What are the Points of Intersection between Your Strategy and Social Responsibility?
Strategy is the choice of a future for the company or organisation, and of a way to reach that future, understood as the plan (or pattern) that coordinates, unifies and integrates the company or organisation’s decisions (and actions). It may also be understood as the pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.
The field of Strategic Management on the other hand deals with the major intended and emergent initiatives taken by firms and organisations involving utilisation of resources to enhance the performance of firms or organisations in their external environments. An alternative definition but with the same intent may view Strategic Management as the set of decisions and actions that result in the formulation and implementation of plans designed to achieve company/organisational objectives.
In short strategy or strategic management is about organizational performance! If it doesn’t result in positive variability in firm performance, then its of little or no use, and doesn’t earn the appellation “strategic”!!!
Strategic Decisions
Strategic decisions can be measured in terms of the extent to which they involve magnitude, time-scale and commitment. Magnitude: Strategic decisions are big decisions. They affect an entire organisation or a large part of it, such as a whole division or a major function. And they entail a significant degree of interaction with the world around it - the organisation’s competitors, suppliers, and customers. Time-scale: Strategic decisions set the direction for the organisation over the medium to long term. But they will have a short-term impact as well. What constitutes medium or long term will depend on the organisation and the industries in which it operates. In a fast-moving industry, such as computer software or consumer goods, 18 months may be a long time to think ahead. In capital goods industries like electricity generation or oil production, where new facilities take several years to plan and bring on stream, 10–15 years may be a realistic time horizon. Commitment: Strategic decisions involve making choices, and committing resources in ways that cannot be reversed cheaply or easily. This may mean investing large amounts of money in buildings or high-profile, long-term, marketing campaigns, or large amounts of management time in changing the way an organization operate
We can also test “strategic-ness” in terms of:-
Scope and scale—is your suggestion going to affect a significant part of the organisation’s activities and value chain? Is your suggestion going to involve a significant commitment of resources? This could mean a reallocation of existing resources such as manpower or plant and machinery, but may also involve the need to find new resources such as finance or staff. Does your suggestion pose a significant risk to the organisation as a whole? –perhaps because it involves a large commitment of resources that cannot be reallocated elsewhere if things do not work out as planned, or perhaps because it is something entirely new. Is your recommendation likely to affect what the organisation as a whole does over the long term? What the long term means varies from industry to industry, but anything over two years can probably be thought of as a strategic decision. If the organisation can quickly reverse the decision then it is unlikely to be strategic.
What makes for “Good” Strategy?
Fit: It must be compatible with the environment and adapted to the context in which it finds itself. But it must also be internally consistent, that is, the need for the organisation’s architecture to match its strategy
Distinctiveness: a strategy is a good one if it gives the organisation something different from its competitors. Having a distinctive position allows an organization to develop an identity that stakeholders can notice. So distinctiveness relates to the parts of the strategy that the organisation’s customers can see—its competitive stance.
Sustainability: it leads to the organisation developing the attributes that will allow it to survive and thrive over the long term
Good Strategy must be Internally Consistent, must fit the present (and future) environmental conditions, fit with the firm/organisation’s resources and profile, and must be well communicated and implemented
Elements of Strategy
Flowing from our definition, the following are the elements of strategy:-
- Choice of a Future
- Design of a Plan or Pattern
- Understanding the Terrain
- Having the Facts and the Insight
- Skill in Charting the Way
- Determining Current Position
- Acting to Reach that Future
- Re-designing or Updating the Plan or Pattern
Choice of a Future
A business’s choice of future involves decisions such as its Vision, Mission, Purpose; Strategic Intent; Objectives, Goals and Targets; Trade-Offs and the Intangible Element including Values and Philosophy, and Culture.
Designing the Plan or Pattern
Designing a business’s “strategic” plan or pattern of operating implies understanding the terrain-like the pilot, you have to know the “weather”, have a “map” and “navigational aids” and have “radar” support. This is the terrain of Environmental Analysis, Industry Analysis, Competitor Analysis, Buyer and Market Analysis etc. It benefits from an ability to recognise patterns and dexterity to create patterns of your own!
My firm, RTC Advisory Services Ltd uses an environmental analysis model I developed while teaching Strategy at the Lagos Business School called the SPELT-G model:-
We believe in today’s multi-dimensional world, you need a framework that takes account not just of PEST factors (political, economic, socio-cultural and technology), but a more robust framework that includes social, political, legal/regulatory, economic, and technology factors and that takes the over-arching global context into account as well.
In analysing industries and sectors, we use the well known Porter’s 5 forces model (bargaining power of buyers; bargaining power of suppliers; threat of entry; threat of substitutes; internal competitive rivalry and we include the sixth force-complementors) as well as other contemporary strategy frameworks and models.
Designing the plan or pattern also involves answering critical questions in the process of formulating or “crafting” strategy-What is our Vision? What is our Strategic Intent (our strategic objectives during the planning period in relation to industry, market or competition)? How will we achieve this intent? Which Businesses? What products and Services? Which Customers? Which Markets? Which Resources? Which People, Assets, Capital etc? How will we measure success?
Determining Current Position
But successful strategy formulation has to be preceded by a clear knowledge of the business’ current position! Its Current Position Assessment!!! SWOT Analysis; Current Sources of Competitive Advantage; Resource Profile; Organisational Culture and People; Stakeholder Mapping; Analysis of Financial Performance etc.
Acting to Reach Desired Future
This is the realm of implementation…strategy execution! Without execution, there is no strategy! Strategy is not a plan or document. It is a consistent series of actions or behaviour that creates a pattern of success. Execution is about People and Culture, and Systems and Processes. Execution is the tactical and human aspect of strategy. The objective of all this is the notion of competitive advantage…….
“Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price”-Michael Porter.
So competitive advantage is about value; the cost of creating it; the buyers’ willingness to pay; and achieving superior value generally through power prices or better benefits.
So how do these notions-strategy; strategic management, firm performance and competitive advantage tie in with the concept of Corporate Social Responsibility (CSR) or Sustainability and Responsibility as it is often referred to these days?
Prevailing Justifications for CSR
The notion that businesses should (or MUST) act in a socially responsible manner is usually justified under four broad rationale-moral obligation; sustainability; license to operate; and reputation.
Moral Obligation
Companies have a duty to be good citizens and to do the right thing
The US Business for Social Responsibility non-profit urges businesses to “achieve commercial success in ways that honour ethical values, and respect people, communities and the natural environment”
Sustainability
Emphasized environmental and community stewardship
Former Norwegian Prime Minister Gro Harlem Brundtland (and adopted by the World Business Council for Sustainable Development) defined it as “meeting the needs of the present without compromising the ability of future generations to meet their own needs
License to Operate
Every company needs a tacit or explicit permission from governments, communities and numerous other stakeholders to do business
Reputation
CSR improves a company’s image, strengthens its brand, organisational morale and even raises its stock market value
Integrating Social Impact into Strategy
All those arguments while sound on a stand-alone basis, were not linked with organisational strategy! They merely encouraged corporate philanthropy, without conferring or attempting to confer any strategic advantages on the firm. Often there was no discernible strategic rationale behind the choice of beneficiaries of corporate gifting! It was an ad-hoc, emotion-driven (or sometimes guilt or blackmail-induced!) act of giving away money! The top global strategist, Professor Michael Porter and notable CSR practitioner Mark R Kramer in their famous HBR article “Strategy and Society” argued that “Prevailing approaches to CSR are so fragmented and so disconnected from business and strategy as to obscure many of the greatest opportunities for companies to benefit society”. Their prescription-“If instead, companies were to analyse their prospects for social responsibility using the same frameworks that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed-it can be a source of opportunity, innovation, and competitive advantage”. Porter and Kramer call for “integrating business and society” i.e. linking social impact with organisational strategy as “a healthy society needs successful companies”. They advocate a principle of “shared value”-“both business decisions and social policies must integrate business and society and corporate choices must benefit both sides”
The Intersection of Social and Economic Benefit
A Four-Step Approach
Porter and Kramer recommend a four-step approach to integrating thinking about social impact with business strategy:-
- Identify Points of Intersection
- Choose Which Social Issues to Address
- Create a Corporate Social Agenda
- Create a Social Dimension to the Value Proposition
1. Identify Points of Intersection
Inside-Out Linkages: The areas in which the company impinges upon society through its operations in the normal course of business
Outside-In Linkages: External social conditions that influence corporations for better or worse
Competitive Context: These include Availability and Quality of Business Inputs e.g. HR, Transport Infrastructure; Rules and Incentives; Size and sophistication of local demand and Supporting industries, service providers and machinery producers
2. Choose Which Social Issues to Address-
The test is not whether a cause is worthy, but whether it presents an opportunity to create shared value. There are three categories of social issues a firm may be confronted with-generic social issues; value chain social impacts; and the social dimensions of competitive context. Strategic opportunities for CSR are likely to lie in the latter two categories!
3. Create a Corporate Social Agenda
Companies wishing to strategically leverage CSR must avoid “Responsive CSR” i.e. acting as a good corporate citizen attuned to evolving social concerns of stakeholders, and mitigating existing or anticipated adverse effects from business activities and instead seek to evolve into “Strategic CSR” which moves beyond good corporate citizenship and mitigating harmful side effects to pursuing initiatives whose business and social benefits are large and distinctive.
4. Create a Social Dimension to the Value Proposition
“The most strategic CSR occurs when a company adds a social dimension to its value proposition”-Porter and Kramer
Finally companies must strive to include social impact in the core of their business model and value proposition. At this level, social impact is a core element of the firm strategy, yet the business is organised to be commercially viable and successful. Notions such as profits at the bottom of the pyramid, impact investing, triple bottom-line and inclusive business typify this mindset.
Conclusion
Most corporate philanthropy or CSR is a responsive and ad-hoc activity-budgets are provided and anyone with some proximity to the company can lobby for a share for his favourite NGO or cause. There is often no thinking about how this connects or derives from firm strategy and from the strategic point of view, such spending is essentially wasted or at least non-reproductive. More substantial benefits can be derived from corporate social spending by integrating thinking about society with strategic frameworks and benefiting both society and businesses.