Philanthropy Through Profit: The Notion of Shared Value - Community Week


By Jorri Roberts

Photo courtesy of 401 (K) 2012.

Nobody has any illusions about the purpose of businesses, especially big ones: the goal is to make the highest profit in the cheapest and most efficient way possible. Businesses, and corporations mainly, are routinely criticized for trying to achieve this goal through questionable methods, and one would be hard-pressed to find people who are shocked upon hearing these allegations.

Even though many corporations give a large chunk of their profits to charity, it seems as if the scandalous exploitations of such avenues by other less scrupulous companies of their same ilk overshadow any actual good deeds.

But what if a company could do good while making money instead of just donating it and calling it a day? Although seemingly a difficult concept to enact, there is a relatively new term for the simultaneous growth and social contribution of a company: enter “shared value.”

According to Michael E. Porter and Mark R. Kramer’s Harvard Business Review article entitled “Creating Shared Value,” the notion “can be defined 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.”

Companies with this prospect in mind will, for example, sell products that improve some aspect of the community instead of donating money in order to give back to the community—thus, they’re “giving back” while also forwarding their own economic goals.

One could more easily call it economist-speak for a ‘win-win’ situation.

“It’s a management perspective that encourages companies to create business that also benefits the social environment, and this is how it creates value,” explains Lalitha Vaidyanathan, managing director at nonprofit consulting firm FSG. “This is done in part by profits and revenue increase, as the bottom line for these companies is the profit that they make. There are many ways in which a company can create shared value, and this includes increasing market productivity, improving the value of products, and improving social conditions in competitive contexts.”

A prime example of a company that implements shared value is General Electric, particularly with their product called the MAC i. The MAC i is a portable electrocardiogram machine which is targeted towards rural healthcare markets like those in China and India, where there are little to no constant electricity and supplies as well as a lack of hospital infrastructures. With the MAC i, GE can sell its product for revenue while also benefiting a society in need.

“Many companies that implement shared value develop products that increase access to healthcare, reduce the cost of healthcare, or improve the quality of healthcare,” says Vaidyanathan. “GE’s portable ECG machines provide solutions for the lack of facilities in such countries.”

However, these types of shared value products are only profitable and beneficial on certain conditions.

“A demonstration of shared value lies in an understanding of the fundamental needs of healthcare,” Vaidyanathan explains. “These kinds of solutions can only be developed if a company understands the healthcare needs of certain countries.”

The concept of shared value seems almost too good to be true, with its philanthropic aims and lucrative outcomes. However, it’s important to remember that it’s a business effort—not a humanitarian one—in the grand scheme of things.

“It’s all about the money; that’s fundamentally the purpose. Companies cannot create large-scale social impact without the money,” says Vaidyanathan. “It is fundamentally not about giving back to society; it’s about tying the two concepts together and making money by finding ways to help people. Companies that implement shared value will bring this treatment to societies that benefit their business, and in this way, it’s not just about giving back to society; it’s more about solving the social problem to scale in ways that make money.”

Even though the concept may seem easy enough, a reflection of its true understanding comes with proper execution. Just as a company implementing shared value must be conscious of the needs of the society that it seeks to aid, the business must also have successful plans and means of accomplishing it. Vaidyanathan details three aspects in particular.

“First, in order for companies to actually do this and do it well, they need to understand social issues in a very deep way, and they can use this understanding to benefit their business in important ways,” she explains. “It’s not just an incremental business growth strategy—it’s also taking the time and investing the effort to truly understand the socially environmental needs.”

Secondly, a company must possess what Vaidyanathan calls a “dual focus.”

“In order to implement shared value, you need to focus on your bottom line, too; it’s about the connection between society and business. A business needs to measure not just how much profit it’s making, but also how it’s addressing social problems. This is when companies have a dual focus, and then and only then can they employ shared value well.”

Finally, it’s all about the strategy, starting from the top of the company and working down to the bottom.

“Companies that do this well have really laid out a strategy to do so,” she says. “It’s not just about percentage of growth, but also what they do. For example, a company may simultaneously try to conserve natural resources, like reducing water usage and employing other ecologically friendly strategies. These goals and top line goals will help people, but they have to start from the top for the rest of the organization to implement it.”

Vaidyanathan sums up the notion of shared value succinctly. “It’s actually a very different narrative or way of looking at the world. It’s about business opportunities that also help society.”

To learn more about shared value, visit the Shared Value Initiative’s website here, FSG’s website here, or Forbes’ explication here.