Co-creating Shared Value for Sustainable Business Results with the Balanced Scorecard

When Kaplan and Norton created the Balanced Scorecard more than two decades ago it was predicated on their belief that traditional accounting and reporting models provided an incomplete picture of the value created, or destroyed, by an organization in any given period. This approach has subsequently been validated many times over, with global organisations citing the Balanced Scorecard as pivotal to their success. More recently, research tells us that the Balanced Scorecard also has an uncanny ability to drive Corporate Social Responsibility (CSR) as a strategic priority. When properly leveraged this approach is realizing both tangible and meaningful business results.

For the past decade Professor Michael Porter, Professor Robert Kaplan, Dave Ulrich and many other thought leaders have cited CSR (what they prefer to call shared value creation), as a strategic weapon of choice. Here in South Africa, CSR is widely considered mandatory, forming not only a key part of business strategy, but often a critical aspect of meeting BBEEE scorecard requirements. This double edged sword provides us with an opportunity at the same time as a posing a risk. As with anything mandatory, it runs the risk of becoming a compliance activity – seen as a box ticking exercise, resulting in many organisations merely cost counting instead of value creating. According to both Porter and Kaplan, an attitude of compliance will inevitably result in “shared value programmes falling short of what can truly be achieved”.

Porter also suggests that; “One of the problems with CSR is built into its name. ‘Responsibility’ suggest a tax on companies or something they should do to keep their stakeholder groups at bay. However, there are many companies reaping the benefits of shared value creation when they embrace it as a core business strategy.”   Slowly but surely, executives around the world are starting to acknowledge that shared value can now be leveraged for competitive advantage.

Research by Porter has also evidenced that the effective use of the Kaplan-Norton Balanced Scorecard is able to to produce good economic returns for the company as well as improve the social balance sheet of the community. These combined effects rapidly translate into new and better jobs, new clusters of value-added suppliers, better educated and trained community residents and an improved environment. “The process”, Porter says, “creates dramatic clarity, consensus and commitment among all participants to the shared value strategy.”

Who Creates Shared Value?

A healthy shared value strategy is a process of co-creation, requiring companies to consider a broad range of constituents.  When designing a CSR strategy, it is important to broaden the engagement process to include constituents representing:

• Customers: As Tom Peters put this “Customers take care of your profits.” The consensus widely shows that successful services and products have a societal benefit to customers. From soap to investment advice; if your services or products do not improve the lives of your customers or the society they live in you cannot survive. Martin Lindstrom, brand turnaround consultant and self-confessed obsessive fan of the consumer, says “you must create a direct pipeline to your customer’s soul.” The world’s top thought leaders share a kindred conviction for businesses to innovate from the “outside in”. They evidence how the customer experience has become the number one priority for business success and survival.
• Employees: Professor Dave Ulrich’s study on “The Why of Work” tells us that employees are looking for more meaningful work, more fulfilling lives. Employees today want to work for organisations that deliver a higher sense of purpose and do work they feel good about. When they feel good they in turn deliver value to your shareholders
• Shareholders: They undoubtedly desire great financial performance, but more recently, their sentiment is not at the expense of society and the environment. Shareholders are also advocating their desire for happy engaged employees, as they know that this will produce better financial results. It is highly possible that, in the very near future, human capital and leadership will be evidenced on a company’s balance sheet.
• Suppliers: Although South Africa’s new supply chain agenda highlights opportunities for CSR investment, it is globally recognized that companies who build robust and collaborative supplier partnerships enjoy better results.
• Communities: These are the source of your customers and your employees, and groups of people who increasingly demonstrate their refusal to collaborate with companies that are indifferent to their needs. The younger generation, in particular, are putting pressure on companies to consider societal impact alongside financial concerns.

Translating your CSR strategy into a Balanced Scorecard, will enable you to measure the cause and effect of each of these value driving communities, quickly highlighting how an improvement in one community is possibly being achieved at the expense of another, as well as ultimately measuring the impact on the bottom line.   Harvard Prof. Robert Kaplan, co-author of The Balanced Scorecard, will be presenting live in South Africa on Strategy Execution on 17 September 2015. His one-day session will also include a special section on “Shared Value Creation” For more details, visit www.brg.co.za/speakers/prof-robert-kaplan or email Angela@brg.co.za

Sources:

M Porter and M Kramer, Creating Shared Value, Harvard Business Review, 2011

Palladium, Strategically Speaking, June 2015

www.socialprogressimperative.org