According to Michael Porter’s and Mark Kramer’s shared value concept, the solution lies precisely in resolving this conflict of objectives: The aim is to create economic value in such a way that it simultaneously benefits society.
In today’s corporate world, which is characterised by constant change and growing social responsibility, managers are increasingly looking for approaches that not only promise economic success, but also have a sustainable, positive impact on society. In this quest for a holistic way of thinking, Michael E. Porter’s and Mark R. Kramer’s concept of “Creating Shared Value” takes centre stage.
With this approach, the authors call for a redefinition of business objectives and a move away from the traditional focus on profit maximisation. Instead, they propagate an innovative approach in which companies not only create value for their shareholders, but also actively contribute to solving social and environmental problems.
Their argument’s starting point criticizes the traditional capitalist system, which, by focussing on short-term financial performance, neglects non-economic (social and ecological) aspects. According to this traditional view, companies only contribute to society through their profit-orientation, for example through jobs, investments, and taxes. Social contributions that go beyond this are associated with negative effects on the company’s profitability. Responsibility for social issues is therefore passed on to governments or NGOs, which in turn attempt to solve these social problems at the expense of business: Companies must be taxed, regulated, and penalised to counteract the externalities (e.g. pollution) or social costs they cause but do not have to bear. This creates a trade-off between economic efficiency and social welfare.
According to Michael Porter’s and Mark Kramer’s shared value concept, the solution lies precisely in resolving this conflict of objectives: The aim is to create economic value in such a way that it simultaneously benefits society. The shared value approach thus combines corporate success with social prosperity. The focus is on strategies that increase a company’s competitiveness and at the same time improve economic and social conditions – particularly in the regional environment. At the same time, the improved link between corporate success and social values should open new opportunities to satisfy needs, increase efficiency, differentiate from the competition, and conquer new markets.
The possibilities for implementing this concept are context-specific, but Porter and Kramer identify three basic methodologies:
Putting products and services to the test.
According to the authors, the first method is to scrutinise the existing range of products and services: Does it provide a benefit to society (not just to customers but also to those customers’ customers)? Are there any harmful characteristics that have a negative impact on society? How can shared value be created through completely new innovative approaches? Sonnentor, Grüne Erde and Zotter are a few examples of companies that are already successfully pursuing this approach.
Rethinking value and supply chains.
However, it’s not only products and services, but also the design of a company’s value chain that has an enormous impact on our environment and society – things like resource consumption, logistics, and working conditions, for example. In line with the shared value concept, the value chain should be reorganised in such a way that both – benefits for society and productivity benefits for the company – can be generated. The authors provide a variety of starting points. For example, both ecological and economic benefits can be generated by increasing energy efficiency, optimising supply chains, or reducing and reusing resources. Furthermore, in a time characterised by an increased awareness of social responsibility, cooperation with suppliers plays a decisive role. The joint utilisation of expertise, technologies, provision of financial resources and much more should not only generate quality and efficiency advantages, but also social and ecological benefits. Here, the Zotter company provides a good example of how partnership-based cooperation with cocoa farmers can succeed. The Zotter company ensures fair prices, provides support for quality cultivation, and protects people and biodiversity clearly demonstrating how suppliers and employees are given high priority under this concept. Treating employees with respect through fair wages, safety, well-being, and training and career opportunities not only has a high social value, but also has a positive effect on productivity.
Creating added value for entire regions with cluster thinking.
Finally, the third method in Porter and Kramer’s approach is in the promotion and development of local clusters. By this they mean geographical concentrations of companies, associated companies, suppliers, service providers, academic institutions, and associations, as well as logistical infrastructure and public institutions. Promoting the region or such clusters benefits the company itself and is an important success factor. Cluster thinking focuses on the connection between the success of the company and the success of the community – a good example of this is TGW Future Privatstiftung [https://www.tgw-group.com/de/unternehmen/verantwortung]. The aim is to recognise deficits in the region such as insufficient know-how, poor training and lack of infrastructure to develop strategies to address the deficits, which will in turn benefit the company itself.
It’s Win! Win! Win! – for the environment, society, and the economy.
With these different methods, the shared value concept offers new opportunities to meet new needs, increase efficiency, achieve differentiation, expand markets, and redefine the boundaries of capitalism. Porter and Kramer even argue that shared value could drive a wave of innovation and productivity growth in the global economy, as it opens the mind to new human needs that must be met, large new markets that must be served, and the internal costs of social deficits – as well as the competitive advantages that result from eliminating them. Such strategies can also help to improve the company’s image, resource management, and customer loyalty, thus enabling better preparation for potential challenges and risks, including market risks, reputational damage, and future environmental and regulatory requirements.
It’s not all roses though.
Of course, the “shared value concept” also has associated challenges and risks – such as additional costs, reorganisation of processes and supply chains, or resistance from shareholders to name but a few. Often, the benefits of the shared value concept only become visible in the long term which is also creating a major challenge for many managers.
A prudent approach to the integration of shared value practices is therefore crucial to maximise the benefits and manage potential risks. Companies should focus on their most important business areas when designing their individual shared value concept. This is where a company can contribute most of its resources, benefit the most economically, and therefore maintain its commitment and influence in the long term. In this way, companies should be able to contribute not only to economic progress, but also to environmental and social progress in society.
Source: Michael E. Porter and Mark R. Kramer (2011): Creating Shared Value; Harvard Business Review; January – February 2011
About Regina Gattringer
Regina Gattringer is a professor at the Institute of Strategic Management at the Johannes Kepler University in Linz. Her current research activities focus on the areas of open strategy and foresight, and thus on the question of how companies can organise their strategy processes in a more open and future-oriented way to better prepare themselves for the opportunities and challenges of the future. Her findings in this area have been published in renowned scientific journals.
Regina Gattringer
Institute for Strategic Management, Johannes Kepler University Linz
Related articles
Insured by Algorithms
The insurance industry is undergoing a profound transformation, driven by the rapid adoption of AI and predictive analytics.
Beyond Moving Cargo: Why Employee Well-Being Is the Real Asset in Logistics
In today’s employee-driven market, especially for Gen Z talent, benefits aren’t just perks – they’re strategic tools for attraction and retention
The New Edition of FORWARD Magazine Is Now Available
GrECo is proud to present the latest edition of our client publication, FORWARD Magazine—now live and ready to explore.
