Central Theme
The authors argue that the relationship between businesses and societies is being fundamentally redefined in the modern world. For decades, the dominant view on this relationship was that businesses naturally strive for gaining and increasing profits, which is their primary goal. In doing so, businesses use communities’ resources in exchange for certain products or services.
This vision led to the emergence of the concept of externalities, i.e. social costs created by companies but not borne by them. A major example of externalities is pollution. As a result, businesses around the world are blamed for problems of societies. The authors of the article suggest changing this paradigm in capitalism by reconnecting success of companies with the social progress. This can be achieved by introducing the notion of shared value to present-day companies’ business models and making creation of shared value the primary goal for businesses.
First of all, the authors explain that the concept of shared value acknowledges that markets are defined by societal needs, not conventional economic needs such as increasing profits and ensuring economic growth. It is emphasized that shared value is not a new invention but a rediscovered notion that is fundamental to the market because this notion is about recognizing that businesses and communities need each other. A company needs a community that is not only able to generate sufficient demand but also provides a supportive environment for the company’s development. In turn, a community needs a business that provides jobs and opportunities for the members of the community to create wealth. This connection should be appreciated.
The article describes how the majority of companies have been busy with manufacturing demand for decades while ignoring the most important demand of all: societies need products and services that are good for them. Such products and services strive for healthier practices, advance structures and interactions, promote cooperation, improve working and living conditions, and generally contribute in various possible ways to the well-being of the society.
For example, for decades, food companies have been focused on producing the food that is tastier and higher in quality. A recent trend rather focuses on the food that possesses good nutrition qualities and is healthier. It proved to be mutually beneficial for food companies and communities: the former receive higher demand, while the latter benefit from healthier food products.
Critical Analysis
The authors of the article are scholars at Harvard University and global social impact professionals. The article was published in Harvard Business Review which is a highly respected source of relevant and important literature on business. Judging from its format, the article is not an academic one: it does not refer to any studies or cite any research papers. However, the status of the authors and the journal where it was published makes the article look reliable and convincing.
Besides theoretical conceptualization, the article features real-life examples of how businesses can reconstruct their operation based on the notion of serving the needs of the society within which the businesses operate. These examples allow readers to understand that creating shared value (CSV) is not just a concept in business studies, but a strategy that can be applied to actual situations and bring benefits to both companies and communities. Among the strengths of the article, there is also the presence of key quotes typed in a large font and text boxes with additional information or summaries of main points.
Overall, the article is written in a simple language so that it can be understood by people who do not necessarily major in business and economics. Concerning the weaknesses, it can be said that the article lacks practical guidance. Its subtitle is “How to reinvent capitalism—and unleash a wave of innovation and growth.” The authors describe the mechanisms of such “unleashing” theoretically but, within this particular publication, do not provide a step-by-step plan for an existing business to adopt CSV models and benefit from them.
Main Takeaways
The application of the knowledge from the article is about developing CSV business models for actual companies. The authors assert that there are three ways to create economic value by creating societal value. The first way is reconceiving products and markets, which means focusing on demand for societal needs. Such needs include improvements in health care, nutrition, social care, housing, financial security, environmental friendliness, and sustainability. Creating societal benefits by manufacturing products that meet these needs is a way to create shared value. Another way is redefining productivity in the value chain. This approach is to stress that so-called externalities sometimes cause internal costs for companies.
The article shows how more sustainable solutions in terms of energy use, resources use, and procurement improve the performance of a business and decreases costs. The third way is building supportive industry clusters. Building local industry clusters means combining the efforts of many related businesses for creating infrastructures and appropriate conditions for the operation of every participating business. Such clusters also include institutions such as standards organizations and academic programs. They involve the community into the industry and ensure more jobs, more cooperation, and more benefits for the society.