Published by Working Wikily on 02 Feb 2011 at 11:08 am
Going beyond market-based solutions to create “shared value”
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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. |
This piece was originally published on WorkingWikily by Noah Flowers.
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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5 Responses to “Going beyond market-based solutions to create “shared value””
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Foundations and corporations make choices – foundations by choosing what to fund, corporations by choosing what to profit from. Both do it because the economic system demands that they do it. A foundation has to give at least 5% each year, a corporation has no mandate to the amount of money it has to make – the more the better.
Assessing the effectiveness of both, foundations and corporations in relationship to the demands of our growing human population from an economic perspective truly needs to be addressed. A continuous growing population is what economic growth is really all about.
We are reaching capacity, our numbers are demanding more and more as our numbers increase. None of this other stuff really matters if we don’t do something about the every increasing numbers of people populating this planet and our demands on the planets ecosystem.
@Frank: I guess the hope is that we can reconcile our corporate thirst for economic growth with the growth in demand for goods that have a low physical value but a high IP value. Think songs on iTunes for example. The more virtual goods we consume the more our economy can grow without much impact on the environment. The problem of course is that we don’t just consume virtual goods and our planet is way past carrying capacity. Everyone in ecosystem management knows that at some point we will either reach the top of the “S” curve and stop population growth, or we will suffer the “J” curve and our collective population will plummet.
Seems like what Porter and Kramer suggested here as “social enterprise” is something in between business-as-usual, and Muhammad Yunus’es “social business enterprise”?
http://www.moveyourworld.nl/docs/uploads/Mohammed-Yunus-Social-Entrepreneurs%5B1%5D.pdf
It’s interesting how corporate and foundation issues were combined in this wiki. Profits created by corporation turn into investments for foundations that fund NGO’s. It’s a closed loop. Corporations in reality have really been in control of foundation for many years, with the first generation of corporate members controlling the foundations they created or fund. But as thefirst generations die off and ‘outsiders’ take over, the values of the foundations begin to change. There were and still are vary few foundations that will take on the existing corporate economic system – very few.
Value based decision making is much harder then behavior based decision making when it comes to externalities for the corporate world – foundations changing corporation behavior has been around for a few years now, I have my reservations about changing corporation values when it comes to taking ownership of externalities, because it’s part of optimizing profits to ignore them. I wonder if that day will ever come.
We’ll see.