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September, 2020
Reimagining Your Business
The Power of Creating Shared Value
Guest Authors:
Dr. Fred van Eenennaam and Annalisa Filomena (M. Sc.)
A movement is taking hold with businesses and political circles to encourage organizations’ leaders to reconsider their core strategic purpose and value in a new way. Based on research and a philosophical shift, professionals are recognizing that businesses with a social purpose are more sustainable and profitable than those which are not. The two dimensions proposed for business reform are: Corporate Social Responsibility (CRS) and Creating Shared Value (CVS).
To better understand this, we turn to Fred van Eenennaam, Ph.D. and Annalisa Filomena, M. Sc., of the Decision Institute, whose research, consultation and publications guide companies in transformation thinking. Here are their insights.
About CSR and CSV
Research is starting to show that businesses without a social purpose is not and cannot be profitable in the long run. Moreover, the Covid crisis sent us a clear warning: the company that will survive uncertainty and competitive waters are those that engage with the full spectrum of their stakeholder and address their needs. There is a push now to rethink businesses based on shared value creation and socially responsible as a means in improve their value and sustainability.
While academic and business leaders are debating on the best models for businesses for redefining their busines role in society, two key approaches are underway.
Corporate Social Responsibility (CSR)
This suggests that businesses should contribute to society beyond their commercial operations. CSR has been defined as a “business decision- making linked to ethical values, compliance with legal requirements, and respect for people, communities, and the environment around the world” (Aaronson, 2003). The roots of the concept is the 1948 United Nations Universal Declaration on Human Rights, followed by the 1980s and 1990s explosion of CSR awareness and activism.
Considering examples like Netflix offering its employees 52 weeks of paid parental leave, or Starbucks complying with community environmental standards; CSR often takes the form of initiatives to mitigate the risks, harms, and negative externalities of companies with the final result to improve trust and reputation.
Creating Shared Value (CSV)
In comparison, CSV is a business strategy designed to solve social issues profitably. It was introduced in 2011 by Michael Porter and Mark R. Kramer in the Harvard Business Review article “Creating Shared Value”. The establishment of CSV came after the global financial crisis when the reputation of capitalism and businesses were under attack.
Creating Shared Value is fundamental to how Nestlé does business. Looking at both opportunities for CSR and CSV, Nestle prioritized three areas: nutrition, rural development and water. A comparison between Nestlé’s CSV policies and common CSR tools appears in the following table.
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CSR
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CSV
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- Paying a “fair” (higher) price to farmers for the same products
- Certification as a fair trade company
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- Collaborate with farmers to improve quality and yield
- Supporting investments in better methods and inputs
- Higher prices for better quality
- Higher yield increases quantity produced
- Environmental impact also improved
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FAIR TRADE
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TRANSFORMING PROCUREMENT
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These are just a few of the many business models being created that are not exclusively driven by profit maximization. What is crucial is that a business that claims to be socially responsible has in place practices to interact with its stakeholders (beyond the shareholders) and integrate them into their decision-making processes.
We believe leaders need to re-imagine the purpose of their business and put it at the core of their strategy by understanding that profit maximization comes from creating value for the most of the stakeholders.
Consider the program by Cemex Patrimonio Hoy (PH). PH is a communal savings and loan program aimed at serving the housing needs of Mexico’s low-income population. The program was founded based on the fact 40% of the Cemex end-users were low-income individual home builders and that the company knew little about this segment markets dynamics. The intuition was simple: low-income populations benefit more by being treated not as an object of charity but as clients and that doing so could make financial sense for the corporation.
The Future Vision:
Focus on Your Company Value and Profits Will Follow
In practice, how do you proceed?
Rethink your products and services line. Are they addressing societal needs? How might you open new markets by serving unmet needs in underserved communities?
- Redefine the productivity in the value chain by better use of resources, employees and business partners.
- Empower communities and local clusters by improving available skills and supporting local institutions to boost innovation and growth.
Would you like to learn more? You are welcome to register for upcoming online classes and workshops in the Maximize Your Business Impact 2020 series provided by the Decision Institute.
September, 22:
What it Takes to be a CEO in the 21st Century
Special Guest: Professor Edward R. Freeman, father of the stakeholders’ management theory and Darden professor of business ethics and new sustainable leadership practices.
October, 29
Creating Shared Value and Gain Competitive Advantage
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pecial Guest: David Laurel, CSV practitioner and Nestle CSV policies manager
Virtual tour of crop fields in the Philippines and stakeholders interaction
Info and tickets: https://www.thedecisioninstitute.org/mybi/
To learn more, sources are:
- www.thedecisioninstitute.org
- The Breakthrough Thinkers Magazine, published by The Decision Group and Strategique (July 2020)
https://www.thedecisiongroup.nl/magazine
