Publication

Shared Value: A New Way of Business Success

11 2017 August
Executive Education INCAE
 

The economic success of a company is directly related to its competitiveness. However, business logic makes it increasingly clear that no business can be successful if the community where it operates is not. 

“The competitiveness of a company and the health of the communities where it operates are strongly intertwined. A company needs a successful community, not only to create demand for their products, but also to provide critical public assets and an environment that supports the business, "say Michael Porter and Mark Kramer, in an article that made them the academic gurus on the subject. 

"A community needs successful businesses that offer jobs and wealth creation opportunities for its citizens," they add.

With this approach, a concept that goes beyond social responsibility, philanthropy and sustainability is increasingly being coined with force. 

This is the Shared value which, as defined by Porter and Kramer, focuses on identifying and expanding the connections between economic and social progress. In this way, the generation of business economic value is related to and depends on the creation of value for society.

But how do you create shared value? There are three different ways to do it: Reconceiving products and markets, redefining productivity in the value chain, and building support clusters for the sector around the company's facilities.

“Each one is part of the virtuous circle of shared value; increasing value in one area increases opportunities in others, ”the authors add.

The essence of the theory of Porter and Kramer consists in affirming that capitalism has failed to attend to the most important needs of society, such as health, the generation of well-being, nutrition, the protection and preservation of the environment. 

For this reason, and despite the fact that companies have sophisticated their products, they have lost opportunities for innovation and growth by losing focus on the true needs of society. It is necessary, and almost essential then, to rethink products and markets, since "to satisfy needs in underserved markets, redesigned products or different distribution methods are often required."

Redefining productivity in the value chain it is to understand that "the problems of society can create economic costs in the value chain of a firm". For this reason, it is urgent to internalize these problems and address them, in order to benefit society and the company. 

Local supplier systems bring business benefits such as reduced transportation costs and sourcing times. And among the social and collective benefits, the following stand out: the reduction of carbon emissions by reducing mobility needs, and the contribution to the economic development of the communities, generating a greater recognition of the brand by having a closer relationship with the community. Wherever you look at it, it is a win-win relationship.

Cluster building improves company productivity as “capable local suppliers foster greater logistics efficiency and easier collaboration. Having stronger local capacities in areas such as training, transport services and related sectors also increases productivity. And conversely, productivity suffers if you don't have a support cluster ”.

For all the aforementioned, conducting business integrating the concept of shared value in the strategy, allows possibilities of innovations in the markets, products and configurations of the value chain of the companies, ensuring economic profits in the long term and creating benefits for the society. 

“Shared value holds the key to unlocking the next wave of innovation and growth for companies. It will also reconnect the success of the company with that of the community in ways not perceived during the era of narrow management approaches, short-term thinking, and growing separations between the various layers of society, ”insist Porter and Kramer.


Excerpt from the article published by the Colombian newspaper El Espectador

 

Lead the sustainability of the business. The legacy of CEOs

Sustainability, Corporate Social Responsibility and Social Progress are strategic factors for the competitiveness and profitability of companies. If you haven't looked at it that way, this high-level program will give you a completely different view.
Next edition: September 18, 2017.

More information


Subscribe to our blog