Creating Integrated Value (CIV)

Creating Integrated Value: Beyond CSR and CSV to CIV

Paper by Wayne Visser & Chad Kymal

Abstract

Creating Integrated Value, or CIV, is an important evolution of the corporate responsibility and sustainability movement. It combines many of the ideas and practices already in circulation – like corporate social responsibility (CSR), sustainability and creating shared value (CSV) – but signals some important shifts, especially by focusing on integration and value creation. More than a new concept, CIV is a methodology for turning the proliferation of societal aspirations and stakeholder expectations – including numerous global guidelines, codes and standards covering the social, ethical and environmental responsibilities of business – into a credible corporate response, without undermining the viability of the business. Practically, CIV helps a company to integrate its response to stakeholder expectations (using materiality analysis) through its management systems (using best governance practices) and value chain linkages (using life cycle thinking). This integration is applied across critical processes in the business, such as governance and strategic planning, product/service development and delivery, and supply and customer chain management. Ultimately, CIV aims to be a tool for innovation and transformation, which will be essential if business is to become part of the solution to our global challenges, rather than part of the problem.

 

Creating Integrated Value (CIV) is a concept and practice that has emerged from a long tradition of thinking on the role of business in society. It has its roots in what many today call corporate (social) responsibility or CSR, corporate citizenship, business ethics and corporate sustainability. These ideas also have a long history, but can be seen to have evolved primarily along two strands – let’s call them streams of consciousness: the responsibility stream and the sustainability stream.

Two Streams Flowing into One

The responsibility stream had its origins in the mid-to-late 1800s, with industrialists like John D. Rockefeller and Dale Carnegie setting a precedent for community philanthropy, while others like John Cadbury and John H. Patterson seeded the employee welfare movement. Fast forward a hundred years or so, and we see the first social responsibility codes start to emerge, such as the Sullivan Principles in 1977, and the subsequent steady march of standardization, giving us SA 8000 (1997), ISO 26000 (2010) and many others.

The sustainability stream also started early, with air pollution regulation in the UK and land conservation in the USA in the 1870s. Fast forward by a century and we get the first Earth Day, Greenpeace and the UN Stockholm Conference on Environment and Development. By the 1980s and 1990s, we have the Brundtland definition of ‘sustainable development’ (1987), the Valdez Principles (1989, later called the CERES Principles) and the Rio Earth Summit (1992), tracking through to standards like ISO 14001 (1996).

Weaving Together a Plait

As these two movements of responsibility and sustainability gathered momentum, they naturally began to see their interconnectedness. Labour rights connected with human rights, quality connected with health and safety, community connected with supply chain, environment connected with productivity, and so on. The coining of the ‘triple bottom line’ of economic, social and environmental performance by John Elkington in 1994, and the introduction of the 10 principles of the UN Global Compact in 1999 reflected this trend.

We also saw integration start to happen at a more practical level. The ISO 9001 quality standard became the design template for ISO 14001 on environmental management and OHSAS 18001 on occupational health and safety. The Global Reporting Initiative and the Dow Jones Sustainability Index adopted the triple bottom line lens. Fair Trade certification incorporated economic, social and environmental concerns, and even social responsibility evolved into a more holistic concept, now encapsulated in the 7 core subjects[1] of ISO 26000.

Thinking Outside the Box

At every stage in this process, there have been those who have challenged our understanding of the scope and ambition of corporate responsibility and sustainability. Ed Freeman introduced us to stakeholder theory in 1984, John Elkington to the ‘triple bottom line’ in 1994, Rosabeth Moss Kanter to ‘social innovation’ in 1999, Jed Emerson to ‘blended value’ in 2000, C.K. Prahalad and Stuart Hart to ‘bottom of the pyramid’ (BOP) inclusive markets in 2004, and Michael Porter and Mark Kramer to ‘creating shared value’ (CSV) in 2011.

Typically, these new conceptions build on what went before, but call for greater integration and an expansion of the potential of business to make positive impacts. For example, Hart’s ‘sustainable value’ framework (2011) incorporates pollution prevention, product stewardship, base of the pyramid (BOP) and clean tech. Emerson’s ‘blended value’, much like Elkington’s ‘triple bottom line’ looks for an overlap between profit and social and environmental targets, while Porter and Kramer’s CSV focuses on synergies between economic and social goals.

Figure 1 – Sustainable Value

susval

Source: Hart, Stuart L. (2011). Sustainable Value. Retrieved from http://www.stuartlhart.com/sustainablevalue.html

The ‘How To’ of Integration

Creating Integrated Value (CIV) takes inspiration from all of the thought pioneers that have gone before and tries to take the next step. CIV is not so much a new idea – as the longstanding trend towards integration and the ubiquitous call for embedding of standards testifies – but rather an attempt to work out the ‘how to’ of integration. When companies are faced with a proliferation of standards (Standards Map alone profiles over 150 sustainability standards) and the multiplication of stakeholder expectations, how can they sensibly respond?

We have analysed some of the most important global guidelines, codes and standards covering the social, ethical and environmental responsibilities of business – such as the UN Global Compact, OECD Guidelines for Multinational Enterprises, ISO 26000, GRI Sustainability Reporting Guidelines (G4), IIRC Integrated Reporting Guidelines, SA 8000, UN Business & Human Rights Framework and Dow Jones Sustainability Index.

What we see are large areas of overlap in these guidelines, codes and standards across what we might call the S2QE3LCH2 issues, namely:

  • S2: Safety & Social issues
  • Q: Quality issues
  • E3: Environmental, Economic and Ethical issues
  • L: Labor issues
  • C: Carbon or Climate issues
  • H2: Health and Human rights issues

Our experience of working with business shows that most companies respond piecemeal to this diversity and complexity of S2QE3LCH2 issues (let’s call them SQELCH for short). A few large corporations use a management systems approach to embed the requirements of whatever codes and standards they have signed up to. Even, so they tend to do this in silos – one set of people and systems for quality, another for health and safety, another for environment, and still others for employees, supply chain management and community issues.

Knocking Down the Silos

CIV, therefore, is about knocking down the silos and finding ways to integrate across the business. In short, CIV helps a company to integrate its response to stakeholder expectations (using materiality analysis) through its management systems (using best governance practices) and value chain linkages (using life cycle thinking[2]). This integration is applied across critical processes in the business, such as governance and strategic planning, product/service development and delivery, and supply and customer chain management.

And what about value? Most crucially, CIV builds in an innovation step, so that redesigning products and processes to deliver solutions to the biggest social and environmental challenges we face can create new value. CIV also brings multiple business benefits, from reducing risks, costs, liabilities and audit fatigue to improving reputation, revenues, employee motivation, customer satisfaction and stakeholder relations.

Pursuing Transformational Goals

Our experience with implementing and integrating existing standards like ISO 9001 and ISO 14001 convinces us that, in order for CIV to work, leaders need to step up and create transformational goals. Without ambition ‘baked in’ to CIV adoption, the resulting incremental improvements will be no match for the scale and urgency of the global social and environmental crises we face, such as climate change and growing inequality.

One of the most exciting transformational agendas right now is the Net Zero/Net Positive movement[3], which extends the ‘zero’ mind-set of total quality management to other economic, social and environmental performance areas. For example, we see companies targeting zero waste, water and carbon; zero defects, accidents and missed customer commitments; and zero corruption, labour infringements and human rights violations. These kinds of zero stretch goals define what it means to be world class today.

Stepping Up To Change

In practice, CIV implementation is a 6-step process, which we can be described as: 1) Listen Up! (stakeholder materiality), 2) Look Out! (integrated risk), 3) Dig Down! (critical processes), 4) Aim High! (innovation & value); 5) Line Up! (systems alignment); and Think Again! (audit & review). Each step is captured in Figure 2 and briefly explained below. Of course, the process must also remain flexible enough to be adapted to each company context and to different industry sectors.

Figure 2 – Creating Integrated Value

civ

Source: Wayne Visser and Chad Kymal (2014)

Step 1: Listen Up! (Stakeholder Materiality)

The first step of the CIV process is Stakeholder Materiality Analysis, which systematically identifies and prioritises all stakeholders – including customers, employees, shareholders, suppliers, regulators, communities and others – before mapping their needs and expectations and analysing their materiality to the business. This includes aligning with the strategic objectives of the organization and then driving through to result measurables, key processes and process measurables.

The stakeholder materiality analysis is the first level of integration and should be conducted simultaneously for quality, cost, products, environment, health and safety and social responsibility. The analysis helps to shape a comprehensive set of goals and objectives, as well as the overall scorecard of the organization. When conducted holistically as a part of the organization’s annual setting of goals, objectives and budgets, it seamlessly integrates into how the business operates. A similar approach was developed and fine-tuned by Omnex for Ford Motor Company in a process called the Quality Operating System.

Step 2: Look Out! (Integrated Risk)

In parallel with the Stakeholder Materiality Analysis, the risks to the business are analysed through an Integrated Risk Assessment. This means the identification and quantification of quality, cost, product, environment, health and safety and social responsibility risks, in terms of their potential affect on the company’s strategic, production, administrative and value chain processes. The risk measures developed need to be valid for all the different types of risks and different entities of the business, and mitigation measures identified.

The first two steps of Stakeholder Analysis and Risk Assessment are requirements of the new ISO 9001, ISO 14001 and ISO 45001 (formerly OHSAS 18001) standards slated to come out in the next few years. For example, in the new ISO 9001 that is planned for release in 2015, it is called ‘Understanding the Needs and Expectations of Interested Parties’ and ‘Actions to Address Risks and Opportunities’. The evolution of the ISO standards is indicative of a shift in global mind-set (since ISO represents over a 100 different countries) to prioritising stakeholder engagement and risk management.

Step 3: Dig Deep! (Critical Processes)

In step 3, the Stakeholder Materiality Analysis and Integrated Risk Assessment are used to identify critical business processes, using the Process Map of the organization. It is likely that the most critical processes – in terms of their impact on SQELCH issues – will include Governance & Strategic Planning, Product or Service Development, Product or Service Delivery, Supply Chain Management, and Customer Chain Management. There may also be others, depending on the particular business or industry sector. This Critical Processes list should also include the most relevant sub-processes.

Step 4: Aim High! (Innovation & Value)

Step 4 entails the Innovation and Value Identification element. Using the Net Zero/Net Positive strategic goals, or others like Stuart Hart’s sustainable value framework, each of the critical processes is analysed for opportunities to innovate. Opportunity analysis is followed by idea generation and screening and the creation of a Breakthrough List. This is the chance for problem solving teams, Six Sigma teams, Lean teams, and Design for Six Sigma teams and others to use improvement tools to take the company towards its chosen transformational goals. The improvement projects will continue for a few months until they are implemented and put into daily practice.

Step 5: Line Up! (Systems Alignment)

In Step 5, the requirements of the various SQELCH standards most relevant for the organization, together with the transformational strategic goals, are integrated into the management system of the organization, including the business processes, work instructions and forms/checklists. Process owners working with cross-functional teams ensure that the organizational processes are capable of meeting the requirements defined by the various standards and strategic goals. This is followed by training to ensure that the new and updated processes are understood, implemented and being followed.

Step 6: Think Again! (Audit & Review)

Integration has one final step, Internal Audit and Management Review, which creates the feedback and continuous improvement loop that is essential for any successful management system. This means integrating the value creation process into the governance systems of organization, including Strategic Planning and Budgeting, Management or Business Review, Internal Audits, and Corrective Actions. This is what will ensure that implementation is happening and that the company stays on track to achieve its transformational goals.

Words Count, Actions Matter

To conclude, we believe Creating Integrated Value, or CIV, is an important evolution of the corporate responsibility and sustainability movement. It combines many of the ideas and practices already in circulation, but signals some important shifts, especially by using the language of integration and value creation. These are concepts that business understands and can even get excited about (whereas CSR and sustainability tend to be put into peripheral boxes, both in people’s heads and in companies themselves).

More critical than the new label or the new language is that CIV is most concerned with implementation. It is a methodology for turning the proliferation of societal aspirations and stakeholder expectations into a credible corporate response, without undermining the viability of the business. On the contrary, CIV aims to be a tool for innovation and transformation, which will be essential if business is to become part of the solution to our global challenges, rather than part of the problem.

Article reference

Visser, W. and Kymal, C. (2014) Creating Integrated Value: Beyond CSR and CIV to CIV, Kaleidoscope Futures Paper Series, No. 3.

Endnotes

[1] Organizational governance, human rights, labour practices, environment, fair operating practices, consumer issues, and community involvement and development

[2] It is interesting to note that the revised ISO 14001 being planned for release in 2016 includes a life cycle perspective for all aspects of operations including product design and delivery.

[3] This is captured eloquently in John Elkington’s book, Zeronauts (2012)

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Related pages

[button size=”small” color=”blue” style=”info” new_window=”false” link=”http://www.omnex.com/”]Page[/button] Omnex (website)

[button size=”small” color=”blue” style=”info” new_window=”false” link=”http://www.kaleidoscopefutures.com”]Page[/button] Kaleidoscope Futures (website)

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Visser, W. and Kymal, C. (2014) Creating Integrated Value: Beyond CSR and CIV to CIV, Kaleidoscope Futures Paper Series, No. 3.

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CSV: Revolution or clever con?

Creating shared value:

Revolution or clever con?

Blog by Wayne Visser

The Corporate Social Responsibility (CSR) movement has not delivered a system change. Creating shared value (CSV) can change this as it has challenged the narrow definition of corporate purpose to go beyond profit maximization.

‘The capitalist system is under siege. In recent years business has increasingly been viewed as a major cause of social, environmental, and economic problems.’ This was the statement made by Harvard professor Michael Porter and management consultant Mark Kramer in Harvard Business Review in 2011. The solution they propose is ‘creating shared value’ or CSV, which they are at pains to point out ‘is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success.’ At its heart, they say, CSV is the way in which ‘businesses must reconnect company success with social progress.’

Porter and Kramer observe that ‘companies are widely perceived to be prospering at the expense of the broader community. Worse still, the more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures.’ Hence, for them, CSR is something of a red herring, which they describe as a ‘mind-set in which societal issues are at the periphery, not the core’ and ‘a reaction to external pressure—[which has] emerged largely to improve firms’ reputations.’

However, the question is whether CSR and CSV are really different? In fact, is CSV even a new concept, or just old wine in new wineskins? Porter and Kramer also argue that CSV is more preferable than fair trade. Is that true? In this brief article, I want to tackle some of these questions, as well as reflect on the true value of CSV and the future of CSR.

The first thing to place on record is that CSV reflects an evolution in Porter and Kramer’s own thinking. After a career spent focussing on economic competitiveness devoid of any consideration of social impacts, Porter teamed up with Kramer in 2002 to write about ‘the competitive advantage of corporate philanthropy’, which they then reframed in 2006 as ‘strategic CSR’. Hence, CSV is their third foray into the field of social responsibility – which rather ironically and explicitly disparages the previous two.

The second point is that CSV is nothing new. At the very least, we can say that it strongly echoes the work of C.K. Prahalad and Stuart Hart on serving markets at the ‘bottom of the pyramid’ (BOP), which dates back to 2002, as well as the idea of supporting ‘inclusive business’ – something into which the International Finance Corporation (IFC) has channelled $7 billion in over 80 countries since 2005. It is somewhat disingenuous and poor academic form that these foundational concepts were not even acknowledged by Porter and Kramer.

The third aspect of CSV that I take issue with is the way in which the duo characterise corporate social responsibility. I agree that some companies are still practising an immature form of CSR – which I have called CSR 1.0 – that is defensive and risk-based, philanthropic-oriented or PR-driven. However, numerous companies have moved on to a fourth stage – strategic CSR, as exemplified by the ISO 26000 standard – and some have even gone beyond that, to what I call transformative CSR, or CSR 2.0.

Not content to discredit social responsibility alone, Porter and Kramer also launch an attack on the fair trade movement, which they say ‘is mostly about redistribution rather than expanding the overall amount of value created.’ By contrast, CSV ‘focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability. This leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them.’ The fact that these aspects are integral to the work that the Fairtrade Foundation seems to have been conveniently overlooked.

Having said all that, if my short critical tirade has given the impression that I am against CSV, allow me to set the record straight: I am a CSV fan, and here are the reasons why: I believe it has injected a new energy into the CSR movement. It has cleverly changed the language of social responsibility into the language of value creation, which business leaders can better understand and it has challenged the narrow definition of corporate purpose to go beyond profit maximization. What is more, it has rightly advocated a better alignment between a company’s core strategy and the social problems that it can have an impact on.

At the end of the day, I am less concerned about the labels we use – be it CSR, BOP, corporate citizenship, sustainability or CSV – and more interested in whether the concept and practice are holistic and transformative. This means business has to embrace what I call the four DNA elements of responsibility: value creation, good governance, societal contribution and environmental integrity. It also means applying creativity, scalability, responsiveness, glocality and circularity to the business solutions to society’s needs. Lastly, it means calling for a transformation of capitalism – which I am pleased to see Porter and Kramer agree with. For a more resilient capitalism to emerge, I believe all future economic and business activity will need to be guided by five criteria:

  • Responsible investment – ensuring that money is channelled towards productive and sustainable investments, as the Co-operative and Triodos banks have done, and not into speculative trading in the casino eco
  • Long-termism – understanding that real wealth is created by adopting a long-term perspective, including the needs of future generations, as Generation Investment and Warren Buffet’s Berkshire Hathaway showcase;
  • Transparent disclosure – embracing transparency in revenues, in line with the International Integrated Reporting Council, Carbon Disclosure Project and Extractive Industries Transparency Initiative (EITI);
  • Full cost accounting – internalising social and environmental costs (externalities), either through taxes (such as those on carbon and pollution) and social and environmental profit & loss accounts (such as Puma’s); and last, but not least …
  • Inclusive development – serving the ‘bottom four billion’ markets, as demonstrated by the BOP 2.0 Protocol, and enacting Porter and Kramer’s concept of creating shared value.

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[button size=”small” color=”blue” style=”download” new_window=”false” link=”http://www.waynevisser.com/wp-content/uploads/2013/08/blog_csv_csr_wvisser.pdf”]Pdf[/button] Creating shared value: Revolution or clever con? (blog)

Related websites

[button size=”small” color=”blue” style=”tick” new_window=”false” link=”http://www.waynevisser.com/books/the-quest-for-sustainable-business”]Link[/button] The Quest for Sustainable Business (book)

[button size=”small” color=”blue” style=”tick” new_window=”false” link=”http://www.csrinternational.org”]Link[/button] CSR International (website)

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Visser, W. (2013) Creating shared value: Revolution or clever con? Wayne Visser Blog Series, 17 June 2013.

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Creating shared value

Creating shared value:

How South Africa led the world in corporate governance & economic empowerment

Blog by Wayne Visser

The concept of shared value became increasingly important for business in South Africa during the 1990s, long before it was coined by the Harvard academic duo of Michael Porter and Mark Kramer. Fortunately for me, I had a front-row seat.

In 1997, having helped to kick-start the South African New Economics (SANE) Foundation, I then joined the global accounting firm KPMG. My mandate was to establish an Environmental Unit, which later evolved to incorporate social, economic and ethical dimensions and become KPMG Sustainability Services. Over the next six years, I advised numerous companies, many of them multinationals, on how to improve their sustainability performance.

So, what of lessons? There are two that I want to share and both are areas in which I believe South Africa has made a significant contribution to the worldwide quest for sustainable business. The first is corporate governance and the second is economic empowerment.

Challenging shareholder supremecy

Following the success of the UK’s Cadbury Report in 1992, South Africa launched its own King Report on Corporate Governance in 1994, under the chairmanship of former High Court judge and company director, Mervyn E. King. King went much further than Cadbury in recognising the non-financial aspects of corporate governance and incorporating the concept of wider stakeholder accountability. In later updates, in 2002 and 2009, the King Report placed sustainability and responsibility at the heart of corporate governance.

When I caught up with Mervyn King in Turkey a few years ago, he told me that directors are accountable to the company first, not to shareholders, and that a broader set of stakeholders provides a better perspective on what is good for the company in the long term. It is no coincidence that he went on to chair the GRI and now spearheads the International Integrated Reporting Council (IIRC).

Although the King Code is a voluntary standard, in common with other corporate governance codes around the world, the Johannesburg Securities Exchange (JSE) made compliance with the code a listing requirement. This had a dramatic effect. By 2003, 85% of South Africa’s top companies were already practising annual reporting on sustainability-related issues, and 77% of the companies referenced the existence of an internal code of ethics or code of corporate conduct.

There is a downside to the boom in sustainability reporting since the 1990s, evident not only in South Africa but around the world. I believe it has distracted us from a related, and in some ways far more important trend, namely social and environmental accounting. This refers to financially quantifying the social and environmental impacts of business, or to use economics jargon, pricing the ‘externalities’.

In fact, while at KPMG, I helped a large chemical company to design an environmental accounting system. At the time, social and environmental accounting was a strongly emerging field, under the intellectual leadership of UK academic Rob Gray, and the pioneering efforts of companies such as BT, Baxter International and Ontario Hydro. Today’s much-hailed environmental profit and loss account of Puma is actually 15 years behind the times …

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[button size=”small” color=”blue” style=”download” new_window=”false” link=”http://www.waynevisser.com/wp-content/uploads/2013/08/blog_csrwire5_wvisser.pdf”]Pdf[/button] Creating shared value: How South Africa led the world (blog)

Related websites

[button size=”small” color=”blue” style=”tick” new_window=”false” link=”http://www.waynevisser.com/books/the-quest-for-sustainable-business”]Link[/button] The Quest for Sustainable Business (book)

[button size=”small” color=”blue” style=”tick” new_window=”false” link=”http://www.csrinternational.org”]Link[/button] CSR International (website)

Cite this blog

Visser, W. (2013) Creating shared value: How South Africa led the world in corporate governance & economic empowerment, Wayne Visser Blog Series, 17 July 2013.

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