by Terence Jeyaretnam
Harvard University Professor Michael E. Porter is best known for his work on competition and company strategy and is the most cited author in business and economics. As one of the best known strategic thinkers of our time, Porter, along with Mark R. Kramer, Senior Fellow at the Harvard Kennedy School of Government proposed a new approach to capitalism in 2011, during the global financial crisis. Their Harvard Business Review article in 2011 titled Creating Shared Value: How to reinvent capitalism – and unleash a wave of innovation and growth notes that “in recent years business increasingly has been viewed as a major cause of social, environmental and economic problems. Companies are widely perceived to be prospering at the expense of the broader community”. So, they suggest that business needs to re-purpose itself, moving from viewing value creating narrowly as short-term financial success, to focussing on broader customer needs and longer-term success factors that include the communities and environment within which they operate, and upon which they depend on to prosper.
Porter and Kramer describe shared value 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. Shared value creation focuses on identifying and expanding the connections between societal and economic progress’.
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.
In its simplest and purest form, creation of shared value is all around us. Just look at a tree – whether fruit-bearing or shade-giving, trees create value for the ecosystems that depend on them, and by so doing, grow and prosper themselves. Some of the champion species of shared value creation are even highly regarded by humans, such as bees, and earth worms. Bees, for example meet a social need, create value in their work and enable local clusters to develop through active contribution to local ecosystems through pollination.
Several companies are already leading ways to create shared value, with Nestlé being one of the first to produce its first public report on their performance in this growing field. Bringing the discussion to Australia with Net Balance, NAB and 3 Pillars Network, Mark Kramer will be at the Creation of Shared Value Forum in Melbourne on the 14th of November 2012
Terence Jeyaretnam is a Director of Net Balance (firstname.lastname@example.org),
one of the world’s leading sustainability advisory firms.
Terence is based in Melbourne.