The concept of shared value emerges from the writing of Harvard Professor Michael Porter– well-known for his previous work on competition strategy, value chains and cluster theory. In 2011, in the wake of the financial crisis, Porter & Kramer wrote an important paper in the Harvard Business Review, arguing that many companies have an outdated perspective on value creation. It states that “companies tend to overlook the wellbeing of their customers; the depletion of natural resources vital to business; the viability of key suppliers and the economic distress of the communities in which they produce and sell.”
Porter & Kramer argue that business needs to “reconnect company success with social progress”. Companies must bring business and society back together through redefining their purpose to create “shared value”. In other words, economic value can be generated in such a way that it also addresses the needs and challenges of society and generates value for that society. This is not about social responsibility, philanthropy or sustainability. Rather, it is “a new way to achieve economic success”, through encouraging businesses to act as businesses rather than “charitable donors”. Porter argues that “societal needs define markets”, he contends that both economic and social value can be expanded and “a bigger pie of revenue and profits” created. “This creates competitive advantage by defining value as benefits relative to costs, not just benefits alone.”
More recently Kramer has argued that the SDGs present “a new revenue model for business.” In April This year Kramer said: “We look at the SDGs and say, ‘There is a market here’. You can actually quantify the market potential of for-profit business to meet the needs of the SDGs. Getting business to understand that this is about new markets, new business opportunities, and new business models — instead of charity or the mandate of the development agencies, the government, and the NGOs is a fundamental shift that can be very empowering.”
Tourism’s natural advantage lies at the heart of the business. A village gains little other than employment from a shoe factory.
Responsible Tourism is about using tourism to make better places to live in and better places to visit. It makes business sense to contribute to developing a destination, the tourism experience is rarely only about the hotel or the resort. There is still a commodified sun, sand and sea market but margins are small.
Increasingly travellers and holiday makers are looking for authentic experiences. Tourists are looking for memorable experiences which enrich their enjoyment of the destination. Accommodation providers gain business advantage from an extended length of stay. Tour operators gain commission and brand value from selling tours, excursions and experiences.
In this year’s WTM Responsible Tourism Awards we shall certainly see many examples of the creation of shared value – too rarely reported with any supporting data. At CGH’s Coconut Lagoon, a local village lady is employed each day to visit the hotel to sell chai and cookies from the tea boat which used to serve the plantation workers. Food and thatching grass is purchased locally as much as possible.
!Xaus Lodge with a mere 24 guest beds, and located deep in the desert of the Kgalagadi Transfrontier Park (KTP), has contributed more than R28,9 million (US$1,9 million) in income to the area in which it operates. 125 individuals are supported by the income earned by 25 permanent employees and a further 112 people benefit from the income earned by 16 crafters.
Large scale operators can engage too. The Taste of Fethiye project in Turkey supports 32 local farmers across 6 villages, improving yields, and coordinates the sale of this produce, via local wholesalers, to hotels. There are also excursions to visit the farms and local villages enabling holidaymakers to spend money in the local community.
Read more about Porter’s case for Creating shared value.