The Definition of Shared Value and How to Create It
Updated: Sep 11, 2019
Creating Shared Value (CSV) is a relatively new term introduced by Michael E. Porter and Mark R. Kramer, in their piece "Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society". The basic premise of it is that the competitiveness of the company and the health of the community in which it operates are mutually dependent on each other. What is shared value in business?
In short, it is a business strategy, as defined by the Shared Value Project, where companies create an economic benefit that can be measured, through identifying and addressing social problems. It is more than social responsibility philanthropy and it goes further than corporate social responsibility (CSR). It combines the identifiable economic benefit of traditional business with a measurable social impact to give a competitive advantage to the organization with a clearly defined shared value.
At the core of the business is a business model that is linking the needs of local communities with business opportunities, under corporate social responsibility and shared values. On one hand, internally this business strategy provides a common value system, which aligns with the company’s goals, also on a cultural level. On the other hand, externally it is set out to tackle social and environmental issues of the society, focusing on the long term perspective.
As Michael Porter and Mark Kramer wrote in their Harvard Business Review article, “shared value is not social responsibility, philanthropy, or even sustainability, but a new way for companies to achieve economic success.” It is predicted to become a key factor for achieving business success in the next 20-30 years, therefore it is essential for organizations to adopt a shared value initiative and incorporate the creation of both social and economic value in their management strategy.
The best practices for the creation of it, based on the shared value definition, has also been set out by Porter and Kramer. They name reconceiving products and markets as the first business opportunity. This concept is based on developing profitable products and services tapping into the needs of the customers in connection with social and environmental issues. The British Business Bureau cites Travelsphere as an example, which focuses on providing holidays for visually impaired people.
Another business opportunity, governed by a moral compass is redefining productivity in the value chain. Here the focus is on improving processes and quality for sustainable productivity with positive social outcomes. Opportunities with the organization’s value chain are especially of importance since societal problems can lead to extra economic costs for it, as noted by the Harvard Business School.
A case study for this type of shared value creation is Walmart, which reduced packaging and improved delivery logistics, saving $200M in distribution costs, while also increasing the quantities being shipped.
The last opportunity, named in the Harvard Business Review article is enabling local cluster development, in the form of knowledge sharing and support. The aim of this strategy is to improve the available skills and supporting institutions in the communities where a company operates. Since, as Porter and Kramer put it, “the success of every company is affected by the supporting companies and infrastructure around it”. Just think about Silicon Valley as a cluster of IT firms! Through this strategy, boosting productivity, innovation and growth become easier, while also developing the local infrastructure and communities.
As illustrated, there are multiple openings for combining the synergies of both traditional business and corporate social responsibility to tackle issues of high need in a profitable way. Creating Shared Value can act as an accelerator, transforming the company’s thinking and planning to intertwine social and environmental impact with business opportunities, the effect in both. However, as more and more customers are choosing based on their need for having a social impact with their purchases, it is important to really make a difference regarding the addressing of social problems.
To truly embrace the responsibility of a private company to drive growth and prosperity, tackling the socio-economic challenges of our times a business needs a strong higher purpose, a clear shared vision, a shared value business model and a strategy based on sustainability. Allmende believes that businesses who do good do better, also inspiring others to join the initiative and empower each other in changing the current economic paradigm.
We strongly believe in shared value creation, and can help you do that just reach out to know more about how we do it.