Creating Shared Value

April 6th, 2011 by Andrea Bennett

Why focusing on profits for all – not just charity – might be the next big idea.

Brought to you by Liberty Mutual's
The Responsibility Project

The good news for corporations: It’s now okay to admit you profit from doing good. According to a Reuters article, “creating shared value…[is] the new catch phrase in corporate and philanthropic circles.”

The relatively new approach to corporate social responsibility is based on the idea that corporate success and social welfare are interdependent, and it surfaced in a 2006 Harvard Business Review article written by Michael Porter, head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark Kramer, senior fellow at Harvard’s Kennedy School and co-founder of FSG Social Impact Advisors. Their newest HBR article, “Creating Shared Value: How to reinvent capitalism – and unleash a wave of innovation and growth,” takes the concept further. 

In the article, Porter and Kramer say that corporations are trapped in an outdated approach to value creation that has them optimizing short-term financial performance all while overlooking the well-being of their customers, depleting natural resources vital to their businesses’ long-term success, and ignoring the economic problems in the communities in which they produce and sell. “Even worse,” the pair writes, “the more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures….The diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth.”

Most companies, they say, are stuck in a “social responsibility” mindset that has pitted business against society. “That is in part because economists have legitimized the idea that to provide societal benefits, companies must temper their economic success.”

Porter and Kramer define the new model as a win-win for business and society, framing it 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.” Porter, who spoke at the World Economic Forum in Davos in January, uses Swiss company Nestle as an example. Working to help coffee farmers to improve their farming practices had increased their yields and their income, and Nestle increased its reliable supply of good coffee while reducing its environmental impact.

Nestle, for its part, is paying the shared value concept forward. The company opened nominations last month for its 2012 Prize in Creating Shared Value, an annual competition held since 2009 that offers advice and financial support to an individual, NGO or small business working in the field of nutrition, water or rural development.

This next wave in corporate social responsibility was also a key topic in last month’s International Corporate Philanthropy Day, a meeting of 90 chief executives in New York. As Patrick Rooney, executive director of The Center on Philanthropy, summed it up for Reuters, "One of the things about corporate philanthropy that's evolving is an emphasis on a holistic approach as opposed to just writing checks.”