Out of the ashes of the 2008 financial crisis, a new concept of capitalism is arising.
It has been waiting to be born for decades, as corporations merged and grew to behemoths that created unprecedented profits yet restructured, downsized and sought cheaper labour in developing countries, polluting and chewing up resources along the way. This insanity has been the result of a mindset we have all been trapped in, a focus on short term value creation in reaction to the pressures of a mature and declining market base. I say “we” because we have all been trapped in this paradigm, consumers as well as CEOs of global corporations. Consumers have gotten into debt, consumed frivolously and focused on short term wants rather than long term needs.
Now a new way of understanding capitalism itself is gaining currency. Epitomized and succinctly explained in the January-February 2011 edition of the Harvard Business Review, Michael Porter and Mark Kramer call it “Shared Value”. This means, in essence, creating economic value in a way that also creates value for society. It’s a positive feedback loop. Considering societies’ needs and serving them leads to innovation and profitability. As society is enhanced, the business ecosystem grows. This concept is not the same as corporate philanthropy or social responsibility where corporations, in essence mitigate the harm they do by giving back and where societal good is an afterthought, not a core business focus.
http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/1
Shared value expands both economic value and societal value and it is based on abundance thinking as opposed to scarcity thinking. A great example is comparing a fair-trade approach to purchasing whereby the subsistence farmer gets a greater share of revenue, thereby redistributing the finite value generated from the industry. A shared value approach is to improve growing techniques and support a localized infrastructure so that efficiency, product yields, quality and sustainability is improved. This enhances the farmer’s capacity, the community’s prosperity, and yields greater revenue for companies purchasing the crop. This is exactly what is starting to happen in the Ivory Coast and Ghana in an effort to save an otherwise unsustainable cocoa industry.
Creating shared value is now a business imperative for several reasons including the need to stabilize a sustainable natural environment and to enhance the society that ultimately consumes what businesses have to offer. Most importantly, according to Porter and Kramer, shared value repairs business’s tarnished licence to operate. “Not all profit is equal”, they say, “profits involving a social purpose represent a higher form of capitalism”.
To appreciate this statement, consider that Michael Porter is considered a leading thinker in competitive strategy and an esteemed Harvard Business School faculty member. Mark Kramer is an expert in corporate social responsibility. This is an astonishing and exciting statement from two thought leaders in mainstream business thinking.
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