A version of this blog post was published in Spanish, in the financial newspaper ‘Portafolio’, as part of the special issue on Empresas INspiradoras, which recognizes companies adopting a shared value approach. For a second year in a row, FSG worked closely with Colombian National Industry Association (ANDI) to develop a set of selection criteria that were appropriate for Colombia’s business and socio-political context. These included: the scale of measurable social impact of a shared value strategy, its contribution to the company’s profitability and competitive advantage, and the degree to which the strategy supports the inclusion of historically underserved or marginalized groups.
Chocó is one of Colombia’s most impoverished regions, with 48% of people living in poverty. It also has the highest unemployment rate in the country, at 17%. In 2013, Telefónica Moister set up a call center in the city of Quibdó, Chocó’s capital. Beyond the potential for impact, Telefónica Movistar saw a strong business opportunity in this new venture. The investment paid off – the Quibdó call center employs 150 people, and has generated significant cost savings for the company as a result of having staff turnover rates 50% lower than other call centers across the country. With the Quibdó call center, Telefónica Movistar is adopting a shared value approach. It is increasing its profitability by solving a social problem.
In Colombia, a few companies are starting to go beyond philanthropy to see social impact as core to maximizing their business returns. They are shifting their approach from one of “giving back” to one where social impact has vast potential to become a central element of the company’s business strategy. In 2018, the Empresas INspiradoras list recognized 25 companies that improve their competitive advantage by addressing social problems. These companies create shared value in different ways. They reconceive products and markets to open up new revenue streams. They redefine the productivity in their value chain to lower costs that are rising due to factors including low employee productivity and poor resource use. They enable the development of local clusters to reduce existing or potential risks related to conditions in their operating environment. Building on these initial footsteps, the time is ripe for Colombian companies to do more.
A shared value approach requires companies to develop new ways of thinking that allow them to see business opportunities they would normally miss. While most companies see social and environmental problems as an externality, companies adopting a shared value approach recognize that unmet social needs can also represent market opportunities. Through the power of shared value, Colombian companies can increase their competitive advantage in three ways:
- Companies can propel growth by introducing new products or accessing new markets to solve social problems. Through its Viste tu Casa business unit, Corona has changed its distribution model to reach a new market segment by offering targeted home improvement and construction products through door-to-door sales. The company has adapted its sales process to meet the specific needs of low-income, incremental home dwellers, including tailored financing mechanisms. As a result, Viste tu Casa has an EBITDA of 18%, as well as a market share of 45% in the Caribbean region, where the program focuses.
- Companies can reduce costs by solving social problems that hinder the productivity of their value chain. Packaging company Smurfit Kappa engaged over 1,300 informal sector recycling entrepreneurs as suppliers of recycled paper and cardboard for processing. By strengthening the business administration skills of these small entrepreneurs, Smurfit Kappa generated cost savings of 23% per ton of paper produced, between 2014 and 2018. The company has also been able to increase its output by 10% per year, thereby increasing its revenues in a substantial way.
- Companies can mitigate risks by solving social problems that affect their operating environment. Grupo de Energía de Bogotá (GEB) has improved the safety and reliability of its energy transmission operations through landmine clearing and community strengthening in conflict regions of Huila, Tolima, and Valle del Cauca. GEB has partnered with a number of organizations that bring additional strengths to tackle this multifaceted challenge. The Halo Trust, among other NGO partners, has been critical to guiding participatory processes focused on conflict resolution and reconciliation, while Colombia’s National Army has supported the physical disarmament of landmines. As a result, GEB has improved the living conditions of over 12,000 people living in remote rural communities, while strengthening its social license to operate by positioning itself as a partner in local development.
These examples demonstrate that shared value is not, and should not be, only about creating social impact. Shared value also requires a strong, quantifiable link to the company’s bottom line. Deriving business value from creating social impact is a powerful way for companies to solve complex social challenges. It encourages innovation and drives further investment into the problem at hand, which in turn increases the scale of social impact.
The virtuous cycle of shared value (figure 1) can be a useful tool for companies to see the clear advantage of creating shared value. Having identified an interesting opportunity at the intersection of social and business needs, companies launch shared value strategies or initiatives that have positive social and/or environmental impact. As a result of this societal impact, companies reap tangible business returns that they must track and measure over time. These can include higher revenues or lower costs, for instance. As the business returns become more significant, companies have a strong incentive to innovate in order to increase the scope and scale of their shared value strategies. The resulting strategies are more robust and ambitious. They create greater societal impact, which translates into even higher profits for the company. Companies that discover this link find unique ways to compete, often outperforming their rivals.
Companies that embrace shared value find the compelling business case for driving social change. As this new approach becomes central to a company’s core strategy, leaders find that shared value requires not only a new way of thinking but also a new way of working. Companies need to build their internal capacity to understand the nuances of social problems and determine how they represent an opportunity or a risk for the business. Companies must also begin to partner in new ways with actors that can bring complementary capabilities critical to addressing complex social problems. Finally, companies need to redefine how they evaluate the success of their initiatives, to include social impact metrics as well as traditional business metrics.
Shared value can be an important way for Colombian companies to increase their competitive advantage and become leaders in the global shift happening in business. Few other actors are as successful and nimble at driving innovation as companies incentivized by business returns. Shared value capitalizes on this strength to achieve positive impact for society as well. By embracing shared value, Colombian companies improve their business returns in ways that are hard for competitors to replicate and become the organizations that the new generation of talent aspires to work in. Companies like the Empresas INspiradoras are having a profound social impact by developing shared value strategies. If other large companies or sectors work together, shared value strategies have the potential to transform Colombia into a country of robust infrastructure, strong human talent, greater equity, and long-lasting peace. Through shared value, Colombia can become a nation where society thrives and businesses flourish.