Shared Value

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Information about Shared Value
Business & Mgmt

Published on March 20, 2014

Author: AASTHA1990

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SHARED VALUE Strategic Management Assignment 2014 2/18/2014 Submitted By : Group 8 Aastha Pandey Apoorva Singh Navdeep Singh Nikhil Salvi Submitted To: Dr. S. Dasgupta

INTRODUCTION: For any individual, there exist four spheres of morality, as a person, as a company leader, as an economic agent and lastly beyond the firm’s boundaries. CEO’s today are taking a hard look at all of these spheres, trying to ascertain how to create new business opportunities, facilitate growth, how to achieve competitive advantage and at the same time proactively engaging with critical societal issues as a part of core strategy. In their report ‘Creating shared value: Redefining Capitalism and the Role of Corporation in Society’, Michael Porter and Mark Kramer defined shared value as corporate policies and practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in which it operates. It talks of three levels of shared value- Reconceiving customer needs, products and markets, Redefining productivity in the value chain and enabling local cluster development. Take for example the IT industry-A core strategic issue affecting most IT companies in India and worldwide today is lack of talent. This challenge can be taken care of by providing training and mentoring to nearby colleges, and actively participating with the colleges to design course curricula more in tune with industry needs. This would enable the students gain access to the latest industry data and information which would in turn supplement innovation which would only benefit the company and the world as a whole. Securing value for shareholders as economic agents necessitates that companies reduce risk by demonstrating long term sustainable growth and returns. Like in the IT industry example given above it is required that there be an educated talent pool to choose from to ensure long term viability and competitiveness. This can be done by skilling the workforce beyond usual company boundaries and improving the living standards of local communities. Accenture has taken up this cause with gusto by launching its skills to succeed programme by equipping people with skills to get a job or build a business. The goal being to create shared value to improve Accenture’s brand and build a future pool of talent. RECONCEIVING CUSTOMER NEEDS,PRODUCTS, MARKETS REDEFINING PRODUCTIVITY IN THE VALUE CHAIN ENABLING LOCAL CLUSTER DEVELOPMENT Designing new products based on societal needs like the environment etc. or open new markets to meet unmet needs of an underserved community. A strong local cluster with capable institutions, suppliers can help improve productivity. Identify the inside out linkages to identify positive and negative impact of the value chain. Shared Value Figure above :Levels of Shared Value

Shared Value and CSR Most companies have always had CSR as a part of their business model. It is a guide for what the company stands and an indicator of its promise of performance for its customers. Most companies awoke to CSR only after being caught by surprise by public response to environmental and other social issues. Like Nike faced consumer boycott after media reported of labour violations of its workers in Indonesia. Activists have become highly vocal and often bring the public attention to larger corporates merely to focus on an issue even if the corporate in question has not had much bearing on the problem. Thus, for a large group of companies CSR has not been strategic, rather it has been cosmetic. CSR initiatives have been justified by the four following arguments- 1. Moral obligation-As an entity a company needs to be ethical and moral. But ethics differ from culture to culture and something which is moral for one group of customers may be totally illegal for another. 2. Sustainability-Meeting needs of the present without compromising future needs. But the notion of sustainability can become vague, transparency can be more sustainable than corruption. This is true but does not offer basis for balancing long term goals and short term costs. 3. License to operate-Approval from stakeholders is needed for the company to operate. But sometimes due to this CSR agendas can be ceded to outsiders. 4. Reputation-Company image improves and strengthens its brand and stock. But with this argument the focus remains on maintaining public relations rather than social and business results. All the arguments above focus on the friction between society and the company instead of focussing on how the two are related. Consequently, CSR practices were not aligned with business practices, this caused a lot of companies to miss out on opportunities that were potential new ventures/products as well as benefits to society. However, the areas of corporate philanthropy and strategy are converging. Serving the society is no longer simply an avenue for charity, it is a chance to attain differentiation and grow. ‘There’s not enough money that we can give away to be viewed as a responsible company in 200 countries. And we can’t do it sustainably. So the only way it can work is to weave responsibility into the core business of the company’. -INDRA NOOYI A company can map the social opportunities for itself by looking at its value chain (i.e. the inside out linkages) as well as the diamond framework (i.e. the outside in linkages) Successful corporations recognise that there needs to be an interrelationship between the society and the company such that the societal needs are within the purview of the company’s strategy. A healthy society would be beneficial to the corporation as it would provide good governance, skilled workforce and strong regulatory standards One thing that needs to be kept in mind that social impact differs from place to place and changes over time. Also, no business can address all needs of society. The needs to be addressed should be categorised into generic social issues, value chain issues, and social issues in the competitive context. The issues should then be ranked in order of priority or impact for each business unit. The category in which any issue falls will vary from industry to industry & location to location. Screening Shared Value Opportunities (Source-Accenture) Societal Issues Need Core Competence Uniqueness Strategic Direction Project

VALUE CHAIN (LOOKING INSIDE OUT) DIAMOND FRAMEWORK(LOOKING OUSIDE IN) Srategy and Rivalry Input Conditions Related and supporting industries Demand Conditions

Shared Value Implemented- Source:Accenture The above figure illustrates the business value levers of shared value. As communities become more energetic, vibrant and healthy, businesses have better chances of achieving these levers. Following are few examples of firms implementing shared value. Launched by Novartis in 2006, the Arogya Parivar (the Hindi phrase for “Healthy Family”) program combines health-care education and access to affordable medicines in rural India. The program focuses on educating patients about disease prevention and management and made treatments more affordable by selling medication in smaller packages with doses for only 1-3 days. While patients need to purchase the packs more frequently, this keeps weekly treatment costs below USD 1.25.Professor C.K. Prahalad who authored the book ‘The fortune at the bottom of the pyramid’ said that seemingly unreachable populations at the bottom of the economic pyramid make up around one-third of the world’s population and present a sizable opportunity to extend access to health care. This opportunity was recognised and grabbed by Novartis. Changes in the external environment and a generational shift are creating a greater awareness amongst businesses and a greater need to act to address societal problems. – Joe Jimenez, CEO, Novartis AG The General Electric Company’s Healthymagination program is putting shared value into practice to produce substantial social and financial benefits. The company has already enjoyed considerable success through its Ecomagination strategy, which aims to reengineer thousands of GE products to reduce their environmental impact. This initiative has generated more than$17 billion in revenues in 2008, even in the face of a financial crisis. One of the goals of Healthymagination is to reduce the cost of health care by 15 percent. So far, more than twenty new products have been developed and the company is on target to create 100 new innovations. GE recognised the mega trend of the movement of the health technology market away from expensive new technologies and towards cheaper mass market access. The shift is being driven because of the increasing middle class in developing countries. In rural Mexico, PepsiCo faced business constrictions on supplies of corn provided to its factories because regionally supplied products often fell below quality standards. Analyzing this strategic issue, senior leadership recognized that important root causes were in the existing skills of local providers and an inadequate farming and transportation infrastructure. So, PepsiCo is investing in farmer training and providing small and medium-size corn growers the seeds, fertilizers, agrochemicals, and water-usage guidelines that help them produce abundant crops. The objective is to improve the quality of corn supplied to the company’s factory by local producers (whose products previously fell below its quality standards). While generating increased business value to the company through a more effectivesupply chain, these investments are also raising the living standards of the local community. India’s Rising Middle Class, Source:McKinsey Maximising upside Minimising Downside Sh or t Te r m LongTerm Revenues Increased revenues from products that improve health and well being Intangible benefit Stronger workforce supply chain Costs Savings from enhanced productivity Risks Long term secured value for shareholders and other stakeholders.

We are not trying to solve every issue. Instead, we are taking on things that are core to our competency and in geographies we can manage. We do them where they drive business value, not just because they sound good.- Doug Conant, President and CEO, The Campbell Soup Company In 2009 Campbell soups committed to a business agenda of macro targets that included reducing its carbon foot print, levels of childhood obesity and hunger in the countries it operated in. Product lines related to obesity focussed on removing sodium, transfats and artificial colours. From 2007-2010, revenue from the nutrition line of Campbell products soared by $1.2 billion. Below are the building Blocks of shared value which are taken up for successfully adopting shared value. The best example for vision would be that defined by Mahindra and Mahindra, their defining purpose is ‘Enabling people and communities to RISE.’ Their Spark the Rise campaign, is a potential launch pad for small initiatives. The initiative to help budding entrepreneurs is more to build the group's brand image, albeit in a subtle manner. By virtue of its strategy Nestle has pioneered the shared value approach. Nestle has defined a clear strategy focused on three key issues: rural development, water use, and nutrition. Rural development is essential for a reliable, high-quality supply of raw materials. In addition, agriculture accounts for 70 percent of the world’s water use, while many of the world’s productive agricultural areas—From which Nestlé sources its ingredients— face severe water stress. Likewise, by focusing on nutrition, the company can differentiate its products while contributing to the health and well- being of consumers. The most effective companies leverage the resources inside and outside it to tackle their goals. With its anticounterfeit technology for medicines, for instance, HP is leveraging expertise that ranges from imaging and printing to mobility services and cloud computing. Companies trying to create shared value track its performance measures against a baseline. Cisco measures the number of students that its Networking Academies have trained, but also follows up with them to understand how many go on to secure a new or better job. Following are few more examples of companies creating shared value: To help identify societal issues relevant to its business opportunities, financial services company HSBC Bank plc created a Climate Change Centre of Excellence, an in-house research center that provides a focal point within HSBC to look at climate change as a strategic commercial issue. The Centre aims to stimulate greater understanding of the implications of climate change and to translate these into business opportunities. In 2008, they also established an internal ‘Climate Team’, which brought together representatives from each customer group and global business within HSBC to share best practice and, ultimately, to maximise the business opportunities presented by the transition to a lower carbon economy. In 2009 Paymate launched a financial inclusion initiative to help migrant workers more efficiently and securely remit funds back home The company decided to conduct remittances with mobile phones. Customers visit kiosks to obtain cash at which point the original sender receives confirmation that the transaction is complete. The company is negotiating with the GoI to provide An explicit vision of the company as an engine for creating shared value ENGAGEMENT IS SEEN AS INTEGRAL TO STRTATEGY VISION PRIORITIZE SSUES OF SHARED VALUE SET AMBITIOUS GOALS STRATEGY Effective delivery that leverages assets and expertise across functions Partners mobilised for information and action DELIVERY Management for performance that seeks to measure and learn from results Bring successful efforts to scale,and communicate progress PERFORMANCE

payments for the National Rural Employment Guarantee Scheme (NREGS) In 2003-2004 ICICI Lombard launched a weather based crop insurance program. The process was made as objective as possible with third party agencies monitoring the process. Under ICICI Lombard’s system, farmers do not file claims. Rather, payments are triggered by deviations from normal conditions as measured by certified weather data collected from independent third parties. Weather-based products contributed to Rs. 332 crore ($72 million), 7.8 percent of the company’s direct business You’re really looking for programs to be win-wins with your employees and your customers, as well as being the right thing to do. We found that the only way to drive our sustainability objectives forward is by entering into dialogue with stakeholders.- Irene Dorner, President and CEO, HSBC Bank USA, N.A. Shared value would be incomplete if we don’t talk of catalytic innovation along with it. A catalytic innovation is a subset of disruptive innovation. The primary objective of catalytic innovation is social change. SELCO, India’s mission itself is to ‘Enhance the quality of life in underserved households and livelihoods through sustainable energy solutions’ It is a ‘for profit’ social enterprise based in Bangalore and it aims to improve the living standards of the poor. So far it has done so by creating solar energy based interventions and low smoke cook stoves. SELCO India has installed solar light systems in 125,000 houses and plans to aims to reach over 200,000 households by 2014. SELCO started with a financial model in which each customer would pay 25% of the cost upfront as down payment and will further pay a monthly instalment which is affordable and within the average monthly budget of a family in the region. Along with this, the SELCO INDIA also provided a year's guarantee to the warranty of the manufacturer along with free service for a year and a 90-day money back guarantee. Perhaps the most glaring example of creation of shared value in India is that of Aravind Eye hospital. It provides free surgeries to the poor while still earning a profit due to its simple infrastructure. In addition it keeps its surgical equipment in operation 24 hours a day which reduces cost per surgery. A doctor’s time is utilised with highest effectiveness. Nurses work on pre-op and post-op, doctors only focus on surgery which improves their productivity. All of these measures enables the hospital to perform high volume, high quality inexpensive eye surgeries to address the needs of India’s humungous blind population. Another example in the healthcare sector is that of ,Lifespring Hospitals, a 50-50 joint venture between $30-million Acumen Fund, a U.S.-based non-profit global venture philanthropy fund and HLL Lifecare Limited, a Government of India owned corporation, is an Indian hospital chain, which provides maternity care to women from the low- income group in Hyderabad, India. It is the first healthcare chain to join the 'Business Call to Action' (BCtA), an initiative of United Nations Development Programme (UNDP) and UN Global Compact amongst others, to reduce poverty, hunger, disease, and maternal and child deaths by 2015. The concept of shared value is implementable even at the minutest of levels, take for example IIM- Rohtak’s initiative of Swabhav, It combines business acumen, creativity and a concern for society creating shared value in a social business model. How can my work make me a better human being and make a better world? -Dr Govindappa Venkataswamy,Founder- Aravind Eye Hospitals

Conclusion: Shared Value signifies a deep connection between companies and their causes, generating value for each side. Companies must determine causes that align with the company’s business and work accordingly. Incorporation of shared value can enhance a company’s potential to communicate with consumers, generate better social conditions and ultimately improve reputation and trust within communities. A company’s value is not only bound to the quality of its products and services, but to relationships built with a long-term perspective that engages individuals and creates a community of shared beliefs – in addition to profits. Significance for the stakeholders Even consumers expect a company’s investment in social purpose. According to the most recent goodpurpose study, consumers are willing to pay more for products and services that support causes they believe in. Social purpose helps a firm identify the needs it might want to address, but the reverse is also true. As a company understands social problems more thoroughly, employees’ commitment to its social purpose will increase. A deeply held social purpose is also important for co-creation, forming the basis for trusted relationships. Understanding a region’s particular needs helps define what can be improved and by how much, and the value of that change to the business. NGOs can evolve their strategic priorities in order to more effectively partner with companies on shared value strategies. Philanthropic and government bodies can find new ways to incentivize private sector investment in solving pressing social issues. Investors can gain insight into companies’ future growth and profit potential by understanding how shared value strategies address social issues that directly impact performance. Significance for the Emerging world Shared value is of high significance for developing and third world countries. Take India, it faces a host of unique problems and concerns like poor health and widespread poverty, sanitation issues. Inclusive growth is the need of the hour. Partnering government and private agencies can bring in benefits of economic development to India. Also, owing to its huge market opportunity and the fact that the middle income bracket is gradually expanding, it bodes well for the future of businesses. Developing communities through local cluster development will encourage innovators and entrepreneurs to rise who might come up with less costly and simpler alternatives to existing products. This will create a systemic social change. It is required that companies leverage their core competence and apply it to different markets to create winning ‘Made for India ’ or ‘Made for Kenya’ solutions. The causes that a company supports via shared value should be applicable in the local context as well. As it has been said- ‘To succeed in India, think like an Indian and venture deep into her heartland.’ The above picture shows some connections where a company can add value such that the society benefits and the company productivity increases. Adoption of Shared Value While shared value is still early in the adoption cycle, the approach has been embraced by many of the world’s most respected companies, to address social problems at scale as a core part of their corporate strategies. With CSV, opportunities for disruptive innovations will proliferate. Capturing these opportunities will require new thinking about market segmentation, customer segmentation, supply chain management, human resource management, and other management disciplines.

References : 1. Creating Shared Value: A How to Guide for the new corporate revolution-Valerie Bockstette and Mike Stamp. 2. Shared value in emerging markets-Greg Hills, Patty Russell, Veronica Borgonovi, Alex Doty 3. Disruptive Innovation for social change- Clayton Christensen, Heiner Bauman, Randy Ruggles, Thomas Sadtler. 4.Business at Its Best:Driving Sustainable value creation-Accenture 5.Wikipedia

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