What's next for the shared value movement?

By Adva Saldinger 30 April 2015

Michael Porter, the Bishop William Lawrence university professor at Harvard Business School. Photo by: Nestlé / CC BY-NC-SA

The concept of shared value was around 150 years ago but it somehow got lost along the way as the idea of a corporation evolved. But now, the shared value movement is looking at how to bring those concepts back into the way of doing business and, in doing so, help achieve key development goals.

It’s not an easy path and barriers remain, particularly around measurement and getting the necessary buy-in from all actors, but there has been significant progress in recent years.

Michael Porter, the Bishop William Lawrence university professor at Harvard Business School who helped bring the term to life with his 2006 paper, is also now working on another project, one that may help tackle the metrics challenge.

Porter has been working on the Social Progress Index, which is a framework for measuring the multiple dimensions of social progress, rather than relying solely on economic measures such as gross domestic product.

“Aid cutoffs don’t necessarily map to the kind of progress that we really hope societies will make,” he said. “We argue that you can’t use economic measures as a proxy for societal progress. We actually have to measure societal progress directly and understand its dimensionality.”

Devex Impact recently sat down with Michael Porter to talk to him about the importance of measuring social progress, what’s needed and what’s next for shared value. Here is an excerpt from that conversation.

Tell me a little bit about your work with the Social Progress Index, what your goals are with that project and how it can tie in with your work on shared value?

What we would hope is when we think about aid, when we think about development, we’ll think about it in this granular way of topic by topic, issue by issue, dimension by dimension, rather than this kind of simplistic thing that once you reach this GDP per capita, you don’t get aid anymore or you don’t get help or you’re viewed as succeeding.

I think we’re starting to get this glimmer that if you don’t look at social progress carefully you actually will not succeed in economic development. There is a deep interplay between moving [economic institutions, actors and policies] in the right direction and building this sort of societal and community foundation if you will, and we don’t have enough data to actually be able to study that rigorously yet because many of the social indicators that we are using and tracking really have only been available for a few years. We don’t have time series yet, but we’re getting lots of glimpses that are telling us that if the social agenda does not advance rapidly enough the economic agenda will stall. This is just a whole new order.

Twenty years from now the study of economic development will be deeply embedded in these kinds of ideas. We’ve come to this kind of notion that really inclusive development is economic development plus social progress and if we add those two together then we have … a robust idea of what inclusive development really means.

I think what the shared value movement is starting to do is give the private sector a much clearer rationale for why they should be playing [a fundamental role in moving a lot of these agendas along].

The social responsibility rationale was well meaning and I think people could talk about it but ultimately it was distinct from the business … the shared value idea is opening up business thinking to participating in development but not out of sort of being good citizens but out of the fact that there is truly shared value for them.

What do you see as some of the critical barriers to wider adoption of the shared value concept? What’s needed?

What we’ve found so far in this work is ... you actually have to make it real. You need examples that are close enough to a company’s own space or what it does that people start to see this isn’t some theory. It’s very exciting when you can start to do a little bit of thinking about a particular field and then all of a sudden the opportunities proliferate.

I think you talk to business people and they’ll listen to this, they’ll nod their head, [say] I get it, I agree with it. They love talking about this as opposed to philanthropy and [corporate social responsibility]. This makes sense to them, they can connect it to what they’re supposed to do in the business but it’s still a leap to understand how to apply it, so we’re putting a lot of energy on that now.

Ultimately one of the big problems we’re having in shared value is measurement. You can measure the economic side pretty easily but what is harder to measure is the social impact that you’re having.

One of the biggest issues we have with companies and shared value and measurement is there’s almost a sense in which companies don’t want to talk about the economic benefits of social impact. There’s this idea that’s sort of grown up in I think less informed circles that actually making a profit is somehow bad and if we’re doing something and making a profit it must not be worthy and therefore companies don’t connect the dots.

We have to legitimize in the private sector the idea that you should not only be willing to but also be proactive in measuring the actual social impact you’re having in a particular area, rather than just talking about how much money you gave or how many volunteers you had.

What do you see as the role of the development community in creating more shared value partnerships or strategies?

I don’t know if there is a big meeting in the world of the traditional development community, but if there is I’d like to go. ... We have to get the development community to be willing to take a fresh look at not only development itself but also at the best mechanisms and models to achieve it.  One of the … key ideas in shared value is that if you are operating on a … traditional philanthropy, giving or aid model, it’s not that you can’t do a lot of good and move societies along. But at least for many of the problems development has to achieve, that is just an extraordinarily expensive and not scalable solution.

If [there’s] anything that businesses are good at, it’s scalability and delivering services on a large scale, and we need to get the traditional development community to look at business in a different way. I didn’t use the word trust business, I just said look at business in a different way and see a different kind of potential. It’s literally just a mindset thing.

We’ve seen some leaders in the NGO community just achieve awesome progress when they can say: If we really care about water, let’s talk to Nestle; if we really care about agriculture in Africa, let’s talk to Unilever.

The perspective in the business community is probably moving now pretty rapidly because first, business is tired of being criticized [and] hassled, tired of being blamed, and I think we’re ready to move beyond the CSR model. I think in the traditional NGO and development community there is still a far more mixed view of whether business is good or bad or evil or OK or might be a partner or might not.

There’s lots of businesses who have done awful or rotten things throughout history but that doesn’t mean that that’s where we’re going.

You talk about the goal of shared value being embedded into the way corporations act. Do you think that will mean that the term will at some point become obsolete because it will just be the way of doing business?

Hopefully you won’t need to talk about shared value. We didn’t have shared value 150 years ago when most companies sort of instinctively did this.

My mind is drawn to Japan. Japan had a devastating war, just like a lot of other countries did, and who rebuilt Japan? It was companies — they created the food supply. They created the housing. They created the electric power. At its best, capitalism is this marvelous engine for meeting human needs, but I think over time the conception of the company narrowed in a way.

Maybe we won’t need to use the phrase [in future], but right now it’s still very helpful because with businesses, so many of them don’t think about the question of is this project actually good for the consumer? Is this way of doing something actually benefiting the community? So I think we’re still going to need that question for some years to come.

The other thing I would say, because I still fight it a lot, and this comes more from the economics community and people that do theory, that shared value is rare and mostly there are trade-offs.  So there’s this big intellectual debate about just how big are the trade-offs and how big is the shared value.

I wrote this little paper about 20 years ago that said that improving environmental performance actually wasn’t inconsistent with improving efficiency and profitability, and I had a thousand arrows in my back. Now a lot of people believe that we can improve the environment, [that it’s] a good thing for us and we’ll be more efficient, we’ll use less resources, we’ll need less packaging, we won’t have as many truck hours. So I think the environment area has been sort of beaten down and the notion now is that there is a lot of shared value opportunity in the environment.

It does seem that there is an easier case for shared value in the environment or energy sectors, but aren’t there some issues, particularly certain social issues, where there just isn’t shared value or a role for business?

Collectively, the development community and business and those of us who work sort of on the intersection [need] to kind of confront those things one after another. I am stunned mostly by the opposite. I am stunned that you’re in Cambodia and you have all these unskilled farmers and they all need help in terms of irrigation, equipment and seeds, and out pops a business model for how somebody can actually meet those needs and do it profitably.

I’m also intrigued by social impact bonds and things like that, which are sort of capitalization structures that really enable you to create a business model not in the short run by selling something today, but by actually getting some of the savings you create. If you take the last five to 10 years, there’s been massive innovation in thinking about how we might attack these development problems in a different way.

We’re at the very frontier of where this whole thing is going and I think we’ve got the parties at the table and they’re dancing. Some stuff is really working and other stuff we’re still learning, and clearly there are areas right now that we can’t see how to deal with except … essentially with subsidy and with income transfers.

I’ve wanted to see the aid community and the philanthropy community start to reward development people ... for outcomes, and again I think that’s kind of an intermediate step. I think it’s kind of a way station. If all of a sudden we could start to measure the outcomes … and then start to learn what were good ways … of doing it, then it’s not too big a jump usually to come up with a different kind of business model.

What do you still want to know about shared value and measuring social impact? What would you ask Michael Porter?

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About the author

Adva Saldinger@deveximpact

As a Devex Impact associate editor, Adva leads coverage of the intersection of business and international development. From partnerships to trade and social entrepreneurship to impact investing, she enjoys exploring the role the private sector and private capital play in development. Previously, she has worked as a reporter at newspapers in both the U.S. and South Africa. Most recently, she has been ghostwriting a memoir for a former child slave and NGO founder in Ghana.

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