Just WHAT exactly is Shared Value?

A few months ago, I attended a very interesting panel discussion organized by Forbes India. It was my introduction to Shared Value – a concept which, loosely speaking, is like ‘Corporate Social Responsibility (CSR) on steroids’. The panelists were Azim Premji Foundation’s Dileep Ranjekar, FabIndia’s Sunil Chainani, Janaagraha’s Ramesh Ramanathan, Manipal Education’s Mohandas Pai, and FSG’s Lalitha Vaidyanathan. The panel was excellently moderated by CNBC TV18’s Suresh Venkat and the discussion ranged from the lively to the provocative. The heart of the debate was whether a business enterprise should look beyond creating value for shareholders and look at society at large or if, as Milton Friedman famously put it, “the business of business is business.” I’ll be summarizing the key insights from the panel in a subsequent post. [Mar 21, 2012 update: Key insights from Forbes India panel on Creating Shared Value.] In this post, I intend to set the stage for shared value – what it is, how it’s different from CSR, early adopter companies, etc.

In early 2011, Harvard University’s legendary professor Michael Porter & FSG’s Mark Kramer published, what may well turn out to be, an influential research and practical guide for companies to integrate social challenges into their corporate fabric and thereby increase profits, shareholder value and long-term sustainability for their businesses – Creating Shared Value.

According to Porter and Kramer, the concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.

The concept rests on the premise that both economic and social progress must be addressed using value principles. Value is defined as benefits relative to costs, not just benefits alone. Value creation is an idea that has long been recognized in business, where profit is revenue earned from customers minus the costs incurred. However, businesses have rarely approached societal issues from a value perspective but have treated them as peripheral matters. This has blurred the connections between economic and social concerns.

In the social sector, thinking in value terms is even less common. Social organizations and government entities often see success solely in terms of the benefits achieved or the money expended. As governments and NGOs begin to think more in value terms, their interest in collaborating with business will inevitably grow.

The concept of shared value resets the boundaries of capitalism. By better connecting companies’ success with societal improvement, it opens up many ways to serve new needs, gain efficiency, create differentiation, and expand markets.

J Walter Thompson has this to say about about shared value (in The Economist): Rather than simply doling out checks to good causes, some corporations are starting to shift their business models, integrating social issues into their core strategies. The aim is to create shared value, a concept that reflects the growing belief that generating a profit and achieving social progress are not mutually exclusive goals.”

Is the concept of creating shared value beginning to sound like social enterprises? Nearly all the examples and case studies in Porter and Kramer’s whitepaper (and a subsequent Creating Shared Value in India report) map to widely accepted definitions of social enterprises. More on that in a separate post. Porter and Kramer’s astutely state that real social entrepreneurship should be measured by its ability to create shared value, not just social benefit.

Shared Value Examples

In Kenya, Vodafone’s M-PESA mobile banking service signed up 10 million customers in three years; the funds it handles now represent 11% of Kenya’s GDP. In India, Thomson Reuters has developed a promising monthly service for farmers who earn an average of $2,000 per year. For a fee of $5 a quarter, it provides weather and crop pricing information and agricultural advice. The services reaches an estimated 2 million farmers, and early research indicates that it has helped increase the incomes of more than 60% of them – in some cases even tripling incomes.

Nestle is one of the first major companies to embrace Porter’s Shared Value Concept across its entire operations. In 2011, it operationally launched Nescafe Plan, a $331 million global initiative to boost productivity, sustainability and incomes of millions of farmers across the world. This year alone, they planted 4 million coffee trees in Columbia and began mentoring 10,000 cocoa farmers in Indonesia, the third largest producer of cocoa in the word.

A division of GE, Ecomagination, is leading the charge in providing finance for start-ups developing clean technologies and infrastructure. Over the summer, GE awarded its first Ecomagination Challenge Awards, a contest that will distribute $200 million to innovative start-ups. Going even farther, GE also established a $20 million fund to scale and commercialize the products identified by the challenge. The contest has turned the traditional R&D model on its head – moving energy and infrastructure research away from labs of governments or large companies into the outside entrepreneurial community.

Hindustan Unilever’s Project Shakti, a direct to home distribution system which provided training and microcredit to 45,000 entrepreneurs across 100,000 villages, now accounts for 5% of its overall revenues.

Closing Note: This is the first post in a short series on the Creating Shared Value concept. Yes folks, we have a new acronym – CSV!