Corporate Social Responsibility Case Study On Ikea Management Essay

This report identifies Corporate Social Responsibility (CSR) as a demanding topic which takes into deep understanding of CSR by depicting a road map of core subjects with related issues and implementation based on the principles of CSR and discusses briefly on its characteristics; pros and cons; theories and approaches; justifications and fundamental principles. This report gives an insight on the significance of CSR and examines in detail about the expected key potential gains from its operational use followed by the discussion on the problems and barriers that CSR generally faces .Finally the report chooses the case study on IKEA and discusses in depth about its CSR experiences by studying its development and strategy dimensions of CSR in corporate social agenda(strategic and responsive forms of CSR) and analyses IKEA’s responsibilities as integral elements of strategy with a brief discussion on CSR communication. The concept of CSR has widened its scope and its increasing global demand makes us to realize the responsibilities of a firm with its dimension towards social, economic and environmental impacts

INTRODUCTION:

This report identifies Corporate Social Responsibility (CSR) as a hot topic and the reason for choosing CSR is due to its high profile attainment in the academic domain and most of us feel CSR as an absolute necessity to define the roles of organizations in Society and apply their responsibilities to their businesses in terms of social, ethical and legal standards. Moreover, CSR has become a globalised concept and achieved business prominence because of its geographical prevalence from US origin to its widespread suitability and establishment in Europe. This report structures the content to understand the concept of CSR by depicting a road map of core subjects with related issues and implementation based on the principles of CSR and discusses briefly on its characteristics; pros and cons; theories and approaches; justifications and fundamental principles. This report gives an insight on the significance of CSR and examines in detail about the expected key potential gains from its operational use followed by the discussion on the problems and barriers that CSR generally faces .Finally the report chooses the case study on IKEA and discusses in depth about its CSR experiences by studying its development and strategy dimensions of CSR in corporate social agenda(strategic and responsive forms of CSR) and analyses IKEA’s responsibilities as integral elements of strategy with a brief discussion on CSR communication.

UNDERSTANDING CSR:

The term CSR seem to be new but research predicts that there has been an evolution of its concept throughout many decades. Way back in ’30s of last century, the focus of marketing was initially on distribution and logistic, that was about how to provide some products at minimal cost. With the total marketing, the centre of attention is to set on the selling systems on the marketing mix comprising the 4 Ps: Price, Products, Place, Promotion.

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Social marketing emerged in the ’70s whereby the company decides on the long-term interests of stakeholders internally as well as externally. A stakeholder could be any individual or a group, who can influence or get influenced by behavioral impacts of an organization. The categories of the company’s stakeholder are shown in the table below:

Company’s Organizational structure and location

Involvement in the Business activity

Internal

External

Direct

Shareholders,

investors,

managers,

employees

Customers,

Lenders,

Tax agencies

Indirect

Consultants,

Suppliers,

contractors

Community,

NGOs,

Media

General public

Professional bodies

The impact of any organization on the society through their operations, products or services rendered by associating with stakeholder groups such as customers, suppliers, employees, investors and community and this can be displayed in the form of a diagram below

Source: Mallen Baker (2007)

Different terms and ideas are associated and so it is difficult to define CSR due to ambiguity in the CSR field of research. There is always a problem to stick onto universal definition of CSR as the concept ranges from mere compliance with law to pure Philanthropy. Corporation refers to group of members acting as an individual, be it for business or elsewhere. Philanthropy has little to do with CSR because philanthropy is about how a company spends its money and CSR is about how a company generates money and how responsibly they conduct their business in doing so.

However, European commission identifies CSR as a broad concept and recognizes, CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis”(Commission of the European Communities 2001).

WHAT CSR IS NOT?

1. It is not an alternative for the regulation of companies!

2. It is not a replacement for how companies should manage their social,

ethical and environmental impacts!

3. It will not save the world!

CHARACTERISTICS OF CSR:

The main features of CSR can be summarised as shown in the table below:

Features

Description

Triple-bottom-line

Economic, social and Environmental

Voluntary

All activities are taken up voluntarily.

Stakeholders integrity

Connecting all parties involved.

Long-term action

Carrying activities over a long-term period.

Credibility

Enhances the credibility of the firm.

PROS AND CONS OF CSR:

Arguments for CSR

Arguments against CSR

Enhances reputation in society.

Solves the problems caused by business in society.

Stabilises corporate power with responsibility.

Increases long-term profitability

Beyond government regulations.

Adjusts to imbalanced demands of stakeholders.

Improves environmental conditions.

Business should be meant for profit maximization.

Enforces unequal costs among competitors.

Stakeholders compelled to hidden costs.

Business may lack social skills.

Makes to forget the aims of the business

Social responsibility cannot be a legal responsibility.

Places responsibility on the business but not on individual.

CSR THEORIES AND APPROACHES:

The focus on economic, political, social and ethical aspects in social reality aspects according to Parsons (1961) are primarily based on four features that can be perceived in any social structure such as adaptation to the environment ,goal attainment, social integration and pattern maintenance or latency. This hypothesis led to the classification of CSR theories into four types which can be depicted in the following table with their related approaches.

TYPES OF THEORIES

AND ITS FOCUS

APPROACHES

ILLUSTRATION

INSTRUMENTAL THEORIES

Focus on the economic aspect of the interaction between business

and society

Augmentation of shareholder value

This theory argues that CSR is the only means to the end profits.

It is based on wealth creation that is measured by share price.

Strategies for competitive advantage

Social investments in the context of competition

Strategies based on the view of firm’s available natural resources.

Strategies related to the bottom of the economic pyramid.

Cause -related marketing

Considering Socially recognised philanthropic activities applied as an instrument in marketing

POLITICAL THEORIES

Focus on the business power applicable in the areas of politics

Corporate constitutionalism

Firm’s social responsibilities arise from their strength of social power

Integrative social contract

Assumption of the existence of contract between the business and society.

Corporate citizenship

The firm is perceived as a citizen with participation in community.

INTEGRATIVE THEORIES

Focus on the integration of social demands

Issues Management

Firm’s response to the social and political issues and their impacts

Public Responsibility

Current legal procedures and public policies are considered as recommendations for social performance

Stakeholder management

Stabilizing the firm’s stakeholders

Corporate social performance

Exploring the responses from social legitimacy to social issues

ETHICAL THEORIES

Focus on the right factor to attain a good society

Stakeholder normative theory

Considering trustful duties towards firm’s stakeholders

Universal rights

Considering the frameworks related to human rights, labour rights and respect for environment

Sustainable development

Achievement of human progress by accounting present and future generations

The common good

Awareness towards the common good of society

JUSTIFICATIONS FOR CSR: The prevailing justifications for CSR are shown in the picture below:

Moral obligation

“Attaining commercial accomplishment in approaches that tribute ethical value”

Insufficient assistance to stabilize complicated competence related to social and economic interests.

Varied personal values among managers and stakeholders

Licence to operate

“Developing goodwill to safeguard the consent of Governments and stakeholders”

Licences and approvals are needed for a business to operate.

However, this kind of approach will have to compromise in controlling CSR agenda to the externals that lack knowledge about company’s operations and competitive positioning.

Encourages defensive responses for time being.

Sustainability

“Self-interest to encounter the present needs without compromising the future needs”

Efficiency on environmental issues yielding immediate economic benefits.

In other aspects other than environmental issues, intangible long-term results give a weak justification for short-term costs.

Existing justifications focus on the pressure between the firm and society rather than bringing coordination.

These generic rationales give a trivial guidance for taking up company activities.

FUNDAMENTAL PRINCIPLES OF CSR:

CSR mainly relies on three fundamental principles such as Economic, Social and Environmental areas. The purpose of CSR is to integrate business activity with its culture for attaining sustainability in its economic, social and environmental areas. Each fragment of CSR includes activities, which differ depending on the type of firm and the needs of stakeholders.

ECONOMIC AREA: The firm is expected to behave as a transparent enterprise .Positive relationship among the investors, customers, suppliers and shareholders is expected. Economic impacts at local, national and international levels should be monitored. Stakeholders and the activities of CSR in the economic area of the market are shown in the table below:

Economic area – Market

Stakeholders

Owners and investors

Customers/consumers

Suppliers /partners

Regulatory bodies

Media

CSR activities

Creates ethical codex

Transparency

Best practice management

Practice anti-corruption

Build Stockholders relations

Build Customer/consumer relations

Build suppliers relations

Build investors relations

Protect intellectual property

SOCIAL AREA: Responding and tackling the behavioral attitudes to employees in the working environment and focuses on assisting the local community. The company influences the working standards, education, health & safety and develops the cultural aspects. The stakeholders and CSR activities in the social area are shown in the table below:

Social area

Stakeholders

Work location

Local community

Employees

Unions

Non-Profit organizations

Public

CSR activities

Health &safety of the employees

Human resources development

Get rid of child labour

Follow working standards

Supporting laid-off employees

Assurance of jobs

Supporting social integrity

Corporate volunteerism

Donor ship

Educating Public

Improving the quality life of employees

Creation of jobs and develop local infrastructure.

ENVIRONMENTAL AREA: The Company focuses on its impact on ecosystem and elements like land, air and water. The company feels its determination to protect the natural resources.

Environmental area

Stakeholders

Groups related to environmental aspects.

CSR activities

Eco-friendly processing and manufacturing products and services.

Agreement with regulatory and standards(ISO,EMAS)

Renewal of energies policy by recycling and using eco-friendly products.

Lessening the environmental impacts.

Protecting the natural resources.

ROADMAP FOR CSR: The following roadmap depicts the core subjects and CSR implementation based on the principles of

Source: vi.unctad.org/russiast09/docs/millercsr.ppt

CORE SUBJECTS AND ISSUES: Issues related to core subjects of CSR can be

depicted from the following table:

CORE SUBJECTS

ISSUES

ORGANIZATIONAL GOVERNANCE

Shareholder activism

Political economy

Cross border investments by foreign investors

HUMAN RIGHTS

Due attentiveness

Risk conditions

Escaping complicity

Determining grievances

Inequity and susceptible groups

Civil rights

Political rights

Employee’s fundamental rights

Socio-economic and cultural rights

LABOUR PRACTICES

Social conversation

Child labour

Forced labour

Employment relationships

Work conditions

Social security

Health and safety at employment

Training and progress in the employment

ENVIRONMENT

Avoidance of Pollution

Maintenance of resources

Mitigating and adapting climatic change

Protecting the nature

REASONABLE OPERATIONS

Anti-corruption

Sensible political implications

Good competition

Encouraging social responsibility in the field of influence

Assessing the value for property rights

CONSUMER ISSUES

Awareness

Market sensing

Health and safety for consumer protection

Consumption sustainability

Consumer support and solution for disputes

Data security and privacy

Entry to necessary services

COMMUNITY PARTICIPATION AND IMPROVEMENT

Education &Culture

Creating employment and developing skills

Advancement of technology

Income generation

Social investment

Community health

CSR DRIVERS: The key drivers of CSR are discussed in the table below:

DRIVERS

DESCRIPTION

Profound self-interest

Generate ethical, social and economical cohesion where markets, labour and communities are linked to work together.

Social investment

Social capitalism and contribution to infrastructure has been seen progressively as necessary part of business activity.

Transparency and trust

Public perceives business as low ratings of trust. Public expectation about company’s openness and accountability leads to prepare a report encompassing their performance in the areas of social and environmental issues.

Increased public expectations of business

Public expects beyond the company’s contribution to the economy by taxation and provision of employment.

In addition to the above key drivers, the following list shows general drivers of CSR.

Business Risk management

Reputation and brand management

Learning and innovation

Cost savings and operational efficiency

Competitiveness and market positioning

Improved relations with regulators

Organizational transformation and continued improvement

IMPLEMENTING CSR:

Each firm is unique in its operational procedures, its awareness of CSR issues and the amount of work done towards CSR implementation.Therefore; different firms adopt different frameworks depending on their CSR approach.However, it adds value to the firm when CSR is implemented in a systematic route by integrating its mission, strategy, cultural, environmental and risk profiles, processes and activities. The following framework for CSR implementation gives scope to build quality and environmental management, which follows the model of “plan, do, check and improve” based on ISO standards .This flexible framework can be adapted by any firm as suitable for its organization.

Implementation Framework

PHASES

STEPS

TASKS

Plan

1.Perform CSRassessment

Gather a CSR management team

Work out the definition of CSR

Re-examine corporate documents, processes and activities

Recognize and connect key stakeholders

2. Build up a CSRstrategy

Develop support with experienced managerial staff

Investigate others tasks

Design a format of proposed CSR activities

Build the ideas for scheduling and the business case for them

Fix on areas of roadmap, methodology and focus

Do

3. Explore CSRcommitments

Take a glance on CSR commitments

Organize discussions with key stakeholders

Design the group to develop the commitments

Plan for an introductory draft

Check with concerned stakeholders

4. Implement CSRcommitments

Build an integrated CSR decision-making framework

Prepare a CSR business plan

Lay down the quantifiable goals and find out the measures of performance

Slot in the employees and to whom so ever applicable to CSR commitments

Propose and perform CSR training

Set up workshop to address the behavioural problems

Design for setting up internal andexternal communications

Check

5. Authenticate and report on progress

Gauge the performance

Hold stakeholders

Report on performance

Improve

6. Evaluate and Enhance

Assess the performance

Discover the opportunities for enhancement

Engage stakeholders

Double-check: Once a cycle completes

Go back to plan and go ahead with subsequent cycle

SIGNIFICANCE OF CSR:

The issue of CSR initiatives and the perceptions of ethical standards have gained more attention by the management in considering approaches to strategic marketing. Usually, CSR is of growing importance towards managing the business processes and is magnetizing growing company investment. Unfortunately, marketing departments lack the skills to manage even the issues related to reputation thereby narrowing the insights. For example, pharmaceutical companies were criticised in the media for arrogance and lack of transparency. In order to rebuild its reputation, Pfizer took initiative to offer free medicines to those who were laid-off during recession. So marketing strategy expects to look for opportunities for better competitive positioning in market segments through increased customer value integrated with CSR initiatives. Majority of business leaders are focusing on CSR as a tool for differentiation and competitive advantage leading to generate revenue.

CSR is not only important in considering the consumer relationships but also scrutinizes business-to-business relationships (comprising supply chain partners) with stakeholders like investors, government and lobby groups.

CSR is an important business strategy by giving meaning and direction to day to-day operations. Satisfying each of the stakeholder groups allows companies to maximize their commitment to another important stakeholder group-their investors, who benefit most when the needs of these other stakeholder groups are being met.

The business succeeds when values within the decision-making process and objectives of the organization are met. Lifestyle brand firms, in particular, need to live the ideals they convey to their consumers.

CSR as a strategy is becoming increasingly important for businesses today because of three specific trends shown in the table below:

Trends

Discussion

Changing social expectations:

Consumers and society in general expect more from the companies whose products they buy with the regulatory bodies and organizations in place to control corporate excess.

Increasing affluence:

A society in need of work and inward investment is less likely to enforce strict regulations and penalize organizations that might take their business and money elsewhere.

Globalization:

The Internet fuels communication among like-minded groups to initiate a product boycott.

These three trends portend corporate success. The result of this mix is that consumers today are better informed and feel more empowered to put their beliefs into action. CSR is particularly important within a globalizing world because of the way brands are built, at a time when these values and demands are constantly evolving.

CSR can therefore best be described as a total approach to business in maintaining brand dominance.

KEY POTENTIAL BENEFITS OF CSR:

The benefits to firms, community and environment by practicing CSR can be discussed at length in the following table:

KEY POTENTIAL BENEFITS

DISCUSSION

Efficiency in risk management:

CSR oversees and scrutinizes the corporate activities by effectively managing the risks involved in governance, social, economic, environmental and legal aspects in day-to-day complicated market, thereby safeguarding the supply for overall market stability. Impact analysis about a firm by considering the concerns of the parties involved is one of the better ways to anticipate in managing the risks. This ultimately sharpens the decision-making.

Enhanced reputation management:

Reputation of a firm is mainly based on values such as trust, quality, reliability, which reflect the organization’s image and brand recognition and so any firm concerned about addressing the CSR issues, can manage their reputation with effective CSR management.

Ability to develop the recruitment and retention of staff:

Effectiveness in CSR policies improvise the human resource management which has direct impact on firm’s image related to its products and services.CSR indirectly aids in executing the programs that enhance the morality and loyalty of employees who are valuable resources for company’s performance.

Fostering innovation, competitiveness and market positioning

CSR gives positive impact in avoiding the risks by tackling diverse stakeholders who are the basic sources for generating ideas for novel products and markets thereby differentiating from its competitor, which result in competitive advantage, thus developing competitive strength based on innovative business models. For instance, a certified firm with social and environmental standards improves the chance to become a supplier to specific retailers.

Increased operational efficiencies and cost reductions:

By implementing CSR, there is always an opportunity to transform waste streams into revenue streams by systematic approach of environmental aspect of renewable energies by reducing costs through recycling. Tangible cost savings signify the reduction in carbon emissions.

Building efficient supply chain relationships:

A firm is at risk to susceptibility in its supply chain. Companies with like-mindedness can build long-term business relationships with aim to increase their profits by maintaining standards and thereby tackle the risks. Larger firms encourage smaller firms with whom they are related to take up CSR approach. For example, particular retailers may require their suppliers to adopt certain codes and practices.

Improved ability to tackle change:

CSR aids as a “radar” to anticipate the emerging market trends and by regular stakeholder dialogue with customers, a company can respond to any changes that occur in regulatory, economic, social and environmental aspects.

Generate robust “social licence” to function in the community:

Better understanding between citizen and stakeholder recognition of the firm’s activities and objectives can render enhanced stakeholder relations, thereby giving scope for robust alliances of public, private and civilized society.CSR enhances the social capital.

Enhances investment:

As CSR enhances the brand reputation, it leads to raising the company’s profile in the investment community. The company value can be improved through further investments.CSR approach drives the financial institutions about incorporation of social and environmental criteria into their project plan leading sharp decision-making of where to invest money and this motivates the investors to look for better CSR management.

Better relations with media and government regulators:

CSR indicators act as tool for the governments to decide on obtaining export assistance contracts in some countries. In many cases, though CSR activities are beyond the regulatory requirements, governments considered CSR views to expedite the approval processes for firms in order to meet their sustainability goals by recognizing the business sector engagement as a requirement.

Building customer relationships:

In Cause related marketing the altruistic activities of the firms can be recognized by morally conscious customers who may be flexible in paying higher prices or in reduced costs may increase their purchasing power and so CSR in broader sense has significant impact in building the long-term customer legitimacy,loyalty,trust or brand equity.

Acting as a catalyst for responsible consumption:

In order to combat with the ever changing consumption patterns, company has to play a key role in achieving sustainability by the way it supplies its goods and services in the marketplace to meet “responsible consumerism” which considers to relate consumer rights and issues and how well the relationship between producers and consumers is authorized by regulatory bodies.

BARRIERS AND CHALLENGES:

CSR implementation in a competitive world draws certain barriers and challenges which are due to :

Difficulty in implementing CSR concurrently with other business

Concerns in a balanced and remarkable manner

Difficulty of transparency

Lack of clear communication

Economic thoughtlessness

Various instability problems in developing countries

especially problematic for SMEs

Complexity of the issues involved and so difficulty in managing the supply chain and regulating the sub-contractors

Complex set of issues as

CSR covers a broad array of direct and indirect business

performances, achievements, and so its impacts differ from

one business sector to another

International differences that may lead to lack of universal acceptance in examining the potential impacts of CSR. Misinterpretation due to CSR being judged differently in many parts of the world depending on different priorities. For example, Chinese consumers interpret social responsibility as safe, high-quality products, while South Africans consider it as a contribution to healthcare and education. In Australia, Canada, Indonesia and the UK the highest priority is to protect the environment. In Turkey, it is believed as an indicator for charitable donation. In U.S, France, Italy and Switzerland and most of South America, the highest priority is towards fair treatment of employees.

Complex set of stakeholders appealing to the business for a CSR attitude

the appropriate stakeholders need to be involved

stakeholder involvement is important, yet difficult

Always ambiguity between CSR and financial success

Low voluntary acceptance of CSR can lead to ‘green washing’

Lack of devices to measure, monitor evaluate and report the

impacts

Two myths

– Smaller companies think it the responsibility of the bigger ones

and

It is mainly a philanthropic exercise

High ‘overheads’ of implementing and sustaining CSR efforts.

No universally accepted frameworks

Some of the main internal company barriers to CSR initiatives are:

Executives recommending strategic marketing programmes that focus on CSR-based positioning must be aware of the likely barriers and challenges from those who do not believe CSR as a legitimate strategic tool.

CASE STUDY: CSR AT IKEA:

The reason for choosing IKEA as case study of CSR work is to understand its CSR focus as a leading company, which ranks as the first in CSR in the Accountability’s Responsible Competitiveness Index 2008 (RCI). IKEA was selected due to its long history and experience in the area and its response to several CSR-related crises and criticisms that has enabled the organization to develop structured policies and a range of collaborations and initiatives with stakeholders and could set an example for companies aiming to develop their economic and environmental sustainability.

IKEA is a value-based Swedish furniture giant that has wide recognition for its focus on cost reduction and it is a progressive company that manages to integrate its cost focus with CSR issues. This report discusses in detail about how this integration is possible for IKEA and it is interesting to know its implications for other companies who want to combine CSR into their business practices.

The CSR experience gained by IKEA can make other companies to realise that CSR is not necessarily a cost addition but it is a cost-cutter, which imparts increasing knowledge on how companies can be socially responsible. The aim is therefore to analyze the relationship between the value addition by CSR for a company to its corporate strategy. Public awareness about IKEA’s CSR activities is only through proper communication and so this report investigates on how the CSR is communicated by IKEA. This report d