Why Shared Value is Important in Supply Chains?

By David Rogers

As the global population is projected to increase about 1% each year, we are inevitably going to see a reduction in finite resources, such as land, water and fossil fuels. As these resources get sold to the highest bidder, we will unfortunately see certain populations go without while others thrive.

The world is largely a capitalistic society, which means that private businesses, corporations, and individuals own capital goods – and the ones that can afford more have more. Capitalism is excellent at creating jobs and allows people to build wealth, but it often overlooks sustainability.

We are now living in an age when businesses cannot ignore sustainability when it comes to social issues, the environment and economics. It’s becoming abundantly clear that success in these areas and success in business go hand-on-hand, and that will only continue to increase, especially as our finite resources decrease.

So, what is the solution?

Harvard’s Michael Porter says that corporations must create ‘Shared Value’ so that their processes don’t only focus on the person at the top of the supply chain (owner, CEO), but they make significant efforts to ‘spread the wealth,’ so to speak, and benefit society as a whole.

If business could stimulate social progress in every region of the globe, poverty, pollution, and disease would decline and corporate profits would rise. Indeed, in recent years creating shared value—pursuing financial success in a way that also yields societal benefits—has become an imperative for corporations, for two reasons. The legitimacy of business has been sharply called into question, with companies seen as prospering at the expense of the broader community. At the same time, many of the world’s problems, from income inequality to climate change, are so far-reaching that solutions require the expertise and scalable business models of the private sector. Even corporations once known for a hard-nosed approach have embarked on significant shared value initiatives. (Excerpt from The Ecosystem of Shared Value , Harvard Business Review)

What is Shared Value in Supply Chains?

Shared Value is an idea in which profit drivers find and deliver solutions for basic social needs like water, access to nutritional foods and education, and healthcare. It essentially tells large, profitable corporations that they have some level of social responsibility to the rest of the world. Furthermore, Shared Value says that corporations will benefit from redistributing resources because it will positively affect their reputation.

“In the case of Shared Value creation, a company integrates social and environmental impacts as a direct challenge to gain more economic value. The greatest opportunity for growth is found in discovering new markets, new needs that have yet to be met and new ways to operate as a business with a better understanding of the impact on the environment and community.” – Kanishka Ghosh, Bangkok Post

In a supply chain, Shared Value can be found within the products, clients, and suppliers that make up the entire supply chain. It also resides within the institutions and companies that help the company’s supply chain function properly. In other words, Shared Value can be found in every piece of the supply chain puzzle.

How can Shared Value be Created in Supply Chains?

Michael Porter describes three ways in which Shared Value can be created in supply chains:

1. By reconceiving products and markets or creating more access to products and services that meet the needs of our current society. This will create new opportunities for revenue.
2. By enhancing productivity in the value chain or optimising supply chains from end to end so they are more efficient and less risky. This should be done while also addressing a social issue, like pollution, water shortages, etc.
3. By implementing new frameworks to improve operations throughout the supply chain and address social problems.

In order to implement these three methods of integrating Shared Value into a supply chain, companies will first need to determine where and how they can positively affect social issues. At the same time, they must determine which issues are of utmost importance to them.

This can be done one of two ways: a company can either choose a social issue that they want to contribute positively to and then reconfigure their supply chain and processes or they can begin by searching for significant business opportunities that they can later apply social initiatives to.

Either way, the goal of implementing Shared Value into a supply chain is the same: the company will run more efficiently and have new opportunities for revenue, and the social issues that are negatively affecting populations around the world will be contributed to in a positive way.

Why is Shared Value Important in Supply Chains?

Let’s take it back to the initial question that this article poses: why is Shared Value so important, anyway?

Shared Value benefits both the corporation and the everyday person walking down the street. When there are multi-billion-dollar corporations that exist, it can be difficult to ask small business owners, college students, and the rest of the world’s population to “do their part” to conserve resources. Especially when there are stats that say corporations use up about 20%-40% of the earth’s freshwater resources.

When the world benefits from a corporation’s efforts to conserve resources and give back to their communities, the corporation will benefit from having a great reputation, which will drive sales and potentially open them up to new markets. When that happens, they have even more opportunity to make a larger difference in the world.

In short, Shared Value is important because conserving resources and fighting for social justice should be a shared responsibility. When people see their favorite corporations doing their part, perhaps they will be more likely to make an effort, themselves.