Perhaps you’ve already read of Michael Porter’s newest article and strategic insight. It’s likely to be one of the most profound ideas in business for the years ahead. (See Harvard Business Review, January-February 2011.)
Porter, often with his colleague Mark Kramer, has led the thinking on ideas such as industrial structure and competitive analysis, value chain sources of competitive advantage, industry clusters for economic development, strategic philanthropy, and now “Creating Shared Value.” I want to describe the idea a bit, but, moreover, assert that this is how family firms around the world have long naturally thought.
“Creating Shared Value” attempts to bridge the contradiction of firms seeking increased share value from maximizing their economic efficiency and firms sharing their profits via corporate social responsibility in order to do good to their other stakeholders as well as their shareholders.
Porter and Kramer argue that this is a false contradiction – in fact, that it’s usually seen as a contradiction has cost firms and society. They offer that more and more short run profit focus has driven this lose-lose contradiction. For example, in the pursuit of short-term profits firms have rushed to outsource as much as possible and to move production to cheap places all over the world. These moves, per Porter and Kramer, have been bad both for firms’ profits and for society.
“Creating Shared Value” proposes that shareholders and society find win-win solutions when firms imagine that their products and services can even better enhance the lives or effectiveness of customers. The same when firms enhance their profits and society’s benefit with wise and innovative use of resources (i.e., energy, packaging, water, etc.) – not charitably as a cost to the business, but creatively as a cost reduction to the business. They also urge the win-win benefits of more focus on locals where they do business so that the firm’s business success is good for the community and the community’s other strengths improve the global competitiveness of the firms in the community.
My point in attempting to summarize the “Creating Shared Value” concept is to highlight that such thinking has long been common to successful family businesses for several reasons:
- Family firms, for the most part, haven’t been swept up in the ideology of short-term thinking.
- Family firms have readily seen the link between where they do business and how they do business as where they do business is home and where they want their families to contribute and to benefit.
- Family firms often embrace vertical integration – not outsourcing – as a competitive advantage. They have long seen suppliers and customers as extensions of their family; they value the reliability and the collaboration of their value chain partners. And these partners are very often from the same locale – further strengthening the win-win insight of the home, community cluster. (For example, think of the long lived northern Italian fashion and industrial firms such as Ferragamo and Beretta and the education and technology centers surrounding many of Germany’s Middlestand companies.)
- When family firms do move production or distribution elsewhere in the world they take their values with them. They see their dispersed locations more as extensions of their home culture rather than as impersonal cost or selling centers.
- Most importantly, family firms don’t as likely fall into the win-lose thinking that fundamental contradictions bring. One of Porter and Kramer’s most powerful contributions of the “Creating Share Value” idea is that companies (and society) needed to see economic efficiency and social progress as a contradiction. Instead their concept synthesis the paradox of shareholder value and stakeholder value. Family firms, we believe, have an inherent capacity to think that way. They live with and cherish paradoxes (for example, Cargill and WL Gore & Associates). After all, that’s natural for them: they have lived the family welfare and business welfare paradox all their lives.