Critique on Creating Shared Value

Critique on Creating Shared Value In the January –February 2011 issue of ‘The Harvard Business Review,’ Michael porter and Mark Kramer wrote an article titled â€Å"The Big Idea-Creating Shared Value†. According to Porter and Cramer, the concept of shared value can be defined as â€Å"policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates†.Advertising We will write a custom article sample on Critique on Creating Shared Value specifically for you for only $16.05 $11/page Learn More This quote from Peter Brabeck can bring the definition home. This new approach of doing business puts societies wellbeing at the centre of the companys strategy and operations. It enables the business to maximize economic value for the company while addressing societal challenges. They contend that this is a modern way of doing business and many companie s are embracing it for example GM, Nestle, Uniliver, Intel, Wal-Mart stores among others. Companies can create shared value in three major ways that are re-evaluating products and markets, redefining productivity in the value chain, and building supportive industry clusters at the companys locations. According McConnell et al. (2012), companies are beginning to realign their operational and production activities to meet the customer’s requirements in terms of the quality of goods and services that they produce. For example, food industries are now focusing on better nutrition instead of the traditional taste and quantity, in the technology sector computer manufactures such as IBM and Intel are now designing machines, which are more energy efficient. These are examples of where shared value has been created through development of products that meet societal needs. In the process of creating value, a company affects and in turn is affected by several social factors such as natu ral resource, working conditions, health and safety, water use, and fair treatment of workers. These societal factors can positively be exploited by the company and turned into economic gains instead of costs. Even in the absence of regulation, organizations that cannot create shared value still have to incur internal costs from externalities. To support this argument, Porter and Marker explain that Wall-Mart was able to create shared value by reducing its packaging and adopting new routes for its trucks to cut 100 million miles from its delivery routes in 2009.Advertising Looking for article on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Porter and Marker identified six major areas through which productivity in the value chain can be redefined. These are energy use and logistics, resource use, procurement, distribution, employee productivity, and location. Organizations have continuously revised their opera tions in order to come up with processes that are more energy efficient. This has been necessitated by continuous increase in oil prices and the rising opportunities for energy efficiency. This has resulted into efficient use of energy resources through better technology such as the computers manufactured by IBM and Intel, recycling, use of natural energy sources like the sun, windmill to light homes and irrigate farms respectively. Porter gives the example of British retailer Mark and Spencer initiative of stopping to source supply from distant places and shipping them to where the company is located. This initiative is projected to reduce costs by $175 million per annum by the financial year 2016 and significantly reduce on carbon emissions. According to Halbert et al. (2008), technological advancement together with environmental awareness is reshaping new ways in which we use resources such as water, raw materials, packaging of finished goods as well as recycling and re-use. Thro ugh technological advancement, it is predicted that better resource utilization will be finally embraced by all stages in the value chain. Coca-cola for instance has reduced its water intake by approximately 9% from the base year 2004It is almost halfway of achieving a 20% reduction by 2012. Dow Chemical’s is yet another example. It saved $4 million through cutting its water use by one billion gallons. According to porter when a company uses its monopoly power to exploit suppliers through payment of low prices for their supply, then the farmers are unlikely to remain productive and less likely to improve the quality of supplies. To increase productivity and ensure quality supplies companies should invest in providing inputs to farmers, sharing technology and financing the operations.Advertising We will write a custom article sample on Critique on Creating Shared Value specifically for you for only $16.05 $11/page Learn More In this way, they will be creating quality volumes of supply for themselves as well strengthening the suppliers. (Shared value) Nepresso one of the Nestle fastest growing divisions, has registered a significant growth of 30% since 2000. It has achieved these by formulating a procurement process that helps the small farmers in poor rural areas of Africa and Latin America. It has worked with these growers giving them advice on best farming practices, extending loan facilities, helping them acquire inputs such as fertilizer and plant seeds. It further established weighing facilities for coffee at the point of sale, a bonus paid to owners of quality beans directly to improve their incentives. This has resulted in breaking the cycle of poverty and improved environment. Nestle on the other hand was able to get continuous supply of good coffee (shared value created).this point further emphasizes the advantage of making the suppliers capable then buying from them. According to Gross Compa (2009), companies are real izing that investments in employee productivity through offering health cover, helping employees quit smoking cost less compared to costs associated with poor health of staff. In deed, even governments have been complaining that the total cost of treating smoking related diseases is much greater than the revenue derived from taxing tobacco products. This point out that even government needs to embrace the concept of shared value. Johson and Johnson Company saved a total of $250 million on health care costs. For each dollar spent on wellness programme since 2008, the company had a return of $2.75 in addition to a more productive work force. Modern business can no longer afford to move from once place to another in search for cheap labor and raw materials. This is because distant operations create more costs like the cost of buying supplies from one hemisphere then delivering them to another hemisphere, additionally, cost of energy and carbon emissions limit such mobility. Forbes maga zine (2011) notes that a mobile laboratory BMW Guggenheim lab will travel to nine major cities in the world in a span of nine years. It aims at getting new ideas in the areas of urbanization, architecture, science and technology, design and education that will address issues of current urban life through public discussions and programmes.Advertising Looking for article on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The current global economic challenges that include double food production, increased demand for energy, water management, global warming are avenues through which business can think come up with a solution through long term sustainable and profitable growth that also focuses on social involvement. Furthermore, there is need to re engineer the model by which resources are used because it is more resource intensive and cannot be sustainable in the end. According to Zadak, in the pyramid of corporate social responsibility organizations have to be compliant with the laws, with the codes, and the values that it has (Including shared value). For weaknesses, in my view, the new model of shared value is a little biased. On one side, we can measure the returns to the firm through use of financial statements, but on the contrary, no framework by which we can measure the social aspects of the return. Secondly, how is it possible to achieve harmony between NGOs and private companies in the pro vision of societal services? NGOs view the society as aid recipients; private companies on the other hand view the same people as customers. References Forbes Magazine. (2011). Three great examples of shared value in action. Retrieved from: https://www.forbes.com/sites/csr/2011/06/14/three-great-examples-of-shared-value-in-action/ Gross, A. Compa, A. (2009). Human rights in labor and employment relations. Ithaca, NY: Cornell University Press. Halbert, T. Ingulli, E. (2008). Law and ethics in business environment. New York, NY: Cengage Learning. McConnell, C. R. et al. (2012). Economics (19th Edn.). New York, NY: McGraw-Hill.