Published by Working Wikily on 02 Feb 2011 at 11:08 am
It’s clear that something’s changed in the world when the cover article of the Harvard Business Review is titled “How to Fix Capitalism: Creating Shared Value,” and when one of the authors is Professor Michael Porter, who built his reputation on insight into the nature of competition.
Porter and his co-author Mark Kramer argue that companies’ narrow-minded approach to value creation (and the current economic crisis) has dramatically undercut the public legitimacy of business, to the point that policy now often undermines competitiveness and saps growth in the name of trading away growth for social benefit. “Capitalism is under siege,” they argue, and the remedy is for companies to escape that false dichotomy by reinventing their strategy around simultaneously reaping profit and helping address social needs.
Viewed from the vantage point of the social sector, much of what Porter and Kramer describe would be called “market-based solutions,“ solving a social problem by building some form of enterprise that sustains itself through revenue. It is also part of the larger blurring of the boundaries between the three traditional sectors that is leading to a blossoming of innovative new hybrids that sit at the intersection of the private sector, social sector, and/or public sector. On the right is a graphic we use to describe that larger phenomenon. Corporations designed to create shared value could be placed on the bottom seam.
But what Porter and Kramer argue for goes beyond the way that market-based solutions are often discussed. Not only should we design businesses around social problems, they say, but leaders of existing corporations can and should transform their enterprises into pillars of the communities they rely on. Their examples are global profit seekers such as Nestlé, Coca-Cola, Vodafone, Walmart, GE, and Unilever. Each has found a way to restructure at least some part of its business to create substantial social impact, shifts that are now permanently built into the companies’ profitable everyday operations. Not every part of every company can be so transformed, they acknowledge, but they urge leaders to search for the opportunities.
Helping corporations shift towards a shared-value mindset is clearly a highly leveraged approach to social impact. Take the example of the Rainforest Alliance that Porter and Kramer describe. As part of a broader Nestlé initiative to build self-sustaining economic cluster around its coffee-farmers, the Rainforest Alliance partnered with Nestlé to teach those farmers more sustainable growing practices—changing not only how those farmers grow their crops but also the standards for sustainability that Nestlé expects. Porter and Kramer also highlight the partnerships that the Bill & Melinda Gates Foundation is building with global corporations to foster strong economic clusters in agriculture throughout the developing world. The Gates Foundation brings together those corporations with government officials and NGOs to “work on precompetitive issues that improve the cluster and upgrade the value chain for all participants,” where the mark of success is a stable marketplace that is not only profitable but acts as a constructive influence on the surrounding society. Such examples illustrate the power of what we described as “leveraging others’ resources” in What’s Next for Philanthropy: turning big ships rather than speeding ahead alone. We were not the first to suggest that idea, nor were Porter and Kramer the first to think that corporations could be designed for more than making profit. But it is heartening to see the prominence of their argument and the growing list of large-scale experiments that they present.
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