Finding solutions: Mark Kramer.

Finding solutions: Mark Kramer.

Mark Kramer | Creating shared value is not merely a contribution or a donation

Mark Kramer | Creating shared value is not merely a contribution or a donation

New Delhi: Mark Kramer, co-founder and managing director of consulting firm FSG, talks about how Indian companies can both make a profit and solve social issues by adopting a “shared value" approach. Kramer has written extensively on corporate social responsibility (CSR), catalytic philanthropy, strategic evaluation, impact investing and adaptive leadership. Edited excerpts:

What is FSG?

Finding solutions: Mark Kramer.

How is “creating shared value" (CSV) different from strategic philanthropy or CSR ? How did you come up with the concept?

CSV are policies and practices that strengthen a community at the same time that they advance the economic objectives of a company. (Harvard Business School professor and FSG co-founder) Michael Porter and I came up with this idea over the last five or six years as we began to look at how important social factors were to the competitive success of companies, and how corporate strategy really is intertwined with social issues.

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We started by thinking about the competitive advantage of corporate philanthropy—the ways in which corporate philanthropy can strengthen the competitive context in which a company operated. But we very quickly began to realize that there are opportunities for companies to make money by solving social problems. It’s not philanthropy because shared value is not merely a contribution or a donation. It’s not a one-way street. It’s instead initiatives that create profit for the company.

It’s also not the same as CSR and sustainability, even though it overlaps with them. If, for example, a company reduces its energy consumption—that may be sustainability, but there are certainly many sustainability initiatives that do not have an economic benefit to the company and would not be considered shared value. And when companies create new products and new services that solve social problems that are not problems that they themselves caused, that is shared value, but is not what is typically seen as sustainability.

What are some of the incentives for businesses to take a CSV strategy as opposed to taking a CSR approach?

Well, CSR approach and a corporate philanthropy approach are a good thing for companies to do, but they don’t really fundamentally strengthen the companies’ competitive positioning and profitability in most of the cases. Shared value is really a tremendous new area of profitability—it’s opportunities for growth, opportunities to reach new markets, to develop new products, to make money by solving social problems. And it has been a blind spot for companies for many, many years, as they have tried to avoid thinking about the social consequences of their activities.

Why has it been a blind spot?

Classical economics has taught us that social and environmental issues were externalities. That it didn’t matter if the company polluted—but in fact that pollution is a sign of wasted resources. That it didn’t matter that your force is healthy—but the healthcare cost of employees is a huge cost to companies nowadays. So we see time and again that what companies used to treat as irrelevant, as externalities to their strategy, are actually important costs and opportunities for their business.

How common is this model in India today?

I think we see a real resonance of this idea among leading Indian companies, and there is so much opportunity in India to build businesses that meet basic needs, and that are inclusive of populations that are otherwise excluded. There is an immediate visceral understanding of this concept of creating shared value—and indeed a desire on the part of many leading industrialists in India to help build a healthy country, and a sense of contribution towards the country’s future—so we think it’s tremendously consequential in India.

What are some of the key challenges facing Indian companies that might want to adopt a shared value approach?

I think there are several. The treatment of charities and social enterprises in India is very traditional. The notion that a non-profit organization or a charity could make money or charge fees while delivering social benefits is very foreign, even though it may be quite common in other countries—so I think there is a very traditional notion of philanthropy still here in India that makes it sometimes hard for people to see that shared value can be both a solution to social problems and also a source of profit.

What is the potential of shared value in an emerging market like India, versus a developed country?

It is an approach that we see having value everywhere, but the kinds of examples are quite different in developed countries and in emerging markets like India. We actually do think that there is even more opportunity in emerging markets like India because there is such a vast scale of opportunity with populations with needs, of such inventiveness around new business models, such a sense of entrepreneurial spirit, that it seems very very much at home in the Indian culture.

What can be done to encourage more Indian companies to consider this model?

First, I think that merely talking about it, finding more and more examples, letting company managers and executives know that it’s a good thing if the business can develop initiatives that help to address social problems—that it doesn’t have to be through philanthropy. Second, I think there is a very important opportunity for the government to get involved. There is a mandate that companies donate a certain percentage of profits to CSR, and that has been interpreted, as I understand it, largely to mean philanthropy to non-profit organizations. But if companies could invest that money in shared-value initiatives that really deliver measurable benefits to addressing social problems or helping populations in need, that I believe would be a far more leveraged use of the funds than limiting them only to philanthropy.

This is the second in a series on corporate social responsibility