Unlocking the powerful potential of shared value
April 12, 2011
"Win, win” is an overused phrase, but it accurately reflects the concept of “shared value,” an emerging business trend that offers powerful potential for the food and beverage industry. Adopted during the past few years by companies such as Nestle S.A., Unilever and Wal-Mart Stores, Inc., shared value may be considered as a logical step beyond the corporate social responsibility trend.
In the January-February 2011 issue of the Harvard Business Review, Michael E. Porter, professor at the Harvard Business School, and Mark R. Kramer, the founder and managing director of FSG, a business consultancy, define shared value as:
“Policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.
“The concept rests on the premise that both economic and social progress must be addressed using value principles. Value is defined as benefits relative to costs, not just benefits alone. Value creation is an idea that has long been recognized in business, where profit is revenues earned from customers minus the costs incurred. However, businesses have rarely approached societal issues from a value perspective but have treated them as peripheral matters. This has obscured the connections between economic and social concerns.”
Nestle has identified three areas where it may create shared value: nutrition, water and rural development. The company notes, for example, its future lies in helping people consume a healthier diet, whether the problem is deficiency in vitamins and minerals at one end of the spectrum or obesity at the other. Through its shared value effort Nestle is attempting to bring nutrition solutions to consumers by adding more nutritious ingredients and beneficial micronutrients to its products while also reducing the salt, sugar, trans fatty acids and saturated fat from its product portfolio.
For each area of shared value it has identified, Nestle has committed resources in terms of talent and capital to enhance value creation.
In a similar manner, Wal-Mart has introduced its own shared value initiatives related to sustainability and health. In each case, the retailer’s efforts benefit the company by reducing costs, enhance its suppliers’ operations by creating incentives for improved efficiency and cost reduction, and also benefit consumers through resource management and access to healthier products.
Mr. Porter and Mr. Kramer differentiate shared value from corporate social responsibility by using the fair trade movement as an example. They note that the fair trade concept aims to increase the proportion of revenue that goes to poor farmers by paying them higher prices for the same crops.
“Though this may be a noble sentiment, fair trade is mostly about redistribution rather than expanding the overall amount of value created,” they write. “A shared value perspective, instead, focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability. This leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them.”
Many food and beverage companies have embraced the concept of corporate social responsibility. Their efforts have been laudable, but it is also clear that there is greater opportunity to be gained through the concept of shared value.
That large, multinational companies such as Nestle and Wal-Mart have adopted these practices should not come as a surprise. They have the expertise and resources to explore new opportunities and business practices. But it should be emphasized that shared value is not a concept only for large companies. Mid-size and smaller firms may benefit from the approach and, in turn, provide a long-term benefit to their shareholders and the communities where they operate.