國 立 交 通 大 學
管 理 學 院
企業管理碩士學位學程
碩 士 論 文
The Significance of Responsible Leadership
in Implementing Corporate Social Responsibility as a
Source for Sustainable Competitive Advantages
研 究 生：科瑞
指導教授：姜真秀
The Significance of Responsible Leadership
in Implementing Corporate Social Responsibility as a
Source for Sustainable Competitive Advantages
研 究 生：科瑞 Student: Cory Rock Simmons
指導教授：姜真秀 Advisor: Prof. Jin-Su Kang
國 立 交 通 大 學 管理學院
企業管理碩士學位學程 碩 士 論 文
A Thesis
Submitted to Master Degree Program of Global Business Administration College of Management
National Chiao Tung University In partial Fulfillment of the Requirements
For the Degree of Master
in
Business Administration
July 2013
Hsinchu, Taiwan, Republic of China 中華民國 102 年 7 月
English Abstract
Many studies try to emphasize the importance of CSR for the sustainability of a firm; however, for the majority of firms, CSR still remains as a periphery activity, rather than being embedded into the business model or strategies and used as a competitive advantage. While a few studies provide a foundation for the business case of CSR used as a competitive advantage, the hidden force behind these cases – responsible leadership -- is rarely discussed. This study acknowledges the significance of responsible leadership in implementing CSR as a source for sustainable competitive advantage. For this purpose, this study takes a lesson from nature, that is, the balance among organic/inorganic participants around a tree and proposes a model, called „ARBORE„ to apply to CSR in practice. The proposed model utilizes the theories of responsible leadership and stakeholder theory and seeks to provide implications as to how a balanced CSR strategy, imbedded into the business model, can be used as competitive advantage for a firm. The study employs a case study of two firms: an internet retailer from Korea and a restaurant chain from Taiwan, which are analyzed to validate our model. Both companies have CEOs who have created CSR strategies which exceed requirements mandated by law and society, and have found the balance between fulfilling internal and external stakeholders demands while leading to the healthy growth in highly competitive industries.
Table of Content
ENGLISH ABSTRACT ... III
TABLE OF CONTENT ... IV
LIST OF FIGURES ... VII
LIST OF TABLES ... IX
I. INTRODUCTION AND BACKGROUND ... 1
1.1INTRODUCTION ... 1
1.2DUAL CASE BACKGROUND ... 2
II. LITERATURE REVIEW ... 3
2.1DEFINING CSR,STAKEHOLDER THEORY,COMPETITIVE ADVANTAGE AND LEADERSHIP ... 3
Background of CSR ... 3
The Evolution of CSR Theories ... 4
2.2DEFINING CSR ... 5
2.3IMPORTANCE OF THE DEFINITION ... 7
2.4CSR AND THE TRIPLE BOTTOM LINE ... 7
2.5THE EVOLUTION OF CSR AND BIRTH OF THE STAKEHOLDER THEORY... 9
Implementing CSR into the Business Model to Create a Sustainable Competitive Advantage ... 11
Examples of How CSR Positioning Can Affect Performance ... 14
CSR as a Competitive Advantage and how it affects Corporate Financial Performance ... 16
2.7RESPONSIBLE LEADERSHIP ... 17
Importance of Responsible Leadership ... 17
CSR‟s Role in Choosing CSR Strategies ... 19
Implications for Leadership‟s Role in Choosing an Appropriate CSR Strategy ... 21
III. PROPOSED MODEL ... 23
3.1THE ARBORE MODEL:SEEKING BALANCED IN THE BUSINESS MODEL BY LOOKING AT NATURE .... 23
3.2THE ANALOGY OF A TREE AND A FIRM... 27
3.3SUSTAINABLE GROWTH IN A COMPANY AND IN TREES ... 31
3.4FINDING VALIDITY IN THIS PROPOSED MODEL:PURPOSE OF THIS STUDY ... 35
IV. CASE STUDY ... 37
4.1METHODOLOGY ... 37
4.1.1 Introduction to the two companies ... 37
4.1.2 Data sources ... 37
4.2CASE ONE:CCONMA ... 38
4.2.2 Cconma‟s Strategy ... 42
4.2.3 CSR through leadership and focus on stakeholders ... 48
4.2.4 The results of Mr. Choi‟s model ... 50
4.3CASE TWO:WOWPRIME (WANGPIN) ... 53
4.3.1 Taiwanese market ... 53
4.3.2 Wowprime Introduction ... 54
4.3.3 Company Philosophy ... 55
4.3.4 Implementation of CSR and stakeholder theory in the company model ... 56
4.3.5 Results of Wowprime‟s efforts ... 64
V. ASSUMPTIONS AND LIMITATIONS AND CONCLUSION ... 65
5.1ASSUMPTIONS AND LIMITATIONS ... 65
5.2CONCLUSION ... 66
List of Figures
FIGURE 1- THE CSR PYRAMID (CARROLL, 1979, 1991) ... 5
FIGURE 2- TRIPLE BOTTOM LINE ... 9
FIGURE 3- STAKEHOLDER THEORY (FREEMAN, 1984) ... 10
FIGURE 4- COMPARISON OF MASLOW‘S HIERARCHY (1943) AND MARREWIJK‘S MOTIVATIONS OF CSR (2003) ... 13
FIGURE 5- MASLOW'S HIERARCHY AND HEIKKURINEN‘S MODEL COMPARED ... 13
FIGURE 6- ROLES THEORY OF LEADERS ... 19
FIGURE 7- THE UNDERLYING STRENGTH OF A TREE ... 25
FIGURE 8- GROWTH FROM A SEED TO A TREE ... 26
FIGURE 9- TREES IN NATURE ... 27
FIGURE 10- ARBORE MODEL OF CSR ... 28
FIGURE 11- RELATIONSHIP WITH STAKEHOLDERS ... 29
FIGURE 12- LEADERSHIPS‘ ROLE IN CREATING BALANCE BETWEEN INTERNAL STAKEHOLDERS (TOP ROOTS) AND EXTERNAL (DEEP ROOTS)... 32
FIGURE 13- COMPARISON OF ROOTS IN PLANTS ... 33
FIGURE 15- LOSS OF CONNECTIONS WITH STAKEHOLDERS WILL RESULT IN LOSS OF PROFITABILITY
... 35
FIGURE 16- CUSTOMER/COMPANY RELATIONS: THROUGH RESPONSIBLE LEADERSHIP CCONMA CONNECTS WITH LOCAL FARMERS TO INCREASE CUSTOMERS AND PROFIT ... 43
FIGURE 17- CCONMA‘S CSR IN WORKING WITH BUSINESS PARTNERS: LEADERSHIP CHOOSING TO WORK DIRECTLY WITH LOCAL FARMERS TO CREATE A SUSTAINABLE COMPETITIVE ADVANTAGE WHILE IMPROVING CONDITIONS FOR LOCAL FARMERS (SELLERS) ... 45
FIGURE 18- HOW MOVING COMPANY HQ CLOSE TO CORE COMPETENCE CAN AFFECT BUSINESS RELATIONS ... 46
FIGURE 19- BRAND REPUTATION THROUGH CSR ... 48
FIGURE 20- EMPLOYEE PRODUCTIVITY AND PROFIT ... 49
FIGURE 21- RESULT OF SURVEY IN 2012 ... 51
FIGURE 22 CCONMA‘S CONNECTIONS TO INTERNAL STAKEHOLDERS ... 52
FIGURE 23- WOWPRIME‘S ―VIRTUOUS CIRCLE‖ MODEL ANALYZED WITH THE ARBORE MODEL ... 58
FIGURE 24- WOWPRIME AND ITS EMPLOYEES ... 59
List of Tables
TABLE 1 (DAHLSRUD, 2006) ... 6
TABLE 2 (DAHLSRUD, 2006) ... 6
TABLE 3- THE ANALOGY OF A TREE WITH ORGANIZATIONS ... 30
TABLE 4- CCONMA‘S FINANCIALS ... 40
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I. Introduction and Background
1.1 Introduction
For the past few decades corporate social responsibility (CSR) has become an increasing significant aspect of a successful business model. Extensive research has already been conducted on the demand for CSR being implemented into the firm, and environmental and societal concerns have fueled the rise of this new paradigm. In many of these studies it is apparent that responsible leadership plays a large role in creating healthy CSR for a firm. However, unsubstantial research has been conducted on the importance of leadership in creating a sustainable balance between and stakeholders‘ needs and the profitability/success of an organization. Furthermore, despite having extensive amounts of literature on the topic of CSR, as of now, researchers and management teams have still not reached a consensus as to whether or not there is a positive or negative relationship between CSR initiates and company performance. While researchers tend to agree there are numerous positive relationships between the CSR and CFP (corporate financial performance), practitioners tend to neglect implementing robust CSR strategies into their business models. Many firms view CSR as a temporary strategy used to boost company moral or to improve company reputation, but do not see it as an essential part of the business model.
In addition, as opposed to the plethora of cases, which have been conducted on large multinational firms, with numbers groups of stakeholders; little research has been conducted on small and medium sized enterprises (SMEs) or the importance of responsible leadership and CSR for the business model. Exemplary leadership is required to create a shift in the paradigm and there are many examples of such leaders in SMEs. Many SMEs have prolific business models rooted in the concepts of CSR, yet few studies incorporate these types of firms into the literature. These types of companies are the foundation of an economy and the future of business. That is why it is important to examine more of these types of firms and compare and contrast current business practices in CSR with these types of firms.
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1.2 Dual Case background
For the study two SMEs were chosen and a case study was conducted. These two companies have many similarities. They both have exceptional CSR strategies for SMEs; they have responsible and admirable leadership; they are both young firms; and, they both have maintained stable growth and profitability for more than a decade while using responsible corporate strategies.
The two companies are both located in highly competitive Asian market, and conduct business in a highly competitive industry. Through the use of responsible leadership and proactive CSR strategies imbedded into the business model both of these companies have been extremely successful.
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II. LITERATURE REVIEW
2.1 Defining CSR, Stakeholder Theory, Competitive
Advantage and Leadership
Background of CSR
All the fundamental concepts of CSR have been around for centuries, but the study and research on whether or not CRS is necessary for a company‘s long term success and profitability, and whether or not a company is responsible to society and the environment did not start until after World War II. One of the forerunners of CSR was Frank Abrams, who had worked as an executive for Standard Oil. In 1951, he proposed that companies have a responsibility to their customers, employees and the public alike. (Abrams, 1951). During this time, there was little focus on CSR being beneficial for the company itself. The only goal of CSR was to provide aid and service for the good of society. At the opposing end, other believed that such activities were wasteful and not in stockholders best interest, stating that the only responsibility of businesses to society is to be profitable. (Friedman, 1962).
Regardless, there were still others that believed business had a greater responsibility, and that companies should be aware of the broad impact on the society around it (Frederick, 1960). Due to their efforts, many scholars, businessmen and individuals became aware of the term CSR. But, nevertheless, Friedman‘s case remained the most widely accepted theory and popular opinion for CSR for the next few decades to come.
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The Evolution of CSR Theories
By the late 70s and early 80s, CSR was well on its way to becoming a household phrase. In 1978 Frederick (1978) began the first differentiation of corporate social responsibility with corporate social responsiveness CSR1 which focused on corporate social responsibility, or, in other words a company‘s responsibility, usually proactively, to address a social need. CSR2, on the other hand, focused on a company‘s response to a demand for a social change or improvement. (Carroll & Shabana , 2010). The scientific community began distinguishing different levels and types of CSR and began realizing that there was more than one stance that a company could take in viewing its responsibility and commitment to societal goals and needs.
This new focus on classification of CSR gave birth to the four categories of CSR as defined by Carroll (Figure 1), which are economic, legal, ethical and discretionary (or philanthropic). Although these four components are not equally weighted, they do come together, and add up to a company‘s total CSR. Carroll suggested that the weighing of these components was in a 4:3:2:1 ratio, in terms of importance to a company. This are properly illustrated in both figure 2 and figure 4. (Carroll A. B., 1979) (Carroll A. B., 1991) (Carroll & Shabana , 2010)
This new type of classification gave new focus to the scientific community. CSR was not only being seen as a type of charity, which resources away from profitability, but was also being seen as a responsibility or, in terms of legal CSR, a necessity.
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Figure 1- The CSR pyramid (Carroll, 1979, 1991)
2.2 Defining CSR
In the 1970s CSR began to evolve. Definitions for CSR started to emerge. However, to this day, the scientific community has yet to reach a consensus on the formal definition on the term CSR. There are hundreds of definitions. In a recent study conducted by Alexander Dahlsrud, thirty-seven of the most common definitions were chosen and were grouped by the dimension they fall into (Table 1). Each definition was put through a Google search to determine the frequency of use. In Table 2 we can see the top 3 highest frequency definitions, which can be found via a Google search (Dahlsrud, 2006). For this paper we will choose a mixture of two definitions, both the World Business Council for Sustainable Development‘s definition, and Bowen‘s 1953 definition, which states that:
“Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development, while improving the quality of life of the workforce and their families as well as the local community and society at large” (Watts,
1998)
―The obligation for 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” (Bowen, 1953)
6 Table 1 (Dahlsrud, 2006)
Dimensions Definition is coded to the dimension Example phrases
The Environmental Definition The Natural Environment ―A cleaner environment‖ ―Environmental stewardship‖
―Environment concerns in the business operation‖ The Social Dimension The relationship between business and
society
―contribute to a better society‖
―integrated social concerns in their business operations‖ ―consider full scope of their impact on communities‖ The Economic Dimension Socio-economic or financial aspects,
including describing CSR in terms of a business operation
―contribute to economic development‖ ―preserving the profitability‖ ―business operations‖
The Stakeholder Dimension Stakeholders or stakeholder groups ―Interactions with their stakeholder‖
―How organizations interact with employees, suppliers, customers and community‖
―treating the stakeholders of the firm‖ The Voluntariness Dimension Actions not described by law ―based on ethical values‖
―beyond legal obligation‖ ―voluntary‖
Table 2 (Dahlsrud, 2006)
Definition source Definition Frequency count Dimensions
Commission of the European
Communities, 2001
A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis
286 Voluntariness Stakeholder Social Environmental Economic World Business Council for Sustainable Development, 1999
The commitment of business to contribute to sustainable economic development working with employees, their families, the local community and society at large to improve their quality of life
180 Stakeholder Social Economic World Business Council for Sustainable Development, 2000
Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community at large
156 Voluntariness
Stakeholder Social Economic
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2.3 Importance of the definition
The mixture of these definitions was chosen because of the focus on having a ―continuing commitment‖ for a firm to ―behave ethically.‖ This implies that CSR should be directly implemented into the business model and should be the foundation of a company. In addition, a firm should ―contribute to economic development‖ and the wellbeing of all stakeholders. Furthermore, Bowen‘s definition focuses on the leadership aspect of CSR. Therefore, a company should balance profitability with societal needs. It should be noted, that even though commitment to improving the environment is not mentioned in this definition, it is still inherently embedded into this definition. That is because if a firm is focused on making the quality of life better for all stakeholders in society; it automatically makes efforts to improve the stakeholders‘ environment.
2.4 CSR and the Triple Bottom Line
The 1990s is when businesses truly began to recognize the power that many of these stakeholders, which were before ignored, held. As companies became more global and media and consumer power grew stronger, every good dead or mistake that a company performed could become public knowledge in the blink of an eye. Unethical or inappropriate business practices could wreak havoc on an organization that was exposed by the media, and the media was increasingly eager to expose such ―unethical‖ companies. However, many companies were still only focused on only profitability, as Friedman would suggest, and were beginning to receive backlash from the public. One example, Nike Inc., one of the global athletic shoes production leaders, discovered that a CSR strategy was essential for a company‘s sales and image. With cheap labor to be found abroad, in the 1970s, Nike moved most of its factories abroad. Although initially there was criticism, Nike Inc. avoided and ignored most of it for years. But, in the 1990s, with media and public concern growing, the effect on their brand image and sales became a phenomenon that Nike Inc. could no longer ignore. ―The Nike product has become synonymous with slave wages, forced overtime, and
8 arbitrary abuse.‖1
Nike had to spend millions of dollars to reshape consumer opinion of their products, and even to this day, many associate Nike with Sweatshop labor. (Nisen, 2013)
This and other examples forced companies to realize that CSR had a place in every corner of a business. Porter said that ―proponents of CSR have used four arguments to make their case: moral obligation, sustainability, license to operate and reputation.‖ (Porter & Kramer, 2006). In Nike‘s case, company each of these four factors was adversely affected and the company was put in a state of jeopardy due to the lack of a proactive CSR strategy.
Due to many already stated factors, the 1990s and 2000s became the era of global corporate citizenship (Frederick, 2008). Retailers such as, Nike Inc., and Wal-Mart became highly criticized for their lack of responsibility with their manufactures abroad, and companies such WorldCom and Enron cost tax payers and stockholders millions from financial fraud and corruption. The general public was losing patience and trust for big business, and stockholders began demanding of companies to adopt better code of ethics and CSR. Companies, as well, began realizing that they must pay more attention to their impact on the community, and their business decisions‘ effect on multiple groups of stakeholders. Failure to do so meant an inability to compete or even survive. This new demand brought about the focus for CSR as a competitive advantage and sustainability. Caroll and Shabana said, ―In the early 2000s, the business community became fascinated with the notion of sustainability, or sustainable development, and this theme became an integral part of all CSR discussions.‖ (2010). With Corporate Sustainability (CS) as the new focus, definitions for CSR, such as the triple bottom line began to arise. The triple bottom line, seen in figure 4, is a popular definition for CSR. The triple bottom line seeks to create balance between society, the environment and the profitability of an organization through CSR (Marrewijk, 2003) (Wempe, 2002). Figure 4 shows the perfect balance of these three variables, and through that balance of CSR, so a business could achieve true sustainability. Due to theories like this, CS and CSR became interrelated, and many large companies began adopting a CSR and Sustainability strategies. Also in the past decade, ‗the focus of CSR theories has shifted away from an ethics orientation to a performance orientation. (Carroll & Shabana , 2010)
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Companies no longer saw CSR as a way of doing good deeds for its stakeholders, but as a necessity to compete and survive.
Figure 2- Triple Bottom Line
2.5 The Evolution of CSR and Birth of the Stakeholder Theory
By the 1980s that CSR was already on its way to becoming a well-known concept. Many newspapers, journals and magazines in many countries around the world began addressing and debating the topic. This is because the 80s marked the beginning of the ‗corporate/business ethics‘ stage, where business ethics and focus on stakeholders became the agenda (Frederick, 2008). The general public became more aware of corporations‘ ability to make an impact on society, either good or bad, and its responsibility to its stockholders and stakeholders. With this gradual sense of public awareness gaining strength, and the need for a new, more dynamic management style, the stakeholders‘ approach of CSR was born.
Although not exactly a new term in the business world, and initially unrelated to CSR, the ‗stakeholders‘ approach‘ was best redefined by R. Edward Freeman in the mid-1980s, in
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his book Strategic Management: A Stakeholders‟ Approach. Stakeholders were defined as ―any group or individual who is affected by or can affect the achievement of an organization‘s objectives.‖ (Freeman, 1984, 2001). The goal of this approach was to broaden the responsibility of management from not only the stockholder, but also the ―stakeholder.‖ Basically, any group or individual can, at some point, affect an organization‘s performance . Likewise, an organization‘s effect on the individuals and groups around it grows and the size of the organization grows. This concept is best described with use of figure 3 below. In this illustration it is easy to see that these connections between firm and stakeholders. Freeman stated that he created this model because ―current theories are inconsistent with both the quantity and kinds of change that are occurring in the business environment of the 1980‘s‖ and that ―a new conceptual framework [was] needed.‖[Freeman, 1984, pg. 5].
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Although stakeholder theory‘s definition and classification of ―stakeholders‖ are both still widely debated, it is an approach and theory that has had a lot of exposure in the business field. (Miles, 2012) For this reason, in this paper we will focus on the use Freeman‘s original definition as the definition and model of ―stakeholder theory.‖
2.6 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)
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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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2.7 Responsible Leadership
Importance of Responsible Leadership
In order to truly understand CSR‘s efficiency and role in modern society, one must also understand the leaders that develop the strategies. Currently, Stakeholders and stakeholder theory has already taken a new role in the modern business. Stakeholders can put a lot of pressure on businesses and essentially change the way a company conducts its CSR strategies. (Porter and Kramer, 2006). With this added pressure, leadership has also taken a new role in organizations. Leadership is an essential requirement for every organization, company or group. Without leadership, a company will lack specific goals and direction needed for the organization‘s operation and success. With globalization and an ever-changing market, the responsibilities and expectations of leadership has changed and evolved. Leaders are no longer only responsible for the performance of the company, but are also responsible for their organization‘s impact on society and the environment around it. (Freeman, 1984; Maak and Pless, 2006). These added responsibilities for leaders have changed the roles of leaders. Maak and Pless state that the responsibilities of leaders have ―become more complex and multi-faceted, [expanding] from an internal leadership perspective to a broader world view, from a shareholder mindset to a stakeholder orientation with respect to the leadership mandate.‖ (2006)
A responsible leader should always be aware of his organization‘s impact on society both internal and external, not only out of moral obligation, legal reasons or reputation, but also for the sustainability of the company. (Porter and Kramer, 2006) Leaders should be aware of their impact on customers, employees, suppliers and every stakeholder, even competitors.
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This should not be limited only to the present, but also to future generations. Therefore a leader should not be focused on just one goal-- the company—but should be able to develop multiple roles, in order to ensure the sustainability of the company (Maak, 2006). These roles can be seen below in the ―Roles Theory of Leadership‖ figure. (Figure 6) Sustainability and focus on intergenerational equity should be a priority for the present in order to improve the future. This has been a major agenda for the past few decades. Rules and regulations pointing out basic human rights and organizational responsibilities have been establish by many conventions, one of the most famous being the United Nations Commission on Environment and Development held in Rio. (UNCED, 1992). Also, it appears that this not just a trend. This is the agenda and will be the agenda for the next decades to come. Leadership must be ready to rise for the ever growing demand of proactive corporate social responsibility.
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Figure 6- Roles theory of Leaders
CSR’s Role in Choosing CSR Strategies
This is very true in the short run; however, in the long run, a good CSR strategy can redefine a company‘s reputation. One example is when Wal-Mart‘s CEO Lee Scott made a choice to redefine Wal-Mart by focusing on CSR and responsible leadership. The multi-billion dollar, world retail giant, was suffering from a backlash of bad publicity due to its poor CSR practices linked to the environment and outsourcing problems. One case study that was conducted by Stanford University said that due to its poor reputation, 2%-8% of consumers
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had stopped shopping at the retail giant. (Denend & Plambeck, 2004). Due to these, and other such figures, in 2005 Lee Scott made his 21st century leadership speech for Wal-Mart, which would implement a new ―sustainability‖ project that was focused on limiting waste products and energy, improving the quality of products improving employee conditions and leading the way for sustainability. (Scott, 2005) Wal-Mart‘s goal was to improve sustainability and become more ―green.‖ Skeptics initially claimed that it was ―green washed‖ tactics and that Wal-Mart was eager to improve its reputation and earn some goodwill from this strategy. Wal-Mart knew that the results would not be seen right away. This was because after years of maintaining an ―unresponsive" CSR strategy, it would take some time to change the public opinion of the firm. At first, skeptics believed that Wal-Mart‘s decisions were based upon selfish goals. This was because many knew that due to Wal-Mart‘s scale, reducing waste and being more efficient reduces cost for its company, so it was actually using CSR as a way to cut cost. In this case, Heikkurinen would suggest that Wal-Mart was on the right track since company‘s should be willing and proactive in creating ―integrated and innovative approaches‖ in CSR (2010). So, regardless of Wal-Mart‘s reasons for change, they were on the right track, and in some cases CSR should be able to create ―win-win‖ situation for company and stakeholders. In the end Wal-Mart did benefit and the public opinion of Wal-Mart did change. According to YouGov BrandIndex and the New York Times:
“In mid-2007, the earliest data available, Wal-Mart‟s score was about a negative 5 on a scale of negative 100 to positive 100, but it rose to the 20s in 2009.”
(brandindex) (Clifford, 2013)
This being said, it is important to understand that the larger a company is, the larger the impact of any action it takes. This is why Wal-Mart is a great example of how CSR can work
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for a company. Wal-Mart is the largest retail company in the world, so the actions it takes will have a much more noticeable effect on stakeholders and the environment. However this also means that leadership has a more difficult position. This is because as a firm grows, so does its impact on more stakeholders. For any business efficient resource management and the balancing the demands of shareholder/stakeholder is critical (Mehra, Smith , Dixon, & Robertson, 2006), but for Wal-Mart this importance is magnified. With profit margins from 3-4% Wal-Mart has to use scale and efficiency resource management in order to make a profit. However, SMEs also have the same problem. Being small and lacking available resources, proper resource management and weighing of stakeholder importance is crucial.
Implications for Leadership’s Role in Choosing an Appropriate
CSR Strategy
As we can see, a company‘s choice of CSR strategies is very important. Based on long term goals for a company, it is better for a company to be proactive and leverage its CSR activities for the benefit of the company than it is for a company to be caught off guard and have to comply with an imposed government or societal demand for higher involvement and care of its stakeholders. (Munilla, 2005) So, essentially, in the long run, a comprehensive, multi-stakeholder focused CSR strategy can reduce risk and cost for a company. (Berman, Wicks, Kotha, & Jones, 1999)
This is why there is another interesting link between his 5 CSR motives and Maslow‘s Hierarchy. Though businesses are not people, they do have needs and these needs must be met before implementing more holistic CSR policies. As individuals strive for self-actualization, so do organizations strive for a sense of self-actualization or purpose, which is fulfilled by
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creating a completely balanced work environment through positive relationship with all of its stakeholders.
This is obvious for large corporations, which find themselves under constant public scrutiny. It is also an important argument for the implementations of healthy CSR practices for SMEs. Many people believe that SMEs should only focus on compliance to government laws and profitability. However, a company‘s psychology should be like an individual‘s psychology: ready to take the next step, always growing, and always striving for self-actualization. This is an important basis for the next section.
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III. Proposed Model
3.1 The ARBORE model: Seeking Balanced in the business
model by Looking at Nature
We have already seen the huge impact that internal and external stakeholders can have on a business from many different sources. It is essential to note that these stakeholders‘ satisfaction is, at many times, the key to a company‘s success. The closer a stakeholder is to a company, the more important that stakeholder‘s satisfaction is, and the more important it is for leadership to make strategies that ensure satisfaction. (Maak, 2006) Leadership‘s decisions and objectives should be ‗holistic‘ and ‗synergetic,‘ and good leaders ―do not compromise one performance objective for another‖ (Maak, 2006, Pg 101).
So, in view of the stake holder theory, finding the balance between CSR, stakeholders and the company‘s total business activities should be a large concern for the business. Many companies know that they should provide some sort of services or incentives for local communities or employees, but there is no way to measure how much is too much (effecting business profitability due to waste), how much is too little (increasing risk by not having a proactive CSR strategy) or if they are focusing on the correct stakeholder‘s demands (while diverting resources away from a ―more important‖ stakeholder). This is a problem with many of the current models available. Even though some models focus on the combined effort of CSR, and it doesn‘t emphasize the ever changing balance there should be for a company between growth and its commitment to CSR and stakeholders. Also, current CSR models do
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not put emphasis on the importance of leadership in balancing stakeholder‘s demands with company profitability.
Therefore, a new model will be introduced in this paper, which uses an illustration that we all recognize--the oldest and largest organisms on the planet-- trees.
First think of a tree and then compare your mental image to figure 7. When asked to visualize what a tree looks like, few people make a mental image including the portion of the tree which lies under the soil. Most people will immediately see the canopy and the trunk, but completely forget about an essential part of the tree: its roots. The same is so for a company. When asked to think about a certain company, most people will think about the products, profits, assets or stock price, but pay little attention to its role in a community or importance to a society.
That is why the model proposed is the perfect analogy. The idea is very basic, and the purpose of this model is to use this basic model to emphasize the importance of balance of every system on this planet. Through the use of this model we will be able to see how leadership dictates the balancing a business‘s connection with its stakeholders and creation of CSR. With the use of the analogy created through this simple model, we can use the use of scientific literature already introduced in this paper, to better understand how companies and leadership can create strong ties to all of its stakeholders while implementing a holistic approach to CSR, and still be profitable.
25 Figure 7- the underlying strength of a tree2
Trees in nature:
In order to first understand the analogy between a tree and a company better, we must first reintroduce how a tree functions. A tree has five basic parts: stem/trunk, branches, leaves, roots and reproductive structures. A tree starts as a seed. In order to grow, the seed requires the ability to set up roots into the soil. When these conditions are met, the seed then gathers nutrients from the soil and produces leaves, which it uses for respiration and to obtain nutrients and through photosynthesis. (Figure 8)
26 Figure 8- growth from a seed to a tree3
Companies, both large and small, follow the same rules that this type of plant follows. The tree uses its trunk or stem to support itself. In larger trees, the heartwood is the center of the plant and offers strong support, while the sapwood, on the peripheral, sends needed resources up and down the plant through its xylem and phloem. In order for a tree to thrive, a tree must grow taller than its surrounding environment. To do this it allocates resources into trunk growth so that its canopy can be high and absorb more sunlight. It also grows deeper roots, which create stronger ties to its environment and gather resources, which it will use to grow and produce leaves and fruit, which are essential for the trees survival and future survival. Its roots main role is that of strength and stability for the tree in its environment. The balance between vertical growth and deep roots is important for a tree and all of these processes are dictated by genetics and the environment around the tree (Johnson, 2007; Wilson, 2007; Carlson, 2007) See figure 9 below.
3
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Figure 9- Trees in nature4
3.2 The Analogy of a Tree and a Firm
When a tree is small it is fragile and vulnerable, and it needs to find a way to obtain sunlight, but growth of a stem and a leaves are not its only focus, it must also create ties with its environment through its roots. Like a tree, SMEs main focus shouldn‘t only be growth but also making a connection to its customers, employees and other stakeholders. A company should find the balance between obtaining and exploiting resources throughout its environment, while generating revenue. And, just like a tree, as a company grows it must use
4
Original picture source found at http://www.swickph.com/library/article/the_trouble_with_tree_roots/
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these resources to connect to its environment. Just as a tree sets up new roots in the soil, so must a company connect with different stakeholders if it wants to grow. This is the only way for the company to remain stable in its environment while still generating income. If a company doesn‘t satisfy enough of its stakeholders, the company will lose abilities to focus on vertical growth or profitability. If a tree lacks vertical growth it will not obtain sunlight and other trees will block it. If a company loses growth it will not attract customers, and other competitors will take market share. All of these choices in a company are made by leadership. In a tree, all of these choices are dictated by the needs of the tree based on the environment around it. From the time when a tree is just the seed, to the time it has reached the highest point it can reach, there is a force which is balancing all the functions and operations of the tree. It is not seen, but it is there. Just like a tree, a company has the same force, which is called leadership. See Figure 10, Figure 11 and Table 3 for more comparisons between a trees and organizations.
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30 Table 3- The Analogy of a Tree with Organizations
Ecosystem of tree Organization
Sun and Sky The sun provides Food
The Sky provides release of excess water and allows respiration for the plant
Sun: Customers Sky: Market
Tree shape The environment and genetics dictates how the tree will be shaped based on the basic needs of the tree and predisposition
The Environment and Leadership dictates the shape of a company based on the needs of the company and restrictions of the environment
Canopy Provide food for the plant through photosynthesis. Provides shade for the soil and the tree. Provides transfer of air and water (respiration)
The visible performance of a company (asset, equity and profit).
Represents future growth potential.
Fruit In order to grow fruit a tree must be healthy and have adequate resources at its disposal. Providing for future growth
Represents surplus capital that a company can use to start new business ventures or reinvest in itself of society (philanthropic activity)
Branches Ensures higher growth meaning it will be higher than competitive trees, which in turn allows more photosynthesis
Represents new business ventures and competitive advantage in these ventures
Trunk provides height, strength, structure and protection
Represents strength, competence and expansion for the firm. Sustainable Competitive Advantage
Roots Focus of shallow roots: water and nutrients Focus of deep roots: support
Shallow roots: building connections to more internal stakeholders (ie employees)
Deeps roots: building of connection to external, harder to reach, stakeholders (ie: media, government)
Minerals and Water
tree absorbs these and it becomes the life of the tree
Water (Essential for life and growth): Employees, Suppliers, owners, Community Minerals (essential for growth and health): Government, SIG, Environmentalist,
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Media
Soil The soil provides water and minerals
The tree provides protection from erosion and runoff
The soil represents the environment and society.
The operations of the firm should provide security and safety, just as the roots of a tree protect from erosion
3.3 Sustainable growth in a company and in trees
Finding the balance between company and environment and company and stakeholders is the responsibility of leadership. If the balance is not fulfilled, the company will increase its risk. This is true with a tree as well. (Figure 12). If a tree‘s roots are too short or too shallow, it cannot gather enough food for the plant which will affect the overall growth of the plant. In addition, if a tree doesn‘t have a root system that is proportionate to its trunk/stem, then it will easily topple if strong wind or erosion occurs, or the tree will dry out-- due to shallow roots-- if a drought occurs. (Carlson, 2007). However, if the tree does not grow vertically and produce leaves, inadequate sunlight will be obtained, which will stunt its future potential growth. This balance between roots and stems is essential. Along with deeper roots for support, most trees also have root systems closer to the top of the soil, that spread sometimes 3 times the width of the tree‘s canopy. (Evans, 2000). In addition, some trees even have longer roots than the combined length of their trunk and canopy. (Wilson, 2007). This is a necessity for trees in many different types of environments, and the environment also depends on tree roots for stability
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Figure 12- Leaderships‘ Role in Creating Balance between Internal Stakeholders (Top Roots) and External (Deep Roots)
A simple comparison of two trees: an oak and a betel nut tree—will give a better idea of the importance of roots to an environment. (See figure 13) A full grown oak tree has roots similar to the size of the portion above the soil. A betel nut tree on the, other hand, has shallow surface roots used to exploit as much as it can from the environment and grow as tall as possible, without having to expend resources on deep, supportive roots. When typhoons or earthquakes occur, this tree is easily uprooted, leading to landslides and erosion. Given to the lack of broad roots, water retention in the soil is limited, so areas with plantations of these trees have more drain-off water. (Cheng, Lin, Lu, Huang, & Wu, 2010). The tree has little value, and, in addition, planting these trees greatly increases the risk of landslides. But, due to the high demand for the betel ―nut,‖ with semi-narcotic properties, it is over-grown, in the country, hill and mountainsides of Taiwan and other South East Asian countries. Scientist
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have recommend not planting these trees on sloped surfaces due to the tree being susceptible to causing landslides if flooding or strong winds occur. (Cheng, Lin, Lu, Huang, & Wu, 2010)
Figure 13- comparison of roots in plants
Another example of the importance of trees to an economy and ecology is the country of Haiti. The country has been over-forested. Due to the lack of roots to hold the soil in place many areas have suffered from serious erosion which has created serious agricultural problems for the already struggling nation. It is so bad that an NGO USAID stated that most of the hills have been eroded (McClintock) and many are exposed down to the bedrock. Trees are an essential part of the ecology and roots keep the land in place.
With this information, we can deduce that longer root systems will lower the level of risk for a plant in an ever changing environment, and soil will be protected by these connections to the roots of the plant. With this illustration and analogy, we can concur, that,
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just like a tree, businesses with shorter or less connections with their stakeholders will create less growth potential and increased risk.
With this information we can see that trees and its roots play a vital role in nature. The balance for a tree and its roots is essential and the analogy between a tree and a company can be understood even further in the following diagram (figure 14)
Figure 14- Death of roots will result in death of corresponding branches
When a tree loses its roots (its connection to the environment) the respective branches also die. This not only leads to less potential food for the tree, through photosynthesis, but also allows other trees to fill in the gap. As competitive trees grow, they exploit available minerals and water. The same is so with a firm. The example below in figure 15 can show us how a company that loses its focus on a stakeholder‘s (employee) needs could easily lose
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connection with that stakeholder. In this case, we see that the company has lost connections with internal stakeholders. Because of this a competitive firm will fill in the gap. Lack of this human capital will, in turn, lead to certain sectors of the firm to lose growth potential or profitability. Leadership‘s role in the allocation of resources to keep stakeholders satisfied is crucial to long term performance.
Figure 15- Loss of connections with stakeholders will result in loss of profitability
3.4 Finding validity in this proposed model: Purpose of this
study
The greater scientific and business community has made significant research into the topics of CSR, sustainability and stakeholder theory and leadership. However, most literature
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is focused on large corporations and how their CSR strategies affect performance (financial, organizational, CSR indexes). Also, the main focus of most researchers is immediate, visible results from CSR initiates, and do not take into account unseen, immeasurable changes. As stated, this is much simpler for large companies that have a much larger impact on the economy. The limitations here are that these studies do not include research or useful data for SMEs, their CSR strategies or the evolution of CSR strategies for a company.
Since CSR and its results are very difficult to measure, different studies conclude with different results. Even when a study does concludes that CSR is good business, usually little is offered as to why or how small and medium sized business should initiate in CSR proactively and how leadership can affect these implement these strategies throughout the growth from a SME into a large company. In addition, the majority of researchers still believe that SMEs don‘t have the resources to have CSR strategies in place when the majority of SMEs are constantly struggling to make a profit. Given this information, in this case we will analyze the performance and CSR practices of two companies, a small sized Korean company and a medium sized Taiwanese company, and compare them to the proposed model in order to understand the ramifications of a company‘s CSR strategy and suggest why or why not SMEs should have a clear CSR strategy before entering the market.
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IV. Case Study
4.1 Methodology
4.1.1 Introduction to the two companies
In order to better understand the model that has been introduced early in the article, the rest of the case will be focused on the following two companies: Cconma and Wowprime. The first is a Korean E-commerce company named Cconma, and the second a larger company that started in Taiwan and has developed into one of the of the largest service chains on the island: Wowprime. These two companies were chosen for the following reasons:
- They are both SMEs
- They both have dynamic, responsible leadership
- Leadership is focused on CSR and has a strong commitment to internal and external stakeholder
- They are both in highly competitive market sectors (ecommerce and restaurant) - They are both young companies
4.1.2 Data sources
This case study will attempt to find the connection between leadership, CSR and stakeholders, while validating the need for SMEs that seek a completive edge by adopting proactive, holistic CSR strategies.
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The case uses an embedded, type 4 case study design as defined by the case study material used to design this case (Yin, 2012). Data collection for Cconma was gathered from four different sources:
- Five students‘ internships
- open-ended interviews with the CEO and employees - employee questionnaires
- Secondary sources –financial reports, website, newspaper, and magazine articles.
And data for collection for Wowprime was gathered through the following sources:
- Secondary sources
- Direct contact with the CEO
4.2 Case One: Cconma
4.2.1 Introduction
Cconma is an online shopping mall located in Korea which was established in 2005 by Mr. Tong Hun Choi. Like most dot coms, profitability was the main goal of the company, however, unlike other dot coms; Cconma had a mission and a completely different business model.
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Cconma offers a wide variety of items from food, to clothes, to household products. These products are either produced and provided under the Cconma brand name or are offered through on the website through secondary sellers/stores. The products are listed on the website through nine different categories (Food, Home, Clothes, Fashion Items, Flowers & Cakes, Books, CDs & Instruments, Concerts, and Art Gallery). The website has over 30,000 visitors per week with over 194 thousand active users. (See table 4)
Unlike the majority of websites, which focus on low prices as their competitive advantage, Cconma‘s business model is dedicated to providing healthy and safe products and foods without pesticides and products lacking harmful residues. Their mission is to create a It offers these products, while firmly maintaining its business statement of creating a ‗healthy and happy community‘ for a happy life.‖ by providing high quality goods to its customers, while establishing links with the community around it and offering greater opportunities for their employees. Since many of the company‘s goods are agricultural or are textile based, this is a challenge. Most companies that deliver agricultural or textile goods to the market do not consider the living conditions or quality of life for employees working in such industries (such is the case with Nike that was mentioned earlier in this case). Additionally, it is rare to find companies that start out with such high standards and monitor the standards of their sellers/suppliers from the beginning of operation (IE: Wal-Mart‘s sustainability strategy mentioned earlier in the case5). However, Cconma has raised the standards in this industry and
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introduced itself to the business world as a company that can focus on quality and provides better working conditions for its employees/internal stakeholders, while also providing better conditions and service to the community/external stakeholders.
In the last five years, 2006-2011, the company has maintained steady growth. (See table 4) Currently the company has 34 employees, 397 stores, with revenues of $6 million in 2011. In the past five years, the average order value has increased from $39USD to $63USD.
Table 4- Cconma‘s Financials
Years 2006 2007 2008 2009 2010 2011
Active users 16,800 67,400 106,700 155,300 175,000 194,900
The number of orders 27,467 125,945 245,765 351,277 376,330 412,828
Annual revenue of Cconma (USD)
$1.07M $1.21M $2.50M $6.65M $6.57M $6.23M
Net Profit of Cconma (USD)
$70,000.00 $30,000.00 $260,000.00 $470,000.00 $170,000.00 $620,000.00
Profit Margin 6.50% 2.48% 10.40% 7.10% 2.60% 10.00%
Average Order Value, USD
38.95 39.54 40.32 50.41 51.49 63.54
No. of weekly visitors 8th week 9th week 10th week 11th week 12th week 13th week
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Ecommerce Industry
E-commerce is a wonderful way of retailing for many different types of vendors. The medium is a great way for retailers to get their product to the market, and it becomes more popular every year. In 2008, online retailing accounted for 9% of total sales in the US, 2010 $137 million USD of purchases were made in the US alone, and it is believed that by 2016, that figure will jump to $175 million USD. Online shoppers, as a majority, have lower brand loyalty since they have more choices of retailers online than offline, and it is more convenient to compare prices. (Kung, Monroe, & Cox, 2002). It has been found that, for a majority of products, prices are usually lower online than when shopping at conventional brick and mortar retailers. This comes with its disadvantages though. The internet is a highly competitive market. Due to this, power is put into the customers‘ hands, which allows the consumer drive down the price on many online items. (Consulting, Civic, 2011). However, the internet also introduces a new advantage to sellers: the ability to find or create new buyer segmentations or niche markets. Through the internet, online vendors can study and identify buyer behavior more efficiently and update prices accordingly. With this, online retailers can identify unknown segments and offer products, services and pricing which is suitable.
This is where Cconma has excelled. By offering high quality, safe, products that are sustainability focused, they have catered to a new market segment. This market segments is
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one that cares about quality, cares about the work or craftsmanship that goes into producing such a product and is willing to pay a higher premium for such products.
4.2.2 Cconma’s Strategy
CSR as a Competitive Advantage
Cconma has a comprehensive CSR strategy which allowed them to differentiate themselves from other online retailers which allowed them to appeal to this savvy segmentation. Here are some of the following strategies it has adopted are:
Offering only customer focused high quality products, which is the core for its brand reputation.
Regulating their own products and suppliers‘ products to meet Cconma‘s rigorous quality standards before being able to sell products on the website
High quality customer focused products
As stated before Cconma‘s business model and reputation revolve around the concept of quality. Consumers buy products and join the website because they trust and respect the company‘s products. Therefore, Cconma spares no effort to make sure that all of its products, both its own, and sellers‘ products adhere to their strict standard. They also make sure that the customer always comes first. Customers‘ demands and needs are top priority, and it should never come at the expense of losing product quality. Customer satisfaction and brand
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reputation are top priority. The company is building deep connections with the customer which improves customer satisfaction, which in turn increases sales (figure 16.)
Figure 16- customer/company relations: through responsible leadership Cconma connects with local farmers to increase Customers and profit
Regulation of Sellers
Cconma is unlike other ecommerce website. While other e-malls are anxious to host a variety of sellers, without extensive background checks, Cconma is different. Cconma has a very strict and detailed process of managing sellers. Cconma does this in five different ways:
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Cconma does not allow itself or other sellers take advantage of the anonymity of the internet. All second party sellers are responsible for the products and the quality of the products they are selling. Brand photos and introductions are offered for each product. Sellers are encouraged to strictly monitor their own product quality so that the
customers associate their product with quality, which in turn helps establish brand reputation.
Second party sellers go through a trial period, called an intern period, before officially launching their product line on the website. This is so that that Cconma can check customers‘ response to their products and service
Price competition is not allowed. In the end, this lowers product quality with only a small price benefit for the consumer
All promotions are organized by its member through online survey. This allows sellers to save money on promotion and advertisements.
Sellers are required to donate 1% of sales to a charity of choice in the community. Cconma does the same for all of its own brand sales.
Cconma has high expectations for its sellers, but it does not wish to exploit their sellers. The sellers‘ fee is 10%. For Amazon.com, the number one ecommerce company in the world, sellers are expected to pay 12-15%. In return for this fee, the category managers, which are divided into food and non-food, are in charge of launching new stores, helping each store‘s operation and promotion, and ensuring that they adhere to Cconma‘s mission. (See figure 17)
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Figure 17- Cconma‘s CSR in working with business partners: Leadership choosing to work directly with local farmers to create a Sustainable competitive advantage while improving conditions for local farmers (sellers)
Another example of how dedicated Cconma is to quality control is in its ―food‖ division. In 2010, Cconma moved its headquarters closer to its farmers. Cconma‘s dedication to monitoring quality, and understanding their farmers and their work condition was shown in this decision. While most Ecommerce companies would prefer being in the capital city: Seoul, Cconma decided to move its base to the agricultural city, Chung-Ju. This helped show the community where their priorities lied, and also expressed where their core competence lies. As this happened work productivity increased which in turn directly affected profitability. (Figure 18)
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Figure 18- How moving Company HQ close to core competence can affect business relations
Brand reputation through strong CSR
There have already been quite a few examples of how Cconma has created a strong brand reputation; however, the most lasting impression exists due to some of the stories that they create for their products.
Once such example of How Cconma‘s has developed brand reputation is with the ―We-can Cookies‖ product. These cookies are hand-made, organic cookies. The cookies are baked by physically or intellectually handicapped individuals. This gives them the ability to have a job and live a normal life. It also lets them be a beneficial member of community. The story of Cconma‘s commitment to helping the community is then posted on the website.
