Creating Shared Value From Corporate Social Responsibility Commerce Essay

This research is an investigation into Corporate Social Responsibility (CSR) and what it means to the companies that practice it. The subject remains an intriguing one because it raises questions about a company’s responsibility towards society and whether it is good or bad for businesses (Crane et al, 2008). There is a need to understand why a company should be concerned about what is happening to the communities they are operating in, the impact of its operation and whether it can assist without compromising its bottom-line.

The concept of CSR came in to focus in the early 1950 (Crane et al, 2008), it is now generally accepted by most companies and is expected by communities (Porter and Kramer 2006, Savitz and Weber 2006, Blowfield 2008). This has come about because of several events that started in the USA, causing negative impact on communities for example the Vietnam War 1960, the Watergate scandal during the Nixon era, the oil embargo 1973, later Enron collapse, Exxon Valdez oil spill (Argenti 2003) and recently the BP oil spill in the Gulf of Mexico. Another factor has been globalisation by large companies in less developed countries whereby there has been ‘human and environmental consequences’ (Blowfield et al 2008: 92).

These events have propelled the rise of pressure groups, public and media scrutiny and government legislations on social and environmental issues and so encouraging companies to be ethical, accountable and transparent at all levels of management and not just at operational level. However CSR has been generally voluntary with philanthropic and charitable activities (Crane et al, 2008) aimed towards the environment and the immediate community because of these practices, CSR has been perceived by many to be a marketing tool and for enhancing the image and reputation of the company (Savitz and Weber, 2006).

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Therefore companies need to avoid public suspicion by finding ways to satisfying the stakeholders, make a profit and be competitive in a sustainable approach such as ‘ building on material resources, cultural advantages and, stakeholder connection’ (Savitz and Weber 2006 145). As a result there is a need to understand how companies can ‘secure long-term economic performance by avoiding short-term behaviour that is socially detrimental or environmentally wasteful’ (Porter and Kramer 2006: 6). This can be achieved by making CSR part of core company strategies and integrated into the value chain to ‘create shared value’ and gain competitive advantage over rivals (Porter and Kramer 2006: 13). However, Blowfield (2008) states that the social responsibilities of multinationals varies from small or medium businesses.

Overall aim and objectives

Following what has been mentioned above the overall aim of this research is to provide an understanding on how CSR can add value to the company in the course of meeting stakeholder’s expectations, be profitable and competitive in a socially acceptable manner. There is a lot of literature on CSR, however not a lot has been written on how CSR in the value chain can create a shared value for the stakeholders and the business simultaneously. With regards to the value chain most literature on it is related to gaining competitive advantages and profits making but little impact on societal needs. Therefore this research shall investigate CSR in the context of the value chain. However the investigation extends to the supply chain which, if sustainable creates the value chain. To realise the overall research aim, the following objectives have first to be realized.

Critical examine the concepts CSR ‘shared value’ in relation???

Critically evaluate the integration of CSR into the supply and value chain.

Analyse how practices of CSR can create shared values.

Draw conclusion on the findings of CSR practices in the supply and value chain.

This allows further questions to be raised:

Why is it, that CSR means different things to different people?

What is the relationship of CSR practices, within in the supply chain and the value chain?

How can value gained from CSR be measured?

It is hoped that this research will make a contribution to the current literature of CSR practices. Consequently offer an understanding of CSR in the supply and value chain and the benefit of value creation it can offer. This study is suitable for other business management students or academic researchers that may wish to study more on the subject of CSR and its purpose in the supply and value chain.

Overview of literature

The first aim of this literature review is to identify the most important concepts in the field of CSR, identify definitions and key issues that arise. Secondly the background and similarities and differences between the supply and value chains will be considered. The final discussion shall be on the relationship of the value chains and CSR. The research within this literature review focuses on objectives 1 and 2 as set out above.

3.1 CSR Concept

CSR not a relatively new concept it can be traced back centuries, the mid 1800s the industrial revolution brought about the first steps of CSR as businesses where concerned with their employees welfare and increasing their productivity (Crane et al, 2008). However CSR really gained importance in the 1950s it was known as the philanthropic era (Crane et al, 2008). One of the first CSR definitions came from Howard Bowen who made the link between business responsibilities and communities’ expectations.

It (SR) refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society (Crane et al 2008: 25).

Bowen’s definition places a social obligation on businesses when making decisions to consider their impact on the communities. However in contrast to Bowen, Milton Friedman sees management as having only one responsibility to maximize profits of its shareholders (Friedman, 1970). This leads to the shareholder theory, which suggests that company’s managers, are supposed to spend corporate funds only in ways authorized by the shareholders (Smith, 2003). Therefore managers are not to spend this fund on non-profitable activities that does not increase shareholders value. Friedman does state that while it is true that managers should increase profit for the shareholder they need to play by the basic rules of the society (Carroll, 1991). However individuals and groups are affected by negative business activities and operation. These are the stakeholders internal and external of the company to whom they have obligation and responsibilities (Galbreath, 2009).

In contrast to shareholder theory Freeman citied in Crane et al 2008: 69 states that managers have a ‘moral duty to protect’ all stakeholders.

To merge the stakeholder and the shareholder theory Carroll introduced the Pyramid of Corporate Social Responsibility.

Figure 1: Source: (Carroll, 1991)

The pyramid, attempt to summaries and classify the numerous definitions of what constitute CSR within four categories economic, legal, ethical and philanthropic (Carroll, 1991). However it gives the impression that economic responsibility is the first step toward CSR and once achieved the next levels can be attempted and that philanthropic responsibility can only be achieved when all the levels are completed. Secondly ethical and legal responsibilities are pursued concurrently with any activity gear towards for profit maximisation and cannot be practise separately as it frequently required by the law. Philanthropic responsibility can be said to be voluntary and companies does not have to contribute to the communities that should the responsibility for governments.

To address the confusion, the four tiers can be further broken down. The Triple Bottom Line (TBL) may better represent the pyramid with the three Ps (Savitz and Weber, 2006).

TBL like Carroll’s Pyramid suggest that companies should take care not only of their bottom line but also their social/ethical and environment bottom lines (Meijer Schuyt, 2005) commonly identified as People, Planet and Profit. The diagram above illustrate that companies can pursue any of the three Ps in any particular order depending on what is priority for the company With these three social responsibilities to focus on companies should look at, how it can be integrated into the business.

3.2 The Supply Chain and the value chain

This chapter shall look at the concept of the supply and value chain along with how economical, social and environmental responsibilities are managed to gain benefits for the stakeholders and the company. The supply chain is defined as

The supply chain is defined by Supply Chain Council (1997) as ‘a term increasingly used by logistics professionals it encompasses every effort involved in producing and delivering a final product, from the supplier’s supplier to the customer’s customer’ (Lummus Vokurka, 1999) (Lummus Vokurka 1999: 11). It is a flow of goods (raw material) and services from a number of suppliers linking together to meet the needs of the customer at the end of the supply chain. From the researcher’s understanding the supply chain is a business process that forms part of the value chain. This understanding comes from the supply chain definition given by Cox citied Lummus Vokurka 1999 :11 ‘ the function within and outside a company that enable the value chain to make products and provide services to customers’.

The value chain of a company is a collection of activities that are performed to design, produce, market, deliver and support its product (Porter, 1998). It is a combination of two types of value adding activities primary and support (Porter, 1998) within the company that creates economic and social value (Porter and Kramer 2006: 13). Both the supply and value chains are vital for the integration and practice of CSR. The supply chain is more about effective and efficient processes from supplier/ producer to costumer, whilst the value chain activities links together to provide value to the stakeholders. Companies must use their supply and value chain to convert social needs and social issues into opportunities with the aim of meet the expectation of their stakeholders and achieve a unique strategic position.

3.3 From CSR to creating shared valued

Traditionally companies carried out CSR through cash donation, charitable and philanthropic activities but these social initiative according to Michael Porter are however not effective as its often not carefully planned and not part of company strategies hence in the long term it is not effective (Porter Kramer, 2006).

However, companies are increasingly aware that they can have long-term success only if they can create the same value for shareholders and the community in which they operate (Brabeck-Letmathe 2010). According to Nestlé Chairman Peter Brabeck-Letmathe, for CSR to be a success for the company it needs to be part of the business function of creating value for shareholders and communities. Companies need to be able to integrate unmet social needs of employees and communities into the core business strategy and so unite all stakeholders’ values. Nestlé employs the approach of ‘Creating Shared Value’ (CSV) as a CSR practice. It involves addressing social causes that can in the long term provide added value for the shareholders and community.

Research Design and Methodology

A research is something that is undertaken by the people ‘to find out things in a systematic way’ to increase knowledge (Saunders et al 2003:3). These involve finding a research methodology that can explain how the research is designed, how data will be collected, how the findings will be analysed and presented and also account for any limitations. In order to find the best research approach and the research strategy the researcher will follow the research process ‘onion’ developed by (Saunders et al 2003: 83). This process allow for a systematic approach to answer the research questions and consequently meet the objectives set out above. The research methodology has five sub headings starting with the research philosophy and ending with data collection method at the centre of the ‘onion’.

Figure 2: The Research Process’ Onion’ Source: Saunders et al 2003: 83

4.1 Research Philosophy

This is about the way knowledge is gain and how it is developed. There are three recognised research philosophies positivism, interpretivism and realism. Positivism research process attempt to copy the method of the natural science and takes the role of an objective analyst, collecting data from the social external world in a value free manner (Saunders et al, 2003). Knowledge by this method is developed by ‘reducing phenomena to simple elements representing general laws’ (Blumberg et al 2005: 23). While, the philosophy of interpretivism is motivated by subjective meaning of human interest (Saunders et al, 2003). Realism shares the philosophies of both positivism and interpretivism but at the same time stressing the error of studying people as objects in the style of natural science (Saunders et al, 2003). The philosophy framework adopted shall be the interpretivism, for the reason that corporate social responsibilities in the supply and value chain are complex and unique phenomenon which cannot be generalised in a value free manner (Saunders et al, 2003). Furthermore, social phenomenon cannot be understood from just facts but from the exploration of people’ different experiences and why these differences result in the ‘different construction and meanings people give to the social world’ (Blumberg et al 2005:21).

4.2 Research approach

This involves the use of theory and the design of the research (Saunders et al, 2003). The theory approach includes inductive and deductive whilst the latter involves qualitative and quantitative approach.

4.2.1 Deductive

This approached is adopted for scientific researchers were by a hypothesis is deducted and tested rigorously from a theory by the use of the appropriate research strategy (Saunders et al, 2003). For the deduction to be correct it must be both true and valid (Blumberg et al, 2005).

4.2.2 Inductive

This involves building theory and defining the hypothesis by ‘observation of empirical data’ (Saunders et al 2003:479). This study will have an inductive approach with the aims to understand why something is occurring and to build the theory by investigating CSR in the supply and ask why it influences the value chain and so infer a hypothesis that will answer the research questions.

4.2.3 Qualitative vs. quantitative

These two approaches are generally used to gather data for unique phenomenon. Quantitative approach relies on gathering of numerical data and figures only. The objective of this approach to seek answers by measuring, analysis and interpretation of data with the aid of computer programmes (Saunders et al, 2003) (Zikmund, 2003). Such quantitative data gathered from large scale surveys or from electronic database are suitable for descriptive and causal studies (Hair et al, 2003).

Qualitative approach involves the gathering of non numerical data (sentences or narratives) (Blumberg et al, 2005). The researcher has more control over the type of information gathered though leading or probing questions (Blumberg et al, 2005) or if collecting primary data through observation method, decisions can be taken on how and where the study will take place (Blumberg et al, 2005). Typically this study requires smaller samples or case studies and it is best suited for exploratory studies (Hair et al, 2003).

4.3 Research strategy

Research strategy can be described as tool(s) utilised to answer the research questions. Saunders et al (2003) identify six main strategies experiments, Survey, case study, grounded theory, ethnography and action research that can be used, depending on the research approach selected.

A case study is defined as ‘a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence’ (Saunders et al 2003:93) In this research a case study strategy will be used because of its ability to provide answers to the why and how questions. Saunders et al, states that a simple and well constructed case study can be used to challenge existing theory and provide source to hypothesis (Saunders et al, 2003).

4.4 Time horizons

This involves deciding whether the research will be a “snap shot” taken a point in time (cross-sectional) or be a representation of event over a long period of time (longitudinal studies) (Saunders et al 2003:95).

This research will utilise a snapshot approach or cross sectional studies because the research is not interested in ‘change or development’ (Saunders et al, 2003) but at a point in time where the supply chain and value chain are influence by CSR practices.

4.4.1 Research purpose

Saunders et al states that research enquires can be classified in terms of their purpose. These classifications include exploratory, descriptive or explanatory studies (Saunders et al, 2003). The purpose of this study is classified as an exploratory, whose objective is to find ‘what is happening to seek new insight; to ask questions and to assess phenomena in a new light’ (Saunders et al, 2003).The exploratory study may be achieved by the use of both qualitative and quantitative tools but is most dependent on qualitative approach (Blumberg et al, 2005).

4.5 Data collection methods

Data is collected depending on the nature of the research (Hair et al, 2003). As mentioned above this study is exploratory with the aim of exploring relevant literature and interviewing specialist on the subject (Saunders et al, 2003). Exploratory research provides the secondary data and primary data needed for analysis. The research aims to make use of both secondary and primary data. The former relates to data previously collected for other purposes and these are classified as documentary data, survey- based data and those complied from multiple sources (Saunders et al, 2003). For this research, secondary data regarding CSR practices shall be collected from relevant companies’ websites. In contrast primary data are collected for specific purposes through observation of peoples’ behaviour or utilizing semi and in-depth interviews (Saunders et al, 2003).

Primary data can be collected by two methods, observation and survey which are further sub-divided into human and electronic observation as well as self completion and interviewer administered surveys (Hair et al, 2003). In this study primary data will be collected via interviewer administered surveys of individuals (Hair et al: 125). This approach is particularly helpful in collecting ‘valid and reliable data’ (Saunders et al 2003: 245).

4.5.1 Interviews

The primary data can collected from structured, semi-structured and unstructured interviews. This study shall employ a semi structured approach which is often used in exploratory research. This type of interview usually starts with specific questions but the respondents are permitted to follow his or her own thoughts subsequently (Blumberg et al, 2005). The interviewer has the flexibility to omit or raise new questions depending on the organisation or change the order of the questions to suit the flow of the conversation (Saunders et al, 2003). This type of interview being qualitative in nature requires that data are collected by note taking or by tape- recording (Saunders et al, 2003).

4.5.2 Sampling

Sampling is the technique that enables the reduction of data by selecting only part of the population rather than all possible cases or elements (Saunders et al, 2003) due to time constraint. There are two approaches to choosing the appropriate sample probability or non-probability sampling. In probability sampling each case or element of the population has known and none zero probability of being selected randomly (Saunders et al, 2003: 486). While, for non-probability sampling the probability of each case or element being selected is not known (Saunders et al, 2003). Non probability methods include quota, purposive, snowball, self- selection and convenience sampling. Non probability will be best suited for this study as it allow for the selection of participants that can help answer the research questions and meet set objectives. This type of sampling is used when the researcher wishes to select cases that are particularly informative (Saunders et al, 2003).

Data Analysis and interpretation

Data analysis involves managing large amount of data collected by summarising and arranging it in a meaningful format (Zikmund, 2003). Saunders et al put forward two strategies for analysis of qualitative data these are theoretical or descriptive frameworks (Saunders et al, 2003). The first strategy of theoretical framework relies on the analysis of data according to a deductive position where the use of existing theory is needed to formulate research questions. The second strategy entail an inductive position whereby the descriptive framework is used ‘to start and direct the analysis of your data’ (Saunders et al: 389) by transforming data in a form easy to interpret (Zikmund, 2003). This research will make use of the second strategy descriptive framework, in order to organise the case study on the basis of description of the general characteristics and relations to the research questions (Yin, 1994).

Research Limitation

Limitations should to be taken into consideration while conducting a research. This research will be investigating multiple case studies as oppose to just a single case study. This is because with multiple case studies their results are considered more robust (Blumberg et al 2005: 376). However, it demands a lot of thinking on how to best select the appropriate case studies for the required evidence (ibid).

The research also utilise a range of academic literatures and reputable publications. However, the literature listed in the reference may not include all of the best up-to-date sources. Many other sources that could have been used but decision was taken to focus on particular literature mainly due to having access to them albeit some dated from the year 1991 and 2003. So the research structure depends on the type of sources found.

Validity and reliability

According to Saunders et al ‘ reducing the possibility of getting the answer wrong means that attention has to be paid to two particular emphases on research design reliability and validity’ (Saunders et al 2003:100).

Reliability

This means that the research can only be characterised as reliable, firstly if it can yield the same results consistently free from error (Saunders et al, 2003) (Zikmund, 2003). Secondly, the same observation ought to be observed by others and thirdly raw data has to be interpreted in a ‘transparent’ way (Saunders et al 2003:101). Reliability of a research can be tested by repeatability and internal consistency. The former involves, similar ‘scale or measure’ to the same respondents at different times to concur the same result (Zikmund, 2003). If the results gathered at the different times are dissimilar this indicates a low degree of reliability (Zikmund, 2003). However this test is more suitable for longitudinal studies where there is little time constraint. Internal consistency involve the measure of homogeneity where by all similar questions are grouped together in a questionnaire to measure the same concept (Zikmund, 2003).

Validity

On the other hand, this is about how data collection methods accurately measure what is intended to be measured and ‘whether the findings are really about what they appear to be about’ (Saunders et al 2003:101, 492). There are three tests to be used when testing quality of case studies these are construct validity, internal validity and external validity (Yin 1994: 33).

Table 1, summaries the three tests for validating of research.

Test

Description

Case study Tactic

Construct Validity

Establishing correct operational measures for the concept being studied

Use of multiple sources of evidence

Establish chain of evidence

Have key information review draft case study report

Internal Validity

Establishing a casual relationship, whereby certain conditions are shown to lead to other conditions, as distinguished from spurious relationship

Do pattern matching

Do explanation- building

Do time- series analysis

External Validity

Establishing the domain to which a study’ findings can be generalised

Use replication logic in multiple- case studies.

Table 1 Quality Test Description and case study tactic (Yin 1994: 33)

In this research, certain measures will be employed to increase the validity. To increases the construct validity it is import prior to the interview the questionnaire is ‘pilot tested’ so as to ensure that respondents will have no problem to understand and answer questions (Saunders et al 2003: 308). A tape recorder will be verified to ensure that data can be recorded proficiently and this should allow focus on the interview and not note taking. The benefit with a tape recorder is that it can be replayed whenever required.

Internal validity concerns with explanatory studies, where the research try to determine casual relationship between variables (Saunders et al, 2003). This research is exploratory and the internal validity of this study is not relevant.

External validity is concerned with knowing that the results of the case studies are generalise or not (Saunders et al, 2003) and retested through replication (Yin, 1994) to other research settings.

Timescale