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What is Creating Shared Value?

Discuss about the Management and the Organisation for Corporate Social Responsibility.

In the corporate world, one question has been simmering for a while, what is Creating Shared Value? According to Porter and Kramer (2006), CSV is a fundamentally new concept that focuses on how businesses can identify a social need that rhymes with their strategy and fulfill that need for the benefit of the society and the company. Kramer (2011) goes further to explain that shared value is concerned with the creation of new markets, innovation, and the creation of new opportunities that not only benefit the society but also increase business profits.

At the same time, CSV can be harnessed to create a sustainable competitive advantage by addressing social needs that neither governments nor the civil society organizations can fulfill. A good example is Novartis Pharmaceutical Company operating in India. The company realized that a huge population could not afford quality healthcare and decided to manufacture drugs at affordable prices. Consequently, Novartis benefited from a huge market of over 42 Million customers and addressed poor healthcare concerns (Kramer, 2012).

General Electric has benefited from a new venture that addresses clean water need internationally by creating innovative water purification systems that are environmentally friendly and affordable to millions of households. Toyota Ltd has addressed both environmental pollution and fuel efficiency by creating the Prius hybrid brand that emits lower carbon dioxide and significantly less fuel than other vehicles. Other motor vehicle companies are licensing this technology from Toyota. The market is replete with many such businesses which are profitable while benefiting the society (Porter & Kramer 2006).

Corporate social responsibility, on the other hand, is a cost enterprise (Kramer 2011). To be perceived as agents of social change, businesses are investing in four broad areas of CSR. These are; environmental sustainability, philanthropic concerns such as donating money, volunteering in events and addressing ethical and labour concerns, for instance, ensuring equal opportunity employment in the community (Fallon, 2017).

In economics, however, the primary reason why businesses exist is to maximize the wealth of shareholders. There is a raging debate about CSR and its role in businesses but it is commonly agreed that addressing social concerns is outside the strategy of many businesses (Porter & Kramer 2011)

Moreover, if businesses do not fulfill social expectations, they risk losing customers. An example is Nike in the 1990s when the company flouted labour practices in East Asia. In response, customers boycotted their products (Porter & Kramer, 2006). Another example is Foxconn a company outsourced by Apple INC to manufacture their electronic gadgets. Foxconn overworked staff in China and paid them poorly which resulted in an international uproar that led to a drop in their shares (Delios, 2010).

Examples of Creating Shared Value in Action

The response of many companies to CSR is analgesic, a window-dressing affair that is profoundly a sine qua non of NGOs, media, and government regulations. Those companies that have adopted the required paradigm benefit as the media and civil societies encourage customers to purchase their products (Porter & Kramer, 2006).

As already alluded to, the main difference between CSV and CSR is that whereas CSV is a concept concerned with exploiting new markets, opportunities, sustainable competitive advantage and maximize profitability, CSR is concerned with the duty of care to the society. It is a cost-based enterprise where businesses invest to attract customers. In detail, the differences can be summarized in table 1 below.

Table 1. Differences between CSV and CSR. Adapted from Machens (2015)

CSV

CSR

Scope

Holistic, proactive and focuses on the long-term interest of the company.

Narrow in scope, reactive to social concerns and focuses short-term interests.

Value

Benefits both the company and society. Concerned with profit maximization.

Benefits the society by doing a common good.

Trace

Meeting social need while benefiting the company.

Results from societal pressure, media, and NGO campaigns.

Markets

Aims at both old and virgin markets where a company explores new social needs to fulfill.

Concerned with old markets where the company has loyal customers and risks losing them by not doing CSR.

Budgetary allocation

Strategically covered by the whole company budget.

Budget set aside usually annually for CSR exercise.

The answer to this question is yes. Absolutely. A stretch from far back as the biblical times infers that it’s better to give a man a fishing rod instead of fish. The simple reason is that CSV creates sustainability instead of just solving a problem for a short time (Machens 2015).

A company sets to benefit more and create wealth for the society by identifying the social dimensions that can are in line with its strategy. By fulfilling a social need, the company not only establishes long-term business with the community but also helps in creating wealth for that community by paying taxes, offering employment, expanding transport networks among other beneficial activities (Reeves, 2012).

A company like Google that is renowned for its magnanimity towards its employees as part of fulfilling its social value benefits greatly from innovative ventures spawned by those employees. This helps it create a sustainable competitive advantage by having technology that is hard to duplicate while at the same time maximizing their profits (Delios, 2010).

Southwire is another good example that CSV can create economic and social value simultaneously. The company manufactures Cable in the United States of America. Faced with employee shortage, the company realized that a local high school had a high rate of student dropout. It partnered with the school to mentor the students and in the process ensured that nearly all the students completed their education. In return, South wire absorbed the students once they completed studies. In so doing, the company had a reliable workforce that enabled it to increase their profits by over 1 million dollars annually (Kramer, 2012).

Companies like PayPal a franchise of eBay and Skrill have enabled many workers across the world to take advantage of outsourced professional services hence improving their social and economic value while at the same time benefitting immensely from standard money transfer charges (Machens, 2015).

Corporate Social Responsibility vs. Creating Shared Value

A company such as Nestlé has created immense social value to small-scale farmers of cocoa, coffee, tea and cereals in developing countries by partnering with them and inculcating best practices in farming. Though this is seen as a backward integration strategy, Nestlé has ample too quality raw materials to ensure superior products in the market which enhances their competitiveness and profitability while improving the living standards of the farmers at the same time (Porter & Kramer, 2011).

For a company to practice CSV, it has to be profitable. Not many companies have the wherewithal to venture into CSV activities such as the social welfare provided by Google without being profitable (Delios, 2010).

Delios (2010) also argues that government regulations can also impair CSV, many foreign companies had to leave China when the Government introduced minimum wage legislation. This is because it led to increased costs which were untenable.

Industry regulations such as regulations on labour standards by the International Labour Organization ILO and setting standards on the conformity of goods and services also limits CSV as it requires high investments by enterprises and favours CSR (Crane, Palazzo, Spence, & Matten, 2014). 

Other limits on CSV and CSR can be exacerbated by media and NGO concerns. Once the civil society and media set precedent the yardstick businesses need to follow, then CSV is limited as companies shy away from social activities that may be construed as controversial (Porter & Kramer 2006).

Conclusion

From the foregoing, CSV has been highlighted as an important cog in enhancing social and economic values simultaneously. Various ways in which companies have been shown to create social value while benefiting from new business have been discussed. It is important to note that though the firm’s primary focus is maximizing profits. That can be jeopardized by failure to safeguard various social concerns like labour as was the case with Nike and Foxconn. Finally, the paper also focuses on the limits to CSV and how they impact on the business enterprises.

References

Crane, A., Palazzo, G., Spence, L., & Matten, D. (2014). Contesting the Value of “Creating Shared Value”. California Management Review, 56(2), 130-153.

Delios, A. (2010). How Can Organizations Be Competitive but Dare to Care? Academy Of Management Perspectives, 24(3), 25-36.

Fallon, N. (2017). What is Corporate Social Responsibility?. Business News Daily. Retrieved 16 April 2018, from https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html

Kramer, M. (2011). CSR vs. CSV - What’s the difference? | FSG. FSG-Reimagining Social Change. Retrieved 16 April 2018, from https://www.fsg.org/blog/csr-vs-csv-what’s-difference

Kramer, M. (2012). Better ways of doing business: Creating Shared Value. The Guardian. Retrieved 16 April 2018, from https://www.theguardian.com/sustainable-business/blog/creating-shared-value-social-progress-profit

Machens, F. (2015). Impact of the concept of shared value (SV) on developing countries (Creating Shared Value) (1st ed., pp. 11-18). Hamburg: Master Publishing.

Porter, M., & Kramer, M. (2006). Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, 84(12), 78-92.

Porter, M., & Kramer, M. (2011). The Big Idea: Creating Shared Value. Harvard Business Review, 89 (1), 62-77.

Reeves, J. (2012). What is 'Creating Shared Value'?. Forbes Welcome. Retrieved 16 April 2018, from https://www.forbes.com/sites/csr/2012/06/04/what-is-creating-shared-value/#2a43ec72bf10

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