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Creating shared value – because companies cannot succeed in a failing society

Social Innovation| Views: 328

Too many companies are still trapped in an outdated approach of focusing solely on short-term financial performance while mostly ignoring the well-being of their customers, the availability of natural resources and the needs of the communities in which they produce, sell and deliver services. It’s no wonder that dismay to the point of aggression has been mounting against big corporates, accusing them of sucking dry surrounding communities and relentlessly stripping the environment of resources to line their own pockets.

Governments and civil society have been asking hard questions about the role companies play in society. In short: business could no longer afford to profit while the communities and the environment in which they operate suffer. It also became abundantly clear that solving worldwide crises like poverty, disease, climate change and inequality could no longer be left in the hands of governments alone. These challenges require the expertise and business approach of the private sector.

Fortunately some companies have come to realise that business as usual is no option – not only for the survival of the surrounding communities and environment, but also for the survival of the company itself. The one couldn’t (and shouldn’t) survive – or thrive – without the other.

Multinational grocery and general merchandise retailer Tesco is passionate about addressing the issue of food wastage and is committed to ending any food wastage fit for human comsumption in its stores by the end of this year. They encourage other retailiers to do the same, “not just because it’s a good thing to do, but because it makes good business sense”. The company argues that “it doesn’t matter whether you look at this through the lens of commercial sensibility or making a contribution to humankind, because both are relevant”.

Nestlé, supporting local farmers who supply its factories around the world, believes that no business can be sustainable unless it looks beyond itself to the role it plays in broader society. The company needs good produce, good raw materials and stability in its supply chain. By working with farmers, better yields and more stable and higher incomes for them are created. Both the company and society benefit greatly, simply by doing what they do in the right way.

These companies understood that a new business strategy was necessary – one where business, society and the environment benefit equally, and the business stays competitive and still flourishes. They could see that although societal and environmental challenges may present constraints to their business, it also presents vast long-term opportunities for growth and development.

Capitalising on these opportunities, while simultaneously addressing social issues, means that shared value is being created. If business could succeed in stimulating social progress, social and environmental ills would decline and corporate profits would rise – a win-win situation.

Shared value in action

To illustrate shared value creation, or “pursuing financial success in a way that also yields societal benefits”, see how these companies have improved the lives of many, while simultaneously growing their profit and business footprint:

  • Safaricom, a mobile network operator in Kenya, launched M-Pesa, a cellphone-based money transfer, financing and microfinancing service, in 2007. In a country where money transfers by other means are very expensive, it has enabled widespread financial inclusion. More than 22 million Kenyans now use M-Pesa.
  • Through its Networking Academy, Cisco Systems, an American multinational technology group, partners with schools, government agencies, NGOs and other organisations in regions from Brazil to South Africa to leverage its expertise in cloud technology toward providing education and training for students considering high-demand IT careers. This way, they create competitive job markets where business is growing, as is their need for trained IT professionals.
  • Mastercard has used its technology and expertise in payments to develop 2KUZE, a mobile marketplace to help smallholder farmers negotiate quantities, pricing, payment and distribution through a feature phone. The company is committed to connect 500 million people and 40 million small and micro-merchants to financial services by 2020.
  • Global healthcare and research company GSK fundamentally changed their business strategy to make medicine and vaccines accessible to as many people as possible across the world at the most reasonable prices. GSK also provides healthcare training. This way, significant suffering and mortality due to a lack of basic knowledge and inadequate health services are addressed. In less than three years, this strategy has more than doubled the volume of medicine they supply, and GSK medicine sales in the least developed countries (LDCs) have increased by up to 80% per country.
  • The first large-scale programme to diagnose and treat HIV/Aids in South Africa was introduced by the global mining company Anglo American to protect its workforce and reduce absenteeism.
  • The R1,2 billion Italian energy company Enel now generates 45% of its power from renewable and carbon-neutral energy sources, preventing 92 million tonnes of CO2 emissions annually.
Local champion

A company that has been creating shared value long before it became the new buzz phrase is the Discovery group. At the core of its shared value health insurance model is Vitality, a wellness programme that rewards members for living a healthier lifestyle. The company developed this programme to reduce its overall risk and broaden its consumer base, while meeting the needs of younger clients. And it has been paying off.

According to Discovery, highly engaged Vitality members have 10% lower hospital admissions, 25% shorter hospital stays and 14% lower overall claims compared to non-Vitality members. The impact of Vitality reduces the medical scheme’s claims costs by about 3% each year, generating total savings of a whopping R11,6 billion since 2008. This allows the scheme to provide better benefits to its members at premiums that are, on average, about 16% lower than competitor schemes on a like-for-like basis. All parties benefit from the increased value arising from healthier members’ lowered risk profiles – shared value is being created.

These savings are also invested in new ventures for growth, like creating medical aid packages for lower income groups who would otherwise not be able to access quality medical care – another classic example of shared value.

The advantages of the Vitality programme do not end there. Using the information Vitality generates, Discovery knows its members well and understands their lifestyle. This provides quality data to make informed decisions about new business developments, such as the Discovery bank that’s on the cards.

Phone a friend

Walking the path of creating shared value often confronts companies with one huge obstacle: they can’t always fly solo. It often makes more sense to get other businesses and entities involved to maximise the effects of shared value.

Businesses often operate in the same milieu and societal conditions, which may impact their customers, suppliers and distributors. They all do business in an environment where government policies, consumer behaviour, political and labour unrest or a bad economic climate can limit business success.

Companies that understand this, like Cisco mentioned above, know that through collaborations and partnerships with businesses that can benefit from the same solutions, they may collectively have a much stronger impact on social progress, as well as yield higher profits and create more opportunities for all involved. Walmart, for instance, realised that to create lasting solutions to social problems on a large scale, they need to work with others around a clearly defined goal, creating business opportunities for various stakeholders.

A few years ago, while Walmart was trying to eliminate 20 million tonnes of greenhouse gas emissions from its supply chain and reduce packaging costs, it encountered a curveball: its suppliers could not source enough recycled plastic to use in their packaging. The reason was that almost half of the US population lived in cities where municipalities couldn’t afford to establish a recycling system, like collection and sorting, although recycling would have yielded significant revenue for them. This created a shortage in recycled plastics.

So Walmart convened a cross-sector coalition of NGOs, city managers, recyclers, major consumer brand companies (including direct competitors such as Unilever) and financing experts. Some of them had spent years trying to launch their own recycling programmes. They all realised that by tackling the challenge of financing municipal curbside recycling together, the problem could be solved and everyone could benefit.

Together, ten companies invested in the $100 million Closed Loop Fund, whose purpose is to catalyse investments in recycling infrastructure across the United States. It is governed by an independent committee of experts in finance, the environment, recycling, supply chain and municipal management.

By the end of last year, the fund had financed ten projects, amounting to $80 million: $20 million of its own capital and $60 million from co-investors. These ten projects alone are expected to reduce annual waste to landfill by more than 800 000 tonnes and cut greenhouse gas emissions by more than 250 000 tonnes, while creating hundreds of jobs.

The benefits to Walmart specifically have been considerable. The increased availability of recycled materials strengthens its supply chain and reduces the cost of packaging dramatically. Shared value was created on an enormous scale through collectively looking for solutions to shared problems.

It’s not rocket science

Ignoring societal ills and environmental challenges, while solely focusing on making a profit and contributing to society with the odd CSI project, is not an option for businesses today. Using company resources to address these issues for the long-term good of society and the environment is what responsible businesses do, but they should – and could – do so while securing their own sustainable future growth. In creating shared value, it is often more advantageous – and necessary – to take hands with other companies, organisations and both local and national governments to impact stronger on societal challenges, as well as on business success for all involved.

Shared value can lead to prospering communities, which in turn will lead to prospering businesses. It’s as simple as that.

Author Reana Rossouw is one of Africa’s leading experts on social innovation, sustainable development, shared value and inclusive business strategies. As director of Next Generation, a specialised management consultancy, she believes strongly in contributing to the development and capacity-building of the sector.

Next Generation presents annual master classes on social innovation, corporate social investment, monitoring, evaluation and impact assessment, stakeholder and human rights management and related aspects, providing practical, useful discussions with real-life examples to improve the quality of your work and the impact that you make. Contact rrossouw@nextgeneration.co.za to get details about upcoming classes and to secure your seat.

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