The world economy is trying to recover from one of the biggest
downturns in history. People are being laid off in record numbers.
Unemployment rates are unacceptable. Poverty reaches all corners of the
globe. And those who make money are being looked at more closely. What
are they doing to help? How are they giving back? For years this has job
has been given to a department known as corporate social responsibility
(CSR). These businessmen and women are tasked with creating or
developing programs that give back to the community in one way or
another.
CSR has been great for
marketing and building a company’s reputation, but their solutions are
usually short-term. A lot of these programs require constant management
from the parent company and the resources are spent with little return.
It has been considered poor form to actually make any money off of these
projects. Working with the poorest sector it can be hard to come to
terms with profiting off what was once intended to be a philanthropic
venture. However, the idea of shared value is making headway and in the
last 5 years more and more companies are seeing the potential.
The idea of shared value is simply defined
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.” A major difference
from a CSR philosophy is that these programs focus on improving the
social and economic status of the geographic area.
Shared
value is actually more beneficial for both the larger company and the
poor or the economy of the third world country they are trying to
assist. By helping to build a self-sustaining economy and making money
off their ventures they are giving local people more reason to work hard
and improve the quality of their products.
Plenty
of companies are having issues with moving to a new set of rules for
their projects. They are stuck in the outdated ideas of CSR and aren’t
seeing any value in creating programs that may generate long-term
profits. One of the hot ideas in CSR is a buy-one-give-one model. For
example, Americans can buy a pair of shoes and another is given to a
shoeless child in another country. It’s immediate gratification and
appears to be a great idea. But what happens to the shoe maker in the
other country? Less people will be buying shoes from him. The child has
shoes for the short-term, but what happens when they get too small or
worn out? A shared value take on this can be seen in Adidas’ program in Bangladesh with Grameen Bank.
They are working to build a plant in Bangladesh that will provide jobs
to the poor and create a product that can be sold for less than one
Euro. This puts money back into the economy, provides a product that is
available to more people and Adidas will get the benefits in the
long-term.
Companies
are in their markets to make money. There is no reason why their
philanthropic ventures cannot add to their overall value. Businesses
aren’t used to seeing a problem in society and thinking how can we make an impact, but also make this work for us? Leora Black
writes, “Companies could bring business and society back together if
they redefined their purpose as creating ‘shared value’— generating
economic value in a way that also produces value for society by
addressing its challenges.”
How does a company
find a way to convert their CSR values into ones that operate on the
shared value model? The first option is to look at the products they
make and where they are marketed. Can they be made cheaper or in the
locations where they are sold? Can a new product line be developed
geared towards the poorest sector? Another option is to take a close
look at their value chain. How many executives know the ins and outs of
their products from beginning to end? Looking at the source and the
livelihoods of those supplying the raw materials may reveal a great
opportunity to create a new program. A third way to create a shared value program is developing a stronger support system for the company at all of its locations.
Sustainable
programs are highly valued by the poorest sectors. These create a
reason to keep improving their products by strengthening the
buyer-supplier relationship. “Shared value could reshape capitalism and
its relationship to society. It could also drive the next wave of
innovation and productivity growth in the global economy as it opens
managers’ eyes to immense human needs that must be met, large new
markets to be served, and the internal costs of social deficits—as well
as the competitive advantages available from addressing them,” says Michael Porter.
There
is nothing wrong with profiting from shared value projects. They are
more sustainable for the company as well as the group of people who they
are trying to help. It is nothing to hide and the more programs that
emerge with these ideas, the more society will see the true benefits. In
a world that is so afraid of blogger or public relations backlash it is
hard to want to pioneer a new field of thought. However the concept of
shared value is gaining momentum. It’s time for more big businesses to
jump on board and make the change. Everyone benefits. What’s so wrong
with that?
