Unlocking Shared Value – an Interview with Jonathon Hanks
We caught up with Jonathon Hanks to get to the bottom of what Shared Value means in today’s corporate world. In this interview, Jonathon gives us a clear understanding of what Shared Value is and how it delivers tangible benefits to an organisation, its staff and the community at large.
Q. Can you tell us what Shared Value is?
JH. Shared Value is a technical concept coined by Michael Porter and Paul Kramer in an article they wrote in the Harvard Business Review in 2011. The concept is based around competitive advantage in responding to societal challenges. It’s a business strategy that delivers measurable financial value in addressing a societal challenge. It requires innovation that is scalable.
There are four key outcomes of Shared Value initiatives:
- Measurable financial value
- Measurable societal value
- Addresses a societal challenge through innovation
- It does so at scale, or is scalable
Q. How is this different from Corporate Social Responsibility (CSR)?
JH. CSR is typically about managing risk and maintain the social licence to operate. It’s typically about ‘doing less bad’ for the most part.
Shared Value thinking guides firms towards innovation in the supply chain and in the production process, in the nature of the product, the distribution channel, or markets that grow the business and has a positive impact on society.
At Incite, we have been arguing much of the thinking around Shared Value for a long time, trying to reposition the corporate response to social issues from ‘sustainability’ and ‘corporate responsibility’. We have found it to be a useful tactic to engage the executive boardroom as you are coming in with a business strategy, rather than ‘sustainability’, which is often less ‘sexy’.
We were the first African consultancy to become an affiliate of the Shared Value Initiative. We have been helping organisations on shared value around the world. We work with companies across a range of sectors and we find it helps to gain traction in the boardroom.
Using our Shared Value Innovator Tool, we work with companies to find opportunities and innovations in three principal areas:
- Redefining productivity – looking through the value chain
- Innovation in the products or the processes that the company currently has
- Innovation around creating and enabling the local environment
We’ve found that the exercise we have developed has been a very useful form of engagement that gets companies to identify shared value initiatives inside their organisation.
Q. Can you give some examples of Shared Value initiatives?
JH. A typical example of redefining productivity looking through the value chain would be local and or inclusive sourcing. An example is SABMiller. It is a global brewing company that moved into Uganda and saw the subsistence farmers there who were growing sorghum and noticed quite a few of the market goers were drinking locally made beer from sorghum. Instead of starting a philanthropic project by trying to build these farmers up through investment, they introduced better farming practices. The company invested in farmers’ business skills, engaged them in the supply chain by changing their product and processes to include a sorghum-based beer. As a result, the total pool of inclusive economic value grew. This was product and process innovation and local supply chain engagement. This is now one of their fastest growing areas of beer sales in Uganda and it has provided social value. Getting these subsistence farmers into the supply chain is an example of redefining productivity.
If you look at an example of product innovation, Discovery Health Insurance stands out, with its Vitality platform. The company could see there were health challenges, focusing on the high-income market in South Africa.
The health issue was that people were not being sufficiently active and were eating unhealthy diets. Discovery has been very effective in driving behavioural changes in their clientele. They devised a smart set of incentive schemes to get people into gyms, and to use Apple watches to monitor their heart rate. Discovery also works with supermarkets to get people to buy healthy food, driving and incentivising a change in behaviour. The Vitality scheme has encouraged a high uptake (and thus revenue) and also reduced claims because people are healthier. So here is a clear win-win, addressing health challenges and generating revenue.
Kenyan mobile company Safaricom, part of Vodafone, came up with an innovation that uses mobile technology to promote inclusive finance (M-Pesa). People in rural areas who were previously literally having to wait for cash to be shipped from their working partners in the cities to the rural areas, are now able to use SMS and other mobile technologies to access finance. This has had a significant positive social and economic impact, changing the local market place in rural areas in East Africa. The initiative was implemented initially through a strategic corporate social investment project and a partnership with an aid agency. In time, they could see it was going generate financial value and it’s now become been one of their fastest growing revenue drivers for Vodacom Tanzania and Safaricom Kenya. And, it’s giving clear societal value: inclusive finance.
Q: What are the challenges of implementing Shared Value?
JH. We still face many barriers inside companies and we will share some of those barriers during the Unlocking Shared Value course and how we have tried to overcome them. As we know, it’s not always easy to effect change in organisations. Often there’s a particular mindset around societal issues, that there’s a trade-off mentality that it is going to cost. It can be difficult to persuade some executives that there is an actual business case in participating in Shared Value.
Some of the executives we work with pose a real challenge, we realise the appetite is not there. They are focused on short-term issues, they might make trade-offs that are in the short-term interest rather than long term interest, because that’s what their bonus scheme is all about. They don’t think societal issues are all that challenging. They think business budgets that generate short-term profits are good.
The other challenge is people think they get it. They run too quickly when they haven’t internalised it and they haven’t seen the resistance in the organisation. It takes a couple of years to really embed it in the organisation so they need to get their timing right.
Q. What is the implication of Shared Value for companies that don’t have to do quarterly reporting for the stock market?
JH. That offers potentially a huge opportunity. There are quite a few of the old gurus that used to work in sustainability such as John Elkington. He works less with big listed corporations these days, choosing instead to work increasingly with social entrepreneurs and social enterprise. They are entrepreneurial, willing, and able to make longer-term decisions.
There may sometimes be a challenge in that some of these businesses are funded by venture capital, that doesn’t always have the right mind set.
I think the business market is going to shift more toward emerging markets because that’s where you have the growing population with growing demands and growing consumer base of a middle class, particularly in India and China. Many of the domestic companies in these emerging markets are non-listed and of scale – and they have the ability to make long-term decisions; this gives them an advantage over those who are beholden to the short-term myopia of Wall Street. I think some of these companies are constrained to be innovative and that’s why you have people such as Paul Polman from Unilever, who pushes back by saying “I want to choose my investors”, “I want long term investors”, “If you are a short-term investor go somewhere else”. So, in answer to your question there is an exciting opportunity in working with start-up businesses that aren’t listed.
Q. What sectors would you say are undeveloped when it comes to Shared Value? What industries?
JH. We think there are examples across all sectors. It’s harder to get resonance in the few times we’ve worked with the natural resource sector, the mining and minerals sector or the gas sector, because they have got a very predominant business model and they are not particularly agile. There’s probably not that kind of dynamism that you might have in the FMCG sector. Mining companies in South Africa are facing real societal pressure to deliver. There is a perception that they have been extracting the country’s resources and generating huge financial value, much of which is seen to be taken offshore. With many governments not delivering on social services adequately, there is an increasing expectation on businesses to deliver, including particularly those in the extractive sector.
There are some good examples from the financial sector. It takes courage to go beyond your traditional business model and of course, the financial sector and banking sector is inherently conservative. They have to be conservative, so sometimes are less willing to take the risks that may generate longer-term return. The M-Pesa financial inclusion initiative I mentioned earlier is a perfect example in micro finance from East Africa. One of the big banks was approached and they turned it down; now they are kicking themselves because of this lost opportunity.
Thanks once again for your time Jonathon and we look forward to meeting you in July.
For more background information on Shared Value, see Incite Sustainability & Shared Value FAQ sheet, and Interview with Nicola Robins – Unlocking Shared Value