| "Creating Shared Value: How to reinvent capitalism and unleash a wave of innovation and growth"; Kristen Uminger Article Review 2 | |
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| Tweet Topic Started: Jul 23 2012, 10:15 PM (219 Views) | |
| kuminger | Jul 23 2012, 10:15 PM Post #1 |
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Core ideas: The authors of this article clearly articulate the fact that businesses [synonymous with capitalism in this article] and societies are interdependent and rely on each other for employees & consumers and job & wealth creation respectively. However, the two have traditionally been at odds with each other, because companies have focused mainly on short-term profit generation—with a newer, peripheral focus on social responsibility that is viewed as expensive by shareholders—while societies or governments have been charged with regulating businesses. A perpetual cycle has formed, where a mistrust of business leads to more societal rules and regulations, which leads to new business tactics and so on. To remedy this, the authors propose a shared value creation framework by both society and businesses, whereby economic value is created by societal value in the form of reconceived products and markets, redefined productivity in the value chain, and the building of industry clusters at the company’s locations. By encouraging businesses to step back and understand how they can help address the needs and challenges of society, the clear interdependence between the two can be best optimized to the benefit of both over the sustainable future rather than the more temporal notion of corporate social responsibility. Relevance and Validity: While the authors make a convincing argument, the proposition of shared value creation will require an entire paradigm shift in thinking. The toughest group to convince will be the shareholders and investors on Wall Street, who have traditionally focused on shorter-term profits and look only at hard financial data. Inculcating a new, more broadly defined view of capitalism into the minds of investors and businessmen will be the biggest challenge to this idea’s success in a real world setting. Additionally, this article focuses mostly on the societal benefits in the immediate vicinity of the company. As companies reach out more globally, and lose touch with their broader base of consumers, the challenge will lie in showing a corporation’s value beyond the location that it calls headquarters. Companies must improve societies in a broader sense for this idea to have impact, because not all communities will feel the societal improvements made to fulfill local needs or improve industry clusters. Link: I think the idea of creating shared value correlates well to the idea of institutional voids presented in Khanna and Palepu’s book Winning in Emerging Markets. While the concept of institutional voids directly refers to information asymmetry and high transactional costs of business in emerging markets, it can also be viewed from a societal lens as well. Even in developed markets, there are voids, and businesses have the opportunity to decide how to interact with them. The authors of this article would suggest that organizations should address the voids that correlate most with its business, and which both improve society and improve economic profits at the same time. There are many societal voids that businesses can fill if they look for them, and many ways to improve them—this should be a new way that organizations look at and measure shared value creation and ultimately business performance. Application: The same ideas presented in this article directly relate to Neville Isdell’s notion of “Connected Capitalism,” presented in his book Inside Coca-Cola. At the same time Coca-Cola was expanding its operations across the world, it was simultaneously giving impoverished communities improved access to clean water. By improving access to water, Coca-Cola both filled a societal need while helping a group of future Coca-Cola customers live better lives and afford the Coke products. It is likely that the water supply would not have been improved by NGOs, because they rely on donations that cannot sustain the mission; Coca-Cola, on the other hand, was in a unique position to offer funding and access, because it correlated with its own mission to procure water for its soft drinks. This is, in my opinion, the definition of Creating Shared Value, where as the authors of this article state “creating shared value…is not philanthropy but self-interested behavior to create economic value by creating societal value” (77). |
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