Illycaffé - example of embedded CSV
In order to improve the business environment and the underlying stability of the community structure, which will ultimately boost the business's success in the future, coordinating the success of your business with the success of your community is essential. Creating shared value (CSV), which focuses on implementing that beneficial social and environmental impact into the business model of the organization in a way that creates financial value, should be embedded at the core of businesses’ model. Illycaffè, an Italian coffee company, is an interesting example of doing this.
Francesco Illy began his coffee company, Illycaffè, in 1933, when the majority of coffee beans were still considered commodity goods and the suppliers received low pay with small profit margins. The company created superior quality-management systems, pioneered direct trade with growers, and later adopted its new production model at scale intending to create an institution respected for both its products and its contributions to society. After around 20 years, Illy has been able to achieve its objectives with its €500 million in annual sales while paying its growers an average of 30% more than the average price for coffee beans.
SUSTAINABLE BUSINESS MODEL
The business makes investments in the growers to sustainably produce excellent coffee. Farmers, producers, and exporters are all included in the model. The first step in the process is selection—choosing the growers who can supply qualified, sustainable coffee. Second, training and knowledge sharing-encouraging growers to strive for quality and environmental impact by passing on 80 years of knowledge and expertise in the coffee industry. Next, reward farmers who meet high criteria for quality by recognizing them. Illy accomplishes this by directly compensating farmers with a premium that accounts for the greater cost and effort required to produce superior quality by adding a fair margin to the prices of Arabica on the international market. Last is building a community and a culture of excellence, spreading human relationships based on knowledge exchange for sustainability.
LESSONS FROM THIS CASE
Illycaffè thinks of a virtuous circle of increasing returns. Beginning with analyzing all stakeholders to improve the quality of life of suppliers. The firm will have better products as it can embed CSV. As such, the coffee seller will be able to set higher prices to generate more profit and grow sustainably.
This case study demonstrates how a company may generate shared value throughout its value chain. Growing sustainability is possible through shared value creation because it prioritizes Profit, People, and Planet. Profitable business cannot be accomplished without taking care of the other two aspects.
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