In an era of close competition where companies are constantly looking to increase their goodwill and differentiate themselves from their peers in the eyes of their customers, the concept of shared value appears to be an effective one. It means a shift in focus from the narrow goals of economic success and shareholder profit maximization to the broader goals of positive environmental and social impact, and customer-centric business.
Michael Porter and Mark Kramer, the pioneers of the shared value, illustrate three distinct ways in which firms can create shared value:
1) By reconceiving products and markets
2) By redefining productivity in the value chain
3) By building supportive industry clusters at the company’s locations
Many organizations have been able to successfully adopt these practices to their advantage. Adidas Group’s partnership with micro-finance organization Grameen Bank to manufacture low-cost shoes for the poor in Bangladesh and FedEx’s delivery of four million pounds of relief aid from agencies such as American Red Cross to the victims of Hurricane Sandy in the US, are great examples of reinventing products and services to include low-income consumers.
Nestlé redesigned its coffee procurement processes, working with small farmers in impoverished areas who were trapped in a cycle of low productivity, poor quality, and environmental degradation. It provided advice on farming practices, helped growers secure plant stock, fertilizers, and pesticides; and started paying them a premium directly for better beans. Higher yields and quality increased the growers’ incomes, the environmental impact of farms shrank, and Nestlé’s reliable supply of good coffee grew significantly, thus creating shared value.
Meanwhile closer to home, the usage of shared value as a guiding principle to re-define business strategy is rapidly catching on as more and more companies look to differentiate themselves from their peers by adopting inclusive businesses. Some interesting examples include Project Shakti by Hindustan Unilever Limited, a sales training program for rural women to sell products of HUL, Arogya Parivar by Novartis, a program designed to increase access to medicines in rural India, Tatva: a socially responsible equity investment program by YES Bank, amongst others.
To conclude, shared value can indeed drive productivity growth, boost the economy and provide several mutual benefits to corporates and the surrounding communities, if approached in the right manner.
“The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy.” - Michael Porter
-By Lakshmi Savaram, Associate - Consulting, Goodera
The thoughts and opinions shared here are of the author.
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