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September 21, 2015

The journey of creating shared value

Gillian Turnbull explores the roles of non-profit organisations and government in optimising the impact of shared value.

The original proponents of shared value, Michael Porter and Mark Kramer saw this approach – which applies the mechanisms of capitalism to support the growth of society – as falling ‘at the intersection of community, government and business’.[1]

All three players have a unique role in society and have been creating ‘shared value’ for a long time (though the term has of course evolved). However, optimising how each understands and delivers this role could lead to improved social impact, better economic returns and an environment that is conducive to such change.

… the creation of shared value is not about an end goal – but rather a means to an end …

Since 2011 when companies began discussing the idea, a large number of businesses have embarked on the journey of creating shared value, and conceptualising their social impact in a new way.

But what does this journey look like from the view point of non-profit organisations and government and what is their contribution to helping optimise the efforts of corporations towards creating more shared value.

Here we explore these roles, and how non-profit organisations have opportunities to bring their experience, networks and skills to partner with business to create more social impact while government has the potential to create an environment conducive to creating shared value.

We emphasise that the creation of shared value is not about an end goal – but rather a means to an end of creating more value for shareholders whilst addressing social challenges in a sustainable and scalable manner.

Business’ role

For corporations, shared value is an approach to doing business that leads to additional economic benefit by addressing social issues that intersect with their business. It is a strategic approach to operating whereby corporations achieve this by drawing on their existing assets, expertise and knowledge. Broadly speaking, shared value opportunities can be created through reconceiving products or markets, defining value chain or local cluster development.

In Australia a recent survey, undertaken by SVA in collaboration with the Shared Value Project, the State of Shared Value in Australia revealed that many companies are very supportive of this approach to doing business. The examples cited also revealed that the way businesses are approaching the creation of shared value is evolving fast throughout the corporate world.

Jason GerrardJason Gerrard, Director of Shared Value, Save the Children

But shared value was never meant to be just about business. Porter and Kramer’s approach suggested that governments and non-profit organisations would also be able to ‘leverage the power of market-based competition in addressing social problems’.[2]

Jason Gerrard, Director of Shared Value with Save the Children, believes that corporates need to work with government and non-profit organisations to drive change and optimise returns around the big challenges because they cannot be addressed by just one party.

So where do non-profit organisations and government come in? If their role is to better optimise the impact of shared value strategies through doing what they already do, then what does this look like?

Non-profit organisations’ role

Peter BurnsYMCA Victoria’s CEO, Peter Burns

For some people, such as YMCA Victoria’s CEO, Peter Burns, the role of non-profit organisations is hugely valuable in supporting the design and delivery of interventions.

Burns believes that these organisations have the necessary intellectual property and knowledge to make business interventions that focus on influencing social change work. He sees huge advantages for corporations entering into partnerships with non-profit organisations for three main reasons:

  • Access – These organisations are able to access the cohorts that corporations are keen to impact.
  • Experience – They understand the methodologies and interventions that are most successful in addressing specific social issues and working with certain cohorts as a result of their years of experience in the field.
  • Footprint – They have a footprint on the ground from having worked in the field and have a level of trust with the cohort as a result.

… sees non-profit organisations as the ‘glue’ in the shared value framework.

Gerrard from Save the Children Australia fully agrees. He sees non-profit organisations as the ‘glue’ in the shared value framework: they have strong connections and networks in the community, they understand the social challenges and have insights into what is required to address these challenges.

Save the Children believes that harnessing this intellectual capital and on-the-ground presence presents huge potential for impact. It has demonstrated this by entering into a partnership with GlaxoSmithKline (GSK), a global healthcare company, to address some of the major health issues it encounters.

Specifically, Save the Children supports GSK with the design and development of innovative new products aimed at meeting major health needs on-the-ground. Save the Children’s unique insights and knowledge enables GSK to access new markets where there will be demand for its products, thus increasing its economic returns. At the same time, Save the Children can encourage innovation in the areas which it believes require the most support to achieve improved social outcomes.[3]  Again, both parties in this example are doing what they already do well, but the partnership is leading to more improved outcomes for both organisations.

… they [the private sector] need to work with community representatives to co-design products and services, and establish a social compact.

Both Burns and Gerrard see non-profit organisations as being an equal and valuable partner in the creation of shared value. Rhod Ellis-Jones, Principal of Ellis Jones and Founder of Shared Value Project, agrees. He believes that, if the private sector wants to sustainably deliver services with significant social outcomes (such as in health or property), they need to work with community representatives to co-design products and services, and establish a social compact. Non-profit organisations offer expertise, knowledge and access.

He is also of the view that non-profit organisations can benefit greatly from corporate partnerships with a social and commercial focus. “Governments at all levels in Australia are shifting or selling services to non-profit and private sector organisations,” he says. “Philanthropic funding is limited. Cross-sector partnerships can ensure communities achieve more efficient and higher quality services, minimising the risk in this large-scale transition.”

Ellis-Jones recently led a working group session with non-profit organisations to understand levels of knowledge of, and the appetite for, shared value strategy and partnerships. He says, among the diverse views and levels of maturity in terms of shared value practice, there was agreement that non-profit organisations need to better define the real value their people, organisations and networks represent. Like Burns, he feels this requires a change in mindset: “the non-profit organisation holds the key to unlocking the opportunity”.

Government’s role

According to the Executive Director of the Shared Value Project, Helen Steel, the government has a clear role to play in optimising shared value – as legislature and policy maker they have the ability and the responsibility to create an environment that can harness the power of the private sector to focus on specific issues.

Melbourne City Council is doing just that with its recent Request for Information to companies interested in satisfying the Council’s electricity needs from renewable sources. Melbourne City Council has set itself a goal of zero net emissions by 2020. This tender will help them achieve the improved environmental outcomes needed to meet this target. It will also attract a wide range of players in the energy sector with the successful candidate accessing a lucrative contract with the Council. In this case, the Council is performing its role, but doing it better, to create an environment whereby private companies are incentivised by a new opportunity at the same time as contributing to the achievement of environmental goals.

In the past, government has often been accused of making decisions at the expense of business. Simon Cramp, the Director of the Private Sector Development Section of the Australian Department for Foreign Affairs and Trade (DFAT), sees the private sector as being essential to the development of an economy. However, he also believes that it needs a regulatory environment in which it can operate effectively, and a partner like government willing to take the risk in an uncertain environment through supporting initial investment.

DFAT’s recent Ministerial Statement Creating shared value through partnership demonstrates its intention to fulfil this role. DFAT intends to amplify the impact of Australia’s aid program through moving away from aid grants to leveraging the ‘assets, connections, creativity and expertise’ of the private sector in such a way that it will generate business returns.

… there are multiple opportunities to encourage companies to address social issues ranging from employment to affordable housing across all sectors and industries.

DFAT aims to achieve this by creating a more attractive operating environment for business through, for example, encouraging policy reform and investment and sharing its considerable knowledge of the political and regulatory environment in recipient countries. Putting in place such controls can lead to a more attractive environment which is supportive of the private sector, attract investment and have a more lasting impact on development than simply giving aid.[4]

If you think this sounds like good business practice, that’s because it is. Shared value is about reinventing capitalism for improved social outcomes. This example shows that, by government doing what it already does but doing it better (not differently), both government and private sector can share the benefit, or value, that is created. Whilst DFAT is operating at an international level, its approach is just as applicable at a national level. Other government departments should be watching them closely and drawing on their experiences to support their own policy development.

Government, however, needs to recognise that there are multiple opportunities to encourage companies to address social issues ranging from employment to affordable housing across all sectors and industries. As a result, policies that help shape a more conducive environment for improved social outcomes could become common practice. For change to be sustainable and scalable, government needs many more examples of these strategies.

For example in the area of creating more Indigenous employment, different approaches include a quota system – such as the three per cent Indigenous procurement target set through the Commonwealth Indigenous Procurement Policy[5] – and providing tax incentives such as those proposed in the Forrest Review[6] aimed at incentivising first Australian businesses to create training grounds for the most disadvantaged job seeker.[7]

What will be important going forward is identifying the policies that are the most effective in achieving the intended result of social and economic value.

The triumvirate

It is clear that non-profit organisations, government, and business each have a unique role in advancing the journey towards creating shared value. The examples raised in this article, however, have only considered the value achieved from two parties working together. What is possible when these three groups have aligned interests and combine their unique offerings to achieve mutually beneficial outcomes?

… the corporate sector made economic gains from addressing the issue of education quality in an effective way by pulling on sector expertise.

A project involving the Axiom consortium,[8] the Victorian Government, and YMCA Victoria provides an excellent example of this.

In 2010, the Axiom consortium built 11 public schools for the Victorian Government through a Public Private Partnership (PPP). The YMCA worked with the consortium to design the schools by helping to identify the communities that would benefit from, and the types of, additional after-hours facilities and services that would improve education quality and community integration. These additional facilities are leased by the YMCA to deliver YMCA services.

Through facilitating the PPP, the Victorian Government gained additional community facilities and services. It enhanced the commercial proposition for the successful Axiom consortium, while having a positive impact on the school and local community.[9] Overall, the corporate sector made economic gains from addressing the issue of education quality in an effective way by pulling on sector expertise. The YMCA’s involvement has contributed to improved community facilities based on its knowledge of the communities and their needs.

Shared value was created through an approach whereby all three players delivered their role in a way that played to their strengths, their interests were aligned and the outcomes were mutually beneficial.

Where to from here?

This article suggests that, if business, government and the non-profit sector all used their key strengths, were aware of the value of their role, and set out to work in partnerships then there would be more opportunities to create shared value.

… community and government will need to constantly reassess how they can optimise what they do to contribute to the creation of shared value.

It is important that all partners realise, however, that creating shared value is not an end state but an ongoing journey. It is a strategic approach to doing business that evolves and develops as companies grow and society changes – just as any business strategy is not a fixed endpoint but adapts to a changing environment.

This means two things. Firstly, that the ways in which shared value is created will continue to differ across companies; and secondly that because of this, community and government will need to constantly reassess how they can optimise what they do to contribute to the creation of shared value. This requires aligned interests, a common direction and an environment that is conducive to advancing everyone’s efforts.

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[1] Creating Shared Value, 2011, Harvard Business Review

[2] Shared Value Initiative

[3] GSK and Save the Children partnership, GSK website

[4] Creating shared value through partnership: Ministerial Statement on engaging the private sector in aid and development, Aug 2015, Department of Foreign Affairs and Trade

[5] Commonwealth Indigenous Procurement Policy, July 2015

[6] Forrest Review, Indigenous Jobs and Training Review

[7] Taxation incentives (or saving the taxpayer $1 million per incarceration), Indigenous Jobs and Training Review

[8] The Axiom Education Victoria (Axiom) consortium consisted of ABN AMRO as sponsor, Abigroup as builder, United Group Services as facilities manager and architects Hayball and Gray Puksand.

[9] Partnerships Victoria in Schools project

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