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Creating shared value: A win-win strategy?

Three years ago, a revolutionary essay outlined a new management strategy called Shared Value, which suggested that businesses could make money from doing good. It provoked debate and caught a growing corporate mood – but can it really redefine capitalism as we know it?

Profit. It’s not a dirty word. In fact, it can be a dynamic force for good, creating value for shareholders and society. This was the thinking behind a ground-breaking article called Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society, which was published in Harvard Business Review in 2011. In their article, co-authors Professor Michael E. Porter and Mark Kramer argued that capitalism was “under siege” and that public trust in companies had fallen to an all-time low. People thought of big business as contributing to environmental and social ills, and generally “prospering at the expense of the broader community.”

But Porter and Kramer also reasoned that making money and the march of social progress didn’t have to be mutually exclusive. What if the public could see companies in a different light? What if they could see businesses doing good for their communities while simultaneously creating economic benefits for themselves? What if corporate mindsets could be changed to view environmental and social problems – in both advanced economies and developing countries – not as constraints, but as business opportunities? It could fundamentally change capitalism as we know it.

This, then, is Shared Value, a revolutionary way of strategic thinking. It isn’t to be confused with (or meant as a replacement for) Corporate Social Responsibility (CSR) – that is to say, reputation-enhancing activity that isn’t necessarily in a company’s economic interest. The difference is this: if Wall Street wouldn’t be interested in your new socially responsible corporate initiative, the chances are it’s not Shared Value. It’s philanthropy. Put bluntly, Shared Value involves making money from doing good.

On its publication, Creating Shared Value, which became the top Harvard Business Review article of 2011, caused a storm of interest. It was dissected and debated by commentators in The New York Times, Forbes, and The Financial Times among others, while in the Huffington Post, Lynn Forester de Rothschild said the concept was one of “seven influential actions in 2011 that captured an emerging shift in business’ relationship with society.” Corporations and businesses around the world began to build Shared Value into their business models, and The Economist named Shared Value a top trend in 2012.

Cisco’s networking academy: “The world’s largest classroom”

Technology is evolving apace. The growth in computer networks, for example, has been rapid – but its significant downside is a global shortage of people who are qualified to implement and maintain networking solutions.

Realizing this, Cisco Systems, the global provider of networking equipment, launched its blended-learning Networking Academy (NetAcad) in 1997. It now operates in 170 countries, has trained five million network administrators globally, and has been called “the world’s largest classroom.”

NetAcad uses cloud technology to deliver the curriculum to students. It concerns how to design, build, troubleshoot, and secure computer networks to further the students’ career and economic opportunities. Results have been impressive. For example, a report found that 69% of the surveyed students had obtained a new or better job, increased responsibilities, or a higher salary, and many have started their own companies. NetAcad is popular across all sections of society. Cisco says that, through the academy, 129 youths from a shelter in Brazil have found a career path, and five women’s universities have opened Cisco Academies in Saudi Arabia.

All of which is good for the development of communities. And, of course, it gives Cisco a growing pool of talent to implement and maintain its technology, which is essential for company growth.

Benefits for all

There are three ways that a company can instigate Shared Value. The first is by solving problems through the products and services it creates. Take the Dow Chemical Company’s Omega-9 Healthy Oils, developed by Dow AgroSciences, which are virtually free of trans-fat and contain the lowest saturated fat content of any vegetable oil. Since the brand’s launch in 2005, it has captured the dominant market share of U.S. fast food restaurants, giving Dow a competitive advantage. Crucially, though, the seeds that the oil comes from have a large yield, making them attractive to farmers; plus the oils have taken billions of pounds of trans-fats out of the American diet, making consumers healthier. Everyone benefits.

The second way to create Shared Value is to address problems through company operations, including better use of natural resources. Porter and Kramer highlighted Wal-Mart’s 2009 decision to reduce packaging and re-route its trucks to cut 100 million miles from its delivery routes “saving $200 million even as it shipped more products.” Likewise, DHL is already engaged in various innovative Shared Value projects with a number of Fortune 100 companies.

The third way is for a business to invest outside its operations in order to solve problems connected with company growth and productivity, such as improving growing techniques. Mars has seen the wisdom of this approach and embarked on a Vision for Change sustainability program to support farmers in Côte d’Ivoire, the highest cocoa-producing country in the world. Its investment is a win-win for both communities and commerce: economic, environmental, and social conditions in the cocoa-growing communities improve, boosting Mars business in the process.

Of course, the environmental and social issues currently facing the world seem so large as to be insurmountable. Yet this is exactly why Shared Value has excited so many of its supporters, who say that the private sector has the wealth and power to tackle problems on a vast scale. Take malnutrition, which affects two billion people worldwide. The U.N. has highlighted that this is a particular concern for a growing number of developing countries whose population “must shoulder a ‘double burden’ of malnutrition: the persistence of under-nutrition, especially among children, along with a rise in overweight, obesity, and diet-related chronic diseases.”

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Huge impact

To combat this, Nestlé has developed its Maggi brand product range, including bouillons, seasonings, and noodles, which is iodine-enriched and sold at affordable prices in developing countries. It’s been a best-seller, with Nestlé estimating that the total number of its individual servings fortified with iodine were approximately 100 billion in 2012; plus the company is running an iron fortification program in India, Pakistan, Sri Lanka, the Caribbean, Central America, Central West African countries, and the Pacific islands. The positive health implications of one small bouillon cube are plainly huge. From a “green” standpoint, there are numerous examples of companies who use environmentally friendly products to attract new business. Toyota’s acclaimed Prius, for example; and GE’s Ecomagination program, which is committed “to building innovative solutions for today’s environmental challenges while driving growth.” For its part, DHL is currently developing and piloting a Shared Value strategy that uses its expertise in green logistics to offer dedicated solutions to select key customers. This involves working closely with those customers to identify opportunities to implement green efficiency technologies and processes – such as aerodynamics, alternative drivetrains, and other equipment – in order to reduce carbon footprints and expedite fleet modernization. The company’s Shared Value focus at present is on road freight, but other modes of transportation are being investigated for the future.

It’s not just companies that are seeing the positives in Shared Value. Porter and Kramer have had discussions with the White House and the governments of India and South Korea about the things they can do to encourage more businesses to adopt Shared Value strategies. This, says Kramer, makes absolute sense from any government’s perspective, with private sector resources helping to solve problems that public money would otherwise be needed to address.

So could Shared Value really go mainstream, and soon? There are dissenting voices, including Forbes contributor Steve Denning whose 2011 essay was  titled Why Shared Value Can’t Fix Capitalism. Plus, it’s still early days: companies across the globe, and many more of them, would need to incorporate Shared Valued thinking into the operations of employees at all levels of their businesses to really transform capitalism. Yet momentum is undeniably growing. FSG, Kramer and Porter’s consultancy firm, has trained  45 consulting firms in 25 countries around the world in Shared Value learning in the last year alone; plus 28% of global CEOs are said to have made a change to their business to incorporate Shared Value thinking. Meanwhile, FSG points out that Shared Value isn’t a dream – it’s a reality. And it insists that it isn’t an option. It’s the future. — Tony Greenway

Novartis: Overcoming a market failure

Last November, Novartis, one of the world’s largest pharma companies, received the Ethics in Business Award in the Outstanding Corporation category at The World Forum for Ethics in Business (WFEB) in Basel, Switzerland.

The award recognized Novartis dedication to implementing social ventures such as Arogya Parivar, a sustainable business model that makes affordable, high-quality medicines accessible to disenfranchised millions in India.

Novartis had been selling medicines in India for decades, but primarily in major cities with well-established infrastructure. Yet, it reasoned, 70% of the country’s population live out of the loop in rural villages – and were not being served. This was a market failure the company was determined to overcome.

So, in 2007, Novartis began to hire and train hundreds of healthcare educators – usually local women – to raise awareness about basic health-seeking behavior. The plan was for each educator to visit a few villages every day, while sales supervisors served as the initiative’s local sales force, interacting with local pharmacies and collaborating with doctors, hospitals, and NGOs to organize health camps for villagers.

The Arogya Parivar program now provides improved healthcare for 42 million people living in 33,000 villages, giving them access to affordable products, better education, and improved health infrastructure. The program began returning a profit within 30 months, and since 2007 sales have increased 25-fold.

Illustration: Stuart Briers

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