Creating Shared Value

There are many leaders in the business community that have recognised the importance of adapting in response to the drivers of change.  Richard Branson describes some examples of transformational change he has so far initiated and observed in his book Screw Business as Usual, which I am halfway through at the moment.  His motto goes 'doing good is good for business', which is the same theme I came across in this Harvard Business Review article Creating Shared Value.  It's quite long, so here's the main points:

The authors are concerned about the fact that the current state of the economy is resulting in a lot of mistrust in business (which they blame on an outdated approach to value creation) and they call on companies to take the lead to bring business and society back together.  "A business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment.  A community needs successful businesses to provide jobs and wealth creation opportunities for its citizens" and "Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face".

"The purpose of the corporation must be redefined as creating shared value, not just profit per se.  This will drive the next wave of innovation and productivity growth in the global economy.  It will also reshape capitalism and its relationship to society.  Perhaps, most important of all, learning how to create shared value is our best chance to legitimize business again."  

They define shared value as "policies and operating practices that enhance the competitiveness of a company whilst simultaneously advancing the economic and social conditions in the communities in which it operates", a concept which blurs the line between for-profit and non-profit organisations, and is essentially a complicated way of explaining what makes social entrepreneurs get out of bed in the morning.  Essentially its a more meaningful revamp of the originally hollow 'corporate social responsibility'.  They claim that putting societal issues at its core will lead to the ability to tap into "overlooked opportunities to meet fundamental societal needs" since it is now obvious that "societal harms and weaknesses affect value chains".

"Companies can create economic value by creating societal value" via three distinct ways: by reconceiving products and markets (products that are good for customers as well as societies major needs are an untapped market), redefining productivity in the value chain (many externalities actually inflict internal costs), and building supportive industry clusters at the company's locations.

They identified the root cause of our issues to be "the traditional divide between economic concerns and social ones, people in the public and private sectors have often followed very different educational and career paths" and the authors recommend more holistic thinking and training in both camps so that this model can work.  "Business and society have been pitted against each other for too long ... economists have legitimized the idea that to provide societal benefits, companies must temper their economic success and ... solving social problems has been ceded to governments and NGOs."  

On governments and NGOs, the authors suggest a shift in thinking to view success more as 'results achieved' as opposed to 'funds and effort expended', and for the design of regulations to focus on enhancing shared value also; regulations that have features like: clear and measurable social goals, performance standards (without prescribing how to achieve these, yet with phase-in periods) and universal ways to measure and report on them, the provision of benchmarking data.  "Survival of the fittest would still prevail, but market competition would benefit society in ways we have lost".