The Strategic Context of CSR

Introduction
• There are three kinds of organizations: nonprofit,
governmental , and for- profit.
• Each exits to meet needs in society.
• Those needs may be philanthropic, such as feeding
the poor, in case of a non- profit; they may be civic
such as providing for the safety and security of the
public, in case of government agencies; or they may
be primarily economic, such as organizing resources
to meet societal needs in ways that yield a surplus for
the owners, called profit.
• In a free society, organizations that do not
meet needs go away. Putting differently, no
publically traded company, government or
nonprofit initially sets out to do harm.
• In pursuing societal needs all organizations face
constraints on their methods and results. For
example, the economics of survival requires each
entity to produce the results that generate the
donations, taxes or profits needed to operate.
• At the same time, these results must be attained by
methods that are deemed acceptable to the larger
society. Leaders of the various organizations tries to
establish balance between methods and results.
• When these issues involve for profit, CSR helps businesses to
balance the means they use and the ends they seek. It does
this by ensuring that profit seeking businesses plan and
operate from the perspective of multiple .
• The problem that a firm’s decision makers face is simple to
state: Which stakeholders and what issues matter under the
broad heading of corporate social responsibility as it pertains
to their organisation?
• The answer depends on the for- profit’s strategy. And ,
because profit strategies vary widely, the right mix will differ
from firm to firm and will evolve over time as firms adapt
both their strategy and execution to increasingly turbulent
operational environment.
• It is impossible to prescribe the exact issues that any firm is
likely to face at any given time.
• Instead a strategic lens offers that best viewpoint through
which to study CSR.
The strategic Lens: Vision, Mission, Strategy and
Tactics
• Companies need to view CSR through a strategic lens.
• Although businesses exist for many reasons, survival depends on
profits. These profits depends on revenues that only come about
through customer who are satisfied with the value the firm offers
through its competent and motivated employees.
• The quest of profits, however, is so broad a mandate that it offers
little guidance about where to begin or what to do.
• Indeed, insight comes from understanding the need in society that
a business seeks to meet.
• The need, towards which the organization strives, forms the
basis of its aspirations or Vision.
• Ideally, an organization's Vision is an ennobling, articulated
statement of what it seeks to be and become.
• A vision that ignores, the larger role that a firm plays in
society is likely to be neither ennobling nor sustainable.
• Vision statements must appeal to multiple stakeholders ,
including customers, members of the organization
(employees) , its direct beneficiaries (owner) and the larger
community in which the organisation operate.
• Firm’s Mission identifies what the organization is going to do
to attain its vision or aspirations. For example, a food
company may have the vision of “ ending hunger in the
community”, and its mission is to “ feed the poor”. A
transport business may have the vision of “ providing the best
personal transportation vehicles” and a mission of “making
cars”.
• Mission must balance both the methods and the results to be
considered socially responsible.
• Vision identifies what the organization is striving towards and
the mission tells us what the organisation is going to do to
get there. Both these statements are constrained by what
society deems as acceptable.
• Strategy explains how the organisation is going to go
about attain its vision or mission . It defines the
organization’s response to its competitive
environment. Thus the food company may have a
strategy of using mobile soup kitchen that can
transport the food to where the poor live, whereas
the auto firm may have strategy of producing high-
end sports cars.
• Tactics are the day –to- day management decisions
that implement the strategy. Tactics are the actions
people in the organisation take every day.
 The Tactics, Strategy , CSR , Mission , Vision
Constraints
Organizational Constraints
(Internal Resources and capabilities)

Policy
Constra
ints

Environmental Constraints
(Social, Cultural, legal, Stakeholders, Markets, Technology)
• A sustainable effort to attain a firm’s mission and vision
depends on a strategy and tactics that are evaluated through
the CSR filter within the organizational policy and external
environmental constraints under which the firm must operate.
• Both CSR and strategy are primarily concerned with the firm’s
relationship to the environment within which it operates.
Whereas strategy addresses how the firm competes in the
marketplace, CSR considers the strategy’s impact on relevant
stakeholders .
• In fact both CSR and strategy are constrained by these
environment.
The Environment- Strategic- Competency-
Structure ( E.S.C.S) Framework

Vision
Leadership
Driven
Mission

E C
N O S
V S M T
I T P R
R E U
R T
O A C
CSR T
E
T
N N
M Filter E C U
E G I R
N Y E E
S
T
•Opportunities
•Threats •Strengths
•Weaknesses
 The Strategic lens: The E.S C. S Framework

• For a business strategy to provide a source of sustainable

competitive advantage assumes a marriage of the firm’s
internal strengths( its competencies) with its external
(environmental) opportunities.
• Multiple arrows show that vision and mission shape strategy.
Additionally, strategy is influenced by both the firm’s internal
competencies and demand of the external environment in
which it must operate.
• In turn, strategy helps influence the organisational structure.
• The connection among the internal strengths and
the external opportunities (needs in society) is
driven by the strategic saying that success depends
on a position of competing from strengths; however
for the strategist to connect strengths with
opportunities in a globalizing business environment
requires an intimate understanding of both, while
implementing the competitive strategy through a
CSR filter.
• CSR filter fits between strategy and the environment
in which the strategy operates.
• A better understanding of the role CSR plays in
a firm’s strategic success (the CSR filter)
requires an understanding of the interplay
among a firm’s competencies, strategy, and
structure as it faces its environment.
 Competencies
• For a firm to compete from strengths, it must have and be able to
identify them. These strengths represents the critical factors that
determine how the firm will compete in the external environment.
• To facilitate an understanding of strengths, a clear differentiation
among capabilities, capabilities, competencies and core
competencies is required:
– Capabilities are action that a firm can do, such as pay its bills
and produce some value added good or service.
– Competencies are actions a firm can do and can do very well.
– Core competencies are actions a firm does very well, and it is so
superior at performing these activities that is difficult (or at least
time consuming) for other firms to match its performance in
this area.
 Strategy
• Strategy helps in attaining Vision and Mission of a
company.
• Strategy is built upon competencies and core
competencies, which are the competitive weapons
with which firms competes in the markets.
• Thus, the strategy rests upon the competencies of
the firm and supports its mission and vision.
• When the competitive environment demands a
different strategy, the existing capabilities or
competencies of the firm may no longer be
sufficient.
• When environment changes like these others occur,
leader face a make or buy decision. Should the
needed competencies be developed
internally( make) or acquired from others outside the
firm (buy)?
• Whether firms compete on costs, differentiation, or
a focused strategy that embraces either cost or
differentiation (or both) strategy seeks ways for the
firm to provide customer focused value added as a
means of gaining a competitive advantage.
 Structure
• The structure- the organizational design- exits to
support the strategy of the firm. What architects say
of building, organizational designers say of the firm’s
structure: The form follows the function.
• Thus, expertise is often concentrated into a
functional organization design, in which site location,
store construction oversight, information systems,
warehousing, distribution, store operations and like
other activities grouped together by their common
function into specialized department.
• The optimal organizational design is the one
that best supports the firm’s strategy, giving
attention to key functions.
• Therefore, organization structure varies from
industry to industry and form company to
company within an industry.
 The CSR Filter
• Competencies molded into a strategy and supported
by structure are no longer sufficient for success.
• It is vital that firms also consider the societal and
stakeholder implications of these aspects of
operations.
• The CSR filter is a conceptual screen through which
strategic and tactical decisions are evaluated for
their impact on the firm’s various stakeholders.
• Here the intent is to take a viable strategy and make
it optimal for the stakeholder environment in which
the strategy must be executed.
 Filter contd….
• Although CSR is only one part of the strategic
big picture, even clever strategies can fail if
the strategy or its implementation is
perceived as socially irresponsible.
• The CSR filter injects multiple considerations
into the decision mix beyond the profit
maximization goals that are central to the
firm’s survival.
 The Strategic Lens: Environment
Context
• Customers, competitors, economics, technology,
government, socio- cultural factors and other forces
all drive changes in the firm’s external environment.
• These changes are gradual and invisible to all but the
keenest observers. But over time, their cumulative
impact redefines the competitive environment and
what organizational strategies and actions are
deemed socially acceptable.
• Overtime, actions previously considered discretionary or
ethical can be codified as laws or government ruling and
finally as economic components of operations
• For example, many firms in the United States once blatantly
paid women less than men for the same work. For whatever
justifications that were applied, this behavior was within the
discretionary decision making authority of the business.
Gradually these discrimination was seen to be unfair, even
unethical. Then in 1963 the federal govt. enacted the Equal
Pay Act which outlawed discrimination in pay solely based on
one’s gender.
• Today, diversity in the workplace is viewed as an economic
imperative, helping firms respond effectively to their
consumer needs.
 Profit v/s society
• At one extreme are the views of Milton
Friedman, that consider that CSR related issue
is a distraction from the firm’s profit- seeking
and wealth creating functions. Friedman has
stated that as long as company can remain in
business (consumer continuing buying its
products or services), it should be entitled to
do so because it provides jobs for society and
a ROI for shareholders.
• At the other extreme lies the argument that society
has the right, even the obligation , to restrain the
negative excesses of businesses.
• This position states that just as societies rely on
commerce and industry business create, companies
unarguably rely on the resources of the societies
within which they are based.
• No organization exits in isolation and business
without exception, have an obligation to contribute
to the communities on which they rely so heavily for
employees and financial or other resources
• Strategic CSR bridges both these arguments . A business
cannot ignore its profit seeking and wealth creating functions
if it is to remain in existence; however if the firm is to survive
beyond the short run, it must pursue these ends of profits
and wealth creation by means that are deemed acceptable to
the larger society. Ultimately, stakeholders have the right and
the power to determine what is acceptable corporate
behavior.
• The standard that society applies to define socially
responsible behavior embrace moral, cultural, ethical,
historical, economic and other issues.
• Regardless of what those standards are or how they are
transmited , long –term business success demands at least
minimum compliance with societal expectations
• Simply put, businesses are increasingly
expected to pursue their strategies in ways
that do not harm others; and as societies
become more affluent and interconnected,
the definition of harm changes constantly.
 Environmental Forces Propelling
Greater CSR
• Four environmental forces are driving CSR to the forefront of
corporate strategic thinking: growing affluence, globalization,
communications technologies, and brands.
• Any one of these drivers might be ignored by managers not
convinced of the strategic benefits to the firm of CSR.
Collectively, they are reshaping the business environment by
empowering stakeholder group.
• And, because each of these trends interacts with others, the
reinforcing effects mean that the environmental context will
not only change but will change at an increasingly rapid rate,
often in ways not foreseen by today’s best strategists.
 CSR and Growing Affluence
• CSR issues tend to gain a foothold in societies that are more
affluent- societies where people have jobs, savings, and
security and can afford the luxury of choosing between, for
example, low- cost cars that pollute an those that do not.
• As public opinion evolves and government regulation races to
catch up, actions previously thought of as discretionary often
become legal obligations.
• As a result , the greatest attention to CSR is found in
developed economies; however it would be shortsighted to
assume that CSR is only applicable where there is affluence.
 Example
• In the past, manufacturer have often been able to externalize
some of their production costs to the higher society by
polluting the environment. When the majority of people are
desperately focused on the need for jobs to feed their
families, pollution seems of limited concern.
• When most members of a society are desperately seeking
food, shelter, and other necessities of life, CSR seems a luxury
of little relevance. As societies become increasingly affluent,
however , the collective understanding of social issues, like
pollution, grows, as does the ability of society to afford
solutions
• Increasingly, MNC are being held to high standards
for their overseas activities in developing countries.
Nike for example typically requires its subcontractors
in developing nations to provide wages and working
conditions above the local norms.
• Protest against pollution, deforestation and civil
disruption by international petroleum companies
have occurred (both internationally and at home)
when the companies operating standards overseas
have been considered as harmful to host countries
societal interest.
 CSR and globalization
• Corporations operate in a global business
environment.
• The internet, which drives this global environment, is
a powerful enabling tool for communication and
education; however, it also depersonalizes between
individuals and reduces our sense of an immediate
community.
• This in turn, affects a business’s sense of self interest
and can loosen the self- regulating incentives to
maintain strong local ties.
• Globalization, therefore, transforms the CSR debate and
magnifies its importance exponentially.
• A domestic context is not the only lens through which the
issue of CSR should be viewed.
• Today, no MNC can afford to ignore CSR, even if employees
or consumer appears not to care.
• Difference in cultures across the globe lead to widely varying
expectations of workers, customers, government and citizens.
• Actions that may be acceptable, even required in one culture
may be prohibited in another.
The Two Phases of Globalization
• Phase I of globalization greatly empowered
corporations, enabling them to expand
operations on a worldwide basis, shift
manufacturing offshore, reform supply
chain ,management, and develop powerful
global brands.
• M& A activities blossomed and as companies
grew their power increased significantly.
 Phase II of Globalization
• As globalization transcends the control of nation
states, the power of global firms expands further.
Companies today are free to incorporate offshore to
avoid paying high taxes than in their home country.
• They are also increasingly able to move their
manufacturing operations to lower cost
environment, often in countries with less rigorous
labor and environmental regulations.
• Globalization however creates countervailing forces
that are capable of curtailing corporations expanding
power. Corporations are losing control over the flow
of information, which empowers NGOs and
consumer activists to communicate and mobilize.
• Companies now are not able to dictate quality and
quantity of information about their company and
how that information affects the social debate.
 CSR and Communication
Technologies
• Phase II of globalisation suggest a shift in the
balance of power concerning control over the
flow of information back toward stakeholders
in general and three important constituents
group in particular.
• First, the internet has greatly empowered
consumer because of the access it provides to
greater amounts of information, particularly
when an issue achieves a critical mass in the
media.
• Second, globalization has increased the influence of NGOs
because they too, are benefiting from easily accessible and
affordable communication technologies. These tool empower
NGOs by enabling them to inform, attract, and mobilize
geographically dispersed individuals and consumer segment
helping to ensure that socially immoral activities achieve
visibility .
• And third, new tools of communication and the demand for
infrastructure information have enhanced the power of
media conglomerates. corporations today are unable to hide
behind the flag leaves of superficial PR campaigns .
 The Free Flow of Information in a
Globalizing World

Internet
Media
conglomerates

Stakeholders Information
( consumers, NGOs) And
Communications

E-Mail
Wireless
• Companies in such situation may be well
advised to try to anticipate stakeholders
needs and begin promoting operations from a
CSR perspective rather than fight against the
free flow of information.
 CSR and Brands
• Brands today are often a focal point of corporate
success.
• Companies try to establish popular brands in
consumers’ minds because it increase any
competitive advantage they hold that in then directly
reflected in sales and revenue.
• Three benefits of CSR to brands:
– Positive Brand building
– Brand Insurance
– Crisis Management (Recalling of products by J&J and saved
brand)
• Brand value is critical to firms, whether on the local or global
stage. Today the value of intangible brand may even the value
of firm’s tangible assets.
• The Coca- cola brand, for example, is worth significantly more
than half of the company’s total m-cap.
• So given the large amount of time, money and effort
companies invest in creating brands, a good CSR policy has
become vital component of a successful corporate brand- an
effective means of maximizing its market appeal while
protecting the firm’s investment over the long term.
 The Strategic CSR Model

Aspirations Statement
(VISION)

Strategic
Intent Statement
(Mission

Environmental
Factors and Strategy Competencies
stakeholders

Corporate operations: Finance, Accounting , Human Resources ,

marketing, Operations

Strategic (CSR) Imperatives

(Strategic objectives)

Strategic Initiatives
(Action Oriented Projects)
 Strategic CSR
• Corporate success assumes that strategy matches internal competencies
with external opportunities in such a way that the firm achieves its
mission as it strives towards its vision. An effective CSR policy requires
proactive action (regarding strategic initiatives) that helps the company
achieve its strategic and CSR objectives.
• As societies in general become even more affluent, societal expectations
evolve, and communication technologies become even more widespread ,
greater and greater demands for CSR will result.
• Certainly, moral and rational argument exist for companies to act in a
socially manner; however , a strong economic incentive also exists to be
perceived as a net contributor with in a society and provides the strongest
reason for the implementation of CSR with the long term viability of the
organization.
• Companies need to reflect the concerns of society through
substantive actions, especially regarding the consumer base
of their target market. Ideally, progressive companies seek to
stay ahead of these evolving values and are able to meet new
stakeholders demands as they arise.
• The balance of power and influence is shifting between
corporations and their stakeholders because of this change in
control of the flow of information. An effective CSR policy
allows firms to take advantage of these changes and
maximize their economic performance in an increasingly
globalizing world.
• Key to practical impact of CSR, therefore is ability to persuade
business leaders that CSR offers strategic and economic
benefits. Firms can only maximize shareholders value in a
globalizing world by utilizing strategies that address the needs
of key stakeholders. CSR driven by stakeholders theory,
delivers these results.
• It is a means of allowing firms to analyze the total business
environment and formulate appropriate organizational
strategies.
• It can protect the firm and its asset, while also offering a point
of competitive differentiation.