Listen to this article
Michael Porter, renowned management strategist and author of the influential Competitive Strategy (1980) and Competitive Advantage (1985), has recently performed a dramatic shift toward encouraging co-operation with the article Creating Shared Value. This shift is welcomed given that sustainability challenges are too big and urgent for any single actor to effectively address alone. Redirecting focus on co-operation, however, will demand concerted effort given Porter’s past success at embedding an almost rote allegiance to “competitive advantage” in the minds of business people. Scandinavian business can provide inspiration.
As an MBA student in the US, Porter taught me that business is war. Over the past almost four decades Porter has taught millions of business school students that business is war where achieving a “competitive advantage” is the objective of strategic management and the legendary “Porter’s 5 Forces” model is the tool to accomplish this. In short, the 5 Forces model pits the corporation in competition with virtually every stakeholder with whom it comes in contact – including its suppliers and customers – in a zero sum game battle.
Porter’s view was rooted in military strategy and the late Milton Friedman’s assertion that “the social responsibility of business is to increase its profits”. Neoclassical economists have effectively dominated management research and this competitive-fuelled narrative of business dominates US business school education.
There is a small problem with all of this. It does not work very well in practice.
As Lynn Stout concisely demonstrates in her recent book The Shareholder Value Myth, it does not work well for society and increasingly we are realising that it does not work well for business. One need not look further than the recent examples of colossal corporate failures for evidence. Enron is a poster child for what can go wrong when a hyper-competitive (dare I say “macho”) environment is promoted in which profits are valued above all else and considerations regarding the wellbeing of society are disregarded.
Therefore, the shift toward co-operative-based language by Porter is welcomed. Within CSV, statements like “shared value creation will involve new and heightened forms of collaboration . . . well connected to the goals of all stakeholders” are offered. Moreover, Porter calls for a redefinition of the corporate purpose away from a narrow focus on profits.
Michael Porter has apparently discovered how business is done in Scandinavia.
In the early 1960s, the Swedish management strategist Eric Rhenman published Industrial Democracy and Industrial Management in Swedish and shortly thereafter in English, in which the view was promoted that the purpose of the company is to create value for its stakeholders. This became a dominant management book across the Nordics well into the 1980s and serves as example of the co-operative approach and stakeholder orientation commonly found in Scandinavian business. In fact, the first publication and description of the word “stakeholder” in management literature comes from Industrial Democracy.
Industrial Democracy also introduced stakeholder maps to the management field in which the company and its stakeholders – including its suppliers and customers (and government, financiers and others) – were represented by overlapping ellipses to indicate the company and its stakeholders have shared interests. This is in stark contrast to Porter’s 5 Forces model.
In their recent critique Contesting the Value of ‘Creating Shared Value,’ Andrew Crane and colleagues show that the content of CSV is comprised of a repackaging of existing streams of management literature without due credit. In particular, Crane et al point to CSV as having drawn directly from stakeholder management literature. They state “it is difficult to see where CSV differs in any substantial way from this literature”.
Ed Freeman, who is often called the father of stakeholder theory, and I agree. We recently co-authored the article Scandinavian Cooperative Advantage in which we highlight the seminal offerings to the stakeholder concept that came from Scandinavia and how these offerings serve as a foundation for CSV. Scandinavian firms like Novo Nordisk, Ikea, H&M, Norsk Hydro, Novozymes and Statoil have long demonstrated effective value creation for the company and its stakeholders. Porter himself cites Novo Nordisk as having embraced an effective shared value strategy for decades.
All of this raises a question: if Scandinavian companies have long practised shared value strategies with considerable success, why has nobody noticed? The short answer is that Scandinavian companies demonstrate a tendency toward “walking the walk” before “talking the talk”. Humility is a cherished quality in a Scandinavian context. Therefore Porter’s promotion of CSV can serve as a useful means to raise global awareness.
That said, not all is well with CSV as Porter currently describes it. Crane and colleagues rightfully critique CSV for not addressing the difficult tensions managers face when attempting to reconcile the interests of the company and its many stakeholders. Tensions are present everywhere given that companies and their stakeholders have been framed as competitors for so long.
This is precisely why a deeper consideration of Scandinavian business is warranted. Given the longstanding co-operation between Scandinavian companies and their stakeholders – including governments, critical NGOs, suppliers and industry peers – tensions are more likely negotiated on an ongoing basis giving rise to opportunities to creatively reshape tensions that can benefit more stakeholders more of the time. In an environment where achieving a “competitive advantage” is the dominant narrative, such ongoing negotiations are much less likely.
Thus now is the opportune time to supplant the expression competitive advantage in favour of a strategic management objective that encourages co-operation, like “co-operative advantage”. Scandinavia offers ample examples of the benefits that come from a co-operative approach to business and thus serves as inspiration for how companies can create shared value.
The author is assistant professor of leadership & sustainability with the Copenhagen Business School. He is currently a visiting scholar with the Center for Responsible Business at the University of California-Berkeley Haas School of Business.