Shared Value: reasons behind companies grow with society together
Abstract:
Today's
managers are highly expected that how efficiently they implement business
strategies to link the corporate goal with social issues to ensure that both
society and business benefit from those tactics and practices. Companies are
becoming very advanced to pursue shared value at different ways, but many of them
lack to obtain the shared value data and fail to measure it. If companies get
success to measure those data and insights they can grave the opportunity of
innovation, growth and profitability simultaneously development of society at a
scale. Companies which understand the importance of interdependency of business
growth and societal progress, they can take competitive advantage, increase
revenue and reduce cost. In contrast, Creating shared value does not have any
meaning to those companies, which have image problem or in declining stage. In
addition, it is not ensured that the
business make a decision with win-win position of society and business because
companies leaders highly influenced by business interest (profit). In corporate
world, shared value seems very effective strategy which benefit both society
and business; however, to stop unfair practices of companies to the society an
effective role of government cannot be
avoided.
As early 1960s a nebulous idea has been put forward by some
advocates of corporate social responsibility(CSR) which is that when the
company makes the business decisions that involves the social responsibilities,
because it improves the reputation and employee recruitment and retention (Salzmann,
Ionescu-somers and Steger, 2005). Before the 1980s companies were trying to
develop competitive advantages strategy for the higher profitability (Porter,
1980). Later, companies are integrating the social prospective into the core business frameworks that they use to understand
competitive business environment and develop business strategy accordingly (Michelini
and Fiorentino, 2012). Today, shared value is viewed an important integral part
of business: sharing value created is less powerful than creating shared value.
Traditional corporate social responsibility (CSR) includes the sharing of
economic value to the society. It typically means by giving back a small portion of the
earnings. However, creating shared value is creating positive social impact or
change simultaneously developing the sustainable sources of competitive
advantage to the business( Borgonovi, Meier, Sharda, and Vaidyanathan, 2011).
Shared value can be defined as policies, strategies, and
practices where; one the one hand, it
enhances the competitive power of the business; on the other hand, it solves
the societal and economic problems of the society. These policies and practices
or tactics links the societal progress and firm's economic benefits (Porter and
Kramer, 2011). Shared value is that value which connects the company's goal and
social issues. In another term creating shared value can be defined as
formulation of strong competitive strategies that directly links
with long term business progress and achievement (Hills, Russell and others,
2012). The main key of the companies to entertain with opportunities for shared
value is that identify the social needs at the core of business where social
needs, business competencies, and competitive advantage overlap (Kramer, 2012).
In recent years, the trade-off between the companies'
economic efficiency and social development have been institutionalized. GE, Google, IBM, Nestle and Johnson &
Johnson are presenting high attentions to create shared value (Porter and Kramer,
2011). Creation of Shared value is an unavoidable to attach in corporate culture as social mission which
link resources to the development of innovations from which social problems can
be solved (Pfitzer, Bockstette and Stamp, 2013). Therefore, corporate world's
managers are highly expected to develop the business plan and strategies that
deliver both social issues and shareholders' wealth maximization (Pfitzer,
Bockstette and Stamp, 2013).
To identify all the social needs that can be embodied in the firm's product is the starting
point of the companies for creating shared value (Porter and Kramer, 2011).
Where, economic value can be created by business companies with societal value
mainly in the three levels: by re-conceiving products and markets, redefining
productivity in the value chain, and building supportive industry clusters at
the companies locations (Porter and Kramer, 2011). First, re-conceiving
products and markets emphasizes on increased market share, upward revenue and better
profit margins from company's products
and services that also contribute
to environmental, social and economic development (Porter, Hills, Pfitzer,
Patscheke, and Hawkins, 2011). Similarly, shared value can be created from
redefining productivity in the value chain, where internal operation increases
the productivity and reduces the risk of the company. That can be achieved
through the investment in employees, improved job skills, increment in
employees income, and better resources utilization (Porter, Hills, Pfitzer, Patscheke,
and Hawkins, 2011). Third enabling local cluster development emphasizes on
development of external environment of the firm. The company invests to
community for infrastructure development, for local institutions, suppliers and
workforce in that way where company's
profitability and productivity are also enhanced. that also links the
productivity and profitability of the company. Where, company ensures the
secured supply, improved workforce access, and better distribution
infrastructure (Porter, Hills, Pfitzer, Patscheke, and Hawkins, 2011).
Those companies that can lead to social progress with a
stronger and profitable companies, which apply the most important major five
steps. First, reemphasize the firm's funding into social mission. Another point
is that recognize the importance of social needs, that should be addressed with
extensive research. Third, monitoring of both societal and business progress.
Similarly, another step is that creation of the optimal innovation structure,
and to engage external stakeholders in their efforts to understand the social
needs they were targeting. Finally, implement the set strategies into actions
(Pfitzer, Bockstette and Stamp, 2013).
Recent years, companies are pursuing the shared value, but they are
lacking to obtain the relevant data and measure the result to make it in
tangible form. In fact, measurement of shared value measurement produce data
and insights that can notify another
significant business opportunity. If the companies do not able to measure the
track of interdependency between social and business results and fail to
communicate to its investors, it may lose the various opportunities, for
example, chance of innovation, picking
of growth and positive and progressive impact to the society at a scale
(Porter, Hills, Pfitzer, Patscheke, and Hawkins, 2011). An effective shared
value measurement starts with the identification of key social issues and
develop the shared value strategy. The next step is to do research and analysis
and develop the solid business case, which shows how developments of the
society directly links with the increased business performance. Similarly, in
next step business compares the actual progress of business case to desired target.
This tracking helps to track the input and business activities according to
projection. The last step of shared value measurement focuses to accessing the
results, producing the useful date for
further action and insights to develop additional better shared value
strategies and their executions (Porter, Hills, Pfitzer, Patscheke, and
Hawkins, 2011). For the effective delivery of the shared value strategies, some
measurement tools should be used. Hence, measurement can ensure the right track
of the shared value execution through evaluation of obtained data (Hills, Russell and others,
2012).
Shared value is that value which is beneficial for both the
company and society; however, proper
government monitoring and regulations are required to avoid the pursuit exploitative, unfair, and shoddy business
practices. There should be proper regulations that must be regulated and
monitored by government to prevent to wrong doing by the business to society.
These regulations must highlight the societal objectives and highly encourage
businesses to make investment to the society to create shared value rather than
obtain only short-term benefits (Porter and Kramer, 2011).
1. Competitiveness:
Competitiveness of a company and the smoothness of a
society are interrelated. Companies wants to operate in a very healthy society
where they do not only create the demand for the product, but also supportive
contribution of public assets and manpower. On the other hand, society expects
from the corporate world where plenty of job vacancies and wealth creation opportunities (Porter and Kramer,
2012). Kramer also added that long-term success of the companies has the
direct connection with the social and economic conditions, education and
skills, safe and healthy working environment and continue availability of
natural resources (Asia News Monitor,2011 paragraph
2 ). By providing training to
low-income workers, improving productivity of small farm holders, creating new
medicines that is suitable for developing countries to address neglected
diseases, companies are improving millions of people and other part they are
also gaining competitive advantage(Hills, Russell and others, 2012).
2. Increase revenue/productivity:
Companies that pursue creating shared value improves
productivity while simultaneously reducing their environmental footprint
(Borgonovi, Meier, sharda, and Vaidyanathan, 2011). Friesland Campina, for
example, a dairy based company in
Vietnam has encouraged local economic development centered on social
needs which has resulted that business strengths in producing and processing
milk (Asia News Monitor,2011 paragraph 6 ).
Companies that pursue creating shared value develop the products targeting to
meet long term needs of the customer. Similarly, they expand new potential
market which were previously not operated (Hills, Russell and others, 2012). Intel's
education transformation strategy, for example, focuses on connection of
educational success with the application of the technology. It helps
educational system to decide that highly use of technology in school.
Therefore, there is high demand of technology in school and that results
increased Intel's business volume (Porter, Hills, Pfitzer, Patscheke, and
Hawkins, 2011).
3.Cost Reduction:
If a company lunch a social wellness program, what outcomes
can be obtained by the firm from this investment? Actually society benefits gaining
healthier families members (employees); similarly, company reduces employee
absenteeism and lost productivity (Porter and Kramer, 2011). Similarly, the
company's value chain is linked to natural resources, use of water, healthy and
safety working conditions, and job skills of workforce. Shared value evaluates
the cost of business practices during its operation which results the benefit
to the society and reduces the logistic and operating cost of the company (Porter,
Hills, Pfitzer, Patscheke, and Hawkins, 2011).
Criticism:
Porter and Kramer themselves points out that in
neoclassical thinking investing for the benefits to the society such as safety,
awareness programs, hiring disabled do not contribute to the profit
maximization. They are the subject of increasing the cost which is just
opposite of shareholders' goal (Porter and Kramer, 2011).Shared value cannot be
meaningful if the company has the image problem or company is in the declining
stage. Similarly, for shareholders capitalism, the shared value is still mired
(Denning, Steve, 2011). Creating shared value cannot be integrated into
company's operation in short term. It can take longer time than expected. It
also requires more energy, patience and tenacity (Bockstette and Stamp).
Creating shared value is not a novel idea, but is based on
corporate social responsibility. Similarly, while making the decision for
creating the share value, it is not
ensured that the decision makers make a decision with win-win situation between
society and business because many companies work according to self interest
(profit) rather than social interest (Crane,
Palazzo, Spence, Holloway, and Matten
2013).
Conclusion:
Those policies, practices, or strategies that connects the
societal development into firm's economic benefits is called shared value (Porter
and Kramer, 2011). Today, companies are trying to develop profitable strategies
by creating the shared value and delivering the
tangible social benefits (Porter, Hills, Pfitzer, Patscheke, and
Hawkins, 2011). If companies unable to explore interdependency between society
and business, they cannot take advantage for new creation, business expansion
and social impact at a scale (Porter, Hills, Pfitzer, Patscheke, and Hawkins,
2011). The trend of creating shared value in the corporate world is becoming
very common because today's business leaders are asked how they can effectively
implement the business tactics to solve the social issues where firm's
profitable interest also be ensured (Hills, Russell and others, 2012). Shared
value creates the win-win position of the business and society. In contrast,
the decisions may be taken by the companies for business interest focused only
rather than social benefit (Crane, Palazzo,
Spence, Holloway, and Matten 2013).
Similarly, shared value is meaningless in that company that has very poor image
or in declining stage (Denning, Steve, 2011). Shared value, in fact, identifies
the needs of the society and addresses the social issues; for example,
decrease the social harm, accidents, and other social weakness will result
reducing the medical cost, waste of time and energy. Hence, increasing the
expense (investment) to address the societal weakness and constraints do not
necessarily increase the internal cost of firms. Government should monitor and develop the
rules and regulations that stops to business community from doing wrong to
society; however, these regulations should encourage to the businesses to
invest to the society (Porter and Kramer, 2011).
In the context of developing countries, for example: in
Nepal, pursuing share value by business can
have greater impact for innovation, growth and social development. Companies
can lunch the innovative social goods, concern for the education and safety
awareness of local people, invest for infrastructure development, and use
resources efficiently. It results the opportunities for job placement, wealth
creation, infrastructure development, and overall prosperity of the local
community.
Thanks!
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