Title: Developing a CSR strategy
Course: Corporate Social Responsibility online > Section: Part 3: Strategic approch to CSR

/1h 30 minutes/

With videos from Sustainability Illustrated

Distinct CSR strategy or CSR integration into a business strategy?

Michael Porter and Michael Kramer notice that different approaches to CSR are very fragmented and often disconnected from business and strategy. Instead, corporations should analyze their prospects for social responsibility using the same frameworks that guide their core business choices. By doing so, they will discover that CSR is not just a cost, a constraint or a  charitable action but rather a source of opportunity, innovation and competitive adventage (Porter & Kramer, 2006).

This means that firms may implement a distinct CSR strategy in the same way as they implement a marketing or human resources strategy. Here, the typical steps are:

planning phase (setting goals and designing a CSR strategy)
implementation phase (implementing a CSR stratgy)
evaluation phase (assessing the outcomes of a CSR strategy).

Another option is to check how CSR can be integrated into the existing business strategy (Galbreath, 2009). This requires answering the following questions about how CSR fits into:

the organization's overall goals and mission
the internal and external strategic issues that affect the organiztion's ability to acheive its mission
avialable markets the organization can operate in
potential goods and services that will be offered to customers
the development of internal resources necessary to compete in those markets
the development of a distinctive and enduring competetive advantage that enables the organization to outperform its competitors (Crane, Matten & Spence, 2014)

Let's go now together through the core steps of developing a CSR strategy.

References:

- Crane, A., Matten, D. and Spence, L. J. (2014), Developing CSR Strategy. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 3/e. Abingdon: Routledge, pp. 443-451.
- Galbreath, J. (2009), Building corporate social responsibility into strategy, European Business Review, Vol. 21 No. 2, pp. 109-127. https://www.emerald.com/insight/content/doi/10.1108/09555340910940123/full/html
- Porter M., Kramer M. (2006) Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review no. 12, https://hbr.org/2006/12/strategy-and-society-the-link-between-competitive-advantage-and-corporate-social-responsibility

Step 1: Where do we want to be?

The first step in developing a CSR strategy is to identify the key areas of social issues opportunities that are central to the firm's core business. It is a clue to consider the market competitive environment (dynamism, complexity & munificence) as well as the nonmarket environment (non-financial firms & stakeholder relationships).

It is good to know what the company's stakeholders' expectations are , so firms often provide stakeholder mapping and expectations analyses. We have discussed the multiple stakeholder view in the section: Core characteristics of CSR.

After recognizing the key areas where the organization wants to achieve progress, it is necessary to set specific targets and goals for a CSR strategy, as well as coresponding measures to monitor the progress.

Do you know Danone (Dannon in the US)? This is a French food multinational that is active in the youghurt industry. For more than a decade, this company has been refocusing its corporate strategy on health and nutrition products.

The current Danone mission is explained as:

Danone, derived from: https://www.danone.com/about-danone/sustainable-value-creation/our-mission.html (Access: 3.06.2020)

The company states clearly that the core driver are the changing customer expectations:

"Now more than ever, consumers are concerned with food. The revolution now underway is shaping how products are made and consumed, as well as our approach to preserving resources and protecting the environment"
Danone, derived from: https://www.danone.com/about-danone/sustainable-value-creation/our-mission.html (Access: 3.06.2020)

"In 2017, Danone unveiled a refreshed logo and its very first company signature: One Planet. One Health. These words reflect our vision that the health of people and the health of the planet are interconnected."
Danone, derived from: https://www.danone.com/about-danone/sustainable-value-creation/our-vision.html (Access: 3.06.2020)

In line with the vision of ‘One Planet. One Health’, Danone defined a set of 9 long-term goals that embed its business model, brand and trust models. The Danone 2030 Goals are aligned with the 2030 Sustainable Development Goals of the United Nations: https://www.danone.com/about-danone/sustainable-value-creation/our-company-goals.html (Access: 3.06.2020)

What is noteworthy is that the undertaken strategic shift resulted in many divestments of non-core businesses and brands, e.g. Kronenburg, Amoy or the biscuit division, which was sold to Kraft in 2007. Danone decided to expand into baby and medical nutrition, including also low income populations (Crane, Matten & Spence, 2014). In 2016, Danone  agreed an all-cash $12.5bn takeover of WhiteWave, a US maker of organic fare and dairy-free milks. Experts from Financial Times commented at that time that while on paper, the deal made sense, whereas financially the logic was less compelling (Danone Culture Shift, FT, 7.07.2016). Next, Danone accelerated its organic growth, expanded its portfolio and announced plans to invest in start-up companies that have a healthier focus. "These shifts have led to a financial and brand growth unmatched by few competitors, earning it the title for turnaround company of the year" (Turnaround of the year, Dive Awards 2018).

We can observe that the main drivers for the shift in Danone's strategic choices are linked to the knowledge of the societal expectations about food and nutrition, and considerations of how social responsibility could be integrated into its core business strategy.

What were the details of Danone's shift from a yoghurt manufacrturer towards the new business model? Let's try to dive more deeply into this case in the next sections.

References:

- Crane, A., Matten, D. and Spence, L. J. (2014), Developing CSR Strategy. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 3/e. Abingdon: Routledge, pp. 443-451.
- Danone Culture Shift, Financial Times, 7.07.2016, https://www.ft.com/content/26e06022-4431-11e6-9b66-0712b3873ae1
- Turnaround of the year, Dive Awards 2018, https://www.fooddive.com/news/turnaround-of-the-year-danone/541681/
- https://www.danone.com

Step 2: Designing a CSR strategy

If you have already set the goals and you know what you want to acheive - that is great. However, knowing how to acheive it is a different story. Designing a CSR strategy means that you need to work out how the firm can get from its current position to a desired future state (Crane, Matten & Spence, 2014). Let's explore this notinon in a video:

https://www.youtube.com/watch?v=J10CAkkAHFQ

Source: Sustainability Illustrated, Sustainability strategy: planning in 4 steps (ABCD) (4:30 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=J10CAkkAHFQ

Here, it is necessary to analyse the firm's resources and capabilities for capitalising on opportunities. The typical activities involve creating plans for integrating issues, i.e. the stakeholders, the firm's identity, its resources, the competitive environment, and the expected outcomes.

Firms can decide how to acheive the setteled goals through (Crane, Matten & Spence, 2014):
- developing new products and services (the approach of continous innovation), or
- trying to establish trusting relationships through stakeholder integration.

Let's dive more deeply into this in the next sections.

References:

- Crane, A., Matten, D. and Spence, L. J. (2014), Developing CSR Strategy. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 3/e. Abingdon: Routledge, pp. 443-451.

Development of new products, services and markets

Let's start with the development of new products. It is a big challenge for an established company that nurtures such an ambition, because the company needs to reinvent itself (Tavignot, 2014). For Danone, the two major strategic directions that the company took, which were in compliance with and supported the set goals were:

the Muhammad Yunus’ “social business” or "social entreprenurship", which we also discussed in the section Context for developing a CSR strategy (CSR and civil society organizations).

Prahalad C.K. and Stuart L. Hart (2002) “ base of the pyramid ”.

Let's read the article by Benedicte Faivre Tavignot (2014) The Danone Case: How social innovation can help a multinational company reinvent itself, Paris Innovation Review, 24.01.2014 from http://parisinnovationreview.com/articles-en/social-innovation-the-danone-case-by-b-faivre-tavignot

This article shows how Danone used  both the concepts of "social entrepreneurship" and "base of the pyramid" to develop a totally new business model and the ambition to become a B-Corp. B-Corp is a type of certification for hybrid organizations that aim at introducing innovative business models to achieve social and environmental goals through business activities (Haigh, Walker, Bacq, & Kickul 2015).
Let's learn more from the following video:

https://www.youtube.com/watch?v=9poHaUkPQ-Y&feature=youtu.be

Source: California Management Review, Understanding Hybrid Organizations (6:11 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=9poHaUkPQ-Y&feature=youtu.be

If you have got interested in hybrid organizations, you can confront the insights from the article with the way Danone describes its idea for sustainable value creation: https://www.danone.com/about-danone/sustainable-value-creation.html

References:

- Haigh, N., Walker, J., Bacq, S., & Kickul, J. (2015). Hybrid Organizations: Origins, Strategies, Impacts, and Implications. California Management Review, 57(3), 5–12.
- Prahalad C.K. and Stuart L. Hart (2002) The fortune at the bottom of the pyramid, Business and Strategy, no. 26, https://www.strategy-business.com/article/11518?gko=9b3b4
- Tavignot B.F. (2014) The Danone Case: How social innovation can help a multinational company reinvent itself, Paris Innovation Review, 24.01.2014 from http://parisinnovationreview.com/articles-en/social-innovation-the-danone-case-by-b-faivre-tavignot
- https://en.wikipedia.org/wiki/B_Corporation_(certification)

Developing trusting relationships

As regards the development of trusting relationships through stakeholder integration, let us introduce to you a Danone initiative that was developed together with the UN Institute for Training and Research: https://www.unitar.org/about/news-stories/news/unitar-and-danone-launch-innovative-e-learning-course-sustainable-diet

https://youtu.be/7Rufgoy9R2U

Source: UN Climate Change:Learn, How does your diet affect the environment? (1:26 min) [access 13.06.2020]. Derived from Youtube: https://youtu.be/7Rufgoy9R2U

This is an example of  an educational CSR initiative that is aimed at raising awarness toward an important societal problem that is strictly connected with the firm's core business. The firm can act as an expert in sharing knowledge on the topic, raise the social awarness on the topic and, in consequence, gain legitimacy and develop trust among the different groups of stakeholders, like customers, employees or investors.

Think about the strategic direction of Danone described in the previous and in this section (Crane, Matten & Spence 2013; Tavignot 2014).

Do you think this kind of initiative can help to reach the set strategic goals?
How do they comply with the strategic direction?
How do you evaluate the Danone's strategy with reference to the ABCD methodology described in the film from the previous section?

- A - Rising awarness
- B - Identifying curent position (baseline)
- C - Presenting a compelling vision, and
- D - Deciding on priorities

Please share your ideas in the discussion in the section: Task 9: CSR as a driver for market development.

References:

- Crane, A., Matten, D. and Spence, L. J. (2014), Developing CSR Strategy. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 3/e. Abingdon: Routledge, pp. 443-451.
- Tavignot B.F. (2014) The Danone Case: How social innovation can help a multinational company reinvent itself, Paris Innovation Review, 24.01.2014 from http://parisinnovationreview.com/articles-en/social-innovation-the-danone-case-by-b-faivre-tavignot
- https://www.unitar.org/about/news-stories/news/unitar-and-danone-launch-innovative-e-learning-course-sustainable-diet

Step 3: Implementing a CSR strategy

Implementing a CSR strategy may sometimes mean that you do the same or similar things as usual but with CSR added on. For example, you can think here about adding social criteria to supplier evaluation tools. Sometimes, however, you can agree to do things that are completly different, e.g. practise stakeholder engagement while taking strategic decisions (Crane, Matten & Spence, 2014).

It is important to take a comprehensive view on your business and implement CSR into various business aspects. We will explain the idea of CSR implementation based on the concept of the Sustainable Value Framework, presented by Stuart Hart and Mark Milstein in their article "Creating Sustainable Value published" in the Academy of Management Executive in 2003.

Let's start with an animated video:

https://www.youtube.com/watch?v=jpeS9lFDHpY

Source: Sustainability Illustrated, Creating sustainable value for YOUR business (4:48 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=jpeS9lFDHpY

I hope you know by now that implementing CSR/Sustainability means much more than just philantropic actions. Implementing CSR/Sustainability into business means that you go through the whole value chain, and look for social and environmental aspects that you need take into account in different areas of your business.

Let's listen to a speech by Stuart L. Hart, who is the leading authority on the implications of environment and bottom of pyramid markets and their impact on business strategies. In the following video, Hart explains how to construct a baseline so that people can have a meaningful conversation on what sustainability really means in a business context rather than look for compliance. He asserts that sustainability today is a new buzz word. The sustainable value framework is particularly important to incumbent firms, because it presumes the baseline of the business that it needs to go through. Hart gives an example of how start-ups in India lead directly to clean technologies and the base of the pyramid. Hart argues here that the reason for the company's existence is to create a strategy for sustainable entrepreneurship:

https://www.youtube.com/watch?v=G1QKiiEEqB4

Source: BWBusinessworld, Business Should Exist To Create Sustainable Entrepreneurship Says, Stuart L. Hart (12:30 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=G1QKiiEEqB4

Please bear this approach in mind, as we will come back to this in the section: Task 12: CSR in the Supply Chain

We also recommend that you watch a recording from a leadership session with Stuart L. Hart. In this speech, he deliveres a detailed talk on ‘The Sustainable Value Framework’. He also presents a workshop for executive teams on how to develop a framework that enables a constructive discussion about how firms could incorporate the emerging challenges associated with sustainability into their core business strategy:

https://www.youtube.com/watch?v=4KF_fxkuZsY

Source: arthsastra, Sustainable Value Framework - Keynote by Stuart L. Hart (1 h 05:12 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=4KF_fxkuZsY

References:

- Crane, A., Matten, D. and Spence, L. J. (2014), Developing CSR Strategy. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 3/e. Abingdon: Routledge, pp. 443-451.
- Hart, S. & Milstein, M. (2003). Creating Sustainable Value. Academy of Management Executive. 17. 10.5465/AME.2003.10025194.

Step 4: How are we doing?

Measuring and evaluating a company's performance is the final step in developing every strategy, including CSR. While talking about CSR performance, it is good to start with understanding what the business case for CSR is:

https://www.youtube.com/watch?v=KlW8-WW0k3g

Source: Sustainability in Business = 51% to 81% MORE PROFIT (CSR) (4:37 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=KlW8-WW0k3g

When we review the literature, we see that not everyone agrees that CSR generates profits. Some argue that the relationship goes in another direction and stress the fact that organizations that implement CSR have better financial outcomes. We should rather understand that firms with good financial outcomes are more likely to invest in CSR. This explains the positive correlation betwenn CSR and profit.

In the previous video, we learned about  the core idea for understanding CSR performance measurement. While business strategists first look at measures of financial performance (ROI and ROE), CSR practicioners suggest starting with benefits like trust, reputation, commitment, values and identity. Based on this, firms become capable of  increasing their revenue in the long term. Also savings and risk management belong to important aspects of CSR evalution.  A CSR strategy interposes intangible performance measures between strategic behavior, financial performance and social performance (Crane, Matten & Spence, 2014; Husted & Allen, 2010).

The answer goes however even deeper. To understand  and assess the outcomes of a CSR strategy, we need to decide what we intend to do, i.e. what our expectations regarding a CSR strategy are:

are we looking for financial profit alone, or
do we want to understand better how CSR influences the way we run our business?

For example, a global chemical company BASF declares:
"[We] identify the areas of activity of CSR relevant for us as a responsible company management. We set ourselves targets and consistently drive forward their implementation. The continous change in the corporate environment makes it important to identify new challenges in good time and broaden the range of issues accordingly. We therefore constantly monitor CSR topics as part of our sustainability issues management. In this way we minimize risks for BASF at an early stage and utilize the opportunities presented by CSR to promote business" (cit. after: Crane, Matten & Spence 2014)

What does it mean? Let's have a look at the link below. Here you will find an example of how firms assess CSR according to the goals set. Danone decided to link their CSR strategy with SDG goals, thus they explain how are they doing by examining performance in each SDG goal.

http://iar2017.danone.com/performance-in-2017/our-contribution-to-the-uns-sustainable-development-goals/?L=

As can be seen, CSR measurement requires evaluation of the acheivement of the strategic goals set in all areas: economic, social and environmental. This requires CSR auditing and reporting. These are the key tools that help companies to assess their CSR performance and communicate it to internal and external audiences (Crane, Matten & Spence 2014). We will discuss these issues in the next section.

References:

- Crane, A., Matten, D. and Spence, L. J. (2014), Developing CSR Strategy. In: A. Crane, D. Matten, and L.J. Spence (eds.), Corporate Social Responsibility: Readings and Cases in a Global Context, 3/e. Abingdon: Routledge, pp. 443-451.
- Husted, B., & Allen, D. (2010). How do we build corporate social strategy? In Corporate Social Strategy: Stakeholder Engagement and Competitive Advantage (pp. 64-85). Cambridge: Cambridge University Press. doi:10.1017/CBO9780511667060.005