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Sustainable business: Shared value in practice 

April 17 2012
Topics: Sustainability

Set against a background of underlying mistrust in their intentions, major corporations have begun to realise that they need to focus on more than short-term profit maximisation. This report examines the need for more sustainable thinking in corporate strategies and identifies the critical business model areas to concentrate on.

Michael Porter and Mark Kramer explored the idea of enhancing business competitiveness while simultaneously advancing the social conditions of the wider community. They described this concept as ‘Shared Value’. Sustainable Success: Shared Value in Practice summarises the ways Porter and Kramer suggested companies can create economic value alongside creating societal value and then provides practical illustrations of shared value creation through five case studies.

General Electric’s Ecomagination strategy has delivered cleaner-technology products as well as impressive revenue growth and operational cost savings.

Nestle’s Sustainability Agriculture Initiative has resulted in more reliable sources of raw materials at a competitive cost with improvements in quality control and risk management.

IBM focus on cost leadership in the company’s production cycles has yielded a saving of $50m in electricity expense over two years alongside the environmental benefits to society of generating less electricity.

Unilever make a clear assessment of the benefits of a more sustainable business model: revenue growth and cost savings and believes it makes perfect sense to have this philosophy integrated in its business strategy.

Johnson & Johnson believes that adopting more sustainable practices enhances their ‘total trust package’ brand as well as yielding tangible economic benefits to the company.

At a time of much public debate on the value to society of the corporate model the adoption of more sustainable business practices such as Shared Value may be seen as essential to re-establish this model as a force for good. This report provides practical illustrations of what is being done which can be considered and shaped by CGMA designation holders working in organisations adopting more sustainable business practices.



1 Comment


Comments
Martin Thomas

I welcome the CGMA's embracing sustainability and long-term objectives whilst highlighting their eternal conflict with short term financial pressures. The five case studies give an over-view of some deep and widespread initiatives that are being undertaken to create Shared Value.  However, CGMA's need to develop the critical frameworks required to challenge the underlying assumptions.  For example,

1 Your article points out that "good citizenship" can no longer be taken as a "nice-to-have" organisational quality it defines the standard to be met by all organisations that wish to see a long term future.  By implication therefore, shareholder value is not the only yardstick to be used to measure the creation of value or the destruction of value.  

Shared Value explicitly means creating value for other stakeholders.  Whereas in a perfect market, this value creation for others should be reflected in higher intangible asset values for all concerned, we are all aware that the imperfections in the markets and current limitations on our abilities to monitor intangible asset values usually mean that this value creation is not visible.  This does not mean that we should not attempt to measure the Shared Value created, but it does mean that expecting it to be reflected in shareholder value increases will misdirect attention and resources.  With intangibles now accounting for 80% of market values, the need to address their underlying drivers (e.g. Shared Value with other stakeholders) is vital.    

2 Whereas all five case study companies say they comply with GRI requirements and two say they meet B+ application status, even this does not require performance standards that set sustainability norms derived from local contexts in which they operate.  Therefore, none reports actual performance against context-based standards.  It follows therefore, that none can say whether they are performing sustainably. Nor can they measure the extent to which any UN-sustainable performances are being reduced in actual performance.  CGMA?s should learn these concepts and be able to implement them in their own organisations.

None of this is intended to undermine the work being done by the 5 companies.  It simply says to reflective CGMA practitioners that we still have a lot to do beyond current initiatives.

Martin Thomas martin@call4change.com

Apr 26, 2012 1:45 PM
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