Creating shared value can be defined as the practice by which companies create economic success in such a fashion that ensures benefits and value formation for the rest of society by solving its problems and meeting the demands. The development of shared value focuses the attention of firms, organizations, and companies on generating profits that ensure societal benefits. Ensure common value involves encouraging cluster advancement, reevaluating efficiency in the value chain, and reexamining products and markets. Developing common worth constitutes the core of the business strategy. However, the practice is not corporate social responsibility or philanthropy.
Corporate social responsibility can be defined as the commitment of a firm, a company, or an organization to responsible management. This involves controlling the economic, environmental, and social effects of its operations and doing so in line with the public’s expectations. Corporate social responsibility is applied in every section of the company’s business, including manufacturing, health, human resources, operations, safety, and the supply chain (Mark, 2011). Companies, firms, and organizations must temper their economic success to provide societal benefits, a concept that economists have legitimized. To elaborate on this, we start by evaluating the dilemma of reconceiving the firm’s industry, redefining productivity, and local cluster development.
The Dilemma of Reconceiving Company Products and Markets
Companies that aim to create shared value have to reconceive or redefine their products and markets, which comes with huge expenses. Firms have to reconceive their products to meet society’s needs, which are of a wide variety. They range from ensuring little environmental damage, giving help to the elderly, provision of health, adequate housing, improved nutrition, and enablement of better financial security. Companies have to go back to the drawing board and answer the question of whether their products are suitable for their customers and other dealers (Reyes and Scholz, 2019). As a result, firms are expected to redefine their products to ensure that they cause minimal damage to the environment and protect the health and well-being of the customers. Companies incur substantial expenses in the process of reconceiving their products. In this manner, companies must mitigate their economic success to ensure that shared value is met.
Firms need to conduct costly market research to identify society’s needs, benefits, and harms that could be embedded in the products of the company or firm and subsequently ensure that shred value is created. Additionally, the opportunities that form the core for creating shared value are constantly changing, which means that companies must be on high alert to these changes to change their operations and products to meet societal needs and environmental protection effectively (Pollman, 2019). Nonetheless, the priorities of society are constantly shifting. Companies have to reposition their presence in the markets from time to time, and such shifts are usually costly. For companies to meet societal needs in underserved markets, they need to redesign their goods and services and invest in different product distribution methods (Porter and Kramer, 2019). Nevertheless, the firms might need to invest in fundamental innovations to meet and satisfy societal needs. Typically, all the changes that the companies or firms have to put their investments in come at a high cost. Therefore, for companies to ensure the creation of shared value, they must temper their economic success.
The Dilemma of Redefining Productivity in the Value Chain
Firms, companies, or organizations that achieve the creation of shared value need to redefine efficiency and productiveness throughout their value chain. Factually, a firm or organization’s value chain impacts and is influenced by societal matters, including equal treatment in the workplace, employees’ working conditions, health and safety, water use, and natural resources (Pollman, 2019). Ideally, problems experienced by society create economic costs in the company’s value chain. Statistically, few companies have fully profited from productivity benefits that come with addressing health, safety, protection of the environment, and retention of employees as required by society (Mark, 2011). Essentially, companies redefine efficiency in the worth shackle at the expense of the firm’s success. In addition, the efforts of companies to minimize pollution and ensure the conservation of the environment cause significant business costs. The company has to put its success and profitability aside and invest in mechanisms that protect and conserve the environment.
Creating shared value requires companies to reexamine and redefine energy use throughout the value chain. The company has to reevaluate its energy use in manufacturing processes, distribution channels, supply chains, support services, and transportation. Companies must ensure societal benefits by maximizing efficient energy use and reducing carbon emissions. This can be done by acquiring technologies that provide recycling services and energy utilization; such technologies come at a high cost (Reyes and Scholz, 2019). Also, companies have to redesign their logistical systems to reduce shipping distances, improve vehicle routing, and ensure streamlined handling. All the reconfigurations in energy use and logistics require that firms temper their success to satisfy such societal benefits.
Increased environmental awareness and rapidly changing technology have made companies identify and invest in new approaches to utilizing raw materials, expanding recycling systems, water conservation, and packaging their products. Companies have to redesign the packaging of their products to ensure less environmental pollution and achieve efficient utilization of resources (Newbert, 2018). Companies whose manufacturing processes depend on water usage have to significantly reduce their consumption to ensure that enough water is available for use by the community. The aftermath of such cuts in water consumption may lead to slowing down the manufacturing process; hence fewer products are processed in a given span; this means that companies will have to sell fewer products hence getting fewer profits. Therefore, the statement that for companies to provide social benefits, they have to temper their economic success is valid.
The creation of shared value necessitates changes in procurement techniques used by companies. For companies to positively impact the community by providing societal benefits, they have to promote the operations of marginalized suppliers (Ibrahim and Abubakar, 2020). Firms have to mitigate their economic success and put their money into improving marginalized suppliers by increasing their access to inputs, providing financing, sharing technology, ensuring access to growing volumes, and improving supplier quality.
Enterprises must ensure that marginalized suppliers remain productive and sustain their operations by pumping vast amounts of money into their activities. Companies in the agricultural sector have to set aside budgets for securing farm inputs, including fertilizers, seeds, and pesticides, guaranteeing bank loans to farmers, and giving them advice concerning farming practices (Reyes and Scholz, 2019). Essentially, they cut their profit margins to provide societal benefits. Companies have to reexamine and reconfigure their distribution practices to create shared value. They have to finance the creation of new distribution models to ensure that they significantly reduce the usage of paper and plastics. Firms have to create new models that ensure cost-efficiency in distributing services to small business enterprises; this is mainly achieved at the expense of their economic success.
The Dilemma of Enabling Local Cluster Development
Companies need to enable local cluster development to create shared value. A company’s ultimate success is significantly influenced by the supporting firms and infrastructure that surround the company. Therefore, the company has to mitigate its success and invest in developing cluster institutions such as standard organizations, academic programs, and trade associations (Pollman, 2019). The company is also required to invest in developing public assets in the surrounding community, including universities and schools, and ensure the provision of quality standards, clean water, market transparency, and the creation of fair-competition laws. Additionally, the company has to incur costs in developing service providers and logistical infrastructure (Porter and Kramer, 2019). For companies to ensure shared value creation, they have to temper their economic success and provide societal benefits.
The company’s profitability and success are always tied to the effective creation of shared value. If the supporting clusters surrounding the firm are not well developed, the firm’s productivity is significantly affected (Porter and Kramer, 2019). The existence of inadequacies in the infrastructural conditions around the clusters causes internal costs for the company (Bredhammar and Slesinski, 2019). Poor public education causes the company to incur tremendous productivity and remedial training costs. In the case of poor infrastructure in the transport system, the company will incur adverse costs in logistics. The pool of capable employees will be significantly reduced if racial or gender discrimination exists.
Additionally, suppose poverty levels are high in the surrounding community. In that case, demand for the company’s products will be low and environmental degradation will be experienced at adverse levels. Moreover, the health of the company’s employees will be compromised, and high costs will be incurred in the provision of security. Therefore, it is imperative to mention that the company must temper its economic success and ensure the development of cluster institutions and surrounding infrastructure to create shared value.
In conclusion, creating shared value and corporate social responsibility are two critical aspects of business strategy that companies must strive to achieve. However, the pursuance of these strategies comes at a high cost to the companies. Therefore, firms have to temper their economic success to ensure societal benefits.
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Mark, K., 2011. Creating Shared Value: How to reinvent capitalism and unleash a wave of innovation and growth. Harvard business review, 89(1/2), pp.62-77.
Newbert, S.L., 2018. Achieving social and economic equality by unifying business and ethics: Adam Smith as the cause of and cure for the separation thesis. Journal of Management Studies, 55(3), pp.517-544.
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