Understanding the Difference Between Shared Value and Conventional Business with Examples
What is the Difference Between Shared Value and Conventional Business?
Conventional Business focuses primarily on profit maximization, often with little regard for social or environmental impact. The goal is to create value for shareholders, and corporate decisions are usually driven by financial outcomes.
Shared Value, on the other hand, is a business strategy that focuses on creating both economic value and social value. It aims to address societal problems while also benefiting the business itself. Companies pursuing shared value look for ways to solve social issues (like poverty, health, or education) in a way that enhances their profitability.
Example of Conventional Business vs Shared Value:
| Aspect | Conventional Business | Shared Value |
|---|---|---|
| Focus | Maximizing profit for shareholders. | Creating economic and social value simultaneously. |
| Purpose | Increase revenue and shareholder value. | Address societal challenges while ensuring profitability. |
| Impact on Society | May have negative externalities (e.g., pollution). | Seeks to solve societal issues (e.g., poverty, health). |
| Example | A fast-food chain focusing on cost reduction and profit. | A food company improving nutrition and access to healthy food in underserved areas. |
Concept of Additionality
Additionality refers to actions that go beyond what is expected or required. It means that a business activity contributes something new, whether it is a new solution, product, or approach that adds extra value to a situation or context.
In the context of sustainability, additionality means that the efforts made by businesses or organizations directly contribute to achieving goals like the Sustainable Development Goals (SDGs) or addressing gaps in underserved markets.
Examples of Additionality
- Directly Contribute to SDG: A company creates a new product that helps clean water and directly contributes to the SDG of clean water and sanitation.
- Address Underserved Market: A company develops affordable healthcare for low-income communities where health services were previously inadequate.
- Patient Capital: Investors provide long-term capital to projects that may not be profitable immediately but will generate positive social or environmental impact in the future.
- Market Innovators: Companies create innovative solutions that solve complex social problems, like a new technology that reduces carbon emissions.
- Market Development: A company builds infrastructure or resources that help develop a market that previously did not exist (e.g., renewable energy infrastructure in a developing country).
Examples
Case 1: Company A runs a large hospital with 1,000 beds
This might not be considered additionality if the hospital is only providing basic healthcare services in an area where healthcare is already accessible.
Case 2: Company B provides health insurance to an underserved population
This is an example of additionality. The company is adding value by addressing the gap in healthcare access, directly contributing to the SDG of good health and well-being.
Case 3: Company C invests in renewable energy capacity
This is another example of additionality. The company is making an additional effort to combat climate change by investing in renewable energy, thus contributing to SDG 7 (Affordable and Clean Energy).
Key Takeaway
- Conventional business aims to create profit but might overlook social or environmental impacts.
- Shared value focuses on solving societal problems while still benefiting the business economically.
- Additionality refers to actions that go above and beyond the norm to add new value, particularly in sustainability contexts.
This should help you better understand the differences and examples of how businesses approach both profit-making and societal value creation.
