There are three key ways that companies can create shared value opportunities: By reconceiving products and markets By redefining productivity in the value chain By enabling local cluster development Every firm should look at decisions and opportunities through the lens of shared value.
This will lead to new approaches that generate greater innovation and growth for companies and also greater benefits for society.
This diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth.
and ignoring the broader influences that determine their longer-term success. How else could companies overlook the well-being of their customers,
which involves creating economic value in a way that also creates value for society by addressing its needs and challenges.
where profit is earned revenues from customers minus the costs incurred. However businesses have approached rarely societal issues from a value perspective
The opportunities have been there all along but have been overlooked. Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face.
while customers, employees, and a new generation of young people are asking business to step up.
This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society.
That is in part because economists have legitimized the idea that to provide societal benefits companies must temper their economic success. In neoclassical thinking,
Adding a constraint to a firm that is already maximizing profits, says the theory, will inevitably raise costs
and reduce those profits. A related concept, with the same conclusion, is the notion of externalities.
Anything more is seen by many as an irresponsible use of shareholders'money. Governments for their part, have regulated often in a way that makes shared value more difficult to achieve.
Blurring the Profit/Nonprofit Boundary The concept of shared value blurs the line between for-profit and nonprofit organizations.
New kinds of hybrid enterprises are rapidly appearing. For example, Waterhealth International, a fast-growing for-profit, uses innovative water purification techniques to distribute clean water at minimal cost to more than one million people in rural India, Ghana,
and the Philippines. Its investors include not only the socially focused Acumen Fund and the International finance corporation of the World bank but also Dow chemical's venture fund.
Revolution Foods, a four-year-old venture-capital-backed U s. start-up, provides 60,000 fresh, healthful, and nutritious meals to students daily and does so at a higher gross margin than traditional competitors.
Waste Concern, a hybrid profit/nonprofit enterprise started in Bangladesh 15 years ago, has built the capacity to convert 700 tons of trash, collected daily from neighborhood slums, into organic fertilizer,
thereby increasing crop yields and reducing CO2 emissions. Seeded with capital from the Lions club and the United nations Development Programme,
the company improves health conditions while earning a substantial gross margin through fertilizer sales and carbon credits.
The blurring of the boundary between successful for-profits and nonprofits is one of the strong signs that creating shared value is possible.
The concept of shared value, in contrast, recognizes that societal needs, not just conventional economic needs, define markets.
This leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them.
%shared value investments can raise their incomes by more than 300%.%Initial investment and time may be required to implement new procurement practices
and develop the supporting cluster, but the return will be greater economic value and broader strategic benefits for all participants.
The Roots of Shared Value At a very basic level, the competitiveness of a company and the health of the communities around it are intertwined closely.
not only to create demand for its products but also to provide critical public assets and a supportive environment.
A community needs successful businesses to provide jobs and wealth creation opportunities for its citizens.
This interdependence means that public policies that undermine the productivity and competitiveness of businesses are self-defeating,
especially in a global economy where facilities and jobs can easily move elsewhere. NGOS and governments have not always appreciated this connection.
In the old, narrow view of capitalism, business contributes to society by making a profit,
which supports employment, wages, purchases, investments, and taxes. Conducting business as usual is sufficient social benefit.
Facing growing competition and shorter-term performance pressures from shareholders, managers resorted to waves of restructuring, personnel reductions,
/2011 balance sheets to return capital to investors. The results were often commoditization, price competition, little true innovation, slow organic growth
In this kind of competition, the communities in which companies operate perceive little benefit even as profits rise.
Instead, they perceive that profits come at their expense, an impression that has become even stronger in the current economic recovery, in
and severe pressures on community services. It was not always this way. The best companies once took on a broad range of roles in meeting the needs of workers, communities,
Shortening investor time horizons began to narrow thinking about appropriate investments. As the vertically integrated firm gave way to greater reliance on outside vendors,
as more-fundamental opportunities for value creation were missed. The scope of strategic thinking contracted. Strategy theory holds that to be successful
a company must create a distinctive value proposition that meets the needs of a chosen set of customers.
and supporting its products or services. For decades businesspeople have studied positioning and the best ways to design activities
However, companies have overlooked opportunities to meet fundamental societal needs and misunderstood how societal harms and weaknesses affect value chains.
In understanding the business environment managers have focused most of their attention on the industry, or the particular business in which the firm competes.
Companies have failed to grasp the importance of the broader business environment surrounding their major operations.
How Shared Value Is created Companies can create economic value by creating societal value. There are three distinct ways to do this:
improving value in one area gives rise to opportunities in the others. The concept of shared value resets the boundaries of capitalism.
The ability to create shared value applies equally to advanced economies and developing countries, though the specific opportunities will differ.
The opportunities will also differ markedly across industries and companies but every company has them.
And their range and scope is far broader than has been recognized. The idea of shared value was explored initially in a December 2006 HBR article by Michael E. Porter and Mark R. Kramer
Arguably, they are the greatest unmet needs in the global economy. In business we have spent decades learning how to parse
while missing the most important demand of All too many companies have lost sight of that most basic of questions:
Is our product good for our customers? Or for our customers'customers? In advanced economies, demand for products and services that meet societal needs is rapidly growing.
Food companies that traditionally concentrated on taste and quantity to drive more and more consumption are refocusing on the fundamental need for better nutrition.
Intel and IBM are both devising ways to help utilities harness digital intelligence in order to economize on power usage.
and tools that help customers budget, manage credit, and pay down debt. Sales of GE's Ecomagination products reached $18 billion in 2009 the size of a Fortune 150 company.
and nonprofits are at marketing that motivates customers to embrace products and services that create societal benefits, like healthier food or environmentally friendly products.
Equal or greater opportunities arise from serving disadvantaged communities and developing countries. Though societal needs are even more pressing there
these communities have not been recognized as viable markets. Today attention is riveted on India, China, and increasingly, Brazil,
which offer firms the prospect of reaching billions of new customers at the bottom of the pyramid a notion persuasively articulated by C. K. Prahalad.
Similar opportunities await in nontraditional communities in advanced countries. We have learned, for example, that poor urban areas are America's most underserved market;
while the profits for companies can be substantial. For example, low-priced cell phones that provide mobile banking services are helping the poor save money securely
In Kenya, Vodafone'S m-PESA mobile banking service signed up 10 million customers in three years;
new opportunities for economic development and social progress increase exponentially. For a company the starting point for creating this kind of shared value is to identify all the societal needs, benefits,
The opportunities are not static; they change constantly as technology evolves, economies develop, and societal priorities shift.
An ongoing exploration of societal needs will lead companies to discover new opportunities for differentiation and repositioning in traditional markets,
and to recognize the potential of new markets they previously overlooked. Meeting needs in underserved markets often requires redesigned products or different distribution methods.
Opportunities to create shared value arise because societal problems can create economic costs in the firm's value chain.
Excess packaging of products and greenhouse gases are not just costly to the environment but costly to the business.
or support services. Triggered by energy price spikes and a new awareness of opportunities for energy efficiency,
this reexamination was under way even before carbon emissions became a global focus. The result has been striking improvements in energy utilization through better technology
The opportunities apply to all resources, not just those that have been identified by environmentalists. Better resource utilization enabled by improving technology will permeate all parts of the value chain
The demand for water-saving technology has allowed India's Jain Irrigation, a leading global manufacturer of complete drip irrigation systems for water conservation,
increase their profits, hire more people, and pay better wages all of which will benefit other businesses in the community.
Opportunities for new distribution models can be even greater in nontraditional markets. For example, Hindustan Unilever is creating a new direct-to-home distribution system,
creating major economic value for the company. Employee productivity. The focus on holding down wage levels, reducing benefits,
and opportunities for advancement for employees have on productivity. Many companies, for example, traditionally sought to minimize the cost of expensive employee health care coverage
and unlock new economic value that most businesses have missed. Enabling Local Cluster Development No company is self-contained.
They also draw on the broader public assets in the surrounding community, such as schools and universities, clean water, fair-competition laws, quality standards,
Clusters are prominent in all successful and growing regional economies and play a crucial role in driving productivity, innovation, and competitiveness.
Stronger local capabilities in such areas as training, transportation services, and related industries also boost productivity.
Poverty limits the demand for products and leads to environmental degradation, unhealthy workers, and high security costs.
because they involved isolated interventions and overlooked critical complementary investments. Creating Shared Value-Harvard Business Review Page 8 of 13 http://hbr. org/2011/01/the-big-idea-creating-shared-value/ar/pr 11/30/2011
and demand for ancillary services rises. A company's efforts to improve framework conditions for the cluster spill over to other participants and the local economy.
Workforce development initiatives for example, increase the supply of skilled employees for many other firms as well.
Yara is tackling this problem through a $60 million investment in a program to improve ports and roads
The benefits of cluster building apply not only in emerging economies but also in advanced countries. North carolina's Research Triangle is a notable example of public and private collaboration that has created shared value by developing clusters in such areas as information technology and life sciences.
which has benefited from continued investment from both the private sector and local government, has experienced huge growth in employment, incomes,
Here is shared where the value opportunities will be greatest. Initiatives that address cluster weaknesses that constrain companies will be much more effective than community-focused corporate social responsibility programs,
Creating Shared Value In practice Not all profit is equal an idea that has been lost in the narrow
Profits involving a social purpose represent a higher form of capitalism one that will enable society to advance more rapidly
which leads to profits that endure. Creating shared value presumes compliance with the law and ethical standards,
The opportunity to create economic value through creating societal value will be one of the most powerful forces driving growth in the global economy.
This thinking represents a new way of understanding customers productivity, and the external influences on corporate success. It highlights the immense human needs to be met,
Companies will make real strides on the environment for example, when they treat it as a productivity driver rather than a feel-good response to external pressure.
Inevitably, the most fertile opportunities for creating shared value will be closely related to a company's particular business
These outsiders have been able to see the opportunities more clearly. In the process, the distinction between for-profits and nonprofits is blurring.
The Role of Social Entrepreneurs Businesses are not the only players in finding profitable solutions to social problems.
A whole generation of social entrepreneurs is pioneering new product concepts that meet social needs using viable business models.
social entrepreneurs are often well ahead of established corporations in discovering these opportunities. Social enterprises that create shared value can scale up far more rapidly than purely social programs,
which often suffer from an inability to grow and become self-sustaining. Real social entrepreneurship should be measured by its ability to create shared value, not just social benefit.
Shared value is defining a whole new set of best practices that all companies must embrace.
new customers to serve, and new ways to configure the value chain. And the competitive advantages that arise from creating shared value will often be more sustainable than conventional cost and quality improvements.
The cycle of imitation and zero-sum competition can be broken. Creating Shared Value: Implications for Government and Civil Society While our focus here is primarily on companies,
improve the environment, and increase competitiveness simultaneously. The principle of shared value creation cuts across the traditional divide between the responsibilities of business and those of government or civil society.
Root Capital accomplishes a similar objective by providing financing to farmers and businesses that are too large for microfinance Creating Shared Value-Harvard Business Review Page 10 of 13 http://hbr. org/2011/01/the-big-idea-creating-shared-value/ar
Since 2000, Root Capital has lent more than $200 million to 282 businesses, through which it has reached 400,000 farmers and artisans.
Root Capital regularly works with corporations, utilizing future purchase orders as collateral for its loans to farmers
The foundation carefully focuses on commodities where climate and soil conditions give a particular region a true competitive advantage.
The partnerships bring in NGOS like Technoserve and Root Capital, as well as government officials, to work on precompetitive issues that improve the cluster and upgrade the value chain for all participants.
other enterprises that can process the crops once they are harvested, and a local cluster that includes efficient logistical infrastructure, input availability, and the like.
and allay fears by mitigating power imbalances between small local enterprises, NGOS, governments, and companies.
The opportunities to create shared value are widespread and growing. Not every company will have them in every area,
but our experience has been that companies discover more and more opportunities over time as their line operating units grasp this concept.
but GE's Ecomagination initiative, for example, is now producing a stream of fast-growing products and services across the company.
New products and services that meet social needs or serve overlooked markets will require new value chain choices in areas such as production, marketing, and distribution.
And new value chain configurations will create demand for equipment and technology that save energy, conserve resources,
While some shared value opportunities are possible for a company to seize on its own, others will benefit from insights, skills,
well connected to the goals of all stakeholders, and tracked with clear metrics. Governments and NGOS can enable
and create a level playing field to encourage companies to invest in shared value rather than maximize short-term profit.
which reflect the investment or new-product cycle in the industry. Phase in periods give companies time to develop
and introduce new products and processes in a way consistent with the economics of their business. Fourth, they put in place universal measurement
Companies will come to understand that the right kind of regulation can actually foster economic value creation. Finally, regulation will be needed to limit the pursuit of exploitative, unfair,
Strict antitrust policy, for example, is essential to ensure that the benefits of company success flow to customers, suppliers, and workers.
Shared value focuses companies on the right kind of profits profits that create societal benefits rather than diminish them.
Capital markets will undoubtedly continue to pressure companies to generate short-term profits, and some companies will surely continue to reap profits at the expense of societal needs.
But such profits will often prove to be short-lived, and far greater opportunities will be missed. The moment for an expanded view of value creation has come.
A host of factors such as the growing social awareness of employees and citizens and the increased scarcity of natural resources, will drive unprecedented opportunities to create shared value.
We need a more sophisticated form of capitalism, one imbued with a social purpose. But that purpose should arise not out of charity but out of a deeper understanding of competition and economic value creation.
This next evolution in the capitalist model recognizes new and better ways to develop products,
serve markets, and build productive enterprises. Creating shared value represents a broader conception of Adam smith's invisible hand.
It opens the doors of the pin factory to a wider set of influences. It is not philanthropy
but self-interested behavior to create economic value by creating societal value. If all companies individually pursued shared value connected to their particular businesses,
but market competition would benefit society in ways we have lost. Creating shared value represents a new approach to managing that cuts across disciplines.
and a growing number are drawn to social entrepreneurship. The results have been missed opportunity and public cynicism.
How Shared Value Differs from Corporate Social Responsibility Creating shared value (CSV) should supersede corporate social responsibility CSR) in guiding the investments of companies in their communities.
CSR programs focus mostly on reputation and have limited only a connection to the business, making them hard to justify
and expertise of the company to create economic value by creating social value. In both cases, compliance with laws and ethical standards and reducing harm from corporate activities are assumed.
and demand creation to the study of deeper human needs and how to serve nontraditional customer groups.
Business and government courses will examine the economic impact of societal factors on enterprises, moving beyond the effects of regulation and macroeconomics.
and do not depart from economic value creation. Instead, they represent the next stage in our understanding of markets
competition, and business management. Not all societal problems can be solved through shared value solutions. But shared value offers corporations the opportunity to utilize their skills, resources,
and management capability to lead social progress in ways that even the best-intentioned governmental and social sector organizations can rarely match.
Anania@ec. europa. eu Dr. Antonella Passani Head of Society, Innovation and Social Capital Unit T6 Ecosystems srl a. passani@t-6. it Abstract:
and investments made in Europe over the last decade. DSI aims to promote innovation and social change based on the network effect:
and the type of investments made by the European union in this field. The final part of the paper concerns DSI impact evaluation and proposes a methodological framework for assessing specific results in a qualitative and quantitative way.
These new communication technology development projects attract growing attention of governments and international funding bodies.
and DSI uses information and communication networks to do so. The idea behind it is that web platforms
The investments made by the 2 European commission since 1999 are indeed significant with the largest budgets coming from its Research Development and Innovation framework programme of activities.
and open hardware environments supporting social innovation by empowering and facilitating citizens'participation. One of the projects is responsible for the impact analysis of Digital Social Innovation impacts.
The EU development strategy on social innovation is to connect research organisations, with innovation agencies and with other types of intermediary enterprises:
or social enterprises are getting stronger. They attract growing attention, funding, and great expectations from citizens, from governments and from international funding bodies.
The analysis of the interplay between governments, NGOS, development agencies, industry and social enterprises is called multi-stakeholder analysis. It would be incorrect to see social innovation as a new or isolated concept or as a disruptive innovation.
With Digital Social Innovation (DSI) there is a new communication technology component, namely to set up Internet platforms and digital information processing tools to promote those value-generating collaborations
To quote the social economy Strasbourg Declaration of 16 january 2014:''Europe's social model needs to reinvent itself.
and the acquired technology skills create network effects impossible in a face-to-face environment. This interdisciplinary domain of activities recognise the need to go beyond technology engineering, to the social nature of progress
crowdsourcing and crowdfunding, big data visualisation and analytics, P2p production and consumption, edemocracy and eparticiaption. Crowdsourcing refers to a platform for on-line distributed problems and a network of coordinated human‘problem solvers'.
Monopoly rent or profits are based primarily on maintenance or acquisition of dominant position in established markets.
national governments and other stakeholders active in the collective awareness projects and social innovation projects. 4 OLD POWER NEW POWER Currency control,
Adaptation from Jeremy Heimans Tedsalon Talk (2014) The role of the European union In this policy context we document the investments made by the European Commission since 1999.
After a workshop on social innovation in 2009, President Barroso asked the Bureau of Economic policy Advisors to draft a report on social innovation as driver for social change,
DG Enterprise funds a social innovation platform (circa 5000 users) and organizes a competition in honour of social innovator Diogo Vasconcelos.
For example the Social Business Initiative is related a policy activity at the level of the enterprise (or firm) and market legislation:
and environmental sphere (Social Economy & Social Entrepreneurship, 2013). The Innovation Union supports social innovation,
Horizon 2020 will continue to support these social innovation measures under the heading of hubs and incubators for the Innovation Union.
CAPS are digital environments enabling and supporting social innovation, smart applications empowering and facilitating citizens participation.
and networking opportunities IA4SI: providing CAPS with an impact self-assessment methodology and related online tools SCICAFE2. 0:
The CHEST project offers €3 million in seed funding for digital social innovation ideas and prototypes.
It does so through its crowdfunding and crowdsourcing platform. It ran three open calls at European level,
the legal rights-related issues of social network such as the management of personal data and the potential economic value of users activities on social networks and the engagement and security issues of CAPS. 6 Tab. 2-CAPS ongoing project
Considering the typology of organisation engaged, 194 are social enterprises, charities or foundation, 183 are businesses,
and environment. 7 Fig. 1-Fields of activities of DSI as mapped in digitalsocial. eu (last access on November the 9th) Assessing the impacts on Digital Social Innovation initiatives According to the Naples 2. 0 Report
authors (Addario and Lane, 2014) there are two problems with evaluation and scalability comparisons: In the Innovation Society ideology, the success or failure of an innovation that is,
the profit it will generate in the marketplace. From this point of view, the projects that the innovating entrepreneur undertakes
must be driven primarily by economic value. In contrast, the social innovator's projects are driven primarily by social values,
In the Innovation Society's narrative, innovation projects scale with the profits they generate, which can be used to produce
after all, most aspects of most people's well-being, the quality of their personal lives and social interactions are determined in large part by factors specific to the environments in
The IA4SI methodological framework is based on a quali-quantitative multi-stakeholders approach, which engages projects coordinators,
they will select their stakeholders and end-users in this way describing who will benefit from the project outputs 3. Thirdly,
and human capital because its outputs and its activities are not leading to this kind of impacts. 5. At this point the SAT will show all the questions related to the impact dimensions selected by the project representatives. 6. The data inserted by CAPS representatives will be elaborated in real time by the SAT
project representatives will be able to visualise their impacts by comparing their performance with a set of benchmarks (Passani at al, 2014a).
a report for the use of European stakeholders, including citizens. These actions will make possible to better evaluate the investments made so far;
it will also be possible to better understand the replicability and transferability of these initiative at national and local level and in non-European countries.
but that ultimately it is stakeholder engagement that makes the difference to sustainable social innovation.
'11 Bibliography Addari, F. and Lane, D. A. 2014), Naples 2. 0 A social Innovation Competition, Report for Unicredit. available at http://socialrenaissance. it/images
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M. J.,Mcfarlan, F. W. 2011), Measuring the efficiency and effectiveness of a non profit's performance, Strategic Finance, 93/4, pp. 27-34.
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why it matters and how it can be accelerate, University of Oxford, Skoll centre for social entrepreneurship, Murray, R.,Caulier-Grice, J.,Mulgar, G.,(2010).
A methodology for the socioeconomic impact assessment of Software-as-a-service and Internet of Services research projects, Research Evaluation, 2014 23: 133-149 Passani A.,Spagnoli, F.,Prampolini, A.,Firus
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