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.