Creating Shared Value with Agrodite
Nowadays, more corporations in different sectors are replacing their CSR (Corporate Social Responsibility) for CSV (Creating Shared Value), following the principles of Michael Porter and Mark Kramer’s ‘shared value’. Their article sets out the idea to find business opportunities in social problems. Shared value is a management strategy in which corporations create economic value while also creating value for the society.
The focus of corporation’s efforts in CSR is often on “doing something good” or minimizing the harm business has on society. These efforts are not part of a cohesive approach that tries to integrate profit maximization. With Shared Value, however, corporations are using the resources and capabilities of business to solve very specific social problems in ways that are aligned with the company’s strategy, that strengthen its competitive positioning, and that enable to make more money. In theory, this win-win solution for corporations and society sounds ideal and promising, but it is not that easy to reach.
Although not easy, more corporations are trying to develop CSV strategies, deriving from different sectors like banking, pharmaceuticals, agribusinesses, food & beverages industry and other FMCG companies. Corporations working with farmers in their value chain often have good examples of CSV programs. For commodities like cocoa and coffee, but also in the dairy sector, corporations are seeking ways to support their farmers. A frequently used win-win approach in these cases (this is a simplified explanation) is to increase the farmer’s productivity and quality of the commodity, so that the farmers have a bigger turnover and revenue, which ideally leads to improved livelihoods, while the company has access to better quality beans or milk in a higher volume. It still requires investments from the corporations, but if they do well, the farmers will be loyal, and the corporations have secured resourcing. It is an investment and not an expense like how CSR is perceived.
Examples given on CSV are often from big international companies, like Nestlé, Adidas or Novartis (pharmaceuticals in India). These examples can be found everywhere online. However, smaller and medium sized companies are also interested in applying the CSV concept. CSV is part of doing good and smart business, which can help them in finding new markets or improve reaching their already existing customer segments. Not all newly designed CSV strategies are good examples, as they often still have elements of CSR in it or they are performed by foundations with a non-profit point of view. Some CSV examples also create new social problems. In reaching the Bottom of the Pyramid (BoP) and bringing hygiene products to remote areas by using smaller packaging sizes, corporations found a way to reach new untouched markets. For the people at the Bottom of the Pyramid, buying these products in small quantities, are essentially more expensive. An additional problem is that the plastic packaging very often ends up in rivers or streets as a good waste management system are not available in remote areas. On the long term, these CSV strategies create more social and environmental problems than that it actually solves.
Multinational companies have put their efforts to come up with short, medium and long term strategies that combine the corporate’s perspective with the needs of local communities through concrete initiatives. Big Indonesian national companies and SMEs are still often lacking in developing great examples and initiatives. With the model below, Agrodite seeks to support these corporations and SMEs in clarifying some of the steps they will have to take to develop a CSV strategy.
It starts with the company and the range of products and/or services it provides to its customers. A bank or an insurance company, for instance, already have a certain role in society. But one bank can focus on different customers segments than another bank. If a bank is focusing on SMEs instead of individual people with a bank account, it should also develop a strategy that links to them. The bank needs to create activities that brings them closer to their customers, and more importantly potential customers. Events on supporting becoming an entrepreneur, developing business ideas are a good way to attract potential new customers. Several banks in Indonesia are also trying to get established in more remote areas. In these areas, people often do not trust banks and it is not very likely they have a bank account. A good CSV will address the social problem of trust and not having a bank account.
In the Indonesian rubber industry, companies that make tires, often have a CSV program related to road safety and with rubber farmers. With smallholder rubber farmers similar programs are possible as explained before for commodities like cocoa or milk. However, a road safety project at first sight looks like CSR. Only these tire companies do not just conduct a road safety training, they provide these training in their customer segments and potential customers segments (at bengkels or youth events), bringing them knowledge on road safety and connecting it to their products. They are creating awareness on their brand and selling it on their events.
Several FMCG companies are reaching the poor communities by letting them buy their products. It is essential to consider low-income communities, not only as consumers of FMCG products, but also to recognise their innovation potential as suppliers, producers, product designers, distributors (like the Yakult ladies on their bicycles), and retailers, making business potential at the BoP inclusive. Some ice-cream companies are selling their raw ice-cream to people at the BoP, in order for them to make other products out of it, which they can sell again with higher margins. The company’s sales goes up, while the poor people in the community can earn some additional income.
At the moment, a corporation sees potential business opportunities aligned with social opportunities, combined with their financial assets and expertise, they have to start planning for a program. Just like in the example for banks, the context is important and so is the attitude of people towards your product. Key factors relating to social, economic and environmental aspects of the communities need to be identified. Same is for the key stakeholders and their needs. Corporations are selective in the priorities they set, as they understand that no business can solve all of society’s problems. A worthy cause is not good enough, it is the economic incentive that drives the change.
Creating Shared Value synchronizes well with other initiatives getting popular now, like Inclusive Businesses (IB) or the circular economy. More corporations also need advice on how to transform waste into something of value (in a cost-effective way) or how to include women and youth into their business model. Agrodite is already helping several companies to change their CSR-programs into CSV-programs or supporting them developing a cohesive CSV strategy related to the core-business of the company. If your company requires advise on CSV, please do not hesitate to contact Agrodite at thomas@agrodite.com