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Shared Value: An alternative to corporate social responsibility.

December 5, 2011

At the Shared Value Project, we frequently hear business leaders, academics, and community advocates heralding shared value practices as an exciting replacement for outdated corporate responsibility programs.  While this is true, we must understand how a true shared value approach differs in motivation, interaction, strategy, and practice from more establishing business-community relations.  Clarity of vision is crucial for shared success.

The Established Approach:

The popularity of traditional corporate social responsibility programs grew as corporations began to devote more attention to how their business operations affected various sectors of society, particularly those not immediately affiliated with their company.  From the 1970s, this ‘stakeholder perspective’ of business exposed both the positive and negative influences of business models, and in turn, led to the creation of new community engagement programs.

These CSR initiatives developed as tools to mitigate harm and to improve positive perceptions of a company, while simultaneously winning the support of new customers.  They served as a self-regulating mechanisms which attempted to ensure that businesses remained compliant with relevant laws, ethical standards, and community norms.  Such programs were defined by charitable acts, funding partnerships, and marketed sponsorship arrangements.

We can now observe four key motivations that have influenced corporations to initiate corporate social responsibility programs since their inception.  These motivations have been articulated in the Harvard Business Review by business scholar Michael E. Porter and Mark Kramer of FSG Social Impact Consultants.

  • Moral Obligation:
    A sense that a company has an inherent duty to remain accountable to legal, social, and ethical standards.
  • Sustainability:
    A desire to ensure sustainable growth by creating the impression that the business is beneficial or even essential to the good of society
  • License to Operate:
    A wish to gain the implied approval of other businesses, government, and the communities in which a corporation operates.
  • Reputation:
    A goal of improving the ‘value’ of a business by attempting to craft a positive image and brand that will in turn generate community trust and loyalty

So why has the Shared Value Approach emerged:

The Shared Value Concept was initially articulated from a business perspective, in an attempt to offer an alternative to the following limitations of CSR programs:

  • A realisation that CSR programs are inevitably palliative; often focused on avoiding conflict between government, business, and community stakeholders, despite the charitable nature of programs themselves.
  • CSR programs are now failing to produce social impact on a meaningful and required scale. Our most pressing and complex socio-economic issues require sophisticated and multifaceted solutions, rather than isolated initiatives.
  • CSR programs are doing little to strengthen a company’s long-term competiveness and sustainability.  This is primarily because initiatives remain at the periphery of a business’s growth strategy.
  • A rise in public cynicism, disenfranchisement, and a distrust of big business in the wake of the GFC has also limited the ability of CSR programs to improve a corporation’s brand and to ensure public loyalty.

How does it differ from Corporate Social Responsibility?

It places a company’s desire to produce positive change at the very centre of its growth strategy.  By unleashing businesses which act as businesses, rather than as charitable donors or mitigators, we also unlock perhaps the most powerful tool in addressing the persistent socio-economic issues of our time.

By concentrating on the interdependence of societal wellbeing and economic progress, shared value frameworks move beyond the seemingly default tension between business and community.  In the words of Michael Porter, this connection has “the power to unleash the next wave of global growth”.

Shared Value practices open up new customer needs and markets by redefining value chain configurations and reconceiving products; extending the strategic positions of businesses and creating new growth opportunities.

The promise of creating shared value is a compelling incentive for businesses to work productively, professionally, and sustainably with both government and community advocates.  With a shared value strategy existing at the centre of a company’s growth and competition strategy, business agendas align with community interaction and are supported by increased budgetary funding.