ESSA

ESSA

What Gets Measured gets Done


Natalya Turkina

By

October 11th, 2012


The difference between CSR and CSV, and why sometimes, when you promise less, people will expect less.


I personally a priori do not expect from a business neither any good will, nor morality or nobleness. We have some exceptions in business world but they just prove the rule. As long as there are shareholders’ interests and goals of profit maximization, businesses will be always after new possibilities of cutting costs and ways of raising incomes at the first place. All the other types of activities (unless their implementation is forced by a third side), which do not increase a company’s bottom line in a traditional way, are either window dressing, or in some cases attempts (successful or not) to Create Shared Value (CSV). CSV is a concept introduced by Michael Porter in 2011. The main difference between CSV and CSR is that the latter is about responsibility, whereas CSV is about creating value. According to CSR concept businesses are put against society. CSV, on the contrary, focuses more on the opportunities for competitive advantage from building a social value proposition into business strategy. Therefore, the concept of CSV brings us from Milton Friedman’s famous assertion that “the social responsibility of business is to increase its profits” to the next stage of capitalism (or it just redefines it), where companies in cooperation with society and sometimes with each other multiply their own wealth and thus in a sustainable way raise prosperity of the whole community. Indeed, focusing on profits cannot make a more successful civilization; it just makes some people richer, whereas a transparent business that collaborates with non-profit and governmental sectors can reach a sustained competitive advantage in the business model of XXI century.

Talking about CSV instead of CSR makes it easier to analyze business strategies and activities because it dispenses you from necessity of assessing business as a moral entity, or a subject with some moral obligations and responsibilities. It is easier partly because it is not clear whether it is fair to say that a business should share because it has money (do we use the same moral reasoning for rich people? do we have right to do so?), partly because we cannot say and cannot know where bounds of governmental responsibilities end and corporate responsibilities start, or just because it is even not correct to proclaim some corporate deeds as good ones and call the others as bad. Thus, if we talk about CSR and mean CSV then CSR should be seen as a separate project or dimension, which in the end will contribute to a company’s competitive advantage and thus should be thoroughly planned so it could be measured.

According to Porter and Kramer, “the fact is, the prevailing approaches to CSR are so fragmented and so disconnected from business and strategy as to obscure many of the greatest opportunities for companies to benefit society. If, instead, corporations were to analyze their prospects for social responsibility using the same frameworks that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed — it can be a source of opportunity, innovation, and competitive advantage.”

Very often we can observe corporate CSR efforts that are neither strategic nor well communicated. To be effective in CSR efforts—and to enjoy all the potential benefits—these companies need to do more than simply just do good in their communities and their CSR should not be executed in an ad hoc, nonintegrated fashion. Sooner or later, if a company qualifies for a leading position in the market, it will have to approach CSR strategically as an important component of its overall business strategy along with marketing, research and development, innovation and operations. It will have to effectively tell its CSR story, which can be monitored, estimated and followed-up. Only when CSR is incorporated into an overall strategy can we normally measure and assess it. In all other cases, to some extent, it is just waste of money for a business or a non-sustainable activity that has unsustained effect for the society.

The worst thing is that until the concept of CSV, or at least the concept of CSR, is generally accepted and commonly used it is still difficult to measure and compare corporations in terms of their responsibilities, boundaries of these responsibilities, and consequences of non-compliance. It turns out that until that time, the best corporate position is “the less you say the less they will ask for”.

 

*-citation of Peter Ferdinand Drucker.

Sources: 1)      Oh, Mr Porter. The new big idea from business’s greatest living guru seems a bit undercooked//Economist, March 10, 2011 2)      Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility by Michael E. Porter and Mark R. Kramer//Harward Business Review, December, 2006

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • Monika

    I have worked in mining for several years and found this concept very interesting. Two things I am keen to learn more about:
    1. How are the stakeholders who benefit from shared value identified (ie is this a community directly affected or a social good at large, as the latter seems a bit nebulous)?
    2. Is environmental value a component of CSV?

  • Natalya Turkina

    Dear Monika,
    Thank you for your interesting questions. They made me think a lot and here is my opinion:
    1. Porter in his article about creating shared value besicaly talks about a shift in purposes for doing business. Thus, not a profit should be the goal but the value and thus the sources of value can be different, including shared value created through cooperation with various stakeholders, which have to be clear to identify. In other words, the whole value chain should be reconceived and the border between pure business and, lets say, NGO will be slowly eliminated. However, it is an ideal picture, and only few companies have this approach, or if the company’s approach is to creat shared value than we usually call this business “social”.In my opinion, sonner or later most of the big players will come to this model because it will the main feature of differentiation.
    2) Yes, invironmental issue is a component of this concept as well as the social one. The only thing that depending on the business type environmental component can be bigger or smaller than the social one.
    I am personally very interested in mining industry and CSR practicies in it, because very often companies just have to be responsible because of some external pressure and it would be interesting to understand how the concept of “internal” intention to creat shared value could work in mining sectors.
    Best regards,
    Natalya

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