Shared value in practice

By Nick Topazio

"It is our firm belief that, for a company to be successful over time and create value for its shareholders, it must also create value for society”. This is the mantra of Nestle Chairman Peter Brabeck-Letmathe and Chief Executive Paul Bulcke underlying their Creating Shared Value programme. Set against a background of much mistrust in the actions of commercial organisations, this is a refreshing example of how some organisations are redefining their business strategies to be more holistic and more focused on sustainable business practices. 'Sustainable business: Shared Value in practice' 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’. Shared value has been described as the next evolutionary paradigm in capitalism, a business environment in which company Corporate Social Responsibility initiatives have evolved. This evolution began for many companies by moving from merely complying with externally imposed environmental, social and governance requirements to corporate philanthropy with companies supporting charitable and social causes that supported their business objectives. More recently companies have focused on acting sustainably mainly for resource efficiency and reputational reasons.

The next stage on the evolutionary curve after ‘Environmental Sustainability’ is Shared Value which not only provides benefits to society and local communities but should add significant value to a business through cost reduction, risk mitigation, reliable sourcing, improved customer perception, a greater degree of employee retention, product innovation and brand awareness.

What does it mean in practice?

The report 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 and Healthymagination strategies have resulted in benefits to society through more clean-technology products and improvements in healthcare quality, access and cost alongside significant revenue growth and operational expense reduction.

Nestle’s involvement in rural development is a great showcase on how a company can integrate business and society considerations and generate significant business opportunities. Its Sustainable Agriculture Initiative has resulted in more reliable sources of raw materials at a competitive cost with improvements in quality control and risk management.

IBM President and CEO, Samuel J. Palmisano comments “ far more than giving back to society the idea of long-term responsibility leads both to an ambitious notion of the kind of work you tackle, and to a distinct management approach, encompassing investment, talent, policy, governance and stakeholder engagement.” In the case of IBM, a cost leadership focus on the company’s production cycles has saved it $50 million in electricity expenses over the two years leading up to 2010 alongside the obvious environmental benefits of having to generate less electricity.

Unilever, through its Sustainable Living Plan, has embarked on a new journey where the scope of its initiatives goes beyond its own factories. It now includes suppliers of raw material as well as customers. The company makes 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. Their energy efficiency drive has delivered a return of 19% to the company as well as clear and demonstrable benefits to society.

The role of the CGMA

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 CGMAs working in organisations that are thinking of adopting more sustainable business practices.