Office Hours: Ricardo Ernst on How Shared Value Can Turn Companies Into Engines of Change
Shared value is a management strategy in which companies find business opportunities in social problems. While philanthropy and corporate social responsibility (CSR) efforts focus on giving back, 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. In their new book co-authored with Jerry Haar, From Me to We: How Shared Value Can Turn Companies Into Engines of Change, Ricardo Ernst, Baratta Chair in Global Business and professor of operations and global supply chain highlights the concept of shared value and the current state of the business-environment-government relationship.
Can you explain the emerging phenomenon of shared value?
There always seems to be this culture around business that focuses exclusively on making money. We’ve all heard the common theme that pervades the business world about companies’ three main objectives: 1) make money; 2) make more money; and 3) make sure objectives one and two are satisfied. But things are changing. There is a significant change that all companies need to take into account based on the issues we faced today, such as climate change, lack of economic opportunity, education, poverty, and inequality among others. It’s not enough to figure out what is good for the company, but what simultaneously serves society.
Shared value is a term conceptualized by Michael Porter and Mark Kramer suggesting companies can bring business and society back together if they redefine their purpose as creating “shared value” — generating economic value in a way that also produces value for society by addressing its challenges. A shared value approach reconnects company success with social progress.
How is this concept different from traditional forms of CSR campaigns and efforts?
In the past, the sole purpose of a business used to be about capital gains, but businesses today are expected and need to embrace other elements of society for the sake of their own development and the development of the community. As a company enhances its own profitability and competitiveness, it must also advance the communities it operates in.
CSR is perceived as a cost center, not a profit center. In contrast, shared value creation is about business opportunities that create new markets, improve profitability, and strengthen competitive positioning. CSR is about responsibility; shared value is about creating value for more than just the company.
What are the two dimensions that your research adds to the shared value concept?
For Porter and Kramer, shared value is manifested three ways: 1) reconceiving products and markets; 2) redefining what is involved in productivity; and 3) strengthening local clusters. We broaden this trio by adding the indispensable features of ownership and accountability. In upgrading and broadening the concept of shared value, we refer to it as the shorthand “Me to We.”
For example, if we have a taxi service, I will buy a car for my employee (shared value). Now the employee must be accountable for the car, which means taking care of it through regular maintenance and upkeep, but it also means they will now have more ownership over the taxi, therefore, more motivated to be more productive (i.e. work longer hours, pick up more rides). This type of employee empowerment can instill greater trust in leadership, encourage employee motivation, lead to greater creativity, and improve employee retention — all of which ultimately results in a better and more sustainable bottom line.
How can this “Me to We” concept reshape capitalism and its relationship to society?
The “Me to We” concept could drive the next wave of innovation and productivity growth in the global economy. It opens managers’ eyes to immense human needs that must be met, large new markets to be served, and the internal costs of social deficits — as well as the competitive advantages available from addressing them. This will require managers to develop new skills and knowledge and governments to learn how to regulate in ways that enable a Me to We approach rather than work against it.
Ernst’s new book (releasing December 2021), From Me to We: How Shared Value Can Turn Companies Into Engines of Change, will discuss shared value within the context of business and society, competitiveness, and globalization. Citing real cases and examples from a variety of industries, this book provides useful strategies of how businesses have used the “Me to We” approach to promote shareholder interests while serving a successful business strategy.