CSR as a strategy of value

Max Oliva. Professor. IE Business School

3 December 2007

CSR is reaching a point of maturity and firms have to act quickly to develop strategies that integrate it into their core business.

Al Gore has just been given the Nobel peace prize for his clear commitment to clearing up any doubts about climate change and for working to ensure it never has the devastating consequences forecast by the research of so many scientists. Leaving aside the "questionability" of associating two of the last three winners of such a grand prize (1) with peace rather than with "making the earth a better place"(2) , we have to consider the relation between this change of Noblel Prize policy, which has differed so greatly in recent years, and its relation with Corporate Social Responsibility (CSR).

Climate change has passed its first test and is no longer merely a topic of conversation or something people talk about on a superficial level. It is going through a maturity process in which it is on the verge of becoming a central point in government policies (we must anticipate the said policies), corporate strategies and for the man on the street.

Similarly, we cannot fall into the trap of thinking that everything has been said about CSR and that we are tired of the concept, that it is repetitive and that what we say and do is old hat. It is important to point out that CSR just might remain in mainstream conversations, looking for each and every company to do similar things and approach the subject without taking into account their strategies, competencies and where they can have the greatest impact.

A new paradigm

How can we make CSR an integral part of our organisation´s strategy, where it is clearly linked to the creation of value and innovation? How can we leverage the resulting differentiation that means we can still use this approach to solve problems?

In most cases, companies’ acceptance of CSR has not been voluntary. Most IBEX 35 companies currently issue CSR reports with more or less relevant information on CSR issues (3) , but few companies have integrated CSR into their strategy and their day-to-day operations, outside those SMEs whose value for society in CSR matters is fundamental.

However, before examining CSR in greater detail, it is important to break away from the false paradigm that says that in order to obtain social value you have to sacrifice bottom-line results, given that the two are opposites. This paradigm has been cleverly rejected by Porter and Kramer (4) , who argue that it is "fundamental to identify the areas in the social context that have greater impact and that are also directly related to the creation of strategic value, improving both society and the organisation´s competitiveness".

It is therefore necessary to create a social dimension for the company´s value proposal, where the company´s value proposal is taken to mean a series of needs the company can cover for its clients that others cannot. That is when strategic CSR comes into its own, turning social impact into an integral part of the organisation´s global strategy. Doing the opposite is not only not very productive, but also endangers the chances of generating value for at least one stakeholder, be they shareholders, employees, suppliers or any others.

The company must integrate a social perspective into the methodology it uses to analyse and understand its context and to guide its business strategy. We must undertake an internal and external analysis of the organisation. We have to think about which areas we are more interested in being involved in, given that we are looking for an increase in our competitive advantage, as well as a clear impact on the creation of social value.

Following the analysis proposed by Porter and Kramer, when we carry out the internal analysis of our organisation, we must assess the internal processes, be they primary activities, such as the supplier chain, operations, distribution chain, marketing and sales, after sales service, or support activities, such as human resources, procurement, technological development and/or financial analysis, and see where our business should focus its efforts.

For example, Iberdrola’s commitment to reducing the environmental impact of its production processes holds a clear relation between its value proposal as a business and its environmental impact and, therefore, its value for society.

In turn, an external analysis must be carried out based on the context in which the company competes, including the quantity and quality of the company´s inputs, such as human resources, infrastructure, and the rules and incentives in force in competition, the size and sophistication of local demand and the related and support industries, to name just a few.

Conversation is still at a very basic stage in most firms. Undoubtedly, there are consolidated corporate practices that serve as an example, some of which are studied by academics to help define a concept that describes so many different factors, criteria and opinions. However, it can be said that CSR is reaching a new cycle that is generating a new, more detailed paradigm that will help us face challenges in this field.

One example is directing products and services at the market at the base of the pyramid (people who live on less than $2 a day and whose number totals more than 4 billion), a proposal that adds value for this segment, the members of which would otherwise not have access to said products and services. The company also benefits, gaining access to a market it had not previously considered. Another example is innovation in environmental issues, such as General Electric´s commitment to "ecomagination", raising their revenue in this area from $6.2 billion in 2004 to $10.4 billion in 2005 (5) .

The business model has to change. Part of the change is brought about by clients, who demand a clear responsibility from firms regarding society and the environment. The government also plays an important role in this context and, although its reaction is generally slow, once one of its policies takes effect, in carbon emissions for example, the consequences in entire sectors and corporate groups can be devastating if they are not taken into account.

When there is a change of paradigm, we all start from scratch. CSR strategy is at that stage. There is so much to do, so many branches in which to intervene, so many areas in which to generate value for our stakeholders and for the organisation that failure to embrace this way to generate value is a mistake. We are talking about designing a more sustainable future.

(1)This is the case of Muhammad Yunus, winner of the Nobel Peace Prize in 2006, together with Grameen Bank, for his efforts to create social and economic value from the base, with microcredits.
(2)The Economist. Man of Peace, October 12, 2007.
(3)Corporate Social Responsibility Observatory, CSR in the annual reports of the companies of the IBEX 35 from 2003-2005
(4)The Link between Competitive Advantage and Corporate Social Responsibility, Michael E. Porter and Mark R. Kramer, HBR, Dec, 2006
(5)Financial Times, Climate Change: Scientific Argument Resolved. Article by Fiona Harvey, January 23, 2007

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