Will Creating Shared Value (CSV) change the way things are done?
Creating Shared Value originates from an article penned by Harvard Professor Michael Porter and Harvard Kennedy School of Government Senior Fellow Mark Kramer. The authors presented the concept of CSV in a 2006 Harvard Business Review article, and detailed it further in a January 2011 follow-up article.
To read their article is a stunning experience. Is this really the same Porter that I and all of us who ever took any marketing or business strategy or leadership classes has come across with? The one, that created the “Five Forces” analysis model, to understand the competitiveness and attractiveness of an industry, the corporate strategy legend? Teaching us all how to create profits and the best competitive and marketing strategies?
Capitalism needs to be reinvented, they now claim in the article. The old doctrines are not valid any more, they say. Instead the companies are at the present “trapped in an outdate approach to value creation”, Porter and Kramer say.
What does the term “creating shared value” then mean? Ultimately, it’s a strategy for developing the future market while also strengthening economies, the marketplace, communities, and corporate coffers. But the term runs the risk of being confused with the phrase “corporate social responsibility (CSR)” or, worse, with the idea of redistributing wealth. as James Epstein-Reeves argued in his CRS blog of Forbes (6/04/12)
Looking through the lens of shared value
Corporate responsibility programs- a reaction to external pressures- have emerged largely to improve firms’ reputations and are treated as a necessary expense, Porter and Keller claim. The concept of shared value, in contrast, recognizes that societal needs, not just conventional economic need, define markets. It focuses on improving growing techniques and strengthening the ecological cluster of supporting suppliers and other institutions in order to increase the locals produces efficiency, yields, product quality, and sustainability, in contracts to ‘fair trade’ only giving them higher price for the same crops.
Looking through the lens of this kind of shared value, will lead to new approaches, that generate greater innovation and growth for companies – and also greater benefits for the society, Porter and Keller claim. Companies can create economic value by creating societal value.
However as already pointed out, this new concept is really easy to confuse with CSR. Secondly the notion of SVC bringing in “automatically” innovative thinking and new solutions that will “automatically” bring in value for the society as a whole and exceeded revenues for the company is a strong statement to say the least. At this point in time where resources are scares and companies are fighting with cutting the costs, any extra innovation proposals might be hard to get through, no matter how good it looks from the society’s viewpoint.
Why wasn’t capitalism innovating successfully?
Henry Ford’s assembly line production system, while game-changing in its time, no longer serves ours has been realized now over and over again. Unprecedented access to knowledge, science, technology, information and instant communication open people’s minds to new possibilities and speed the rate of change around the globe as never before.
Symptoms of the old archetype’s disintegration are all around us: economic bubbles bursting industry-wide; unemployment, fear and famine growing; dictators toppled by social-media-led popular movements; the gap between rich and poor widening, just to name a few. While these unnerving dislocations appear chaotic, they are all symptoms that the old archetype is failing. Government, charity and business models are stuck, the old rules and patterns no longer working. They beg for a new framework to emerge that makes sense for the future.
Narrow focus on short-term profits has dominated business management for the past 40 years. Economists and management consultants have been teaching business leaders to maximize shareholder satisfaction as the best solution for wealth creation not hampered by saturated markets.
Transforming the hearts and minds of people
Instead of this traditional view, Porter sees shared value thinking providing new catalysts for global economic growth and the next wave of innovation and productivity in the global economy. It is when “businesses acting as businesses, not as charitable givers”, says Porter, that they “are arguably the most powerful force for addressing many pressing issues facing our society.” But however this is not the traditional CRS view that many people are even beginning to see as outdated.
corporate involvement story That means that seeing ‘making good for the society’ or ‘causing no harm’ and the seeing that CSR is only an expense is outdated. But how to create a business philosophy and a business model that actually is working according to the new business principles of shared value or shared Innovations as some have put it.
We have seen decades of talk about CSR and have had great R&D&I departments, but still not so many that have been able to change their business model and the way they really do things. Seeing CSR as an expense has been a problem. But even great examples like Interface, whose CEO has been passionately leading the company to a more sustainable way of being, say that they are only in half way of becoming sustainable. How about an even greater change that being socially responsible would then successfully take place? At least in any short time span?
It must mean that every department and every worker has to change, or the whole society needs to change. But most of all the thinking, that doing short term profits to benefit the shareholders is the only valid way. Like Porter put it, the productivity in the value chain has to be redefined. There has to be a change in the minds and hearts of the people, not only inside corporations, but also NGO’s and governmental organizations to start connecting in a new way and mindset. Surely many innovations are bound to happen, but how long it will take before things have really changed, that is yet to be seen.