Introduction
Today, organizations are trying to end certain paradigms with which they have been working for a long time. Entrepreneurs and shareholders seek a way to make their business or company improve in all aspects in such a way that it is more sustainable, and thus increase the durability of the company.
For the creation of shared value, it is necessary to take into account that, more than a philosophy, it is a management tool and instrument that helps to continuously redesign the organizational culture of a company, with the purpose of generating commitments with other companies, and the society, to improve or develop new projects, which motivate and increase the interest of the individuals involved, in short, the creation of shared value is a new way of directing and guiding companies, which offers a method from a point of view humanistic and inclusive, where administrative thinking and its ethical values acquire greater importance to organizations.
In this research work, we will see the beginning of this new philosophy and its transformation for its use in companies, the methodology imposed by several thinkers who have contributed ideas of this philosophy, the differences between several companies or organizations that have converted to shared value as a fundamental tool for its development and sustainability in the market, as well as success stories and its importance today.
1. Beginnings of Shared Value
The creation of shared value is a theory introduced for the first time in the Harvard Business Review, in an article called "Strategy and Society: The link between competitive advantage and corporate social responsibility" at the end of 2010, this being taken up and justified in early 2011, in an article by Michael E. Porter, entitled "Creating Shared Value: Redefining Capitalism and the Role of Organization in Society" and also by engineer and business philosopher Mark R. Kramer, in the Kennedy School of Harvard University.
Porter and Kramer are considered the pioneers of shared value within business strategy, shared value has been a term used since mid-2008 by companies such as Nestlé, Google and Mark & Spencer, among others. This article provides detailed information on the links that may exist and deepen between business strategies and corporate social responsibility.
Porter and Kramer defend shared value and say that shared value or Shared Value is a novel way of managing the company aimed at creating value for all those involved and not only for the entrepreneur and shareholder. Although there are also skeptics who do not share ideals with the shared value technique since this tool is still in its infancy, and the degree of importance it can have in a company is still unknown, and like any tool in its beginnings it has many pros and cons, perhaps in the long run, the use of this tool forges the foundations of many companies, and reinforces that of other existing ones.
Many organizations today assure that this tool is the key to the future permanence of a company in the market, but there are others who say that it is only a waste of money and effort and only time will achieve and the situation of the modern world will give guidelines for this technique to flourish or be destroyed.
2. What is Creating Shared Value within organizations?
The competitiveness of any company in the market depends on the internal and external factors that are interacting with it, one of these external factors is the community, if the community that surrounds a company is economically bad, the company will be in a similar situation. The community needs successful companies that can generate jobs and give society the opportunity to generate assets, assets and wealth.
The interaction that exists between the company - community involves both moral, ethical and governmental rules, making companies less productive and therefore less competitive, with no interest in investing in the same company, much less in the community, or paying anything back to the community. society.
From this point of view, the companies chose to stop contributing to society and change their strategy, and consolidated themselves only as "sources of capital," and put aside social and environmental considerations to save or increase the economic part and the problems that happen to the community must be solved by the community and the government. From there, an area of opportunity for growth and improvement of companies is born, from a social perspective, called shared value.
Shared value is to give the community the technological, economic and social impulse within the community with which it interacts, as well as with other companies, government and the environment, which interact directly or indirectly with companies.
Shared value, simply put, is recognizing the needs of society, both economic and non-economic, and giving something back. Either by increasing jobs, motivating and encouraging the supplier and distribution companies that are related to the company, among others, to innovate or improve technology.
So, shared value is not about ethical, moral or personal values that were instilled at home, nor is it about sharing the profits that a company achieves with work and effort and giving it to the community, shared value tries to expand and innovate the economic and social value.
That is, it is to advance with growth techniques and continuous improvement to strengthen local groups, in order to increase their efficiency, production, quality and sustainability of their products. And that leads to a greater amount of profits, income and profits that can benefit everyone, both the company that produces, and the companies that buy your product.
For example, a company dedicated to the production and sale of ice cream and cold water, one of its main suppliers is the producers of drinking water, the shared value is not exercised if it is about increasing the salaries of the individuals in charge of the process of purification of water and its sale, but in improving the techniques, process and technology for its purification and packaging, increasing the quality of its products, this in turn increases the quality of the taste and consistency of ice cream and cold waters, and thus generate more consumers. As there are more consumers, more volume of water will be required to make more ice cream and cold water and thus increase the sales of the water purification company. That is shared value.
As in any innovation, it may take a strong initial investment and time to implement the new practices, develop a group specialized in the development of this technique, but as a result it will increase the economic value and therefore generate more benefits both for the company and for all participants.
In the words of Porter and Kramer, shared value works for any company in society, whatever the time, as long as the necessary factors and measures are taken in favor of the elements of the company's environment, but success or the failure of the business, depends entirely on everyone involved in the process of executing the shared value.
3. Principle of Shared Value
Currently, companies want to obtain profits from their businesses in the short term, let's not think of large or international or world-renowned companies, let's think of SMEs, which only think about short and medium-term factors but do not foresee or take those factors into account. that can determine long-term success. And large companies, perhaps if they foresee all those internal and external factors that can affect the business, but also generate distrust and discontent on the part of society, since they are seen as the main cause of problems in society, both social, environmental and economic.
Porter and Kramer assure that winning and growing only in economic value is not the only thing that should matter in an organization.
The basic principle of shared value is the creation of economic and social value in communities, called by Porter and Kramer as a virtuous business-society circle, which implies operational policies and practices that increase the competitiveness of a company, and at the same time improve the economic and social conditions of the community or communities in which it works, and thus promote the transformation of the company and destroy the paradigm of "win win" turning it into "win, share and win".
For a company to achieve a better company-society relationship, it is necessary:
• Demonstrate responsible and honest behavior, guaranteeing compliance and sustainability in the production process.
• Deliver value to the suppliers and workers involved, as well as strengthen relationships with society.
• Examine the participation channels together with the community and make long-term investments, which benefit both the community and the organization's shareholders.
• Caring for and preserving the environment as the basis of the organization and of a sustainable business, the shared value forces us to understand the need to take care of the environment since any company is intimately bound by the future of the planet.
Additionally, the training of new leaders is required to develop new knowledge, new paradigms and competencies, as well as a greater consideration of the needs of society.
Porter and Kramer state that, for the creation of the virtuous circle between the company and the community, there are 3 routes or paths that a company can take. Each of these routes are part of the virtuous circle of shared company-society value, since the theory expresses that by improving in one area, new areas of opportunity are generated in the others.
These routes are (Porter & Kramer, 2011):
• Redesign of products and markets
• Redefinition of productivity in the value chain
• Development of clusters in local companies
4.1 Redesign of products and markets
Different social needs such as health, nutrition, help for the elderly, better housing, financial security and less damage to the environment, to name just a few, are areas of opportunity for different companies to develop ways of analyzing demand and producing. the requirements that satisfy those needs, but companies have forgotten the most important thing, the customer.
It is true that they are always looking for new methods to attract more customers and it is always believed that better quality or better presentation is all that is required to satisfy customers, but never, no company should forget this fundamental question: Are our products good? for clients or for our clients' clients?
What does it mean to have a "good" product for customers? Well, it is to produce a tangible or intangible good that meets the needs of the customer, without forgetting the price, status, customization and other factors that respond to social needs, which are always one step ahead of companies.
A very graphic example of this are the companies dedicated to the elaboration of food, which now no longer focus only on the quantity and the taste of the people, now they focus on the need for better nutrition and less use of preservatives. In this way, numerous new avenues of innovation are opened, and thus create shared value.
In places where the economy is highly developed, the demand for products and services that integrate social needs is constantly increasing.
Society's profits will increase as businesses will often become more effective than governments themselves, and nonprofits will encourage consumers to adopt goods and services that generate social benefits, such as healthy or friendly food. with the environment, there may even be equal or greater opportunities to help economically disadvantaged communities or developing countries.
Many of these companies, if not most, do not look for areas of opportunity in places with limited economic resources, despite the fact that social needs are even more urgent in economically disadvantaged communities and they are not recognized as viable markets. As companies begin to work in poorer communities, opportunities for economic and social development and progress will increase exponentially.
For an organization, the starting point to create this type of shared value is to identify all the social needs, benefits and harms that the company's products or services can cause. These opportunities are constantly changing as new technologies become available and social priorities are adjusted according to their needs.
A study and analysis of current social needs would lead companies to discover new areas of opportunity for the redesign of products or repositioning in traditional markets, and the recognition of markets that had not previously been taken into account.
When meeting new needs, it will also require the redesign of products or different distribution and logistics techniques. These requirements can be the basis for a number of fundamental innovations that can be applied to traditional markets.
It must always be taken into account that the main reason for the expansion of companies or the creation of new companies to other markets or consumer segments is to increase the competitive advantages of the organization and social affairs.
Product and market redesign integrates numerous social variables that can generate productive benefits to any organization, as can be seen in Figure 1.
4.2 Redefining productivity in the value chain
There are times that the value chain1 is affected by different social issues and in turn affects both positively and negatively, such as natural resources, health, social security, working conditions, discrimination, to name a few.
This is where an area of opportunity is created for the creation of shared value since social problems can, for the most part, create internal costs for companies.
Today the interaction between social progress and productivity in the value chain is much more intimate than previously believed. The business-society relationship increases when businesses try to deal with social issues from a shared value perspective and invent new ways of solving and tackling problems.
Currently there are many companies that day by day try to do their bit and improve the environment, either by changing or improving their technology, or with new methods and techniques for the use or reuse of resources, increasing efficiency in both processes manufacturing and product quality.
Shared value directly attacks certain specific areas that can undoubtedly give a new focus to productivity and an increasing focus on the importance of reducing costs in the short term.
4.2.1 Energy use and logistics
Defining new ways of using and consuming energy along the value chain, generates new opportunities for changes for the company and for society, the use of electrical energy used in transformation processes, or the fossil fuel used for machines and transportation, result in increased costs in the manufacturing process or transformation from raw materials to products, as well as damage to the environment and the community due to gas and carbon emissions that grows every day, becoming a global problem.
Some companies have chosen to use new technologies that can make better use of energy, the ideal is to recycle and use it in various practical ways, and thus affect the environment less, generating shared value.
Transportation raises the price of products, and not only because of the cost of energy, but it also raises inventory costs and administrative costs. The logistics systems are constantly redesigned in order to reduce distances, these improvements in distribution and logistics bring as a result a considerable decrease in the prices of products in the market and at the same time the reduction of less fuel emissions to the environment.
4.2.2 Use of resources
It is not new to hear the phrase "Socially Responsible Company", which the company makes the decision to abide by a series of rules and regulations for social, economic and environmental benefit, in order to improve its image in the community or expand to other markets. Shared value generates the opportunity to visualize all the resources involved, not only as the use of water and raw materials, but also to improve other resources such as those given by the supplier, such as packaging or boxes, and thus increase the value chain, in this way reduce the amount of garbage that is generated daily.
4.2.3 Acquisition of raw materials
Companies try to lower their costs by making deals, sometimes unfair, with supplier companies, even looking for suppliers that are in other communities or other countries, in order to reduce costs.
Companies today must leave that paradigm behind and begin to understand that their suppliers, if they are not given the opportunity to grow, will not grow, much less improve production or quality.
If companies will increase the purchase of inputs, share and offer financing for processes and technologies, companies can improve the productivity and quality of the material received by their suppliers and in turn ensure better productivity and quality in their processes and products. By improving processes, costs will be lowered and therefore lower prices.
If the growth of suppliers improves both in technology and production, the environmental impact will be less, thus boosting the efficiency of the company in all its resources, creating shared company-supplier value.
4.2.4 Product distribution
The opportunities to generate new distribution methods help to reach new markets that can drastically reduce the use of elements and materials that harm the environment, such as the use of plastics for packaging and product displacement, as well as the decrease in the use of the paper.
There are companies dedicated to the delivery of goods and services at home, these companies create distribution routes, where they take a product from the company to the consumer. Currently self-service companies such as supermarkets, promote the use of reusable bags that reduce pollution made by plastic, and less use of paper to take food from the store to the home.
4.2.5 Employee productivity
Companies try to reduce labor costs, keeping wages low, and reducing benefits for employees, generating a demotivation in human capital. Organizations must, in order to improve the management of their human resources, improve the physical, moral and economic well-being of their workers, as well as guarantee their safety within the company.
Many companies make relevant improvements in the different work areas, so that business hygiene and safety does not have a negative impact on costs and expenses, both indirect and direct, since the lost in working hours reduces the productivity of the company.
Preventing accidents, and having a commitment to employees in granting them the security of a job with a decent and fair salary, in a fair work schedule, increases the value in the business chain, and in turn employees will feel more motivated. they will put on the “company shirt” and improve their productive work. By feeling part of the company, their work will improve and idle times will decrease, direct dealings with customers will improve. That is creating shared value.
4.2.6 Company location
The idea is simple, the cheaper the location, the better. A business will do better depending on where it is located, and also the type of community around it.
Some factors that can contribute to the success of a company are both the public and private services found in the community, others are the roads or access routes for the suppliers and also the exit routes to other locations.
Just as in a community that provides us with good water and electricity service, we could also place a company in a community where water is scarce and electricity is not the best, our processes will undoubtedly decline.
The location of a company is a key element for its development and growth, and there are times when entrepreneurs have no choice but to rearm their value chain and move some or all of their activities to another part and even other countries.
Shared value offers the option of joining efforts with the community, and taking measures that allow innovation, development and implementation of technology or techniques for mutual growth and thus generate value not only for the company, but for social development, the creation of new businesses around this community, and therefore more jobs for the individuals involved.
4.3 Development of “clusters” of local companies
Porter claims that "no company is self-sufficient." There is no company that can carry out all its activities alone, it needs other companies to be able to survive and the cultural, social and political infrastructure that surrounds it. That is why the need for clusters2.
These clusters are not only other companies, but they can also be institutions of other kinds, such as schools, universities, commerce and associations, since these clusters are frequently developed in growth regions and playing a determining role in terms of production, innovation and competitiveness within the same society.
These clusters have create a cost determinant for companies of any kind, for example education, if in a community there is poor public education, it imposes costs in productivity and consequently a greater investment to be able to train and induce people to a life labor. Another case is the transport infrastructures raise logistics costs, unions, and others, which are cost generators for companies.
A key aspect in the construction and development of these clusters is the formation of new open and transparent markets. Corruption, bad habits, and the low acquisition of raw materials from suppliers are variables that dramatically affect the productivity levels of any company. That is why it is necessary to promote reliable and fair markets, which have well-established moral and ethical principles, both with their own staff and with the people of the society that surrounds them, with good strategic alliances, to ensure more reliable suppliers and efficient. In this way, economic income increases as well as the purchasing power of consumers, since they have the confidence that they will pay for a service or product that satisfies them in every way.
In order to improve these clusters in the communities where they are located, it is necessary to identify each and every one of the areas of opportunity that arise, and the deficiencies in each area, such as suppliers, distribution channels, logistics, training, trade, and schools of any kind.
Then it is necessary to focus on the weaknesses represented by having greater limitations of the company in productivity and growth, and analyze and be able to differentiate those areas in which the company can directly influence from those in which collaboration is more expensive, that is, the Shared value here is reflected directly to a special or specific area, and thus offer more benefits to both parties.
Initiatives that try to attack those weaknesses that harm the company are much more effective by focusing only on a particular point, but one of the disadvantages is the unavailability of the people involved outside the company (clusters) to carry out or change the way they do things, because they do not have the knowledge that, in the long run, will bring them a greater benefit, another disadvantage is the costs, since the investment is greater, but also the impact is much greater.
5. The importance of shared value today
Creating shared value requires a great ethical and moral, social and legal sense, as well as trying to fix the mistakes made previously with the company. The opportunity to create economic value through creating social value is one of the most innovative trends to create economic growth globally.
This way of working is to think not only of the consumer as a client, but also as a human being and take into account their fundamental needs, needs that must be covered, and thus create markets that can satisfy them but also contribute to preventing these people. have other social and economic needs and get the best out of each community where the organizations are located, even create links with other organizations to grow and also create trust again in the community towards companies.Creating shared value means giving a new approach to the management and administration of organizations and businesses. Any company is concerned about social and economic needs, because they know that they will affect their sales and costs,but they do absolutely nothing to remedy the problems, on the contrary, they generate more problems for society. For a company to be able to guarantee its position in the market, it must also think about the society that surrounds it, the environment of which it is also a part and the economy that undoubtedly affects any of the decision-making of any company.
In short, shared value has the importance of making a company generate economic value, as long as it generates social value, either by offering more jobs, insurance and better paid, offering advice to small businesses that trade the product., implement management models in the educational model, to name a few.
Not all the problems of society can be solved with the help of shared value, but this theory offers companies the opportunity to use their resources to generate a much better and more adaptable social progress that the same governmental and social organizations can achieve, and also win the admiration and respect of society.
6. Success stories
• Nestlé
A pioneer company of shared value worldwide, this company helps finance its suppliers of coffee beans so that farmers have a better wealth and standard of living, thus increasing their productivity in the harvest of coffee beans and helping to increase and improve Nestlé sales, Nestlé also supports society by helping and providing financial support to improve the infrastructure of the communities where the company is located in order to improve the way in which drinking water is transported and improve quality of your processes.
He manages a strategy of continuous improvement in the productivity of his company, offering his employees creative freedom, thus creating a friendly and close organizational culture with his workers, with this he intends to offer a better service to his consumers. Another of their innovative ideas is that their work offices, have solar panels, and renewable energy, once a week they contribute money to the United States government for the creation of more free green areas for the commitment to have free wireless internet networks.
• Marks & Spencer
The greatest impact of this company is on the environment and society since they try to ensure that the products they sell and the way they are used are of the highest quality, motivating and supporting their suppliers to manufacture sustainable products, at their own expense. instead of improving distribution and logistics channels to reduce pollution caused by the emanation of gases and carbons.
7. Differences between ESR and CVC
A Socially Responsible Company (ESR) and the Creation of Shared Value in an organization have small differences but the degree of impact is different, as we can see below in the following comparative table:
"Creation of shared value and development of labor competencies in the strategic management of human capital in a water purification plant"
Objective:
Prepare a strategic management plan, introducing the theory of shared value for a better labor development of human resources in a water purifier.
9. Conclusions
We can conclude that the shared value aims to generate value for both the company and the community, the central premise behind the creation of shared value is that the competitiveness of a company and the health of the surrounding communities are mutually dependent. There is a very narrow line that joins social and economic progress on the productivity of a company.
Companies can create areas of shared value opportunity in three ways:
• Redesign of products and markets
• Redefinition of productivity in the value chain
• Development of clusters in local companies
Shared value should not be seen as just another technique that tries to help the community and reduce environmental pollution, but rather as a way to increase the value of a company's production chain.
1 Value Chain or business value chain, is a theoretical model developed by Michael Porter, which describes the development of activities inside and outside an organization in which value is generated, from the production of the good or service until reaches the end customer's hands.
2 Clusters: It is an industrial term, introduced by Michael Porter in the early 90's, it is a group of interconnected companies and associations, which have comparative advantages based on their geographical location, develop associated industrial activities and obtain benefits from their common and complementary characteristics.
Bibliographic references
Nestlé Corporation. (September 13, 2008). Nestlé.org. Retrieved February 2012, 18.
Porter, & Kramer. (January 1, 2011). Harvard Business Review. Retrieved on February 19, 2012.
RSE, A. (June 2011). RSE.com shares. Retrieved February 18, 2012.
Wikipedia.org. (sf). Retrieved February 20, 2012.
Wikipedia.org. (sf). Wikipedia.org. Retrieved February 22, 2012.
