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Shared Value Proposition Puts New Emphasis on Responsible Business Practices

January 19, 2011
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With companies looking to rebound in 2011, a current Harvard Business Review article, titled “The Big Idea: Creating Shared Value,” suggests that corporate responsibility could be a boon, not a burden, for organizations seeking long-term growth.

The article, co-authored by Harvard Business School professor Michael Porter and consultant Mark Kramer—who is co-founder and managing director of FSG, a global social impact consulting firm—asserts that developing a culture of social accountability in core business operations, an idea known as “shared value,” is key to both corporate and cultural success.

“Shared value is the creation of economic value through creating social value,” Porter said. “There should be alignment around those values instead of a trade-off.”

According to the article, the three main vehicles for achieving shared value are reconceiving products and markets, redefining productivity in the supply chain and developing localized “clusters,” which the authors define as local supporting infrastructure, at the company’s locations. Collectively, these initiatives help companies shed the image that they are prospering at the expense of the community, the authors say.

“All profit is not equal. Once companies think this way, they can be effective in changing society,” Porter explained.

Many Fortune 500 companies, including General Electric Co., McDonald’s Corp., Nestle and Thomson Reuters are already exploring shared value practices, he says. Porter said he believes these strategies represent a wider trend among companies looking to integrate corporate responsibility in their business operations.

“Leading companies are hungry for this,” he said. “The past approach is dead; we now need to effectively connect business activity with society.”

Product development can be as simple as offering goods that address fundamental societal needs, according to the authors. Food companies, for instance, can create shared value by improving the nutritional values of their products, while energy conglomerates can craft shared value by developing eco-friendly technology. Communications businesses can do so by offering services to underprivileged communities.

In using the shared-value model, companies can facilitate social wellness and prosperity while exploring new markets and revenue streams, the authors say.

By re-evaluating supply chains using shared value, companies can generate considerable social and economic gains for both the business and the communities in which they operate. According to the article, “In reality, the strongest international competitors will often be those that can establish deeper roots in important communities.”

While shifting operations to low-cost regions might maximize short-term profits, companies are better served in the long run embedding themselves in strategically important communities, they say. The authors cite North Carolina’s Research Triangle Park in Raleigh-Durham. The area, which is home to many high-tech companies, has, through public and private sector collaboration, developed clusters in the field of science and technology. The area has since experienced huge growth in employment, household incomes and company performance.

The development of localized “cluster” businesses to facilitate company productivity is essential to large-scale business operations. Identifying and fixing deficiencies in areas such as logistics, suppliers, distribution channels, training, market organization and educational institutions creates shared value, Porter said.

The companies benefit economically from more efficient and cost-effective supporting infrastructures, while the communities profit from the money and resources poured into local businesses, according to the article.  

—James Walsh is an editorial intern at Workforce Management. To comment, e-mail editors@workforce.com.

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