The concept of creating “shared value” that Micheal E. Porter and Mark R. Kramer explore in their article have been summarized concisely in previous posts on this blog (see below). I, too, like fellow bloggers, question the power behind the tool. However, there is something about the concept, when pushed even further then the examples of Wal-Mart and Nestle, that is inspiring. And I think that that there is a plethora of examples to be found of companies that are finding ways to create shared value while proving it is the best way to do business.
Two examples in our very own Pacific Northwest bubble immediately came to mind: Ivar’s and Costco. Let us examine the Ivar’s case first. Ivar’s has been a Seattle icon for decades. And over the years, the fast food chain has evolved in away that was both profitable (Some of the company’s best financial years were after the start of the “Great Recession”) and good for its employees (the company offers full benefits to part-time employees and it matches every 401(k) plan contribution an employee makes with a 50 percent donation—this was before Obamacare). What Ivar’s has done is adopt a perspective that is the reverse of many traditional businesses; traditionally business are about being all about the customer and Ivar’s made it all about the workforce.
Much of the Ivar’s business model was driven by a new CFO, Bob Donegan, who saw the high employee turnover, running at more than 400 percent annually in much of the company. His response? Good pay, benefits and retirement plans for employees. So was this really motivated by larger business processes? Or was it really the work of an atypical member of the business community? Many other restaurants and businesses continue to pay low wages in today’s competitive economy. In contrast, Donegan and Ivar’s believes that employees need wages and benefits in order to be proud of the work they are doing, support of their families, and ultimately be part of the Seattle community.
The much publicized article “How Costco became the Anti-Wal-Mart” in The New York Times on Costco’s business model. Basically, Costco’s average pay, for example, is $17 an hour, 42 percent higher than its main competitor Sam’s Club (in 2012 Costco had the number one spot among warehouse stores with a 46.5 percent share of compared with 38.4 percent for Sam’s Club, according to Euromonitor International). And although some speculate that to succeed and compete in wholesale retail, companies must pay poorly and provide few benefits to make a profit, Costco has proven otherwise. Costco argues that it is because it pays competitive wages and provides employee benefits that they have low employee turnover and theft and are able to offer low prices. Additionally, Costco customers tend to be wealthier then those of their competitors, but they stay loyal because prices are low and do not come at the expense of the employees. Jim Sinegal, the chief executive of Costco said, “This is not altruistic. This is good business.”
Although these examples located in the “Northwest bubble,” they are both prove several things. First, the idea of shared value is being incorporated into international business practices everyday. Second, the idea of shared value is making companies competitive, profitable, while helping societal goods. Third, there are other relevant socital issues that they could be addressed as well. For example, I would like to see Ivar’s address ocean acidification as they are a seafood restaurant, and rely heavily on the ocean to provide their product. And finally, the degree to which shared value concepts are incorporated into businesses depends on the heads of the companies, and perhaps, on their personal beliefs and commitments in relation to societal goods and business processes.