CSR as a competitive advantage

As you may know I’m completing an executive master in Corporate Communications at RSM (Rotterdan School of Management – Erasmus University). The curriculum is very impressive, the professors are renowned in the field of communications and in the international market and the opportunity for networking priceless.

The last module (the course is a part time executive model with a flexible approach and monthly modules) was about CSR – Corporate Social Responsibility and really opened my eyes to the market opportunity in front of us.

I have to be honest, I always was skeptical about corporations doing philanthropy (just because they are good) or people buying products for social reasons or Santa Claus. I know that is a very realistic life approach but I believe that both, business and society, expect mutually beneficial outcomes.

The global financial and economic crisis we have been facing in the last years is mainly an ethical crisis; the lack of trust in corporations from all sectors amplified the stakeholder expectations for corporate accountability and forced most companies to invest more in ethical procedures and control in order to improve their corporate governance practices.

That scenario placed corporate social responsibility initiatives in the spotlight as part of corporations’ attempts to rebuild public confidence, putting pressure on those who work in CSR arena.

The challenge faced by the CSR professionals now is far more complex than a couple of years ago. It’s not about proving the importance of CSR for the company anymore but how it should be implemented in a long term strategy to avoid the “greenwashing effect”, leading to a lack of credibility and a waste of resources.

It’s important to win the hearts and minds of the top management and make sure that they have a broad understanding of the potential of corporate social responsibility and the necessity to minimize the negative impact of the company in society, in order to create balance and stability for the community and the company. 

The first step to convince the executive board about the benefits of CSR is to prove its value to the business by avoiding the simplistic philanthropy or charity approach and demonstrating that CSR can be an opportunity and also a competitive advantage.  It’s important to reinforce that isolated initiatives disconnected from the core business may not bring recognition or social approval. These initiatives are proven to be a waste of money and time since they are not sustainable in the long term.

Instead, the ideal is to propose activities related to the core business with a win-win approach that generates more credibility and understanding of the reasons why the companies are doing the right thing. An integrated CSR program can generate economic benefits for the company, synergy with the company’s expertise and enhance the genuine interest of the organization and stakeholders in the outcomes.

Two interesting examples of this “core business synergy” approach are mentioned in the article “Strategy and Society” published in Harvard Business Review (by Michael E. Porter and Mark R. Kramer). First,  Urbi, a Mexican construction company, has prospered by building housing for disadvantaged buyers using flexible mortgage payments made through payroll deductions. In addition, Crédit Agricole, France’s largest bank, offers specialized financial products related to the environment, such as financing packages for energy-saving home improvement and audits to certify farms as organic.

Also in the environmental area the company should take into consideration the business advantages to integrate environmental responsibility with smart business decisions. According to the same Harvard article “companies should operate in ways that secure long-term economic performance by avoiding short-term behavior that is socially detrimental or environmentally wasteful”.

Two examples of companies saving money by preserving the environment are DuPont that has saved over $ 2 billion from reductions in energy use since 1990 and MacDonald’s that reduced solid waste by 30% by changing the material used to wrap their food.

However, it’s not just about the environmental impact that the company should be concerned; the CSR program should also take into consideration the company’s social impact and the social surroundings that affect their business and the ability to continue their strategy.  The question is: how to create shared value that is at the same time significant for the society and to the business.

The Nestlé case also publicized in Harvard Business Review regarding their work with small farmers, exemplifies the symbiotic relationship between social progress and competitive advantage. Nestlé’s value chain depends on establishing local sources of milk from a large, diversified base of small farmers. However when they decided first to enter the Indian market the reality of poverty in the region deeply affected the quality of milk obtained by the local farmers. So the company decided to transform the context in ways that created value for both, the company and the region.

Nestlé invested in local infrastructure to facilitate the milk collection, hired veterinarians, nutritionists and agronomists to instruct the local farmers, distributed medicines and nutritional supplements. The whole program, the good price paid and biweekly payments by Nestlé enabled farmers to obtain credit and the local industry started to develop.

The benefits to the local community are obvious and for the company as well, the purchasing power of local farmers increased and expanded the market for Nestlé’s products and they can now rely on a stable supply of high-quality commodities without paying a middleman. That’s an example where the company has prospered and so has the community by implementing a structured CSR program aligned with the core business.   

Another obstacle faced by CSR in the company is measurement; studies can’t find a relevant link between the companies’ good social reputation and consumer’s purchasing preference or any significant impact in financial results.  The lack of consensus measurement in the area reinforces the need for a very structured CSR program aligned with the long term needs and goals of the company, bringing benefits and preventing future issues. 

A good example of a company that is working now to prevent future problems by implementing an efficient CSR program is Intel, the semiconductors company. As a high-tech company, the organization is aware that skilled high–tech engineers are essential for the future business strategy and to keep the pace of innovation, however the number of new engineers entering the market is exponentially decreasing.

To have an idea of the magnitude of the problem, according to the IET (Institution of Engineering and Technology) the lack of skilled high–tech engineers is threatening the economic growth and competitiveness of the UK. The industry organization said its annual skills survey of 500 businesses showed that more than 70 per cent of engineering and technology companies in the UK are struggling to recruit experienced or mid career level staff.

Conscious of this fact and the importance for their business success, Intel works directly with students, teachers, and universities to enable tomorrow’s innovators and to inspire the next generation of scientists and engineers. Intel encourages student interest in science and math by sponsoring science competitions and promoting innovative school science and math programs.

The company is sponsor of two premier science competitions, the Intel International Science and Engineering Fair (Intel ISEF) and the Intel Science Talent Search (Intel STS), which are both programs of Society for Science & the Public. In 2008, Intel committed to invest $120 million to extend the support of Intel ISEF, Intel STS, and related initiatives for 10 years.

Another meaningful advantage of CSR to be pointed out is the creation of a “virtuous circle” that generates strategic network alliances, enabling and protecting the corporation’s business. In the Jetwing case study (INSEAD / Social Innovation Centre 2009) it’s possible to observe how this luxury hotel chain from Sri Lanka created a mutual advantage and dependence in their local community.

After some problems between local taxi drivers and the hotel staff, who warned the guests about the taxi “thugs” creating a revolt among taxi drivers, the hotel decided to create a training program in order to improve the taxi services. The program offered instructions about rules of law, taught the history of the area and also personal care. In December 2004 the tsunami destroyed the whole area and then the hotel could see the value of their relationship with the community: the hotel was protected from being looted by the taxi drivers. 

The Jetwing also created programs to prepare young people in service and English creating their own source of high skilled workforce and trained the local villagers as guides for wildlife tourism building a self sustainable eco-tourism package for the region benefiting the local economy and their business.  

In conclusion, to persuade any executive board to engage in CSR or “make the extra mile” in doing so is necessary to remove common barriers such as lack of accurate financial measurement, lack of understanding of CSR business value in the top management and eliminate the risk of being perceived by the public as “greenwashing” or only a marketing maneuver.   

In order to do that it’s necessary to show that CSR is a strategic component for the company’s strategy capable of facilitating key achievements by positively influencing internal and external stakeholders.  This can only be achieved through the implementation of a sustainable and long term CSR program focused on:

•        “Creating a CSR program that fulfill moral obligations by achieving commercial success in ways that honor ethical values and respect people, communities and the natural environment” as asked for the Business for Social Responsibility (a leading nonprofit CSR business association in USA).

•        Assuring that the company is sustainable by “meeting the needs of the present without compromising the ability of future generations to meet their own needs”, as defined in 1980 by Norwegian Prime Minister Gro Harlem Brundtland and used by the World Business Council for Sustainable Development.

•        Promoting an effective CSR program capable of improving the company’s image and reputation in the market, that’s aligned with relevant stakeholders and business goals and needs, and brings tangible benefits for the company and society as well.

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