Creating shared value (Porter and Kramer)

Creating shared value embeds a social or environmental need within the way a company creates economic value, rather than treating corporate social responsibility as a separate programme.

When to use it

• Use it to search for strategies between pure Maximising shareholder value and Balancing stakeholder interests (corporate social responsibility), where solving a social constraint also improves competitiveness.

Origins

Michael Porter and Mark Kramer developed the concept across influential articles published in 2006 and 2011. They argued that companies should move beyond philanthropy and defensive CSR by making social progress part of competitive strategy.

What it is

Many companies describe CSR as voluntary activity outside the business’s main engine of shareholder-value creation. That separation can reduce responsibility to communication or philanthropy.

Porter and Kramer’s 2006 and 2011 articles instead place selected societal problems inside strategy. Shared value occupies the overlap between economic performance and stakeholder benefit.

Societal needs can define markets just as conventional demand does. Social weakness also creates business cost through wasted energy and materials, accidents, poor health or remedial training made necessary by inadequate education. Addressing such constraints need not be a pure cost: innovation in technology, operations and management can increase productivity or create new demand while improving social outcomes.

How to use it

Begin with a material social or environmental problem connected to the value chain, product or operating location. Identify the affected stakeholders, the mechanism linking the problem to business performance and a measurable outcome for both sides. Redesign a product or market, improve value-chain productivity, or strengthen a local cluster of suppliers, skills and institutions. Embed the work in culture, operating ownership and capital allocation.

Critics see shared value as a repackaging of shareholder value and stakeholder balancing. The concern resembles the critique in Balancing stakeholder interests (corporate social responsibility): where social benefit and profit already align, an economically rational firm may act without a new model.

The harder case is a genuine trade-off. Shared value offers limited guidance when an ethical or environmental benefit reduces shareholder returns. Some critics give long-term corporate survival priority; others argue that legal duties, rights and stakeholder obligations cannot be reduced to mutual profit.

Even critics can value the model’s invitation to rethink products and markets around poverty reduction, sustainability and environmental improvement.

Examples include:

Nestlé developed a low-cost milk supply chain in India that also benefited rural communities.

GE’s ecomagination sought economic growth through environmental innovation. It recorded US$200 billion of revenue in its first 10 years after its 2005 launch, while a Tier 4 locomotive was expected to reduce emissions by more than 70 per cent relative to Tier 3 technology.

Marks & Spencer and the Shell Foundation formed a South African trade-aid venture investing US$1 million/year to help 3000 farmers produce and export exotic flowers.

Critics can still interpret each example as shareholder-value maximisation through an innovative niche that happens to produce public benefit. A rigorous analysis should therefore report the counterfactual social outcome, durability and distribution of value, not merely revenue and intent.

Top practical tip

Write the causal chain on one page: societal constraint, business cost or opportunity, intervention, social outcome and economic outcome. If either side cannot be measured, the proposal is not yet ready.

Top pitfall

Do not label every profitable sustainability initiative “shared value.” Make genuine trade-offs and the distribution of benefits explicit; the framework does not decide whether value should accrue to the public, the environment or shareholders.

Further reading

• Porter, M.E. and Kramer, M.R. (two thousand and six). “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility.” Harvard Business Review.
• Porter, M.E. and Kramer, M.R. (twenty eleven). “Creating Shared Value.” Harvard Business Review.