Shared Value

This article covers topics around the intersection between society and corporate performance.

According to Porter, large businesses need to start focussing on social initiatives rather than just running after profits. In recent years, business has been criticized as a major cause of social, environmental and economic problems. Companies have also been thought to be prospering at the expense of their communities.

This is speculated to be a problem with the companies themselves that are trapped in outdated and narrow approach to value creation by focusing on short-term financial performance and overlooking the needs of the customer. Porter states that companies could bring back business and society together if they redefine their purpose of creating shared value that not only produces economic value but also produces value to the society by addressing its challenges.

Essentially, Mark R. Kramer and Professor Michael E. Porter identified three ways to create shared value:

1. Reconceiving Markets and Products
2. Redefining Productivity in the Value Chain
3. Building Supportive Industry Clusters at the Company's Locations

Reconceiving Markets and Products:

This involved rethinking the business around unsolved customer problems and concerns and not the traditional product definitions. We can think of this in terms of improving lives of customers and not just meeting their needs. Once we develop profitable services or products to remedy these conditions we can establish shared value.

Redefining Value Chain Productivity:

Opportunities to create shared value arise because societal problems can create economic costs in the firm's value chain. Many such externalities can actually inflict costs on the firm.
For example: Walmart reduced its packaging and cutting 100 million miles from the delivery router of its trucks. This lowered the carbon emissions and saved $200 million in costs.

Enabling Local Cluster Development:

This involves the strengthening of the competitive contents in the main regions where the company in question operates. As the old saying goes, a rising tide lifts all boats. This can aptly be applied to this scenario as cluster development can lead to more opportunities and growth of the local community.

Shared value can reshape capitalism and its relationship to society, it could also drive the next wave of innovation and productivity growth in the economy.