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Creating shared value. HBR. Porter & Kramer.; Article Review #2 by Amit Mahajan
Topic Started: Jul 31 2012, 10:05 PM (63 Views)
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Creating shared value. HBR. Porter & Kramer.
Article Review #2 by Amit Mahajan


Traditionally companies have embraced corporate responsibility just for reputation which has no connection to the business and this model has not been sustainable over the long term and there have been no economic returns. Article is focused on the idea of ‘Shared Value’. It is not Corporate Social Responsibility (CSR), instead authors explains shared value as a way for companies to achieve economic success by working towards societal needs and prosperity. Article also suggests that companies who have adopted the shared value concept have opened door for innovation and economic growth by creating social value. It can be achieved by providing new products and services or catering to needs of market that have been overlooked, by value chain reconfiguration and by enhancing clusters that include businesses and institutions. According to the authors, ‘shared value’ is the mantra for the businesses that will lead to prosperity and growth of society which would also reciprocate in terms of economic benefits for the companies.

Article illustrates stories of businesses that have successfully adopted the shared value concept. Is it that simple? To begin with I believe there is a lot that goes behind the close door in the company conference rooms, where you are trying to convince and sell your board members (and shareholders) so called ‘shared value’ idea when all they care about is profits (shareholder value). Also how can businesses promise their shareholders that the proposed shared value model is going to have economic returns or simply work? It could prove to be a complete failure for the organization and/or society for various reasons including execution, management, politics etc.

Also I believe sustainability is the biggest challenge. Is this shared value model going to sustain on its own without additional need for resources from corporate in the future? Also thinking in terms of size of the company, especially start-up and small businesses may embrace the shared value concept and come up with an innovative idea but for how long can you sustain this with little money and resources? Let’s say that your business adopts the shared value concept that will lead to economic growth and societal progress. This will improve economic condition of society overtime which would open door for other competitors. Most buyers are not loyal to a brand or business so they have tendency to switch. So competitor will eat some of your profits and market share. Unless you have developed some kind of niche or product/process differentiation and it is well protected with IP laws, you do not have a sustainable-shared value business model. And yes ‘shared value’ is a type of business model that companies choose to be a way for economic and societal benefits.

Bayer Cropscience India started a Child Care Program (BCS-CCP) which is focused on ‘rights of children’ and tackles child labor problem in rural India by providing incentives to farmers under Target 400 program. There have been positive result of this initiative which has been embraced by farmers, 1402(1) children have been rehabilitated in formal schools and it has led to increased productivity of cotton. Also Neville’s story, ‘Inside Coca Cola’, on ‘Connected Capitalism’ is another way of describing ‘Shared Value’. Coca Cola Company invested in the local societies by digging wells and providing safe drinking water so that coca cola consumers can afford the coke products. Khanna and Palepu’s book on ‘Winning in Emerging Markets’ talks about ‘Institutional Voids’ and if we narrow down these void to just societal voids, it is similar to shared value concept which companies can exploit for economic profits and societies growth and prosperity.

Especially with companies going global there is always a challenge with the new markets and societies they operate in. Businesses need to establish themselves as transnational corporations so they can be close to the society, especially consumer. With unemployment above 8% in US, Indian IT(2) companies have started recognizing that they need to create jobs for locals in US (and not just offshore work) so the local market in America can grow and help sustain companies’ economic profits.

To conclude, I am of the opinion that the shared value needs to be treated as a business model so that it is not confused with the CSR initiatives. To make it easy for the businesses to recognize these opportunities, I would begin with PEST analysis and then identifying institutional voids and further narrowing down to just Social issues. Finally business can decide to work on these opportunities (Social issues) and device a plan for shared value business model which will create economic value and also creates value for society by addressing its needs and challenges. This could be applied to businesses in both developed and emerging markets.

1 http://www.childcareprogram.bayercropscience.com/
2 http://economictimes.indiatimes.com/articleshow/15267686.cms?
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