There are interesting parallels between HBR’s current attempt to “fix capitalism” through "shared value" (see my review of the current HBR article by Michael Porter and Mark Kramer here) and a similar undertaking to "fix capitalism" some twenty years ago.
At that time, HBR helped launch the business process reengineering movement with Michael Hammer’s article, “Reengineering Work: Don’t Automate, Obliterate” (HBR, July-August 1990). This article was followed in 1993 by the book, Reengineering the Corporation: A Manifesto for Business Revolution, by Michael Hammer and James Champy.
Capitalism needed fixing
According Hammer and Champy, the situation of American capitalism was grim. American companies had become “bloated, clumsy, rigid, sluggish, non-competitive, uncreative, inefficient, disdainful of customer need and losing money.”
Clearly, the system had to be replaced by something different.
Business process reengineering
By 1993, the fashionable solution (and a lucrative one for Hammer) became business process reengineering. The initial idea was sensible: to reengineer processes, essentially a new fix to the system—particularly processes that took advantage of technology to minimize handoffs and enable smaller teams to work on tasks from start to finish. Such process improvements could lead to modest gains in productivity, although the change was hardly the deep change needed to deal with the massive structural problems that Hammer and Champy had correctly identified. Nevertheless, Hammer and Champy were able to hype this modest proposal into something they called “radically new,” “a fresh start,” “something entirely different.”
The proposal was attractive to traditional managers for several reasons. For one thing, it was a technology fix: managers didn’t need to change their behavior. They could sit back while technology solved the problem. For another, the reengineering could be done by experts—even by reengineering “czars.” Managers could hire others to do the work.
It offered CEOs an attractive image of immaculate top-down power, while happily providing management consultants with “the next new thing”.
The downsides mirrored the advantages
The downsides of the approach were mirror images of the advantages. Because the management problems were not technology problems, the introduction of technology did not address root causes. Being designed by outside “experts”, the solution often didn’t fit the specific workplace. Because the process changes were introduced without basic change in the behaviors of the managers, the problems caused by those behaviors continued.
In fact, a principal attraction of business process engineering was precisely that under the guise of being something entirely different, indeed "a business revolution" it was actually more of the same. It was another superficial fix to a system that was suffering from rot within.
"Shared value” parallels “business process reengineering”
For one thing, it is a fix to the value chain: managers don’t need to change their behavior. They can sit back while new categories of demand and profit opportunities are plugged into the existing system.
There is no need to become more responsive to customers: it continues to be a matter of "parsing and manufacturing demand", albeit in areas where many firms have not previously looked for profit opportunities.
For another, the adjustment can be done by experts. Managers can hire others to do the change, while preserving the existing culture of hierarchical bureaucracy.
The downsides mirror the advantages
Once again, the downsides of the approach are mirror images of the advantages. Because most of the problems of capitalism are problems that tweaking the value chain cannot resolve, root causes will not be addressed.
Because the process changes are introduced without basic change in managerial behaviors, the problems caused by those behaviors will continue.
In fact, a principal attraction of the new way to “fix capitalism” is once again precisely that under the guise of being something entirely different, it is in reality more of the same.
Also: read my later post on how to fix capitalism: