Social investment

When corporations find business opportunities in social problems

22 November Nov 2016 0859 22 November 2016

According the theory of Share values, corporations need to come up with better solutions for society, not just for business itself. Mark Kramer, FSG co-founder and managing director, offers his insights on what shared value means.

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According the theory of Share values, corporations need to come up with better solutions for society, not just for business itself. Mark Kramer, FSG co-founder and managing director, offers his insights on what shared value means.

Despite their good intentions, companies continue to struggle with “doing the right thing” for customers, employees, and communities. Mark Kramer, co-founder and managing director of Foundation Strategy Group (FSG), believes that corporations can change the world if they redefined their purpose in a way that creates value for society by addressing its challenges and needs.

He explains to Vita International what the concept of shared value really means.

Shared value is a management strategy in which companies find business opportunities in social problems. While philanthropy and CSR focus efforts focus on “giving back” or minimizing the harm business has on society, shared value focuses company leaders on maximizing the competitive value of solving social problems in new customers and markets, cost savings, talent retention, and more. More companies are now building and rebuilding business models around social good, which sets them apart from the competition and augments their success.
With the help of NGOs, governments, and other stakeholders, business has the power of scale to create real change on monumental social problems. We have identified three levels of shared value – some companies integrate all three levels into their shared value strategies while others focus on one or two: Meeting societal needs through products and addressing unserved or underserved customers; Changing practices in the value chain to drive productivity through better utilizing resources, employees, and business partners; Improving the available skills, supplier base, and supporting institutions in the communities where a company operates to boost productivity, innovation, and growth

Aren’t CSR, corporate social responsibility and CSV, the same thing, doing well by doing good?

Corporate philanthropy and corporate social responsibility (CSR) focus on the idea of giving back through community grants or large-scale donations or minimizing the harm business has on society through targeted initiatives, respectively. For example, with considerable focus on climate change and the Paris Agreement many companies are focused on decreasing their carbon footprint – initiatives to buy green energy credits or reduce their energy usage internally fall under the CSR umbrella. We’ve found that many of the companies we work with use some combination of CSR, corporate philanthropy and shared value to realize their purpose as an entity that can effect social change.

Could you provide some examples about how a shared value approach reconnects company success with social progress?

Nestlé sells 1 billion servings of food per day – at the same time public health officials estimate that 2 billion people around the world suffer from micronutrient deficiencies, the most prevalent being iron, vitamin A, iodine and zinc, and childhood undernutrition is estimated to cause 45% of child mortality, resulting in more than 3 million deaths annually. As the largest F&B company in the world Nestlé has a unique opportunity to contribute to tackling this major global health problem by improving the nutrition status of people at risk through the addition of relevant micronutrients to foods and beverages.
As a result Nestlé set a target to deliver 200 billion micronutrient fortified servings of foods and beverages annually by 2016 – in 2015 the company delivered 192 billion fortified servings, up from 183 billion in 2014. 79% of Nestlé’s Popularly Positioned Products sold in 2015 were fortified with at least one of the “Big 4” nutrients - iron, vitamin A, iodine and zinc. National Australia Bank (NAB) is one of Australia’s “Big 4” retail banks, with more than 10 million customers, 35,000 employees and 584,000 shareholders.

Mark Kramer

Mark Kramer

NAB’s hardship assistance program was developed in 2009 in response to more customers experiencing financial hardship. Without assistance, they risked default, eviction, and cycles of bad debt – potentially impacting them and their families for years. For NAB, the prospect of customers defaulting on loans, closing accounts, or turning to alternative providers was and is a core business concern. Initially the hardship team prioritized recovery of monies due.
In 2013 NAB changed its approach when it partnered with Kildonan Uniting Care, an Australian community service organization. The bank started to ask why customers were struggling to pay their loans and prioritize working with customers to solve that issue - rather than just recover monies owed. Since launch the bank has reported a marked improvement in the proportion of customers remaining in arrears after missing a payment - 89% of customers are up to date within 30 days of missing a payment and 94% within 90 days. Now NAB is working with partners to build a collective impact approach to building the financial resilience of Australians.

What can governments need to do in order to enable shared value?

One hallmark of successful shared value initiatives is strong partnerships between the private sector, the public sector and government. Take the case of Yara for example – as the Norwegian fertilizer company tried to reach African smallholder farmers it encountered numerous obstacles from its point of entry in Tanzania where fertilizer could increase yields for its food insecure population.
A confluence of factors – corruption; lack of transportation infrastructure; uneducated farmers and restrictive export laws – led to a market failure that perpetuated poverty and famine and restricted Yara’s growth in an important market.
Using this reality as a catalyst Yara convened nearly 70 organizations – multinationals, NGOs, aid agencies and the Tanzanian government – to form the Southern Agricultural Growth Corridor of Tanzania (SAGCOT) which worked together to build a fully functional agricultural corridor from the Indian Ocean to Tanzania’s western border. Yara has increased its sales in the region by 50% but working in partnership has allowed the member organizations to improve infrastructure, develop education programs for farmers and introduce financial services providers, all of which strengthen the overall ecosystem delivering benefits to all.

Cover photo: photype