«2001 Winner Best MBA Paper in Corporate Citizenship The Center for Corporate Citizenship at Boston College by Dan O'Brien J. Mack Robinson College of ...»
Integrating Corporate Social Responsibility
with Competitive Strategy
"Best MBA Paper in Corporate Citizenship"
The Center for Corporate Citizenship at Boston College
by Dan O'Brien
J. Mack Robinson College of Business
Georgia State University
This paper is the winner of the 2001 "Best MBA Paper in Corporate Citizenship" competition,
sponsored by The Center for Corporate Citizenship at Boston College. The Center annually
sponsors this competition as part of an initiative to support and encourage research in the area of corporate social responsibility among MBA students and faculty in North America.
The award is offered for the best paper on corporate citizenship by an MBA student. The contest is open to full or part-time MBA students enrolled in an accredited institution of higher learning in North America.
For his winning paper, the author received a $5,000 award and the opportunity to present it at the 2001 Academy of Management conference, the major convention of leading business management faculty. His faculty sponsor, Shaker Zahra, a professor in Georgia State University's Department of Management, received a $1,000 honorarium.
The MBA Competition is sponsored by corporations with the hope of increasing awareness and interest about corporate social responsibility amongst the next generation of CEOs and business leaders. The corporations supporting this project are sending a message to the next generation of CEOs that research and knowledge in this area are important to our nation's leading
corporations. The 2001 sponsors were:
• Clorox Company
• Coca-Cola Company
• Merck & Co., Inc.
INTEGRATING CORPORATE SOCIAL RESPONSIBILITY WITH COMPETITIVE STRATEGYMuch has been written on corporate social responsibility (CSR), stakeholder analysis, business strategy and competitive advantage (Maignan, Ferrell, and Hult, 1999; Kulick, 1998; Freeman 1984, Porter, 1990). Researchers have given special attention to the link between CSR and a company’s financial performance (Garone, 1999; Roman, 1999; Stanwick, 1998; Waddock, 1997). What is missing, however, is a discussion on how companies might use their core competencies to drive CSR initiatives and, as a result, achieve a significant competitive advantage.
This paper presents a conceptual framework for assessing the impact of a company’s business operations on its stakeholders and, through the analysis, create socially anchored competencies (SACs) that can be used to benefit society as well as increase profitability. By integrating SACs into their operations, companies are able to develop new or improved products and services, more efficient production processes, a strong reputation, and brand identity. The paper also examines how some companies are using SACs to increase profitability, while others are missing this important opportunity.
The paper begins with an overview of the current status of CSR giving special attention to the misalignment between business and CSR strategies in some companies. This is followed by an in-depth review of the SAC model. The next section compares and contrasts traditional CSR strategies with those envisioned using the SAC model. The last section identifies several key factors that can contribute to the successful implementation of the SAC model.
Misalignment Between CSR and Competitive Strategy The World Business Council for Sustainable Development defines CSR as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large” (www.wbcsd.com, 2000). CSR centers on the relationship between business and society and how businesses behave towards their key stakeholders such as employees, customers, investors, suppliers, communities, and special interest groups (Hick, 2000).
CSR represents an interesting evolution and culmination of philanthropy and ethics. Specifically, corporate philanthropy has evolved from the donation of cash and products to charitable organizations because “it’s the right thing to do” to more strategic philanthropy where donations are focused on a theme that has some relationship to the company’s core business (Weeden, 1998). Similarly, ethics has evolved from the company’s obligations to society to abide by the law, pay taxes, and provide employment to a more proactive approach where the firm is expected to adhere to high international codes of conduct that exceed these traditional obligations (Nelson, 1996).
Presently, stakeholders are requiring companies to go beyond the notion of strategic philanthropy and international codes of conduct. Investors want to see financial gains from their firms’ investments in CSR initiatives. Some governments have required large companies to conduct business in ways that make significant contributions to national and regional social and economic development. Non-governmental organizations (NGOs) and other civil society groups have demanded that companies adhere to very high standards that protect the environment and human rights as well as provide resources to local communities (Reich, 1998).
While a few corporations are responding successfully to these diverse stakeholder expectations, the majority of global companies continue to struggle with these issues. The problems is, in most companies, there is a serious misalignment between the business and CSR strategies and functions. This misalignment often results in the allocation of scarce company resources to CSR programs that provide minimal benefit to the beneficiaries and the business or, even worse, to decisions that can damage the company’s reputation.
There are two primary reasons why traditional CSR programs have yielded only minimal benefits.
First, CSR managers are usually given a fixed budget and encouraged to allocate the funds to a wide range of community-based charities, which allows the corporate contributions pie to be cut into more pieces and the goodwill spread among many beneficiaries. Unfortunately, any real impact is diluted. Second, corporate cash resources are allocated to social projects without taking advantage of the company’s nonfinancial assets or thinking about how the social projects could directly support business objectives. When corporate resources are allocated in this fashion, strengths that make a company competitive in its businesses are not leveraged in ways to benefit society or the company. Companies that follow this approach do not reap the full benefits of their CSR initiatives.
ExxonMobil, in its effort to be a good corporate citizen, contributes over $35 million each year through its foundation to a wide variety of CSR causes in the areas of education, health, environment, museums and the arts, community services, and women and minority interests. More than 80% of the company’s contributions are made in the area of education within the United States even though its economic lifeline is oil exploration, refinement, and processing overseas (www.exxonmobil.com., 2000).
The $35 million contribution is primarily cash grants to charitable organizations whose programs are not linked in a tangible way to ExxonMobil’s business objectives and strategy or its core competencies. It would be inaccurate and unfair to say that ExxonMobil’s contributions do not benefit society. Still, if the company would have strategically invested the $35 million in community-based programs that directly supported its business strategy and tied-in non-financial assets to these programs, the benefit to the company’s competitiveness, bottom-line, and society would have been significantly greater.
A favorable corporate reputation can enhance a company’s competitive standing and financial performance. However, the misalignment between business and CSR strategies can result in decisions that harm its hard-earned reputation. While CSR managers are usually concerned about their company’s relations with its stakeholders and how its public perceives it, business managers concentrate more on financial performance and make decisions with economics in mind. Problems occur when business managers make decisions that conflict with or do not take into consideration CSR issues.
Shell’s decision to sink the Bret Spar oil storage facility in the North Atlantic is an example of how the misalignment between Shell’s CSR efforts and business decisions hurt the company’s reputation and bottom-line in Europe. Shell consulted numerous environmental experts to get advice on how to best dispose of the Bret Spar facility, which had reached the end of its useful life. The majority of these environmental experts recommended that the safest way to dispose of the facility would be to sink it on site. In making the decision to sink Bret Spar, Shell managers failed to listen to some of its own CSR staff who suggested that the company should first gage public reactions in Europe and consult with key environmental groups. The actual sinking of Bret Spar unleashed a series of demonstrations across Europe resulting in the destruction of Shell gas stations and a boycott of its products. Some subsidiaries lost as much as 40 percent of their sales overnight because of these events (Kulick, 1999).
The Monsanto Company provides another example of how the misalignment between business and CSR strategies can damage a company’s reputation. While Monsanto’s CSR unit was engaging in a consultative process with international NGOs to both explain and understand issues around marketing genetically modified seeds in developing countries, the company’s business units were aggressively seeking approval to market the seeds in Europe, Brazil, and India despite strong negative public reaction.
Despite concern expressed by its CSR staff, Monsanto decided to introduce the controversial seed technologies in these markets. Once this decision became public, activist groups organized protests, burned Monsanto cotton fields, and boycotted its products (Kluger, 1999). In addition, prominent development organizations like Grameen and CARE cancelled their plans to collaborate with Monsanto on community projects in Bangladesh, Tanzania, and India.
The principal causes of the misalignment between business and CSR strategies can be traced to how companies’ structure, fund, and staff their CSR departments. Most large corporations implement their social projects through a corporate contributions office, community relations office, or a corporate foundation, which tend to be isolated from line-management and business decisions. They are frequently staffed by managers who wield minimal influence inside the company such as junior managers, former executives who are close to retirement, or fundraisers recruited from non-profit organizations (Himmelstein, 1997). Furthermore, these managers are given relatively restricted budgets and guidelines regarding how these resources are to be allocated to charitable organizations (Tillman, 1997).
The company’s marketing, manufacturing, operations, and other line-management functions are rarely involved in CSR programs. In fact, the lack of integration of CSR into mainstream business strategy seems to be where the field of human resources (HRM) management was several years ago. In recent years, many companies have been pushing towards strategic HRM that emphasizes a more integrated and proactive role where HR managers collaborate with line management to help formulate strategic business plans and develop an array of programs to ensure the success of the business strategy (Fischer, 1999). This is the same direction that the CSR function needs to take. Figure 1 summarizes the causes and potential consequences of the misalignment between business and CSR strategies.
While some companies are making progress at aligning their business and CSR functions in ways that maximize benefits to society and their financial performance, often missing is a practical framework that can help them achieve better strategic alignment. To address this gap in the literature, the following section presents a model that shows how a company’s core competencies can be leveraged to achieve greater alignment between CSR and business functions. This alignment can maximize both the social and business impact of CSR programs and avoid reputation-damaging decisions.
The Socially Anchored Competencies (SAC) Model As Figure 2 suggests, the SAC model represents a complex process of taking core business competencies, marrying them with stakeholder analysis, and getting a set of competencies that are socially anchored. This model provides a new lens that companies can use to identify opportunities they would have missed using the traditional corporate philanthropy lens. By integrating SACs into the business environment, companies can increase their profitability by introducing new socially responsible products or services, reducing waste and costs, and adding new “social” value to existing products and services (Porter, 1990).
Competitive strategy is the means by which companies increase profitability. While strategic decisions are long-term in nature, managers tend to focus on short-term profitability to meet the expectations of analysts and institutional shareholders. When pressured to meet short-term goals, managers often ignore patient investments in long-term value creating activities (Zahra, 1996; Zahra, Neubaum, & Huse, 2000) such as CSR. The more important action a company can take is building a strong foundation to guide the business in the future and sustain profitability in the long-term. This is where SACs can play an important role.
Core Competencies. Figure 2 shows that the SAC model begins with the company’s core competencies, which are the sets of skills, experiences, and abilities that represent the company’s collective learning. Core competencies are unique and cannot be easily imitated by competitors and, therefore, are considered the roots of a company’s competitiveness (Porter, 1990). A company’s core competencies allow it to adapt quickly to new opportunities and coordinate and integrate multiple production and technology processes to develop new products cheaper and quicker than competitors (Prahalad & Hamel, 1990).