Measuring Shared Value...minus the measuring
In the January-February 2011 edition of HBR, Michael Porter and Mark Kramer made the case for shared value. As a consultant to companies on innovation and social impact, this was one of the most welcome articles I have read in the past several years. When - arguably - the biggest name in the study of management lends his voice to the case for social good AND shows correlation to profitability, people listen.
Until this article came out, explaining the difference between the return owed to shareholders (those whom you owe a financial return under an investment contract) versus the return owed to stakeholders (those whom you owe a financial return under the social contract) seemed to be at odds with each other.
Porter and Kramer eloquently make the case for using the creative and innovative solutions that are spawned by capitalism to create new opportunities for companies to grow revenues while simultaneously addressing and solving some of the world’s most difficult problems. In their framework, creating opportunities for shared value center around three opportunities, 1) Reconceiving Products & Markets, 2) Redefining Productivity in the Value Chain, and 3) Enabling Local Cluster Development.
Shared Value reasons (and with good anecdotal evidence) that the opportunities for companies to both “achieve social results” and “business performance” is not only possible, but also highly profitable. They are right. At the very least, there is strong evidence to support that buying habits of consumers and particularly Millennials strongly lean towards companies that are perceived to be positive corporate citizens that create and support socially responsible practices along the value chain.
Which brings us to FSG’s most recent report: “Measuring Shared Value: How to Unlock Value by Linking Social and Business Results.” While I am certainly a fan of the original work, the report was not quite what I was expecting.
The report provides a framework to integrate strategy and measurement.
Let’s start with the Good. The report builds on the original work and argues for “anchoring shared value” in existing management strategy and operations. It also provides an iterative framework to integrate strategy and measurement. This is the breakthrough that Porter and Kramer reasoned would benefit shareholders as well as stakeholders.
The report is also useful for practitioners by clearly showing the potential linkage between business results and social results/outcomes as well as clarifying the difference between the concepts of Shared Value as opposed to other approaches, e.g. “greening.”
But I would disagree that any meaningful measurement in the framework is actually taking place.
Now the Bad. Nothing is actually measured. While the report is adept at showing outcomes and at least correlating them to positive shareholder value, I would disagree that any meaningful measurement in the framework is actually taking place.
The various approaches highlighted in the case studies all have social benefit and they arguably do have business benefits (the strongest of which I felt was Novo Nordisk and their training of doctors in China to identify and treat diabetes). Of course each of the cases has outcomes that are tracked, but the model relies on taking into account what is still a hodgepodge of metrics and plugging them into the framework.
There is no measurement taking place in the Shared Value framework that doesn’t already exist in other methods. In fact, for the framework to be useful, it requires that these other metrics be used.
The measurement tools in place today are sorely lacking for what business needs to make the final push into Shared Value Capitalism.
And the Ugly
Which brings us to the Ugly. The measurement tools in place today are sorely lacking for what business needs to make the final push into Shared Value Capitalism.
While building on Porter and Kramer’s initial work, the FSG report falls short on giving practitioners an actual means to measure. The idea is sound, the framework is there - and if you or your company are familiar and hopefully already using some of the existing tools (for better or worse) the FSG framework goes a long way in developing a rule of thumb approach to creating value for both shareholders and stakeholders. However - and to FSG’s credit for stating the same, “Shared Value measurement should not displace current measurement approaches.”
Shared Value’s greatest benefit in the FSG model is in providing a logical and iterative framework to plan and create strategies that increase business and social returns. I would fully endorse the use of it as a planning tool for any organization. However, making the leap to measurement is -- for now -- a bridge too far. Corporations would serve both shareholders and stakeholders better by investing in and refining Sustainability and Impact Measurement tools.
Grayson M. Bass serves as Managing Director of Mayor Wilson, a consulting firm focused on innovation and running start-ups inside corporations. He teaches at the University of Toronto Rotman School of Management and researches networks and social impact measurement. The content of this blog post is the author's alone and does not necessarily reflect the position of BCLC. You can compliment, complain, or comment directly to him about this article or on another topic at firstname.lastname@example.org.