Creating Shared Value - The Future of Business

“Give a man a fish, you feed him for a day.  Teach him to fish, you feed him for a lifetime.”

-Chinese proverb

 

Let’s say you own a waterfront business that invests the time and resources to teach that man or woman to fish.  You routinely offer “Fishing 101” classes.  Your customer base could expand exponentially, and those newly schooled anglers could become your best customers.

 

Your investment – in this case, education – is the heart of what’s called “creating shared value” (CSV).  And strategists/visionaries Michael Porter and Mark Kramer say it’s the next evolution of business.  CSV harnesses what business does so well – create profit – as well as advance the social and economic conditions in the communities in which it operates.  Everyone wins.

 

A number of well-known global brands are embracing CSV’s “profits-plus,” and several Colorado companies are breathing new life into their businesses based on the CSV model.

 

To comprehend CSV, it may be easier to understand what it’s not – the sacred cow, “corporate social responsibility” (CSR).  Kramer and Porter say that corporations developed CSR programs as philanthropic ways to salvage their reputations as bad stewards of the environment, jobs exporters and sweatshop operators.  CSR programs, while often laudable, are peripheral expenses (cost centers), fringe programs that add nothing to the bottom line.

 

COFFEE TALK

 

One example is fair trade pricing, where well-intentioned companies purchase commodities like coffee and cacao at prices above what the subsistence farmers who grow them would otherwise be able to get.  Fair trade is essentially a price support and redistribution rather an expansion of value for those suppliers.

 

Porter and Kramer point out Nestlé’s Nespresso division with its single-serve espresso machines as fair trade’s next iteration.  Nestlé opened the division in 2000, redesigned its coffee procurement processes and has reaped 30 percent annual growth since.  Nespresso helped its farmers with new growing techniques, bank loans, better fertilizers and pesticides, all resulting in increased yields.  While fair trade can raise farmer incomes as much as 20 percent, Kramer and Porter estimate CSV in coffee growing can raise them as much as 300 percent.

 

Energy efficiency is a natural fit for CSV because it creates value along the supply chain by cutting energy and waste costs, and General Electric turned energy efficiency into a $21 billion a year business with its Ecomagination division.   Whether creating über-efficient jet engines, long-lived batteries and electric car charging stations, the division’s focus on energy efficiency creates value for the company and its customers by reducing energy use and creating less waste. 

 

Closer to home, two Colorado-based companies, both approximately 100-years-old, are reinventing themselves from a CSR mentality to a CSV model – Western Union and Newmont Mining Corporation. 

 

WESTERN UNION

 

Western Union is a $5.2 billion a year backbone for global money transfers with 470,000 agent locations, marketing in over 100 different languages and operations in 200 countries and territories.  “We can see where people send money,” says Talya Bosch, Director of Corporate Responsibility.  “People literally line up at Western Union offices around the world if it’s payday in, say, Germany.  If the money doesn’t get there safely and reliably, they literally won’t eat.”

 

Similar to microloan programs on the Asian subcontinent that foster local small business, Western Union’s core business meets peoples’ basic needs all over the planet.  “What we do puts food on the table, helps educate children and has a tremendous impact,” says Bosch.

 

The company started the Western Union Foundation in 2001, which operates under its Corporate Responsibility arm, and last year the foundation donated over $20 million, with 46 percent of Western Union employees contributing to that.  “We’ve engaged our employees and agents, creating a culture of giving.  That’s good, but there’s more that we can do,” Bosch says, noting that CEO Hikmet Ersek pegs CSV as the company’s new magnetic north.

 

Bosch describes the foundation giving as “layered,” addressing issues of economic opportunity like financial literacy and job creation.  And Western Union goes where few companies have gone – to underserved, poorer parts of the planet, which is precisely what Porter and Kramer say is CSV’s sweet spot.  (Remember the newly schooled anglers.)  Bosch also says the company intends to develop programs to help the underserved stateside – small business.  (We’ll be in touch, Talya.) 

 

As the foundation evolves, Bosch says Western Union’s grants benefit the people the company serves.  “We’re not just giving grants but education,” Bosch says.  And that education investment can generate new business.

 

NEWMONT MINING CORPORATION

 

Based in Englewood, Colo., Newmont Mining Corporation has 31,000 employees worldwide, and is primarily involved in gold mining.  Its division in Ghana, Newmont Ghana Gold Limited, is determined to avoid mining gold without properly re-seeding and re-investing in communities there.

 

“We clearly see we have to be a partner in the host community and in the environment in which we’re working,” says Randy Barnes, the Regional Vice President of Environment and Social Responsibility for NGGL.  “We’re trying to really flesh out what that means to them (Ghanaians).” 

 

Newmont Ghana, too, has started with a foundation model that engages Ghanaians directly affected by mining to create local investment and ownership with an endowment that will live beyond the mine’s operations.

 

To that end, Newmont established the Newmont Ahafo Development Foundation, run by a board with community and corporate representatives.  Newmont Ghana tied community investment directly to mine proceeds -- $1 for every ounce of gold sold and 1 percent of NGGL profits made.  When the company does well, that’s directly channeled to improving health, education and infrastructure projects like new police facilities, upgrading water and sanitation and improving local schools and hospitals.

 

One key point for Ghanaians in the mine region was that one-third of jobs created go to local folk, even ahead of Ghanaian nationals.  This was a stretch because 85 percent of area residents are subsistence farmers, never trained for the technical and higher-skilled jobs required in Newmont’s operations. 

 

So Newmont started its Apprenticeship Program in 2005 and has enrolled 145 students to date, including four women.   The apprenticeships teach mechanical, process operation and electrical skills, and a number of grads are now working for Newmont.  “One of the advantages of training locals is that you’re creating value for them to stay in the community,” says Barnes. 

 

The mantra for CSR is “Do well by doing good.”  For CSV, it could be “Do well by engaging others in ways that create value for them.”  Companies that fail to do so will suffer withering market share as CSV companies create new markets by investing in the people they serve.

 

-Melissa Baldridge, GreenSpot

The GreenSpot blog is nationally syndicated on www.ColoradoEnergyNews.com and www.EarthTechling.com.  

 

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Tags: Baldridge, CSR, CSV, Corporation, GE, GreenSpot, Kramer, Mark, Melissa, Michael, More…Mining, Newmont, Porter, Union, Western, efficiency, energy

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Comment by Melissa Baldridge on October 30, 2011 at 6:23pm

Thanks, Elisa.  It's interesting stuff.  The authors of this theory go into a lot more detail than I had room to do, obvviously.  They published it in Harvard Business Review in the Jan-Feb 2011 issue.  'Great read.

 

And yes, CSR was/is reflexive.  It does some good, to be sure.  But companies that embrace CSV harness the engine of business to (1) create profit, of course and (2) create value for others.  Very cool idea.  I was proud of the Colorado companies that seem to be doing it well, and other national brands (not based here) embrace it in really inspiring ways. 

Comment by Elisa Wood on October 30, 2011 at 9:36am
Very interesting article on the business model known as "creating shared value” (CSV), not to be confused with the "the sacred cow,corporate social responsibility (CSR)....corporations developed CSR programs as philanthropic ways to salvage their as bad stewards of the environment, jobs exporters and sweatshop operators."

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