~ MGMT 334 ~ CORPORATE SOCIAL RESPONSIBILITY

1. ~MGMT 334~CORPORATE SOCIAL RESPONSIBILITY 2011 Summer SchoolEastern Mediterranean University

2. Chapter 3: The Strategic Context of CSR(Read Pages 43 - 61 from the main text book) 3.1 Introduction 3.2 The Strategic Lens: Vision, Mission, Strategy, and Tactics 3.3 The Strategic Lens: The E.S.C.S. Framework 3.4 The Strategic Lens: Environmental Context 3.5 Environmental Forces Propelling Greater CSR 3.6 Strategic CSR

3. Chapter 3: The Strategic Context of CSR 3.1 INTRODUCTION • There are 3 kinds of organizations: nonprofit, governmental, and for-profit. • Each exists to meet needs in society • Nonprofit: alturistic (unelfish) needs (e.g. Feeding the poor) • Governmental: civic (society) needs (e.g. Security of public) • For-Profit: economic needs (e.g. Make profit) • In a free society, organizations that do not meet needs go away.

4. Chapter 3: The Strategic Context of CSR • Non of these organizations set out to do harm. • However, organizations can create undesired consequences (as discussed before) • They [consequences] originate not from the goals of the organizations but from the methods or strategies deployed in the pursuit of organizational goals.

5. Chapter 3: The Strategic Context of CSR • In pursuing societal needs, all organizations face constraints on their methods and results. Example: • organizations should produce the results that generate profits, tax, donations, etc. needed to operate • at the same time, these results must be attained by methods that are deemed acceptable to the larger society. • So, results and methods should be balanced by the organizations’ leaders. • When these issues involve for-profits, CSR helps businesses 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 stakeholders.

6. Chapter 3: The Strategic Context of CSR The problem that a firm’s decision makers face is: Which stakeholders and what issues matter under the broad heading of corporate social responsibility as it relates to their organizations? Answer: Depends on the for-profit organization’s strategy Because these 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 enironments. The Result: It is impossible to prescribe the exact issues that any firm is likely to face at any given time. Instead, it is argued that a strategic lens offers the best viewpoint through which to study CSR.

7. Chapter 3: The Strategic Context of CSR 3.2 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 depend on the revenues that only come about through customer satisfaction. • The pursuit of profits, is a broad mandate which offers little guidance about where to begin or what to do.

8. Chapter 3: The Strategic Context of CSR • Instead, insight comes from understanding the need in society that the business seeks to meet. • That need, toward which the organizations strives, forms the basis of its aspirations or vision. • Ideally, an organization’s vision is an ennobling, articulated (fluently expressed) 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.

9. Chapter 3: The Strategic Context of CSR • Vision statements must appeal to multiple stakeholders, including: • customers, • members of the organization (employees), • its direct beneficiaries (owners), and • the larger community in which the organization operates (society). • From these aspirations, the firm’s mission identifies what the organizations is going to do to attain its vision or aspirations.

10. Chapter 3: The Strategic Context of CSR Example: • A food bank may have the vision of “ending hunger in the community,” and its mission is to “feed the poor.” • A business may have the vision of “providing the best personal transportation vehicles” and a mission of “making cars.” • The mission must balance both the methods and the results to be considered socially responsible. Vision identifies what the organization is striving toward, and the mission tells us what the organization is going to do to get there. • Both these statements are constrained by what society deems as acceptable.

11. Chapter 3: The Strategic Context of CSR • Strategy explains how the organization is going to go about achieving its vision and mission. • It defines the organization’s response to its competitive environment. For example: The food bank may have a strategy of using a mobile soup kitchen that can transport the food to where the poor live, whereas the auto firm may have a 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 organization take every day.

12. Chapter 3: The Strategic Context of CSR • The vision answers why the organization exists. It identifies the needs the firm aspires to solve for reasons. • The mission states what the organization is going to do to achieve its vision. It addresses the types of activities performed for others. • The strategy determines how the organization is going to undertake its mission. It sets forth the ways it will negotiate its competitive environment. • The tactics determine when and where the stategy will be implemented and by whom. They are the actions necessary for success.

13. Chapter 3: The Strategic Context of CSR • Effective strategy results in providing businesses with a source of sustainable, competitive advantage. • For any competitive advantage to be sustainable, however, the tactics must be executed in ways that are at least minimally acceptable to the societies in which they are deployed. • Otherwise, social, legal, and other forces may conspire against the firm, as when lawsuits punish a manufacturer for polluting the air and water.

14. Chapter 3: The Strategic Context of CSR • Both CSR and strategy are primarily concerned with the firm’s relationship to the environments within which it operates. • Whereas strategy addresses how the firm competes in the marketplace, CSR considers the strategy’s impact on relevant stakeholders. • In turn, both CSR and strategy are constrained by these environments.

15. Chapter 3: The Strategic Context of CSR • Vision, mission, strategy, and tactics (see Figure 3.1) are limited. • Limitations come from the organization’s resources and capabilities. • Other constraints on pursuing strategy include company policies that require and forbid specific actions, though these are internally imposed and can be changed by management (dashed line suggests that policy constraints are more porous or flexible) • Similarly, the sociocultural-legal-stakeholder environments, along with markets and technology, limit the firm’s actions.

16. Chapter 3: The Strategic Context of CSR Figure 3.1 The Tactics, Strategy, CSR, Mission, Vision Constraints POLICY CONSTRAINTS ORGANIZATIONAL CONSTRAINTS (Internal Resources and Capabilities) TACTICS (Specifics) STRATEGY (How?) CSR (Filters?) MISSION (What?) VISION (Why?) ENVIRONMENTAL CONSTRAINTS (Social, Cultural, Legal, Stakeholder, Markets, Technology) NOTE: 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.

17. Chapter 3: The Strategic Context of CSR • The tactics society and stakeholders expect and permit determine the environment in which the firm pursues its strategic goals and which, in turn, enable it to perform its mission and strive toward its vision. • Compounding the complexity of integrating CSR into the vision-mission-strategy-tactics linkages are the ever changing expectations of society.

18. NEXT LECTURE HOW TO PREPARE THE TERM PROJECT?

19. Chapter 3: The Strategic Context of CSR 3.3 THE STRATEGIC LENS: THE E.S.C.S FRAMEWORK Environment Strategy Competencies Structure 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.

20. Figure 3.2: The Environmental-Strategic-Competency-Structure Framework VISION Leadership Driven MISSION ENVIRONMENT STRATEGY COMPETENCIES STRUCTURE CSR FILTER • Strengths • Weaknesses • Opportunities • Threats

21. Chapter 3: The Strategic Context of CSR • Vision and mission shape strategy • Strategy is influenced by both the firm’s internal competencies and the demands of the external environment in wich it must operate. • In turn, strategy helps influence the organizational structure. • The connection among the internal strengths and the external opportunities (needs in society) is driven by the strategic axiom 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.

22. Chapter 3: The Strategic Context of CSR 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 represent 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, competencies, and core competencies is required:

23. Chapter 3: The Strategic Context of CSR Capabilities are actions that a firm can do (e.g. Pay its bills and produce some value-added good and services) 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 activites that it is difficult (or at least time consuming) for other firms to match its performance in this area. Example: Walmart has a capability to produce advertisements; it has a competency to locate stores where they will be successful; and it has a core competency of maintaining and distributing its inventory throughout the supply chain (better than its competitors).

24. Chapter 3: The Strategic Context of CSR STRATEGY • Walmart’s vision of offering the best customer value in retailing gives rise to a mission of delivering groceries and other consumer products efficiently. • That vision and mission are attained by a strategy of passing on cost savings to customers by continually seeking to roll back their “everyday low prices.” • In turn, that strategy is built upon competencies and core competencies, which are the competitive weapons with which Walmart competes. • How Walmart folds its competencies into a strategy and then how it deploys that strategy vis-a-vis stakeholders determines how society views the degree to which Walmart is socially responsible.

25. Chapter 3: The Strategic Context of CSR STRATEGY • Walmart’s activities (e.g. Advertising) + competitive advantage (efficient inventory) interact and reinforce each other. • With these competencies supporting its strategy, it creates a virtuous cycle – Walmart’s lower prices attract more customers. • More customers means: • Greater volumes • Increased economies of scale in operations • Greater power in demanding price reductions form its suppliers Result: even lower prices and more cusomers

26. Chapter 3: The Strategic Context of CSR STRATEGY The strategy rests upon the competencies of the firm and supports its mission and vision. If competitive environment demands a different strategy, the existing capabilities or competencies of the firm may no longer be sufficient. Example: If Walmart receives negative publicity because of low-paid workers, it will be forced to make changes in competencies in public relations, advertising, and human resource management.

27. Chapter 3: The Strategic Context of CSR STRATEGY • Walmart’s activities (e.g. Advertising) + competitive advantage (efficient inventory) interact and reinforce each other. • With these competencies supporting its strategy, it creates a virtuous cycle – Walmart’s lower prices attract more customers. • More customers means: • Greater volumes • Increased economies of scale in operations • Greater power in demanding price reductions form its suppliers Result: even lower prices and more cusomers

28. Chapter 3: The Strategic Context of CSR STRATEGY • When environmental changes occur, leaders face a make-or-buy decision. • Should the needed competencies be developed internally (make) or acquired from others outside the firm (buy)? • Historically, many large firms have had the resources to develop the needed competencies internally through hiring and training • Today, due to changes in external environment, firms often buy the needed skills from others because of the need for speed of execution.

29. Chapter 3: The Strategic Context of CSR STRATEGY • If the decision makers decide to buy the needed capabilities or competencies , leaders then face a second decision: whether to bring the needed capabilities under the control of the organization structre or to outsource those activities via contractual relationships with suppliers. • When the activity is seen as a core competency (e.g. Managing inventory at Walmart), most firms seek to capture that activity within the structure of the firm to strengthen this vital component of their strategic advantage. • If the activity is seen as peripheral, such as calculating and printing payroll checks, the firm will often outsource the activity if it is cheaper or faster to do so.

30. Chapter 3: The Strategic Context of CSR STRATEGY • Walmart’s approach is primarily a cost-based form of competition, or business strategy. • Mercedes-Benz does not seek to produce the lowest-priced cars, instead it competes based on differentiation (e.g. Safety, presitge, and durability). • McDonald’s strives for a focused strategy that embraces both low costs and product differentiation. Whether a firm compete on costs, differentiation, or a focused strategy that embraces either cost or differentiation (or both), strategy seeks away for the firm to provide customer-focused value added as a means of gaining a competitive advantage.

31. Chapter 3: The Strategic Context of CSR STRUCTURE • The structure – the organizational design – exists to support the strategy of the firm. • What architects say of a building, organization designers say of the firm’s structure: The form follows the function. • Expertise is often concentrated into a functional organization design, in which • site location, • store construction oversight, • information systems, • warehousing, • distribution, • store operations, and • other like activities are grouped together by their common functions into specialised departments.

32. Chapter 3: The Strategic Context of CSR STRUCTURE • This organizational form support the functions necessary for the firm to implement its strategy successfully and thus is called a functional organization design. • In the case of Walmart, different parts of the company might pursue diferent structural designs. Example: • Support activities like accounting or finance may be grouped by function at corporate headquarters. • The store management oversight and distribution systems may be organized along geographical lines (e.g. Overseas store operations)

33. Chapter 3: The Strategic Context of CSR STRUCTURE • At NIKE, CSR is such an important function that is built into the firms’s structure in the form of a separate CSR department, headed by a vice president. • 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 from company to company within an industry.

34. Chapter 3: The Strategic Context of CSR 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. • The intent is to take a viable strategy and make it optimal for the stakeholder environment in which the strategy must be executed.

35. Chapter 3: The Strategic Context of CSR THE CSR FILTER • 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 application of societal based considerations screen strategies for their impact on the firm’s multiple constituents. • Together, these stakeholders form the larger environment, called society, within which the firm operates and seeks to implement its tactics, strategy, mission, and vision.

36. Chapter 3: The Strategic Context of CSR 3.4 THE STRATEGIC LENS: ENVIRONMENTAL CONTEXT • Customers, competitors, economics, technology, government, sociocultural factors, and other forces all drive changes in the firm’s external environment. • Often these changes are gradual but over time their cumulative impact redefines the competitive environment and what organizational strategies and actions are deemed socially acceptable. • The evolution of what is socially expected of organizations typically migrates from discretionary to ethical to mandatory (legal and economic). Example: Equal Pay Act – USA 1963

37. Chapter 3: The Strategic Context of CSR 3.4 THE STRATEGIC LENS: ENVIRONMENTAL CONTEXT • Generally, once society recognizes a particular form of discrimination, or other socially unacceptable action, the perceived abuse can lead to a legally mandated correction such as Equal Pay Act. • Consequently, the range of socially acceptable employment policies used to facilitate competitive strategies has changed greatly. • Similar changes can be identified with regard to environmental pollution, product safety standards, financial record keeping, and scores of other, previously discretionary behaviors. • Once discretionary issues evolve into legal constraints, meeting socital expectations becomes an absolute requirement, enforced by criminal or civilian sanctions.

38. Chapter 3: The Strategic Context of CSR 3.4 THE STRATEGIC LENS: ENVIRONMENTAL CONTEXT • More difficult to identify are issues not yet subject to legal mandates. • If leaders exercise discretionary authority to attain economic ends but that use of their authority is deemed socially irresponsible, the consequences may dmage sales, employee recruitment and retention, financial support from investors and markets, and a host of other important relationships. Question: What should a company do?

39. Chapter 3: The Strategic Context of CSR One extreme: Milton Friedman who considers the CSR-related issues as a distruction from the firm’s profit-seeking and wealth-creating functions. Friedman has stated that as long as a company can remain in business, it should be entitled to do so because it provides jobs for society and a return on investment for shareholders. The other extreme: the argument that society has the right, even the obligation, to restrain the negaive excesses of business. This position states that just as societies rely on the commerce and industry businesses create, companies unarguably rely on the resources of the societies within which they are based. No organization exists in isolation, and businesses, without exception, have an obligation to contribute to the communities on which they rely so heavily for employees and financial or other resources.

40. Chapter 3: The Strategic Context of CSR 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 of that are deemed acceptable to the larger society. • As we argued before, stakeholders have the right and the power to determine waht is acceptable corporate behaviour. • Long-term business success demands at least minimum compliance with societal expectations.

41. Chapter 3: The Strategic Context of CSR Strategic CSR brisges both these arguments. Otherwise, stakeholders can limit the firm’s ability to earn profits and create wealth. Simply: 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.

42. Chapter 3: The Strategic Context of CSR • In terms of CSR, very littler is discretionary anymore. • Past expectations that viewed businesses narrowly as profit engines and little more have been altered beyond recognition by globalization (and particularly the free flow of information that drives globalization) and growing affluence. • Wealthier societies, given information about firm behaviours that are deemed irresponsible, have the resources to demand responsibility, even if those actions cost society more. Example: Wealthier societies demand car producers make safer and less polluting cars. They can pay extra for safety measures etc.

43. Chapter 3: The Strategic Context of CSR • In today’s globalizing world, shareholder value can be maximized over the long term only if the firm addresses the needs of as many stakeholders groups as possible. • Satisfying stakeholders is often most efficiently achieved by adopting a CSR perspective as part of strategic planning, especially within informed and affluent societies.

44. Remaining of the Term Please make sure that you reserve for your presentation date until 11 August 2011 (Thursday). You should provide me with a copy of your presentation before your presentation day.

45. Chapter 3: The Strategic Context of CSR 3.5 ENVIRONMENTAL FORCES PROPELLING CSR Four environmental forces are driving CSR to the forefront of corporate strategic thinking: • Growing affluence • Globalization • Communications technologies • Brands Collectively, they are reshaping the business environmnet by empowering stakeholder groups. Each of these trends interacts with the others, therefore environmental context will change at a rapid rate (often in ways not foreseen by today’s best strategies)

46. Chapter 3: The Strategic Context of CSR CSR & GROWING AFFLUENCE We discussed before that CSR issues tend to gain foothold in societies that are more affluent (e.g. Society where people have jobs, savings, security, and can afford the luxury) As public opinion evolves and government regulation races to catch up, actions previously thought of as discretionary often become legal obligations. Result: The greater attention to CSR is found in developed economies. It would be shortsighted to assume that CSR is only applicable where there is affluence.

47. Chapter 3: The Strategic Context of CSR Increasingly, multinational corporations are being held to high standards for their overseas activities in developing countries. Examples: Nike requires its subcontractors in developing nations to provide wages and working conditions above the local norms. However, Nike is still criticised by the activists. Why? International petrolium companies are protested against pollution, deforestation, and civil disruption both internationally and at home. Conclusion: competitive strategies must consider the ever shifting pattern of societal expectations that become emboldened (encouraged/supported) by the greater choices affluence affords societies.

48. Chapter 3: The Strategic Context of CSR CSR & GLOBALIZATION • Increasingly, corporations operate in a global business environment. • The Internet, which drives this global environment, is a powerful enabling tools for communication and education • However, it also depersonalizes relations 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 incentive to maintain strong local ties.

49. Chapter 3: The Strategic Context of CSR CSR & GLOBALIZATION • 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 multinational company can afford to ignore CSR, even if employees or consumers appear not to care. • Differences in cultures across the globe lead to widely varying expectations of workers, customers, governments, and citizens. • Actions that may be acceptable, even required, in one culture may be prohibited in another.

50. Chapter 3: The Strategic Context of CSR CSR is more relevant today than ever before because of globalization. In terms of the relationship between corporations and their various stakeholders, this process of globalization appears to be progressing through two phases (Figure 3.3). Phase 1: 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.