Michael Porter & FSG on Measuring Shared Value – the Key to Unlocking Value Creation

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Michael Porter & FSG on Measuring Shared Value – the Key to Unlocking Value Creation

You want your business to succeed…and you believe in the role of business in addressing some of the world’s most pressing social and environmental problems of our time. This is why you have invested significant resources into pursuing a shared value strategy. Yet, sometimes you wonder: Are we actually creating shared value? You think you are, the strategy makes sense, but you cannot really demonstrate it. And you never have a convincing answer when that question comes from your CFO at the end of every reporting cycle.

This question is the single most important hurdle to more widespread adoption of shared value strategies. Only when there is a clear business case that shows how making progress against social objectives links to standard measures of business success, such as revenues, costs or market share, will companies – and investors – around the world realize the potential of shared value and contribute to developing sustainable and scalable solutions to the world’s toughest problems.

The answer to the question requires measurement. In Measuring Shared Value: How to Unlock Value by Linking Social and Business Results, we show how leading companies – including Nestlé, IHG, Intel, Coca-Cola and many others – are measuring shared value, thereby unlocking new value. Take Novo Nordisk, for example, that identified the high and growing burden of diabetes in China as a core social issue closely linked to its business as a global leader in insulin medications. The company believed that helping to improve the health system and diabetes care in China would ultimately benefit the bottom line and started implementing a shared value strategy in the early 1990s. From the beginning, Novo has closely monitored progress against key shared value indicators, such as the number of physicians trained and patients educated, and tracked overall health impact, to continuously revise its strategy to focus on the most effective interventions. At the same time, it has followed progress against the expected business results, such as insulin sales and market share. This approach has proven highly successful: In the last two decades, the company has increased its market share from below 40% to 63% in the second largest insulin market in the world.

Measuring shared value focuses on the concept of value creation – which makes it different from most existing approaches to social and environmental performance measurement by companies. From our experience, widespread confusion exists among business executives about the role of the different approaches and thus on where to focus their measurement and reporting activities. By distinguishing the purpose of shared value measurement from tracking sustainability, compliance, reputation and long-term social, environmental, or economic development impact, we hope to increase clarity and, in doing so, contribute to the global effort around ”integrated reporting.”

The tools for measuring shared value are in their infancy, and this publication offers a first step-by-step guide, including pragmatic approaches to addressing some of the most common shared value measurement challenges. As companies progress with shared value measurement, we anticipate further insights to be shared, for example through FSG’s Shared Value Initiative, among other forums.

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