2.3 Creating Shared Value



Creating Shared Value (CSV) is a concept first introduced in Harvard Business Review article Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility [1] and further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society.[2]

Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark R. Kramer, Kennedy School at Harvard University and co-founder of FSG.[3] The article provides insights and relevant examples of companies that have developed deep linkages between their business strategies and corporate social responsibility. Moreover the concept is remarkable in their last article "Creating Shared Value".

The central premise behind creating shared value is that the competitiveness of a company and the health of the communities around it are mutually dependent. Recognizing and capitalizing on these connections between societal and economic progress has the power to unleash the next wave of global growth and to redefine capitalism.

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

Many approaches to CSR pit businesses against society, emphasizing the costs and limitations of compliance with externally imposed social and environmental standards. CSV acknowledges trade-offs between short-term profitability and social or environmental goals, but focuses more on the opportunities for competitive advantage from building a social value proposition into corporate strategy.

A significant challenge of CSV resides in accounting for ecological values/costs that are generated within the realm of agricultural production. Up to 90% of the ecological footprint in food processing can be attributed to land management activities outside the control of corporations. An eco commerce model that accounts for ecosystem services at the production unit (farm) level allows "shared value" to emanate from the production unit outward. Centering the shared value at the farm level allows for utilities, biomass processors, food processors, environmental liability insurers, landlords, and governments to participate in the shared value process.[4] This ecocommerce shared value process accounts for and includes positive [environmental] externalities within the economic system.

“We did it from a business standpoint from Day 1. It was never about corporate social responsibility.”
Jefferey R. Immelt, G.E.’s Chief Executive

Above content including bulleted list sourced from Wikipedia on 25/7/12 under a Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Licence.

General Electric’s redirection of its business plan to “ecomagination”[5] program in 2005 was a result of the societal and governmental push for reduction in electrical and fuel costs and in carbon emissions. With the help of environmental consulting firm, GreenOrder, G.E. managed to modify its products more eco-friendly and energy saving. Its sales reached $18 billion in 2009 and are predicted to grow twice as fast as overall company revenues over the next five years[6].

Dow AgroSciences has developed a line of Omega-9 rich canola and sunflower oils, with zero trans fats and the lowest levels of saturated fats. Since 2005, Omega-9 Oils have eliminated nearly a billion pounds of trans fat and 250 million pounds of saturated fat from North American foods.

Companies can also improve the competitive context in which they operate by investing in their communities. Nestlé, for example, worked closely with the farmers of the Moga Milk District in India, investing in local infrastructure and transferring world-class technology to build a competitive milk supply chain that simultaneously generated social benefits through improved health care, better education, and economic development.

In conclusion, CSV encourages each company to create economic and social value simultaneously by focusing on the social issues that each is uniquely capable of addressing

Content in this section is sourced from Wikipedia on 25/7/12 under a Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Licence.


Activity 2.4 – Creating Shared Value

Go to Youtube and view the interview with Michael Porter on Creating Shared Value at http://www.youtube.com/watch?v=LrsjLA2NGTU.

Now create an entry in your diary. Focusing on a company that you know well, spend 30 minutes and no more than 250 words on summarising what it would mean for your selected business if they were integrate Porter’s concept of shared value into their core business process. How would it influence their product and marketing? What about their customers and staff? How might it improve their environmental performance?