Three Ways to Reap Value from CSR Initiatives
Through a survey of Spain’s 500 largest firms, researchers pinpoint three approaches to CSR to ensure it creates value for the company.
“The ‘CSR Bubble’ has become over-inflated which, at worst, tries to create a parallel universe dangerously separate from business purpose and strategy,” cautions British Petroleum manager Graham Baxter. Meanwhile, high-profile academics like Michael Porter claim that corporate social responsibility can act as a source of good and a wellspring of innovation, competitive advantage and value creation for the firm.
But how can firms unleash this innovative potential? Are there specific ways to ensure that CSR aligns with business strategy and creates value for a firm?
Bryan Husted of York University, and David Allan of the IE Business School answered these questions through a survey of Spain’s 500 largest firms. They pinpointed three approaches to CSR to ensure that it creates value for the company.
Differentiate, Educate, and Innovate
1. Differentiate through innovative CSR products and processes.
Firms can differentiate their products by endowing them with CSR attributes (product innovation) or developing the product through CSR processes (process innovation). In both cases, the company creates a new market for such products with consumers who are willing to pay a price premium for products with CSR features. Patagonia, the California-based outdoor and sportswear manufacturer, has created a new market for its CSR products. Patagonia’s marketing focuses on the environmentally friendly aspects of its products and how their innovative improvements protect the environment. The company’s products sell at about 50 percent more than competitors such as LL Bean and Eddie Bauer.
2. Build awareness of responsible products.
Visible CSR activities enhance the firm’s reputation — attracting superior workers, providing leverage for managing stakeholders, and creating a significant competitive advantage in markets where product differentiation is difficult. For example, Telefónica, the Spanish telephone multinational, incorporated CSR directly in value creation as part of its widely publicized reputation strategy. It established a fully staffed Reputation Department, charged with actively seeking publicity for CSR activities. Telefónica’s reputation has flourished as a result, educating and motivating consumers to pay a premium for its products. Additional benefits for Telefónica include consolidation of the company’s position with regulators, the investment community, and other non-market stakeholders.
3. Innovate your way through constraints.
Husted and Allen found that firms reap greater value from CSR activities when they are perceived to arise as the result of industry, fiscal, and regulatory constraints. When managers are faced with such requirements, they innovate new products and processes to meet them — thus generating value for the firm.
When Three is Too Many, Focus on One
These three strategies will align responsible activities with business strategy, creating new sources of value for the firm. In fact, Husted and Allen’s research shows that focusing on even just one of these approaches may be enough to create additional value.
Future researchers should investigate the impact of other national contexts, including laws and culture, on the link between CSR and value creation.
Husted, B., and Allen, D. 2007. "Strategic Corporate Social Responsibility and Value Creation Among Large Firms: Lessons from the Spanish Experience." Long Range Planning. 40: 594-610.