What is Shared Value?
Shared value is a management strategy focused on companies creating measurable business value by identifying and addressing social problems that intersect with their business. The shared value framework creates new opportunities for companies, civil society organizations, and governments to leverage the power of market-based competition in addressing social problems.
The concept was defined in the Harvard Business Review article “Creating Shared Value” (January/February 2011), by Professor Michael E. Porter and Mark R. Kramer. The authors identified three ways in which shared value can be created:
- Reconceiving products and markets – Defining markets in terms of unmet needs or social ills and developing profitable products or services that remedy these conditions.
- Example: BD developed a new type of safety syringe to reduce healthcare worker needle-stick injuries. This product innovation grew to $2 billion, approximately a quarter of the company’s revenue.
- Redefining productivity in the value chain – Increasing the productivity of the company or its suppliers by addressing the social and environmental constraints in its value chain.
- Example: By reducing packaging and improving delivery logistics, Walmart saved $200M in distribution costs while growing the quantities being shipped
- Local cluster development – Strengthening the competitive context in key regions where the company operates in ways that contribute to the company’s growth and productivity
- Example: Cisco reduced a key constraint to growing its addressable server market by launching the Networking Academy to train over four million network administrators globally
Shared value is not about redistributing value created through philanthropy or about including stakeholders’ values in corporate decisions. Rather, shared value focuses on the creation of meaningful economic and social value – new benefits that exceed the costs for the business and society.
The Shared Value framework defines a new role for business in society that goes beyond traditional models of corporate social responsibility. Rather than focus on mitigating harm in the company’s existing operations, shared value strategies engage the scale and innovation of companies to advance social progress. At the same time, shared value offers new ways for other societal actors to engage with corporations in delivering social impact:
- NGOs can evolve their strategic priorities in order to more effectively partner with companies on shared value strategies
- Philanthropic and government bodies can find new ways to incentivize private sector investment in solving pressing social issues
- Investors can gain insight into companies’ future growth and profit potential by understanding how shared value strategies address social issues that directly impact performance
- Individual practitioners, academics, and students around the world can deepen the understanding and application of shared value within their companies, social enterprises, and academic institutions
While shared value is still early in the adoption cycle, the approach has been embraced by many of the world’s most respected companies, to address social problems at scale as a core part of their corporate strategies.