Porter’s article Creating Shared Value (Porter & Kramer, 2011) asks us to envision a new understanding of strategy and competition as creating shared value.
What examples can you point to from the private or public sector working together to create shared value during a global crisis? How can you, or your organization play a role on the global stage?
Then, turn your attention to the microcosm of our class operation management and Leadership( Program MBA), how have others helped you in your learning in this course ( every week we had discussion about different topic about Operation management and personnel development plan) ? How have you created shared value in this course for others? How have Porter’s ideas about strategy and competition changed over time? Have your own ideas changed, if so, how so?
Summary of the article:
The article published by Porter and Kramer presents the idea of making innovation of the purpose of a corporation. It also presents the relationship of the corporation with the government and the society. This is to find out the needs of customers that are unknown and make an expansion of the overall pool of social and economic value.
Analysis of the article
In the introduction of the article, the authors make an explanation that the contemporary problem that the concept of narrowed capitalistic is the situation people express reduced trust on corporations, which is deemed as the rationale for the whole sorts of societal, environmental and economic challenges. In this view of neoclassical nature, social responsibility is deemed by organizations as a barrier to the success of the economy which leads to increased costs. Majority of the businesses attempted increasing their profits through the approach of restructuring and reduction of personnel. The society, on the other hand, had a perception of little benefit.
According to Porter and Kramer (2011), the company’s competitiveness and the community’s wealth has a close relationship. This explains that organizations require a social environment that is strong for it to gain sufficient demand as well as being able to reap benefit from public assets. The community, on the other hand, are able to access places of work through strong businesses. Organizations set programs of corporate social responsibility aiming at improving their image and make it as cheap as possible since they do not see it as a productivity driver.
In addition, the firms define themselves as international and in most instances lack a local base which the authors perceive as an essential thing in strategy theory for value creation. Corporations ignored the interpellation between the creation of a distinctive value and the needs of society and made more focus on the industry. As a result, the government was forced to raise regulations that restrict the competitiveness and success of the firms, ignoring that today companies in the international economy have an easy movement to other regions.
The authors also criticize the models of business of a majority of the firms which have the focus on profit maximization that is short term as opposed to long-term optimization (Michael & Mark, 2011). This is partially due to the force of the market and that they failed to be attentive to the most essential customer needs and their broader impacts. This had the depiction that the economy and the society had for longer period of time been against each other. The authors also urge the firms to take charge of bringing the society and the businesses together again through maintaining focus on the issues of the society.
The firms need to have an understanding of the markets and competition. Porter and Kramer refer to this as the principle of creation of shared value. The creation of shared value is an idea of setting practices and policies that advance the competitive edge of a firm through enhancement of the connection of social and economic condition in their local society with the ultimate goal of increasing the overall economy and societal value.
Managers need to advance new skills as well as knowledge concerning affairs of the society, although the government needs also to adapt in a manner that provides the corporations the opportunity to operate in a profitable way under such conditions. The firm needs to act in a manner that if one is improved, it would consequently lead to increased opportunities for the other. This means that the firms will be required to identify the societal needs that are currently unmet and which their products embody and attempt to meet them since innovations recently played a key role in business opportunities. It is essential to point out that demand is ever dynamic leading to opportunities arising frequently. Therefore, firms can place themselves strategically to grab the rising opportunities. In the case of a disadvantaged society, there are a lot of opportunities such that the firms can benefit by selling large amounts at a low price. The second way of establishing a shared value, according to the authors is through redefinition and reexamination of value chain productivity which is extensively impacted by the societal problems. Organizations can utilize synergies between societal and economic problems to raise satisfaction and create shared value.
The theory of Porter and Kramer suggests that the needs of society define markets. The social harms that create internal costs for companies can be avoided via technology increase and increase in operations management. Due to this, companies are able to operate in a more productive way and undergo market environment expansion. The main aim of this is to increase the overall value of the society and economy and hence the shared value development.
Three takeaways will be discussed under Porter and Kramer’s article “creating shared value”.
Takeaway 1: A different thinking arises from shared value
Porter and Kramer (2011) made an explanation that the shared value principle involves the creation of economic value such that it at the same time ensure value creation to the community through addressing the society’s needs and problems. An organization is a social construct that exists to tackle the requirements of society. Permitting business persons to address the social problems has the potential of making hem see new opportunities and be able to significantly make decisions.
The authors clearly point out that shared value does not necessarily refer to redistribution, but it is all about the expansion of the total pool of social and economic value. If the majority of the organizations had their focus in the creation of value, a lot of changes are likely to be witnessed.
Takeaway 2: shared value is not a new idea
Majority of the people have pointed out that the idea is not new. The whole idea is that we need organizations in the game. As explained by peter Drucker (1986), if business learned how to change their big social problems that face the societies and that are developed into novel and business opportunities that are profitable, then corporations can be able to solve the issues in future.
Takeaway 3: Advantages of collaboration
Shared value can be expected to be witnessed in cases that are non-competitive where the society and the corporation are all better off. Additionally, they can be pre-competitive where companies can share costs with the aim of increasing value for all. These opportunities are realized through support from other companies.
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