If Indian companies were to start identifying the socio-environmental problems that intersect with their business, and begin addressing them as potential business opportunities, it would not only help them make more profitable businesses out of this approach, but at the same time contribute to making the society become a better place to live in. As ideal as it may sound, senior Harvard fellow and founder at FSG, Mark Kramer, see exactly this approach as the way forward for a growing and evolving India.
Defining this concept in 2011 Harvard Review article as “Creating Shared Value“, professors Michael E Porter and Mark R Kramer advice companies to find the synergy or overlap between a successful business and a successful society. Yes, it sounds good in theory, but many do not understand how it can be brought into practice. Here’s how:
The first is to reconceive products or the markets they serve. One can begin by creating products that address social and environmental issues or by expanding into new markets to sell its products or services. Significantly, Shared value can become a lot easier if both are done simultaneously. Say for example, if there is a drug store company that is present in several locations where there aren’t enough grocery stores. Even as you won’t have thought of selling food but you can see there is untapped demand for it in your region, and since people don’t have access to grocery stores, they may not have access to healthy food at all. Lack of nutrition is a potential social problem in this region in such a situation. As a retail company, you can create a section of your stores that can sell food products high in nutritional value. By way of this, you are tapping the pent-up demand and giving people a reason to come to your store. If you succeed in this, you have created good new products and solved a social problem of nutrition while also tapping an untapped market that wasn’t being served by grocers earlier.
The second option is for companies to redefine productivity in their value chain. For example, you are a coffee importer. You buy from coffee farmers who need tools, know-how and access to money or capital to improve their productivity. If you can improve their productivity, you can decrease cost for yourself. So you could offer farmers a long term contract providing them assurance that you will buy from them if they make investments in the farms. As part of the agreement, you can provide them training and access to the latest farm techniques and technologies. It will decrease your cost and provides you stable access to coffee products. Porter and Kramer say that to increase productivity, energy use and logistics, use of resources, procurement policies, distribution, employee productivity and location are important factors that need be considered.
The third way is for companies to build supportive industry clusters. So instead of selfishly focusing on having a major chunk of the pie, the focus is on enlarging the pie so that everyone gets larger chunks. So, like in the Silicon Valley, there are several technology companies that create computer hardware and software programs. Because of the specific skill set required to run them, each of them requires a highly talented workforce. In an odd way, it’s easier for them recruit talent if they are located near each other. Also, some of the best universities like Stanford and Berkeley also lie extremely close to this region, that is let’s not forget the global hub for venture capital. All of this is an ecosystem that supports strong technology infrastructure and is itself a cluster. Companies can create shared value if they focus on developing these clusters, they can play a role in strengthening weak infrastructure and supporting strong components of the cluster.
Mark Kramer simplifies it for us: “When you have found a way to sell new products to low income population in emerging markets (smaller portions, informal distribution system etc), you are reaching a new market. When you have found a way to differentiate your product by let’s say, increasing its nutritional value or lowering fats and sugar, that is creating shared value in the product market. When you have reduced your energy requirements or water use, it is redefining productivity in the value chain. And when you have strengthened the communities where you operate, you have taken the responsibility of the cluster as a whole.”
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