Innovation Management

Reinventing (Retroventing) Capitalism: Michael Porter on “Shared Value”

By Shlomo Maital

Harvard Business School Professor Michael Porter invented the discipline of competitive strategy, in his book by that name published in 1980 (The Free Press).  Now, in an article in the latest issue of Harvard Business Review (Jan-Feb. 2011), Porter (together with co-author Mark Kramer) seeks to redefine capitalism through the concept of shared value. Here is a brief excerpt:

A growing number of companies known for their hard-nosed approach to business—such as GE, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart—have already embarked on important efforts to create shared value by reconceiving the intersection between society and corporate performance. Yet our recognition of the transformative power of shared value is still in its genesis. Realizing it will require leaders and managers to develop new skills and knowledge—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/nonprofit boundaries. And government must learn how to regulate in ways that enable shared value rather than work against it.

Capitalism is an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth. But a narrow conception of capitalism has prevented business from harnessing its full potential to meet society’s broader challenges. The opportunities have been there all along but have been overlooked. Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face. The moment for a new conception of capitalism is now; society’s needs are large and growing, while customers, employees, and a new generation of young people are asking business to step up.

     Porter’s “shared value” is in fact not innovation, but ‘retrovation’.  It is how capitalism used to be run, before the narrow-minded selfish financial wizards of Wall St. shanghaied it.  See my blog about Scott Paper’s CEO Thomas McCabe  [“McCabe’s Credo”, Aug. 6 2010].  It is high time we reverted to it, as capitalism once was. Perhaps thought leaders like Porter can accelerate this process.

     Here is Porter’s checklist, to determine how your organization can create shared value.

  • Could our product design incorporate greater social benefits?
  • Are we serving all the communities that would benefit from our products?
  • Do our processes and logistical approaches maximize efficiencies in energy and water use?
  •  Could our new plant be constructed in a way that achieves greater community impact?
  •  How are gaps in our cluster holding back our efficiency and speed of innovation?
  • How could we enhance our community as a business location?
  • If sites are comparable economically, at which one will the local community benefit the most?