Concept of Corporate Social Responsibility - Literature review Example

Contemporary Issues in Marketing Student's Name: Course Name and Number: Instructor's Name: Date Submitted: Question: In modern business world, organizations often undertake Corporate Social Responsibilities (CSR) practices as a means of gaining a competitive edge and not necessarily caring for the society. Discuss. Introduction The concept of Corporate Social Responsibility (CSR) has gained much publicity in recent times. Besides being widely research on, the business fraternity has increasingly recognized it as one of the key elements determining the competitiveness of any business; which if not taken into consideration may permanently affect its long-term viability. Of late, businesses are focusing on the responsibilities of a firm and the key question that arises is whether businesses should be left to concentrate only in areas of profit maximization or should also engage in activities that go beyond the economic role. This study gives an insight on how modern businesses are currently undertaking corporate social activities not to respond to societal needs, but to gain a competitive advantage over their competitors. According to Freeman (1984), corporate social responsibility refers to a kind of corporate philanthropy that started in late 1800 in, United States of America. Further, Collins (1993) defines the concept of corporate social responsibility as the policy and practice of firms’ social contributions that go beyond what it is obligated under the terms of its establishment to benefit the society at large. In addition, Broberg, (1996) viewed CSR as to those actions by firms which go in line with the societal expectations and values. Around 1960s, the concept of CSR had developed further. Nonetheless, the companies, which had CSR programs, bore additional duties other than their legal obligations. Discussion Even though many organizations have embarked on corporate social initiatives, the concept is still not clearly understood, and many businesses are losing the focus on CSR. For instance, in the case of Enron, social initiatives could not be accounted for. As such, despite initiating the social programs, the company lost focus and later abandoned them concentrating much on profit oriented programs. Regrettably, due to lack of corporate ethics, social responsibilities among other reasons saw the company came down and was wound up. As a source of differentiation, CSR enables companies to acquire new markets, enhances liking of their products, guard on the reputation, and also enable firms to comply with the law requiring environmental conservation (Enderle & Tavis, 1998). Barone, Miyazaki & Taylor, (2000) categorized CSR into three, that is; discretionary, relational and moral. Discretionary activities involve contribution of resources towards programs that sensitize people of issues such as hunger, women and children health as well as general health programs. Secondly, moral CSR refers to business honesty. An honest business will act responsibly, honor human rights, and engage in fair competition while at the same time telling the truth when something goes centrally to what was expected. Lastly, relational CSR involves business creation of long lasting relationship with its customer and also its willingness to listen not only to the clients, but also other stakeholders. Altruistic actions of the firm no longer mean that the expenditures on philanthropic activities are themselves charitable. Today’s critical stakeholders and customers are examining the firm’s behaviors to determine whether their actions are meant to gain goodwill or are genuinely about caring for the society. Nonetheless, firms on their part no longer recognize their societal contributions as donations, but rather as investments that would accrue benefits to the recipient as well as the company (Smith, 1994). According to recent research, companies are using CSR to regain their eroded market position caused by outdated business image and reputation issues as a result of negative impact of business activities. As such, CSR have proven to alter customer values and attitudes towards the firm. Corporate social performance can only be evaluated through the reputation accrued to the society (Freeman, 1984). A firm with an unimpeachable reputation shows that it has fulfilled most of the stakeholders’ expectations (Fombrun, 1996). According to Fombrun and Shanley (1990), accrued reputation allows firms to access financial markets; attract investors and also enable them to charge high premiums. Further, the authors established that firm’s reputation is directly related to social contribution. Reputation differentiates a firm from the others by gaining or losing competitive advantage (Kay, 1993). Fombrun and Shanley (1990) added that, companies with high reputation bear competitive advantage within a given industry unlike poorly reputed firms. Consumers prefer to buy from companies that are friendly to the environmentally. Research carried out by Hammond & Slocum (1996) indicated that, CSR activities enhance the company’s image. Further, CSR activities influence the consumer’s decisions, thus swaying his purchasing decisions to firms that have CSR programs. Socially responsible firms are highly rated by the public. Hammond& Slocum (1996) appreciated that, company values play a key role in a firm’s branding. Further, he suggested that, a company is able to stand out from others through its corporate social marketing activities. This is usually achieved through firm’s social activities that create a positive image in the consumer’s mind. CSR as a way of differentiating a firm from others arouses consumers’ positive feeling about an organization. Such a company influences the customers’ behavior of also doing the right things. According to Webb & Mohr (1998), CSR activities differentiate a firm from others through its sustainable competitive advantages that convince the clients to like and purchase from socially responsible firms. Aaker (1982) argued that firms that integrate CSR with their brand strategy are very highly to stand out from the others. An outstanding example is the US the based Ice cream producing company, Ben and Jerry Inc which differentiated itself by implementing innovative processes that promoted the social cause both locally and internationally. Due its product emotional connection, its clients had no problem paying higher prices for its products. Further, a company can differentiate itself from the competition by integrating CSR into it brand after which such a brand is then repositioned in the market. Lernern & Fryxell (1988), in their studies, suggested that brand repositioning refers to establishing the brand point of difference while at the same time considering its similarity from those of the competition. The points of difference are brought to the customers’ knowledge as the reference point. The brand similarity negates the competition point of difference. However, the consumers will easily differentiate the product if the differentiating factor is desirable, favorable and with strong unique, brand characteristics. Desirability as a determinant of brand value creation is three fold and comprise distinctiveness, believability and relevant. The distinctive aspect includes the exact source of differentiation showing to the consumer the brand superior elements. Relevance aspect, on the other hand, concerns if the differentiating factor is significant or carries some importance in the eyes of customers and lastly believability refers to whether the aspect of product differentiation is extremely trustworthy and credible in the eyes of the public. An excellent illustration is Face book and Google which have met all the three aspects. Both the two brand have successfully distinguished themselves from other brands in the same industry. More importantly the brands have also succeeded in affirming trustworthiness to their users thus making millions and millions of their consumers royal to their brands. Pava (1998) pointed out, “… consumers are hardly aware of firms CSR activities” . Further, as supported by Ptacek & Salazar (1997) when customers are not aware of CSR initiatives, then it becomes a limiting factor to the firm. Smith (1994) also viewed that knowledge of company’s CSR initiatives is also prominent in the achievement of firm’s differentiation. In this light, the company should enhance CSR awareness programs for it to remain profitable. CSR has also been found to be valuable in areas of talent management and human resource. Employees tend to differentiate companies according to their social responsiveness and were found to be more willing to work for socially responsible firms. Study by Wood (1991), showed that, employees are highly satisfied and remain loyal to firms with social programs. According to a recent study carried out by IBM institute for business, a survey comprising of 250 company executives showed 68% of the participants were undertaking CSR activities with the aim of creating new revenue streams. Further, 54% revealed that CSR activities had differentiated them from their competition thus giving them a competitive advantage. Basically, the IBM report concluded that when CSR is aligned with the companies’ objectives, then firms are able to achieve competitive differentiation, favorable opportunity of getting the best talents and also the ability to penetrate new markets. CSR vision must incorporate the value of the organization and most importantly modeled in line with the firm’s mission, vision and recognize that it encourages environmental or social value but also brings value to the firm, as well. CCSR in a firm for it to achieve the intended purpose must be managed like the other business strategies with its activities being reported to high level management. CSR proves to be effective in opening up new markets for energy- efficient products. For example, when entering new markets, it becomes easier for companies dealing with energy efficient products to be differentiated from competitors and, therefore, quickly taking a place in a new market. Interestingly, CSR initiatives are hardly connected to the core business of the organization. For instance, Ford company foundation supporting breast cancer research to a tune of $ 100,000 every year, one may be left wondering what strategic link this initiative has on Ford and many would expect Ford to fund research in alternative fuels that could instead address global environmental challenges, but the initiative surprisingly creates an image of a caring organization in the eyes of the public thus differentiating it from other automakers and hence achieving more sales. Regrettably, companies spend millions of money advertising on their product reputation and branding, while at the same time failing to connect how such products contribute to the betterment of the world in which they exist. For instance; Hewlett and Packard (HP) and Dell are competitors in the telecommunication industry. Dell manufactures printers similar in characteristics to those manufactured by HP. More interestingly, Dell differentiates itself in the eyes of customers by promising to plant a tree for every printer sold. Further, Dell communicated this initiative to all its employees and their consumers, as well. Within a very short time, Dell gained a reputation as an environmentally caring firm. According to Szykman, Bloom & Levy, (1997) in highly competitive markets, there exist little or no room for firms to engage in CSR activities. The argument behind this is that firms will not afford resources to undertake the CSR activities. With the assumption that CSR is embedded in items that induce the customers to pay higher premiums, vertical differentiation could serve as the most appropriate model to analyze CSR. However, the debate still continues on the most appropriate method to analyze CSR. Stanwick & Stanwick (1998) proposes horizontal differentiation framework as it shows customers preferred locus on organization ethic conducts. According to Sethi (1977) CSR initiatives are crucial in competitive industries. In this case, CSR activities are used by the firm to differentiate themselves from the others and in promoting product quality. They assume that the qualities attributes are not observable to the client and, therefore, believe that profit oriented firms are prone to production of sub- standard goods. However, companies, which are concerned about quality externalities, tend to care about the social welfare. Therefore, engagement in social welfare creates an image of high quality products. Convincingly, customers consider buying from firms that are concerned about the product quality and also those that to be willing to invest in CSR activities seen to be too expensive to the firm carrying no immediate financial return. However, it should be noted that, benefits accruing from CSR activities are legalized gradually over the long run. No company operates in a vacuum and, therefore, all relies on the community, business partners, employees, investors amongst other stakeholders to achieve its goals. These stakeholders assist the business to access the natural resources used in production of goods. Therefore, to support the society within which the business exists, it has to engage in ethical practices that enhance quality health for all stakeholders. In this case, the business should ensure efficient utilization of land, energy, water all of which are essential for a productive workforce. Notably, a healthy society is crucial for a successful business. Lack of support from the society within which the business exists will only make it difficult for it to operate or to the worst its survival. Nonetheless, any entity that carries its activities at the expense of the society within which it leaves will eventually realize its success cannot be sustainable in the long run as the same society at some point will alienate it. A good example of the effect to the company that does not recognize the wellness of the environment within which they exist is the case of Shell Oil’s arrangement of disposing Brent Spar in the northern sea. Despite approval by the authorities, this act led to massive Greenpeace protests with international media complaining that this would negatively and severely destruct the environment. Greenpeace mobilized media worldwide to mobilize the public against the action of Shell Company. The media called on the public to desist from doing business with Shell which saw it profitability fall dramatically. Further, this also saw Germany Chancellor Helmut Kohl protest to British Prime minister, John Major at G7 conference held in Nova Scotia at Halifax. The massive political and public outcry led to a significant decline in Shell’s profitability and eventually the company had to abandon its plan of disposing Brent Spar. This was occasioned by massive losses suffered as a result of the dented image coupled with massive destruction of its properties, which took place as people demonstrated against its suggested actions. CSR activities have also proved to help in cost reduction. Firms that engage in CSR tend to perform better unlike those that strictly focus on profit maximization. Customers bear a respectable image for such companies and in most cases purchase their products. For cost reduction, CSR sensitive companies recycle and re-use materials and also embrace energy efficient processes. However, the cost advantage is attained through improved efficiencies and avoidance of probable law suits. Utilization of materials prevents further depletion of natural resources thus avoiding more harm to the environment within which the firms exists. More so, employees remain loyal to the company with exceptional CSR policies. This helps to minimizing labor turn over and thus reduced staff training costs. Cumulatively, the aspects of corporate social responsibility enable firms to engage in activities that assist in checking costs. According to Osterhus (1997), firms should develop and initiate social activities. Corporations need to consider social demands as they are not only of importance to the public but also to the organization. However, businesses engage in CSR activities due to varying forces in the industry and the pressure exerted by the society. CSR activities create opportunities, competitive advantage and innovation for a firm. In addition, a firm benefits a lot from utilizing its resources on social activities. Firms that engage in CSR activities often view them as investment activities. However if, a firm engages in CSR activities as a result of pressure, then such a situation will discourage the firm to create value. Smith (1994), are of the opinion that socially responsible organizations could gain competitive advantage if the activity in which they undertake is rare, imitable, valuable and organizational. A socially responsible firm should devote itself maximally to creating values for the society. As a human rights agent, a business that engages in CSR activities can achieve competitive advantage in its areas of operations. Through the United Nations Global Compact program, organizations are encouraged to engage in universal principles for human rights. By participating in this initiative, the businesses gain from creating a name in global commerce, acquire advanced technology, access to international sources of capital while at the same time benefitting the economies and societies with their areas of operation. Businesses are obliged to develop sustainable and active communities. This will be achieved through engaging in issues touching on people lives. The community provides the man power to the organization. Notably, the community workers operate the business processes and, thus, to reward them, the business has to finance activities that improve the community welfare. Conclusion In today’s modern society, firms are increasingly faced with the challenge of retaining their market positions. This is due to a number of reasons among them emergence of a highly critical class of consumers that are more demanding. In addition, the ever increasing numbers of companies have made competition more complex. As such, companies have devised means to meet the new market demand while at the same time coming up with creative ways of retaining their clientele, maintain a close relationship with clients and society at large. Firms have incorporated social activities in to their business models. Notably, social responsibilities are becoming increasingly vital facets in the modern firms. For instance; introduction of SA 8000 standard enhanced favorable work processes and employee working environment. More so this standard was earmarked to open up opportunities for employee collective bargaining and free association. The standard is credited with enhancing increased corporation between employees and their bosses, as well as safety and health environment at the work place. Moreover, the role of the government coupled with non-governmental organizations and trade unions is also crucial to the success of proper implementation of social initiatives by the organizations. Labor unions will pressure the organization to keep the interests of the workers at heart while the nongovernmental organizations will keep watch on firms to ensure that matters relating to the environment are observed. The government on its turn will ensure that companies comply to the set standards and do not engage in activities that serve to destroy the environment within which it exists while at the same time taking action on those firm that do not observe the laid rules and regulations. References Barone, M.J., Miyazaki, A.D. & Taylor, K.A. (2000). The influence of cause-related marketing on consumer choice: does one good turn deserve another? Journal of the Academy of Marketing Science, 28(5): 248–262. Broberg, M.P. (1996). Corporate social responsibility in the European Communities – the Scandinavian viewpoint. Journal of Business Ethics, 15(6): 615–625. Collins, M. (1993). Global corporate philanthropy – marketing beyond the call of the duty? 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