How To Measure Shared Value, The Latest Business-For-Good Buzzword

When one initiative lets a company create monetary returns and support social causes simultaneously, that’s shared value. But it’s hard to measure and, therefore, hard to invest in wisely.

For many companies, corporate responsibility—changing the way the business works internally for the better—is no longer enough. The new challenge for responsible companies is to look for shared value, where business returns and social impact can be achieved at the same time.

Without some sort of measurement tool, though, it’s hard to figure out whether those factors are lining up. A new report from FSG, a consulting company that works on measuring social impact, outlines some of the measurements that need to be taken into consideration.

According to FSG, there are four steps to the shared value measurement process: systematically identifying social issues that need to be targeted; making a business case (identifying targets, activities, and costs involved); tracking progress by logging inputs, outputs, and financial performance; and measuring results to generate insights that unlock new value.

There are some companies that have embraced these measurement steps. FSG cites Coca-Cola’s Coletivo initiative in Brazil as a success story, creating "shared value by increasing the employability of low-income youth while strengthening the company’s retail distribution channels and brand strength to increase local product sales."

First, Coca-Cola identified the social issues, spending six months in 2008 studying Brazil’s lower-middle class and honing in on skills development for low-income youth as a target. Next, the company made the business case: the Coletivo initiative works with local NGOs to train youth in business development, retail, and entrepreneurship and then teams up the young adults with local retailers. The retailers get a boost in operations, which in turn leads to higher sales of Coca-Cola products among the lower-middle class. Coletivo tracks progress by asking supervisors to log the number of young people participating, retailers involved, and performance over time. And Coca-Cola measures results by tracking youth job placement, self-esteem, company sales, and "brand connection."

Measuring shared value makes companies look socially responsible, but it’s also useful for investors who might otherwise be skeptical of whether addressing social issues can yield monetary returns. The report explains: "As long as companies fail to link their sustainability activities to core business metrics such as revenue growth, cost reduction, and profitability, they are unlikely to have the full value of their actions recognized by more mainstream investment professionals."

There are plenty of hurdles for companies looking to measure shared value. Business and social results don’t always happen at the same time, for example, so intermediate outcomes need to be measured. And measuring social outcomes for big populations—i.e. the health impact of a food product with reduced sugar and saturated fat—is challenging. But without measurements that investors can grab onto, social responsibility will never become a truly mainstream practice.