of them.

By redefining the productivity in the value chain is the second step towards improving the shared value. Companies can improve productivity in their value chain by minimizing the energy and resource use. Dow Chemical managed to reduce consumption of fresh water at its largest production site by one billion gallons, enough water to supply nearly 40,000 people in the U.S. for a year, resulting in savings of $4 million. Johnson & Johnson, invested in improving the healthcare of its employees by helping them quit smoking. As a result, it reduced the total number of smoking employees by two thirds and saved more than $271 Million from 2002-2008 on health care costs, this is more than twice the amount invested.

Local cluster development or developing the companies that are relevant and necessary for the success of the organization is the third and final step towards shared value creation. Nestle has improved its procurement by providing farmers in Latin America and Africa with advice on better farming practices, guaranteeing loans etc. This has also helped to improve the yield per hectare and improved the economic situation of the farmers. African farmers struggle from lack of proper logistics that supply fertilizers and other essential agricultural inputs, and from transporting their crops efficiently to market. Yara, the largest fertilizer company is investing $60 million in improving roads and ports. Even though it is a fertilizer company and has nothing to do with ports and roads, improving them will increase the accessibility of the fertilizers to farmers and thereby improving the demand to their products. This initiative is expected to benefit 200,000 farmers and creates 350,000 new jobs,

Companies should focus on moving from CSR (Corporate Social Responsibility) to CSV (Creating Shared Value), which is an integral part of the company’s profitability and competitive positioning. It is a higher form of capitalism, that creates a positive cycle of company and community prosperity.


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