Creating Shared Value: The New "Old" Big Idea

In the January-February 2011 issue of Harvard Business Review, Michael Porter and Mark Kramer published an article saying that we could unleash a wave of innovation and growth by reinventing capitalism. Their proposal is to update our view of the way companies create value from one of optimizing short-term financial performance to one of what they call "shared value." They define this as "creating economic value in a way that also creates value for society by addressing its needs and challenges." By developing policies and practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions of the communities in which it operates, this concept of shared value focuses on identifying and expanding the connections between societal and economic progress. The authors go on to say that the purpose of the corporation must be redefined as creating shared value for the company and society, not just profit for the company.

This "new" proposal for how to reinvent capitalism appears to be very similar to one of the common operating principles of most of the 100-year-old companies I have studied. These companies see themselves as part of an integrated web of relationships with their community and the other partners in their value chain; their purpose is generally described in terms of the broad value they provide rather than profitability. As Danny Miller and Isabelle Le Breton-Miller argue in their book Managing for the Long Run, "The same attributes that have long been vilified as weaknesses of [these] businesses....have actually created formidable competitive advantages for these firms." It seems we have much to learn from these old companies: Even if their practices are not what we have been teaching in our business schools, some of our leading business strategists are now identifying practices very much in line with how they have been doing business for decades.

Can A Company "Die" Prematurely?

This question was asked in a recent Wall Street Journal management blog. The author said that economists generally answer that institutions die when they deserve to die - that is, when they have shown themselves incapable of fulfilling stakeholder demands. But then the blog went on to say that this assessment misses an important point: that just as a person's death can be untimely, so too can corporate death, at least from the perspective of society at large. The author posits that organizations grow and prosper by turning simple ideas into complex systems and that complexity takes time - a reason to encourage organizations to adjust their strategies to pursue a long-term mission.

This blog reminded me of the book that got me started on my study of old companies, Arie de Geus' The Living Company: Habits for Survival in a Turbulent Business Environment. In the prologue to his book, de Geus states that if you look at corporations in light of their potential longevity, most are dramatic failures - or, at least underachievers. The large, multi-national companies, he says, live an average of 40-50 years. Other studies on life expectancy of firms regardless of size indicate an average of 12.5 years. Knowing that companies can survive for well over 100 years, the implication is that a gap exists that represents wasted potential. De Geus maintains that no living species endures such a large gap between potential life expectancy and average realization. Moreover, few other types of institutions (such as churches or universities) seem to have the abysmal demographics of the corporate life form.

Why should we be concerned about premature corporate death? As de Geus comments: "The damage is not merely a matter of shifts in the Fortune 500 roster: work lives, communities and economies are all affected, even devastated, by premature corporate deaths." He, too, speculates that the reason for premature corporate death is because management focus is too narrow and short-term, forgetting that the organization's true nature is that of a community of humans in pursuit of a long-term mission.