Written by Gaëlle Loiseau
Originally published in HKIoD’s magazine, The 21st Century Director, December 2019.
The world is changing at a staggering pace and in order to keep up, businesses must adapt. But isn’t that what business does best – adapt? At least the successful ones: they innovate to stay relevant and ahead of the competition. So why does it seem so difficult for the private sector to adapt to the change this time? The recent trend is not just about new technology or a mere disruption in the market, it is the very reason for a company’s existence that has been shaken. As the Business Roundtable latest statement acknowledges, a company’s purpose can no longer be about simply generating profits. It must also create value for all its stakeholders.
To survive, business must align profit with corporate purpose. Without profit, a business is not sustainable, and without purpose, a business loses legitimacy and trust of its stakeholders. The society now expects business to help solve the broader issues it faces, and successful firms will be the ones that adapt to this new set of expectations quickly and efficiently. After all, if economies and communities impact business, how can companies ignore the social, economic and environmental issues that are left unresolved?
Societal problems used to be the responsibility of government and civil society. But the challenges we face now are so severe, that governments cannot handle them in isolation.
Shared Value goes beyond corporate responsibility
Recognising that philanthropy can only go so far but that business can provide the scale necessary to drive change, Creating Shared Value goes beyond corporate responsibility. It is a business strategy utilising a business’s core expertise to solve social or environmental problems profitably and with scalable impact. When products, services or value chains add value to the community, an important level of trust with stakeholders is created. And because such new models require innovation, they build competitive advantage for the organisation.
The significant shift towards defining purpose in a company is a growing movement, but having a purpose is not enough and Creating Shared Value is the roadmap to deliver on that purpose and to engage your employees around a set of values that they can apply in their daily job to generate competitive advantage. This engagement will create opportunity for new revenue streams, cost savings and value growth, while also building investor trust and respect.
Increasingly, implementation of a Shared Value culture is being driven by employees from within and by shareholders from the outside. Both groups have powerful views on expected behaviour and direction and are significant influencers on corporate success. Employees and new generations joining the workforce are progressively making employment decisions based on principles and evidence of a social conscience within an organisation. In order to attract and retain the best talent, companies must be able to communicate their purpose and demonstrate how they deliver on it.
Shareholders are also becoming more discerning when investing and allocating capital. They want to see evidence that firms have a defined purpose to ensure they have licence to operate in their markets and promise long-term viability. There is plenty of proof indicating that embedding a Shared Value Culture leads to better employee engagement, competitive advantage and stock outperformance.
How to embed Shared Value into business strategy
There are three definitive ways of creating shared value, and the first one is by redesigning products/services to make positive changes in the community. A good example of such is “AIA Vitality” which is a game-changing wellness programme that encourages policyholders to persist in keeping a healthy lifestyle. It redefines the traditional concept of insurance by giving policyholders incentives, such as instant premium discounts in the first year of their policies and a range of lifestyles benefits, in order to encourage them to lead an active and healthy lifestyle. The wellness programme creates a winning formula for multiple stakeholders: the society, policyholders and the insurance company. Healthier policyholders help lower claim costs for the insurer, which in turn eases pressure on insurance premium increases. For the society, a healthier population can help relieve pressure on the medical system.
The second way of Creating Shared Value is by redefining the value chain (which could be the supply chain in a manufacturing business or the workforce in a consulting business). As an example, Nestlé creates Shared Value by building resilience in their supply chain. They invest in their smallholder coffee farmers to train them in regenerative agricultural practices and equip them with quality seedlings. This strategy results in higher quality crops for Nestlé as well as a more regular and consistent income for the farmers. There are also environmental benefits thanks to better soil management.
Finally, enabling local cluster development creates Shared Value by building a thriving community ultimately benefiting the businesses operating in it. For instance, Airport Authority Hong Kong collaborated with business and community partners to create shared value for the community, while solving the talent hiring issue for airport-based businesses. Indeed, the remote location and awkward shifts made it difficult for airport businesses to recruit staff. To solve this problem, the Extra Mile programme consisting of three pilot projects aims to identify blocking points and design solutions capable of developing a qualified talent pool for the airport.
- Working [email protected] offers one-year internships encompassing accommodation and exploratory elements to motivate working youth and develop their people skill.
- The Pioneer, a one-year work placement programme, supports non-Chinese speakers with leadership potential, nurturing future team leaders who may act as a bridge between local supervisors and non-Chinese speaking employees.
- In addition, EduCare, a one-academic-year after-school care programme, provides tutorial ser vices, exposure programmes and family support to primary school students in Tung Chung whose parents are working at HKIA.
What can organisations do?
Materiality – Businesses must identify the social and environ- mental challenges that are material to their operations to identify gaps in the market and use their core expertise to address them.
Empowerment – Leaders must create a company culture that enables shared value ideas from within the workforce to be heard, nurtured, and allowed to fail to foster innovation.
Communication – Sharing the journey, both internally and externally, is crucial to generate awareness and understanding across shareholders, clients, employees, suppliers and the wider community.
Measurement – Key performance indicators must be identified from the onset of the project, and measured throughout, to monitor the societal impact of the project and achieve scale.
Collaboration – The private sector must partner with government and civil society to tap into their expertise of societal issues and design profitable business models providing adapted solutions.
Create competitive advantage
Applying a social lens to business development opportunities will highlight new business opportunities. Applying a business lens to the societal issues we face will lead to better resources stewardship. By going after these market gaps, the full power of business can be harnessed to create the conditions for long-term prosperity.
Corporate strategy will find itself under increasing scrutiny as responsible investing gains traction. Employee and customer pressure will not relent for business to be part of the solution rather than the problem. A Shared Value culture opens up major strategic opportunities and will differentiate an organisation whilst simultaneously driving the next wave of innovation, productivity and economic growth.
About Gaëlle Loiseau
CEO, Shared Value Initiative Hong Kong
With 20 years global experience in the luxury goods industry, Gaëlle is passionate about the positive impact the private sector can have on society and believes CSV can pave the way for new business models.