WHAT IS SHARED VALUE?
Shared value is a powerful concept first described by Prof. Michael E. Porter of Harvard Business School and Mark Kramer, co-founder and managing director of FSG, in 2011. It guides companies to think differently about their approach to business, social, and environmental issues.
Shared value is not philanthropy or sustainability, but a new way to achieve economic success.-Michael E. Porter and Mark R. Kramer
The Shared Value Initiative is a global platform for leaders seeking to solve societal challenges through business solutions and help companies fulfill a purpose beyond profits alone. The Shared Value Africa Initiative (SVAI), Africa’s most powerful Shared Value business network, enables businesses to collaborate and form partnerships across borderlines to drive collective social impact at scale. Shared Value Initiative and FSG recently have launched a guidebook, The Purpose Playbook, to help companies better understand what it means to become a purpose-led organization. With this approach, businesses transform their corporate purpose into a business strategy that creates a lasting, scalable impact for both society and business.
Pandemic in 2020 woke us up. Businesses are forced to rethink and move away from shareholder centric approach to stakeholder engagement. It is not because this is a nice thing to do but because their survival depends on it.
What is Creating Shared Value (CSV)?
Creating shared value is the practice of profit in a way that also creates value for society.
There are 3 ways to create shared value:
1) Reconceiving products and markets
2)Redefining productivity in the value chain
3)Enabling local cluster development.
Since corporate social responsibility (CSR) failed at making a significant societal change, more and more corporates are inspired to move from CSR to Creating Shared Value (CSV). What is the difference? This image summarizes it well.
(Image credit: Profitable Good)
ESG vs Shared Measurement
This article is not designed for external reporting. Instead, the main focus is to provide business and social impact results to internal management.
Many public and private equity are rushing to rebrand their investment as ESG investment due to strong demand. The traditional approach of ESG assessment is done based on crowd-sourcing data from publicly available sources applied through a machine learning approach by leading sustainability data feeds like (https://www.sustainalytics.com/) Sustainalytics (Morningstar), TrueValue (aligned to SASB also), Refinitiv, etc. Sustainability data feeds often scrap companies' annual reports based on standards such as GRI, SASB, CDP, GRESB, etc. They are also aligned with the UN Global Compact.
While ESG is one marker to communicate sustainability, ESG scores cannot be equated to impact. Many asset managers are trying to build a proprietary framework to align ESG with the popular impact accounting frameworks such as sustainable development goals and impact management project.
These proprietary models rushing to align sustainability to social impact are likely to create a flawed model and mislead investors.
The real social impact requires an in-depth stakeholder-driven approach championed by impact management project. The figure below explains the impact ecosystem with relationships. For example for businesses stakeholders can be -
- Supply chain
Lack of Measurement Framework
While many early adopters have been starting to build an internal approach to the shared value, it is still lacks measurement standards.
While Shared Value do not recommend measurement standard (not just yet!). Lack of measurement standards in our opinion is not an impediment to measure impact.
There are important and mature impact accounting standards emerging from impact investment space, especially impact management project, GIIN IRIS+ framework, and other sustainability standards that we referred to earlier.
There is no reason to rebuild standards, frameworks, and principles for the "Shared Value" measurement. What is lacking is however is that lack of understanding of what impact measurement means! The company can effectively understand where they stand with different effects (as defined by Impact Management Project), how to measure data effectively and understand what is an impact in the most effective manner.
Aligning and Measuring the shared valueBecause measuring and learning can unlock opportunities and economic value
MEASURE THE SOCIAL IMPACT OF SHARED VALUE
If companies are not measuring the their shared value by connecting social and business results, they can miss important opportunities for innovation, growth, and social impact at scale. "Measuring Shared Value" is an integrated business strategy with social strategy.
An integrated shared value strategy and measurement process includes four steps.
Step 1: Identify the social issues to target.
The starting point for shared value is identifying and prioritizing specific social issues that represent opportunities to increase revenue or reduce costs. This requires a systematic screening of unmet social needs and gaps and an analysis of how they overlap with the business across the three levels of shared value. The result of this step is a list of prioritized social issues that a shared value strategy can target.
Step 2: Link Business and Social Results
The next step would be to align business results with social results. While there is traditional thinking is that businesses should measure internal business goals. Let's look at an example from the Shared Value Initiative.
Source: FSG Measuring Shared Value How to Unlock Value by Linking Social and Business Results
How to build strategy
Step 3: Track Program
Using the business case as a roadmap, companies then track progress against the desired targets, as with any performance improvement process. This step includes tracking inputs and business activities, outputs, and financial performance (revenues and costs) relative to projections.
Step 4: Measure results and use insights to unlock new value.
The final step focuses on validating the anticipated link between social and business results and determining whether the outlay of corporate resources and efforts produced a good joint return. Insights and lessons from this analysis will inform opportunities to unlock further value creation through refining the shared value strategy and execution.
FRAMEWORK, TECHNOLOGY, PROCESS
Alternatively, companies can track progress against the desired targets of all the initiatives they have, including ESG and social impact targets. There are a couple of common frameworks.
1) One is an outcome-driven approach such as the theory of change (or logic model, log frames, and results-based accounting). Also,
2) Impact Management Project. It adds five dimensions that businesses would love to understand, such as What, How Much, Who, impact risk, and contributions (see five dimensions of impact from Impact Management Project). While businesses have always understood measurement, the concept of an outcome-oriented approach may be new.
SoPact Impact Cloud adds value by helping corporate define,
- Impact Strategy (Theory Of Change or Impact Management Based)
- Track Results from different sources by providing a flexible data collection and aggregation approach
- Define and continuously keep an eye on the business targets
- Get impact and business result insight for internal decisions makings and communicate with external stakeholders when necessary.
Barriers to Measuring Shared Value
Measuring Shared Value, "How to Unlock Value by Linking Business and Social Results"
Michael E. Porter, Greg Hills, Marc Pfitzer, Sonja Patscheke, Elizabeth Hawkins, identifies six challenges to shared value. We demonstrate how Impact Cloud is uniquely positioned to address each of them.
Challenge #1. Untangle mess of wide range of social issues that could be measured
Impact Cloud is a robust impact knowledge graph-based framework that allows you to simplify impact strategy based on critical social and environmental programs. Designed based on leading industry frameworks, standards, and principles, Impact Cloud can help you build a unique impact strategy within a short time. The best part is that this strategy becomes the foundation for different types of data collection, aggregation, and reporting.
Challenge #2: Measuring Social Outcomes for Large Populations
Determine social outcomes early in the product development process and select measurable results. By aligning with impact management, the company can address critical questions of WHAT outcome they are planning to achieve, and WHO will benefit from the outcome. Impact Cloud is a unique technology that allows you to build an active stakeholder survey that can address these impact dimensions.
Challenge #3: Business Value Accrues on a Different Timeline Than Social Value
Measure intermediate social outcomes
Shared value measurement must address the fact that business results and social results can have different time horizons. This can be done through a step-by-step understanding short term outcomes, mid-term outcomes, and long-term impact. The theory of change based framework can help design an effective impact chain for your organization. Once you have developed your framework, you can use different impact measurement and management techniques to track performance.
Challenge #4: Measuring Business Value for Cluster Investments
Use proxy indicators to track business result
Changes in various conditions in the communities in which a company operates can be difficult to measure because their impact on business value is indirect and can sometimes be slow to develop. Often we recommend a publicly evidence-based approach to defining proxy indicators to measure progress. While this approach can provide a reasonably robust understanding, care must be taken to ensure the right context and assumptions from the publicly available evidence.
Challenge #5: Determining a Company's Attribution When Strategies and Activities Require the Efforts of Many Partners
Focus measurement of social results on contribution, not attribution
While most social and environmental projects have many partners, historically, philanthropy and impact-based investments have created a trap of trying to attribute social results solely to company actions. This is quite a backward-looking approach that does not add much value and can add unnecessary costs and confusion. Impact Management Project-based approach often focuses on contribution instead. Contribution tells us whether an enterprise's and/or investor's efforts resulted in outcomes that were likely better than what would have occurred otherwise. (Ref: Impact Management Project)
Challenge #6: Management Desires an Aggregation of Social Impact Data
Aggregate results selectively and only for the same social outcomes
This is perhaps the most complex but beneficial part of the shared value. Different investments or effects can be compared to answers more complex social benefits.
Few hurdles to data aggregation are -
- Data can come from different sources (offline, online, realtime, or other external systems)
- Each data collection can be quite challenging, based on stakeholder and governance requirements.
Impact Cloud is an innovative swiss-army knife-like data collection and data warehouse solution that allows you to collect and aggregate resources from stakeholders based on the stakeholder's most appropriate approach. It supports many data collection approaches such as
- Metrics Results (often necessary when you want to collect results from different departments, locations with varying level of IT data control process)
- Stakeholder Results (for collecting results about topics such as employee satisfaction, beneficiary household survey, feedback survey)
It also supports different types of data collection based on stakeholders outside companies boundaries such as
- Offline data collection: for remote beneficiaries often in rural or where the internet is not reliable
- An online survey, SMS based Phone-based
- Data collected in different systems
- Continuous data collection
Flexible data analytics is a need for continuous improvement through dynamics and dashboard to learn more about -
- Different dimensions or questions based on a stakeholder survey
- Attributes such as demography (WHO), location (WHERE), and external benchmarks
- Longitudinal reporting based on date, or stages such as baseline, midline, and exit line
Strategy to Define Goals and Targets
You will be defining key programs or effects that you consider important from the Purpose Playbook exercise.
Align Indicators from to the Global Reporting Standards (GRI, CDP, SDG, etc.)
Indicator alignment. Corporations looking to ambitiously align (Listen: NOT SDG Washing) to SDG can step-up transformative change — unlocking business value, building business resilience, and enabling long-term growth all in the same system.
Manage all your impact and sustainability data in the same system.
Collect and aggregate data from different stakeholders, partners, programs, or investments (grantees). Connect all the stakeholders to understand the real change.
Get continuous impact insight on the dynamic dashboard and impact scorecards to make internal decisions, reputation management, risk, and external communication.