Social Responsibility Fall 2015

CSr and Competitive advantage

Aldina El Halabi

Hamdan Bin Mohammed Smart University

Table of ContentsBIBLIOGRAPHY....................................................................................3PITTED AGAINST EACH OTHER................................................................5

TRADITIONAL VIEW OF CSR........................................................................................5A CASE FOR INTEGRATED FRAMEWORK....................................................6

PORTER AND KRAMER INTEGRATED FRAMEWORK.............................................................6STRATEGIC CSR......................................................................................................6CARROL AND SHABANA CASE FOR BUSINESS AND CSR.......................................................6COMPETITIVE ADVANTAGE.........................................................................................7MARRYING CSR AND COMPETITIVE ADVANTAGE IN REAL WORLD.........................................7

TRADITIONAL VS. STRATEGIC.................................................................8CONCLUSION.......................................................................................9REFERENCES:.....................................................................................10

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Bibliography

1. Afrin, S. (2013). Traditional Vs Strategic Corporate Social Responsibility: In pursuit

of supporting Sustainable Development. Journal of economic and sustainable

development. 4(20).

2. Bhattacharyya, S. S., Sahay, A., Arora, A. P., & Chaturvedi, A. (2008). A toolkit for

designing firm level strategic corporate social responsibility (CSR) initiatives. Social

Responsibility Journal, 4(3), 265-282.

doi:http://dx.doi.org/10.1108/17471110810892802

3. Cannon, T. (2014). Corporate Responsibility, 2nd Edition. [VitalSource Bookshelf

version]. Retrieved from http://online.vitalsource.com/books/9781784341114

4. Carroll, A.B. (1979). A three-dimensional conceptual model of corporate social

performance. Academy of Management Review, 4, pp. 497–505.

5. Carroll, A. B., & Shabana, K. M. (2010). The Business Case for CSR: A Review of

Concepts, Research and Practice. International Journal of Management Reviews.

12(1): 85–105

6. Guthey, E., & Morsing, M. (2014). CSR and the mediated emergence of strategic

ambiguity. Journal of Business Ethics, 120(4), 555-569.

doi:http://dx.doi.org/10.1007/s10551-013-2005-7

7. Hopkins, M. (2009). Strategic CSR and Competitive Advantage. MHC International.

Retrieved from http://mhcinternational.com/articles/strategic-csr-and-competitive-

advantage

8. Laudon, K., & Laudon, P. J. (2014). Management Information Systems, Global

Edition, 13th Edition. [VitalSource Bookshelf version]. Retrieved from

http://online.vitalsource.com/books/9780273789970/page/229

9. McWilliams, A., & Siegel, D. (2000). Corporate Social Responsibility and Financial

Performance: Correlation or Misspecification?. Strategic Management Journal, 21:

603–9.

10. Porter, M. (1980) Competitive Strategy, Free Press, New York, 1980.

11. Porter, M., & Kramer, M. R. (2006). Strategy and Society: The link between

Competitive Advantage and Corporate Social Responsibility. Harvard Business

Review. Retrieved 20 October, 2015, from

http://sharedvalue.org/sites/default/files/resource-files/Strategy_and_Society.pdf

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CS R and Compe t i t i ve A dvan t age

This paper discusses relationship between Corporate social responsibility and

competitive advantage. Sustainable competitive advantage is essential to success of any

business. Until recently, CSR and competitive advantage were considered largely

unconnected and were discussed separately. Recently, however, businesses are increasingly

recognizing the need to integrate CSR in their core practices. While two are usually seen as

opposites on the different end of spectrum, working against each other, there is a growing

body of literature claiming otherwise – that CSR and competitive advantage can go hand in

hand and be mutually beneficial. Businesses are mostly accountable for growing scarcity of

resources, pollution, growing economic and power inequality, and slew of other issues which

plague today and cripple tomorrow. As responsible, it is on businesses pay back to society

through responsible practices what they hungrily consume. CSR in essence is, and should be

integral part of any business. But, business do not only cause harm; they also provide to

economical wealth of society. And as such, their success is essential element to prosperity of

our societies.

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Pitted against each other

Societies face the number of challenges: poverty, sustainability, hunger, lack of clean

water, pollution, discrimination and the list just keeps growing. This issues are continuously

growing. They are affecting and are expected to growingly affect the quality of life in

present and future societies. For most of the issues largest blame is placed on businesses.

Most often, rightfully so. They use resources, pollute the environment, contribute to poverty,

and raise inequality. Therefore, lots of pressure is placed on business to remedy the situation.

Traditional view of CSR

Corporate Social Responsibility (CSR) is defined as “actions that appear to further

some social good, beyond the interests of the firm and that which is required by law.”

(McWilliams and Siegel, 2000). In other words, businesses are expected to sacrifice profit to

remedy the increasing challenges societies are facing. Traditional view of CSR states that

companies have to look beyond their interest and sacrifice some of their profitability in order

to put social good at forefront. Corporate goals should be placed on backburner to more

pressing issue of greater societal good. Traditional view does not look at CSR as an

integrated part of business strategy, nor does it recognize it as point of differentiation. It is a

case of CSR against competitive advantage, if we look at it closely. Because competitive

advantage is partially due to financial profits. And if businesses are required to sacrifice part

of their profits it certainly raises a questions – how much profit should be given back? Is it

enough to make a difference? If we exam most of the businesses we will see some attempts

to support charity of choice, or create awareness campaign. While still better than nothing, is

it really enough? Most philanthropic donations barely remedy the issue. The CSR efforts are

often uncoordinated, on periphery of business strategic making as something that ‘has to be

done’. In traditional CSR approach businesses rarely integrate their CSR effort and align

them with their business goals. It is usually done by randomly choosing a value or a cause

shareholders believe in. Then CSR is done through philanthropic donations, cause support,

sponsorships or partnership with non-profit organizations. A great example includes Chick-

Fil-A, a fast food chain that supports traditional family values and marriages through their

WinShape Marriage Program. While a great cause in itself, it has little, or practically nothing

to do with Chick-Fil-A core business, competencies, or use of resources. It is strongly

disconnected from their competitive advantage strategy. Upon analysis of Chick-Fil-A and

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similar examples one wonders that although businesses do have undeniable responsibility

toward societies they operate in does solution really lie in sacrificing profit for causes so

distant from core business itself?

A case for integrated framework

Traditional view that companies must give back to societies by sacrificing profits has

been challenged recently by some of the greatest business minds.

Porter and Kramer Integrated Framework

The question Porter and Kramer raise is do these actions really have to be beyond

interests of firm? They raise a case which questions pitting CSR and business against each

other, proposing instead CSR and competitive advantage working in an integrated framework

where two are in synergy, and work for each other. They propose inside-out and outside-in

approach – analysis of business and its impact on society, and analysis of society and its

impact on business. In intersection lies an opportunity for integrating strategic responsible

societal practices and sustainable competitive strategy which can further both societies and

businesses. (2006)

Strategic CSR

The alternative to traditional CSR is strategic CSR which integrates CSR deep into

the core of the business, aligning business and societal goals and visions in one. In other

words, CSR is regarded as one of the activities that contribute, and can carry the competitive

advantage strategy. In strategic CSR case businesses choose goals that align with core

competencies of the business itself. Examples include a car manufacturer Toyota focusing on

pollution reduction with new eco-friendly electric car model, or an IT business focusing on

use of IT technologies for electricity consumption reduction. By doing so, CSR does not

only become a side issue – it becomes integral part of businesses, a competitive advantage

and a central focus.

Carrol and Shabana case for business and CSR

Similar to Porter and Kramer, another substantial research by Carrol and Shabana

raises the questions if firm can do well by being good, and is there a return on CSR

investment, creating a case for business and CSR. (2010). They rely on completely different

definition of CSR which states that “social responsibility of business encompasses the

economic, legal, ethical, and discretionary [later referred to as philanthropic] expectations

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that society has of organizations at a given point in time” (Carrol, 1979), with the emphasis

on economic responsibility. Carrol and Shabhana in same paper further discuss that

businesses can utilize the CSR as part of their cost-reduction, competitive advantage,

strengthening reputation, and synergistic value creation through building win-win situations.

Competitive advantage

Carrol and Shabana case for business and CSR builds up on Porter analysis of

competitive advantage. If we examine a definition of competitive advantage by Porter which

explains competitive advantage as an ability of the business to do offensive or defensive

action to create a defendable position in industry, cope with industrial forces and create a

superior profit (1980) can we assume that CSR can be used to achieve the said competitive

advantage? Can CSR be a part of the strategically planned offensive and defensive actions to

create a defendable position in the industry and achieve profit? Can companies, instead of

sacrificing profit for greater good by aligning with causes far removed from their core

business itself, achieve higher profit by doing greater good? Both Porter and Kramer, and

Carrol and Shabana, as well as handful of other authors think so. To examine even further

the Porter widely accepted concept of competitive advantage let’s look at the two generic

strategies for achieving competitive advantage – cost reduction and differentiation. By both

Carrol and Shabhana, and Porter and Kramer, CSR can be source of cost reduction or

differentiation, therefore carrying competitive advantage for the businesses.

Marrying CSR and competitive advantage in real world

While still widely unpracticed by businesses, and under-researched there are few

exemplary efforts of strategic CSR. Laudon and Laudon in Nordea goes Green with IT study

identify Nordea’s integrated CSR efforts within the core of the business. They went with cost

reduction strategy; it included number of actions. Switching off/switching to standby

computers at night lead to annual electricity consumption reduction of 3.5 million kKh,

which equals to 647 tons of carbon dioxide. Using virtualization software to reduce number

of physical machines lead to further reduction in electricity consumption. Also, they shifted

computer halls to sea for cooling, instead of using cooling systems which require electricity

consumption. However, Nordea decided to go even further by using video conferencing as a

replacement for frequent traveling of its agents. Lastly, their effort went to reduction of

paper used. By reducing consumption of natural resources Nordea cut costs so significantly

they decided to integrate the CSR efforts into the core of their strategy – one of their

strategic goals is reduction of electricity consumption by 15% by 2016. (2014). Another

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great examples include BodyShop and Lush, businesses that differentiate themselves by their

CSR strategy. Both businesses are in beauty industry. Often under scrutiny for animal

testing, both companies pride themselves in their no – animal testing policy. Both companies

practice transparency as their core practice. Both companies maintain that there is no

environmental damage done in production of their products. A great example of how

strategic CSR works – focus on societal issues that align with business itself. These

examples, although rare in business world, make strong case for strategic CSR.

Traditional Vs. Strategic

While there is plethora of literature on traditional CSR, the strategic CSR is still

under-researched for any definite conclusion. While most of the CSR in larger part of the

world is done by traditional philanthropic ways, and disorganized efforts, only handful of the

most powerful companies are starting to embrace strategic CSR and build competitive

advantage around it. Maybe consequential examples matter too in comparison of traditional

vs. strategic CSR. “The collapse of firms such as Enron, Lehman Brothers, and (now largely

in public hands) General Motors who all suffered from poor strategic models shows that new

business strategy models are essential. And, as argued here, a key message is that CSR is

becoming a, if not, the core of business activity. It is fast becoming acknowledged that a

strategic stakeholder model of engagement with the business environment means that the

potential for avoiding disasters and increasing success and innovation can be increased. CSR

is obviously not a panacea for all ills but more and more companies are seeing that it can

enhance their competitive advantage.” (Hopkins, 2009).

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Conclusion and recommendations

Businesses are largely responsible for growing scarcity of resources, pollution,

growing economic and power inequality, and slew of other issues which plague today and

cripple tomorrow. It is only fair that businesses pay back to society through CSR what they

greedily consume. CSR is, and should be integral part of any business. However, business do

not only cause damage; they also contribute to economical prosperity of society. And as

such, their profitability is essential element in supporting the causes relevant to our societies.

Although still under-researched, growing examples of strategic CSR indicate that it seems to

be the solution both businesses and societies need. After all, traditional CSR does not seem

to be working. Therefor, marrying societal needs and businesses visions in strategic unison

that benefits both seem to be win-win solution that can make scalable results. Utilizing CSR

as a competitive advantage may just be solution we need. There is a definite need of more

research on strategic CSR for any definite firm conclusion to be made. It is definitely area to

be explored.

I will conclude this paper by a call for more research on strategic CSR. The ability of CSR to

become a competitive advantage is a concept that has potential to bring the change businesses

and societies need. As it is, CSR is not achieving scale. It is simply not done enough. New

approach can be the answer. But key is in research. The second recommendation is that

iregardless of which type of CSR is used, businesses must increase their efforts to engage in

more responsible behavior.

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References:

1. Carroll, A.B. (1979). A three-dimensional conceptual model of corporate social

performance. Academy of Management Review, 4, pp. 497–505.

2. Carroll, A. B., & Shabana, K. M. (2010). The Business Case for CSR: A Review of

Concepts, Research and Practice. International Journal of Management Reviews.

12(1): 85–105

3. Hopkins, M. (2009). Strategic CSR and Competitive Advantage. MHC International.

Retrieved from http://mhcinternational.com/articles/strategic-csr-and-competitive-

advantage

4. Laudon, K., & Laudon, P. J. (2014). Management Information Systems, Global

Edition, 13th Edition. [VitalSource Bookshelf version]. Retrieved from

http://online.vitalsource.com/books/9780273789970/page/229

5. McWilliams, A., & Siegel, D. (2000). Corporate Social Responsibility and Financial

Performance: Correlation or Misspecification?. Strategic Management Journal, 21:

603–9.

6. Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980.

7. Porter, M., & Kramer, M. R. (2006). Strategy and Society: The link between

Competitive Advantage and Corporate Social Responsibility. Harvard Business

Review. Retrieved 20 October, 2015, from

http://sharedvalue.org/sites/default/files/resource-files/Strategy_and_Society.pdf

10