Incentivizing Shared Value

Michael Porter and Mark Kramer introduces what they call a "shared value” approach in their Harvard Business Review article, "Creating Shared Value”.

The argument is that the way corporates nationally and internationally operate right now is by and large short sighted. Management does care about short term profits and financial metrics to please the shareholders. Any sort of engagement with operations or research meant to promote sustainability, save environment or engage local communities is usually deemed as an act of corporate charity or social responsibility. Simply because, these actions are not usually associated with generating the highest profits. Quoting Noam Chomsky’s article Why I Choose Optimism Over Despair : "The Republican majority (with a minority of the popular vote) proudly announced funding cuts for the Environmental Protection Agency - one of the few brakes on destruction - in order to rein in what House Appropriations Committee members called an "unnecessary, job-killing regulatory agenda" - or in plain English, one of the few brakes on destruction. It should be borne in mind that in contemporary newspeak, the word "jobs" is a euphemism for the unpronounceable seven-letter word "pr---ts.”

The point I’m trying to make here is that the intelligence behind Porter’s and Kramer’s proposition lies in their attempt to transform the conception of punishing the corporates with social, environmental obligations (do this or pay more taxes) towards a different win-win business ideology. They’re making the case that if you’re smart enough -  so to speak- and are able to re-innovate your value chain, you’re extending your impact to wider greater benefit and even more creating higher business value for your firm.  

ITC’s case is a fine demonstration of the shared value that what is discussed in Porter’s article. However, in this blog, I want to share a thought that I had while reading the article and ITC’s case on the strategy philosophy of ITC. While shared value -as just mentioned- is indeed a win-win approach for business. However, it stills take a lot of risk and willingness (and of course investment) to make it work. And I wondered why ITC would be so passionate about being a sustainable company that much. The only answer I had was that because they were a Tobacco manufacturing company. Even though, the HBR case refereed to that once in single line. However, they started as a tobacco company and their core business is still tobacco production.

What was more interesting to me looking at the exhibits of the company. It was found that their agriculture business was also targeted at growing their tobacco leaves. Point being, even though ITC may have really cared about sustainability and environment. However, still, marketing and presenting themselves the way they did is indeed a very smart strategic tactic. i.e., when someone hears ITC the first thing that comes to mind is a company with a wide diversified range of products and services even when Tobacco production and Tobacco leaves agriculture business constitute more than 60% of their business. That’s why even if their model is indeed inspiring and ITC is a role model for the corporates to start thinking like that, however, I’m intrigued now to see how far other corporates can go with CSR and shared value when there are no implicit incentives to do so at all. I know it’s nothing more than an assumption about ITC’s strategy, but it’s still something to be considered and though about!

I really wish, the evolution of this is more societal and governmental demand and encouragement for corporates to follow this very path of shared value. Only then we might be able to elude from the vicious cycle of trying to force corporates to be responsible for people and environment. Incentivizing is key and that’s what Porter’s case is about!