The importance of Creating Shared Value

Through the article Creating Shared Value, the authors – Michael E.Porter and Mark R. Kramer imply that the way we do business is viewed as a cause for social, environmental and economic problems that we are facing in our world today. They say that companies are still operating with an outdated approach to value creation. They are just looking at short term financial gains with their strategy and not the customer needs and broader influences that can determine long term success. Companies must make more of an effort to bring business and society back together and work together in harmony for the upliftment and mutual benefit.

The solution to create this harmony could be in following the principles of shared value which can be defined as policies and operating practices that enhance the competitiveness of a company while at the same time advancing the economic and social conditions in the communities in which it operates. It can be created in three ways – Reconceiving products and markets, Redefining productivity in the value chain, and Building supportive industry clusters at the company’s location.

An increasing number of companies known for their hard nosed business approach, like Google, IBM and Nestle are now adopting this principle. The authors further imply that every company should make decisions by looking at opportunities through the lens of shared value. This can lead to new approaches in the way business is done. It can create an environment where the scale of innovation is much greater and the companies using these principles not only have very high growth in the long term but also benefit the society.

An increasing number of companies known for their hard nosed business approach, like Google, IBM and Nestle are now adopting this principle. The authors further imply that every company should make decisions by looking at opportunities through the lens of shared value. This can lead to new approaches in the way business is done. It can create an environment where the scale of innovation is much greater and the companies using these principles not only have very high growth in the long term but also benefit the society.

There is a misconception that taking business decisions keeping society in mind is a waste of resources and misuse of money. Corporate responsibility programs are just carried out to enhance reputations. But they do not realize that not thinking about the society or the environment results in more harm to themselves. There are many ways companies can mould their strategies to enhance the way they use resources, energy, logistics, and procurement. Nestle is an interesting example of this. They realized that most coffees are grown in rural areas by small farmers who had limited produce due to primitive farming techniques. Nestle trained these farmers, guaranteed bank loans and provided resources like fertilizers and pesticides. They also established local infrastructure to measure quality which allowed them to pay a premium for better beans. This increased the earning of the farmers and reduced environmental impact of the farms while giving Nestle a reliable source of good coffee beans.

This example demonstrates how strategic investment not only benefited the company, but also helped in the upliftment of the local people and had an impact on environment conservation. Outsourcing to far out locations to save money creates inefficiencies and has hidden costs involved. Buying local results in suppliers getting stronger, increasing profits, hiring more people, thus benefiting everyone involved in the community. Success of companies like , Johnson & Johnson, ITC Limited, Coca-Cola, and Wal-Mart is testament to the fact that long term success hinges on changing strategy to ensure not only economic benefits for themselves, but also social upliftment in general.