Comparison of socially responsible business of Nokia and Ranbaxy - Term Paper Example

«Comparison of socially responsible business of Nokia and Ranbaxy» Contents Contents 1 Executive Summary 2 Introduction 2 Stakeholder Salience Theory (Section 1) 4 Corporate Social Responsibility initiatives at Nokia (Section 2) 6 Corporate Social Responsibility initiatives at Ranbaxy 8 Classification of Corporate Social Responsibility (Section3) 9 Competitive advantage of Corporate Social Responsibility 10 Conclusion 15 References 17 Bibliography 19 Executive Summary All business organisations operate in a social environment and therefore have an obligation towards society. For fulfilling this commitment, contemporary organizations are increasingly adopting the concept of corporate social responsibility. Nonetheless, business corporations often embrace corporate social responsibility as a promotional tool. This project attempts to analyse the corporate of social responsibility initiatives taken up by Nokia and Ranbaxy. The study analyses their areas of business as well as the policies behind the corporate social responsibilities. The study also attempts to identify the means of measuring the effectiveness of the Corporate Social Responsibility initiatives taken up by the firms. Introduction Companies are an integral part of the society; they derive all the factors of productions like land, labour, resources and capital from it. Therefore, it is the responsibility of the companies to participate actively in the welfare of the society. For many years, the companies maintained the sole motto of profit maximisation and they hardly paid any importance to the concept of social welfare. Organisations were under the misconception that if they participate in social welfare activities, the total operating cost will shoot up thereby reducing the profit margin. However, with time, the companies realised that though social welfare initially results in extra cost, this will assist the companies to improve their corporate image in the market, benefiting the organisation in the long run. At present, almost all the companies pay special importance towards their corporate social responsibility According to Paul Portney, Corporate Social Responsibility can be defined as “firms doing more than they are required to do under applicable laws and regulation” (Hay, et al., 2005, p.145). In present world, Corporate Social Responsibility is an important part of corporate governance followed by the company. The concept of corporate responsibility comprises of “sustainable economic development, improving the quality of life for workers and their communities and accelerating progress towards the Millennium Development Goals” (Blowfield & Murray, 2008, p.309). With the advent of globalisation, different legal bodies came forward to introduce certain laws for making Corporate Social Responsibility a compulsory act to be followed by the companies. The legal compliance was in the form of specific rules and regulations to be followed by the corporate. In the 2000, The Organisation for Economic Co-Operation and Development provided a set of guideline to be followed by the international companies. These guidelines were related to social, economic and environment progress of the world (Idowu & Filho, 2009, p.35). In the given project, the Corporate Social Responsibility strategies followed by two international companies, Nokia and Ranbaxy will be discussed in a comprehensive manner. Nokia is a Finnish multinational company that has its head quarter in Helsinki, Finland. The company operates in the communication industry and manufactures mobile phones and other related devises. At present, the company has its operation in 120 countries and its market is expanded in more than 150 nations. In the year 2009, the company’s annual revenue from the international market was EUR 41 billion. Ranbaxy is one of the largest pharmaceutical companies located in India. It was founded in the 1961 and in 2008 it was acquired by Daiichi Sankyo, a Japanese company. The company has its presence in 23 out of 25 international markets. The operation facilities are located in 7 countries and the customers are located in more than 125 nations (Ranbaxy-a, n.d.). Stakeholder Salience Theory (Section 1) As per Stakeholder Salience Theory, the companies should take into account all those groups that have a stake in the company. This approach was given by Donaldson and Preston in the year 1995. Later on, this same approach was used to introduce the concept of corporate social responsibility. As per Mitchell and its associates (1997) “Within the stakeholder salience theory, power, legitimacy, and urgency are independent attributes of stakeholders used to define the company’s relation to these groups” (Winkler 2009, p.5). The power factor defines the share of influence possessed by the stakeholder in the company. The next term is legitimacy that expresses the authenticity or legitimate position of the stakeholder in the organisation. The last component is the urgency that explains the urgency faced by the management in handling different matters related to the stakeholders of the company. This component also expresses the relation of the stakeholders with the management. Using these three factors the stakeholders can be segregated as internal as well as external stakeholders. The internal stakeholders include the management and the employees of the company whereas the external stakeholders are customers, suppliers, government, society and also the environment. In the later part, the Corporate Social Responsibility policy followed by both the companies (Nokia and Ranbaxy) will be discussed. At Nokia, Corporate Social Responsibility is known as corporate responsibility. In order to make its Corporate Social Responsibility ventures more fruitful, Nokia believes in having a system where its policies regarding sustainability and similar activities are inbuilt in their operating system. It has defined its code of conduct and value system as ‘Nokia Way’ (Nokia, n.d.). It has different outlined policies for its suppliers, employees and customers. The company works with different NGOs for improving the social condition of different nations where it has its operation. The company has collaboration with International Youth Foundation which looks after the welfare of street children (Nokia-b, n.d.). In 2006, SOMO published a report reflecting the poor condition of the workers in the manufacturing unit of Nokia. This came as a rude surprise since the company is a member of GeSI and Electronic Industry Citizenship Coalition (EICC). These associations ensure that the methods of mining, extracting and recycling of the goods used in electronic sector are done in accordance with the prescribed principles (Nokia-b, n.d.). This revelation stands in stark contrast with its Corporate Social Responsibility activities where it is working towards the upliftment of poor and needy people in the society. Nokia is working with different organisations like “Royal National Institute of Blind People (RNIB), Finnish Federation of the Visually Impaired (FFVI) and European Older People's Platform (AGE)” (Nokia-b, n.d.). The philosophy of Ranbaxy is to deliver value to its stakeholders and to set the benchmark in the international market. The company inspires its workforce of 14,000 people to be innovative and to achieve higher levels of excellence. The company maintains strong Corporate Social Responsibility policies as the company has an intrinsic relation with the environment in which it operates. The company pays special emphasis on the health care issues. Hence, the company runs different programmes for improving the health of mothers and their newly born babies. The area of concern is “Low Birth Weight, Diarrhoea, Pneumonia, Birth Asphyxia, Hypothermia, and Anaemia in pregnancy including obstetrical causes like Sepsis or Haemorrhage” (Karmayog, 2008). However, the Corporate Social Responsibility programs followed by Ranbaxy are quite narrow in approach as compared to Nokia. Nokia provides all the details of its Corporate Social Responsibility in its annual report but Ranbaxy does not maintain a separate Corporate Social Responsibility report. Corporate Social Responsibility initiatives at Nokia (Section 2) Business organizations work in a social environment, where they have to fulfil certain social obligations towards the society. In the modern context this is termed as Corporate Social Responsibility. The advent of globalisation has increased the consciousness among corporate organizations in regards to their obligation towards the society. Corporate Social Responsibility initiatives are also used by organizations as a promotional tool. Corporate Social Responsibility creates many benefits for an organization. Firstly it tends to create a sense of ethics which enables the labour and market communities to synergise in their functions. Secondly it creates a sort of social investment, which means investing money towards the benefit of society. Finally it leads to enhanced expectations of the public for the business, as well as creation of greater trust and transparency. Corporate Social Responsibility initiatives also make up for a favourable positioning of an organization in the minds of the people (ASOCIO, 2004). Nokia is one of the major market players in the mobile handset business. Nokia believes in providing value to the society through their day to day actions. Nokia has organised many social initiatives in collaboration with United Nations and other Government agencies. It has used its expertise to provide a handset to about one billion people across the globe. The Corporate Social Responsibility policy of Nokia was shaped in 2009. Nokia aims to use its expertise to provide solutions to the society in the form of expert solutions (Nokia, 2009). As a part of the Corporate Social Responsibility activities Nokia has charted out the key focus areas where it would provide assistance These areas are Accessibility, Environment, Education, Supply chains and Human rights (Nokia, 2010). The shift in the Corporate Social Responsibility policy of Nokia was attributed to two main reasons. Firstly, there was a huge reduction in the price of mobile phones and secondly there was a corresponding increase in mobile network expansion across the world. Nokia’s new Corporate Social Responsibility policy comes up with the primary aim of providing improved mobile services which would be affordable to all the sections of the society. The main aim of the policy is to concentrate on two main areas namely, development of youth and using its mobile communication technology for sustainable development. Nokia’s Corporate Social Responsibility policy also states that in spite of having a new policy it would still continue with its aid programs for disaster management and help to agencies like United Nations (Nokia, 2009). Nokia’s Corporate Social Responsibility initiatives focus on using mobile technology to achieve development of the society, youth development, employee volunteering and disaster relief. The Corporate Social Responsibility policy of Nokia also includes its contribution to the natural environment. Nokia aims to create environment consciousness by using materials which tend to reduce environmental pollution. It also lays stress on using recyclable products in an attempt to provide the society with a healthy natural environment (Nokia, 2009). Corporate Social Responsibility initiatives at Ranbaxy Ranbaxy Ltd. is a company which is in the business of manufacturing pharmaceutical products which includes generic drugs. The company’s core area of operation has tremendous implications on the society. Corporate Social Responsibility activities of the company had started way back in the 1970’s when the state of health was very poor in India. The Corporate Social Responsibility policy of the firm aims at providing healthcare, social development, and a better environment. The company aims to provide sustainable all round growth of the society through its Corporate Social Responsibility policies. Ranbaxy formed a trust named Ranbaxy Rural Development trust which was aimed at providing health care facilities to the under-privileged sections of the society. Even today mobile healthcare vans of the company visit far flung areas to provide relief and healthcare facilities to people. It has also taken up programs to eradicate malnutrition and deficiency of vitamins and minerals by distributing free medicines etc. to people living in the far flung areas. The company has also started creating family planning programs in the rural areas to make people aware about the various family planning measures. It has also tied up with various NGO’s and state Governments in India in an attempt to eradicate diseases like malaria, cholera, polio etc. Immunization drives are conducted by the company in association with the various state governments and NGO’s. Ranbaxy has also started promoting programs that aim towards crating public awareness about AIDS especially in the far flung areas which suffer from poor connectivity problems. In addition Ranbaxy has opened up the Ranbaxy science foundation which is aimed at honouring youngsters who provide contribution to the field of pharmaceuticals. Ranbaxy has also incorporated the development and preservation of natural environment as a part of its Corporate Social Responsibility policy. The Corporate Social Responsibility policy of the company has stated its full commitment to the development of health, safety and natural environment. It has incorporated these three pints in its core business policy so as to preserve the natural environment (Ranbaxy, 2010). The Corporate Social Responsibility activities and policies of the two organizations show that most of them have made changes to their Corporate Social Responsibility policies since inception. These changes have been made so as to accommodate new areas in their Corporate Social Responsibility activities. Classification of Corporate Social Responsibility (Section3) The fundamental aim of Corporate Social Responsibility is to effectively align the employee values and customers with the long term corporate strategy in order to gain benefits. Corporate Social Responsibility requires a holistic thinking which is combined with a wider perspective of the shareholder. A balanced scorecard is a strategic management tool that can be used to measure the performance of a particular business process (Balanced Scorecard Institute, n.d.). A balanced scorecard can be defined as a set of major financial as well as non financial indicators which can be used to measure the performance of an organization or a business process. The model for balanced scorecard was presented by Robert Kaplan and David Norton. This model constitutes of four perspectives namely, People, Customer, Internal factors and the Financial perspective. This model differs from the other models that measure performance metrics in the sense that it also includes the non financial factors while analysing the performance for a business process or an organization. Competitive advantage of Corporate Social Responsibility Bob Willard proposed a list of ten market forces which form the basic reason behind organizations adopting Corporate Social Responsibility in their strategies. These can be further sub-divided into two categories namely, the mega issues and the issues that concern the stakeholders of a firm. These ten forces could be used to classify Corporate Social Responsibility. The ten points stated form the basis of any Corporate Social Responsibility activity. These ten points along with their sub divisions are given below- Mega issues 1. Health 2. Climate 3. Globalisation 4. Breach of trust 5. Energy scarcity Stakeholder issues 1. Shareholders (Active) 2. Green consumers 3. NGO’s 4. Government 5. The Financial sector. (Crawford, Scalleta. n.d.). Organizations can use the balanced scorecard approach to find out the benefits that they are getting by adopting Corporate Social Responsibility in their business strategy. In order to integrate Corporate Social Responsibility into the balanced scorecard, organizations must bring the ten issues under their respective heads in the balanced scorecard. This would imply that all the ten performance metrics would be included in their respective heads of the balanced scorecard. Once the factors are integrated into the balanced scorecard the effectiveness of the Corporate Social Responsibility strategies could be measured (Crawford, Scalleta. n.d.). The table below provides the detailed process as to how companies can adopt balanced scorecard to measure the success of their Corporate Social Responsibility activities. Category division of Corporate Social Responsibility Respective head in Balanced scorecard Measure of perspective Health Internal Injury, absenteeism from work Climate Internal Reduction in emissions Globalization Customer Performance of supplier with respect to commitments to environment Breach of trust Customer Child labour eradication Energy scarcity Financial Segmentation of source of energy Shareholders People Employees trained in environment management Green customers Customer Annual reduction in energy consumption NGO’s People and knowledge Policies to address needs of people Government Internal Incidents of non compliance Financial Sector Financial Change in the earnings Figure.1. Table showing the integration of Corporate Social Responsibility perspectives into the Balanced Scorecard Approach. The figure above shows the ten categories of Corporate Social Responsibility practices along with their corresponding perspective in the balanced scorecard system and finally the performance measurement yardstick which would be used to measure the effectiveness of the Corporate Social Responsibility policies. This approach would help organizations in determining as to whether their Corporate Social Responsibility policies are effective and to what extent. They could use the results from this technique to find out which of the policies are effective and which are obsolete. Firms can then remove those practices which are not in tune with the core vision and mission of the Company. They should adopt only those Corporate Social Responsibility practices that lead to value creation for the stakeholders as well as the society as a whole. According to ORSA Corporate Social Responsibility can also be classified into two dimensions namely, 1. Social responsibility initiatives 2. Supporting tools and instruments. Social Responsibility initiatives include factors like human resources, community, environment, supply chain and competition (Bissacco, et. al. n.d.). Supporting tools and instruments include factors like communication strategy, training programs related to ethics and Corporate Social Responsibility governance. There are also certain support elements like management tools, laws and legislatures and problem management techniques (Bissacco, et. al. n.d.). A combination of the above stated factors is required to bring about a successful Corporate Social Responsibility strategy. Organizations implementing Corporate Social Responsibility must ensure that the two factors stated above, work in an integrated manner so as to bring about a positive and favourable change in the society. Firms must ensure that the Corporate Social Responsibility practices adopted are in line with the organization's core policies. Conclusion The extent and type of Corporate Social Responsibility initiatives vary from one organization to another. The study conducted above compares and contrasts the Corporate Social Responsibility initiatives of two companies having their business perspectives in different areas. The study shows that the Corporate Social Responsibility approaches of the two organizations are quite different from each other. This is because the two companies have their business interests in different domains. It was also observed that the two organizations have adopted Corporate Social Responsibility initiatives which are compatible with their core business. Nokia strived towards providing Corporate Social Responsibility by using its expertise in mobile technology by bringing about changes in communication. On the contrary, Ranbaxy used its expertise in pharmaceutical industry to bring about changes in the health care aspect of the society. Corporate Social Responsibility has also emerged as a tool for promotions. Companies which adopt Corporate Social Responsibility practices generally have a greater acceptability in the society. This assumes importance as companies are known to operate in a social framework. Corporate Social Responsibility practices tend to give a better positioning of the company in the minds of the customer. Organizations while adopting Corporate Social Responsibility must also evaluate whether the Corporate Social Responsibility policies taken up by them are effective in achieving the goals of the organization. They should evaluate their Corporate Social Responsibility policies from time to time so as to identify their Corporate Social Responsibility related work. They must understand that Corporate Social Responsibility initiatives require resources which ultimately affect the stake holder's values and interests. The balanced scorecard approach is one such technique that measures the effectiveness of the Corporate Social Responsibility practices undertaken by a company. In order to apply the balanced scorecard approach in Corporate Social Responsibility measurement, firms must first sort out the factors that make up their Corporate Social Responsibility policies. These must then be aligned with the corresponding perspective of the balanced scorecard. Finally organizations must match the performance of these activities with certain benchmarks. Adoption of this technique would enable the firm to find out whether its Corporate Social Responsibility practices are effective. They should constantly review their Corporate Social Responsibility policies so as to eliminate areas which are obsolete or those which are not generating favourable results. References ASOCIO, 2004. Corporate Social Responsibility. [Pdf]. Available at http://www.asocio.org/policy/Corporate%20Social%20Responsibility.pdf. 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