Shared Value a Welcome Blurring of the Profit Line

Nonprofit sector strategists have long forecast the steady blurring of the line between for-profit and nonprofit business models.

When associations and nonprofits create the blur, they are usually striving to adopt more corporate approaches. As they become multimillion enterprises, this is simply good stewardship as well as good business.

When philanthropic organizations create the blur, it is often through social entrepreneurism—generating a profit to underwrite mission-driven work.  These hybrid enterprises meet social needs in very creative and self-funding ways.

Now strategists Michael Porter and Mark Kramer in the January/February Harvard Business Review are urging businesses to blur the line to fix capitalism.  This is a big idea that goes beyond corporate social responsibility and proposes a business model based on creating shared value.

Shared value is defined as the policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.  Shared value creation focuses on identifying and expanding the connections between societal and economic progress.--Porter and Kramer

This is my idea of a preferred future for business where major players in the sector unleash talent and resources to meet societal needs—and makes money at it!  Porter and Kramer offer three routes to creating shared value:

  • Reconceiving products and markets. They advise businesses to ask if their products are good for customers and they open up a wider view of who those customers might be. They cite the growing number of business successes found in meeting the needs of the poor and often overlooked around the world.   
  • Redefining productivity in the value chain. This is a strategy that values the environment, uses fewer resources, and respects and cares for employees.
  • Building supportive industry clusters in the company’s locations. Forget the rush to outsourcing to the cheapest solution wherever it might be. This strategy builds up local communities by strengthening local suppliers and partners. Associations are seen as an important part of a supportive cluster that can help companies grow. Companies help create value by supporting a strong community infrastructure in education, transportation, transparent markets and other public assets.

Porter and Kramer acknowledge that not all societal problems can be solved through shared value solutions.  But theirs is a welcome wake-up call to the for-profit sector that invites companies to rethink their basic assumptions.  And for associations and philanthropic organizations, this is also a welcome blurring of the lines. We’ve all got a stake in building a better world and we are more likely to succeed if both nonprofit and for-profit organizations work together to create shared value.