Shared Value
Concept and Definition
Shared value is a management strategy in which companies find business opportunities in social problems. While corporate social responsibility (CSR) focuses on reputation management through value added activities, shared value focuses on aligning the company's success with social progress. The concept was defined in the Harvard Business Review article "Creating Shared Value" (CSV) by Michael Porter and Mark Kramer. Porter is a professor at Harvard Business School and Kramer is the co-founder and managing director of FSG, a non-profit social impact consulting firm.
Origins and Development
The concept of shared value emerged from the observation that businesses and society had become disconnected. Businesses were seen as prospering at the expense of the broader community. In response, Porter and Kramer proposed the idea of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. They argued that businesses can achieve this by reconceiving products and markets, redefining productivity in the value chain, and enabling local cluster development.
Shared value is based on the idea that corporate success and social welfare are interdependent. A business needs a healthy, educated workforce, sustainable resources, and adept government to compete effectively. For society to thrive, profitable and competitive businesses must be developed and supported to create income, wealth, tax revenues, and opportunities for philanthropy.
There are three key ways that companies can create shared value opportunities:
- Reconceiving products and markets - Companies can meet social needs while better serving existing markets, accessing new ones, or lowering costs through innovation.
- Redefining productivity in the value chain - Companies can improve the quality, quantity, cost, and reliability of inputs and distribution while they simultaneously act as a steward for essential natural resources and drive economic and social development.
- Enabling local cluster development - Companies do not operate in isolation from their surroundings. To compete and thrive, they need reliable local suppliers, a functioning infrastructure of roads and telecommunications, access to talent, and an effective and predictable legal system.
While both shared value and corporate social responsibility (CSR) aim to achieve social benefits, they differ in their approach and impact. CSR is often seen as a cost, an obligation, and a constraint on business, while shared value is seen as a benefit, an opportunity, and a driver of innovation and growth. CSR programs focus mainly on reputation and have only a limited connection to the business, making them hard to justify and maintain over the long run. In contrast, shared value is integral to a company's profitability and competitive position, making it sustainable.
Many companies have successfully implemented shared value strategies. For example, the global food and beverage company Nestlé applies the concept of shared value across its entire value chain, from sourcing raw materials to reaching consumers with nutritious products. Another example is Intel, the technology company, which has invested heavily in education initiatives around the world, not as a philanthropic endeavor, but as a way to develop the skills and knowledge that will drive demand for its products.
Critiques and Challenges
While the concept of shared value has been widely accepted, it has also faced criticism. Some argue that it is just a repackaging of the triple bottom line concept, which considers social and environmental impact alongside financial performance. Others suggest that shared value overlooks the tensions between business needs and social development, and that it could be used as a smokescreen for business as usual.
The future of shared value lies in its integration into the core business strategies of companies. As businesses increasingly recognize the interconnectedness of their success and societal progress, shared value will become a key strategy for long-term success.