Is the human being selfish by nature? With this question I allow myself to begin with this essay, which seeks to make a deep analysis of the theory of shared value of Michael Porter and Mark R. Kramer, as well as to understand their understanding of human relations, the economy and the behavior of the companies within a competitive market.
The main objective of a company is the maximization of profits. That is, to achieve that the capital invested within the production process is obtained an added value and that within the market this product is sold and a profit is obtained. The greater the difference between production costs and income, the greater the profit maximization.
Within the standard perspective, logic would dictate that the company will always seek its individual benefit regardless of the condition of the rest of the agents. Why do Porter and Kramer establish that it is possible for companies to solve social problems? And further deepening the question Why would they want to?
Under the title of “Creating Shared Value - How to reinvent capitalism and unleash a wave of innovation and growth” (“Michael_Porter_Creating_Shared_Value.pdf”, s / f) the article by Porter and Kramer is published in the January - February 2011 issue. of the Harvard Business Review in the section of “The big idea. The idea of reinventing capitalism, which is itself a highly mutable system, was a title that clearly seeks to provoke a revolution of thought.
According to Porter, the capitalist system has been observed as the main cause of social, economic and environmental problems. The legitimacy of business has fallen to levels never seen before in history. It is pointed out that the main problem is that there is a false idea that greater economic development represents an increase in social ills, an idea that according to Porter needs to be modified.
In his article, Porter defines that the solution is found in the principle of added value, which involves creating economic values in a way that also creates value for society, directing its efforts to the needs and challenges. Businesses must connect the successes of the company with social progress.
The added value should not be interpreted as “social responsibility, philanthropy or sustainability”. According to Porter this is a new way to achieve a better society. The criticism of Porter's neoclassical thought hangs on the grounds that economists have legitimized the idea that, if companies want to help society, they must do so on their profits.
The concept of shared value focuses on the connections between social and economic progress. A large number of companies such as Google, IMB, Intel, Johnson and Johnson, Nestle, Unilever, and Wal-Mart have started important shared value initiatives. According to Porter there are 3 ways that companies can create value-added opportunities:
- Recreating products and markets Redefining productivity in the value chain Enabling the development of local clusters
Each firm must see decisions and opportunities with the vision of added value. This thinking will generate bigger innovations and higher growth for companies as well as greater benefits for society. Shared value does not refer to the fact that the value that has already been created by companies must be shared with society, but rather that the production system must be shared with society.
Porter affirms that for a company to have higher income it is necessary for society to also have superior growth. Businesses contribute to society by making profits which create jobs, wages, purchases, investments, and taxes. How to get these companies to carry out acts to contribute to society?
The money invested in solving social problems comes from taxes charged by the government to companies, with the development of NGOs (non-government organization) the money from donations from individuals and companies will be distributed thanks to the work of these organizations. Therefore, the role of NGOs is to displace private capital into society. However, this is mere altruism and does not generate higher profits for society.
According to the theory of shared value, companies should not simply donate money to NGOs, but should redirect their efforts so that the company, through its production processes, improves the living conditions of society in general..
Recreate products and markets
Society has an incredible demand for better health, housing, nutrition, old age assistance, financial security, and better environmental impact. According to Porter, companies have lost sight of the most important questions: Is our product good for our consumers? Or is our product good for our consumers' consumers?
In advanced economies, food companies that were typically focused on taste and quantity of their product are focusing on needs for better nutrition. Even financial institutions like Fargo have developed a line of financial products that allow paying debts and borrowing at a lower rate.
Porter's idea is to develop a system for creating products that ask themselves if they are really doing good to their consumers, these goods create profits for the company and also improve the conditions of consumers, producers and society in general.
Redefine productivity in the value chain
The value chain of a company is affected and affects multiple social problems such as the use of natural resources, health, working conditions and equal treatment in the workplace. From the common perspective of companies, these problems are seen as externalities, but from the value chain perspective, repairing these externalities is an investment focus.
Porter places Wal-Mart as an example of problem solving, with the decision to redirect its routes and reduce its consumption of casings, the company was able to reduce $ 200 million in costs thereby improving the condition of the environment.
To modify the value chain, a better one of logistics and energy is required, knowing the use of the resource, as well as knowing the origin of the raw material. Porter exemplifies the Nestlé company, which sources its coffee inputs from South American countries. With Nestlé's investment to improve its production plant, a better product can be obtained and living conditions are improved.
Allow development of local clusters
No company is independent, the success of each company is affected by the fate of the infrastructure that is around it. With the geographic concentration of firms, further innovation such as technology development in Silicon Valley, flower cutting in Kenya and diamond cutting in India is achieved.
When the society around a cluster cannot offer local companies the necessary labor and services, this company has to pay high costs of labor, technological development and conditions for its employees. By forming a society capable of providing resources to the cluster, a symbiosis is being achieved.
The role of government and shared value
Regulation is necessary for markets to function properly, however, these regulations must be designed so that companies grow together with society, not that they work against society. Regulations must be adequate so that companies are encouraged to create shared value with tax extensions.
The differences between shared value and socially responsible companies
Porter and Kramer (“Michael_Porter_Creating_Shared_Value.pdf”, s / f) establish that the differences between shared value and social enterprises are the following:
Socially responsible companies VS Shared value
| Courage: Doing good | Value: Economic and social benefits relative to cost |
| It is based on social commitment, philanthropy, sustainability | It is based on strengthening the company and creating value in the community |
| Causes of liability are discrete or in response to external pressure | The causes are integrated into the competition |
| The profit made by the act is separated from the profit maximization | Profit is integrated into profit. |
| Investment preferences are determined by personal preferences | The investment agenda is based on specific reasons. |
| The impact is limited to the budget allocated for socially responsible activities | The impact is made by the entire budget of the company |
| Example: Fair dealing purchases | Example: Transformation of society to increase quality. |
In both cases, the intervention of laws, ethics and the reduction of the harm of the companies are assumed.
According to Porter's ideas, while socially responsible companies lose money and do not have efficient allocations, while a company that uses shared value allocates its solutions according to market demand.
Although Porter's proposal seems to find multiple answers to global problems, many assumptions of his theory are based on the goodwill of the people, state interventionism and the participation of society.
As human beings, it is true that the foundations of civilization are based on cooperation in pursuit of goals, but it is also clear that there is an individual and personal pursuit of profit maximization. Porter speaks of an undeniable truth: For a company to grow, it must develop within a society that is also growing.
Bibliography
Michael_Porter_Creating_Shared_Value.pdf. (s / f). Retrieved from
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