Why create shared value?
In their article on creating shared value, Porter & Kramer talk about how shared value keeps the supremacy to unleash the next wave of global growth. They explain the concept as “shared value is not social responsibility, philanthropy, or sustainability, but a new way for companies to achieve economic success”.
In the capitalist system, organizations face situations that require them to measure the tradeoff between social progress and economic efficiency, and they often chose economic efficiency. They defend themselves by stating that focusing on economic efficiencies and making large profits enables them to add value to society by generating employment, giving higher wages, paying higher taxes, etc. The idea of shared values emphasizes strategies to grow economically and parallelly improvise the environmental, economic and societal conditions of the community. Solving societal problems is not just the responsibility of the NGOs and governments. Organizations have internal implications if social harms are ignored – resource and energy wastage, factory accidents, large investments in training programs to undo damages, etc. An organization can only thrive in a healthy environment and its success is entwined with the community. Porter and Kramer emphasize that shared value can be achieved in three different ways:
Reconceiving products and markets
With the ever-growing demands of the society in terms of a healthier environment, good health, housing, quality food, financial security etc. large organizations can focus on identifying unmet needs and markets. Technology giants like IBM and Intel are investing in large projects to curb power usage in the society, GE is manufacturing environment-friendly electronic equipment and these firms are doing well both on an economic as well as societal front.
Redefining productivity in the value chain
Productivity in a value chain is affected by externalities and organizations should focus on sustainable development. Societal concerns such as judicious use of natural resources, equal treatment, safe and pleasant working environment, if ignored, can inflict unwanted costs on organizations by means of lawsuits. Pollution caused by factories and logistics bears both environmental and societal costs. Walmart adopted a strategy to address both these issues – it reduced planned a reroute for its fleet of trucks that enabled savings on fuel costs, reduced pollution and still delivered more packages that resulted in increased customer satisfaction.
Building supportive industry clusters at the company’s location
The growth of an organization is impacted by the firms in the industry. Formation of clusters can prove beneficial to all firms that practice delivery of same services and products. Examples of these existent clusters include diamond cutting firms in India, IT Silicon Valley in the USA, etc. These clusters incorporate a sense of healthy competition, promote innovation, improve productivity. These clusters take advantage of advanced infrastructures, transportation facilities, training programs, etc.
Principles of shared value are also applicable to NGOs and government organizations. They must aim for both productivity and value creation. A particular example of an NGO that is practicing the idea of shared value is TechnoServe which is promoting agricultural sectors.
Shared value does not promise to resolve all societal problems but provides a platform for organizations to lead social progress alongside economic advancements!
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