GE's then CEO, Jack Welch, launched the Shareholder Value concept in 1981. It has since led many investors to adopt a purely short-term focus on financial metrics, rather than longer-term opportunities.
The only problem is that, as Welch admitted 2 years ago, it was "a dumb idea".
Now, one of the world's great management thinkers, Michael Porter, has launched his suggestion for a replacement. Writing in the Harvard Business Review, he proposes the concept of Shared Value - which focuses on the connections between societal and economic progress. And he argues this has the potential "to unleash the next wave of global growth".
Porter goes on to define the concept as follows:
Society's needs are huge--health, better housing, improved nutrition, help for the aging, greater financial security, less environmental damage. Arguably, they are the greatest unmet needs in the global economy. In business we have spent decades learning how to parse and manufacture demand while missing the most important demand of all. Too many companies have lost sight of that most basic of questions: Is our product good for our customers? Or for our customers' customers?
Thus he suggests food companies need to refocus on "the fundamental need for better nutrition" instead of simply trying to sell more product. Equally he applauds Dow for reducing freshwater usage at one US site by 1bn gallons - saving itself $4m, whilst freeing up enough water to supply 40000 people.
He also highlights Hindustan Lever's Shakti programme, described in the blog in September. This is spreading the use of its soaps and disinfectants, and so helping to reduce disease, as well as providing employment for 45000 women across 100000 Indian villages. Equally importantly, it now accounts for 5% of Unilever's total revenues in India.
The transition to the New Normal is creating great uncertainty, as described in the blog's new White Paper. But Porter's insight helps to define where we are headed. It also confirms that the New Normal offers great opportunities for those companies who can identify new products and services that will provide Shared Value for their customers.