STRATEGY AND SOCIETY

The link between competitive advantage and Corporate Social Responsibility

Section C – Group 2 Avishek Dasgupta - 13P

Ashir Madaan - 13P Kanika Virmani - 13P146

Rahul Aggarwal - 13P Siddharth Gautam - 13P Tarun Gupta - 13P177

Introduction

This article presents a new way to look at the

interdependence of business and society and

shows that corporate success and social welfare

are not a zero sum game.

• Governments, activists and the media hold companies responsible for social consequence of their activities

•Growing Publicity given to company rankings on performance of their CSR despite their questionable methodologies

• Led to fragmented approaches to CSR which are disconnected from business and strategy

•CSR can be much more than a cost, a constraint and can be a source of opportunity, innovation and competitive advantage

Emergence of CSR•Public Responses:

• For Nike, NY Times reported abusive labor practices at its Indonesian suppliers in 1990s

• Shell Oil’s decision to sink the Brent Spar, an obsolete oil rig in the North Sea led to Greenpeace protests

• Pharmaceutical companies expected to respond to the AIDS pandemic in Africa even though it was far removed from heir primary product lines and markets

• Fast food and packaged food companies held Responsible to obesity and poor nutrition

Emergence of CSR• Activists targeting big corporations

• Activists tend to target the most visible or successful corporations to bring attention to an issue, irrespective of impact

• Nestle, world’s largest purveyor of bottled water became a major target in the global debate about access to fresh water

• Governmental regulations• In UK, companies have to disclose ethical, social and

environmental risk in its annual report

Corporate attitude towards CSR• Currently, most CSR activities are done only for public

relations and media• Led to glossy CSR reports that showcase companies’

social and environmental good deeds• Non coherent framework for CSR activities• Philanthropic initiatives are expressed in terms of dollars

or volunteer hours spent but almost never in terms of impact

Prevailing justification for CSR

Moral Obligation• Achieving commercial success in a way that honors ethical

values and respect cultures, communities and natural environment

• It doesn’t tell how to balance one social benefit against another or against its financial cost

Sustainability• Meeting needs of present without compromising on future• Companies should operate in ways that secure long term

economic performance and avoid social detrimental short term behavior

• It doesn’t say anything as to how the tradeoff is to be made

Prevailing justification for CSR

License to operate• Tacit or explicit permission from govt., communities and other

stakeholders• Offers a concrete way of identifying social issues that matter to its

stakeholders• Though it fosters a constructive dialogue, companies often transfer

their CSR agendas to outsiders

Reputation • Used to justify CSR initiatives on the grounds that it will improve

company’s image, strengthen brand and raise the value of stock• Studies on companies social reputation on consumer purchases

and stock market performance have been inconclusive

Prevailing justification for CSR

All the four school of thought focus on the tension between business and society rather than their interdependence

They are not tied to the strategy and operations of the company and thus are not sufficient to help the company identify, prioritize and address social issues that matter it the most/ where it can create a biggest impact

Result: Thus they neither create a meaningful social impact nor strengthen firms long term competitiveness

Integrating Business and Society(Porter and Kramer’s theory)

Large level of Interdependence between Business and Society

Both business decisions and social policies must follow the principle of shared value

creationValue Chain impact on CSR Activities

• Every aspect of a company’s value chain comes in contact with the society either in a positive or negative manner.

• A company can strategise its CSR through mapping its value chain touch points on society

Inside Out Linkages Outside In Linkages

Impact of a value chain activity of a company on the society

Influence of external social conditions on organization

Successful Companies

Healthy Society

Mapping Company Value Chain To CSR: Looking Inside

Inbound Logistics

Operations

Outbound Logistics

Marketing and sales

After Sales Service

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Sup

port

A

ctiv

ities

Prim

ary

Act

iviti

es

Transportation Impact - Emissions,

Congestion, Accident

Biodiversity impact,

Energy & Water Waste

Transport Impacts, Improper packaging

Pricing , False

Advertisements

Disposal of Obsolete Products, Customer Privacy

Mapping the Diamond to CSR: Looking outside

Rules and Incentives that

govern competition

Local Demand Conditions

Local availability of Supporting

Industries

Quality of Business Inputs

• Availability of Human Resources

• Access to research Institutions and universities

• Efficient Physical Infrastructure

• Fair Competition (absence of trade barriers)

• IP Protection• Transparency (Financial

Reporting)• Rule of law

• Sophistication of Local Demand

• Regulatory Standards• Unusual Local needs

that can be served nationally

• Availability of Ancillary Industries

• Presence of Clusters• Presence of Related

Firms

Choosing which social issues to address

Generic Social Issues

• Social Issues that are not significantly affected by a company’s operations

• Has no material effect on long term competitiveness

Value Chain Social Impacts

• Social issues that are significantly affected by a company’s activities

• Touch points between society and value chain

Social Dimensions of Competitive

Context

• Social issues in the external environment that significantly affect drivers of competitiveness

• Effects are generally long term

Creating a Corporate social agendaAn affirmative Corporate Social Agenda moves from mitigating harm to

reinforcing corporate strategy through social progress

Responsive CSR• Good corporate citizenship• Mitigating harm arising from firm’s value chain

activities

Strategic CSR• Transform value-chain activities to benefit society

while reinforcing strategy• Strategic Philanthropy that leverages capabilities to

improve salient areas of competitive context• Closer the social issue – greater the leverage

Creating a social dimension to the value proposition

Unique Value Proposition

Lies at the heart of every strategy. A set of needs that only the company can meet

The Most Strategic CSR occurs when a company adds a social dimension

to its value propositionWhole Foods Market

Unique Value Proposition

Social Dimension

• Critical analysis of procured ingredients to weed out unhealthy or environmentally damaged ones

• Use of Unbleached and Unbromated Flour• Use of Environment Friendly energy• Turning Bio-Degradable waste into Biofuels

Sell, Organic, natural and healthy food products to customers who are passionate about food and the environment

Strategic CSR • Adding a social dimension to value proposition and

making social impact integral to its overall strategy resulting in competitive advantage

• Why social value proposition is important?• Increasing Government Regulations• Exposure to criticism• Consumer’s attention to social issues

Organizing for CSR

Create shared value which should be viewed like R&D, a long term investment in company’s future competitiveness

Shift focus from an emphasis on substance rather than image

Measure social impact rather than stakeholder satisfaction

CSR needs to be incorporated in the job profiles

Choose which issues to focus upon

Moral Purpose of BusinessWhat CSR is not

•Making philanthropic contributions

•Undoing business wrongs

What CSR is•Choosing a set of societal problems that we are best equipped to resolve

•Finding a fit between strategy and social responsibility

•Creating shared value to lead to self sustaining solution.