Within companies, creating shared value means treating employees properly as an asset that comes with a cost
Neela Bettridge, May 30, 2012
Something unusual is happening in business circles. The gurus in the think tanks and faculties that largely determine the way in which business management is taught, after decades of false steps and dubious fads such as ‘business process re-engineering’, are making some remarkably enlightened discoveries:
- That organisations consist of people,
- That people behave like human beings
- That the different groups, or stakeholders, who comprise an organisation have mutual inter-dependence
- That long-term success depends on all stakeholders succeeding
Some of us have been arguing this case for many years, but have been confronted with the cynicism of political and economic ideologies and the convenience of accountancy-based reporting models that pretended companies consisted of 'resources'.
The term used for the 'new' trend is 'shared value': the idea that if all constituencies, including the environment, benefit, the more sustainable and successful we can be.
Fortunately, though they have been late to the party, the Harvard types do have the compensation of being intelligent. They have fleshed out an enlightened philosophy for business rather belatedly, but they have done it thoroughly and well.
Take the recent observation by Mark Kramer, co-author with Michael Porter of the Harvard Business Review article last year that set out the case for shared value. The idea concerns, he saysm 'the difference between a company that purchases fair trade crops to one that works in close collaboration with scientists, agronomists, NGOs, governments and even its direct competitors to change the way a crop is grown, so that the same farmers can dramatically increase their productivity and income'.
Internally within companies, creating shared value means treating employees properly as an asset that comes with a cost, rather than as a cost with a performance management duty attached. Some companies, of course, have always grasped this, such as Whole Foods, WL Gore, Southwest Airlines, John Lewis and others. But official, institutional support for the philosophy is hugely welcome.
Other signals have emerged from unlikely sources, including credit ratings agencies and the investment community. In December 2010, credit ratings agency Moody's introduced talent management indicators – a form of human capital analysis. This means companies will need to demonstrate the value in their workforce in order to maintain a good credit rating and be able to borrow at reasonable rates. Successful human capital funds at Bassi Investments and the AXA Human Capital Fund have also consistently beaten the market.
Despite the economic crisis, or perhaps because of it, we are living in exciting times. The 'old normal', in which natural resources were treated as effectively infinite, and in which wages and conditions were kept to a minimum, is no longer a sustainable model for many businesses – even judged on purely commercial measures.
For example, some international confectionery businesses are finding that succession planning and nurturing of talent is an issue relating to cocoa farmers in western Africa, where many youngsters are moving to the towns – as well as for their IT or marketing specialists.
The people you employ are not only, typically, the most important asset; they also create all the others. This fairly obvious point is missed in conventional business reporting, which is orientated around the owned assets of the business and the cost of transactions, including hiring costs and salaries. Such a bias is lopsided; it means that around 90% of management time is spent analysing 10% of the business; moreover, the 10% that is studied is no more than a by-product of the performance of the 90% that is ignored.
Perhaps one instinctive barrier to accepting the potential of shared value is that it sounds too good to be true. The more practical evidence we provide that it isn't, the more such good practice can be emulated.
Co-founder of CSR consultancy, Article 13 and executive coach, Neela Bettridge is addressing the 5D Business Conference on 6 June. New Normal, Radical Shift is co-authored with Philip Whiteley and will be published in early 2013.