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Companies… remain trapped in an outdated approach to value creation that has emerged over the past few decades.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.
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.
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?