The real raison d’être

For competitive advantage, companies should connect their business to social challenges

FSG advises Mars on cocoa sustainability in Côte d’Ivoire

Could you give us a short definition of shared value?

Creating shared value can be defined as policies and practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in which the company operates. And it’s really the word ‘simultaneous’ that’s important here: it is not about a trade-off, it’s not about saying we can do good for the business or good for society and the environment, it’s about doing those simultaneously.

Could you give us a short definition of shared value?

Creating shared value can be defined as policies and practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in which the company operates. And it’s really the word ‘simultaneous’ that’s important here: it is not about a trade-off, it’s not about saying we can do good for the business or good for society and the environment, it’s about doing those simultaneously.

Creating shared value would seem to perfectly compelement the authentic organisation: it ties together a business’ key purpose – creating value for their shareholders – to wider societal benefits. Would you say that the strength of creating shared value lies in helping businesses to reaffirm or redefine their authenticity?

One of the interesting things we’re seeing is companies redefining the industry they’re in. Take the automobile industry – 10 years ago that industry was about building cars; that’s how you would have defined it. Today that industry is actually about green, clean mobility. A subtle difference, but when you say “we’re about mobility” at the very highest level, that’s a very different model from “we’re about building cars”. We’ve seen Nestlé go through the same transformation: it doesn’t think of itself as a food and beverage company, it thinks of itself as delivering nutrition.

"One of the interesting things we’re seeing is companies redefining the industry they’re in."

So we think that in the next decade whole industries will re-define their purpose a little bit, so instead of being an IT/data management company maybe your purpose is to help us make better use of the scarce resources we have on our planet. Banking is another sector: traditional retail banking used to be about protecting people’s assets and being able to help people and businesses grow and be more productive that way. It has lost its way but the core purpose of retail banking, at least a hundred years ago, was all about societal value creation. So I definitely think that shared value lends itself to a redefinition.

Given the recent popular dissatisfaction towards big business, would you say that the concept of ‘shared value’ is a timely one?

It’s a very timely concept. We’ve been writing about it for almost a decade – we haven’t always called it ‘shared value’ but we’ve certainly been researching it – and really only in the last 12 months has it taken off. And I think that’s because on the one hand business really has lost a lot of legitimacy, and on the other hand (and maybe more importantly) we do face substantial societal challenges which are going to be hard to address without the innovative power of businesses.

What distinguishes shared value from other concepts such as corporate social responsibility and sustainability?

Depending on how they are practised, corporate social responsibility and sustainability can often have the same objective as shared value. But we do see different drivers. Sustainability, for example, is typically about using resources in a way that preserves them for best use in the future, but we would go further and say shared value is not just about minimising the ecological footprint today, but it’s about innovating so that you can further increase productivity, get more out of the resources you’re using, and maybe even create products and services to help your customers with their own sustainability footprint.

"Shared value is not just about minimising the ecological footprint"

So it sort of goes behind a defensive risk-minimising posture to a more offensive one, really trying to create value. And with corporate social responsibility, we often see that it is really focussed on delivering on projects that run alongside or parallel to the operations and is focussed on giving back to society if the company is doing well. Also, it is often driven by reputation or external stakeholder management, rather than new markets or growth potential. So it’s a question of what is the driver? Is it really driven by seeking direct competitive advantage - then I would say that’s shared value. Or is it more a nice-to-have project that gives you a good public relations headline – this, I would say, misses the mark.

How do you recommend companies to implement shared value in practice?

What we try to do with companies is help them along what we call the shared value journey. What we try to ensure is in place at the beginning is buy-in from senior management. It’s really hard to do shared value if the CEO, the board or the management team isn’t excited and doesn’t embrace it. For any given company there are maybe just one or two topics that matter, that are social issues that intersect with the company’s context and where the company can make a sizeable difference.

"It’s really hard to do shared value if the CEO, the board or the management team isn’t excited."

And once we’ve identified the topics, we try to help companies create a strategy for an organisational change process: how do you get all the business units, the functional units, the brand and product mangers, the different countries, to think in a shared value way and to bring a shared value approach to their day to day job?

Many companies have offloaded activities to remote third-parties: for example, data centres in India. Can shared value be extended to these remote links in the value chain?

Yes, absolutely. The way shared value practically plays out is that it happens on three levels. The first is reconvening products and markets, the second is redefining productivity in the value chain, and the third is around enabling local cluster development. And so especially the second and third elements of shared value would very much apply, and I think in that particular example it would be in a company’s best interests to make sure that it can still access talent in those remote date centres.

Could you say more about ‘local cluster developments’?

This is exactly the level where companies can’t do it on their own, but the basic idea is that companies obviously operate not in a vacuum, not in a silo, but they need all sorts of healthy conditions where they operate: they need access to talent, they need infrastructure, they need safe rule of law, they need a functioning supply chain, and all of that takes investment - it’s not a given. And it’s actually in a company’s best long-term interests to make sure that this is happening.

One example here is Anglo-American, the mining company. They have created a fund to help their own supply chain and all the companies and businesses in their local operating sites be strong and grow and have access to talent and raw materials. So it’s really this idea that we operate in these communities and we need these communities to be strong and vibrant.

Which part of the organisation should lead on creating shared value?

What we see works really well is a sort of cross-functional committee, because shared value gets implemented across functions. But the day-to-day stewardship of shared value in the company can certainly fit in a department. Sometimes that is the legacy sustainability or corporate social responsibility department that takes on this larger role of coaching their peers across the company. It needs to be a department that has an in-depth understanding of the company strategy: because shared value is about the heart of corporate strategy, it needs to be a department that has or can quickly learn about the competitive drivers of the company.

How should the shared value strategy be communicated?

To some extent just like a regular strategy. One difference is being able to highlight the societal benefits that will come out of the strategy, which isn’t always the case with a typical strategy. And especially when you’re communicating to investors who want to know why these investments are good for long-tem profitability, it needs to be clear why solving that particular social issue helps the company grow its revenue, reduce its costs, increase its market share. What’s interesting here, unlike corporate social responsibility, is that if this is really about competitive advantage, you’re not going to want to communicate every detail externally because you’re not going to want to give away the company strategy.

Efforts to, say, minimise pollution are seen to be costly. How much of an effort is it to persuade companies that financial value can directly be derived from such measures?

It definitely depends on the issue, the geography, the industry, how resource-intensive they are. This is where you’re trying to convince the chief financial officer because efforts to optimise your production processes, to use less water or to result in less pollution probably cost money upfront and so you need to have a real return on investment mentality here. If the dollars speak for themselves then it isn’t that difficult, but it’s about speaking the right language.

Again this is where the question of where does this sit in the corporation matter: you may not be able to convince the chief financial officer by talking about how bad pollution is to the planet, but if you can bring the numbers to show that, compared to peers or industry benchmarks, you’re using 50 per cent more inputs in a wasteful way costing you this many millions, that’s a pretty good argument. So I do think you have to do the math and speak the language of business.

Should for-profits turn to non-profits for advice in how to implement the practicalities of shared value?

I do think there will be more partnerships and that they will be different. I think that for-profits have so much to learn from non-profits when it comes to either designing new products and markets to meet unmet social needs on the ground or setting up a distribution network in rural areas. What we’re starting to see that is exciting is that the traditional partnership between non-profits and for-profits was that the for-profit would write a cheque to a non-profit and there was sort of a donor/implementer relationship at arm’s length.

"For-profits have so much to learn from non-profits."

Now what we’re seeing is that it’s a true partnership where both parties gain something and it’s less about the non-profit asking for a cheque for some programme but it’s actually about solving problems together. And I think we’ll see for-profits having relationships with fewer NGOs but the ones they partner with will be much more long-term.

How can businesses keep abreast of the shifting opportunities for creating shared value presented by ever-changing societal challenges?

Societal challenges are quite dynamic and fluid and this is why we say it’s not about creating a shared value department and leaving them with a beautiful strategy that looks great in PowerPoint. It’s about teaching a corporation to think differently and to view social issues as drivers of strategy so that they can in fact react to local conditions. The Ivory Coast is a great example: think of the unrest and change of government in the last few years which of course turns the strategy on its head every single time.

It’s important to be able to navigate through that. I think companies are actually pretty good at managing complexity but I don’t think they’ve applied that talent to the societal realm, which is exactly what shared value is all about. It’s taking what companies are best at and teaching them how to use it in an entirely different frame, which they were never taught about at business school. We need to change business education around the world because the way it’s taught today is not incorporating societal challenges the way it should be.

To what extend would you say that shared value offers a new definition of capitalism?

I think maybe it’s a new-old version of capitalism. Again I think there are countries in the world where the role of the corporation has always been defined a little bit more around societal benefit. Germany is a good example; the US less so, unfortunately. But I think it’s bringing capitalism back to a form that it was meant to be, and if you think long-term then addressing societal challenges that are relevant to the business is always going to be the right strategy. I think we’ve been too focussed on short term quarterly earnings and profits and therefore capitalism has become all about that next quarter rather than about value creation.

Interview: David Phillips

Valerie Bockstette

Valerie Bockstette is director of social impact consultants, FSG. She has over 10 years of experience in advising leading organisations in Europe and the US on issues of strategy, evaluation, and organisational capacity. She is part of the leadership group for FSG in Europe, working across FSG’s impact areas with a particular focus on the German market and multi-national corporations. Her work with clients has spanned many topic areas, including microfinance, agricultural development, education, health, and the environment. She has also co-authored several FSG papers.