The Future of Strategy

In this week’s reading, Michael Porter and Mark Kramer lay out the case for shared value. Porter and Kramer define shared value as a new form of capitalism that will spur innovation and growth for companies and also improve the communities they do business in. Shared value is an alternative to corporate social responsibility, which is the current response of companies to the prevailing view that corporations should do good and impact the communities they operate in, in positive ways.

Corporate social responsibility has existed in some form for decades and became part of public discourse in the 1970s with Milton Friedman’s polarizing article, The Social Responsibility of Business is to Increase its Profits. Now, corporate social responsibility programs are an entrenched part of many corporations and seem to be almost a requirement for large, public facing companies.

The widespread adoption of corporate social responsibility programs is a response to public sentiment, but is also bolstered by findings that corporate social responsibility programs benefit companies. These programs improve company efficiency, productivity and profitability. A joint literature review on corporate social responsibility by Arabesque Asset Management and The University of Oxford highlight this point. 88% of studies found companies with socially responsible business practices had higher operational performance than their less socially responsible peers. In addition to improvements in operational performance, socially responsible business practices have a positive correlation to a company’s stock price. (Fink and Whelan, 2016).  

Many companies have bought into findings like the ones mentioned above and have devoted a significant amount of time and resources to corporate social responsibility programs. Adopting Porters and Kramer’s shared value approach will require a reallocation of time and resources. It might also mean dismantling longstanding corporate social responsibility programs that are the result of years of work and may be viewed by some people within the company as a source of growth and a contributing factor to strong performance. Porter and Kramer make a compelling case for shared value and support their claim that in the long run this approach will lead to robust and sustainable growth, which surpasses that of today’s socially responsible business practices. It will be interesting to see whether companies incorporate principles of shared value into their business practices because although a shared value approach does promise a large return, it could be years before a companies sees that return. This may be important to many companies since our current system of evaluating companies reacts so quickly and does not leave much room for long-term projects.       

References

Fink, C., Whelan, T. (2016, October 21). The comprehensive business case for sustainability [Web blog post]. Retrieved from

https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability