Corporate Social Responsibility

 

CSR is not philanthropy but the best foundation for a sustainable profit and growth strategy

 

Corporate social responsibility (CSR) was once an issue reserved for corporates and focused on supporting their brand image and public perception. It wasn’t perceived to have a potential of becoming a key component of profitable business strategy as strategists couldn’t spot direct links between CSR activities and usual objectives such as profit and growth. Fortunately this perception has changed lately although some lack of understanding about true CSR purpose still exists. This is true even with some corporate managers in developed nations.

In order to lift CSR to norm the key challenge is to get SMEs on board as they represent the majority of the world’s economic activity. Changing negative perception regarding correlation between financial business goals and CSR, in developing nations in particular, will be even more difficult as many of those economies struggle to provide their businesses with anything beyond bare survival. Adding to this, SMEs are less likely to report on their CSR activities and/or impact on environment and society they make daily. Their activities are less visible and they rarely allocate the resources to undertake additional projects about waste and pollution. However the change effort is worth taking as SMEs are believed to be the driving force of economic development in most countries.

When I asked several entrepreneurs in Serbia how CSR activities could benefit their business bottom lines most of them struggled to find an answer. Predominant perception was that CSR somehow equals philanthropy but would only drain cash from business although few recognised that improved brand image resulted from CSR activity could actually contribute sales. In the same time they emphasised weak local economy which caused many SMEs to struggle for survival or exit. Majority thought that CSR must be postponed to better times.

I was intrigued by those answers and decided to run a brief survey among my local and international business contacts. My objective was to get a structured response about the degree of CSR activity in Serbia and compare it with other regions. I asked nine questions using a rating scale 1-10 in order to measure the degree of penetration of CSR policies into strategy execution practices of respondents’ companies.

CSR survey geographical distribution

 

Majority of responses came from South Africa or Serbia – two countries where I spent most of my working life. First is one of the leading emerging economies and second a small Balkan developing country. At the end I managed to collect few dozens of answers.

 

As expected EU respondents rated their CSR strategy execution practices higher than respondents from other regions. This was probably due to high degree of industrial regulation in EU countries where companies need to comply, whether they like it or not. I am generally against lots of regulation in business environment however in this case I admit that it actually helps business.

South Africa scored relatively well although there is still a lot of room for improvement. Unfortunately Serbia scored poorly i.e. bellow other regions except for the question about CSR metrics inclusion in regular business reporting where EU, Australia and Oceania scored behind.

CSR survey results

 

Socially Responsible Entrepreneurship

 

SMEs dominate Balkan economies and the rest of developing world is more or less the same. Having this in mind I see a huge potential for SMEs to impact societies where they operate via adoption of CSR based business strategies and spreading those values to the rest of their communities. Entrepreneurs are usually well respected community members and have stronger impact on local opinion than corporates run by professional managers with headquarters thousand miles away. If an entrepreneur who belongs and employs from local community adopts CSR as a way of doing business it would set an example to other community members to adopt some of those policies, for example about energy consumption at home. In that light the term ‘CSR’ may not be particularly well suited and can be better described as ‘socially responsible entrepreneurship’.

With the objective of convincing entrepreneurs wherever they operate in profitable character of socially responsible policies when integrated into a business strategy I developed a generic strategy architecture that is CSR based, profit driven, workable and measurable. It adopts CSR policies not only for philanthropy but for profit, growth and sustainability. Let me start with definitions.

Business dictionary defines corporate social responsibility (CSR) as “A company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies express this citizenship (1) through their waste and pollution reduction processes, (2) by contributing educational and social programs and (3) by earning adequate returns on the employed resources.”

A firm’s implementation of CSR goes beyond compliance and engages in “actions that appear to further some social good, beyond the interests of the firm and that which is required by law”. A cynic might say these are no more than marketing ploys. However this is because entrepreneurs among others still struggle to recognize tangible business benefits from CSR beyond good citizenship, particularly those CSR activities that could lead to profit and growth.

 

CSR based profit and growth strategy

 

Can CSR ignite sales and profitability? There have been too many examples of CSR programs that ignore business fundamentals which is why those programs could have never become part of a core strategy but only its peripherals. This is why we need a workable model that directly links CSR commitment with traditional business outcomes i.e. sales, profit and growth. It will help those in doubt to reach for CSR based strategies more often, not only for “greater good” but for their core business interests.

The best starting point in formulating a socially responsible for-profit strategy is to always keep in mind that society and environment provide customers, employees, raw materials and energy to your business as well as habitat to your family. Without sustainable society and environment won’t be sustainable markets, resources or supply chains for business. Thus investing in them is investing in business.

This statement becomes a foundation for my CSR based profit and growth strategy and I put forward seven principles to be used during a business strategy formulation process.

  1. Draw strategy that secures sustainability for business, environment and society.
  2. Use your empathy to understand social and environmental needs of the communities where you operate.
  3. Build fulfilment of those needs into your strategy model in the way that it brings customer communities closer to your products and services.
  4. Set up a strategy execution model in a manner that increases operational efficiencies and reduces drawing from environment.
  5. Define your social contribution interests in your strategy documents and keep focus.
  6. Expand your financial business metrics with those which reflect customers’ and community’s satisfaction with your products, services, actions and overall impact on their habitat.
  7. Look for correlation between metrics, learn and change.

Companies often do not understand the needs of communities where they operate let alone the diversity among customers they serve. Managers mainly depend on market research studies and own biases to draw a picture of their customers that may not be accurate. What they need is more empathy. This is why a composition of your management team and the amount of empathy they possess play a pivotal role in understanding and gaining trust from customers which consequently affects quality of your business decisions. Probably the best solution for increasing empathy with customers is to grow and add women leaders. Although customers appear generally aware of social and environmental issues surrounding them, your women leaders should be able to educate them further and pass the message of care. Women leaders will faster achieve the imperative to be seen as “us” and not “them” as people likely assume that women care for habitat more. It will build trust and open a door for you to offer sustainable products and services that not only fulfil their consumer needs but also fulfil their social and environmental needs.

An effective sustainability strategy integrates the customer, society and the business; it does not compromise them. We know that customers want it all but trust appears to be the key brand characteristic sought by them. In today’s economy with struggling middle class in the West and high unemployment in developing nations price is still the key to many buying decisions but recognition of socially responsible brand carries a comparable level of importance in consumers’ decision-making process.

Help local communities by sourcing supplies from them. Make suppliers, their families and friends your free advertisers. Besides integration with communities your best market weapon and revenue risk mitigation strategy is innovation. Turn to communities and customers for help. Integrate them into your strategy and innovation process not only via discussion groups and social media but more directly into management teams who are responsible. A vote “directly from the market” not only speeds up the innovation process and reduces operating risk but also opens a complete new territory of possibilities for market, service and product innovation. Besides differentiation through innovation this practice secures customer loyalty and protects profits in recession or boosts them in expansion.

Retain creative employees by providing them with equally creative opportunity to fully demonstrate own potential and contribute back to the community above and beyond creating wealth for themselves. It will be your competitive advantage and differentiate your business. Besides, increasing your staff retention rate will reduce recruiting and unnecessary training costs imposed upon the business, let alone loss of momentum and productivity when good people leave.

CSR doesn’t only help revenue side of your P&L statement. It helps even more with reducing operating costs, keeping your processes competitive and business sustainable.

Focus on operations and processes. How much resource do you draw from the environment and how much trash you send back to it? How many points of inefficiency do you have in the process? Analyse details. It will definitely take time and money but ROI on that will pay handsomely.

Invest in process improvements that minimise material and process waste not only to cut costs but to reduce own pollution. Gain competitive advantage by deploying clean technologies. Keep in mind that sustainable waste management is generating cost-cutting competitive advantage for many businesses. Turn trash into cash and use recycled materials e.g. for packaging. Make energy consumption in your company a priority. Besides, everyone finds energy costs, fuel prices, and energy independence personally relevant. Think carefully about how to save money for business, meet the challenge of a specific business process and societal need, and create shared value by acting in your own best interests.

Develop proprietary approach to drive measurable business and social change objectives. Build a comprehensive business scorecard – not with high number of metrics which can be confusing and distracting from point but with interdependencies between those metrics which are fundamental for managers and key stakeholders including society. Measure the revenue and profit impact of CSR ignited business principles described above and use that as criteria in numbers-based business models.

CSR is not a short-cut to business success, but a strategy foundation and investment that can pay off in the longer term. However certain positive outcomes can be achieved after 6-12 months already, especially in waste reduction and cost management areas. To create successful and profitable CSR strategy you must lengthen decision time horizons and apply values-based criteria to decisions. The key here is to measure results and prove it is happening.

With CSR becoming proven contributor to profit and sustainability it will become more popular with “orthodox” business leaders and strategists not only in corporates but in SMEs too. Companies that haven’t integrated CSR into their strategies may still be considered industry leaders. But not for much longer. Society will put those who don’t under pressure as employees, customers, suppliers, investors and other stakeholders pass on them.

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