CSR AS A COMPETITIVE ADVANTAGE

Implementing CSR into the Business Model to Create a Sustainable Competitive Advantage

So what variables will make a company want to pay more attention to its stakeholders?

Also, what will motivate leaders to initiate these CSR strategies? It has already been established at in certain cases CSR can create a competitive advantage. This is an important aspect of our topic and it is essentially the core of CSR. In In Van Marrewijk‘s paper, he introduced a new framework which explained the psychology behind a firms‘ adoption a CSR strategy/CS (corporate sustainability) strategy. These strategies are stakeholder focused and can be driven by one of the following objectives: compliance, profit, caring, synergistic or holistic (2003). In his paper, Marrewijk also made reference to Maslow‘s hierarchy. (Maslow, 1943). There seems to be a link between the psychologies of these two theories. Maslow believed that when a person achieved one goal in the hierarchy, he would then strive to achieve the next. In Marrewijk‘s paper he introduced the five types of CSR for companies as

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―motives‖ for CSR, and they are independent from each other; however if we look closer we can see that these motives actually, in some cases, build on one another. In order for a company to implement caring or synergetic strategies the company should first complied with government regulations and the law, which then implies that the company already has a

―compliance‖ strategy and has chosen, and is able to implement a more caring, synergetic based stakeholder CSR strategy. (Figure 5) In 2010, Heikkurinen added an improved approach by labeling the factors: unresponsive, responsive and beyond‐responsive strategic corporate responsibility (CR) actions. (Figure 6) With these terms established, we can easily identify how a firm can choose its stance for CSR/CR. By comparing this model with the same comparison of Maslow‘s hierarchy, which was discussed in Marrewijik‘s paper, we can see the connection even clearer. While a firm is developing, it can allot resources into CSR policies, which it can use to develop sustainable competitive advantages. As Porter and Kramer suggest, a firm is unable to address every social problem. On the contrary, it should use all available resources and choose and address the most important issues. (2006) By doing so, a company can develop a competitive advantage in the market. However, Porter and Kramer‘s main focus was Philanthropic activities, whereas Heikkurinen (2010) and Marrewijk‘s (2003) paper were focused on CSR initiatives implemented into the business model in order to create value for the company and reduce risk factors.

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Figure 4- Comparison of Maslow‘s Hierarchy (1943) and Marrewijk‘s motivations of CSR (2003)

Figure 5- Maslow's Hierarchy and Heikkurinen‘s Model compared

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Examples of How CSR Positioning Can Affect Performance

Some examples of such strategies can be found in Munilla‘s paper, (2005), he listed Exxon-Mobile, BP, GE and Pfizer as examples of large companies with different CSR positionings. The US petroleum giant Exxon-Mobile was listed a firm with a compliance focused CSR strategy. In the US regulations were very lax; and, due to this, profitability was up and public scrutiny was down: due to less active public addressing of CSR strategies.

However, as time went on, Exxon‘s the lack of proactive CSR strategies resulted in NGOs putting force on the company and requiring changes in CSR. Munilla stated that this ―forced position on the CSR continuum [is] a much less useful approach in building and sustaining competitive advantage.‖ (2005 Pg 386). It can be said that a proactive or at least ―dynamic‖

CSR strategy is required to maintain profitability in the long run. In another example, on the other hand, BP implemented a much more proactive CSR strategy and the public placed them on the ―moral high ground‖ and, even though, BP had to spend more to update the CSR strategy, the results were favorable. This of course also has its limits. After the BP spill in the Gulf of Mexico, one of the most costly and environmentally destructive oil spills in the history of drilling, investigators found that BPs rig explosion was the fault of management‘s attention to cost reduction as well as their carelessness in terms of following safety protocols (Rushe, 2013; Rushe, 2013). Due to BP‘s lack of strictly adhering to their safety protocols and health and safety regulations, and implementing passive CSR at the time, BP had to face the consequences economically by being forced to clean up a potentially avoidable calamity.

(Rushe, 2013). That being said, ―Proactive corporations will tend to move toward a strategic CSR perspective, leveraging CSR to more efficiently or effectively create and renew competitive advantage.‖ (Munilla, 2005, pg 385), Furthermore, corporations must be vigilant and responsible to all stakeholders that it affects the most. To avoid any public backlash, as

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well as to understand all of its stakeholders, leadership of these corporations must strive to develop holistic CSR strategies that benefit the majority, if not all stakeholders, while being dynamic and ready for change, and not be focused on short term goals or losses, but focus on the potential future.

So what is a company like BP to do after such a damaged reputation? In a recent article in Forbes magazine, Why CSR Can't Help BP Now, the author stated:

“Once your name is tarnished, high-fit CSR tends to produce only skepticism. In other words, it backfires… CSR appears to work best for companies with already good reputations...

a CSR program can‟t cut it alone. Reputation comes first–and is everything.”

(Ferguson, 2010)

This is why organizations must be prudent, and implement CSR strategies into the business model. Doing so will create new competitive advantages and protect by not only protecting the company brand reputation, but also by improving efficiency by improving the relationship with a multitude of stakeholders. But, in the end, many companies do not implement proactive CSR techniques because they feel that it doesn‘t benefit them financially.

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CSR as a Competitive Advantage and how it affects Corporate Financial Performance

As stated many companies are afraid to implement proactive CSR strategies due to fear of losing profit. However, more and more companies are realizing the potential benefits to having a strong CSR strategy. Many researchers believe that, even though companies and economists focus on profits, Friedman‘s ‗profitability‘ responsibility is losing grounds in the debate. Margolis and Walsh stated it best by saying that ‗a simple compilation of the findings suggests there is a positive association, and certainly very little evidence of a negative association, between a company‘s social performance and its financial performance.

(Margolis, 2003). But, to this day, the academic community still debates how CSR can affect Corporate Financial Performance (CFP) and how strong the correlation is. However, little attention has been given to SMEs and how their CSR strategies can be implemented to create a competitive advantage. Also, many large companies still use their CSR strategies as a preventative or counteractive measure for dealing public disappointment, instead of actually taking interested in social needs and the greater good or implementing ethical practices into the business model. This has made the public skeptical of large companies‘ CSR objectives and fear that they are using ―green washed‖ tactics to increase the company‘s goodwill and improve stock performance.

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