How to become profitable, innovative and sustainable

September 20, 2023

The notion of shared value in the corporate world first became popular back in 2011 after the publication of the paper "Creating Shared Value" by Michael Porter and Mark Kramer in the Harvard Business Review. The article notes that businesses are able to create value for themselves and for society, as long as they address social and environmental issues through their own strategy and business operations. This concept acknowledges the interdependence between business success and social progress.

The purpose of shared value practices is to identify and address social or environmental issues within the community, in line with the company's main corporate goals, which transcends traditional Corporate Social Responsibility (CSR), as it merges social concerns directly into the company's value proposition and operation. Bringing these practices into the organization helps identify new business opportunities to meet the needs of society, which in turn can help create innovations in products and services, and develop sustainable business models. This can also encourage businesses to tap into new markets, thus boosting their growth.

Some of the impacts of fostering shared value practices in businesses can be appreciated in different contexts:

-       Cost savings and efficiency. By addressing social concerns as part of their business strategies, firms can create new sources of income, secure a larger market share, and build customer loyalty. Creating economic value for companies, while creating value for society, can be understood along three lines: rethinking products and markets, boosting productivity in the value chain, and growing support industries in the companies' operating sites (cluster creation).

-        Improved branding and customer loyalty. Consumers are increasingly requiring companies to show commitment to social and environmental responsibility. By implementing shared value practices, businesses can build positive branding, set themselves apart from the competition and build customer loyalty. This can bring them a larger market share and help establish long-term relationships with customers.

-        Risk mitigation and resilience: Companies that address social issues proactively through shared value practices are able to minimize risks associated with social and environmental challenges. By considering the long-term sustainability of their operations and supply chains, businesses can develop resilience and adaptability to changing markets and regulatory frameworks. This can be achieved by involving local communities in tackling these challenges, creating products and services that meet social and environmental needs, collaborating with suppliers in bringing sustainable practices into the supply chain, among other tasks.

-        Improves employee motivation and attracts talent. Shared value practices can foster a sense of belonging among workers: When they see that their company is having a positive impact on society, they are usually more motivated and more proud to belong to that organization. In addition to retaining staff, it can also attract the best talents in the market.

-        Boosted competitiveness. Shared value initiatives often lead to innovations in products, services and business models. By meeting the needs of society, businesses can tap into new markets, come up with unique value propositions, and set themselves apart from the competition.

But how can we determine that shared value practices actually bring about benefits for businesses? In this regard, it is crucial to measure the social and economic impact created for the company and for society. Consideration must be given to actions for a proper assessment, including:

 -          Identifying the relevant players and stakeholders impacted by the company's activities (including, inter alia, employees, customers, suppliers, local communities, and society)

-        Establishing a set of indicators to help measure the value created by the organization. These indicators should be in line with the company's strategy and include the social and economic dimensions. These indicators might include, for instance, job creation, Social Return on Investment (SROI), curbing environmental impacts, worker satisfaction, or community development.

-        Setting a baseline and collecting information. Based on the chosen indicators, a baseline must be set to determine the starting point and make comparisons and assessments in the future. Data collection around these indicators may require company internal information, as well as from external sources, e.g. market reports, community impact assessment, or industry comparison.

-        Following-up and reporting progress through by selected indicators and set goals. Creating an information system that helps the company and various stakeholders communicate adequately and regularly the progress and results. This can be done through regular reports on a media outlet, a progress dashboard, or announcements to the general public.      

Cultural resistance, lack of clear leadership, working in isolated departments within organizations, and disalignment with strategic goals, among others, are some of the barriers within organizations that hinder these types of shared value practices. Overcoming these challenges requires a strategic and holistic approach, effective communication, building employee engagement, and securing alignment between social and environmental goals and business targets. It also demands fostering a culture that embraces shared values and collaboration, in addition to providing the necessary resources and measurement systems to support implementation and monitor progress.

CAF's renewed vision aims at becoming the green and blue bank, and the bank of economic and social recovery in the region. To this end, shared value plays a pivotal role within the strategy, as it will allow us to rethink the needs of society in a way to help companies—through innovation—meet the new demands, rethink value chains to boost productivity in SMEs, and encourage the creation of clusters as a cornerstone of regional development by creating open, transparent markets.

Consumers are showing an ever-increasing preference for sustainable products and services. There is a growing demand for environmentally friendly, socially responsible, ethical products. Businesses that embrace sustainable practices and engage in shared value practices are poised to develop a competitive advantage and appeal to a broader, more engaged market segment.

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Jairo Tiusabá
Jairo Tiusabá

Director, Dirección de Desarrollo de PYMES