Rethinking Capitalism

Jan 31, 2011 3:40 PM ET

Paul Klein's Blog

If you’re interested in corporate social responsibility you need to watch Rethinking Capitalism. In this video,  Harvard Business School Professor Micheal E. Porter explains why business leaders should create products and services that benefit not only the company but also society. It’s an overview of Creating Shared Value, the subject of a recent article in Harvard Business Review co-authored by Porter and Mark R. Kramer. Here’s what you need to know about Creating Shared Value:
  • Creating Shared Value is a shift in mindset: from the belief that what’s good for business is good for society to thinking that what’s good for society is actually good for business.

  • Creating societal benefit is a powerful way to create economic value for firms. Professor Porter sites the environment as an example: making products that are good for the environment is a much more powerful way to create economic value than donating to environmental organizations.

  • Business has “maxed-out” on meeting the conventional needs of consumers. Moving forward, the opportunity for business lies in addressing societal needs such as health and the environment.

  • The current model on how to compete had been tapped-out.  The new approach to differentiation will be based on thinking deeply about human needs and directly addressing these needs in products and services.

  • Creating Shared Value is more than being compliant and involves more than “just another volunteer program to build houses”. It means understanding where the value chain touches important social issues and monetizing these points of intersection.

  • Professor Porter illustrates the benefits of Creating Shared Value through the example of Fair Trade. The Corporate Social Responsibility approach is to help farmers in developing countries get a bigger piece of the pie by ensuring that they are paid fairly for their produce. Creating Share Value expands the pie. This is done by ensuring farmers have access to better fertilizer, seeds, and seedlings and improving logistical systems as needed to increase productivity, improve quality and ultimately generate higher prices.

Here are four things you can do to start creating shared value in your company:   1.Broaden Your Market Research: You need to know much more than the demographics of your customers and their perceptions of the value of your products and services. Explore and understand the social issues that matter most to them and their families.   2. Ask New Questions: In what ways do our products and services address the social issues that matter most to our customers? How can we leverage the intersections of our products and services with the social priorities of current and potential customers? What should we do if our products and services aren’t contributing to societal needs? What should we do if we are in a category where there isn’t an obvious connection between business and social value? (IBM’s Smarter Planet is great best practice – it establishes the value of data and connectivity to addressing a wide range of social issues) How could we involve our customers in the design (or re-design) of our products and services?   3. Communicate Differently. Tell stories and have your customers, suppliers, and non-profit partners tell stories about how your value proposition is helping them in new ways that are more meaningful than in the past. Ask yourself the question, “If we can’t advertise what we’re doing how will our customers find out about it?”   4. Take Qualitative Outcomes Seriously. Assessing performance will depend on combining quantitative data (market share, sales, ROI, etc.) with qualitative data (e.g. In what ways did we improve the health of our customers?). If your company doesn’t understand the qualitative difference it is making in the lives of its employees and external stakeholders it will be at a competitive disadvantage.   Impakt's social purpose is to explore and expand the intersection of business and the community. We help corporations increase their social impact on employees, customers and the community.

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