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“Creating Shared Value” by M. Porter and M. Kramer Essay

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Updated: Aug 11th, 2020

Introduction

Creating Shared Value is an article written by Michael R. Porter and Mark R. Kramer in 2011. It introduced the concept of “shared value” as a link between a corporation’s business strategy and social responsibility. This is demonstrated through numerous examples of major companies such as Google, Nestle, Wal-Mart, and others, who put investments into the local communities in hopes of generating greater revenue. The purpose of the article is to influence businesses and corporations, big or small, to invest in the local communities and aim for the long-term profits rather than outsource production to low-wage countries in hopes of generating short-term revenue. While the article proposes an interesting version of capitalism, it presents the shared value model as a panacea for the businesses, the government, and the society, with little to no analysis dedicated to the downsides of the system. The purpose of this review is to evaluate how well the article achieves its goal, what lessons it intends to teach, and what are its strengths and shortcomings.

Background Information

The article was published in 2011, after a series of major economic crises that happened around the world during 2008-2010. The authors, as two leading experts of the Harvard University and Harvard Business Academy, sought to provide an alternate route for capitalism, which is, allegedly, “under siege.” The article itself expands on the idea of “shared value,” which was first mentioned in Harvard Business Review in 2006. In the wake of rising social challenges, the authors stay firm in their conviction that capitalism and competitiveness are the ultimate models that would lead the world out of recession, provided they follow the model they offer.

The evaluation of the article will be based on three criteria, which are:

  • How well the article achieves its goal.
  • What ideas does the article try to promote?
  • Strengths and weaknesses of the article.
  • Personal experiences related to the subject.

Summary

The article starts with a rather dramatic line, declaring that “capitalism is under siege.” The first part of the text is dedicated to how businesses are being blamed for society’s problems. The authors admit that the corporations are not blameless, as they operate using outdated schemes and perspectives on value creation. In this part of the text, Porter and Kramer introduce the term “shared value” as the result of companies recognizing the societal needs of the local communities. Creating shared value means that the companies are doing something that is beneficial to the community not because it is charitable or “right,” but because such actions would bring profit in the long-term. The first part of the article denounces globalization of the economy and outsourcing industry to third-world countries, stating that investing in local communities would be more beneficial in the long run. The ultimate goal of shared value companies is the transition into a for-profit/non-profit organization – a self-sustainable business that benefits those around them.

The second part of the article addresses the redefining of the value chain. Here, Porter and Kramer outline the list of areas, which could be improved by the businesses in a way to create shared value – something beneficial for both companies and the communities surrounding them. These areas are:

  • Energy use and logistics – saving energy and relying on local communities to shorten logistical routes saves plenty of money for the companies and reduces emissions and energy consumption. The British retailer company Marks & Spencer is planning to overhaul its logistical system, which is supposed to save them 175 million pounds a year and greatly reduce carbon emissions.
  • Resource use – finding ways of using resources more efficiently is a good way to save money and contribute to the world’s ecology. Coca-Cola is known for reducing its water consumption by 9%, which is enough to sustain 40,000 people for a year.
  • Procurement – helping local producers to advance can be more profitable than procuring goods and supplies from afar, as the savings on the logistics would be enormous. Nestle is used as an example here, as it frequently subsidizes the local coffee farmers in Africa and Latin America. This allows for more clean and efficient farming, so both the community and the company profit from it.
  • Distribution – finding new ways of distribution of products can be profitable both for the company and for the distributors. Unilever distributes its goods across India via the use of a multi-level-marketing model, which allows the product to reach the customer while giving jobs to many people involved in the distribution network.
  • Employee productivity – recent studies state that providing the workers with good labor conditions and allowing sick leave is more profitable than forcing the workers to work in a harmful environment while being sick. The quality of labor is immensely large.
  • Location – investing in local communities and creating workplaces there is potentially more profitable than outsourcing production to places such as India or China. The massive savings on logistics and environmental pollution would cover the increased wage costs.

The last part of the text focuses on creating local clusters (several businesses and academic institutions working together and providing one another with services and resources), the role of the governments and NGOs, and ends with the concept of shared value reaffirmed as the future of capitalism, the next stage in its evolution. The authors suggest that governments and NGOs could benefit from adopting the Shared Value Model as well, looking to provide self-sustainable services rather than one-sided donations for social needs. In the end, a tiny remark is made that creating shared value would not solve all of the problems within the society, but could help deal with a great lot of them.

Evaluation

The article offers a well-illustrated point of view on the shared value strategy. It gives the readers plenty of real-life examples of how this strategy could be successfully implemented. The experiences of companies such as Nestle, Wal-Mart, Coca-Cola, and many others are impossible to dismiss and are valuable both from a theoretical and practical point of view. Through presenting these stories of success, along with convincing rhetoric and plausible ideas, Porter and Kramer make a successful argument for the shared value model as a new step in the evolution of capitalism. In my experience, most modern corporations care only for quick profits, with no care for helping communities grow, which is why capitalism is disliked among the populace. However, the article has several flaws. It could not be constituted for unbiased research, as all of the examples provided are cherry-picked. In addition, the authors did not provide any counter-arguments, nor did they describe any shortcomings of their system.

Conclusion

The article presents an interesting concept of shared value, which is essentially a blend of socialism and capitalism – incorporating the benefits to the community into a classical for-profit business scheme. It would provide a decent base for in-depth research using empirical data and statistics. This research should be able to identify the strengths and weaknesses of the approach. The subjects brought up by Porter and Kramer are important, as their ideas may shape the future of capitalism.

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IvyPanda. 2020. ""Creating Shared Value" by M. Porter and M. Kramer." August 11, 2020. https://ivypanda.com/essays/creating-shared-value-by-m-porter-and-m-kramer/.

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IvyPanda. (2020) '"Creating Shared Value" by M. Porter and M. Kramer'. 11 August.

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