Shared value is a type of management strategy that focuses on companies creating business value that is measurable through addressing and identifying social problems that impact their business. New opportunities are created by this shared value framework for businesses, governments and civil society organizations to leverage the power provided by market-based competition in order to effectively address social problems.
Professors Michael E. Porter and Mark R. Kramer first defined the concept in their article that appeared in the January/February 2011 issue of the Harvard Business Review entitled “Creating Shared Value.” Three ways for creating shared value were identified by the authors:
Reconceive markets and products- Defining markets from the perspective or social ills or unmet needs and then developing profitable services or products to remedy the conditions or problems.
Example: A new kind of safety syringe was developed by BD to help reduce the number of needle-stick injuries experienced by healthcare workers. This product innovation eventually grew into a $2 billion market, or approximately 25% of the corporation’s revenues.
Redefining productivity within the value chain- Productivity of a company or its suppliers is increased through addressing environmental and social constraints within the value chain.
Example: Walmart was able to save $200 million in distribution costs while increasing the quantities they shipped through improving delivery logistics and reducing packaging.
Local cluster development- Making the competitive context stronger in key areas where the company does business in ways that will contribute to the productivity and growth of the company.
Example: When Cisco launched its Networking Academy for training more than four million network administrators around the world it was able to reduce a key constraint for expanding its addressable server market.
Shared value doesn’t involve including values of the stakeholders in corporate decisions or redistributing value that is created from philanthropy. What shared value focuses on instead is creating meaningful social and economic value- new benefits that are greater than what it costs society and the business.
A new role is defined for business within society by a Shared Value framework that extends beyond traditional corporate social responsibility models. Instead of the focus being on mitigating harm within the existing operations of the company, shared value strategies instead engage the innovation and scale of companies so that social progress is advanced. Shared value at the very same time provides new ways for other actors in society to interact with corporations to deliver social impact:
The strategic priorities of NGOs can evolve to partner with companies more effectively on their shared value strategies.
Government and philanthropic bodies are able to discover new ways for incentivizing private sector investment to solve pressing social problems.
Investors are able to gain insight into the profit potential and future growth of companies by understanding how social issues are addressed by shared value strategies that impact the company’s performance directly.
Students, academics and individual practitioners all over the world are able to deepen their understanding of shared value as well as applying it within their academic institutions, social enterprises and companies.
Although shared value is still within the early stages of its adoption cycle, many of the most respected companies in the world have embraced the approach, so that social problems are addressed as a core component of the corporate strategy.