Creating Shared Value - Value-Based Strategy

Value-based strategy

Creating Shared Value

1. What is “shared value” and what are its strengths?

Creating Shared Value (CSV) is concept created by famous strategist personalities Porter and Kramer to bring back legitimacy to businesses in a time of crisis. Derived from Corporate Social Responsibility (CSR) the aim of CSV is to raise business opportunities from social problems within companies and transform management toward more social responsibility. In their paper, Porter and Kramer defined shared value as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates”. CSV is then a framework created to help understand the dependency of a company and the communities around, for them it is a way to create a link between economic growth, profitability and social responsibility resulting in a more “conscious” capitalism.

The framework of CSV is based on three ways to create shared value opportunities: reconceiving products and markets, redefining productivity in the value chain and enabling local cluster development.

As the concept was developed by famous strategy figure, it beneficiated from their popularity but its success in the eyes of practitioners and academic is based on strengths inherent to CSV. Indeed, Porter and Kramer through several articles in the Havard Business Review (HBR) managed to elevate a topic disregarded by firms’ top management – social problems – to a strategic level on the CEO agenda. Furthermore, CSV brought something new which was not mentioned in many reports on the same topic: the role of governments in enhancing social initiatives. According to Porter and Kramer, governments should provide regulations to encourage social innovation within companies. Coming back to capitalism, CSV provides also explanations to ideas of “conscious capitalism”. CSV is finally the only framework covering almost every approach to social problems, such as “social entrepreneurship” or “non-market strategy”.

1. CSV can be undermined by weaknesses

First, CSV seems not to be the “state-of-the-art” theory on social responsibility. Indeed, Porter and Kramer denigrate work already done on CSR, claiming to “supersede CSR”. They ignore the similarities between previous studies and their publication to lead their readers toward their own conclusion. Furthermore, there is a lack of acknowledgment from both Porter and Kramer within their work. Their idea of CSV was already covered in several literature. Many theories about value creation developed seems very similar to Porter and Kramer’s work on CSV; for example, Ed Freeman’s literature on stakeholder theory is not even mentioned. In short CSV is a “remake” of a well-known debate on social innovation. This is exacerbated by the fact that they fail to mention actions already taken by governments toward social initiatives in the corporate world. This lack of acknowledgement and the omission of limits could lead to a misinterpretation of CSV.

Moreover, CSV fails to address issues of trade-offs between economic and social value creation. Many times, especially in lucrative businesses economic and social outcomes do not align for everyone. For example, microfinance, topic described by CSV as successful application of simultaneous social and economic goals, has in fact troubles to make profit. Having a look in depth on the three ways to achieve shared value above we can observe that every concept is “undercooked” and not fully justified. “Reconceiving new products and markets” does not cover a sensible topic about dangerous products such as weapon or tobacco. The “complexity of value chains” only focuses on some links of the value chain. And the third way, “enabling local cluster development” is not new as regional policies were already implemented by several companies and developing a local cluster does not always implies social repercussions.