Making It Rain

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Alejandro Vivanco's picture

Leonardo da Vinci once said: “To develop a complete mind: Study the science of art; Study the art of science. Learn how to see. Realize that everything connects to everything else.”

We often tend to isolate things in order to solve a problem and while this may be desirable in order to establish focus upon a given situation, it also causes us to lose sight of a broader set of elements that compose the environment we operate in.  This restricts our thinking in such a way that we become unaware of a numerous set of possibilities playing a crucial role in the world’s mechanics. It is unnecessary, needless to say impossible, for one to account for all existing variables affecting a certain outcome. However, one ought to understand the environment to which one is being exposed and be able to see how things are related. One can then comprehend the natural mechanics behind a certain system and bring forward a broader set of ideas and possibilities in order to improve a certain operation.

Organizations often possess a restricted vision field and, as a result, many opportunities are missed. Many companies fail to see the link that is established between society and their spectrum of operations. Broader thinking practices involve making a connection between societal and economic progress (Porter, 2011) and this is what is referred to as shared value. This concept recognizes that societal needs define markets (Porter, 2011), and thus, calls upon companies to nurture their surroundings, not because of ethical responsibility, but rather with the intention to build a sustainable business ecosystem. Companies will always need a customer base to support demand and supplier networks to support production.  It is therefore crucial for organizations to refrain from focusing on progress based solely on their own benefit and expand their thinking to engage in cooperative efforts that result having a positive impact on every player that constitutes their business environment.  This becomes clearer when we observe social deficiencies that may surround a business such as education. If academic institutions are not able to provide a certain level of public education, this poor infrastructure translates into unnecessary high training costs for any organization. While it may be argued that the same amount of money spent on public education would be spent on training costs, the concept of shared value suggests that, even though initial investment and time is indeed required, the return will be greater economic value and broader strategic benefits for all participants (Porter, 2011).

In their paper, Creating Shared Value, Michael Porter and Mark Kramer claim that opportunities to create shared value emerge because of societal problems giving rise to economics costs across a firm’s value chain. Water insecurity is one of them. As one can imagine, companies around the world depend on water for their everyday operations and this is not limited to farmers or other key players in the food industry. Technology firms, such as Google, use water to cool their data centers (Clark, 2014), and mining companies use it for mineral processing and controlling dust, among other things (MiningFacts, 2012). Water scarcity gives rise to problems at both the societal and firm levels. At the company level, because of regulations, costs keep increasing and projects are taking longer to complete (Clark, 2014). We can observe that profitability and operational efficiency is thus being affected. Additionally, water-stressed populations suffer from the competition within and between countries that arises as water becomes an instrument of power, which results in economic stagnation, migration, destabilization, and violence (Gorbachev, 2014). An example of this is the situation in Minqin County, China. Besides causing desertification and environmental hazards such as sandstorms, ten thousand farmers left their houses behind due to the lack of water (Hook, 2013). This becomes a great concern once we consider that farming accounts for more than sixty percent of the country’s water use (Hook, 2013). Water insecurity intensifies, notably in developing countries, as farmers are able to drill as deep as they need in order to extract groundwater (Clark, 2014) and the problem will keep expanding as long as proper water management is not established.

In order to tackle water insecurity, companies can create shared value by (Porter, 2011):

  • Redefining productivity in the value chain
  • Enabling local cluster development

A company’s productivity is linked to areas such as environmental impact, employee skills, and employee health (Porter, 2011). Firms may contribute to mitigate water problems by reducing their greenhouse-gas emissions which have a direct effect on the hydrological cycle, therefore helping stabilize rainfall patterns which could reduce extreme environmental events such as desertification (Gorbachev, 2014). Companies may also rethink their water infrastructure by trying to avoid using drinking water wherever it is possible. An example of this would be Google, which now uses sea water and sewer water in some of its facilities to cool its plants. Also, as mentioned earlier, education may directly affect a firm and thus, employee education is another way through which organizations may improve their impact on water use and create shared value at the same time. By supporting water management education across academic institutions, companies may benefit from a pool of knowledgeable and innovative individuals by having taken advantage of the expertise provided by qualified professors or industry professionals around the world. This would enable a company to save time on training in the long run, and potentially improve the quality of their projects. Both companies and society would benefit from a better educated workforce. Together with what has been discussed, improper water management could affect a firm by putting employees’ health at risk. Organizations that operate in developing countries ought to take care of their employees by providing them with clean drinking water in order to avoid spending on medical and other related costs. To do this, companies can work with government or other local institutions in order to implement projects that improve clean water distribution and scarcity. Again, by doing so, not only the company benefits from a healthy workforce, but localities would also benefit from better water access and its improved management.

Related to the last point, organizations can support their suppliers within the countries they operate in in order to improve quality and efficiency along the supply chain. Companies can directly affect water management practices by providing the tools and resources necessary for their suppliers to operate efficiently and in line of the company’s sustainable goals. For example, organizations involved in the mining industry could provide local water suppliers with proper training on desalination practices in order to have access to the required amount of water necessary for operations while complying with local regulations. Companies can also create shared value by providing the local suppliers with access to loans in order to upgrade their equipment or expand the facilities in order to improve the quality and efficiency of the desalination process, and as a result, the mining operations as a whole. Firms in the food industry can also help local farmers improve their irrigation systems by providing them with the proper knowledge and equipment for them to manage water use. This would result in sustainable production by avoiding desertification problems, and potentially, it will also reduce costs related to drilling for water access. All of these efforts will result in a better business ecosystem that benefits both suppliers and businesses as they avoid becoming victims of water scarcity.

As Porter and Kramer put it, shared value represents a new way of understanding customers, productivity, and the external influences of corporate success (Porter, 2011). We now see how companies, by opening their thinking to societal and environmental problems, can tackle problems such as water scarcity while improving their own operations and corporate goals. A firm’s goals must be taken into consideration along with those of suppliers and society since they are all inherently interrelated simply because of the transactional nature of business.  

References: 

Porter, M., Kramer, M. (2011). Creating Shared Value. Harvard Business Review. Extracted from: http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/pr

Clark, P. (2014). Threat to world’s water security greater than thought. Financial Times. Extracted from: http://www.ft.com/cms/s/0/55c6d8c8632b11e49a7900144feabdc0.html

Clark, P. (2014). A world without water. Financial Times. Extracted from: http://www.ft.com/cms/s/2/8e42bdc8083811e49afc00144feab7de.html

Gorbachev, M. (2014). The Unity of Water. Project Syndicate. Extracted from: https://www.project‐syndicate.org/commentary/mikhail‐gorbachev‐urges‐the‐internationalcommunity‐to‐get‐serious‐about‐governing‐cross‐border‐riparian‐flows

MiningFacts. (2012). What are the water quality concerns at mines?. Extracted from: http://www.miningfacts.org/Environment/What-are-the-water-quality-concerns-at-mines-/

Hook, L. (2013). Water Security Threatens China. Financial Times. Extracted from: http://video.ft.com/2381825773001/Water-security-threatens-China/World

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