“While society’s needs are large and growing, a new generation is asking business to step up.”  Michael Porter, a distinct name in business and a thought leader in strategy and competitiveness, and Mark Kramer, managing director at FSG, offered the CSR world a different perspective on the value of the triple bottom line in their article, “The Big Idea: Creating Shared Value,” which was featured in the January/February 2011 issue of Harvard Business Review (HBR). Although the term isn’t new, Creating Shared Value (CSV) has been linked to “reinventing capitalism”.

In their 2006 HBR article, “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility,” Kramer and Porter introduced CSV as the mutual dependence of corporations and society, implying that both business decisions and social policies must benefit both sides.  The first step is to identify the points of intersection through mapping the social impact of the value chain.  Companies are encouraged to address social issues which also create value and competitiveness for their business.  By creating a corporate social agenda, companies can reinforce corporate strategy by advancing social conditions.

Kramer and Porter argue that current CSR agendas are often fragmented, reactive and lack measurement of social impact beyond the voice of corporate stakeholders.  They say, “the most important thing a corporation can do for society, and for any community, is contribute to a prosperous economy,” while thinking in terms of “corporate social integration” over CSR.

In their most recent article on CSV, they talk about “how to reinvent capitalism and unleash a wave of innovation and growth” and levy several arguments against the current capitalist system:

  • Businesses are becoming viewed as a major source of social, environmental, and economic problems.
  • Political leaders set policies that undermine competitiveness and sap economic growth.
  • Companies continue to operate in an outdated fashion which views value creation narrowly while optimizing short-term performance.

The authors propose that companies must take the lead in bringing business and society back together in a way which creates sustained, shared value.  They make a case that shared value is not about personal values or sharing the value already created by the firms (e.g., through a philanthropic effort), but is rather about expanding the total pool of economic and social value.  This interdependence of business and society is the cornerstone of shared value.

There are three key ways that Kramer and Porter suggest companies can create shared value opportunities.

1.     Reconceiving products and markets.  Instead of businesses looking to create demand for a product, the authors challenge them to identify a fundamental societal need which their products might serve.  Businesses will often be far more effective than governments and nonprofits are at marketing that motivates customers to embrace products and services that create societal benefits.  The hope is that this will lead companies to discover new opportunities for differentiation, repositioning, and new markets.

2.    Redefining productivity in the value chain.  Considerations in the value chain that increase shared value include the evaluation of energy use and logistics, resource use, procurement, distribution, employee productivity, and location.

3.    Enabling local cluster development. Productivity, innovation and competitiveness are strongly influenced by “clusters,” or geographic concentrations of supply chain partners, NGOs, associations and surrounding logistical infrastructure.

For example, those in a supply chain competing for corn and wheat might collaborate to find a solution to the recent rise in prices.  While farmers are unable to meet demand due to droughts and floods, supply chains could come together under the shared value lens to find other forms of livestock feed, or ways to re-cultivate otherwise unusable land.  This would require the collaborative and non self-fulfilling efforts of businesses, farmers/growers, NGOs and communities, but aim to establish long-term success and growth for all through new products, new customers and new value chains.

The authors strongly believe that shared value will become an integral part of a company’s profitability, competitive position and strategy.  Kramer and Porter suggest that shared value holds the key to unlocking the next wave of business innovation and growth, and it will reconnect company success and community success in ways that have been lost in an age of narrow management approaches, short-term thinking, and deepening divides among society’s institutions.

For some, CSV might be the next step.  But, for others, CSR might be the first.  While long established companies will likely be unable to change their entire strategic direction overnight, taking a first step towards engaging stakeholders and the broader community to define material issues and set measurable goals will be key to beginning to deeply root CSV principles into successful business and community initiatives.

— Katherine Kaminski