Monday, 28 February 2011

Does the future of capitalism lie in Creating Shared Value?

It has been the mainstream view for some time that the primary aim of a business should be to make money. But a recent article in Harvard Business Review has questioned this perspective. And it’s possible it heralds a wider re-thinking of business fundamentals.

In the Jan/Feb 2011 HBR, Michael Porter and Mark Kramer have written a landmark article on “Creating Shared Value,” which they herald as “The Next Evolution in Capitalism.” The main thesis of the piece is that companies have defined markets narrowly in terms of individuals’ conventional economic needs and overlooked broader ‘Societal Needs.’

Societal Needs include the need for a clean environment, a thriving local community, an educated population, and meaningful work. These things, Porter and Kramer argue, have been left up to governments and charities to worry about, or for CSR programs to address, peripheral to a company’s core mission. They point to examples of companies that have taken on some of these societal challenges and generated positive economic benefits from doing so. They encourage every business to redesign its value chain around creating shared value for both the company and society.

As I read the article I was at first sceptical that it represents anything particularly new in business thinking. Indeed, many scholars and activists have spent years lobbying business to take on greater social responsibility. But what this article may represent is shift in perspective within the mainstream. Michael Porter is considered one of the founding fathers of corporate strategy and this high-profile article is a rallying cry for change - one that just might be heeded.

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