Creating shared value: More old-fashioned than it sounds

Medieval guilds, value-added selling, and plain old needs-spotting

By Bill Hatton

I will admit a bias: I was dubious about the term shared value, especially when the increasingly popular term became an acronym CSV for Creating Shared Value. It’s not the larger concept or any of the individual concepts with CSV that I objected to. It’s the idea that this is a new concept that (initially) set my nose out of joint. Or rather, the fulsome, unabashed praise it has received as a new way of doing business. It actually comes from business concepts that go way back.

Shared Value, as you recall, is a term popularized by business- strategy gurus Michael Porter and Mark Kramer in a 2006 article in Harvard Business Review. CSV has been growing in popularity ever since, especially among C-level execs in multinational corporations. It’s a concept that companies can “do good” through their core businesses, i.e., that there’s no necessary trade-off between making profits and doing social good. And it focuses on a few main ways to do that:

  • New and innovative products and services. You look for ways your business can meet unmet social needs.
  • Improving value in the supply chain. You look for ways to work together with your vendors and customers to improve efficiencies.
  • Building “clusters,” that is, creating and contributing to infrastructure that allows for an industry to thrive.

There’s not really a new idea in there. The first is meeting customer needs, the second is B2B value-added selling, and the third is contributing to the community.

Medieval tradesmen formed guilds and kept their shops near one another. It meant everything from easier deliveries to attracting customers and finding employees. It’s why there are trade associations. It’s why there are meatpacking districts, garment districts, and jewelry districts. The clustering idea also touches on fundamental social organization, such as working in an area where the rule of law prevails and businesses can count on contracts being enforced fairly; simply, building civil society. See Alexis de Toqueville.

Value-added selling is a concept to distinguish your product from others in the marketplace, so you don’t have to compete on price. You get to know your B2B customers and their processes and look for ways you both can reduce costs or work together to create innovative products. At core, you can get your price if you help your B2B customers get theirs. This requires close relationships, which are less likely to break up over a few pennies in price.

And meeting social needs is simply called business. People have needs for food, clothing and shelter—and finding ways to meet them in an affordable way completes a social good. People may have very specific needs that require a company to dig deep to learn as well. If you do these in a way that is innovative both in terms of products and services and in improving the supply chain, that is respectful of the commons, and that contributes to the betterment of both civil society and the industry as a whole, then you’re a responsible corporate citizen.

Not a new idea; it just used to be described in the language of duty and responsibility.

So where does that leave Creating Shared Value? One thing to keep in mind that even if there’s nothing new under the sun, there is a lot to be said for restating and recombining older ideas because they have lost their force. For several decades, the concept of Shareholder Primacy—that business’s sole responsibility was to maximize profits for their shareholders— dominated the conceptual landscape.

Shared Value revives an older concept of business—one that remembers that businesses are not disembodied entities but always exist within and for a community. Shared Value thus becomes a useful conceptual tool that places the idea of responsible behavior at the center of a business’s identity. It shows how responsible practices can improve businesses and communities, and can be fundamental to the strategy.

On these pages are two case studies that highlight how shared value is being currently applied.

Spotlight: CSV Case Study
Nestlé’s strategies for creating shared value

Look for what’s missing and reach out to critics

Earlier this summer, CR Magazine spoke with Janet Voûte, global head of public affairs, Nestlé S.A. Here is her take on Nestlé’s story:

On Shared Value’s history: “Michael Porter and Mark Kramer wrote about shared value in the Harvard Business Review, but the terminology and the practice was actually born at Nestlé. The history was an animated discussion in the hills of Davos at a World Economic Forum where our Chairman argued that in fact that ‘I can do societal good and do social good and have social impact through my core business. That it isn’t something I have to do Friday or Saturday, that it isn’t something we have to do on the weekends, but rather, my core business can both deliver business results, create value for shareholders, and value for society.’

“And from there we asked Mark Kramer and Michael Porter to come look at our business in Latin America to see if that were true. Indeed, it was. And it still is. And so the results of all that dialogue was to set up a strategic focus at Nestlé, because each individual company creates value in its own unique way, depending upon the industry, depending upon the company. Nestlé identifies nutrition, water, and rural development (or agricultural communities) as being our three focus areas for creating shared value.

“And today, some roughly 10 years later, I would argue, we are very much focused on the implementation across the organization. We are out of the strategic phase and into the implementation phase across the world, based on a set of commitments that have been made public.”

“Michael Porter said that what was an indication of shared value is when Nestlé went from being a food and beverage company to being a nutrition, health and wellness company. That commitment, that evolution, that systematic approach to changing the product portfolio, etc., is a shared-value play; it’s a decision not just to be food and beverage, but to be nutrition, health and wellness, to go after that, to have healthier products, and then also it guides your research and development, and it guides your mergers & acquisitions, that would be the subtle shift from food and beverage to tastier and healthier products.”

On the nutritional applications: “It was realized very early on that it was an incredibly important development for both business and NGOs. It forces a rethink on all sides. It involved us deeply understanding the double burden of malnutrition: both the challenges of overweight and obesity, and the challenges of underweight, malnutrition, basically, micronutrient deficiency. One of the most exciting and business social agendas we have is using our portfolio to try and help address micronutrient deficiencies. Three examples:

  1. “In India, we have a little spice pack called Maggi Masala- ae-magic. It is fortified directly to meet micro-nutrient deficiencies in the population. It’s being sold in rural communities and distributed by an NGO and it’s really trying to address the micronutrient deficiencies.
  2. “In the Philippines, we have an affordable milk brand, which is used by families, children, that is fortified with zinc and vitamin A and other micronutrients where the population is deficient. We do this together with a government research agency, and we’re using a health economics evaluation to figure out what is the right price point to make sure you can reach broad enough populations with this product. And then we couple that with consumer advertising. It’s a hybrid of a normal consumer products model (complete with consumer advertising), but at the same time a work on health economics and health impact together with a government research agency to see if we can help solve problems of micronutrient deficiencies in populations in the Philippines.
  3. “We sell Maggi cubes in the hundreds of millions to consumers in central and west Africa and those Maggi cubes used to only be fortified with iodine. Now they are fortified with iron. Again, the same kind of analytics going on. “That’s what we think are the kinds of business solutions addressing really important societal issue, where we can at least play a role in making a difference and addressing micronutrient deficiency.”

On clean water: “We’re doing a lot in the cocoa supply chain, particularly in the Ivory Coast. We do that together with the International Federation of the Red Cross to make sure they have clean water and clean water pumps, and then likewise we’ve made a commitment to provide access to clean water not only our employees but families of employees in our factories around the world. So that’s something we’re slowly rolling out.

“In terms of the issue of inappropriate use of water that is not clean, the first thing we’ve done is restrict the marketing of infant formula from the ages of 0 to 12 months in countries that are at higher risk; we call them the 152 high risk countries. But there’s always the ongoing education.”

On meeting with critics: “I think one of the big challenges and opportunities is creating a new dialogue with stakeholders. We’ve done it across the board in nutrition, in water and in rural development. We hold annual stakeholder meetings with NGOs, academics, and multi- laterals, and rating agencies. We try to get together with our critics more and more to really inform the work we do, because you can’t address societal issues as a company all by yourself.

“I think the NGOs are often the greater experts in many ways on some of the societal needs, they certainly should be part of the implementation, so I think the challenge has been to go from a company that works on its own to a company that works and engages actively with stakeholders. You may call it a challenge, because sometimes the conversations are interesting, but I think it’s a huge opportunities. That’s been the learning of the last five to 10 years.

“One of the things we’ve done in the area of stakeholder engagement – we get together every year. I’ve just come from a meeting with 50 stakeholders, including many critics, and it’s our Chairman that comes; in the previous year it was our CEO. So we take engagement with stakeholders very very seriously.

“It’s the most interesting dialogue that you would ever hear. Over the years, it becomes enormously constructive, and we learn a lot. Frankly, it helps us shape our efforts and I think the other side begins to realize that a company can address societal issues at scale, and that therefore a lot of the NGOs who a decade ago who were suspicious; now they realize they can make change happen by working with us.

On child labor:“Think for a moment about our cocoa supply chain. And think about the challenges of poverty in central/ west Africa and Ivory Coast in particular, and the very difficult issue of child labor, which is commonly practiced in these communities. As our head of operations says, we have no place for child labor in our supply chain. But once you’ve said that, what do you do about it? “Many years ago, some of most verbal critics said you are not doing enough, and what are you doing, etc., etc. We kind of sat back and said, ‘Hmm, you’re right. We need to do more. And then we took their advice and began to work with the Fair Labor Association, and by working with them, we allowed them to come into our cocoa supply chain and also into our hazelnut supply chain in Turkey to do audits. Then we make the audits public.

“That’s a moment where as a company you make a leap of faith, because you are telling the truth, there is a problem of child labor in the cocoa supply chain and you can’t just wish it away. You have to work at it, you have to really work at it, and you have to work with multiple stakeholders to really address the issue in a systematic fashion: from building of schools, which we do, to provision of clean water, to a community-based interventions and explaining what is and is not appropriate for children to do, getting them to go to the schools, [and] signing women’s empowerment principles.”

On the newness of the shared-value concept: “In a way, what Porter is talking about is the way business used to be practiced, and then business lost its way for a couple of decades. I think what this says is that this is a shift back to business’s addressing social needs, and being a responsible member of the community.”

Spotlight:
The other kind of spam—with more nutrients

Hormel Foods has a shared-value, international-volunteering and research program called Project Spammy. Spammy is a fortified poultry product designed to help fight malnutrition and address micronutrient needs of children in Guatemala.

As a part of a 20-week trial, fortified or unfortified versions of SPAMMY were fed to more than 160 schoolchildren in Guatemala. The results demonstrated the benefits of supplementing traditional diets with protein and micronutrients.

Among the results:

  • All participants showed greater-than-expected improvement in cognitive scores.
  • There was a 44 percent reduction in the number of school days missed due to illness.
  • Children receiving fortified SPAMMY showed statistical improvements in vitamin D and B12 levels, underscoring the magnitude of deficiencies of these two essential vitamins in young Guatemalans.
  • A positive correlation was found between increase in cognitive gain scores and vitamin D concentrations in the treatment group.

As part of the project, Hormel provides scholarships to eight high school-age students to attend the Villa de los Niños boarding school in Guatemala City.

Melissa Bonorden, Senior Food Scientist—Product Development, described the program and her experience: “As a multinational manufacturer and marketer of food and meat products, we have expertise in food manufacturing, distribution and protein, which are important components to feeding the hungry … During the trip, we visited orphanages and family homes and were able to see how SPAMMY was prepared using traditional foods. The most rewarding part of the experience for me was interacting directly with the children and witnessing the impact of SPAMMY first-hand.”

Posted August 8, 2014 in 25115