What is Shared Value – and why is it important for the future of business?
In a sea of business jargon, Shared Value can easily become just another confusing buzzword. However, it is important to understand this vital shift in business thinking and how it can be implemented into a future-proof business strategy for long-term gain. It’s about rethinking how we do business, and shifting to the new paradigm of profit with purpose.
Shared Value is a movement away from Corporate Social Responsibility (CSR) or Corporate Social Investment (CSI) programmes, in that companies who create Shared Value do so through the normal operation of their business, not as an (often short-term) add-on limited by budget. By the same token, it is also a different approach to corporate philanthropy. Shared Value realigns doing good with doing good business: making a profit is no longer at odds with making a better world. Embracing this approach is the key to long-term sustainability, enabling businesses to survive and thrive in a changing business climate.
So how can your company create Shared Value? It starts with an in-depth business analysis – and the commitment to a shift in strategic approach. Each business is different, and therefore has the opportunity to engage with Shared Value in a different way. According to Harvard Professor Michael Porter and Harvard Kennedy School of Government Senior Fellow Mark Kramer, who originated the term Creating Shared Value in 2006, companies can implement the Shared Value concept on three levels: reconceiving products and markets, redefining productivity in the value chain, and enabling local cluster development. These terms were explained in their seminal 2011 Harvard Business Review article and have been put into practice by businesses and multinational corporations around the world.
Reconceiving products and markets requires out-of-the-box thinking. This level of Shared Value is not only about creating marketable new products and services that address societal needs, but also about opening untapped markets by reconsidering and, if necessary, redesigning existing products to cater to unmet needs. Consider the case study of Unilever, who gained access to millions of people who could previously not afford their products by launching a new single-use sachet of many of their products in India. These smaller units provide rural Indians with access to products such as shampoo and laundry detergent at a price they can afford, improving hygiene and health – and boosting Unilever’s bottom line at the same time.
To redefine productivity in the value chain, a business must look inward and identify areas for improvement in their internal operations and supplier relationships. The value chain includes everything from human resources to marketing to procurement and logistics. By reassessing the way a company does business, operations can be streamlined, suppliers can be empowered and costs saved. For the InterContinental Hotels Group (IHG), a business assessment revealed that energy was one of the company’s biggest operational costs. Through their Green Engage programme, started in 2009, IHG began to systematically test and implement green energy solutions, such as leveraging solar power, to lower their energy cost and their environmental impact. The programme has been rolled out to over 1 900 of their hotels and has lowered operational costs by up to 25%.
Finally, enabling local cluster development entails creating a conducive environment for optimal business operations to take place by addressing societal needs around the business. This also includes developing and empowering elements of the supply chain in order to encourage stability while benefitting the local community. Nestle, for example, has implemented a rural development strategy to support and empower the farmers on whom they rely for much of their raw materials production. Having recognised that farmers earning a decent income and supported by a thriving community would produce more and better-quality produce, Nestle has committed to working directly with farmers across the world, providing them with training and support as well as engaging with their communities. This investment has resulted in higher yields of raw materials as well as a growing network of stable, productive suppliers.
It is clear that there is no one-size-fits-all approach to Shared Value. Instead, it requires a commitment to making a core strategic shift to structuring operations around addressing societal and environmental needs while maximising profitability. Shared Value is a new kind of capitalism, shifting the paradigm to profit with purpose. Companies in all fields must now recognise that they have the power to make positive change at scale, without compromising quality or revenue. In an ever more critical consumer environment, business needs to re-evaluate and adjust its strategy and operations in order to become sustainable and truly future-proof.