Corporate South Africa, which spent R8.2 billion in social responsibility programmes in 2014, needs to ditch its current approach to social responsibility and embrace a radically new way of tackling societal problems, such as poverty.
The days of throwing money at societal problems or of a scorecard approach to social responsibility are over. Business must stop approaching corporate social responsibility as a mere compliance process, just to tick the box and earn the five points for their BEE scorecard. Companies should act in a way that demonstrates that they know their sustainability is intrinsically linked to the well-being of communities.
If the billions of rand that are being spent annually in corporate social responsibility programmes are to have any real impact in the elimination of poverty, then they should form part of a more focused and inclusive model.
This model is best served through “shared value” which is described as “a management strategy focused on companies creating measurable business value by identifying and addressing social problems that intersect with their business,” according to the Shared Value Initiative organisation.
A lot has been written and said about shared value, which was first articulated by Harvard Business School Professor Michael E. Porter and Mark R. Kramer in 2011. They describe “shared value” as a way through which companies can tackle big social problems as a core part of their strategy. According to Porter and Kramer such companies “see societal problems as opportunities for business innovation and competitive advantage”.
Shared value is therefore about creating value for the company, its shareholders and the community. It is about companies tackling social problems through a profitable business model using innovative and scalable solutions that benefit the business, its employees, shareholders and the communities in which they operate.
Although shared value is still very much in its infancy in many parts of the world, a growing number of companies are aspiring to incorporate it into their business strategy. In fact there are some good examples of shared value in action. In East Africa, M-PESA is an innovative mobile money transfer system that provides Kenya’s under- and un-banked populations with access to financial services while at the same time generating revenue and business opportunities for telecommunications group, Safaricom.
SABMiller, the world’s second-largest brewery company, has successfully engaged in business training and leadership development for owners of mom-and-pop shops in low-income communities throughout Latin America. This shared value initiative improved business managers’ efficiency and profitability, and also their economic well-being.
Another example is Coca-Cola’s Coletivo initiative in Brazil. Coca-Cola has strategically collaborated with a local Brazilian NGO as a ‘distribution partner’ on educating and training low-income youth. The aim is to reduce unemployment among low-income youth while increasing product sales and strengthening the company’s retail distribution channels and brand strength.
Discovery’s Vitality reward programme, launched in South Africa in 1997, is another example of shared value. Vitality’s purpose is to encourage customers to track essential health indicators and set goals for improved health. Customers earn points as they make progress and redeem various rewards. The social benefit is demonstrated through improving health outcomes and, indirectly reducing medical costs over the long term. Since 1997, Vitality has expanded to China, the UK and the U.S. According to Discovery, investment in Vitality has led to higher new business levels, strong loss ratio and lapse rate performance, and product innovation opportunities that create further competitive advantage.
The question really today is not whether or not more South African companies should implement shared value strategies. It is whether are they ready and willing to shift their mindset and implement it as part of their growth and sustainability plans. Not simply pay lip service to it in their annual reports. In my view they really have no choice if they wish to grow sustainably while creating more value for all their stakeholders not only shareholders.
Poverty has been identified as one of the biggest risks to business as it is a direct result of the huge gap between the rich and poor. For instance, some 12 million people in South Africa go to bed hungry every day. Surely companies in the food making industry can create shared value strategies that can eliminate hunger?
Perhaps effective shared value strategies could also give much needed impetus to the National Development Plan.