Introduction
The relationship between companies and society currently has been seen in the midst of tension, because society believes that prosperity only resides in the growth and profit of organizations and does not make them grow.
Due to this, organizations have been forced to deal with this problem, and what we now know as corporate social responsibility has emerged.
Organizations have the idea that they must comply with social and community standards, in terms such as the environment, health, donations, etc.
However, the more companies have corporate social responsibility, the less they are trusted. Organizations for the most part have not understood the root of the problem.
Organizations and society should not be seen as different entities, but as fully connected entities.
In other words, organizations must create what is called "Shared Value", which will allow them to meet the needs of society, efficiently and productively; not only growing the company and making a profit, but also managing to have a profound impact on current social problems.
Background of shared value
In an old version of capitalism, companies contribute to society by generating profits, which allows creating jobs, paying salaries, making purchases and investments, and paying taxes.
Commerce has existed since civilization arose but capitalism as an economic system did not appear until the 16th century in England as a replacement for feudalism. Human beings have always had a strong tendency to barter, exchange and exchange one thing for another; this natural impulse toward trade and exchange was accentuated by the crusades that were organized in western Europe from the eleventh to the thirteenth century.
During the 15th century, expeditions and voyages encouraged trade, however the importance of production did not become apparent until the industrial revolution.
For the 20th century, financial capitalism began shortly after the end of World War II and continues to this day. One of the most important consequences in this century was the accelerated growth of the capitalist economy, many companies emerged and grew rapidly: industries, banks, business houses, etc. Competition between large companies favored the birth of large transnational companies, and by the beginning of the 21st century many sectors of the economy were monopolized.
Today companies have focused on attracting consumers to buy more and more of their products. With increasing price competition, organizations have been forced to restructure, downsize, resulting in little real innovation, slow growth, and no clear competitive advantage.
Concepts
In order to understand the concept of Shared Value, some key concepts will be defined:
- Value. Degree of utility or aptitude of things, to satisfy needs or provide well-being or delight. ("Dictionary of the Spanish language," nd-a) Share. Distribute, divide, distribute something into parts. (“Dictionary of the Spanish language,” nd-b) Capitalism. Unprecedented vehicle to meet the needs of man, in order to improve his efficiency and the creation of employment and wealth creation. (Porter & Kramer, 2011) Economic regime founded on the predominance of capital as an element of production and creator of wealth. (“Dictionary of the Spanish language,” nd-c) Innovation. Action and effect of innovating. Creation or modification of a product, and its introduction in the market Competitive Advantage. Any characteristic of a company that distinguishes it from the rest and places it in a superior position to compete.
What is shared value?
The concept of Shared Value according to Michael P. (Porter & Kramer, 2011) can be defined as:
"Policies and operational practices that improve the competitiveness of a company while helping to improve economic and social conditions in the communities where it operates."
Creating shared value focuses on identifying and expanding the connections between economic and social progress.
The concept of shared value recognizes that social needs, not just conventional economic needs, define markets. It also recognizes that social harms or weaknesses frequently create internal costs for companies, such as wasted energy or raw materials, costly accidents, and the need for remedial training to compensate for deficiencies in education. And it harms society and does not necessarily increase costs for companies, to the extent that they can innovate through the use of new technologies, operating methods and management approaches, and as a consequence, increase their productivity and expand their markets.
How do we create shared value?
Businesses can create economic value by creating social value. There are three different ways to do this: reformulating products and markets, redefining productivity in the value chain, and building support clusters for the sector around company facilities.
By better connecting the success of companies with the advances of society, many ways are opened to meet new needs, gain efficiency, create differentiation and expand markets. Creating shared value is equally possible in advanced economies and developing countries, even though opportunities may vary.
Reformulate Products and Markets
Unmet needs in the world economy such as: health, better housing, better nutrition, aid for aging, greater financial security and environmental damage, are examples of social needs. Many companies have lost sight of some basic questions: Is our product a good one for our customers? For our clients or clients? What needs do we have to cover?
For a company, the starting point for the creation of this type of shared value is to identify all the needs of society, of the benefits and damages that are or could be incorporated in the company's products. The opportunities are not static; they are constantly changing as technology evolves, economies develop, and society's priorities. An ongoing exploration of the needs of society, lead companies to discover new opportunities for differentiation and positioning in traditional markets, and to recognize the potential of new markets where they had been overlooked.
Meeting the needs of underserved markets often requires designing different products or distribution methods. These requirements can trigger fundamental innovations that also have application in traditional markets.
Redefine productivity in the value chain
The value chain of a company in an industry may vary somewhat in some elements of its product line, in customers, in geographic regions or in distribution channels.
From a competitor's point of view, value is what people are willing to pay for what is offered. Value is measured by total revenue, a reflection of the price charged for the product and the units it manages to sell.
The value chain contains the total value and consists of activities related to margin and values. They are physically and technologically specific activities that are carried out; they are structures by which a useful product is created for buyers. (Porter, 1995)
The generic value chain
The generic value chain
The value chain of a company inevitably affects, and is affected by it, numerous social problems, such as natural resources and the use of water resources, health and safety, working conditions, and equality treatment in the workplace. Opportunities to create shared value arise because social problems can create economic costs in the company's value chain.
Allow the development of local clusters
No company is a self-sufficient entity. The success of all businesses is affected by the companies and the supporting infrastructure around them. Productivity and innovation are highly influenced by “clusters” or geographic concentrations of firms, related companies, product and service providers, and logistics infrastructure in a particular area.
Clusters. They are geographical concentrations of interconnected companies and institutions that act in a certain field. They group together a wide range of industries and other related entities that are important to compete.
Being part of a cluster allows companies to operate in a more productive way in obtaining inputs; access to information, technology and the necessary institutions.
Clusters according to Porter (Porter & Kramer, 2011) can include not only companies but also institutions such as academic programs, trade associations and standardizing organizations.
They also take advantage of the public goods of the community in which they are located, such as schools and universities, drinking water, free competition laws, quality standards and market transparency.
Clusters play a crucial role in increasing productivity, innovation and competitiveness.
When a business builds clusters at its key locations of operations, it also amplifies the connection between its success and that of its community.
The competitiveness of a nation depends on the ability of its industry to innovate and improve; companies achieve competitive advantages through innovations.
Social problems and shared value
Businesses can monetize in many ways by addressing societal issues.
The following scheme Mark K. & Michael P. (Porter & Kramer, 2011) show the areas where organizations can obtain the economic benefits:
Company productivity
A clear example is when an organization invests in occupational health and safety programs; Because society benefits because employees and their families become healthier, and the organization reduces its levels of absenteeism and productivity losses (Why business can be good at solving social problems, 2013)
Shared value vs. Corporate social responsibility
Corporate Social Responsibility is a way of running companies based on the management of the impacts that their activity generates on their clients, employees, shareholders, local communities, the environment and on society in general. (“What is RSC,” nd)
Corporate Social Responsibility programs focus primarily on reputation and have only a limited connection to the business, making them difficult to justify and sustain in the long term.
In contrast, shared value takes advantage of the unique resources of a company to create economic value by creating social value.
|
Corporate Social Responsibility |
Creation of Shared Value |
|
Courage: doing good |
Value: economic and social benefits in relation to costs |
|
Citizenship, philanthropy, sustainability |
Joint creation of value between the company and the community |
|
Discretionary or in response to external pressure |
Integral part of the competencies |
|
Unrelated to profit maximization |
An integral part of profit maximization |
|
The agenda is determined by outward reporting and personal preferences |
The agenda is company specific and generated internally |
|
Limited impact by company footprint and CSR budget |
Realign the entire budget of the company |
Shared value for civil societies and government
Shared value also applies to governments and non-profit organizations alike. Governments and non-governmental organizations will be more effective if you think in terms of value, considering cost advantages, and focus on results rather than funds and efforts.
The principle of the creation of shared value cuts across the traditional division between the responsibilities of business and those of government and civil society. From the perspective of society, it doesn't matter which organizations created value. What matters is that the benefits are provided by the organizations or combinations of organizations that are best positioned to achieve the maximum impact at the lowest cost.
Foundations can also serve as intermediaries and allay fears by mitigating power imbalances between small local businesses, non-governmental organizations, governments and businesses. Such efforts will require a new hypothesis that shared value can only come as a result of effective collaboration between all parties.
Example of Creating Shared Value: Google
Google is a search engine that connects millions of users around the world with easy-to-access, daily information. Founded in 1998 by Larry Page and Sergey Brin, Google has grown steadily over time, allowing search in a large number of languages, as well as including various forms of advertising and web applications to perform all kinds of tasks.
In terms of its sustainability program, the goals include responsible water management and a commitment to being carbon neutral. To achieve this, the company has launched a portfolio of initiatives that include high investments in renewable energy companies, which has allowed it to progressively improve the reputation of its brand and risk management in each of its facilities.
Google is investing in researching renewable energy not only to power its operations, but also to invest in projects and foster growth for the industry as a whole (Google, nd).
conclusion
Today there are many obstacles that prevent organizations from growing, as well as the needs they face, which leads to the same organizations suffering much more serious consequences than in the past.
Companies must not only think about how to maximize their resources and the value of their shares, but how to become an intelligent capitalist in order to create shared value.
In Mexico, as in other countries in the world, there are unlimited needs, organizations must find a way to meet those needs and generate profits.
The organizations that will succeed in the next 20 years will be those that discover how to integrate shared value and meet social needs through different methods and generating innovation.
Bibliography
- Spanish dictionary. (nd-a). Retrieved April 24, 2015, from http://lema.rae.es/drae/?val=valorDictionary of the Spanish language. (nd-b). Retrieved April 24, 2015, from http://lema.rae.es/drae/?val=compartidoDictionary of the Spanish language. (na-c). Retrieved April 24, 2015, from http://lema.rae.es/drae/?val=capitalismoGoogle. (nd). Retrieved from http://www.google.com/intl/es-419/about/datacenters/renewable/index.htmlInsights: Ideas for Change - Michael Porter - Creating Shared Value. (2012). Retrieved from https://www.youtube.com/watch?v=aUdPDVO-toM&feature=youtube_gdata_playerPes, Á. (2015). Four leaf clovers. LID Editorial Porter, ME (1995). Competitive advantage: creating and sustaining superior performance. Rei Argentina.Porter, ME (2009). To be competitive. Deusto.Porter, ME, & Kramer, MR(2011). Creating Shared Value. Harvard Business Review, 89 (1/2), 62.Why business can be good at solving social problems. (2013). Retrieved from
