Michael Porter: the shared value path
If you are familiar with the Vested approach and the books and articles I’ve written on collaboration and trust, you know about the importance I place on sharing value in business relationships.
You might say it’s the way that capitalism will take business and value creation to a new and more sustainable level in the twenty-first century. And it’s also why I’ve taken much too long to write about the seminal ideas of Michael Porter on this subject in this space.
You see Porter, along with Mark R. Kramer, wrote about the “big idea” of “Creating Shared Value” in 2011 in a long and highly influential Harvard Business Review article.
Porter’s shared value premise is a natural progression of his career work on company strategy and the competitiveness of nations and regions. He is the Bishop William Lawrence University Professor at Harvard Business School.
The HBR article begins by acknowledging that capitalism is “under siege,” because business is increasingly “viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.”
And even embracing corporate social responsibility – a widespread trend these days – is not enough because “the more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures.” A major part of this problem lies with companies themselves: they are stuck “in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimising 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.”
In a short video for the Huffington Post World Economic Forum, Porter summarised his ideas on shared value. He says that the basic idea of creating shared value “is about actually applying the capitalist model to addressing issues in society,” such as hunger, the environment, water and health.
It goes beyond the CSR approach that’s based basically on charity and fair trade, which Porter asserts is not a sustainable solution – “it’s just redistribution.” Shared value is a logical progression from CSR, he says, because incomes are raised for everyone, not through charity and by a being a “good corporate citizen,” but by “being a better capitalist – it’s a win-win.”
CSR was an effort to be responsible by contributing to the community, he continues. The idea of shared value is a much “bigger opportunity, it’s rethinking how we practice capitalism.”
In that regard, Porter talks about the three opportunity “buckets” that benefit all. Firstly, there’s the product opportunity, which addresses the many social dimensions embodied in a product, often in relation to customers whose needs have not been served.
The second bucket is to look at the value chain and open up new opportunities to save on energy, save on packaging, and actions that companies can employ to provide more beneficial impacts on suppliers that benefit them and their employees. The third opportunity is a “cluster,” or the businesses and institutions around the company – “the better that ecosystem the better and more effective and competitive the company can be.”
The idea here, Porter continues, is to “get capitalism working not against the interests of society and the community, but actually integral to addressing the interests of society and the community.”
This, I believe, is where the Vested business model that provides a pathway to implement a trusting, collaborative relationship that creates and shares value for all parties in a business or outsourcing relationship makes those lofty goals entirely possible.
As Porter says: “Changing the public’s attitude to business will be based on what we in business do, what we achieve, what we accomplish. Shared value is a way to get businesses thinking about that question. “
In a global economy where capitalism is seen as the self-interested scapegoat – and often rightly so – for the economic and financial ills that we face, Porter’s ideas present a way for capitalism to be the solution, not the problem; the hero, not the villain.
To do that, “companies must take the lead in bringing business and society back together,” Porter says. And the Vested model provides a blueprint for that to happen.