Replacing responsibility with shared value

23 Apr 2013

GettyImages_88160221Corporate social responsibility, in theory, is a good idea. But does it really work in practice? Is it a bit of a public relations activity for companies? In this article we examine creating shared value (CSV), which we think provides a superior approach to the notion of ‘doing good.’

In a 2011 New York Times article, Steve Lohr writes that social responsibility efforts seem like “the modern equivalent of John D Rockefeller handing out dimes to the common folk. They may be well-intentioned, but they often seem like small gestures at the margins of what companies are trying to do: make money.”He’s right. Often CSR programs are obligatory, public relations efforts that reinforce the standoff between business and society. This incongruence – making money versus ‘doing good’ – sends CSR initiatives to the periphery of businesses’ focus. In addition, the pressure of ‘doing good’ when there are stakeholders’ interests to consider leads to companies implementing generic, arbitrary programs that are entirely disconnected from their own strategic skills. As Michael Porter and Mark Kramer write, “If corporations were to analyze their opportunities for social responsibility using the same frameworks that guide their core business choices, they would discover, as Whole Foods Market, Toyota, and Volvo have done, that CSR can be much more than a cost, a constraint, or a charitable deed – it can be a potent source of innovation and competitive advantage.”

Cue Creating Shared Value (CSV), a reformulation of CSR that touts the connection between corporate value (profits) and social value (improved social and economic conditions in the communities in which companies operate). Under this model, all parties win: communities, partners, the marketplace, economies and corporations. Porter, a “corporate strategy legend,” and Kramer explain it in the following way:

The concept of shared value…recognizes that societal needs, not just conventional economic needs, define markets. It also recognizes that social harms or weaknesses frequently create internal costs for firms – such as wasted energy or raw materials, costly accidents, and the need for remedial training to compensate for inadequacies in education. And addressing societal harms and constraints does not necessarily raise costs for firms, because they can innovate through using new technologies, operating methods, and management approaches – and as a result, increase their productivity and expand their markets.”

There are three elements that contribute to growth from value sharing:

1.     Re-identifying customer needs by addressing problems in communities and redesigning products and services to serve these needs

2.     Innovating value-chains to enhance productivity and efficiencies

3.     Enabling local development by taking into account local deficits and/or current offerings that are deemed insufficient

(Shayta Roy)

General Electric is one of many companies taking up the call. The company has developed an ‘ecomagination’ program in response to corporate customers’ concerns about energy costs. According to the New York Times, the program is both a “business plan” and a “marketing campaign” – the idea is that GE invests in new technologies that will minimize its products’ energy consumption (as well as the use of water and other resources). As of 2011, there were 100 GE products included in the program that proved to lower energy use and provide environmental benefits. These products generated 8 billion more dollars in sales from 2005, when sales were at 10 billion.

In coming up with innovative environmental solutions that drive economic growth, GE is bettering the communities it does business in while enhancing competitive advantage.

Partnerships are key. Change can only happen when communities, businesses, non-profits, public and private work together, as Jean Fagan has written about in a recent blog post.