Social Responsibility And Market Share - Case Study Example

Social Responsibility And Market Share Table of Contents Social Responsibility And Market Share 1 Table of Contents 1 Corporate Social Responsibility: Bringing Big Organization Back 1 1. Introduction 1 2. Different Strategic Levels 2 3. Corporate Social Responsibility 3 4. PESTEL Analysis 5 4.1 Political and Environmental factor 6 4.2. Social factors 6 4.3. Economic factors 7 4.4. Technological factor 7 4.5 Legal Factor 7 5. Conclusion 8 6. References 9 Corporate Social Responsibility: Bringing Big Organization Back 1. Introduction In 1990s, small and medium organizations gained dominance in the market primarily due to technological and telecommunication advancement. Other factors that contributed to their dominance included cost advantage and specialized expertise. Big organizations seeing the advantages gained by small organizations started acquiring and merging with leading small organizations in order to capture/enhance their market-shares. Another influential factor that helped big organizations in gaining dominance was the rising concern for global warming and conservation of natural resources. International agencies like United Nations (UN) strictly implemented many environmental laws like EnergyStar rating (for energy efficient appliances), recycling laws, and Kyoto Protocol (in order to control emissions to the atmosphere) to control growing degradation of the environment. This ensured that small as well as big organizations took steps to meet different requirements set up by these agencies. However, due to expensive nature of implementation, it was easier for big organizations to follow the guidelines set by International agencies as well as the government of the countries they were located. Big organizations were able to implement the laws and thus were able to take steps towards responsible actions and initiatives or corporate social responsibility (CSR). They implemented corporate social responsibility in their strategies in hope to attain competitive advantages in the market (Porter and Kramer 2008). The rising concern for the environment protection has led many big organizations to change their strategies. Depleting natural resources, increasing global warming and increasing consumer awareness are paving ways to a more sustainable approach of doing businesses. Climate changes and political pressures in order to reduce greenhouse gas (GHG) emissions have brought changes in organizational strategies. Another factor that has contributed to reassessment of their businesses and corporate strategies is the rising awareness of the consumer about the environment and the intense green movement. The green movement has given precedence to corporate social responsibility which has become the buzzword in the business world. To address the environmental needs and to meet the restrictions placed by the International agencies, strategy managers and high level executives are incorporating various CSR initiatives. They opt to use PESTEL (Political, Economic, Social, Technological, Environmental and Legal) model to incorporate these initiatives by identifying which areas will be impacted by various CSR initiatives. For example, recycling of paper will address the political aspect of PESTEL model as it is following the restrictions placed by the UN. With the help of this model, business-strategic managers can identify various CSR initiatives and adopt those addressing each aspect of the model at various strategic levels. 2. Different Strategic Levels Strategy defined as “the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations” (Johnson and Scholes 2006). From big to small organizations, strategy is important as it highlights the direction the business is trying to take, the scope of their business, expectation from their stakeholders, the utilization of their resources, and their advantages over its competitors. In big organizations, strategy exists at several levels: corporate strategy, business unit strategy and functional unit strategy whereas in small organization, the levels are intermingled with each other. The corporate strategy is concerned with the overall purpose and scope of the business (Mintzberg et al 2005). For example, Microsoft takes a strategic approach to accessibility in product planning, research and development, product development and testing. They are continuously working to make the computer easier to use and handle by building various accessibility features into Microsoft products. They have also ensured that Windows is most used platform for assistive technology manufacturers. They have built strong collaborative relationships with key government agencies and organizations concerned with disabled people (Microsoft, 2009). The business unit strategy is concerned with strategy of product line or any division. It is more to do with sustaining competitive advantage. At this level, the strategy deals with positioning of the business against its rival, changes in demand and technologies, are influencing the nature of competition through actions like vertical integration and political actions (Mintzberg et al 2005). The Porter’s model for competitive advantage cost leadership, differentiation and focus is generally applied to formulate business unit strategy. (Porter 1985). Google for example, follows the strategy of differentiation at the business level. They offer many unique products and services that address the need of different kinds of customers. The most popular service is the Google web search engines and social networking site Orkut. The search engine differentiates itself by utilizing a patented system called PageRank. Another way it differentiates itself from its competitors through its Google AdWords for advertisers which is easy to create and manage online advertising accounts. The ads appear across various Google’s partners which helps the advertisers to target customers in specific geographical locations (Google, 2009). The strategy at functional level of the organization is related to business processes and value chain. It involves the coordination among various departments like marketing, human resources, research and development and operations. Strategy at this level is developed and extended from the corporate strategy. The functional level strategy of Wal-Mart is their price-point sales. Some of their items are extremely low cost and they are positioned in such a way that the consumer believes that everything in Wal-Mart is cheaper. The purpose is to pull and retain the customers into store. To develop such a strategy, Wal-Mart is involved in tremendous amount of planning, organization and thought process into their price points. The price points are evaluated based on the last year’s sales, on customer requests and demands, and trends of the product line (Knight, 2008). In the current scenario, all organizations whether it’s a small organization or big organization are developing the strategy around the most important stakeholder; the consumer. The consumer awareness and demand for environmental friendly products or green products are an important factor for development of strategy of a responsible organization through corporate social responsibility (CSR) initiatives in place in corporate strategy. Studies have also shown that the socially responsible corporate have an affect in the market share irrespective of age, size and type of industry (Crystal & Owen 1993) and attain competitive advantage (Porter and Kramer, 2002). 3. Corporate Social Responsibility The concept of corporate social responsibility is defined 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"(Watts and Holme 2000). It is about creating wealth from the society and giving it back in some other form to the society. Although introduced in 1970, it became very popular during the late 1990s. The concern for the environment due to waste emissions in the form of carbon monoxide that is responsible for global warming, land and water pollution due to toxic waste emission and high consumption of energy that is depleting our natural resources have made the companies more aware of the environment. The environmental protection is the key feature of corporate social responsibility where the emphasis is to protect the environment in terms of wildlife, forests, land, water and air. Most of the companies from manufacturing industry to retail industry to fast food industry have implemented various initiatives that deal with this aspect of CSR. Big Brands like Apple, IBM, and General Motors have all discovered the usefulness of going green and hence their advertisements reflect their green initiatives. Apple Inc, for example has launched ‘A Greener Apple’ campaign that highlights their pledge to remove toxic chemicals from its new computer products. Even Macdonald’s, the fast food chain has incorporated CSR initiatives in its strategy. One of the most popular advertisements is Ecomagination by General Electric1. GE was considered by Environmental Protection Agency of United States to be one of the biggest polluters in terms of air and water pollution. Hence, to improve its brand image, it is endorsing itself as environmental friendly brand through Ecomagination (General Electric 2009). It highlights the various corporate social responsibility initiatives that improve environmental footprint by using their products. The advertisements are well designed to highlight the role of GE in a sustainable economy. There are three types of corporate social responsibility: value-driven CSR, performance driven CSR and stakeholder driven CSR. In value-driven CSR, the value is presented in the company’s core values, visions and culture. This is evident in the corporate strategic levels where the long term goals of the company with regard to CSR initiative are established. In performance driven CSR, healthy working conditions and safety of the workers is of prime importance. In stakeholder CSR, the conservation of the environment is given importance. The ways in which the company presents itself as a socially responsible corporation through philanthropic programs, sponsorships, volunteerism, code of ethics, quality programs, health and safety programs and environmental programs. This is also reflected at the business strategic level as it defines the environmental friendly way the organization can do its business. The different stakeholders that are at the receiving end of the corporate social responsibility initiatives are community, employees, suppliers, customers and shareholders. The community benefit through scholarships in domains like arts and culture, education of kids, improvement of quality of life of children, and conservation of the environment. MacDonald’s is one of the example which gives back to community through various activities mentioned. The customer benefit through CSR initiatives through the improved, safe and high quality products as standardization certificates needs to be obtained to enhance the image of socially responsive organization. The employee benefits by getting equal opportunity regardless of gender, race, age and disability. They also benefit by programs that ensure health and safety. The shareholders benefit by getting more accurate information that helps in investment. The emphasis of corporate social responsibility is on human and employee rights, relationship with the suppliers, conservation and protection of the environment and community involvement. The human rights deals with the living and working condition of the people in the vicinity like clean air and clean water. It also deals with the wages and other benefits to improve the living condition. The organization established in a location has to make effort to follow the labor laws of that nationality. They also have to take steps to prevent or reduce harmful emissions of pollutants that affect the surrounding vicinity. The human rights aspect also deals with initiative that helps the employees to enhance their skills and capacity by providing help in training and further education. This aspect is very important for the fast food industries. The companies should encourage active participation of employee unions in the meetings. Overall, it is very important that the companies establish themselves outside their local areas and should address and respect the cultural differences encountered. A well planned CSR in any organization will not only enhance the reputation also has viable business sustainability. With many stakeholders focusing on corporate responsibility, the level of responsibility has increased. The legislation imposed by government plays an important role in helping the companies implement CSR responsibility. The government legislations to reduce carbon dioxide and carbon monoxide emission will ensure that companies especially the global companies are bound to observe and record their carbon footprint. This will ensure an observation of all the processes in their supply chain from transportation to production. CSR initiatives will help to drive a need for alternative clean energy resources like wind energy and hydroelectricity. The strategic managers can use PESTEL model to analyze, design and develop strategy that reflects that the organizations are socially responsible. PESTEL can be used to design strategy with CSR in the framework at all levels; corporate, functional and business strategy. The CSR initiatives that are planned by the organizations are most apparent in the corporate strategy. 4. PESTEL Analysis The strategy is developed based on the stakeholder expectations, identification of various strategic options and evaluation of these strategic options. The strategy is continuously changing with time to address the ever changing environmental conditions. The strategy development is affected by the environmental factor which plays an important role in designing the corporate structure and strategy. Technology, global environment, economic factors, legal issues and cultural and social environment all affect the strategy of the company. PESTEL model is used by strategy managers and high level executives to understand and develop their strategy (Gillespie 2007). Political, Economic, Social, Technological, Environmental and Legal factors form the PESTEL model (Table 1) Factor Could include: Political e.g. EU enlargement, the Euro, international trade, taxation policy Economic e.g. interest rates, exchange rates, national income, inflation, unemployment, Stock Market Social e.g. ageing population, attitudes to work, income distribution Technological e.g. innovation, new product development, rate of technological obsolescence Environmental e.g. global warming, environmental issues Legal e.g. competition law, health and safety, employment law Table 1: PESTEL Model Source: Oxford University Press (2007). Retrieved on 3rd December from http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_01.htm 4.1 Political and Environmental factor Political factors generally deal with international and national policies that affect the various stakeholders from employees to society as well as the infrastructure of the economy. The environmental factors deal with weather and climatic changes. It also takes into account the effect on natural resources like water and land. This has become ‘The Most’ important factor for organizations in recent years. The environmental factor is also influenced by the political factors as various environmental laws have been implemented and organizations are forced to adopt these laws. One of the examples that can be cited is about Shell which belongs to the petroleum and refinery industry. Shell discovered that their operations and their products were contributing to the climatic changes. They were faced with criticism from environmental groups on the damage caused by them to the environment. In 2005 alone, Shell’s operation emitted 105 million metric tons of carbon dioxide and combustion of fossil fuels yielded 763 million metric tons of carbon dioxide which together amounted to 3.6 percent of global carbon dioxide emissions (Alages, 2009). The implementation of Kyoto protocol by the United Nations has led Shell to reduce the emission of carbon dioxide. Shell was also politically pressured by various governments especially in Nigeria to reduce the emission of toxic waste in the nearby water bodies. This has led Shell to change its business strategy and have invested in working on research and development that will end flaring of methane gas which is a primary source of GHG emissions and toxic wastes in the water bodies. Shell is also working to convert methane into liquid natural gas (LNG) a major area for potential growth. Thus in 2005, Shell articulated a global strategy that focuses on responsible energy like wind, solar, biofuel and increase the production of natural gas. Their strategy now is “We are convinced that contributing to sustainable development helps create business value and reduce operational and financial risk, making us a more competitive and profitable company.”(Shell, 2009). 4.2. Social factors The managers when designing a strategy also considers the social trends and the well being of the employee. This factor also deals with human rights law that helps to improve the living and working condition of the employee. It also deals with the special training programs to continuously enhance the skills of the labor. The organizations can also design programs to involve the family of the workers. Nike in Asia was losing their market face in Asia and labor friendly consumers. They had come under attack when it was found that one of its factories in Malaysia were guilty of breaches of its code of conduct. There were claims that workers were paid below the national level and some of their workers were abused. Hence, Nike in Asia in order to gain their market value went into proactive corporate social responsibility. 4.3. Economic factors The economic factors take into account the economic conditions like interest rate, strong currency, high income growth etc. One of the sectors that are rapidly growing is the organic products which are considered to be safe and nutritious food. In organic foods, the residue of toxic and harmful substances that is emitted through fertilizers, feed additives and pesticides is controlled within a certain range specified by the government. Organic food was considered to be a niche market and is a product that supports small businesses but with government incentives and consumer awareness, big organizations have also started stocking the organic food. Tesco, UK biggest supermarket store has started keeping organic products based on the consumer research it had conducted in 2005. The store has predicted that the gap between organic and non-organic products in near future will be insignificant. Hence they have started to offer best value organic products in order to influence the consumer who has preference for organic products and also to establish itself as a socially responsible organization. 4.4. Technological factor Technology is seen to be one of the enablers for strategic decision making. New or improved technologies create new processes and new products. Currently, the emphasis is on reducing the impact of emissions on the environment and reducing the effect of global warming. Lots of research is being conducted to improve the manufacturing processes. One of the sectors which are seeing change is the automobile sector where cars using hybrid technology is being manufactured. One such company is the Renault Nissan whose strategy is to make vehicles that have zero emission, zero noise, and zero pollutant emissions and thus zero greenhouse gases. Towards that objective they are involved in the development of flex-fuel vehicles i.e. vehicles that uses fuels mixed with second generation biofuels. They are also developing gas-fuelled vehicles, use of nitrogen oxides, and hybrid engines. Their long term plan is work on fuel cells vehicle. Fuel cells are other environmental solutions that produce electricity from the hydrogen and oxygen contained in the air. They emit water vapor which is a non-toxic emission and does not harm the environment. Their immediate plan is to launch electric vehicles in 2011 in partnership with Better Place to portray itself to be a responsible car manufacturer. 4.5 Legal Factor Legal factors are related to the legal environment the firm operates. Most of the government has restricted the use of plastic bags and hence the organizations have to devise new ways to pack their food. This is especially seen in fast food chain like MacDonald’s who initially used plastics bags to pack the food. Now with government imposing fines on the use of plastic, MacDonald’s have implemented their strategy of recycling and use of reprocessed paper to pack their foods. The organizations are seeing corporate social responsibility as a reactive strategy for reviving drooping profits and confidence in the communities they operate. Strategy development with the social responsibility in their business operations will help the company to set the path towards gaining the market share and confidence of the eco-friendly consumers which has been seen in the case of Shell in Nigeria. 5. Conclusion The move towards sustainable policies is a new way of doing business by conserving resources for future use. Corporate social responsibility in response to concerns about the environment, global warming and depleting natural resources is giving an edge to big businesses. A business-strategy manager can use PESTEL model to incorporate corporate social responsibility into the organization’s core values and vision. Organizations that are involved in production, steel and aluminum, automobile, manufacturing, petroleum industry and other sectors are the biggest contributor of pollution and hence have to be heavily involved in the implementation of corporate social responsibility as they are the ones that are in some sense contributing to the global warming and depletion of natural resources. The awareness of ethical business practice is so strong that many big companies like Coca Cola, MacDonald, IBM, Shell, General Electric, General Motors, and Toyota have re-branded their core values. These are displayed in their corporate websites that have a list of CSR initiatives under headings like ethic codes and social responsibility charters. Companies like Shell, IBM, and Toyota are doing research and development that will help to advance the existing CSR initiatives. For example, Shell is conducting research on clean energy and has plans to convert all its operations to yield clean energy by 2050. The plans are clearly outlined in their corporate websites for consumers to become knowledgeable and aware of such initiatives. The information about the various corporate social initiatives is open for all to read and understand. However, this concept has come under lots of debate as some feel that the companies are not doing enough and are window dressing to show their transparency. Some argue that to implement CSR initiatives, companies are losing on their core business values. Whatever said and done, the bottom line is that people are becoming more environmental and socially aware, and hence there is a need and demand for ethical business practices that should be incorporated in an organization’s strategy. 6. References 1. H. Mintzberg, Lampel J., Ahlstrand, B, 2005. Strategy Safari: A Guided Tour Through The Wilds of Strategic Management. Free Press. 2. Holme, R. and P. Watts (2000)."Corporate social responsibility: making good business sense." World Business Council for Sustainable Development, Pg10. 3. Gillespie, Andrew, 2007. Foundation of Economics. Oxford University Press 4. Crystal L. Owen and Robert F. Scherer, 1993. Social Responsibility and Market Share. Review of Business, Vol 15. 5. Porter, M.E., 1985. Competitive advantage. Free Press, New York. 6. Johnson, Garry; Scholes, Kevan; Whittington, Richard, 2006. Exploring Corporate Strategy. Financial Times Press. Pearson Education. 7. Porter, M.E. and Kramer, M.R. (2002) 'The competitive advantage of corporate philanthropy', Harvard Business Review 80(12): 56-68. Website 1. Microsoft 2009; www.microsoft.com 2. Shell 2009; www.shell.com 3. GE 2009; www.ge.com 4. Google 2009; www.google.com 5. Alagse, 2009. Corporate Social responsibility as business strategy; accessed and retrieved on 3rd December from http://www.alagse.com/strategy/s17.php 6. Nike; http://www.britannica.com/bps/additionalcontent/18/34102192/Nike-names-new-SEA-chief-amid-CSR-woes 7. Hoffman, Andrew J; Michael Toffel. 2007. "Business strategy and climate change." In: Encyclopedia of Earth. Eds. Cutler J. Cleveland (Washington, D.C.: Environmental Information Coalition, National Council for Science and the Environment). [First published in the Encyclopedia of Earth May 19, 2007; Last revised September 27, 2007; Retrieved December 1, 2009]. 8. Blade Knight, April 27, 2008. Is Wal-Mart Good for America; Retrieved on 2nd December, 2009. http://bizcovering.com/business-and-society/is-wal-mart-good-for-america/ Read More