Creating Shared Value: Explained with Examples

Creating Shared Value (CSV) is a business concept first introduced in the Harvard Business Review article “Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility” by Michael Porter and Mark Kramer. According to this concept, companies can achieve economic success in a way that also produces value for society by addressing its needs and challenges.

Creating Shared Value is a management strategy focused on companies creating measurable business value by identifying and addressing social problems that intersect with their business.

The CSV model is an alternative to the concept of Corporate Social Responsibility (CSR) because while CSR focuses on the mitigation of harm and being a good corporate citizen, CSV emphasizes the idea that businesses can enhance their competitiveness while simultaneously advancing the economic and social conditions in the communities in which they operate.

Shared Value Creation Framework

Creating Shared Value (CSV) is a strategic framework businesses use to generate economic value in a way that creates value for society. The concept, put forth by Michael E. Porter and Mark R. Kramer in 2011, revolves around the idea that the competitiveness of a company and the health of the communities around it are mutually dependent.

The framework essentially encourages businesses to solve societal issues directly related to their business, benefiting both the company and society. It is constructed around three key areas:

1. Reconceiving products and markets: Companies must innovate and improve their products, services, or overall business model to meet societal needs. This could involve developing healthier, more environmentally friendly products or more beneficial to the communities they operate within.
2. Redefining productivity in the value chain: Companies can increase their productivity by improving environmental, health, and safety impacts in their value chain. This can involve reducing waste, improving logistics, using resources more effectively, or improving employee welfare.
3. Enabling local cluster development: Companies do not operate in isolation but are part of a network or “cluster” of businesses, suppliers, and associated institutions in a particular field. By investing in the development of these clusters, businesses can improve their own productivity while also supporting local economies.

The key to this framework is that a business’s success and social progress are interconnected. A company can generate economic and societal value by focusing on the areas where these interests intersect. This is distinct from traditional corporate social responsibility (CSR) programs, often viewed as separate from a company’s core business operations. CSV is about integrating societal improvement into a company’s strategy and operations.

Examples of Creating Shared Value

Here are several examples of Creating Shared Value (CSV):

1. Nestlé: Nestlé has been one of the major advocates of the CSV approach. In their coffee supply chain, they recognized the societal problem of poor farming practices leading to unsustainable yields and low-quality coffee. Nestlé’s response was to provide support and training to coffee farmers (Nespresso AAA Sustainable Quality Program). This increased the quality and productivity of the coffee farms, which in turn provided Nestlé with a better, more reliable product.
2. Unilever: Unilever’s Sustainable Living Plan aims to decouple its growth from its environmental footprint while increasing its positive social impact. For example, the Lifebuoy soap brand launched a handwashing campaign in rural India, helping to combat diseases and improve health outcomes. This, in turn, increased demand for their products.
3. Google: Google’s products, such as Google Search, Google Maps, and YouTube, have created massive shared value by providing free access to information and educational content to millions of users globally. They have also enabled small businesses to reach larger audiences and compete on a larger scale.
4. IBM: IBM’s Corporate Service Corps sends teams of experts to emerging markets to work on societal problems, for example, improving water quality or transportation infrastructure. These engagements provide societal benefits and give IBM deeper insight into new markets.
5. Novo Nordisk: Novo Nordisk, a global healthcare company, has developed a “Blueprint for Change Program” to improve diabetes care within communities. The program targets issues such as early diagnosis and access to care, resulting in better societal health outcomes and an increased market for their products.
6. Interface Inc.: Interface, a carpet manufacturer, has invested in research to create carpet tiles from recycled materials, reducing their dependence on petroleum and lowering their environmental footprint. The company has also developed a program to source used fishing nets from local communities, providing income to these communities and supplying Interface with a source of recycled nylon for their carpets.

These examples underline how CSV encourages companies to solve societal issues related to their businesses, allowing both society and businesses to benefit. It goes beyond traditional CSR and philanthropy, embedding societal improvement into the core of business strategy and daily operations.

What types of businesses can focus on creating shared value?

Creating Shared Value (CSV) is a versatile concept that can be applied to businesses across virtually any industry or sector, from startups to large corporations, manufacturing to service industries, and for-profit companies to social enterprises. Here are a few examples:

1. Manufacturing and Consumer Goods: Businesses in this category can improve their supply chains for efficiency and sustainability, develop products that address societal needs, and adopt environmentally friendly production processes. Nestlé’s training programs for farmers and Unilever’s Sustainable Living Plan are examples of CSV in these sectors.
2. Technology and Software: Tech companies can create shared value by developing products that improve access to information, boost education, or help small businesses thrive. Google’s free suite of tools, including Google Search, Google Maps, and Google Classroom, is an example of CSV in the tech sector.
3. Financial Services: Banks and financial institutions can create shared value by offering financial products and services tailored to underserved communities or small businesses. For example, providing microfinance loans to entrepreneurs in developing countries or developing financial literacy programs.
4. Healthcare: Healthcare companies can create shared value by improving access to medical treatments, promoting preventive care, or working to address public health crises. Novo Nordisk’s efforts to improve diabetes care exemplify CSV in the healthcare sector.
5. Energy and Utilities: Companies in this sector can create shared value by investing in renewable energy sources, improving energy efficiency, and developing affordable solutions for underprivileged communities.
6. Agriculture and Food Production: Companies can help small farmers improve their yields, develop more sustainable farming methods, and improve access to nutritious food. An example is Nestlé’s work with coffee farmers.
7. Education and Training Providers: These businesses can create shared value by making education more accessible, tailoring training programs to match workforce needs, and helping individuals gain valuable skills.

While CSV can be applied in any sector, the specific strategies and opportunities will depend on the company’s specific context, including its industry, size, geographic location, and core competencies.

Advantages of Creating Shared Value

Creating Shared Value (CSV) offers a variety of benefits to businesses and society. Here are some of the key advantages:

1. Improved Reputation and Brand Image: Businesses can improve their reputation and public image by directly addressing social and environmental issues, increasing customer loyalty, and attracting more consumers.
2. Increased Competitiveness: Companies that engage in CSV initiatives often innovate their products, services, or processes, which can improve their competitiveness. This can increase market share, customer retention, and overall business growth.
3. Greater Employee Satisfaction and Retention: Employees tend to be more engaged and satisfied when they know their work contributes to broader societal goals. This can improve employee morale, productivity, and retention.
4. Stronger Community Relations: Companies that invest in the local communities where they operate often experience better community relations, which can support their long-term business success.
5. Risk Management: Companies can proactively manage risks by addressing social and environmental challenges. For example, by investing in sustainable supply chains, a company can reduce the risk of supply disruptions due to environmental damage.
6. Attract Investment: Many investors increasingly consider environmental, social, and governance (ESG) factors in their investment decisions. Companies demonstrating they’re creating shared value may be more attractive to these investors.
7. Access to New Markets: CSV initiatives can help companies access new markets. For example, developing products or services that meet the needs of underserved populations can open up new customer segments.
8. Sustainability: CSV promotes more sustainable business practices. By aligning profit-making with social and environmental well-being, companies ensure their operations are more sustainable in the long term.

By focusing on CSV, companies can leverage their resources, expertise, and innovation capabilities to positively impact society while also boosting their own performance and sustainability.