Creating Shared Value – A New Way of Doing Business?
Consumers are no longer blindly accepting what they hear in the media to make brand-based purchases. They want to know how your company is generating positive change as a core part of its services or products. Creating shared value is the new management system that is helping driving a different kind of business – what is it and how does it work?
Introducing creating shared value
Creating shared value is about creating new policies and operating procedures that allow your company to maximise its revenues, whilst also offering benefits that add to the local community. It was devised in an article first published in the Harvard Business Review by Professor Michael Porter and Mark Kramer in 2011.
For instance, a company that removes old chemicals from a lake for repurposing and selling is benefiting the community by cleaning the environment, whilst making money. In essence, this is a management strategy designed to increase business value whilst transforming social and environmental implications of processes and operations.
Why should UK businesses care about CSV? As we move into a more environmentally conscious age and start recognising the effects of long working hours and corporate policy on family life, we are becoming more aware of how these factors are linked. By adopting CSV strategies the business can strengthen local economies, helping create a more motivated and educated pool of potential workers and improve their public profile.
Corporate Social Responsibility vs CSV
Creating shared value is a relatively new concept and it’s not the same as corporate social responsibility – although the two are often confused. The big difference is that CSV is all about maximising profit and still putting business opportunities and growth at the front and centre of the picture, whereas corporate responsibility is about looking at the business impact on the local community and environment.
How to create shared value
According to the original article by Porter and Kramer there are 3 ways that businesses can create shared value. These are as follows:
- Reconceiving products and markets – developing profitable products and services that meet the needs of the company’s customer base whilst fulfilling social issues and improving local communities or reducing environmental impact.
- Redefining productivity in the value chain – identifying and successfully addressing social and environmental problems associated with your industry whilst increasing the productivity of your company and boosting the revenues and operational capacity of your suppliers.
- Knowledge sharing and support – helping local competitors in your sector created shared value by discussing how different management strategies have benefitted your company and the community.
One good example of creating shared value is Travelsphere. This company focuses on providing holidays for visually impaired travellers. Good revenues and profits are made by the business embracing this niche sales opportunity, which also helps raise the quality of life of its customers who would find normal holidays and package opportunities prohibitive.
A competitive edge
The benefits of creating shared value to the wider community and environment are obvious, but what are some of the secondary benefits, other than an increase in profitability, for companies?
- Your business becomes your marketing – people understand immediately how your services or products benefit the community. It becomes obvious to your audience how your company can help them and resolve issues on the local stage.
- Goes beyond gestures – often the actions created by corporate social responsibility policies were considered to be publicity stunts for attention. Creating shared value goes a level deeper, actually linking the delivery of services and products with clearly defined benefits. This is on-going PR rather than relying on big moment messaging.
- Not just donation – rather than simply adopting processes and practices that may be contrary to good living and then redistributing the profits to charities, businesses are spearheading changes in their local community. And when people see the change on their doorstep, they are likely to become passionate advocates.
Who is doing CSV well?
Here are three businesses you may recognise that are currently succeeding in creating shared value:
- Merck – this huge company took on the vital task of developing an Ebola vaccine in connection with the Canadian government in 2014. Then when the virus broke in the Democratic Republic of the Congo in early 2018 the company was poised to send over vaccines for 3,330 people preventing the disease from turning into a potential epidemic.
- Inditex – with third world sweatshops becoming an increasingly hot topic in the news, Zara’s parent company Inditex decided that enough was enough and made a concerted effort to stop using employers with poor safety records. As a result, more consumers are now happy to buy through Zara, increasing sales by 7% between 2012 and 2018. The company now plans to help workers recognise gender discrimination.
- PayPal – with the world increasingly becoming more connected PayPal is looking to become the first truly global banking facility. To help this process the business has loaned more than $5Bn to enterprises on the world stage who are permitted to pay back the money straight out of their PayPal sales.
Many business experts predict that creating shared value will become a key factor in business success in the next 20-30 years. With more consumers now becoming aware of the behaviour of companies and the increased broadcast media space of the internet now reporting on all kinds of stories, it is imperative that you demonstrate how your business is changing the world for the better.
Branding and consumer identification are becoming less effective. With more people thinking about the future of the world, companies must consider what role they want to play in assuring us of a better tomorrow.