HBR Creating Shared Value

Let’s start at the beginning: what is ‘shared value’?

Michael Porter and Mark Kramer, in their Harvard Business Review publication “Creating Shared Value,” explain that creating shared value is not the same as corporate social responsibility, it doesn’t parallel cause marketing, and it is not to be confused with philanthropy and sustainability. But if Shared Value is not any of these things, then what is it?

Shared value, in its most simple terms, is a blueprint for how a company can increase its profits by re-examining how they perceive and structure their philanthropic commitment. Shared Value is not about Bass Pro writing a check for $100 to local fisherman because those fisherman had a bad year. It is about Bass Pro investing in the conservation of local waters, creating a more conducive environment for fish to thrive, allowing local fisherman to bring in a bigger catch year over year, thus creating more profits as these fisherman purchase more lures, rods, clothing, and accessories. The same amount of money, towards the same cause, but with a longer-term perspective and loftier aspirations.

Porter and Kramer offer three ways in which a company can create Shared Value. Let’s take the Bass Pro analogy to bring these points to life:

Preconceiving products and markets:

The question that companies should ask themselves is: “is our product good for our customers? Or… for our customer’s customers?” (Porter & Kramer) Is there a product that not only meets the consumer’s need, but at the same time, addresses a societal need that will benefit the company’s bottom line?

In the Bass Pro example, this might mean that Bass Pro expands its objective from selling motors that make a boat go fast, to selling motors that also are environmentally friendly. This new line of products not only serves a utilitarian need for the fisherman, but also contributes to healthier fishing waters, which in turn, help the fishermen be more successful in their trade, creating the need for more fishing materials. Thus, the long-term goal of the product line is entirely focused on sales, both from sales of the product and the effect of the product on the cause; creating healthier waters for fish.

Redefining productivity in the value chain:

In effect, by becoming more aware and aiming to positively affect the quality of the local waters, Bass Pro has re-evaluated and re-defined the productivity of its value chain. Short-term results might have been chosen over long-term benefits when the ‘old’ value chain was developed. But, by re-examining this same value chain, Bass Pro realizes that there are environmental factors that are negatively affecting profit. In this case, more polluted waters are resulting in a consumer base with less disposable income and a lesser need for additional products. By pinpointing these external factors, they can begin to help address them through their business operations.

Enabling local cluster development:

Every company relies on a supply chain that includes employers, suppliers, customers and regulators, to name a few. These clusters, as Porter and Kramer refer to them, often prove to be most efficient when concentrated locally, as a result of lower shipping costs, more local employment, a stronger local economy, quality control and deeper face-to-face relationships with supply partners.

However, for Bass Pro to be able to benefit from cluster development, it should not only look at the location of its suppliers, but it should also look at perhaps less obvious components of its value chain. What kind of knowledge and skills does Bass Pro require for its employees? Are there institutions in the vicinity of the production facility where these skills can be acquired, or would Bass Pro benefit from an investment in such an institute? By forming and developing these local clusters, Bass Pro “amplifies the connection between its success and it’s communities’ success.” (Porter & Kramer)

Michael Porter
As Porter and Kramer succinctly outline (much better than we have I’m sure) in their HBR publication, by applying one or more of these principles to their value chain or business model, a company has the potential to increase profits. However, it requires a long-term perspective and a 360 degree analysis of their business practices. In today’s consumer environment, customers expect (…even demand)  that a company gives back to their communities. So, why not make that social commitment align with business practices and positively impact profits?

I believe over the next ten years, these principles will ignite a movement that will guide investment in the social space. The days of philanthropy as a reactive measure to keep your customers “off your back” are over!

– Cal Zarin, CEO