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Is Creating Shared Value (CSV) the next shape of capitalism?

October 25th, 2019

October 13-16, Orlando hosted the 2019 Executive MBA Council Global Conference.

 

Mark Kramer on stage in Orlando

An impressive 451 participants (out of which 161 first-time attendees) from 152 business schools in 29 countries enjoyed inspirational plenary session keynote speeches, took part of the latest industry research and shared best Executive MBA practices in formal break-out presentation sessions and through informal networking.

The first keynote speaker was Dr. Mark Kramer, co-founder of social impact advisory firm FSG and a frequent speaker around the world on topics of catalytic philanthropy, collective impact and creating shared value for corporations. His keynote was themed “Creating Shared Value: Competitive Advantage through Social Impact” and detailed why businesses need to seriously consider adding social impact to the traditional bottom-line business impact, to make strategies more competitive:

 

Creating Shared Value (CSV) is a management principle introduced jointly already in 2006 by Mark Kramer and renowned Professor Michael E. Porter of Harvard Business School. CSV extends well beyond both Corporate Philanthropy (which entails volunteering and donations to worthy social causes), and Corporate Social Responsibility (CSR, which lets corporations improve trust and reputation, while mitigating risk and harm). Unlike these two, CSV addresses both business and societal needs through entirely new profitable business models. CSV is harnessing capitalism to meet social needs:

 

Source: Professor Michael E. Porter, Harvard Business School

 

Why is CSV becoming increasingly relevant? Globally speaking, many societal, environmental and economic development challenges have been successfully addressed over the last three decades, literally lifting billions of people out of abject poverty. But in many developing countries, and in some sectors of developed economies, development challenges are still abundant. Governments and NGOs in most countries lack resources and capabilities to sufficiently address them all.

Businesses on the other hand, argue Kramer and Porter, are traditionally incentivized to take risk and are used to see competition fuel innovation, efficiency and adoption of new technologies. Traditional for-profit business models are scalable and financially sustainable. These formidable assets put businesses in a prime position to design, or re-design, business models which can create economic and social value simultaneously, in focusing on the social issues that businesses are capable of addressing.

As long as new business models and corporate incentives are carefully designed, there really is no need to trade off bottom-line profit for societal gains, claimed Mark Kramer. One will follow from the other:

 

Source: Professor Michael E. Porter, Harvard Business School

Case in point: Swiss multinational food and drink processing corporation Nestlé is the largest food company in the world, measured by revenues. Already in 2006, Nestlé adopted the CSV approach, focusing on three areas – nutrition, water and rural development – as these are core to their business activities.

Nestlé now publishes an extensive annual progress CSV report on its goals. Nestlé also established the Creating Shared Value Prize, which is awarded every other year with the aim of rewarding the best examples of CSV initiatives worldwide and to encourage other companies to adopt a shared value approach.

Nestlé about CSV on its corporate web site (Source: www.nestle.com/csv/what-is-csv)

Mark Kramer shared with us a compelling example of CSV at Nestlé Health Science: investing some 1,88 billion USD to develop new nutritional supplements to improve health and extend life expectancy in several African countries, Nestlé has managed to dramatically increase the quality of life of millions, whilst generating substantial return on investment, as the nutritional supplements are paid for by local insurance companies. CSV all boils down to creative business model innovation.

Does CSV change the traditional focus on shareholder value? As long as companies communicate effectively with their shareholders, they should welcome CSV initiatives (and they do). Properly implemented, CSV is a competitive strategy that does not cannibalize profits, it creates competitive advantage.

Are there any challenges in having businesses adopt CSV? Yes, absolutely. Mark Kramer underlines that, like within Nestlé, the vision of the CEO is the primary driving force for CSV. He then lists four categories of challenges to overcome in its implementation:

 

  1. Shifting mindsets in applying business discipline to societal problems and in leading the changes needed,
  2. Seeing beyond conventional boundaries: finding new customers, strategic opportunities and the new business models to address them within the larger ecosystem,
  3. Measurement and reporting: restructuring incentive compensation, communicating with investors,
  4. Establishing cross-sector and competitive partnerships.

 

In conclusion, mobilizing forces of business model innovation and change and applying them to a broader set of societal challenges than businesses traditionally have done, the concept of Creating Shared Value (CSV) has the potential to create virtuous cycles in many parts of the global economy.

This is why Kramer argues that business schools should definitely consider adding CSV to their Executive MBA curricula. To that end, Harvard Business School offers several teaching cases and articles (in English and Spanish), to lower the threshold for lecturing faculty. What each business school needs to assess is when the time is right to introduce the concept of CSV in its own graduate programme curricula.

 

Additional reading:

Michael E. Porter and Mark R. Kramer: “Creating Shared Value”

Harvard Business Review, January-February 2011
Abstract: www.hbs.edu/faculty/Pages/item.aspx?num=39071

Nestlé corporate web site: “Creating shared value for our shareholders and society”

www.nestle.com/csv/what-is-csv

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