CSV - NEW APPROACH! The solution to bring back business and society together.
Updated: Sep 25, 2022
What is CSV? How was CSV shaped?
For decades, businesses have thrived in every possible way to have a bigger share of the profit pie. Never in their minds think about making a bigger pie.
That's our first big mistake.
For decades, we presumed the inevitable trade-off between economic profit and social progress. Business is named as the cause of environmental and social problems.
This is our second mistake.
It was only until 2011, that Micheal E. and Porter, and Mark R. Kramer switched our views on the relationship between economic efficiency and social development. In the Harvard Business review, these two gentlemen talked about how to reinvent capitalism and nurture a new way of running the business to unleash innovation and social growth.
It's called Creating Shared Value - CSV. Not redistribution but creating.
CSV refers to the way of doing business, policies, or set of practices that simultaneously strengthen a company's competitiveness and foster local economic and social state.
"There is one and only one social responsibility of the business that is to use its resources and engage in activities designed to increase its profit" - Milton Friedman. This notion has been a lodestar for business for decades, leading to the rival position of business and society's progress. But it can't be more wrong! CSV symbolizes the great effort to bring business and society back together. Companies with CSV at heart will start their products/services by answering the question: what are the needs or challenges society/community facing?
When Micheal E.Porter and his colleague designed CSV, they did not only stand from the business view but also the government and NGOs' perspective. The value principle is the key to CSV. It must be graded based on benefit relative to cost in the sense of both economic and social progress. The value will advance the interest in partnership between NGOs, the government, and the corporate sector.
What are the differences between CSR and CSV?
Trying to differentiate CSR and CSV might create some confusion for many people. It is not uncommon for companies to use these ideologies interchangeably, but it is needed to draw the light between them. So how is CSR divergent from CSV?
So, the BIG QUESTION. How to create CSV?
According to Micheal E.Porter and Mark R.Kramer, there are three ways to create shared value.
Reconceiving products and markets
Redefining productivity in the company's value chain
Enabling local cluster development
Let's see how companies can apply these methods to create their own values.
Reconceiving products and markets.
Human demands are enormous, ranging from food, health service, medicine, and jobs… and they are constantly changing and evolving. Our unmet needs mean that there is a new opportunity for the company to serve these needs. The increasing demand for technological equipment in emerging markets illustrates this point.
So, what a company needs to do is identify, and analyze all the social needs, benefits, and harms it has and incorporate them into the firm's products or services.
This means companies must redesign their products/ services; develop new distribution channels to meet the unmet needs or underserved markets.
Redefining productivity in the value chain
In the globalization era, multinational companies have a long, complicated value chain. Many companies hurt their reputation and were forced to stop operations due to the issues raised in the value chains. Companies could create shared value by improving productivity in the value chain by tightening its relation with social progress in the local context.
The ways are not limited, but one might consider:
Energy use and logistics: utilization of energy use and logistics methods, reduce shipping distances, increase shipping route, improve shipping vehicle…
Resources use: water, material in consideration of product life cycle…
Procurement: capacity building for suppliers, investing in suppliers to improve productivity and efficiency instead of the traditional way of lowering buy price
Distributions: E distribution such as music streaming, eBook - kindle…
Location: the myth of no border in globalization has a negative effect on business and its connection with the local community. It is vital for companies to realize that location always matters. It is essential for business leaders to apply "New locational thinking" to cherish its roots in significant operation locations.
Enabling cluster development - cluster spilled over effect.
It comes with no surprise that no company can be self-sustained. Businesses need a healthy ecosystem. Obviously, business itself hardly can build the whole ecosystem. This is where public-private partnership plays a crucial role. In this collaboration, the company needs to do internal and external assessments to find the internal deficiency or gap in suppliers, logistics and distributions or educational institutions, etc., and the external constraints that make those deficiencies. Here, the final task for the company is to match its insufficient point with the weakness of the cluster and then invest in it to improve. The most considerable improvement can be made at the location where the company is fully equipped and has a significant influence on the market and community.
Companies that actively enable the development of surrounding clusters will not only contribute to meeting the sizeable human need. But also expand its served market, and sharpen its competitive advantage.
Undeniably, it is easier to say than do, especially with CSV, which requires extensive, solid, and effective collaborations. Micheal E.Porter had suggested some questions that companies should ask themselves before implementing CSV.
Could our product design incorporate more excellent social benefits?
Are we serving all communities that could benefit from our products?
Do our process and logistical approach maximize energy, water, and material efficiency?
Could our new plant be constructed in a way that achieves greater community impact?
How could we enhance our community as a business location?
Needless to say. CSV can't solve all the social issues. Still, one thing for sure is that corporations are more effective than government and NGOs in meeting our human needs thanks to their resource, knowledge, and specialized capacity as well as their long arms of marketing and distribution.
That answers the question
Why should we, businesses, NGOs, and the government nurture CSV?
How to reinvent capitalism to unleash a wave of innovation and growth, Michael E.Porter & Mark R. Kramer, 2011, Harvard Business Review