The theaters of CSR

Corporate Social Responsibility CSR can be better understood through the innovative model developed by Harvard Business School Professor Kash Rangan, who talks about a platform of three theatres of CSR for evaluating and classifying CSR practices. These three theaters include the wide range of activities that can be described as CSR, and they constitute a comprehensive CSR strategy.

The core competencies, institutional capacity, and ability to excel in either philanthropic, value chain, or transformative ecosystem CSR efforts determine the type of CSR program a company might adopt.

Why trends of business

The first CSR theater focuses on philanthropy, either in the form of direct funding to nonprofits, community service organizations, and employee community service projects on the one hand, or in-kind donations of products and services to nonprofits and underserved populations on the other. Corporate philanthropy may be characterized as the “soul” of a company, expressing the social and environmental priorities of its founders, executive management, and employees, exclusive of any profit or direct benefit to the company. Coca-Cola sets a perfect example of this theater through its $88.1 million annual contribution to a variety of environmental, educational, and humanitarian organizations through The Coca-Cola Company and The Coca-Cola Foundation.

Other examples of inkind giving include IBM’s computer donations through its global KidSmart Early Learning Program 16, and Microsoft’s donation of almost $300 million in software products to nongovernmental organizations (NGOs) across the globe. Similar to corporate cash funding, in-kind donations provide important, and often critical, goods and services to nonprofit organizations and needy populations.

As corporate philanthropy evolves, it may become more strategic and more closely correlated with a company’s business priorities. In strategic corporate philanthropy initiatives, funding for social or environmental programs reflects a corporation’s philanthropic priorities as an extension of its business interests. Examples include PNC’s Bank “Grow Up Great” early childhood education program and Goldman Sachs’“10,000 Women” initiative to train and support women entrepreneurs in developing countries. Both CSR efforts are a direct expression of both companies’ respective business strategies. With $100 million in funding over a five-year period, “Grow Up Great” provides critical school readiness resources to underserved populations where PNC operates, in turn creating stronger communities, potential future employees, and PNC brand loyalty.

The “10,000 Women” initiative was a culmination of Goldman Sachs’ senior management’s effort to consolidate its diverse “philanthropic efforts behind a big idea.”

The company devotes significant CSR resources to its“10,000 Women” program to provide business and management skills to underserved women entrepreneurs throughout the world.

Under the second CSR theater, initiatives aim at increasing business opportunities and profitability, while also creating social and environmental benefits by improving operational effectiveness throughout the value chain, be it upstream in the supply chain or downstream in the distribution chain.

Nike has established a Code of Conduct governing its entire production supply chain, including the factories with which it contracts to manufacture its products. Gap Inc. launched a comprehensive “stakeholder engagement” campaign in 1999 to address the highly publicized exploitative labor practices in its manufacturing facilities, some of which also produced goods for Nike. Like the Nike program, Gap’s aggressive supply chain initiative was a response to intense negative publicity and protests.

If a company can promote the enhanced social or environmental value of its products through its CSR initiatives, it can increase its profits. Examples include ethically or socially responsibly-sourced products such as fair trade coffee, conflict-free precious stones, and sustainable farming and fishing.

The third CSR theater,(i.e. transforming the ecosystem),according to Harvard Business School’s study, represents a wide scale and disruptive change to a corporation’s business model that shifts the priority first to crafting a solution to a societal problem, which would then lead to financial returns in the longer run.

In this third theater, the company attempts to create societal value by significantly addressing a critical social or environmental need that is within its business reach, but that may not return immediate business profits. The initiative might not emerge from the company’s core competencies but may require the corporation to fundamentally change its business model and develop new skills and strategies.

Within this third domain, the corporation creates a radically new ecosystem solution that may be outside its core business interests, and that is fundamentally disruptive to the existing value chain. CSR efforts in this domain are not incremental or cautious, but require strategic risk-taking and a focus on long-term rather than short-term economic gains.

General Electric (GE) is leading a comprehensive initiative to address global warming and climate change by transforming the United States’ automobile transportation system to reduce CO2 emissions and petroleum-based fuel consumption from passenger automobiles. The GE transportation solution includes electric vehicle (EV) charging stations, electrical grid improvements, investments in component technologies, and a robust EV production system.

GE’s endeavor, if successful, has the potential to reduce CO2 emissions and petroleum-based fuel consumption by fundamentally changing the U.S. automobile transportation ecosystem. It will potentially also increase GE’s long-term profitability, given its engagement in many aspects of renewable energy production, energy delivery, EV production, and EV charging supply chains. As yet, the company has not profited from its EV solution, demonstrating that in this third CSR domain, corporations need to be willing to defer short-term profits to produce environmental and social benefits.

Another case would be the one of Philip Morris International (PMI) which decided to use technology and innovation to solve the problem of cigarette smoking, choosing to use their own new technologies to replace cigarettes altogether. Over the past three years, approximately 7.3 million adult smokers around the world have stopped smoking and switched to PMI’s heated tobacco product, which is currently available for sale in 48 markets in key cities or nationwide under the IQOS brand. PMI developed Business Transformation Metrics, on which the company reports periodically in its Sustainability Report. In 2018, smoke-free products represented more than 5 percent of PMI’s shipment volume and more than 13 percent of its net revenues, but they already represented 60 percent of its global commercial expenditure and 92 percent of its global R&D expenditure. You can read the full PMI article here .

What is Social Entrepreneurship

Social entrepreneurs are individuals who deploy innovation and market forces to fill social needs rather than seeking financial rewards (although rewards are not automatically excluded).

Many forces are driving this entrepreneurial trend and feeding into it. Bringing lighting to Africa, mobile banking to Bangladesh, and low-cost healthcare to Nepal, among other examples, are social entrepreneurial initiatives.

Two questions arise here: what do such enterprises need to do to achieve growth, and how can they do it?

RippleWorks, a private foundation that supports emerging market entrepreneurs by providing them with leading Silicon Valley executives as advisors asked these questions in a recent survey of 628 social entrepreneurs from all over the world. The research, conducted with analytical support from McKinsey, and funding from Omidyar Network, included interviews with 37 investors and 10 social enterprise leaders. The entrepreneurs reported that the two most important barriers to growth are the following:

  1. Money: Almost half of the interviewees said raising funds was “very” or “extremely” challenging. Other resources are not readily available either.
  2. Finding and keeping talented people: Three-quarters of funded, early-stage companies believe that the inability to access the talent they need will have a critical impact on their businesses. The prestige, pay, and job security of big companies are difficult to resist. Even when funded, social entrepreneurs cannot compete head to head on that basis.

Other challenges faced by social entrepreneurs might be:

  • Conflicts: While the overall goal is to meet a social need, there may be conflicts in how this can be balanced against the need to generate revenues to sustain the enterprise.
  • Voluntary nature: The traditional forms of motivation and organizing, in addition to the different managerial functions, might not be applicable to social entrepreneurs since the motives for work are different.

Key Characteristics of Social Entrepreneurs:
A social entrepreneur uses the same process of entrepreneurship but does so to meet social needs and create value for society. These people have the entrepreneurial profile but target their effort at a different, socially valuable direction.

Key characteristics of this group include being:

  • Ambitious: social entrepreneurs are driven by the purpose to reverse major social issues–poverty, healthcare, equal opportunities, etc. with the underlying desire and passion to make a change.
  • Mission driven: their primary concern is generating social value rather than wealth.
  • Strategic: like business entrepreneurs, social entrepreneurs seize and act upon opportunities that others miss.
  • Resourceful: due to the limited access to resources, social entrepreneurs are exceptionally skilled at mustering and mobilizing human, financial, and political resources.
  • Results-oriented: social entrepreneurs are motivated by the desire to see things change and to produce measurable returns. These returns are related to making the world a better place by improving the quality of life, providing access to basic resources, and supporting disadvantaged people.