Concept of Shared Value by Porter and Kramer (2011)

Introduction

With the worldwide economic crisis, social problems and business scandals, publics lose confidence of corporation increasingly. Porter and Kramer (2011) has promoted a concept of shared value, which intends to reinvent capitalism and recover disappointing financial market. However, creating shared value becomes a controversial theory which has some limitations.

Summary

Porter and Kramer (2011) claims that traditionally, business and society are in opposite side. Companies need to sacrifice some interests to achieve social benefits and government establishes some regulations to internalize the externalities. In addition, with the lack of confidence towards corporations, traditional corporate social responsibility that breaks the relationship of profit-orientation purpose and social needs does not apply to current society. Responding to trust crisis of corporations and unstable capitalism, Porter and Kramer (2011) redefine the core operational purpose of a corporation and promoted a new principle of shared value, which is a corporation strategic method that enhances relationship between prosperous community and business to increase competitive advantage. Based on concept of value, “benefits relative to cost” (Porter & Kramer, 2011), shared value refers to increasing total value within the society, instead of redistribution of corporation earned one. From perspective of value chain, shared value integrates social needs and economic factors to determine market, creating a unique value to meet customers’ demand, expanding total value, and reinventing capitalism (Porter & Kramer, 2011).

Porter and Kramer (2011) then put forward three approaches to create shared value. Redesigning products and reconsidering customer needs requires corporation pay attention to basic needs, such as health care, security and environmental protection. Opportunities to embody those benefits into products are equal to advanced and developing countries. Moreover, people need to reanalyse factors in value chain, because social issues are close related to increasing productivities (Porter & Kramer, 2011). They may produce economic cost in different dimensions of value chain, such as distribution and procurement, and company could create shared value by grasping these opportunities. Furthermore, local cluster development assists companies to cooperate with excellent local stakeholders, in order to increase productivities and competitiveness, because communities, including business and education institutions, related laws, and environment, are close related to corporation created value, and no corporation is completely self-sufficient (Porter & Kramer 2011). All three approaches are mutually reinforcing. In addition, on the premise of compliance with law and ethics, shared value could be applied to every decision of different levels, creating social value and economic value and driving global economic development subsequently (Porter & Kramer 2011).

Critical evaluation

Shared value is not a new theoretical framework or a strategical approach that provides better guidance to business administrators.

Initially, it mispresents current literature and overlaps with existing concepts. “shared value is unoriginal” (Crane et al., 2014). For instance, instead of a simplistic definition of sacrificing profits, corporate social responsibility, as corporation’s core operational element, is about how they make profits rather than spending or philanthropy (Beschorner, 2015). Accordingly, integrated complex social issues, CSR brings sustainable competitiveness of corporations and they will witness a positive financial performance, which will be expanded further if government gets involved. (Corazza et al., 2017) Compared to shared value, CSR also connects relationship between society and business, focusing on increasing profits. Consequently, a restatement of existing theoretical and practical works is inappropriate to convince mainstream sceptics of social responsibility. Actually, wide acceptance of Porter’s claim suggests how limited CSR understanding of publics.