Creating Shared Value to Foster Succesful Innovation in Disruptive Environments

This week’s readings illustrated the importance of considering all benefits and costs associated with doing business, and reminded us that many apparent externalities represent real internal costs to businesses, insofar as the same inefficiencies that cause social harm may also often lead to economic waste and loss. The article “Creating Shared Value” goes further, to suggest that private enterprise is actually better than governments or non-profit organizations at delivering social value, particularly if they are able to transcend the traditional approaches that positon social value as a cost that reduces business value, and that typically view social value as something to be delivered via mere compliance or charity (whether via donation or through the application of organizational time and expertise). Our examination of ITC, and its decision regarding entry into the dairy market, provides an excellent example of a company that has succeeded in its social mission through careful planning and rigorous management, in order to operationalize opportunities to deliver value to their shareholders, to its nation, and to the local communities where they do business.

To create shared value, companies can reconceive their products and markets, based on constantly evolving social and business needs and opportunities. By doing so, organizations are able to deliver new products into new and existing markets, particularly those that have been previously underserved. In one example, Thomson Reuters was able to increase farm incomes of 60% of participants, in some cases tripling incomes. Companies may also redefine productivity in the value chain, improving efficiency and delivering economic and social benefits to stakeholders. For example, Walmart was able to save $200 million by reducing packaging and rerouting trucks; it is intuitive that shipping goods across long distances adds both economic cost (in terms of freight costs, fuel, etc.) and environmental costs (in the form of higher emissions, etc.). Finally businesses can enable local cluster development, which creates value by promoting the development of capable local suppliers and supporting businesses and industry, as well as promoting a larger customer base into which additional goods can be sold.

Ultimately, the shared value model is one that promotes innovation, in that it requires companies to look holistically at their business and improve efficiency and effectiveness in terms of their ability to deliver products into markets, achieve greater efficiency in the value chain, and develop business clusters in the communities where they do business. As we have seen, suppliers and customers in disruptive environments discover new markets together, as evidenced by the extent to which ITC embraced the promise of e-Choupal when it was very much an unproven idea, and invested early in its success. Therefore, the concept of creating shared value is highly compatible with the innovative work that must be done to thrive in disruptive environments. By exploring opportunities to leverage organization capabilities in service of new market opportunities, businesses can improve their operational efficiency while delivering value to the communities in which they operate.