Question

• Discuss the difference between economic value and social value or the shared value creation framework.
• Why do you think organizations tend to focus on the creation of one type of value, but not both?

Answer 1

The economic value creation framework is based on the performance of the actions which leads to value creation by means of products or services. The economic value creation framework measures the quantitative measures like return on capital, revenue, profit and equity growth for shareholders. A business-driven organization while in pursuit of economic value creation do create the social or shared values in the external environment where they operate. For-profit organization's actions are oriented for the creation of economic value which is internal to them and relevant to the process, capability, utilization of resources, people in the organization and the shareholders of the organization. The social value which is created by the organizations is necessary for the business to be sustainable. In order to remain sustainable, organizations must take conscious efforts to improve the external environment where they operate.

Contrary to the economic value creation framework, the social value creation framework measures the value in a more qualitative perspective. It measures the improvement in living standard, the experience with society, in general, have gained due to the activities performed by the organizations. Social values are equitable across the society and hence organizations can not command their ownership over the social value created by them. The benefits arising out of created social value are for everyone who is part of the society and organizations can not reap many benefits out of them as they can do in case of economic value created by them.

It is more about the organization's motive and objectives, for example, a not for profit organization's objective and genesis is based on created equitable social value in the society. These not for profit organizations work toward the social value creation and the economic value is created as an additional outcome of their actions for the creation of social value.

Hence, the focus on economic or social value depends on the objectives of the organization. That is why organizations who are for-profit tend to focus more on the creation of economic value, while the organizations which are Not for profit tend to focus more on the creation of social or shared value. However, both types of value either social or economic have equal importance for society and focus on only one value that can not fulfill the overall development goals of the society in a sustainable way.