Can focusing on creating a shared value give co-operatives a competitive advantage? Mark Kramer, co-founder and managing director of Foundation Strategy Group (FSG), argues that the success of a business is rooted in the success and well being of the society in which it operates.
In October he will join delegates at the International Summit of Cooperatives to look at how the idea of shared value is connected to the values and approach of the co- operative movement.
FSG is a consulting firm which advises businesses on how to adapt to social change. Mr Kramer believes that foundations, corporations and non-profits can change the world by adopting a shared value approach. He explains what the idea of shared value means and why co-operatives are best placed to make a real impact on social issues.
“We have a number of stories of companies that are more successful, more profitable and have a unique competitive position because of the way they have taken into account the interest of employees, consumers, their suppliers, and so on,” he says.
“Co-ops are a very interesting example because inherent in the idea of a co-op is a notion of an organisation that is focused on the well-being of members, suppliers and employees and that is very much aligned with shared value thinking. I believe it leads man and the company to focus more on the long-term welfare of stakeholders and their impact on society than companies that don’t have that particular ownership structure.”
At FSG Mark Kramer has been working with cocoa farmers in Ivory Coast, a country that produces 40% of the world’s cocoa. This is grown by 900,000 smallholder farmers, whose primary means of organising is the co-operative model.
Looking at the current social trends Mr Kramer sees two massive issues that businesses should respond to: inequality and climate change. “I think that co-ops have a very important role to play in both. Climate change is really about a shift
in our sources of energy and the way we use water, which is, of course, used primarily in agriculture; 70% of fresh water is used for that. Even more so in terms of the issue of inequality, the co-op presents a very interesting model that engages the benefits of capital while distributing the rewards in a way that benefits the members, not shareholders or activist investors.”
“The choices companies make about how to spend their capital have tremendous consequences for the society in which they operate and I believe that the co-op model encourages companies to distribute profits more broadly and to invest capital for the long term benefit of the businesses and the members of the co-op.”
Mr Kramer serves as a Senior Fellow at Harvard’s Kennedy School of Government. Along with Professor Michael Porter of Harvard Business School, he has co-authored many articles in Harvard Business Review and Stanford Social Innovation Review. One of the themes touched upon in the articles is the concept of corporate social responsibility, which he thinks has become “a business necessity”. However, he adds that shared value is about competitive positioning and strategy. “It’s not just another term of corporate social responsibility,” he says. “For companies to really contribute to the well-being of society and solve the problems we face, they need to move beyond corporate social responsibility to this idea of creating shared value as part of the core strategy of their business.”
Mark Kramer and Michael Porter launched FSG in 2000 to work with foundations to make their giving more strategic. “We realised the more we looked at it from a strategy perspective that companies were having a lot more impact through business than they were through their philanthropy, so we began to focus much more on the impact of businesses directly on social issues,” he says.
Together with Prof Porter, Mr Kramer has been developing teaching cases for Harvard Business School and will also be teaching an MBA on shared value. “Getting people to understand while they are still students in business school that social issues are central to corporate strategy is a very important goal of ours,” he says.
Their research also showed that the biggest constraints on growth and profit of companies were often rooted in social issues, such as the failure of the education system to create an educated workforce, the failure of the healthcare system
to keep employees healthy or the inability of companies to invest new business models to meet the needs of underserved populations.
“We began to see example after example of companies that were more productive and successful than competitors because they had taken a social purpose as part of their corporate purpose to really make a difference on a social issue.
“Many companies began to think about it. FSG is itself a non-profit organisation – our purpose is to help meet social needs and address social problems. We realised that if companies were going to learn how to do shared value, it wouldn’t be because everybody hired FSG as a consultant. We also didn’t want to keep the idea proprietary, so we launched the Shared Value Initiative to train others to do shared value consulting and build a community of practice among corporate leaders who would be able to learn from each other how to develop and implement corporate strategy.
“We also found that international development agencies such as USAID in the US were interested in taking the shared value approach to economic development globally. So what we thought initially was going to be some consulting companies has become a very broad coalition of companies, development agencies and non governmental organisations (NGOs) that are all trying to find business solutions to social problems.”
Is it possible to differentiate between companies showing interest in the shared value approach for PR purposes and those genuinely working to improve social value across their whole business? Mr Kramer says a key question to ask is whether companies would still get involved if no one cared about the issue. “What we’re talking about is really making a difference on social problems in terms of the results achieved, not in terms of bragging rights,” he adds.
One example, he says, would be Discovery, a life insurance company in South Africa, which tried to rethink insurance by creating a set of incentives to make people engage in healthy behaviours. These incentives include paying health club memberships for members that go twice a week, or reimbursing 25% of their money spent on fresh fruit and groceries.
We have a long way to go to really make companies understand this idea of creating shared value, I’m not sure we’re ready for another concept beyond it
“The consequence is that they can actually see people’s behaviour change – their members in South Africa have a life expectancy that is six years longer than non members, they get sick less often and they recover more quickly when they
do. That’s not about branding nor reputation, it’s about the fact that they have developed a business model that encourages people in healthy behaviours that lead to healthier, longer lives – and that has created an economic advantage.”
According to Mr Kramer, one of the main challenges companies face when they try to adopt the social value approach is the amount of time required to really make a difference. He argued that because of the frequency on which people trade on the stock exchange, publicly traded companies tend to have a short-term focus.
“We have a long way to go to really make companies understand this idea of creating shared value, I’m not sure we’re ready for another concept beyond it. What we find is if a company really begins to embrace shared value, it’s often a many-year journey, it affects every aspects of a company and it takes years for a company to really build an awareness of social issues into operation. We have a long way to go to get companies to really implement shared value thinking before we move on to some other concept.”
His message for Summit delegates is to “embrace the benefits of the co-op movement”. He adds: “The co-op structure leads more naturally to the creation of shared value than other corporate structures. I think that some of the tools of social value may also enable one to get some benefits of a co-op even when the corporate structure is not that of a co-op, by building in stakeholders as part of the decision-making process of a company and as part of its competitive positioning. I look forward to learning from delegates at the conference as much as I am able to share and to learn from them where the co-op movement is headed today.”
- The 2016 International Summit of Cooperatives takes place in Quebec from 11-13 October. For more information, visit www.sommetinter.coop