Why Shared Value is Gaining Rapid Traction

The concept of creating Shared Value has raised a stir across the world since first being posited by Harvard professors Michael Porter and Mark Kramer in 2011 (Creating Shared Value, Harvard Business Review, Mar/Apr 2011). Why is it gaining traction so rapidly and what might it offer organisations in Southern Africa? The Responsible Citizen (TRC)’s PUBLISHER, Mpho Moletlo Kgosietsile asks South Africa-based shared value coach, Nicola Robins (NR), co-founder of advisory firm Incite.?

TRC: What is shared value?

NR: Shared value is a management strategy that delivers tangible financial and societal value, at scale. Shared value thinking guides a firm towards innovations in the supply chain, production process, distribution channels, products, or markets that both grow the business and deliver a positive impact on society.

A good example is SA financial services company Discovery, whose Vitality platform uses a range of behavioural incentives to make people healthier. The result has been measurable improvements in the health of their members and a significantly reduced claims rate.?

These outcomes are tangible and underpinned by more than ten years of actuarial and clinical data.?Discovery rebranded its business as a shared value insurance company in 2014, with CEO Adrian Gore appearing as a leading thinker on global shared value platforms.?

Although shared value is often presented as being in opposition to “corporate social responsibility” (CSR), organisations should not see these as either/or options. Being a responsible corporate citizen – accountable, resource-efficient and respectful of communities – should be a?basic requirement of doing business today. By building on this basic foundation, shared value helps organisations to differentiate and compete on their ability to solve societal challenges. Shared value is different from CSR, but not an alternative to it.?

TRC: What does shared value offer in emerging markets?

NR: The most interesting shared value strategies are undoubtedly seen in markets where large-scale societal challenges shape the competitive landscape.

Although the growing importance of societal challenges is a global trend, it is most pronounced in emerging markets where social challenges tend to be more?pronounced.?Many emerging economies are dependent on volatile commodity markets; they face skills and resource shortages, as well as limitations in infrastructure. Under these conditions, smart firms are pushed to innovate.

Shared value offers guidance, tools, and a global community of practice to help organisations focus these innovation efforts. Shared value is not yet formally promoted by any government, however, it is entirely aligned with political efforts that seek more inclusive business and a developmental state. Governments tend to favour regulatory and compliance-oriented strategies to promote their social objectives. While regulation and compliance clearly have a place, they often encourage a tick-box mentality rather than promoting the kinds of innovation that is needed to address societal challenges at scale. Shared value offers a significant policy opportunity for governments, particularly in emerging markets.?

TRC: How does shared value drive innovation?

NR: A company does not create shared value by holding a self-validating, retrospective lens to business-as-usual. Just because people buy, use and appreciate your services does not necessarily mean they address societal challenges in an innovative way. Drawing on Porter and Kramer, a shared value proposition usually leads to innovation in three distinct areas namely; innovations that redefine productivity, innovations that reconceive products or markets and innovations that create an enabling local environment.

By tracking trends in shared value, Incite has identified 21 innovation patterns that have been shown to deliver measurable financial and societal value.

Examples will clarify this: Unilever’s innovation patterns include microfranchise (demonstrated by Project Shakti, which engages thousands of women to sell?Unilever products in villages) and behavioural change (for example, the Lifebouy handwashing campaign).

Top brand, Unilever has continued to create shared value with its impressive campaigns. SABMiller employs a robust and innovative approach to business with local & inclusive sourcing?

Discovery’s primary pattern focuses on behavioural change for improved health, with subsequent efforts creating an enabling environment through supporting urban infrastructure for active living. SABMiller’s patterns focus on local sourcing and inclusive sourcing.

Norwegian fertiliser company Yara contributes to local economic development by partnering to create agricultural growth corridors in southeast Africa. Fast-growing mobility company Uber uses a resource sharing platform to turn ‘idle goods’ (underutilised privately-owned cars) into a resource. SA-based fashion retailer TFG employs a developmental sourcing strategy that includes vertical integration into local design and manufacturing. As quick response fashion trends and rising fuel costs put pressure on fashion retail, this strategy will increasingly dovetail with the group’s growth ambitions. There are many further examples. Shared value innovations are typically adopted in partnership with one or more external stakeholder groups, such as non-governmental organisations, government, civil society organisations, or workers’ unions.

TRC: What are the common barriers to shared value?

NR: In our work with a number of firms, we have seen similar barriers across sectors, countries and cultures.

The first barrier a firm may encounter?is the assumption that a trade-off exists between financial and societal value.

This assumption tends to hold particular sway in the finance department. Although pervasive, this assumption is incorrect.

Shared value solutions are innovations that create new value – they are not seeking to redistribute the value that is already there. They grow a bigger pie by addressing societal needs; they are not simply about sharing a slice with society or any particular stakeholder group. The second barrier is usually impatience. Once firms appreciate the shared value concept, they see its potential for branding their products, services or corporate image.?

Shortcuts become tempting, the most common being a jump from identifying shared value opportunities to proclaiming themselves a shared value firm.?They leave out the most important – and often most difficult – stage: innovation and integration into the culture. This creates a potential brand liability and will limit value creation efforts over time.?

Petroleum company BP fell prey to this barrier when it rebranded as “Beyond petroleum” in a $200m public relations campaign in mid-2000. Given that their investment in extractive oil operations continued to dwarf their investment in renewable energy, it was not surprising that BP quietly turned its?attention to addressing the inevitable criticism from corporate watchdogs. The third barrier is inevitably funding. Shared value innovations usually operate across organisational silos and beyond organisational budget categories. Unless an organisation provides a dedicated fund, such as Barclays plc’s Social Innovation Facility, many good shared value ideas will simply gather dust as they fail to obtain the funding to move to the prototype stage.?The fourth barrier is that of measurement. Shared value must deliver tangible financial and social value. While most companies are fairly adept at measuring financial value, measuring societal value frequently presents a challenge. Measures of societal value are invariably difficult to identify; difficult to attribute (a result of a range of partnerships); and?difficult to aggregate (societal value does not add up like financial value).? In our experience, the societal metrics learning curve continues for a number of years. This should not deter the organisation’s efforts: learning is an objective in itself and the hallmark of an effective shared value culture.?

TRC: What’s the first step to creating shared value in my company??

NR: The first step is to get to grips with the concept. Shared value is often confused with sustainability, social responsibility or social investment.

As a potential change-maker, it is your job to untangle this confusion for your organisation.

Sign up with the sharedvalue.org community; undertake a learning journey by visiting shared value leaders (have a look at the latest Fortune 500 change the world list); sign up for shared value training; invite a shared value coach to facilitate a discussion with your team, executive and board.

The next step is to interrogate whether your company is ready to present an innovative, growth-oriented response to societal challenges. Societal issues such as inequality, involuntary migration, food security and climate change are pressing and growing. Shared value is a competitive strategy that seeks to address them.

However, it is possible that the window of opportunity for using shared value to differentiate consumer or investor brands may shrink in coming years. Despite this urgency and evident opportunity, organisational readiness is a critical success factor and change-makers should work on this before jumping too readily into a shared value drive.?

Extracted from The Resposible Citizen Magazine (December 2016 issue)