This review presents a summary and evaluation of the article “Reinvent Capitalism –and Unleash a Wave of Innovation and Growth” by Michael E. Porter and Mark R. Kramer Michael E. Porter and Mark R. Kramer. The main purpose of the review is to assess the effectiveness of the proposed models of reducing trade-offs between the society and business. The society has increasing viewed business to be prospering at the expense of the wider society. Business gurus Michael E. Porter and Mark R. Kramer suggest how to reinvent capitalism and remove the trade-offs by creating effective shared value systems. The experts suggest three ways through which business can maximize profits while meeting societal needs. The suggestions are helpful in creating a cohesive business atmosphere. However, it is essential to evaluate whether they are implementable.
The article provides that companies have remained trapped in outdated value creation programs that optimize short-term financial benefits while disregarding the wider impact that establish their long-term cost-effectiveness. The authors should have addressed in detail practical measures of managing and financing shared value systems. However, it is significant that the article attempts to reinvent capitalism using the shared value concept, which offers better opportunities for resolving the trade-offs than social corporate responsibility. This review intends to find out the scope of the article in providing information for creating shared value systems that can manage effectively the relationship between business stakeholders.
Porter and Kramer state that the society and business can move beyond the trade-offs by demonstrating awareness of communal needs, not merely conservative economic needs, and the consequences of societal weaknesses to internal costs of firms. The shared value concept entails increasing the overall pool of monetary and social value. Porter and Kramer have used Wal-Mart and Google as examples of companies that are beginning to benefit from shared value. However, the authors have also pointed out that most companies have not demonstrated comprehensive understanding of the concept.
Additionally, the article evaluates roots of shared value. It states that shared value helps to improve the competitiveness of companies and the economic and social status of the area in which the companies operate. The success of an enterprise depends on the health of the surrounding community. Shared value relies on the hypothesis that businesses have the capacity to effectively deal with both economic and social progress using value principles. According to the experts, value is benefits relative to cost. The strategy theory supports the shared value concept. It provides that for a firm to be successful, it must create an exceptional value proportion that takes care of the needs of a given set of its customers.
Porter and Kramer have also provided in the article how to create shared value. Foremost, they say that firms can create shared value by preconceiving products and markets. This method of creating shared value requires businesses to give priority to meeting their customers’ needs. The next method is redefining productivity in the value chain. It obliges companies to re-examine value chain components such as energy use logistics, resource use, procurement, and distribution channels to find ways of solving social problems amicably. The last method is enabling local cluster development. Companies that support local clusters such as academic programs, trade organisations, and local businesses have a high probability of maximizing profits.
Shared value will create a refined model of capitalism that incorporates a distinct communal purpose. The consequence of evolving capitalism is identifying innovative and enhanced techniques to create products, serve markets, and put up cost-effective firms. It presents enterprises the opportunity to use their skills and resources that can make businesses to regain the respect of the society.
Porter and Kramer have demonstrated that the capitalism system is under siege and embracing corporate social responsibility has not solved the problem. Enterprises have been using social corporate responsibility to demonstrate their care for the society, yet the trade-offs have persisted. The authors righty say that by giving considerable priority to societal needs, harmony will exist between the business stakeholders. They provide a comprehensive background of the source of trade-offs between the community and business. In addition, they enumerate both social and economic benefits of creating shared value making it an essential starting point for maximizing profits in the long-term. Moreover, they present methods of creating an efficient shared value. As a result, the article takes away the dilemma of ignorance. It is comprehensive and offers theories and concepts that the shared value concept is based on.
The article, nonetheless, has a few shortcomings. The society has been blaming companies for its problems despite business use of social corporate responsibility to solve various societal problems. The suggestion that the shared value concept will solve the problem is theoretical. There is no guarantee that it will change the attitude of the society. Besides, creating shared value is a costly venture. It obliges companies to take care of societal needs despite challenges such as losses.
The article ‘How to Reinvent Capitalism’ intends to help create harmony between business and the community. It requires companies and the society to overcome the conflicts between them. The article provides preconceiving products and markets, redefining productivity in the value chain, and supporting local cluster development as the best ways of achieving this objective. Since creating shared value is a costly venture, business should research on cost-effective ways of enhancing their relations with the surrounding communities.