Porter and Kramer’s (2006) “Shared Value”

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P
Porter and Kramer’s (2006)
“Shared Value”
Maria Roszkowska-Menkes
Department of Management Theory, Warsaw
School of Economics, Warsaw, Poland
Synonyms
Strategic CSR
Definition
The Creating Shared Value (CSV) concept
focuses on “policies and operating practices that
enhance the competitiveness of a company while
simultaneously advancing social and economic
conditions in the communities in which it
operates”(Porter and Kramer 2011, p. 6). Its
authors, Porter and Kramer, suggest that social
needs, similar to more traditional market needs,
define markets and create business opportunities,
while social harms are not always externalized by
the company, but often create internal costs, e.g.,
wasted energy, raw materials, costs related to on-
the-job accidents or high employee turnover.
Thus, it is not only desirable but, more impor-
tantly, possible to form business strategies that
lead to the creation of social and economic values
at the same time. By value, the authors mean not
just benefits, but benefits relative to costs.
Although the idea of value creation has long
been recognized by business, social progress was
rarely approached from this perspective. The
notion of value was based rather on short-term
financial gains with social issues treated as periph-
eral to core business. With their conceptual frame-
work, Porter and Kramer hope to “redefine the
purpose of the corporation”and “reshape capital-
ism and its relationship to society”(Porter and
Kramer 2011, p. 4). The authors assume that the
new purpose of a business constructed around
shared value and not just profit has the best chance
to rebuild trust and the legitimacy of the business.
CSV has emerged on the wave of increasing
criticism of corporate social responsibility (CSR),
which is more widely viewed as an empty prom-
ise, a mere response to anti-corporate movements,
an egoistic exercise, and even a passing fad
(Mullerat 2010, pp. 443–452). As an alternative
concept, CSV has received attention and positive
feedback in the business community, which finds
it very appealing, as well as among some manage-
ment scholars and teachers (Crane et al. 2014).
The shared-value approach to business and soci-
ety relations also has been recognized by the
European Commission and incorporated in the
new CSR definition as a concept through which
companies voluntarily integrate social, ethical,
and environmental concerns into their business
operations and core strategy in close cooperation
with their stakeholders with the aim of, one, iden-
tifying, preventing, and mitigating possible
adverse impacts in these areas, and two,
© Springer Nature Switzerland AG 2021
S. O. Idowu et al. (eds.), Encyclopedia of Sustainable Management,
https://doi.org/10.1007/978-3-030-02006-4_393-1

maximizing the creation of shared value for their
owners/shareholders and for their other stake-
holders and society at large (COM 2011).
Porter and Kramer’s Criticism of CSR
Porter and Kramer (2011) argue that the more
companies have become engaged in CSR, the
more its legitimacy has fallen. The authors’criti-
cism relates to the way CSR is understood and
implemented in business practice. Companies
have remained trapped in an outdated and narrow
approach to value creation focused on optimizing
short-term financial performance and ignoring
environmental and social drivers of the firms’
long-term success. Further, the authors point out
that the dichotomy between social and business
interests has been strongly institutionalized in the
CSR concept itself. The classical approach to
CSR has been based on a deontological perspec-
tive focusing on profit-sacrificing activities moti-
vated by social altruism (Horrigan 2010,
pp. 34–35). Within this approach, CSR has been
defined as “situations where the firm goes beyond
compliance and engages in actions that appear to
further some social good, beyond the interests of
the firm and that which is required by law”
(McWilliams et al. 2006) (see ▶Altruistic CSR).
The separation of business goals and societal
needs, as argued by Freeman and McVea (2001),
led to the marginalization of CSR in the eyes of
many managers and scholars. As a result, “most
companies remain stuck in a “social responsibil-
ity”mindset in which societal issues are at the
periphery, not the core”(Porter and Kramer
2011, p. 4). Some critics assert that although the
CSR concept is built on good intentions, corporate
leaders often misuse it to produce benefits only for
their firms (Yunus 2007). Business has co-opted
the language of social responsibility to allow it to
continue to focus almost single-mindedly on
profit maximization (Horrigan 2010, p. 35). Flem-
ing and Jones (2013) argue that what has come to
be called “corporate social responsibility”has
become a key marketing and branding tool for
most large and medium-sized companies. Many
activities in the area of CSR are accompanied by
hypocrisy on the part of the companies and are
mere attempts to contain civil pressure. Porter and
Kramer (2006) note that in many companies, CSR
is limited to cosmetic actions, centered on glossy
reports of questionable credibility (Broomhill
2007). CSR has been widely used as a PR or
even whitewashing tool (Faust 2006), or as a
strategy for avoiding regulation (Mullerat 2010,
pp. 448–449), leading to a substantial decrease of
trust among stakeholders.
Porter and Kramer (2011) argue that CSVas an
approach integral to a company’s competitive
position should supersede reputation-driven CSR
in guiding corporate social and environmental
investment. The proposed concept is hoped to
open up new opportunities for innovation and
growth in global economies, become the next
evolution of capitalism, and help companies
regain legitimacy.
The Emergence and Evolution of the CSV
Concept
The concept emerged from a series of articles by
Porter and Kramer for the Harvard Business
Review. The first of the papers, published in
2002 (Porter and Kramer 2002), focused on stra-
tegic corporate philanthropy as an answer to the
dilemma faced by many executives caught
between critics demanding ever higher levels of
donations and investors’expectations to maxi-
mize short-term profits. Corporate charitable
efforts limited to small donations generating no
social value and ad hoc actions or cause-related
marketing and sponsorship campaigns used as a
popular branding tool have become the subject of
broad criticism from both civil society and share-
holders. The authors argue that corporations can
use philanthropy in a strategic way, as an invest-
ment to improve their competitive context, under-
stood as the quality of the business environment.
In this way, companies are able to integrate social
and economic goals and drive their long-term
competitiveness, and by leveraging their core
competences, generate virtual social change.
In the second article in the series (Porter and
Kramer 2006), where the term “shared value”was
2 Porter and Kramer’s (2006) “Shared Value”

coined, the new approach to corporate philan-
thropy was extended to the integration of other
CSR activities into the core business strategy.
Although companies recognized the growing
stakeholder pressure for more responsible busi-
ness conduct, their response has been limited to
cosmetic actions focusing largely on public rela-
tions and media campaigns. In a world of open,
knowledge-based competition, social and busi-
ness goals form a symbiotic relation (Porter and
Kramer 2006); “CSR and competitiveness are not
opposed but rather link in a synergic relationship”
(Perrini et al. 2006, p. 6). Thus, the distinction
between these elements is a false dichotomy (Por-
ter and Kramer 2002). This mutual dependence in
business-society relations implies that both busi-
ness decisions and social policies must follow the
principle of shared value and engage in strategic
CSR activities. The latter focus on value-chain
social impacts and social issues influencing a
company’s competitive context.
Finally, in 2011, Porter and Kramer (2011)
published their seminal article offering a more
substantial conceptualization of CSV. First, the
authors proposed the definition of shared value
as “policies and operating practices that enhance
the competitiveness of a company while simulta-
neously advancing social and economic condi-
tions in the communities in which it operates”
(Porter and Kramer 2011, p. 6). In other words,
not only must the shared-value strategies support
core business objectives –a postulate often raised
in previous publications on strategic CSR (Lantos
2002; Husted and Allen 2007) (see ▶Strategic
CSR)–but also meaningfully contribute to social
progress. What is more, as shared value is defined
as benefits relative to costs, the concept focuses on
maximizing social impact per dollar spent
(Spitzeck and Chapman 2012). Second, the
paper outlined mechanisms of shared-value crea-
tion (explained below). Each requires concrete
and company-specific metrics. Successful CSV
strategy is “data-driven, clearly linked to defined
outcomes, well connected to the goals of all stake-
holders, and tracked with clear metrics.”
An additional contribution to shared-value
research has been made by Pfitzer et al. (2013),
who identified five reinforcing elements that
companies creating shared value rely on:
(1) embedding a social purpose, i.e., setting and
communicating a clear social mission that is inte-
grated with the corporate culture of the firm,
(2) defining a social need the firm can address by
gaining a deeper understanding of the underlying
social conditions, (3) measuring shared value, for
example, through integrated reporting (Adams
2015), (4) creating the optimal innovation struc-
ture, for example, by integrating with current firm
units, creating semiautonomous units, getting
support from governments, or funding external
businesses (5) cocreating with external stake-
holders, such as other companies (including
major competitors), universities, foundations,
NGOs, and governments.
Creating shared value requires a close link
between CSR activities and core business strategy
(Husted and Allen 2007). On the one hand, it
allows a firm to use its unique resources and
competences, which increases the efficiency and
effectiveness of social programs. On the other
hand, it stimulates the development of new
resources that may become part of the organiza-
tion’s competitive advantage.
CSV Mechanisms
There are three mutually reinforcing mechanisms
of shared-value creation: (1) reconceiving prod-
ucts and markets, (2) redefining productivity in
the value chain, and (3) enabling local cluster
development (Porter and Kramer 2011). The first
one is based on enabling local cluster develop-
ment aimed at improving the company’s compet-
itive context. CSR is seen here as a social
investment or strategic philanthropy (Porter and
Kramer 2002) that improves: (1) access to high-
quality business inputs (e.g., highly qualified
employees, efficient infrastructure, access to
research institutions, relevant technology, and
capital); (2) demand conditions (e.g., by increas-
ing the size of the market or sophistication of
demand); (3) strategy and rivalry context or, in
other words, rules and incentives that govern
competition (e.g., transparency, intellectual prop-
erty protection, fair and open local competition,
Porter and Kramer’s (2006) “Shared Value”3

rule of law); (4) availability of supporting indus-
tries (e.g., reliable local suppliers, service pro-
viders, presence of clusters) (Porter and Kramer
2006). One example of CSV programs that aim at
developing local clusters are corporate initiatives
focused on education. Providing support to uni-
versities to build a strong base of highly qualified
staff is less expensive than investment in in-house
training. Success in tackling social and environ-
mental issues involving cluster development often
requires collaboration with third parties, including
other companies (Porter and Kramer 2011).
The second mechanism of shared-value crea-
tion focuses on the redefinition of productivity in
the value chain to depict all activities that a com-
pany engages in while doing business. The value
chain can be used as a holistic framework to
identify positive and negative social impacts in
terms of energy use, logistics, resource use, pro-
curement, distribution, location, and employee
productivity (Porter and Kramer 2006). Opportu-
nities for CSV may occur from process innovation
that helps to reduce internal costs inflicted by
externalities connected with poor management
of natural and human resources. Reduction in
GHG emissions, use of renewable raw materials,
reduction of product packaging, cooperation with
local suppliers, investment in the health and safety
of workers, or diversity in the workplace serve as
examples of initiatives leading to the simulta-
neous reduction of social and business costs.
Major improvements in social and environmental
performance not only can often be achieved with
better technology at a nominal incremental cost
but also can yield net cost savings through
enhanced resource utilization, process efficiency,
and quality (Porter and Kramer 2011).
The last mechanism enables reconceiving
products and markets. CSV broadens the firm’s
perspective and helps to identify unmet social
needs. In this sense, it creates opportunities for
differentiation (Spitzeck and Chapman 2012),
product and business model innovation, and
growth (Porter and Kramer 2011). What is more,
the shared-value approach offers greater gains for
society, as companies have the potential to be
more effective than governments and nonprofit
organizations in marketing solutions to social
problems. As companies look for opportunities
for innovation, Porter and Kramer (2011) suggest
thinking in terms of societal needs instead of
“products”and “services.”Social and environ-
mental issues increasingly define markets in
developed economies, where conscious con-
sumers make decisions based not only on price
but also on sustainability-related attributes of
products and services. Additionally, societal
needs create business opportunities in emerging
markets, where the greatest global growth poten-
tial is concentrated (Tidd and Bessant 2011).
The majority of consumers in these markets
form the so-called “base of the pyramid”(see
▶Base of the Pyramid;▶Prahalad’s Bottom of
the Pyramid), i.e., “the low-income socioeco-
nomic segment”(London and Hart 2011,p.8)
that, due to the growing income gap between
rich and poor, is not well integrated with the
global market economy. The base of the pyramid
is believed to represent a multitrillion-dollar mar-
ket full of underserved social needs (Prahalad
2006).
Criticism
Although the CSV concept has gained much of
the attention from both practitioners and academic
community, it has also become a subject of criti-
cism. Crane et al. (2014) identify four major
weakness and shortcomings of CSV. First, the
authors argue that the concept is based on unjust
criticism of CSR. Porter and Kramer contrast CSV
with an outdated understanding of CSR and do not
acknowledge there is broad consensus in the
existing literature that CSR is not a supplement
to core business strategy but rather an integral
element (Beschorner and Hajduk 2017). Second,
CSV is based on a win-win assumption about
business-society relations and as such does not
provide any guidance for situations in which a
win-win solution cannot be reached and moving
beyond trade-offs between social and economic
value creation is impossible. Porter and Kramer
are criticized for grounding their arguments in
purely economic logic and arguing that the pri-
macy of profit maximization is not only necessary
4 Porter and Kramer’s (2006) “Shared Value”

due to market forces but also morally good
(Beschorner 2013). Some authors argue that
given the complexity of social issues, which usu-
ally involve a number of different stakeholder
groups with conflicting interests, strategic CSR
concepts, including CSV, will only reinforce neo-
liberal logic (Brown and Dillard 2014; Thomson
2015). Third, CSV is built on the controversial
assumption that business compliance with legal
and moral standards is given. The concept
neglects the fact that the absence of compliance
is one of the key problems of multinational cor-
porations operating in various countries often
with extremely poor regulation and in complex
supply chains that are hardly possible to be fully
controlled. Fourth, the CSV concept is strategi-
cally incoherent. CSV aims at creating additional
profit opportunities and differentiating the com-
pany from its competitors. However, generating
virtual social change requires multi-stakeholder
cooperation and the creation of standardized solu-
tions that could be scaled up across organizations,
sectors, and countries and, as such, cannot be a
source of competitive advantage for a single
company.
Cross-References
▶Strategic CSR
▶Strategic Management and CSR
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