(Photo Credit: HP)Last year, Harvard Business School professor Michael E. Porter, who coined the term “shared value,” told an audience at the Shared Value Leadership Summit that he believes we are at an inflection point where investors will favor companies that support social and environmental change. He points to the fact: social responsibility has become imperative for business survival.
I could not agree more.
Whereas corporate engagement in society was once viewed as a business cost, to be traded off against profitability, today, companies are increasingly realizing that shared value — a management strategy and philosophy where companies seek to authentically engage with the communities in which they operate — creates a competitive advantage. Rather than rolling out a meaningless CSR blanket, creating shared value involves looking to society’s needs to drive business opportunities and customer understanding. It allows organizations to engage with people in a real, authentic, and productive way.
This model is gaining momentum, in part because global consumers care very deeply about environmental and social issues and expect companies to play a major role in improving society.
From strategy and product design to operations and internal communications, creating shared value is changing the way business leaders run companies, and technology is augmenting this global shift in powerful ways.
When describing what differentiates a management firm with $6.4 trillion in assets from its sea of competitors, BlackRock CEO Larry Fink often spotlights its unwavering commitment to making positive contributions to society. He predicts that assets in ESG (environmental, social and governance) exchange-traded funds (ETFs) will grow from a current $20 billion market share to more than $400 billion by 2028.
With some enterprises, that might sound like lip service. In a growing number of industries, however, it is indeed a business imperative. In order to appeal to investors, soon every company will not only need to deliver financial performance but also demonstrate their contribution to the outside world. Within five years all investors will be using ESG metrics to guide decisions, predicts Fink.
That appears to be supported by a recent Harvard study finding that companies embracing ESG practices are generally perceived as having lower risk and higher valuations. Additionally, those with strategic and differentiated ESG approaches displayed higher returns in capital and enjoyed greater competitive advantage and higher profitability, according to the study.
But shared value also has immense potential beyond just a business’ bottom line. In fact, it has the potential to disrupt business models, shake-up go-to-market strategies and reinvent customer experience — and even customer understanding — as a result.
“It’s part of business practice now,” Dr. Porter said. “If you (haven’t figured) out that you ought to do this stuff, then where have you been?”
How Leadership is Demonstrating Value
No longer are leaders able to simply speak about best practices for social and environmental impact. Today, accountability is becoming more and more transparent. Ninety-five percent of the largest 250 companies issue corporate sustainability reports, many of those through the Global Reporting Initiative (GRI). Furthermore, nearly 80 percent of major companies include sustainability line items in their audited annual reports, according to the Harvard report.
Nestle, for example, recently said its quarterly reports will now highlight how the company is creating shared value, beginning with the way in which its Nespresso coffee brand is delivering on sustainability.
HP has also been releasing regular sustainability impact reports for some time as part of its commitment to improve lives with technology. Along the way, the company has learned quite a bit about the value our sustainability efforts create for the business. For instance, last year, after looking at data from 2017, we discovered that we had added at least $700 million in new revenues from deals in which sustainability was a key consideration.
While initially surprising, it probably shouldn’t have been, because research demonstrates a strong correlation between corporate sustainability and financial results. Ensuring that reporting metrics are clear is a key part of creating shared value, but these efforts require a strong vision that starts at the top.
First and foremost, CEOs, boards and powerful stakeholders must uphold an unwavering commitment to creating shared value. Then, that thinking must trickle down into the fabric of how the business operate. Seeking out like-minded partnerships, rethinking product design, establishing new demands for the supply chain — these actions and more are driving the new way of thinking. Enabling and at the center of many of these initiatives is technology.
Leveraging Technology to Create Shared Value
Not only is technology a catalyst for making many business practices more sustainable and beneficial to all, it also plays a critical role in measuring the success of these transformations, and the resulting transparency and accountability factors.
One of the ways many companies are pursuing their commitments to a more sustainable future is through the purchase of more environmentally friendly technology. Some modern computers and printers, for example, have built-in features to abate carbon emissions and cut down on paper waste.
Reliable supply chain technology can also provide greater visibility into processes and real-time data. This allows companies to spot and correct inefficiencies that could create unnecessary waste, and it can also support sustainability reporting when the time comes to show progress.
Other companies are implementing policies where they will only buy equipment from businesses that look beyond the current “take-make-dispose” industrial model and embrace a closed-loop or circular approach. This means they not only make their products with some large percentage of recycled materials, but they have strong recycling programs to take their products back at end-of-life.
Empowered by technology and guided by the demands of consumers for businesses to be better stewards of our planet and people, business leaders must continue to create a culture inside their companies and within the larger enterprise ecosystem that accounts for both financial and societal returns. The results of doing so will no doubt reveal a natural acceleration towards shared value as a business imperative.
By Richard Bailey, President, HP Americas
