Csr Beneficial To A Companys Performance Management Essay
Corporate Social Responsibility is an ethical obligation for a company to pursue activities to benefit its stakeholders such as the environment, consumers and employees, beyond generating profits for its shareholders. Some examples are philanthropy, environmental sustainability measures and campaigns to raise awareness. Researchers are divided over whether CSR truly benefits a company’s financial performance- Gilley, Worrell, Davidson and El-Jelly (2000) found that the announcement of environmental initiatives had no overall effect on a firm’s stock price, whereas Mackey, Mackey, and Barney (2007), as well as Deckop, Merriman and Gupta (2006) showed that CSR improves a firm’s financial performance. Indeed there are short-term monetary costs incurred when CSR efforts are being rolled out, and carrying out CSR does not always lead to positive results for a firm. However, such cases are likely to be due to a lack of strategy in implementing CSR initiatives. When carried out strategically, a firm can experience long-term benefits like an enhanced brand image, reduced operating costs and employee motivation. Hence, to a large extent, CSR is beneficial to a company’s performance.
There are three sound commercial reasons for a firm to carry out CSR. A firm that carries out CSR can benefit from an enhanced brand image (Porter & Kramer, 2006). CSR measures can help to differentiate a company from its competitors in the eyes of consumers. A prime example is Marks & Spencer, a U.K. clothing and food retailer which launched a CSR initiative in 2007. “Plan A” involved investing over £200 million over five years to reduce the company’s environmental impact. The Reputation Institute reported that within two years, it became the most reputable U.K. brand (Evans, 2010). In 2009, The Coca-Cola Company started using PlantBottleâ„¢ packaging, the first fully recyclable PET bottle made partially from plants. Besides helping to cut down on roughly 100,000 metric tons of carbon dioxide, the green packaging has contributed to the 11 percent increase in the 2011 sales of Dasani bottled water and resulted in an increase in brand loyalty (The Coca-Cola Company, 2012). The two examples above illustrate that CSR initiatives can help to improve a firm’s branding and attract consumers to purchase products, leading to better financial performance.
CSR initiatives can also result in reduced operating costs. Environmental efforts such as analyzing the life-cycle of a product to reduce waste, energy conservation and recycling can lead to significant cost savings for a business. For instance within 2 years of launching the “Plan A” scheme, Marks & Spencer had energy and waste cost savings worth more than the amount of money it invested, effectively earning profits for the company. (Evans, 2010). Denim retailer Levi Strauss & Co launched the Levi’s® Water<Lessâ„¢ Jeans collection in 2011, where the product finishing process was modified to use up to 96% less water. Since its launch, more than 172 million litres of water has been saved, producing both water and energy savings for the company (Levi Strauss & Co., 2012). Thus CSR can improve a firm’s financial performance through cost savings.
Furthermore, firms that have CSR efforts stand to benefit from increased employee engagement, Coca-Cola Enterprises surveyed 60,000 workers and found that CSR initiatives, for instance encouraging employees’ personal development, were the second most important element in staff engagement (Evans, 2010). If a firm engages its staff through CSR, the staff will feel more motivated to share their ideas and contribute to the growth of the firm. For instance Walmart engaged its staff by conducting sustainability training, and after the course, an employee suggested removing the light bulbs from vending machines. This was implemented, reducing Walmart’s energy consumption by $1million a year (McElhany, 2009). Thus if a firm conducts CSR, it can clearly gain financially through greater employee engagement.
However, if a firm does not carry out CSR strategically, all the potential positive impacts on a firm’s performance may not be realized. There are two points that firms should take note of. Firstly they should have planned CSR efforts. According to economists Bryan Husted & José de Jesus Salazar, rather than have a list of “uncoordinated activities” (Porter & Kramer, 2006), firms must correctly identify and carry out initiatives that their stakeholders value in order to maximise the financial benefits gained from CSR. It can be considered strategic for lingerie company Triumph International to sponsor The New Zealand Breast Cancer Foundation annually (“Triumph International”, 2008). Consumers can clearly see why a lingerie firm would support breast cancer and may start to purchase goods from Triumph. On the other hand, Ford Motor Company Foundation’s annual donation to a breast cancer research fund is not strategic as vehicle buyers would not see any link between breast cancer research and vehicle production. It may be more strategic to use the money to fund research alternative-fuel vehicles as these initiatives may lead to the development of new products and new sources of revenue (McElhaney, 2009).
Secondly, firms should communicate their CSR initiatives sufficiently to both the public and their employees. Take the example of a mobile phone manufacturer. The manufacturer may have been investing in research on LED lights for years, but does not advertise to its consumers. If a rival firm comes up with a public campaign to plant a tree for every phone purchased, consumers will consider the latter an environmentally-friendly firm, but not the former. Thus the second firm maximises its potential financial gain from CSR but not the first. It is also important for a firm to communicate its CSR initiatives to its employees. Research suggests that if a firm keeps all employees informed about its CSR efforts, employee loyalty will increase (McKinsey, 2011). As explained previously, staff engagement through CSR can help to improve the financial performance of a firm.
In conclusion, CSR is beneficial to a company’s performance to a large extent. Despite short-term implementation costs, CSR initiatives may improve a firm’s brand image, reduce operating costs and motivate its employees, which are long-term benefits. To maximize the financial gains from CSR, companies must carry out CSR strategically, identifying and executing initiatives which its stakeholders value and adequately communicating its activities to the public and its staff. Arguably, putting the benefits and costs of CSR aside, CSR is necessary for a firm. The firm must keep up with its competitors’ CSR efforts. Moreover, there can be severe negative consequences if a firm does not meet the expectations of external stakeholders (Foote, Gaffney, Evans, 2010). BP oil’s Deepwater Horizon oil spill in April 2010 caused BP’s share price to fall drastically, recovering to only two-thirds of its pre-crisis value as of November 2012. (Gongloff, 2012). Therefore CSR is essential to a company’s operation, and CSR initiatives will largely have a positive impact on the financial performance of the company if they are conducted strategically.
(1 para, 100 words) Conclusion
Summarise main points (do not give more background info)
Show relevance of conclusions to other situations
Point out limitations of the discussion
**Make predictions or recommendations for companies**
Point out further research to look at other aspects
1) Companies will incur start-up costs when rolling out a new CSR plan. They may need to hire qualified professionals to start up a new CSR department, or purchase new equipment to reduce the amount of carbon dioxide produced in the production process. These costs may be significant- e.g. company X spent _____, which is ___% of its revenue in 2011. Ignoring the social benefits generated, the money could arguably be spent on other areas like staff training or brand marketing to improve financial performance. However CSR will lead to long-term benefits, which I will mention in the subsequent paragraphs.Order Now