Shared Value is a business strategy concept introduced by Harvard Prof. Michael Porter that focuses on creating economic value while also addressing social and environmental needs. E.g. How companies create shared value in three ways: 1. The company is working on this initiative with local governments and support from the Norwegian government. Or for our customers customers? How else could companies think that simply shifting activities to locations with ever lower wages was a sustainable solution to competitive challenges? However, companies have overlooked opportunities to meet fundamental societal needs and misunderstood how societal harms and weaknesses affect value chains. The presumed trade-offs between economic efficiency and social progress have been institutionalized in decades of policy choices. Shared value was created. The concept of shared value resets the boundaries of capitalism. Today attention is riveted on India, China, and increasingly, Brazil, which offer firms the prospect of reaching billions of new customers at the bottom of the pyramida notion persuasively articulated by C.K. This has obscured the connections between economic and social concerns. It has taken a decade, but GEs Ecomagination initiative, for example, is now producing a stream of fast-growing products and services across the company. The Bill & Melinda Gates Foundation, for example, has formed partnerships with leading global corporations to foster agricultural clusters in developing countries. Creating shared value (CSV) is a concept developed by Michael E. Porter and Mark R. Kramer in 2011 focusing on the relationships between economic and societal progress. Creating Shared Value (CSV) and Corporate Social Responsibility (CSR) are not one and the same thing . A shared value lens can be applied to every major company decision. It will also become an integral part of strategy. A companys value chain inevitably affectsand is affected bynumerous societal issues, such as natural resource and water use, health and safety, working conditions, and equal treatment in the workplace. The moment for an expanded view of value creation has come. This is a good example of how the unique ability of business to market to hard-to-reach consumers can benefit society by getting life-altering products into the hands of people that need them. The use of energy throughout the value chain is being reexamined, whether it be in processes, transportation, buildings, supply chains, distribution channels, or support services. 2014; de . Arguably, they are the greatest unmet needs in the global economy. CSR is about responsibility; CSV is about creating value. Outsourcing to other locations and countries creates transaction costs and inefficiencies that can offset lower wage and input costs. A shared value perspective, instead, focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers efficiency, yields, product quality, and sustainability. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a social responsibility mind-set in which societal issues are at the periphery, not the core. The right kind of government regulation can encourage companies to pursue shared value; the wrong kind works against it and even makes trade-offs between economic and social goals inevitable. A good example of this difference in perspective is the fair trade movement in purchasing. Creating shared value (CSV) should supersede corporate social responsibility (CSR) in guiding the investments of companies in their communities. However, the term 'creating shared value' was formally defined 5 years later as the 'policies and practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in the communities in which it operates' (Porter & Kramer, 2011, p. 6). Companies are widely thought to be prospering at the expense of their communities. A key aspect of cluster building in developing and developed countries alike is the formation of open and transparent markets. Major U.S. banks, in contrast, promoted unsustainable financing vehicles that turned out to be socially and economically devastating, while claiming they were socially responsible because they had charitable contribution programs. Governments, for their part, have often regulated in a way that makes shared value more difficult to achieve. In the process, Nestls productivity improved. Business thinking has embraced the myth that location no longer matters, because logistics are inexpensive, information flows rapidly, and markets are global. Harvard Business Review: Creating shared value. Could our new plant be constructed in a way that achieves greater community impact? Meanwhile, Nestls reliable supply of good coffee grew significantly. Now he is thinking deeply about the intersection between society and corporate interests. In the old, narrow view of capitalism, business contributes to society by making a profit, which supports employment, wages, purchases, investments, and taxes. Creating Shared Value (CSV) is a new business strategy concept . This article critiques Porter and Kramer's concept of creating shared value. This next evolution in the capitalist model recognizes new and better ways to develop products, serve markets, and build productive enterprises. Porter argues that companies that focus on creating value will be more . The firm gains competitive advantage from how it configures the value chain, or the set of activities involved in creating, producing, selling, delivering, and supporting its products or services. Survival of the fittest would still prevail, but market competition would benefit society in ways we have lost. The Creating Shared Value (CSV) concept focuses on "policies and operating practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in the communities in which it operates" (Porter and Kramer 2011, p. 6).Its authors, Porter and Kramer, suggest that social needs, similar to more traditional market needs, define markets and create . Porter is well-known for his shared value approach which emphasises that companies should strive to create value for all stakeholders, including customers, employees, suppliers, and society as a whole. Firms can do this in three distinct ways: by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the companys locations. Could our product design incorporate greater social benefits? In inefficient or monopolized markets where workers are exploited, where suppliers do not receive fair prices, and where price transparency is lacking, productivity suffers. Today there is a growing consensus that major improvements in environmental performance can often be achieved with better technology at nominal incremental cost and can even yield net cost savings through enhanced resource utilization, process efficiency, and quality. Deficiencies in the framework conditions surrounding the cluster also create internal costs for firms. It set out to build agricultural, technical, financial, and logistical firms and capabilities in each coffee region, to further support efficiency and high-quality local production. As other social institutions appeared on the scene, however, these roles fell away or were delegated. Porter and Kramer have defined Creating Shared Value as: Shared value is defining a whole new set of best practices that all companies must embrace. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again. Read reviews and buy Hbr's 10 Must Reads on Strategy, Vol. Capitalism is suffering from a crisis of trust. The traditional approach has been to run your business and think about its social impact as a separate set of considerations. A positive cycle of economic and social development results. Eventually, some five yearsaftertheirinitial formulation, the fullyrealized elaboration of sharedvalue was set out by Porter and Kramer in the cover article of the January/February 2011 issue Many companies, for example, traditionally sought to minimize the cost of expensive employee health care coverage or even eliminate health coverage altogether. Companies are beginning to reexamine distribution practices from a shared value perspective. A community needs successful businesses to provide jobs and wealth creation opportunities for its citizens. The opportunities to create shared value are widespread and growing. In 2006, Porter and Kramer developed the notion that corporations could and should pursue a higher goal of capitalism including "creating shared value" (CSV) as a means to improve . But efforts to enhance infrastructure and institutions in a region often require collective action, as the Nestl, Yara, and Research Triangle examples show. web hbr s 10 must reads on strategy vol 2 with bonus article creating shared value by michael e porter and mark r kramer by harvard business review michael e porter As suppliers get stronger, their environmental impact often falls dramatically, which further improves their efficiency. Yara is tackling this problem through a $60 million investment in a program to improve ports and roads, which is designed to create agricultural growth corridors in Mozambique and Tanzania. Thus, society must impose taxes, regulations, and penalties so that firms internalize these externalitiesa belief influencing many government policy decisions. By better connecting companies success with societal improvement, it opens up many ways to serve new needs, gain efficiency, create differentiation, and expand markets. A focus on clusters and location has been all but absent in management thinking. It introduced the concept of "shared value" as a link between a corporation's business strategy and social responsibility. The societal benefits of providing appropriate products to lower-income and disadvantaged consumers can be profound, while the profits for companies can be substantial. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. When a firm builds clusters in its key locations, it also amplifies the connection between its success and its communities success. What matters is that benefits are delivered by those organizationsor combinations of organizationsthat are best positioned to achieve the most impact for the least cost. Regulations that enhance shared value set goals and stimulate innovation. The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. It also worked in partnership with the Rainforest Alliance , a leading international NGO, to teach farmers more-sustainable practices that make production volumes more reliable. Companies should try to enlist partners to share the cost, win support, and assemble the right skills. Michael Porter suggests creating shared value (CSV) to solve societal challenges while expanding economic value. No company is self-contained. A shared value approach reconnects company success with social progress. For example, low-priced cell phones that provide mobile banking services are helping the poor save money securely and transforming the ability of small farmers to produce and market their crops. Study with Quizlet and memorize flashcards containing terms like Which statement sums up Michael Porter's view on the importance of creating shared value?, CSR is least concerned with improving, As seen through Instrumental view of CSR, those skeptical of CSR compliance claim and more. As governments and NGOs begin to think more in value terms, their interest in collaborating with business will inevitably grow. . Discover the latest work on Shared Value Measurement and Investment. For example, the efficient use and stewardship of all forms of resources will define the next-generation thinking on value chains. It has discovered that the savings on transportation costs and the ability to restock in smaller quantities more than offset the lower prices of industrial farms farther away. This motivates and enables continual improvement beyond current targets. In each of the areas in the exhibit, a deeper understanding of productivity and a growing awareness of the fallacy of short-term cost reductions (which often actually lower productivity or make it unsustainable) are giving rise to new approaches. In it, they outline the interdependence of companies and their social and ecological environment. For example, Hindustan Unilever is creating a new direct-to-home distribution system, run by underprivileged female entrepreneurs, in Indian villages of fewer than 2,000 people. Productivity and innovation are strongly influenced by clusters, or geographic concentrations of firms, related businesses, suppliers, service providers, and logistical infrastructure in a particular fieldsuch as IT in Silicon Valley, cut flowers in Kenya, and diamond cutting in Surat, India. It mandates a particular approach to meeting a standardblocking innovation and almost always inflicting cost on companies. It forces compliance with particular practices, rather than focusing on measurable social improvement. Though this may be a noble sentiment, fair trade is mostly about redistribution rather than expanding the overall amount of value created. This thinking represents a new way of understanding customers, productivity, and the external influences on corporate success. Today's businesses take the blame for many of society's economic, social and environmental woes, despite the launch of countless corporate social responsibility initiatives in recent decades. Yet these countries have always had huge needs, as do many developing countries. Current cases include Discovery Limited, Dow, and more. We frame our research in postcolonial theory and offer . The success of every company is affected by the supporting companies and infrastructure around it. The opportunity to create economic value through creating societal value will be one of the most powerful forces driving growth in the global economy. If labor unions focused more on shared value, too, these kinds of employee approaches would spread even faster. These outsiders have been able to see the opportunities more clearly. Successful collaboration will be data driven, clearly linked to defined outcomes, well connected to the goals of all stakeholders, and tracked with clear metrics. As a result, few managers have the understanding of social and environmental issues required to move beyond todays CSR approaches, and few social sector leaders have the managerial training and entrepreneurial mind-set needed to design and implement shared value models. Shared value can affect strategy at three mutually reinforcing levels: (1) creating new products that address emerging social needs or open currently unserved customer segments; (2) enhancing . It is not on the margin of what companies do but at the center. NOVATEK's corporate purpose is to create sustainable value for all its stakeholders, along its entire value chain. In contrast, CSV is integral to a companys profitability and competitive position. Even worse, the more business has begun to embrace corporate responsibility, the more it has been blamed for societys failures. Second, they set performance standards but do not prescribe the methods to achieve themthose are left to companies. CSVCreating Shared ValueCSR CSV CSR CSRCorporate Social Responsibility CSRCSV CSV Companies will make real strides on the environment, for example, when they treat it as a productivity driver rather than a feel-good response to external pressure. Fair trade aims to increase the proportion of revenue that goes to poor farmers by paying them higher prices for the same crops. The following are some of the most important ways in which shared value thinking is transforming the value chain, which are not independent but often mutually reinforcing. These trends may well lead companies to remake their value chains by moving some activities closer to home and having fewer major production locations. Seeded with capital from the Lions Club and the United Nations Development Programme, the company improves health conditions while earning a substantial gross margin through fertilizer sales and carbon credits. (This is the argument advanced persuasively by Milton Friedman in his critique of the whole notion of corporate social responsibility.). Solving social problems has been ceded to governments and to NGOs. In this kind of competition, the communities in which companies operate perceive little benefit even as profits rise. Instead, they perceive that profits come at their expense, an impression that has become even stronger in the current economic recovery, in which rising earnings have done little to offset high unemployment, local business distress, and severe pressures on community services. Unilever provides microcredit and training and now has more than 45,000 entrepreneurs covering some 100,000 villages across 15 Indian states. Project Shakti , as this distribution system is called, benefits communities not only by giving women skills that often double their household income but also by reducing the spread of communicable diseases through increased access to hygiene products. As understood, attainment does not suggest that you have extraordinary points. If sites are comparable economically, at which one will the local community benefit the most? This diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth. Excess packaging of products and greenhouse gases are not just costly to the environment but costly to the business. In the process, businesses can earn the respect of society again. By increasing access to inputs, sharing technology, and providing financing, companies can improve supplier quality and productivity while ensuring access to growing volume. 2. A big part of the problem lies with companies themselves, which remain trapped in an outdated approach to value creation that has emerged over the past few decades. Today, the challenge for corporations who practice CSR is to follow Michael Porter and Mark Kramer's principle of shared value (the two described the concept in a Harvard Business Review piece . A good example of such new procurement thinking can be found at Nespresso, one of Nestls fastest-growing divisions, which has enjoyed annual growth of 30% since 2000. Obtaining a reliable supply of specialized coffees is extremely challenging, however. Shared value was created. The best companies once took on a broad range of roles in meeting the needs of workers, communities, and supporting businesses. Shared value creation focuses on identifying and expanding the connections between societal and economic progress. by Michael E. Porter and Mark R. Kramer From the Magazine (January-February 2011) Summary. Sustaining Superior Performance Michael E Porter what is competitive advantage and why is it important - Sep 10 2022 . In fact, Creating Shared Value is one of the few new innovative strategy ideas from the last 10 years to help you build a sustainable competitive advantage. Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face. It also recognizes that social harms or weaknesses frequently create internal costs for firmssuch as wasted energy or raw materials, costly accidents, and the need for remedial training to compensate for inadequacies in education. Better resource utilizationenabled by improving technologywill permeate all parts of the value chain and will spread to suppliers and channels. Realizing it will require leaders and managers to develop new skills and knowledgesuch as a far deeper appreciation of societal needs, a greater understanding of the true bases of company productivity, and the ability to collaborate across profit/nonprofit boundaries. Shared value creation will involve new and heightened forms of collaboration. However, businesses have rarely approached societal issues from a value perspective but have treated them as peripheral matters. Read Creating Shared Value in Harvard Business Review Developed by Creating Shared Value authors Michael E. Porter and Mark R. Kramer, the program will show you how to move beyond corporate social responsibility and sustainability reports and shift your company's strategy to create positive social impact in ways that also drive business success. Opportunities for new distribution models can be even greater in nontraditional markets. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. And addressing societal harms and constraints does not necessarily raise costs for firms, because they can innovate through using new technologies, operating methods, and management approachesand as a result, increase their productivity and expand their markets. Meeting needs in underserved markets often requires redesigned products or different distribution methods. Regulation is necessary for well-functioning markets, something that became abundantly clear during the recent financial crisis. Finding ways to boost productivity is equally valuable whether in the service of commercial or societal objectives. Capitalism is an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth. What is shared value? Conducting business as usual is sufficient social benefit. This was recognized by the Mexican construction company Urbi, which pioneered a mortgage-financing rent-to-own plan. Why else would companies ignore the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of suppliers, and the economic distress of the communities in which they produce and sell? It was not always this way. By helping employees stop smoking (a two-thirds reduction in the past 15 years) and implementing numerous other wellness programs, the company has saved $250 million on health care costs, a return of $2.71 for every dollar spent on wellness from 2002 to 2008. Society benefits because employees and their families become healthier, and the firm minimizes employee absences and lost productivity. competition harvard business review 2008 and creating shared value harvard business review jan 2011 no part of this publication may be reproduced stored in a retrieval system or Creating Shared Value By: Michael E. Porter, Mark R. Kramer The capitalist system is under siege. In advanced economies, demand for products and services that meet societal needs is rapidly growing. Business and society have been pitted against each other for too long. The purpose of the corporation must be redefined as creating shared value, not just profit per se. The capitalist system is under siege. Similarly, microfinance has created a cost-efficient new model of distributing financial services to small businesses. Yara realized that the lack of logistical infrastructure in many parts of Africa was preventing farmers from gaining efficient access to fertilizers and other essential agricultural inputs, and from transporting their crops efficiently to market. Poor public education imposes productivity and remedial-training costs. Recently business has been criticized as a major cause of social, environmental, and economic problems. Our field of vision has simply been too narrow. CSV merupakan pengembangan dari konsep tanggung jawab sosial perusahaan ( Corporate social responsibility, CSR). 2 (with Bonus Article Creating Shared Value by Michael E. Porter and Mark R. Kramer) - (HBR's 10 Must Reads) at Target. Creating Shared Value Capitalism is suffering from a crisis of trust. fundamental critique thomas beschorner and thomas hajduk abstract this article Skip to document Ask an Expert The concept of shared value, in contrast, recognizes that societal needs, not just conventional economic needs, define markets. To be sure, companies locked into the old mind-set will resist even well-constructed regulation. The graphic below depicts some areas where the connections are strongest. These transformations drove major progress in economic efficiency. The result is a positive cycle of company and community prosperity, which leads to profits that endure. Creating Shared Value In the 2011 HBR article "Creating Shared Value," Michael Porter and Mark Kramer argued that companies can move beyond corporate social responsibility and gain. A good example of a company working to improve framework conditions in its cluster is Yara, the worlds largest mineral fertilizer company. Become a TED Member to help us inspire millions of minds with powerful ideas. But by opening local processing plants and training workers in Tanzania, Mozambique, Nigeria, and Cte dIvoire, Olam has cut processing and shipping costs by as much as 25%not to mention, greatly reduced carbon emissions. Firms focused on enticing consumers to buy more and more of their products. The cycle of imitation and zero-sum competition can be broken. Food companies that traditionally concentrated on taste and quantity to drive more and more consumption are refocusing on the fundamental need for better nutrition. Michael E. Porter wrote the books on modern competitive strategy for business. This is just one of the solutions for you to be successful. The blurring of the boundary between successful for-profits and nonprofits is one of the strong signs that creating shared value is possible. In neoclassical thinking, a requirement for social improvementsuch as safety or hiring the disabledimposes a constraint on the corporation. The concept rests on the premise that both economic and social progress must be addressed using value principles. This perspective has also shaped the strategies of firms themselves, which have largely excluded social and environmental considerations from their economic thinking. Value is defined as benefits relative to costs, not just benefits alone. Here, companies will be less successful if they attempt to tackle societal problems on their own, especially those involving cluster development. Creating Shared Value originates from an article penned by Harvard Professor Michael Porter and Harvard Kennedy School of Government Senior Fellow Mark Kramer . In his introduction of Michael Porter at the event Creating Shared Value: business must compete to change the world, which took place in Rotterdam last May, Pursey Heugens, RSM professor of organisation theory, development, and change said: 'Michael has been able to continuously reinvent himself, investing in the conceptual tools and global measurement strategies that have made his ideas . Shared Value Project Hong Kong is a non-profit membership organisation funded by leading corporations to act as a catalyst for Shared Value in the Greater Bay Area. Without a supporting cluster, conversely, productivity suffers. Creating Shared Value is the title of an award-winning 2011 article in the Harvard Business Review, by Prof. Michael Porter and Mark Kramer. 3. At a very basic level, the competitiveness of a company and the health of the communities around it are closely intertwined. As iTunes, Kindle, and Google Scholar (which offers texts of scholarly literature online) demonstrate, profitable new distribution models can also dramatically reduce paper and plastic usage. It leverages the unique resources and expertise of the company to create economic value by creating social value. Harvard professor Michael Porter and Mark R. Kramer argue that the capitalist system is, under siege. The ideas drawn from "Creating Shared Value" (Harvard Business Review, Jan 2011) and "Competing by Saving Lives" (FSG, 2012).No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any meanselectronic, mechanical, photocopying, Enhancing the cluster, for example, will enable more local procurement and less dispersed supply chains. Business is caught in a vicious circle. We need a more sophisticated form of capitalism, one imbued with a social purpose. 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