The problem nowadays is that most businesses don’t have the right purpose ‘in mind’. They have a narrow-minded view in making profit and thus optimizing short-time financial performance. This old capitalistic view leads to a vicious circle. More specifically, the corporation doesn’t keep its environment and the broader community in mind while making profit and so they are perceived as (partly) responsible for society’ failures. This is where political leaders undermine competitiveness by setting the appropriate policies. The old, narrow view of capitalism leads to growing competition and shorter term performance pressures from shareholders. Shorting investor time horizons leads to outsourcing and offshoring which weakens the connection between the firm and its community.
The solution lies in redefining the purpose of the corporation as creating shared value. This means enhancing the competitiveness of the corporation while simultaneously advancing the economic and social conditions in its communities. The market should be redefined by societal needs, rather than convential economic needs.
To create shared value, there are three main ways: reconceiving the products and market, redefining productivity in the value chain and enabling local cluster development. These ways are mutually reinforcing while creating shared value.
By reconceiving products and markets, corporations can meet the demand for products and services that satisfy societal needs. In this way, there’s more space for innovation. Also, in developing countries and nontraditional communities in advanced economies equal or greater opporunities arise. Opportunities increase when capitalism starts working in these poor countries. These opportunities change constantly because of developping economies and evolving technologies. Another source of creating shared value lies in transforming the value chain. For instance by...