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Profit maximisation is passe – SVII

The Role of Business in Society

In the west, there is a growing realisation that the role of corporations in society is not just to focus on shareholder wealth maximisation. Academics like Roger Martin, from the University of Toronto, have argued post the financial meltdown of 2008 that shareholder wealth maximisation may be an end product of actions of a corporation, but the real role of business in society is serving the needs of people in a community. It is done by providing them with superior goods and services, which in turn maximises the wealth of their shareholders. 

Taking this a step further Harvard Scholar Prof. Michael Porter and Mark Kramer have put forth the idea of ‘creating shared value’. Put simply it can be best understood as an amalgamation of the best practices and scale of corporate strategy to solve the problems that people in communities face. Thus, when corporate strategy is used as a tool for enabling economic development a lot of problems that Non-profit sector ‘sees’ and ‘hears’ can be solved by building partnerships with business. 

Philanthropy, CSR & CSV

The concept goes beyond Corporate Social Responsibility and Philanthropy as these to are thought to be acts of ‘charity’ which businesses do as a voluntary exercise based on their moral obligation towards society. However ‘creating shared value’ inverts the problem by saying that the role of businesses is to make goods and services that in turn have embedded social and environmental consciousness in the DNA of a business enterprise. The business model itself recognises the role of corporate strategy to solve problems that one sees in communities. This way people in the communities get better products and services, businesses earn profits which is conscious, non-profits see solutions for the challenges that they observe and employees experience the satisfaction of working in an enterprise that seeks to do better by doing good in society. Thus, a tectonic shift is being seen in the way businesses can help alleviate challenging social, environmental and technological problems that people face in their communities. 

Relevance of CSV in Emerging Markets 

It is particularly more relevant in emerging markets as the states are often inadequate to solve people’s problems. Productive economic activity at the business level is what is at the core of this next evolutionary form of capitalism. Education, healthcare, law and order, infrastructure are just some of the public challenges where the Indian state even after almost seven decades of independence has not been able to deliver entirely. It is because in a developing country context like India the resource allocation is often inadequate and even where it is adequate it is inefficient. The solution, therefore, does not seem to be a ‘bigger state’ but a more efficient and effective one which focusses on enabling solutions and outcomes. A rule based private sector development based on appropriate regulation can end up achieving the social and community goals that are essential to this more humane form of capitalism. 

Shared Value or Inclusive Businesses? 

The initiative recently mapped enterprises that have been engaged in the ideation and, more importantly, the practice of moving towards creating shared value and celebrated their achievements and ways and means to take the movement forward. This was done by the creation of an Inclusive Business list. Inclusive Businesses show businesses that are moving towards the practice of creating shared value but are yet not there. This list had enterprises which have contributed to enabling societal development through their business models and are moving towards the practice of creating shared value in India.  

In 2015, quite a number of such enterprises were identified. These enterprises were committed to bringing a change in understanding the key societal challenges and addressing them through their business models. In a way, it was a unique initiative to identify, assess and recognise the organisations operating in India, which are creating a measurable socio-economic value by identifying and addressing social and environmental problems that intersect with their business. 

In India, several companies have been doing commendable work as ‘Inclusive Businesses. The list is truly diverse with businesses operating in distinct sectors of the economy. These include enterprises like Jain Irrigation, Amul, Novartis, Vaatsalya, and Godrej, etc. that have done commendable work for societal development at the same time generating profits for these enterprises. All of the companies on the list have enabled societal development and at some level trying to embed the principles of creating shared value in their business models. 

Methodology for Assessment of Inclusive Businesses in India

The core principle driving the evaluation of Inclusive businesses was how well their past and present activities take into account societal value within their business models and as part of their overall strategy. Post this a well-established assessment approach was deployed, and a thorough evaluation was done in the case of several enterprises out of which 21 were then recognized as Inclusive Businesses.

The organizations were mapped on the basis of their past and present activities, and on how well they adopted the principles of societal value creation as a part of their business strategy.

  • Identification of companies: Companies advancing societal initiatives via their business activities were identified. Enterprises who imbibe the spirit of societal value and are actively involved in doing activities at the ground level were considered
  • Setting Parameters: Companies were assessed on the following parameters
    • Social issue and challenge being addressed
    • Coverage of activities creating a positive impact on society
    • Link between social problem being addressed and company’s competitive position and strategy
  • Assessing Companies: The outcomes of assessment based on the aforementioned parameters were then discretely analyzed by team from SVII.
  • A thorough evaluation of companies was done, and enterprises which that have made the most contribution have been recognized through this list of 21 enterprises.

Through this list of enterprises, SVII is trying to inspire the next generation of enterprises to adopt a corporate strategy that is in consonance with the broader social and environment good of people in India. The idea is also to move beyond older ideas that have limited capability to solving the most pressing problems of our time.

Likely Future Expectations and Developments 

SVII has just barely scratched the surface of what can be a revolution to solve the most critical challenges that India is facing in varied spheres. SVII has had a delightful journey so far in India. The Inclusive businesses are the first step towards creating shared value in India. It is hoped that India’s vibrant democracy and the emergence of a new entrepreneurial class, as well as the established corporations, will all aid in developing the shared value vision in the country in the years ahead. Policymakers, Civil Society and most importantly Enterprises must see growth but with a purpose of bettering well-being of people in the coming years. The country and its institutions must move beyond the basic ideas of corporate social responsibility and as these have a limited scope and capability for improving people’s lives and hope to become inclusive businesses in the journey to become shared value enterprises.

In the future the need for corporations is to move towards shared value paradigm. Shared Value Initiative India (SVII), set up in 2015, is the exclusive regional partner of Shared Value Initiative, U.S. The initiative in India is aimed at involving business & community leaders towards defining the practice of shared value in India. It is hoped by bringing forth ideas and implementing them there will be an acceleration of the economic and social progress of the Indian society. The initiative is looking at businesses to move from being inclusive businesses to being shared value enterprises of the future by thinking about societal development as a part of their corporate strategy.

Published with The Hindu Business Line on February 15, 2016. Read full article

© [2016] Shared Value Initiative India & Institute for Competitiveness, India

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