Shared Value: The Path to Success

The concept of shared value is difficult to understand and implement in a society, economy and business climate where sharing is not necessarily a prime motivation or even much in evidence.

In the Vested Outsourcing approach to doing business shared value is an important step on the way to true collaboration and getting to the win-win. In my new book, The Vested Outsourcing Manual—which is scheduled for publication in June—shared value is defined as the idea and practice of creating economic value for all parties involved in a Vested relationship.

In essence, shared value thinking involves entities working together to implement innovations that benefit everyone, in a conscious effort that the parties will gain (or share) in the rewards. This is the essence of “What’s in it for We” (WIIFWe) thinking.

This idea jibes well—almost preternaturally well—with what Michael E. Porter and Mark R. Kramer write about in a long and provocative article in this month’s Harvard Business Review, entitled coincidentally enough, “The Big Idea: Creating Shared Value.” Porter is a featured HBR contributor, and a leading authority on company strategy and the competitiveness of nations and regions. Kramer, who frequently teams with Porter, is co-founder and Managing Director of FSG and the author of publications on CSR, catalytic philanthropy, strategic evaluation, impact investing, and adaptive leadership.

The first sentence of their article says, “The capitalist system is under siege.”

They explain that recently business is mainly a villain, viewed mostly as “a major cause of social, environmental and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.”

That’s, as one might say, a PR nightmare. Even if not totally true (governments and society play a major role), it’s a perception that is difficult to dispel in a period of recession, high unemployment and record corporate profits.

Porter and Kramer explain that a big part of the problem is with the companies themselves because they “remain trapped in an out-dated approach to value creation.”

Companies view value creation narrowly, they continue, “optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success.”

For me this is spot-on with the Vested approach of collaboration and the forging of a long-term economic relationship based on mutually desired outcomes and following the Five Rules, not simply a transaction-based deal that only relies on cheap price points designed to make the quarterly P&L statement look good.

“Companies must take the lead in bringing business and society back together,” the HBR article says. “The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core.”

Porter and Kramer say the solution “lies in the principle of shared value.” Their take is that shared value “involves creating economic value in a way that also creates value for society by addressing its needs and challenges.”

Before we all join hands and sing Kumbayah around the shared value altar let me stress that it is a wise and needed approach to deal with the realities and uncertainties of the modern marketplace and business relationships; the oft-stated emerging “new normal” that pundits love to go on about.

The bottom line for me about shared value is both hard-nosed and inclusive. “Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success,” say Porter and Kramer.

It is at the center of what companies do, they continue. “We believe that it can give rise to the next major transformation of business thinking.”

I believe that also; in fact it’s music to my ears. Vested Outsourcing is about a necessary transformation for long-term success, the collaborative win-win.

As the HBR article says, not all profit is equal; shared value is the way to move beyond one-sided or painful trade-offs, and a way to redefine productivity in the value chain.

It may be the key to unlocking new business innovation and growth—in short the next evolution of capitalism.

There’s a plateful of food for thought in this thoughtful article and I heartily recommend it.

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