Summary Articles Week 3:
BSS ARTIKEL WEEK 3.1
This is another classic and highly influential article. Evaluate the different ways of
achieving shared value. What are the advantages of this approach? What weak points can
you identify?
Companies must take the lead in bringing business and society back together.
The solution lies in the principle of shared value, which involves creating economic value in a
way that also creates value for society by addressing its needs and challenges.
Businesses must reconnect company success with social progress. Shared value is
not social responsibility, philanthropy, or even sustainability, but a new way to achieve
economic success.
Capitalism is an unparalleled vehicle for meeting human needs, improving efficiency,
creating jobs, and building wealth.
The purpose of the corporation must be redefined as creating shared value, not just profit
per se.
This will drive the next wave of innovation and productivity growth in the global
economy. It will also reshape capitalism and its relationship to society.
,A related concept, with the same conclusion, is the notion of externalities. Externalities arise
when firms create social costs that they do not have to bear, such as pollution.
- Thus, society must impose taxes, regulations, and penalties so that firms “internalize”
these externalities—a belief influencing many government policy decisions.
Corporate responsibility programs—a reaction to external pressure—have emerged largely
to improve firms' reputations and are treated as a necessary expense.
Governments, for their part, have often regulated in a way that makes shared value more
difficult to achieve.
The concept of shared value, in contrast, recognizes that societal needs, not just
conventional economic needs, define markets.
It also recognizes that social harms or weaknesses frequently create internal costs
for firms—such as wasted energy or raw materials, costly accidents, and the need for
remedial training to compensate for inadequacies in education.
Shared value, then, is not about personal values. Nor is it about “sharing” the value already
created by firms—a redistribution approach.
- Instead, it is about expanding the total pool of economic and social value.
At a very basic level, the competitiveness of a company and the health of the communities
around it are closely intertwined.
A business needs a successful community, not only to create demand for its
products but also to provide critical public assets and a supportive environment.
A community needs successful businesses to provide jobs and wealth creation
opportunities for its citizens.
This interdependence means that public policies that undermine the productivity and
competitiveness of businesses are self-defeating, especially in a global economy where
facilities and jobs can easily move elsewhere.
, Firms focused on enticing consumers to buy more and more of their products. Facing
growing competition and short term performance pressures from shareholders, managers
resorted to waves of restructuring, personnel reductions, and relocation to lower-cost
regions, while leveraging balance sheets to return capital to investors.
The results were often commoditization, price competition, little true innovation, slow
organic growth, and no clear competitive advantage.
In this kind of competition, the communities in which companies operate perceive little
benefit even as profits rise.
- Instead, they perceive that profits come at their expense, an impression that has
become even stronger in the current economic recovery, in which rising earnings
have done little to offset high unemployment, local business distress, and severe
pressures on community services.
Companies can create economic value by creating societal value.
There are three distinct ways to do this:
1. By reconceiving products and markets,
2. Redefining productivity in the value chain,
3. And building supportive industry clusters at the company’s locations.
The concept of shared value resets the boundaries of capitalism. By better connecting
companies’ success with societal improvement, it opens up many ways to serve new needs,
gain efficiency, create differentiation, and expand markets.
The ability to create shared value applies equally to advanced economies and
developing countries, though the specific opportunities will diff er. The opportunities
will also diff er markedly across industries and companies—but every company has
them. And their range and scope is far broader than has been recognized.
1.
Society’s needs are huge—health, better housing, improved nutrition, help for the aging,
greater financial security, less environmental damage.
In business we have spent decades learning how to parse and manufacture demand while
missing the most important demand of all. Too many companies have lost sight of that most
basic of questions: Is our product good for our customers? Or for our customers’ customers?
In advanced economies, demand for products and services that meet societal needs is
rapidly growing.
In these and many other ways, whole new avenues for innovation open up, and shared
value is created.
