Creating Magic Through Shared Value

The world applauds companies who give generously to philanthropic initiatives and we idolize the social entrepreneurs who’ve set out to address our planet’s most pressing issues. Yet people raise their eyebrows the moment they hear of a corporate behemoth that seeks profit while doing good.

Like an A-list Hollywood celebrity’s fourth marriage, these efforts immediately become bright red flags for skepticism. Can a multinational consumer products company really teach us to reduce waste? How can a company that has historically sourced cocoa at the hands of child labor transform into a leader in developing rural farming communities? Does anybody really trust the McDonald’s healthy food menu?

According to Michael Porter, famed Harvard business strategist, profitable business is the only infinite means for creating societal value, and the most powerful force for addressing the most critical challenges we face.

The magic of shared value

Porter has coined the term "shared value" to define a concept by which companies become more competitive while simultaneously alleviating social problems in communities where they operate. Listen to Porter, and you’ll hear talk of magic.

“Shared value is about tackling societal problems with a capitalist business model… When we can get the activity into the capitalism bucket, we create magic because we can scale!”

Now, before you dismiss such references to the supernatural or praise of an economic system shadowed by mixed connotations, consider the sudden emergence of shared value on the global scene. In just a few short years, shared value has blossomed from a term essentially confined within an academic textbook to a force redefining the central ethos for many of the world’s largest companies. Suddenly, this magic does not seem so unfathomable.

The evolution of shared value 

Historically, companies interacted with society through philanthropy. What started as simple donations to good causes evolved to strategic investment of a business’s greater resources and core competencies to address social or environmental issues – what many call CSR. Porter describes corporate philanthropy and CSR as fundamental building blocks for shared value but “shared value is different because it has the magical property of scalability.” The greatest distinction between shared value and CSR is that shared value is not on the margin of what companies do but at the center. It is important to understand these distinctions because doing so enables us to consider more intelligently the ways businesses can create value for society.

It’s also important to recognize that shared value should not be adopted in place of CSR, but as a complement. Take the example of Nestlé, the corporate pioneer of the shared value revolution which now invests 80 percent of its resources toward creating shared value, but without taking away from the historic 20 percent invested in CSR programs. [Ed note: Join TriplePundit, CSRWire and Nestlé Waters North America for an upcoming twitter chat on #sharedvalue June 18th at 1:00 EDT, more info here.]

On May 22, the 3^rd Annual Shared Value Summit gathered top executives from Nestlé’s corporate office in Switzerland, Rio Tinto’s mining operations in Mongolia, and Samsung’s business units in Seoul, South Korea, to discuss shared value and its critical role in our future economy. Mark Kramer, Founder & Managing Director of FSG explained why shared value is both a moral and business imperative for the companies that will drive our future: “Biz has always been very good at meeting customer needs but businesses today won’t grow by meeting conventional needs in conventional ways.” According to Kramer, growth in our future economy will come not from more or new products, but from meeting new needs and advancing the social condition. “We need more nutrition, not more food.”

Shining examples of shared value

How does this look in practice? It starts with reimagining a needs-based mission statement. Consider Nestlé’s evolution from a food and beverage company to a nutrition company. We’ve all watched Nike victoriously transcend the apparel and footwear industry to become the face of individual empowerment over personal health and wellness.

Another impressive example is GE’s highly profitable efforts at addressing environmental issues and challenges in healthcare. Ecomagination and Healthymagination have each generated new products and revenue streams while engaging stakeholders and bolstering capacity for cutting-edge innovation.

But shared value isn’t just about pursuing new business opportunities. It is about partnership collaborations across sectors to tackle local issues. Michael Porter calls this “local cluster development.”

A leader in local cluster development, Cisco offers a great example of the potential for shared value in rallying cross-sector approaches to tackling social challenges like education and job placement for underserved populations. Through it’s Networking Academy, Cisco partners with schools, government agencies, nonprofits, and other organizations in regions from Brazil to South Africa to leverage its expertise in cloud technology toward providing education and career readiness for students considering high-demand IT careers.

That’s not all. Cisco works with Futures Inc., a talent management software company, to facilitate job opportunities for underserved students and army veterans. Together, Futures and Cisco developed the US IT Pipeline to match underserved students and army veterans to STEM jobs based on their qualifications and interests. The results have been nothing short of mind-blowing. Of veterans who completed the pre-matching profile in a recent sample, half received a job offer within 48 hours.

How does shared value enhance Cisco’s ability to compete as a profitable business? Ask Kathy Mulvany, Senior Director of Cisco Corporate Affairs: “If you are aligned to your core competencies and you align to your biz strategy, you’re then going to drive biz value as much as you’re going to drive social value. For example, Networking Academy is providing value to Cisco by not only driving brand awareness but also by creating a competitive job market in regions where our business, and our need for trained ICT professionals, is growing. A skilled ICT workforce also benefits our customers and partners around the world.”

What can we expect of an economy where our most successful companies are those that serve society? Perhaps magic is not so far off. Our good friend Aman Singh of CSRwire talks about the sudden shift in how our leading companies are communicating their values: “A year ago, they would tell me 'CSR is embedded in our DNA.' Now that statement has evolved to 'Our culture has always been about creating shared value.'”

[Image: Creative Commons]

[Image: 2013 Shared Value Summit]