The Role of Organizational Corporate Social Responsibility in Business Strategy - Essay Example

The role of organizational corporate social responsibility in a business strategy: a case study of H&Ms participation in Better Cotton Initiative andOrganic Cotton Initiative Introduction With the increased awareness of global warming and other environmental and social problems, consumers became more demanding and selective in terms of their purchasing decisions. As a result, the companies also become increasingly focused on integrating the concepts of sustainability and corporate social responsibility to their business strategies. Thus, for example, firms operating in manufacturing and production industries, such as textile industry, also have concentrated their efforts on balancing between production of fashionable goods and minimization of environmental and social negative impact. H&M, a Sweden-based company is one of such examples. The company has made especially strong focus on sustainable sourcing of cotton – important raw material for textile production. In 2004, H&M began using organic cotton for children’s garment, and in 2007, it began selling clothes made of 100% organic cotton (Illge & Preuss, 2012). In order to move further, the company has engaged with two major initiatives: Better Cotton Initiative and Organic Cotton Initiative. This paper aims to provide a more detailed analysis of the role CSR plays in H&M business strategy and to evaluate how participation of H&M in BTI and OCI impact the business and strategic direction of the Swedish fashion brand. Organic cotton initiatives and its impact in terms of marketing, brand value, CSR profile of H&M H&M placed sustainability at the centre of its business strategy as the company’s management has early recognised its importance and potential financial, environmental and social benefits. Due to its global scale operations, H&M has potential, power and resources for making significant positive changes and creating a positive environment impact (Baker, 2012). In fact, the company does a lot in order to create these changes through undertaking different initiatives. The company focuses on several major areas, including: ethical sourcing, ethical business practices, reduction of negative environmental impact, resource management, and local communities (H&M Conscious Actions Sustainability Report, 2014). Among a variety of its commitments, H&M placed a strong focus on sustainable sourcing of organic cotton. Thus, for example, two major initiatives that the company has undertaken and, is heavily engaged with, is membership in Organic Cotton Initiative and Better Cotton Initiative. The company’s CEO views a necessity to market its achievements to stakeholders, and wants to ensure that H&M’s customers “feel confident that everything they buy at H&M is designed, made and handled with consideration for the environment” (Persson, cited in Baker, 2012: n.p.). While the company makes a lot in order to contribute to positive environmental impact and to inform its customers, still not as many people are aware of these H&M efforts (Baker, 2012). In order to inform the customers, media, partners, employees and other stakeholders about its sustainability initiatives undertaken under BTI and OCI programs, the company publishes annually a sustainability report that contains major achievements and progress. Thus, H&M informs its stakeholders and other interested parties about its sustainability and ethical credentials (Baker, 2012). In addition to annual sustainability report, the company has launched ‘Conscious Collection’ ethical fashion range (Baker, 2012). On the one hand, all these marketing communication efforts of H&M might be viewed as moderate, taking into consideration the level and scope of its corporate social and environmental responsibility. On the other hand, H&M might be concerned about potential criticisms associated with green washing (Baker, 2012). Obviously, the company does not want to be criticised for insincere and superficial environmental strategy, and be a subject of increased public cynicism and tarnished brand reputation (Ratcliffe and Coulter, 2015). However, either the company heavily promotes its commitment to sustainability and achievements or not, it still utilises the elements of green marketing. Green marketing is the marketing approach that contains either environmental or social component (Ratcliffe and Coulter, 2015). In order to succeed in green marketing, there are identified three best practices for engaging consumers on sustainability: show, teach, and involve (Ratcliffe and Coulter, 2015). H&M by issuing its reports on CSR and key achievements demonstrates its action and commitment to sustainability in practice to its consumers and other stakeholders. Secondly, the company teaches its consumers by raising awareness of consumers about cotton issues and solutions. At this point, the company uses both BTI and CTI in order to increase its credibility, commitment, and authority in a given area. It is also possible to assume that by concentrating on cotton issues and the above mentioned initiatives, H&M strives to reduce or even to veil the negative impacts associated with their products and fast fashion approach (Ratcliffe and Coulter, 2015). Thirdly, the company involves its consumers to the process and encourages them to participate and contribute positively to environment. Thus, for example, in 2014, the company also has launched its first campaign, promoting clothes recycling, including cotton recycling (Vizard, 2014). Shoppers were encouraged to visit H&M stores, to donate unwanted clothes for recycling, and instead to receive a Pounds 5 discount voucher for every bag of clothes of different brands in any condition (Vizard, 2014). This garment-collecting initiative had an international coverage of 53 countries where H&M operates. As a result, the company collected 13,000 of textiles through this program (Szmydke & Marfil, 2015). Thus, H&M has managed to build a strong platform for its sustainable practices. By focusing on relatively small share of its business (cotton textile) the company has power to improve its overall bran image in the eyes of consumers and thus to increase their loyalty towards the H&M brand. Undoubtedly, these efforts enable the company to gain and maintain its competitive advantage in highly competitive fast fashion sector. It is also widely recognised that sustainability strategy is closely integrated with the overall corporate strategy. This allows the companies to increase their brand values and even ensure a long life for business (Oliveira and Sullivan, 2008). Therefore, in addition to positive contribution to marketing, H&M benefits from participation and membership in both BTI and OCI in terms of brand value. H&M has early recognized the necessity of being a part of NGO, and joined BTI in 2004. At that moment, BTI did not have labels and certifications but was strongly promoting better organic cotton initiatives (Graß, 2013). However, even then H&M placed a special hangtag on all clothes that were made from organic cotton, thus ensuring that potential and existing customers were aware of the company’s sustainable efforts (Graß, 2013). Taking into consideration a shift in consumer’s purchasing behaviour towards green and organic products, this hangtag should work especially well for sales promotion and increase brand value of the company. Moreover, in 2016, BCI is planning to start labelling BCI products (Lone, 2014). This step will also contribute to positive marketing impact and increase brand value of the fashion retailer. BCI by itself also serves as a good information channel, contributing to H&M’s brand awareness in terms of organic cotton initiatives. On the official web page of the BCI there are listed all the members of this initiative and brief overview of their achievements and sustainable strategy. Thus, people who may not get relevant information from H&M sources, can gain information through well-recognised and independent third-party sources. OCI is another sustainability-focused initiative, which promotes production of organic cotton in accordance with major international farming standards. Participation in this initiative also allows the company to take active role in discussions related to organic and fair trade cotton sector (Organiccotton.org, 2015). Thus, by participating in BTI and OCI initiatives, H&M company globally announces to its customers and stakeholders about its serious commitment to sustainability, and especially organic cotton sustainability. Thus, the Swedish fashion brand informs its customers about current trends in the world, and undoubtedly influences their purchasing decisions (Oliveira and Sullivan, 2008). By communicating its sustainability efforts and offering distinct products to the customers, H&M develops thus strong relationships with customers, growing thus repeat business - number of loyal customers who repeatedly buy products of a given brand (Oliveira and Sullivan, 2008). The company skilfully builds up its positive sustainable reputation and thus, is able to charge its customers higher prices for organically produced clothes (Rieple and Singh, 2010). Thus, H&M sustainable initiatives and participation in BTI and OCI creates brand value in two ways: (1) by generating demand for organic cotton clothing items, and (2) developing long-term relationships and securing future profits for the business (Oliveira and Sullivan, 2008). Participation in non-government projects and initiatives under the name of globally recognized programs or organisations also allows companies to improve their CSR profiles. Nowadays, the H&M company is recognised to be “one of the leading users of organic cotton in the world”, which definitely makes the company look different in the eyes of its stakeholders (About.hm.com, 2015: n.p.). By joining BTI and OCI initiatives H&M demonstrates its seriousness and commitment towards positive global environmental and social changes. Thus, the company shares information about its efforts with greater number of stakeholders interested in CSR activities and gains access to relevant information and developments. Moreover, by participating in these initiatives the company is more powerful to protect itself from organic cotton that is contaminated or grown with not sustainable practices (Graß, 2013). Also, by being at the centre of events, H&M has more resources and capabilities to move forwards and to enrich its CRS profile. Strategic engagement of H&M in participating in OCI and BCI H&M is a company, where a strong focus is made on customers and therefore, their needs (Graß, 2013). Today, in order to stay competitive the firms need to be very careful in recognising and responding to customer’s needs and expectations. Therefore, it is part of the global corporate strategy of H&M to recognise on time and meet consumers’/stakeholder’s needs and expectations. As it has been discussed already, nowadays, consumers are increasingly aware of and concerned about environmental issues. They want to buy more sustainable, organic, and green products and pay for it reasonable price. Demand for ethically/sustainably/environmentally-friendly produced products is continuously growing, illustrating thus a shift of consumers’ needs toward more sustainable solutions. Therefore, in order to ensure long-term growth of the company, it is important to listen to the “voice of today’s and tomorrow’s consumers” (Mackenzie, 2012: n.d.). Undoubtedly, H&M recognised this trend long time ago and placed a strong focus on satisfaction of changing consumers’ needs. Thus, H&M made a strategic choice to respond to social and environmental changes and to become a leader in fashion retail industry in terms of sustainability. As part of it sustainable strategy, H&M focused heavily on using cotton from sustainable sources. The company has publicly announced that it aims to ensure that all cotton in H&M’s range comes from sustainable sources by 2020 (Illge & Preuss, 2012). For achieving this purpose, the company has developed a sustainable cotton strategy, comprised of three elements: improving conventional cotton production, recycling cotton, and engaging in organic cotton production (Illge & Preuss, 2012). According to Illge & Preuss (2012), participation in the BCI and OCI allows H&M to contribute to improvement of conventional cotton production. Organic cotton, Better Cotton and recycled cotton allow to reduce significant negative environmental impact (for example, usage of significant amount of water) and help millions of farmers and local communities improve their standard of living (H&M Conscious Actions Sustainability Report, 2014: 17). The company’s view is that engagement with these initiatives encourages farmers to replace conventional practices in cotton cultivation to more sustainable and environmentally friendly practice. The more farmers switch to organic cotton production, the more supply options of sustainable cotton H&M will have. Therefore, management of H&M views BCI “as the key strategy through which the company aims to reach its goal of using only sustainable cotton by 2020” (H&M 2011, cited in Illge & Preuss 2012: 105). These initiatives enable the company to ensure that no cotton that is produced unethically or unsustainably is used in its products (H&M Conscious Actions Sustainability Report, 2014). While participation in these initiatives is communicated to its stakeholders from purely ethical motivations, it does not necessarily mean that this is the real motivation of the company. H&M could participate in these initiatives for strategic considerations such as: to enhance competitiveness through ethical differentiation in textile segment, to decrease cotton production costs (or increase margin for organic cotton products), to be in favourable position in terms of environmental regulations, etc. It does not mean that the company pursued only commercial interest or corporate benefits while participating in these initiatives. It is more likely that the company adopted win-win strategy, balancing both corporate and social/environmental benefits (Walter, 2014). One of the important strategic objectives, which the company pursued by participating in BCI and OCI was to inform customers about the environmental impacts of cotton in textile industry and differentiate its brand from all other retailers, demonstrating its strong involvement and commitment to sustainability and organic cotton. Thus, consumers were more likely to discriminate between cotton products by identifying those that are more sustainable and organic. Consumers began increasingly prefer sustainable products, demonstrating thus shift in consumer’s behaviour. As a result, increased consumer’s awareness facilitated by H&M has allowed the company to become a leader on the market. It is possible to suggest even that H&M created thus a new form of competition, whereas sustainability and organic cotton became major competitive advantage, or unique selling point of the company. However, in order to improve consumer’s understanding of the situation, H&M had first to “increase traceability within its supply chains” (Sahota 2014:27). For this reason, the company began to participate in programs aimed at involvement of suppliers in cotton production improvement process. Thus, from a strategic perspective, H&M was able to illustrate to customers traceability within the supply chains of organic cotton production and to choose sustainable suppliers and partners (Sahota, 2014). From a strategic point of view, H&M has improved its reputation in global scales. Walter (2014) explains that often stakeholders do not believe in the CSR engagement and their scepticism to internal information rises. Moreover, there are beliefs that companies may utilise CSR efforts in order to manipulate public opinion. In order to increase credibility and trust of company’s CSR messages, these messages should be “communicated by third parties or at least to be accepted and welcomed by third parties” (Walter, 2014:67). Therefore, involvement of third party, independent, reputable non-government and non-profit organisations can be viewed as a strategic act enabling the company to avoid potential risks of negative public perception and reputation (Walter, 2014). That is why H&M communicates about its CSR initiatives with its stakeholders not only via its corporate resources but also through non-profit organisations, which are viewed as reputable, trusted, and reliable sources. In a given case, H&M stakeholders get information from such non-profit organisations as BCI and OCI increases H&M’s reputation. Participation in such initiatives as the company to demonstrate its openness and transparency. By using third-party certification and monitoring, H&M shows that it is not hiding anything and is open for further development in this area (Graß, 2013). Thus, by participating in sustainable initiatives undertaken by BCI and OCI, H&M has utilised powerful properties that encompass the whole brand, support what the company does and will do in the future (Longhurst and Keen, 2012). Conclusion With the increased awareness of global warming and other environmental and social issues, consumers and other stakeholders became more demanding in relation to brands and companies. As a result, the companies also become increasingly focused on integrating the concepts of sustainability and corporate social responsibility to their business strategies. One of the examples of such company is H&M, which has been especially active in promoting sustainable practices of organic cotton growth and production. Thus, for example, two major initiatives that the company has undertaken was membership in Organic Cotton Initiative and Better Cotton Initiative. By participating in these initiatives H&M has benefited significantly in terms of marketing impact, increased brand value and signified its CSR profile. Participation in Better Cotton and Organic Cotton could be viewed as strategic act of the company, which enabled it to gain greater opportunities and benefits. Strategic engagement of H&M in participating in OCI and BCI enabled the company to “secure” its reputation and mitigate the risk of negative publicity, to reduce scepticism among stakeholders, to increase traceability within its supply chains, to enhance competitiveness through ethical differentiation in textile segment, and finally, to implement its sustainable cotton strategy. Participation in organic cotton initiatives has thus given H&M powerful properties that nowadays encompass the whole brand, support what the company does today and what it will do in the future. This participation is a part of long-term strategic plan of the Swedish fashion retailer, which enable the company to take leading position in the fashion sector. References: About.hm.com,. (2015). Cotton. Retrieved 7 July 2015, from http://about.hm.com/en/About/sustainability/commitments/conscious-fashion/more-sustainable-materials/cotton.html Baker, R. 2012, H&M is too silent on sustainability, Centaur Communications Ltd, London. Graß, T, 2013, H&M – a role model for organic cotton use in textile processing? Journal of European Management & Public Affairs Studies, vol1 (1), pp. 23-27. 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