Practices that enhance competitiveness while improving socio-economic profiles of communities bring better growth
Milton Friedman vehemently argued against the concept of corporate social responsibility. According to him, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.
However, it must be noted that since Friedman’s time the “rules of the game” have changed. Consumers expect more from businesses today than being merely profit-centric. A study by Nielsen showed 64 per cent of people in the Asia-Pacific region are willing to pay more for products and services provided by companies that are committed to positive social and environmental impact.
Nevertheless, CSR is effectively a cost for any business and it eats into profits by definition. Michael Porter found middle ground between driving profit margins upward and being socially responsible with the concept of ‘shared value’. He conceptualised that it is possible to make profits while being socially responsible.
The difference between shared value and CSR can be best explained with an example: A mining company organising a tree plantation drive is CSR because it gives no economic returns to the company. On the contrary, a mining company organising a health drive around the community where it operates is ‘shared value’ since it has a clear impact on the productivity of its workers.
According to Porter and Mark Kramer, there are three ways in which companies can create shared value: by reconceiving products and markets, redefining productivity in the value chain and enabling local cluster development in the company’s area of operations. With innovation, companies can reconceive existing products and markets to address unmet societal needs; for example, manufacture healthier food or environmental friendly products.
Similarly, numerous societal issues are linked to a company’s value chain-natural resource use, working conditions, health and safety, waste generation, and so on. The societal and economic gains from investing in value chain productivity can be seen in the mining company example cited above. Lastly, since no company operates in isolation, investing in areas around it has similar benefits.
A business needs a successful community and a supporting infrastructure around it to create demand and provide critical public assets.
Social good and business
Over the years, there has been growing recognition among firms of the benefits of shared value. These businesses have integrated social good into their business strategies and are becoming increasingly inclusive in practice.
Apart from the goodwill these enterprises gain from socio-economic business models, they have also found it economically profitable to pursue the goal of shared value. The Shared Value Initiative India (SVII) maps such enterprises that have engaged in the ideation, and launches an annual list to highlight and celebrate their efforts towards creating shared value.
Since these companies are gradually becoming more inclusive in nature, but still have a long way to go before they manage to inculcate all the intricacies of being a shared value enterprise, SVII calls them “Inclusive Businesses”.
In India, several companies have been creating significant societal benefits as inclusive businesses. Inclusive Business List 2016 strives to present a well-rounded list of 50 such companies. Apart from covering a diverse range of industries, the list encapsulates companies practising shared value activities in all the three aforementioned ways that Porter and Kramer theorised.
For instance, Godrej Consumer Products in the FMCG sector is reconceiving mosquito repellents, which usually need electricity or produce harmful smoke, with Fast Cards that have no such drawbacks, thus, making them highly useful for rural markets. Abbott India best exemplifies the aspect of reconceiving markets in the pharmaceutical industry. To counter thyroid issues , the company undertook widespread patient engagement activities across the country; as a result of which, the company’s thyroid drug catapulted into the top spot within the segment.
Mother Dairy is significantly improving the productivity of its value chain by educating dairy farmers on modern farming techniques and inculcating hygienic practices. The company’s ‘Token milk’ initiative, which serves hygienic milk through vending machines in unpacked condition, is also driving cost-efficiency by reducing plastic usage of more than five tonnes a day.
The best example of local cluster development is found in JSW Steel. It took over a barren area in Vijayanagar, Karnataka, which lacked access to reliable power, water supply and skilled resources, and converted it into an integrated steel plant. The plant had zero water discharge and a zero-waste policy to address environmental issues while enabling social development of surrounding communities through education and skill building.
Some of these companies are even combining their shared value initiatives to enhance their socio-economic impact.
Take the example of Vodafone’s m-Pesa services, which addresses issues of financial inclusion, and WaterHealth India, which is itself catering to issues of access to clean water in rural areas. Vodafone recently offered these services to WaterHealth India to address the latter’s issue of cash collection in inaccessible places. SVII has made an effort to identify, assess and recognise 50 such organisations operating in India that are creating measurable socio-economic value by identifying and addressing social and environmental problems that intersect with their business.
The list also aims to encourage these companies and numerous others to progress towards becoming shared-value enterprises and address social ills in new ways. The neoliberal approach inspired by Friedman and others has made businesses exclusive in nature, where they have been perceived as prospering at the society’s expense.
The economic crisis and the ensuing slowdown have only escalated the hostility towards profit-oriented corporations. Creating shared value provides a sustainable solution of this growing discontent and, more importantly, of the basic social issues like health, education and decent livelihoods that still ail our society.
Companies must start asking what consumers want rather than spend resources on manufacturing demand, save by reducing needless expenditure of resources, invest in employees to increase productivity rather than fire them to reduce spending, and develop surrounding communities to build supporting infrastructure and public assets.
Published with Hindu Business Line on December 28, 2016.