Rethinking capitalism

Sri Lankan organisations need to create shared value

By Thanzyl Thajudeen

This is a great idea that best suits Sri Lankan organisations that are driven by PR and internal commitments and are too lost in their own shoes to mind what’s happening around them and the broader community.

I’m not bringing in theories here; this caught my eye as it’s highly practical and to my knowledge will kindle a thought to act.

The times we went to business schools, I am sure you must have come across Bishop William Lawrence University Professor at Harvard University Michael Porter’s theories and ideas. Porter introduced his latest new big idea: Creating Shared Value (CSV) this year, which I have studied personally and could say it’s almost similar to Corporate Social Responsibility (CSR).

To my knowledge, it’s redefined with a new word and also honestly, there are differences between his ‘CSV’ and the ‘CSR’ which almost all businesses practice. The CSV model brought forward here gives the difference and the elements as opposed to the traditionally and widely practiced CSR concept.

CSR

As we all know, the capitalist system is presently and has been under many troubles. In the past few years, organisations have increasingly used CSR activities and programmes to reduce and neutralise the cause of problems in the social, environmental and economical areas.

This is also highly visible in Sri Lanka; with telecommunications and clothing giants being the major CSR players, in my view. The biggest problem with these organisations whether in Sri Lanka or globally is that they prosper – but at the expense of the broader community.

Porter’s argument was clear and stated that even worse, the more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures. The legitimacy of business has fallen to levels not seen in recent history. Business is caught in a vicious circle.

Government and civil society have often attempted to address social weaknesses at the expense of business. Porter’s point, and mine, is that organisations must take the lead in bringing business and society back together.

Presently, there is a huge gap between these two – this is left for sophisticated business and thought leaders. Still there is an overall framework lacking to guide these efforts and Porter states that most companies remain stuck in a “social responsibility” mindset in which societal issues are at the periphery, not the core.

This is very true in Sri Lanka – even worse, these CSR activities are taken out as PR activities with articles and pictorials on newspapers in Sri Lanka. In my experience, Sri Lankan organisations are driven by PR and not even brand value creation.

Greed mode

A big part of the problem lies with companies themselves – I totally agree with this. A Daily FT columnist, Hilmy Cader, stated that organisations are on a mode of greed, ego and materialism where business models, organisational cultures and corporate lifestyles are the main culprits for going on this path.

Many businesses, I could say almost all of them in Sri Lanka and a few globally, are trapped in their own shoes and mindset and have an outdated approach to value creation.

This is true in many organisations – viewing value creation on a narrow basis, very short term thinking, optimising short-term financial and shareholder performance, whilst missing out on the importance of customer needs, satisfaction, loyalties and ignoring the broader influences that determine their longer-term success which I call it ‘sustainability,’ ‘long term thinking,’ ‘patience culture’ and ‘value creation’.

Shared value

In Porter’s article, he states that the solution lies in the principle of shared value – this principle involves creating economic value and also creates societal value by addressing its needs and challenges.

His explanation was: “Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the centre. We believe that it can give rise to the next major transformation of business thinking. The concept of shared value, in contrast, recognises that societal needs, not just conventional economic needs, define markets.

“It also recognises that social harms or weaknesses frequently create internal costs for firms — such as wasted energy or raw materials, costly accidents, and the need for remedial training to compensate for inadequacies in education. And addressing societal harms and constraints does not necessarily raise costs for firms, because they can innovate through using new technologies, operating methods, and management approaches — and as a result, increase their productivity and expand their markets.”

However organisations and brands such as GE, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart have already begun to realise and are practicing the shared value creation principle, whereby bridging their corporate performance with the present and futuristic needs and challenges of the society and community as a whole.

This would mean that leaders and managers need to develop new skills and knowledge — Porter’s examples was such as a far deeper appreciation of societal needs, a greater understanding of the true bases of company productivity and the ability to collaborate across profit/non-profit boundaries. And government must learn how to regulate in ways that enable shared value rather than work against it.

Capitalism

As we in the business and economic community understand and know, capitalism is the vehicle for meeting needs of human beings, efficiency and productivity improvement, job creation and a wealth builder.

Porter’s argument is that a narrow conception of capitalism has prevented business from harnessing its full potential to meet society’s broader challenges. The opportunities have been overlooked.

As society’s needs are large and growing, with customers, employees and a new generation of young people asking business to step up (I experience this for myself quite a lot), a new conception of capitalism is now needed.

The purpose of the corporation must be redefined as creating shared value, not just profit per se – this is exactly where organisations especially in Sri Lanka (also globally) has to consider and get into. In my view, I think there is a long way to go as many businesses in the country are very short-term oriented.

The result of this is that it will wave an innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. A related concept, with the same conclusion, is the notion of externalities where firms create social costs that they do not have to bear, and hence society must impose taxes, regulations, and penalties so that firms ‘internalise’ these externalities. Perhaps most important of all, learning how to create shared value is our best chance to legitimise business again, says Porter.

CVS

Corporate responsibility programmes practiced on a global scale or even among a few Sri Lankan organisations and brands are a reaction to external pressure – I have realised in Sri Lanka, the main motive and mission behind this activity is to enhance the organisation’s reputation and are treated as a necessary expense – contacting agencies to carry out PR campaigns, pictorials in papers and so much more.  This should be redefined, and thankfully to another brilliant idea of Creating Shared Value as opposed to Corporate Social Responsibility from a well-renowned Guru Michael Porter, you can now think and act accordingly.

(Thanzyl Thajudeen is the youngest Associate member of the Chartered Institute of Marketing globally, and is the Chief Executive of Mark & Comm Limited, a boutique strategic marketing, reputation and communications consultancy and think tank. You may reach him on [email protected]. You can follow him on Twitter on @Thanzyl or visit his Blog on www.thanzyl.com.)