In recent years, business has been criticised as a major cause of social, environmental, and economic problems. Business is caught in a vicious circle. A big part of the problem lies with companies themselves, which remain trapped in an outdated, narrow approach to value creation.
Focused on optimizing short-term financial performance, they overlook the greatest unmet needs in the market as well as broader influences on their long-term success.
In the Harvard Business Review 2011 article How to create shared value and unleash a wave of innovation and growth, ME Porter and MR Kramer say it doesn't have to be this way.
Companies could bring business and society back together if they redefined their purpose as creating "shared value"—generating economic value in a way that also produces value for society by addressing its challenges.
A shared value approach reconnects company success with social progress. Firms can do this in three distinct ways:
- reconceiving products and markets
- redefining productivity in the value chain
- building supportive industry clusters at the company's locations.
A few companies known for their hard-nosed approach to business have already embarked on important initiatives in these areas.
New wave of innovation and productivity
Shared value could reshape capitalism and its relationship to society. Shared value could drive the next wave of innovation and productivity growth in the global economy as it opens managers' eyes to immense human needs that must be met, large new markets to be served, and the internal costs of social deficits—as well as the competitive advantages available from addressing them. But our understanding of shared value is still in its genesis.
Attaining it will require managers to develop new skills and knowledge and governments to learn how to regulate in ways that enable shared value, rather than work against it.
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