By Melissa J. Anderson
According to a new paper out of Harvard Business School, it’s time to usher in a new phase of capitalism.
The paper, Creating Shared Value, says that CSR has, so far, only served as a band-aid on a broken system. It’s time, write the authors, to re-envision how how businesses make a profit as well as create broader value within their communities.
Written by Michael E. Porter, Bishop William Lawrence University Professor, Harvard University and Mark R. Kramer, senior fellow at Harvard’s Kennedy School of Government, and co-founder of consultancy FSG with Porter, the paper was published earlier this year in the Harvard Business Review.
They believe that in recent decades, companies, driven by shareholder focus on short-term gain, have grown to ignore their impact on their surrounding communities, focusing solely on creating profit – often to the detriment of their workers, the environment, and society. Not only that, they say, but we are approaching an era of resource scarcity and, given the lack of trust most people now have in big business, companies must change the way they operate.
Corporate social responsibility isn’t the answer, they say. In order for the new model to stick, the work companies engage in going forward must be profitable – not philanthropy. Otherwise, it will always come across as a soft side project. They write:
“Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face. The moment for a new conception of capitalism is now; society’s needs are large and growing, while customers, employees, and a new generation of young people are asking business to step up.”
The key, Porter and Kramer write, is to create “shared value” – to engage in projects that are profitable and benefit society as a whole. They say, “The concept of shared values 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.”
According to the authors, by examining its products (from a benefits and harms standpoint), its supply chain, changing technology and environmental situations, and the unique needs of its customers, a company can identify potential opportunities for creating shared value. Additionally, they write, it may seem difficult at first, but it is an exercise that gets easier with a change in mindset.
Here are three areas in which that companies can create shared value.