N. 2 Understanding the concept of shared value through its success
Following up on Brite’s previous monthly business update entitled Strategy, sustainability and the role of the investment community, this month I will touch on the concept of Shared Value by recapping the latest news on this topic with particular focus on businesses that have successfully changed their strategies to increase their competitiveness while positively impacting the environment and society.
Shared Value in Brief
Starting with some fundamentals, the article Creating Shared Value published in 2011 on Harvard Business Review defines Shared Value as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing economic and social conditions in the communities in which it operates. Shared value creation is also defined as a process to identify and expand the connections between societal and economic progress. It differs from Corporate Social Responsibility (CSR), philanthropy, or even sustainability; and represents a new way of achieving economic success.
Sharing Resources to Help Others
Businesses and their leaders have been blamed for causing the severe issues impacting our society, and in many cases have realized that an action had to be taken to mitigate this negative impact, and if possible, generate something positive. The way leaders use their resources to help others has evolved over time.
1- Initially, we talked about philanthropy in the form of volunteering activities or donating money to a worthy cause. Some companies implement programs, such as corporate matching gifts (employees submit forms to their employers requesting that their donation to a non-profit be matched by the company) and volunteer grant programs (when employees donate their time to a nonprofit, they submit applications for their employer to donate money to the organization). For example, through its corporate giving initiative introduced by Tim Cook, Apple has donated $78 million to charity to date. For every hour that an Apple employee volunteers with a non-profit organization, the company will donate $25 to that nonprofit.
Companies like Expedia, ExxonMobil, General Electric, Google, Johnson & Johnson, Microsoft, PepsiCo, Salesforce, and Walmart have all taken a similar approach.
2- Philanthropy evolved into Corporate Social Responsibility, which is often used to mitigate risks and improve trust and reputation. Even though sustainability is often considered to be part of a company’s CSR efforts, this doesn’t have any real impact if it isn’t integrated into the company’s strategy. Therefore, if a company’s goal is to produce a report to present its CSR/sustainability/safety efforts to barely mitigate its risks and improve its reputation, these activities cannot contribute to creating shared value.
3- Creating shared value goes beyond philanthropy or Corporate Social Responsibility. Creating shared value is about addressing societal needs and challenges with a business model. Having said that, CSR and philanthropy show that companies, their leaders and employees have perceived the need for a change, which requires action.
Shared Value in Practice
What is required to make it work?
A core strategic shift to define a new business model. Let’s see how.
In 2016, the Network for Business Sustainability published a practical guide on creating shared value in the private sector. According to Florian Lüdeke-Freund and Lorenzo Massa: “Increasingly, rethinking only product technologies or processes seems inadequate to address challenges such as green and smart transportation, recycling and closed-loop production cycles, information consumption, healthcare, or better nutrition. These challenges require rethinking the way firms create, deliver, and capture value — the core elements of a business model.”
In 2015, Peter Brabek, Chairman of the Board of Directors at Nestlé S.A, described a strategic shift the company had to make to embrace a shared value approach in an interview with Mark Kramer. It was quite surprising to me when I first watched this interview to discover the company’s commitment to adapting to market needs through positively impacting society and the environment. I’m not here to judge Nestlé or any other company; I’m just presenting a selection of examples that I believe could be useful to get inspired to take action.
The idea of embracing a shared value approach came in the 1990s when customers started demanding healthier food options and expressing a desire to live better lives. This, together with the fact that the company was already present in emerging markets and had a business model premised on producing food made with locally sourced products that was also accessible to low-income customers, presented Nestlé with an opportunity to meet this demand and use it to shape its purpose.
Thus, the company started shifting toward a shared value model that integrated ESG considerations while focusing on the key materiality matters that would have the biggest impact for the company and still be measurable over time. Nestlé spread this mindset across the entire company, starting with the Board of Directors, who then cascaded it down to the Management Board, who in turn operationalized it.
According to the Shared Value Initiative, the purpose of a 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.
Shared Value, Competitive Advantage and Performance
As explained by the Institute for Strategy and Competitiveness, shared value is the result of the integration of business opportunities, corporate assets and social needs because:
Social and environmental deficits have economic consequences.
Employee disengagement, community vulnerability and weaknesses reduce productivity.
Social needs represent the largest market opportunity.
The improved use of natural resources, employee development, health and safety, community development and affordable housing have a positive impact on a company’s productivity.
Let’s understand it through some practical examples:
When a firm invests in a wellness program society benefits because employees and their families become healthier, and the firm minimizes employee absences and lost productivity.
By reducing packaging and improving delivery logistics, Walmart saved $200M in distribution costs while increasing the quantity of products being shipped.
Unilever launched the sustainable living plan, which has three big goals aligned with the UNSDGs: improving health and well-being for more than 1 billion people, reducing environmental impact by half, and enhancing the livelihood of millions of people.
In 2018, Barclays established the Social Innovation Facility, which incubates financial products and services that will have a sustained social or environmental impact.
Traditionally, competitive advantage has been driven by conventional cost and quality advantages. Shared value adds the social dimension to strategy, moving from product features and benefits to generating value for society and the environment. Using this approach, companies can develop their purpose-based positioning so that a food company like Nestle becomes a nutrition, health and wellness company, and Nike become a health and fitness one instead of a shoe and apparel company.
Fortune’s fifth annual Change the World List
The list celebrates those companies and leaders that embrace corporate purpose and recognize how it can add value to business and society. Below I’ve compiled a selection of companies that are part of the list and explain why they have been selected.
#5 Walmart has earned its spot for its commitment to people development, which has translated into training courses offered to hundreds of thousands of “associates” (employees) through its Academies program.
#10 In May, Terracycle launched the Loop platform, aiming for zero-waste packaging through the “milkman model” – delivering goods in durable, reusable containers. Loop works with 41 big brands, from Crest to Häagen-Dazs.
#51 Impossible Food and #52 Beyond Meat
An Impossible Foods burger uses 87% less water than a traditional beef burger, and a burger from Beyond Meat requires 93% less land.
Statement on the Purpose of a Corporation
On 19 August, a new statement on the purpose of a corporation was signed by 181 CEOs who are committed to leading their companies in a manner that benefits all stakeholders: customers, employees, suppliers, communities and shareholders.
The corporations that signed the document shared the following commitments:
- Delivering value to our customers.
- Investing in our employees in terms of compensation, benefits, and education while fostering diversity, inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers.
- Supporting the communities in which we work and protecting the environment by embracing sustainable practices.
- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate.
-Delivering value to all stakeholders.
Do you need our help?
Brite is a consulting firm that supports businesses in the areas of strategy, marketing and sustainability, because we believe these three elements cannot be seen separately. We help small and medium businesses, as well as corporations to define and clarify:
What they sell (products and services) and how they drive value for their clients, society and the environment (shared value).
How they do it
Their operations and how they align with the UN Sustainable Development Goals
What they say
Their marketing and communication strategy, and how they engage with different stakeholders
Director at Britetrend