What does Creating Shared Value (CSV) mean?

Porter and Kramer’s concept of Shared Value is a new answer to the question of how companies should address the issue of social responsibility. Instead of acting as charitable donors, companies are seen as more authentic when they find synergies that are of social and economic benefit.

Michael E. Porter and Mark R. Kramer published an article in the Harvard Business Review already in 2006 entitled “Creating Shared Value”. In it, they outline the interdependence of companies and their social and ecological environment.

Companies should identify and use these interdependencies to generate “shared value” for themselves and society. Seen from the right perspective, the pursuit of profit and social responsibility need not represent a conflict of goals – they can be compatible.

Methodology

Companies can identify opportunities to generate shared value in three different ways:

1. Rethinking products and markets
2. Restructuring the value chain
3. Developing local clusters

Real-life examples of Shared Value, however, cannot normally be clearly assigned to just one of the three types – which is why the distinction should not be overemphasized in the practical application of the concept.

Shared Value: practical examples

The specialist chemical company Kuraray develops polymers that can be processed without residues. Material left over after the production process can be melted down and reused. This avoids waste and customers are willing to pay a premium for good processability.

On regular “Health Days”, Schenck Process offers employees fresh fruit and a free preventive medical check-up by the company doctor. Absences due to illness are reduced and productivity increases.

The Provadis School of International Management together with the FOM University of Applied Sciences and svaerm offer dual study programs. The social value is that participants are able to finance their studies while also gaining relevant practical experience in the online marketing industry. The economic value is that svaerm can thereby train and recruit competent professionals.

Counterexample

In its Rainforest Project, Krombacher promises to protect a square meter of forest in Dzanga Sangha for every case of beer sold. In doing so, the company is neither saving on costs nor increasing its productivity. It is engaged in the protection of the rainforest in order to improve its image.

Difference between CSV and a classic CSR campaign

Creating Shared Value (CSV) and Corporate Social Responsibility (CSR) are not one and the same thing. Shared Value is when a company increases its productivity, and at the same time society or the environment benefit. In a CSR campaign, an increase in the company’s productivity is not a fixed core component – but it can be a by-product.

To sum up, all CSV measures are also CSR measures, but not all CSR measures are necessarily CSV measures.

Why is Shared Value a popular concept?

There are various explanations for the popularity of the concept. For one thing, the authors are highly regarded in the academic world; for example, Porters frameworks are part of the syllabus in many business schools. In addition, big-name companies such as Nestlé act as multipliers, applying the concept and reporting on it publicly.

The concept itself has proved to be an emotive issue. In an age of greenwashing and whitewashing, traditional CSR campaigns are under general suspicion of being inauthentic and motivated by self-interest. Shared value is one possible answer for the desire for credible and future-proof approaches to CSR. However, neither CSR, nor CSV can make companies rise above all all criticism – more about this later.

Moreover, Porter and Kramer have sounded a very emotionalizing note in their HBR article. The concept is presented as “reinventing capitalism”. Memorable quotes such as “[t]he capitalist system is under siege” make it hard to put the article aside without reading it. It is the academic equivalent of clickbait.

Finally, the concept has gained extra attention because of the criticism.

Criticism

“All companies create Shared Value. That’s what makes CSV an empty concept for the most part. The entire point of a corporate entity is to create value that could not have been created otherwise. […] The hard problem ethically, of course, is not creating value – it’s in how the value is shared. Who gets what?”
– Chris McDonald, co-author of the Concise Encyclopedia of Business Ethics

The Economist writes that the concept of shared value is undercooked and not backed up sufficiently by empirical data.

In her commentary on CSV in the INSM blog “Understanding Economics”, Professor Ulrike Reisach traces the idea of Shared Value back to Aristotle who established a distinction between “economics” and “chremastics”. “Natural” economics (the art of housekeeping) is about meeting needs. In Aristotle’s view, this sort of economic activity was linked to the notion of the common good. Chremastistics (the art of earning money), on the other hand, is unnatural; it focuses on the accumulation of wealth without regard for the common good. This contrast implies that there must be an economic shared value. This is therefore not a new idea.

Using the counterexample of Krombacher, one might ask: If all companies concentrated on CSV, who would step in to protect the rainforest?

Author’s comment

Even if the originality of the idea is disputed: Porter and Kramer have drawn attention to an important topic with their HBR article and have ensured that the concept of Shared Value has entered into current practice – as it has on the blog and in the client projects of the svaerm online marketing agency.

In the age of social media and NGOs, there are communities that are highly critical of CSR campaigns. If there is an economic rationale for CSR activities in terms of CSV, this can make them more credible. However, communication and implementation also matter – as the example of Nestlé shows (summarized in this article by the German magazine “handelsblatt“).

CSV is not limited to large international corporations. The idea “think globally – act locally“ starts at the individual person and includes companies of all sizes. Businesses that start early with CSV accumulate Shared Value for themselves and society throughout a long time period and grow sustainably as well as synergistically.

Does your company need Shared Value or Corporate Social Responsibility to strengthen its position or achieve strategic marketing goals? We would be delighted to offer our complete consulting and communication services to ensure that your measures achieve maximum impact. Simply get in touch with us using the contact form below or drop us an email.

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