Creating Shared Value

Creating Shared Value

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The capitalist system is under siege. In recent years business has been criticized as a major cause
of social, environmental, and economic problems. Companies are widely thought to be
prospering at the expense of their communities. Trust in business has fallen to new lows, leading
government officials to set policies that undermine competitiveness and sap economic growth.
Business is caught in a vicious circle.

A big part of the problem lies with companies themselves, which remain trapped in an outdated,
narrow approach to value creation. Focused on optimizing short-term financial performance,
they overlook the greatest unmet needs in the market as well as broader influences on their longterm success. Why else would companies ignore the well-being of their customers, the depletion
of natural resources vital to their businesses, the viability of suppliers, and the economic distress
of the communities in which they produce and sell?

It doesn’t have to be this way, say Porter, of Harvard Business School, and Kramer, the managing
director of the social impact advisory firm FSG. Companies could bring business and society back
together if they redefined their purpose as creating “shared value”—generating economic value
in a way that also produces value for society by addressing its challenges.

A shared value approach reconnects company success with social progress.

Firms can do this in three distinct ways: by reconceiving products and markets, redefining
productivity in the value chain, and building supportive industry clusters at the company’s
locations. A number of companies known for their hard-nosed approach to business—including
GE, Wal-Mart, Nestlé, Johnson & Johnson, and Unilever—have already embarked on important
initiatives in these areas. Nestlé, for example, redesigned its coffee procurement processes,
working intensively with small farmers in impoverished areas who were trapped in a cycle of low
productivity, poor quality, and environmental degradation. Nestlé provided advice on farming
practices; helped growers secure plant stock, fertilizers, and pesticides; and began directly paying
them a premium for better beans. Higher yields and quality increased the growers’ incomes, the
environmental impact of farms shrank, and Nestlé’s reliable supply of good coffee grew
significantly. Shared value was created.

Shared value could reshape capitalism and its relationship to society. It could also drive the next
wave of innovation and productivity growth in the global economy as it opens managers’ eyes to
immense human needs that must be met, large new markets to be served, and the internal costs

of social deficits—as well as the competitive advantages available from addressing them. But our
understanding of shared value is still in its genesis. Attaining it will require managers to develop
new skills and knowledge and governments to learn how to regulate in ways that enable shared
value, rather than work against it.