Creating shared value
Creating shared value is a business concept first introduced in a 2006 Harvard Business Review article, Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility. The concept was further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society. Written by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark R. Kramer, of the Kennedy School at Harvard University and co-founder of FSG, the article provides insights and relevant examples of companies that have developed deep links between their business strategies and corporate social responsibility. Porter and Kramer define shared value 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", while a review published in 2021 defines the concept as "a strategic process through which corporations can turn social problems into business opportunities".
Menghwar and Daood conducted a comprehensive review published in the International Journal of Management Reviews ranked second best journal in the field of management in year 2022. In this article, they further refine three characteristics of creating shared value and define CSV as "a strategic process through which corporations can solve a social problem which is relevant to its value chain while making economic profits".
The central premise behind creating shared value is that the competitiveness of a company and the health of the communities around it are mutually dependent. Supporters argue that recognizing and capitalizing on these connections between societal and economic progress has the power to unleash the next wave of global growth and to redefine, or even rescue, capitalism.
[|Critics], on the other hand, argue that "Porter and Kramer basically tell the old story of economic rationality as the one and only tool of smart management, with faith in innovation and growth, and they celebrate a capitalism that now needs to adjust a little bit". One critic regards the CSV concept as a "one-trick pony approach", with little chance that an increasingly critical civil society will buy into such a story.
In 2012, Kramer and Porter, with the help of the global not-for-profit advisory firm FSG, founded the [|Shared Value Initiative] to enhance knowledge sharing and practice surrounding creating shared value globally.
Mechanism
Companies can create shared value opportunities in three ways:- 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, for example, they need reliable local suppliers, a functioning infrastructure of roads and telecommunications, access to talent, and an effective and predictable legal system
Ecological accounting challenges
A significant challenge of CSV resides in accounting for ecological values and costs that are generated within the realm of agricultural production. Up to 90% of the ecological footprint in food processing can be attributed to land management activities outside the control of corporations. An eco commerce model that accounts for ecosystem services at the production unit level allows "shared value" to emanate from the production unit outward. Centering the shared value at the farm level allows for utilities, biomass processors, food processors, environmental liability insurers, landlords, and governments to participate in the shared value process. This ecocommerce shared value process accounts for and includes positive externalities within the economic system.Comparison with corporate social responsibility
differs from Creating Shared Value, although they share the same ground of "doing well by doing good". Mark Kramer, the co-writer of Harvard Business Review article on Creating Shared Value, states in his "Creating Shared Value" blog that the major difference is CSR is about responsibility, whereas CSV is about creating value. Whether it is an extended "new form of CSR" or "shared value", CSV is fundamentally different from the CSR activities of the past.In a 2013 for the Huffington Post World Economic Forum, Porter said shared value is a logical progression from CSR because incomes are raised for everyone, not through charity and by being a "good corporate citizen", but by "being a better capitalist – it's a win-win".
CSV is a transition and expansion from the concept of CSR. Business responsibility has evolved from Traditional CSR 1.0, Transformative CSR 2.0 and to CSR 3.0 what is similar to CSV. Such development of stages by redefining CSR has laid theoretical foundations for companies and society to sustainably and communally overcome societal issues. As capitalism matures, it is companies' duties to break itself out of the traditional CSR by realizing its limitations and try to restructure and pursue new market strategies that value both economic and societal development.
The CSV concept supersedes CSR for it is a way for corporations to sustain in the competitive capitalistic market. Whereas CSR focuses on reputation with placing value in doing good by societal pressure, it generates both economic and societal benefits relative to cost in real competition of maximizing the profits. Instead of being pushed by external factors, CSV is internally generated not confined to financial budget as CSR is. With the advent of CSV and following strong worldwide advocacy for it, companies started to overthink about their vision for their sustainable growth.
Critics, however, argue that Porter and Kramer seem to have "a very particular and limited understanding of CSR, one that neither reflects the academic debates of the past few decades nor captures most of today's CSR practices adequately. Instead of dealing with a contemporary understanding of CSR, corporate social responsibility seems to be used instead as a straw man to rhetorically justify the authors' contribution and its proclaimed originality."
Relational contracting and collaborative business models, including vested outsourcing, have incorporated Porter's and Kramer's shared value principles as the basis for implementing collaborative relationships that creates, shares and expands value for parties in a business or outsourcing relationship.
Academic literature
Origins and development of shared value
A literature review was conducted into the important early work of 'shared value'. Researchers found some literature focusing on the development of shared value by Porter and Kramer with most work coming from few sources like the Monitor Group.More extensively the literature is from development organisations focusing on case studies into the interrelated area of business ventures at the bottom of the pyramid or inclusive business strategies/models.
Outside these case studies, limited literature was found so the paper presented lessons learnt from shared value and interrelated business models to show how they developed and business strategies to engage with the bottom of the pyramid.
The term "shared value" is found in Porter and Kramer's article, "Strategy and society: the link between competitive advantage and corporate social responsibility" and was a development by Porter of previous thinking on business strategy. This article was the winner of the McKinsey Award for the best Harvard Business Review article in 2006.
From the Corporate Social Responsibility perspective, they observed companies could have worked harder reflecting flaws in CSR that business is pitted against society rather recognising their interdependence; and second, CSR is viewed in a generic sense rather than strategically.
To boost innovation and competitive advantage they say companies need to make CSR part of their core business strategy and researchers saw this as development of Porter's 1985 'Competitive Advantage' work where firms' activities were redefined through their value chains to boost competitive advantage through cost improvements or differentiation.
Their argument that shared value can do both contrasts with Milton Friedman's view that the social responsibility of business is to increase its profits.
Social value activities can overlap with traditional CSR. Efforts to promote sustainability through CSR may cut costs for the company and boost profitability, CSR and core business processes can become indistinguishable from one another, moving to what the authors' term "corporate social integration." By drawing attention to the way society impinges on business it provides justification for solving society's problems as a core business strategy.
Porter and Kramer "The Competitive Advantage of Corporate Philanthropy", seeks to address the tension of addressing the demand for greater levels of CSR with the demand for short term profits focusing on how a society's 'competitive context' impacts business arguing it is possible to see long term economic and social goals as connected.