Rethinking capitalism – create shared value

Mark Kramer and Harvard professor Michael Porter have just written a fascinating article for the Harvard Business Review, where they argue against the idea that a business should focus exclusively on maximizing its own profits. From the article:

Companies… remain trapped in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success.

Companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core.

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.

I could not agree more and there is no doubt in my mind that creating shared value means more profits for a business in the long term. It essentially comes back to whether you consider business a zero sum or a non-zero sum game. Us non-zeroers know that collaboration, win-win scenarios and mutual benefit are not only more profitable but also more rewarding and meaningful. It makes us happier at work because we can take pride in doing work that improves our local communities (or even the planet) rather than robbing them.

The article goes on to examine a number of areas where businesses can create shared value, including procurement, location, energy use, etc.

As for employees, the article says only this:

The focus on holding down wage levels, reducing benefits, and offshoring is beginning to give way to an awareness of the positive effects that a living wage, safety, wellness, training, and opportunities for advancement for employees have on productivity. Many companies, for example, traditionally sought to minimize the cost of “expensive” employee health care coverage or even eliminate health coverage altogether. Today leading companies have learned that because of lost workdays and diminished employee productivity, poor health costs them more than health benefits do.

Take Johnson & Johnson. By helping employees stop smoking (a two-thirds reduction in the past 15 years) and implementing numerous other wellness programs, the company has saved $250 million on health care costs, a return of $2.71 for every dollar spent on wellness from 2002 to 2008. Moreover, Johnson & Johnson has benefited from a more present and productive workforce. If labor unions focused more on shared value, too, these kinds of employee approaches would spread even faster.

I would’ve liked to see a much higher focus on employees. The one obvious place to start creating shared value is with the people closest to the business, ie. the employees. In fact, I believe that this is impossible, unless you also create a happy workplace.

You can read the article here or watch a 15-minute video, where Porter explains the fundamental concept.

Reading the article, I was reminded of this quote from Ray Anderson, the CEO of Interface, the world’s largest carpet manufacturer:

One day early in this journey it dawned on me that they way I’d been running Interface is the way of the plunderer. Plundering something that is not mine, something that belongs to every creature on earth.

And I said to myself “My goodness, a day must come where this is illegal, where plundering is not allowed. I mean, it must come.”

So I said to myself “My goodness, some day people like me will end up in jail.”

Interestingly, Interface went on to create a “green” line of carpets that became their biggest commercial success ever.

Your take

What do you think? Does your workplace create shared value already or does it focus only on maximizing its own profits? Do you see potential in shared value? Would it make you happy, to work in a business that does?

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8 thoughts on “Rethinking capitalism – create shared value”

  1. Woohoo! So another Harvard professor is coming around to a more enlightened way of thinking. I shall certainly read more.

    The interesting thing here is that he is only following Professor Gary Hamel, who wrote a book “The Future of Management” in 2007 in which he said, “For the first time since the dawning of the industrial age, the only way to build a company that’s fit for the future is to build one that’s fit for human beings as well. This is your opportunity- to build a 21st century management model that that truly elicits, honours and cherishes human initiative, creativity and passion – these tender ingredients for business success in the new millennium.”

    And interestingly Gary Hamel is Visiting Professor of Strategic and International Management at London Business School and said by Fortune Magazine to be “The world’s leading expert on business strategy.” Yet even he is desperately searching for a new system of management to allow it to happen.

    Yet that is precisely what I have been offering for the past 7 years – something that you have recognised and is presumably why you invited me to speak at your conference last year.

  2. I love the idea. And I agree with Michael Porter.
    But I think it will take quite some time to get everyone behind this idea and have it implemented everywhere.

  3. I once was on a conference about the project Economy of Communion, where the speaker explained how this project had, above all, a focus on people and their well-being. Another important feature of this project lies on the sharing of the profits; as it can be read on “http://www.edc-online.org/en/eoc/the-project.html”,


    The company owners who spontaneously join the project decide to share their business profits according to three equally important purposes:

    * helping people in distress creating new jobs and satisfying primary needs, starting from those who believe in the spirit of the project
    * spreading the “culture of giving” and of loving, essential to achieve an Economy of Communion;
    * developing their business, which must remain efficient even as it is open to giving.

    What’s new?
    Th EoC is born from a spirituality of communion, practiced in everyday life;
    it combines efficiency and solidarity;
    it harnesses the strength of the culture of giving to change economic behaviors;
    it doesn’t consider the poor mainly as a problem, but as a precious resource.

  4. I’ts a facinating idea, but as many idea, more preesentaion needed to be made to make people understand and love it..

  5. This is very inspiring thoughts. There is no doubt that the Internet have opened up for a new network based market, where new values are necessary to succeed. It is good to know that the economic theory starts recognizing and supporting this.

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