Historically, businesses have faced the dilemma of prioritizing either what is good for the business or what is good for society (the "profit vs. purpose" dilemma). In fact, for most of the 20th century, the social role was considered a responsibility of the state, and the private role as a profit-maximizing agent. Interpreting companies as value generators for their shareholders is in our DNA (Friedman).
Therefore, it is interesting to recognize when organizations worldwide challenge this narrative, rebelling against the idea that social impact harms the bottom line, and even demonstrating that such impact can represent a strategic advantage for their business. In these cases, "profit and purpose" are linked; purpose is the force that motivates people and gives epic meaning to the business. Profit is a consequence of measurable social impact.
But this is not a new concept. Since 1950, Peter Drucker argued that the company is an organ of society and that, consequently, organizations have the challenge of being agents of positive change, operating sustainably.
🧏🏽♀️ What is Sustainability and "Shared Value"?
According to the Sustainability Committee of the University of California (UCLA), sustainability is defined as "the integration of environmental health, social equity and economic vitality in order to create thriving, healthy, diverse and resilient communities for this generation and generations to come." Incorporating sustainability as a strategic axis means focusing not only on "doing no harm" (or its sustainable equivalent, "not polluting") but on improving and revitalizing the ecosystems, economies, and communities in which they operate.
Some companies built their business models ignoring social and environmental costs simply because they started many years ago. As scientific knowledge advances, they have discovered that the foundations behind their models are unsustainable. While some companies try to protect their outdated models, others are asking, "How can we maximize our profit and be 'responsible' with the environment?" The answer was provided by academics Michael E. Porter and Mark R. Kramer in a landmark Harvard Business Review article in 2011, where they developed the concept of CSV: Creating Shared Value (although they had already articulated the concept in 2006).
The premise of CSV is that companies can be successful by anchoring some of their goals to social needs. It moves away from the historical tension between corporate success and social well-being, proposing that what benefits society can also generate competitive advantages. Unlike Corporate Social Responsibility (CSR), CSV is not an act of philanthropy but an investment that generates profits for the company. It is a new way of understanding the social role of the company.
♻️ How Does the Theory of "Shared Value" Work in Practice?
According to Kramer and Porter, organizations focused on creating Shared Value do so in three ways:
- Developing products that address social needs and benefit underserved communities. For example, Nestlé developed its health science division to support people who need greater attention to their nutrition. One of its products significantly reduces post-operative infections.
- Improving their internal productivity by optimizing their value chain and collaborating with their workers. Walmart reduced its environmental impact by decreasing the use of bags, redesigning its trucks and routes, and installing solar panels in its stores. It has managed to reduce its environmental impact and save USD 3 billion.
- Facilitating the development of local clusters and building relationships with suppliers and institutions to elevate the entire ecosystem. Mars has worked in the Ivory Coast with the government, the World Bank, donors, and suppliers to reverse a decades-long decline in the productivity and quality of local farmers (who are their suppliers).
These companies have achieved social impact while generating value for their business simultaneously, which is the essence of Shared Value.
🤝 Take-away: The Rebel Conclusion?
It is tempting to reserve the term "social impact" for organizations and foundations specifically created to "do good." However, the issue with this approach is that it excludes all other organizations. The use of the adjective "social" implies that "non-social" companies only need to focus on generating profit.
Shared Value is not just a buzzword; it is a strategy aimed at defining a new frontier of competitive advantages. It is an opportunity for differentiation by integrating social and environmental impact into the value proposition. By incorporating these variables into the equation, companies can not only adapt to a world with new demands but also capture new value.
We believe that all companies, regardless of their industry, have the opportunity to generate social impact by creating shared value: measurable benefits for society and value for the business's bottom line. It's just that some choose to make a greater impact than others. Social impact is a spectrum, not a label.
Because all organizations have an implicit promise to society. We hope that more organizations make this promise explicit every day.
Sebastián Balmaceda - Fernando Brierley - Lucía Rossel
💬 Questions for reflection
- How can I optimize our existing processes considering economic and social variables?
- What social challenges intersect with my business where we could have a real impact and simultaneously an economic benefit?
- What strategic partnerships could we generate to achieve economic and social benefits that no one could produce individually?
📕 Recommendation
This week, we recommend "From Me to We: How Shared Value Can Turn Companies Into Engines of Change," written by Ernst and Haar. The book aims to bring the concept of shared value into the new decade by adding the M2W concept or "from me to we," which seeks to add accountability to shared value. Additionally, the book analyzes and takes examples from companies that have successfully navigated the dynamics of shared value.