Onimpacts Lara Muller discusseert met Michael Porter over Shared Value op Harvard

Creating Shared Value (CSV) executive course at Harvard Business School. I have followed professor Michael Porter- and Mark Kramers work very closely for the past few years ever since the much spoken of article in HBR and to have the opportunity to discuss CSV with them in person was an inspiring and enriching experience.  These are my main take-aways from that experience. I hope you enjoy reading it.
  1. CSV is about capitalism as it operates today…
…and not a new version of it. While there is an on-going discussion about the necessity to redesign the capitalist model and have it evolve into a more enlightened or conscious version of it, this is not what shared value aims for. Shared value operates within the boundaries of the current capitalist system. Profit is still the aim here, but the way you make the profit changes by innovating the core business model: by actually solving a social problem.
As Porter stated at the beginning of the course, it is in fact pure capitalism with a social proposition. Shared value actually redesigns the business model to increase value, instead of redistributing value. The opportunity for shared value comes from 3 observations:
  • Social deficits and environmental impacts create economic costs for companies. It is a sign of inefficiency and therefor poor management.
  • Community weaknesses affect company productivity.
  • Social needs represent the largest underserved market opportunities.
Having said that, there is of course overlap between shared value, conscious capitalism and environmental sustainability. Products or services can be placed at intersections of the concepts. Products that improve nutrition have an overlap between conscious capitalism and CSV, while cost savings through energy efficiency are at the intersection of sustainability and CSV. However, pleads to limit consumption are part of conscious capitalism purely. So why bother with this definition question? Because it makes a huge difference in the potential success of the concept in practice, in my opinion. This is not a semantic discussion. Realistically, reforming the capitalist system itself is a noble aspiration but not attainable on a global scale in the near future. We see promising signs, but the vast majority is still operating within the current system, whatever you may think of that. It just takes time, despite the economic and financial crises we have witnessed the past few years. We do not have the time to wait for that to happen. As CSV is about innovating the business model and not the system as such, it might be our best chance to change things for the better much sooner within the current boundaries.
  1. But what about CSR then?
It’s already in the R. Responsibility is the key driver here. CSR in the purest form focuses on mitigating social and environmental risks for the company, improving trust of stakeholders and enhancing reputation while doing that. It is about limiting the negatives and about good citizenship. There is absolutely nothing wrong with that, by the way. Do not get me wrong. CSR and CSV can perfectly co-exist and even be synergistic, but you need to know what you are doing as a company and why. Do you want to reduce your negative societal impact or innovate scalable, enduring solutions for long-term profitability? Are you mitigating harm or do you have a strategic opportunity that will make the company more competitive? A good criterion is the application of the company’s IRR (internal rate of return) hurdle rate for capital allocation to the proposed solution versus the measurable social impact (expected or realised). Once the initiative is in the top quadrant of the matrix, so above the IRR hurdle rate and has a high level of social impact, it is definitely CSV. A below market return is just not good enough.
  1. It’s the strategy, stupid!
Shared value is about redefining your strategy and a strategy is a coherent, logical chain of actions. Period. Not a random set of activities. It is not an aspirational vision or a goal. And not a single action or activity. It is about the whole. The core of any strategy is the value proposition you offer to the customer. Shared value is a fundamentally different value proposition. Strategy, as Porter eloquently said, is the set of choices that define a company’s distinctive approach to competing and the competitive advantages on which it is based. It is more than a vision or the mission. Strategic positioning will only create competitive advantage when combined with operational effectiveness. CSV raises the bar on both levels and is questioning a lot of traditional management practices. So yes, shared value has to be intentional, strategic and integrated across the value chain. You will need to make clear choices about how the company will operate differently to deliver its CSV value proposition. Also about what not to do. Activities need to fit together and reinforce each other.
It is certainly not an easy undertaking, as we discovered discussing the many cases during the program. There are no quick fixes on either level of shared value. Whether you are reconceiving products and markets, redefining the value chain or building a local enabling business environment, it takes endurance and perseverance to reap the benefits, both socially and financially, of a shared value strategy.
  1. What gets measured, gets managed
Measurement of both dimensions (social impact and business impact) is a critical part of CSV. Measurement unlocks value creation, as it helps you discover how the two are connected: social impact and financial impact. This again helps to constantly improve the proposition in order to create greater shared value. But this is where one of the biggest challenges lies within the concept. Having been responsible for a social impact measurement program within a for-profit company, I can tell you this is no easy task. There are plenty of social impact (SROI) measurement methodologies out there, but most of them are just not fit for purpose. We need a different approach to measure impact: more pragmatic and business oriented, but without losing accuracy and reliability. This is no excuse not to start with some form of social impact measurement though. When the company is clear about the strategy, there are at least some proxies to build a measurement system on. I expect to see a lot of experimenting and development in this area in the near future.
  1. What about investors?
Getting capital markets, and more specifically investors on board for the concept is, next to the measurement issue, the biggest success factor for scaling up CSV in my opinion. It was interesting to see how Porter divided the investment community in 5 segments:
  • Economic Purists: do not see social factors as relevant at all and only look at market returns
  • Ethical Investing: uses negative screens to determine investing strategies and asset allocation
  • Sustainable investing: ESG factors[2] are gradually integrated into investment decisions
  • Impact Investing: aiming for both social and financial value, but usually accepting a below market return as a trade off for a higher social impact
  • Shared Value Investing: aiming to maximise both simultaneously within the investment strategy
I do agree with Porter that the concept applies to investment strategy as it does to company strategy; the parallels are undeniable. At the same time, the investment community on a global scale is lagging a bit behind the corporate world when it comes to seeing social issues as relevant for value creation, to put it mildly. However, the idea of reframing social impacts as part of the capitalist equation is a very powerful and promising idea. Vision without execution is hallucination, though. We will need to analyse what this means for the mainstream investing practice, work together with forward looking investors, industry platforms and academia to design new metrics, set up platforms for knowledge exchange and start pilots to experiment with innovative solutions.
A lot has been said about shared value as a concept.  Articles highlighting pro’s and cons are many. Porter will be the first to acknowledge the idea is not entirely new. If you go back in history, the fundamental role of business in society was to solve social issues by offering products and services that were designed to do just that. We lost that notion during the 20th century basically, by not caring anymore for how we make a profit and not seeing externalities as relevant for business. In the meantime, we made a mess of the environment, excluded entire populations from prosperity and business is at a low when it comes to trust and legitimacy. Despite well intended CSR programs and philanthropic donations. 
CSV reframes social issues as a business opportunity and makes them relevant again on a strategic level. It gives us the language to discuss this idea outside of the CSR department and that small circle of like-minded sustainability champions and start collaborating on this with our colleagues from the business. It helps the board of directors get the message across to those mainstream investors and shareholders that struggle with seeing the added value of CSR programs. It puts innovation in the equation, as the link between social impact and business impact.
There is still a lot to be done, for sure, but the cases discussed during the program and the business leaders we were able to engage with, showed us this is already happening and we can build on that body of evidence for the benefit of people, the planet and the economy.
[1] Sustainability is refered to here as environmental sustainability as an aim in itself. Conscious capitalism refers to businesses that serve the interests of all major stakeholders—customers, employees, investors, communities, suppliers, and the environment.
[2] ESG (environmental, social and governance) is a generic term used in capital markets and used by investors to evaluate corporate behaviour. ESG factors offer a benchmark for investors to judge the overall quality of the board’s governance and risk management processes and their positioning within an industry sector. (Financial Times)

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