Creating Shared Value

“You can’t be all things to all people.” Michael Porter

Within the framework of the discussion about employability many argue that it is the responsibility of multinational companies to take responsibility to create employment and with-it wealth and prosperity within a region. 

It’s already a decade ago that Michael Porter and Marc Kramer suggested in their article ? Creating Shared Value ? (CSV) HBR, 2011, Vol. 89 a value-added management creating at the same time economic value and social benefits. 

For the hardline liberals, creating shared value is on the same page as social responsibility. It represents just an obligation of which one has to find a way to avoid it. However, Michael Porter, professor for economics at Harvard and one of the most influential consultants of the United States, draws a picture of how big companies can integrate it within their strategy. He is arguing that capitalism is in crisis and companies are perceived by many as selfish entities prospering at the expense of their natural and human environment. Contrary to what we imagine, many companies have accepted the notion of corporate social responsibility (CSR), but unfortunately it has not always worked in their favor. Companies are accused to abuse the responsibility towards employees and environment in order to take advantage to strengthen their institutional communication. They implemented practices with the objective to improve social and societal standards. 

Paradoxically, since the creation of CSR companies see themselves more and more confronted with failures and when adding the effects of the destructive crises, many companies’ image suffered to an all-time low level. Governments became attentive to the topic and put measures in place to protect the consumer as well as the environment but these measures often weaken the competitiveness of an organization and they might as well inhibit economic growth. 

It’s also Michael Porter’s conviction that integrating CSR in a company’s strategy is a “must” without denying his original convictions. He always taught that "capitalism is an unequal mean to meet people’s needs in order to increase efficiency, to create jobs and to build wealth”. 

However, Michael Porter proposes that companies assume their responsibilities and go beyond CSR, beyond sustainable development or beyond philanthropy, claiming to take ownership for their actions. Instead of waiting to be penalized for its "negative externalities", the company "should internalize" these effects by giving them the same priority as their other strategic objectives by promoting the well-being of the nearby population, their educational establishments, the exchange and conservation with their customers and service providers as well as the individual development of the employees. Companies should protect job losses and create additional jobs on the home territory. This includes relocating the activities which have been transferred offshore into low cost countries. 

The deployment of such an innovative strategy takes into consideration the needs and expectations of stakeholders and assumes an active cooperation with all other actors of the territory: suppliers, customers, competitors, schools, universities, associations and public authorities. In Michael Porter’s view this strategy surpasses the original objectives of CSR which are to protect the environment form the company’s negative impact as pollution and noise. It opens the opportunity to reestablish a good relationship with society while increasing the company’s competitiveness: ?companies create economic value by creating value for society. ? 

In order to achieve this target, organizations have to re-invent themselves by rethinking the way they function. A mean to create shared value is setting up clusters. For more than twenty years Porter has been an attentive observer of the shaping of territorial development: “… clusters represent a new way of thinking about location, challenging much of the conventional wisdom about how companies should be configured, how institutions such as universities can contribute to competitive success and how governments can promote economic development and prosperity.”  This finding was not a novelty neither for the French nor for the Europeans, but it was surprising that the topic was pushed by Michael Porter who is a world well known advisor to fortune 500 companies and trainer for future leaders, teaching at the renowned Harvard University. The fact that a well-known economist as Michael Porter has been spreading the message of creating shared value made sure that it did not go by unheard. For this reason, the Porter’s and Kramers’ article became subject to critic. Thomas Berschoner and Thomas Hajduk issued a paper: Creating shared value: “Eine Grundsatzkritik”, stating that creating shared value is not different form corporate social responsibility. Both authors explain in their paper that Porter and Kramer suggest a management based on values that will result in the reinvention of capitalism. Instead of a manager’s fixation to achieve short term profits managers should be oriented towards the creation of common values. Lost confidence in economy shall be regained with the objective of reuniting economy and society representing a new form of capitalism which creates growth and innovation. There are a couple of new ideas within this theory which have not been part of CSR yet, e.g. positive company contributions should be placed in the center of interest and replace risky and defenseless concepts. Existing sources, abilities and management practices should be applied to support social progress. Companies should consider people’s needs, instead of products and services, as a starting point for innovation. 

Companies are profit oriented actors which act on an economical logic. At the same time, they have to take their environment into consideration. They have developed strategies for lobbying with politicians and participating actively in election campaigns. In this way they shape the public opinion and defend their own interests. Companies are “corporate citizens” actively creating and shaping their and the inhabitant’s environment. 

In a liberal, open-minded society individual ethics reach soon their limits. Individual ethics are too divers in order to justify honor as a predefined virtue without any restrictions. Therefore, they should be complemented (but not replaced) by institutional ethics. These institutions, e.g. in form of a value proposition or a behavioral codex will cover the different functions, helping to relieve individuals of permanent moral decisive situations which exceeds the individual’s judging capacity. Clearly defined rules which communicate internally and externally reliable values protect against arbitrariness of enterprise dominance.  In addition, purely functional and contents drawn concepts, are measured neither normative nor empirically. Within an organization we find various value orientations which determine the identity of the company. Company’s responsibility is on one hand an empiric task of determining the value proposition, and on the other hand it is a task of reflection in order to critical review existing values.

The translation of values into an entrepreneurial context is the consequence of the empirical analysis and the normative reflection. It takes individual abilities as critical thinking, responsibility and know how into consideration.

Organizational abilities enable the promotion of value-oriented actions in form of e.g.  long-term compensation incentive models, and / or CSR programs creating consciousness among the employees. They offer the possibility to draw attention to mis-governance and mismanagement as well as creating innovation processes in which social and ecological milestones are integrated based on the CSR value proposition.

In order to create the legitimacy of economic actions, a dialogue between the stakeholders and the organization has to be created. The word ‘responsibility’ is part of the dialogue and emphasizes the importance of communication. The aspect of a constructive dialogue adds new rules and responsibilities for each company. Instead of organizations being just part of a production system, they will as well participate in a spectrum of societal governance processes discussing the distribution and administration of public goods. 

“While Porter’s/Kramer’s main focus is on enterprises and societies as a whole, the European commission stresses the interests of the company’s stakeholder within the framework of integrating CSR in strategic enterprise leadership.”

The normative expectations of politics and society must be addressed and taken seriously by companies if they want to exist on a long-term basis in the market and if they want to achieve a competitive advantage. Company’s Stakeholders are not just expressing demands; they represent a constructive element of the daily routine in a company’s live whose interests have to be taken into consideration when making business decisions. The normative comprehension of above explained ‘shared value’ has to be differentiated from the ‘shared value’-concept by Porter and Kramer whose reference point is the captivation of new markets. However, it could be the consequence of the normative chosen direction of an enterprise even if it does not serve as a narrow strategic concept to concur new markets.  Changing perspectives is part of this theory. An originally entrepreneurial oriented approach towards society changes into a societal approach, oriented towards the enterprise.