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Idea in Brief

The Trouble

Many companies' CSR initiatives are disparate and uncoordinated, run by a diversity of managers without the agile engagement of the CEO. Such firms cannot maximize their positive bear upon on the social and environmental systems in which they operate.

The Solution

Firms must develop coherent CSR strategies, with activities typically divided among iii theaters of practice. Theater one focuses on philanthropy, theater two on improving operational effectiveness, and theater iii on transforming the business model to create shared value.

The Steps

Companies must clip existing programs in each theater to marshal them with the firm's purpose and values; develop ways of measuring initiatives' success; coordinate programs beyond theaters; and create an interdisciplinary management squad to drive CSR strategy.

Almost companies have long practiced some form of corporate social and environmental responsibility with the broad goal, simply, of contributing to the well-being of the communities and social club they affect and on which they depend. Simply there is increasing pressure to wearing apparel up CSR as a business organisation discipline and need that every initiative deliver business results. That is asking as well much of CSR and distracts from what must be its main goal: to marshal a company's social and environmental activities with its business purpose and values. If in doing so CSR activities mitigate risks, enhance reputation, and contribute to business results, that is all to the skilful. But for many CSR programs, those outcomes should be a spillover, not their reason for being. This article explains why firms must refocus their CSR activities on this central goal and provides a systematic process for bringing coherence and discipline to CSR strategies.

To understand how companies devise and execute CSR, over the past decade we conducted in-depth interviews with scores of managers, directors, and CEOs who are straight or indirectly responsible for their firms' CSR strategies, and we have developed more than than a dozen instance studies on the topic. Near recently we surveyed 142 managers who attended Harvard Business Schoolhouse's CSR executive teaching program during the past four years. Our findings were remarkably consistent.

We surveyed managers who attended Harvard Business concern School's CSR executive education program during the past four years, asking them about the range, structure, and oversight of their firms' CSR activities. The fact of their attendance reflects their companies' involvement in CSR, so our sample is probably biased in favor of companies with relatively advanced CSR practices. Nonetheless, 60% of respondents said they were dissatisfied with their firms' CSR activities and direction and wanted to improve them. Other key findings are below.

Despite the widely accepted ideal of pursuing "shared value"—creating economic value in ways that too create value for gild—our research suggests that this is not the norm. Rather, near companies practice a multifaceted version of CSR that runs the gamut from pure philanthropy to ecology sustainability to the active pursuit of shared value. Moreover, well-managed companies seem less interested in totally integrating CSR with their business organization strategies and goals than in devising a cogent CSR program aligned with the visitor's purpose and values.

But although many companies embrace this wide vision of CSR, they are hampered by poor coordination and a lack of logic connecting their various programs. Although numerous surveys take touted the increased interest of CEOs in CSR, we have found that CSR programs are often initiated and run in an uncoordinated fashion by a variety of internal managers, frequently without the active appointment of the CEO.

To maximize their positive affect on the social and environmental systems in which they operate, companies must develop coherent CSR strategies. This should be an essential role of the job of every CEO and board. Aligning CSR programs must begin with an inventory and audit of existing initiatives. Our research and work with corporations beyond the geographic and business spectrum show that companies' CSR activities are typically divided among 3 theaters of practice. Assigning CSR activities accordingly is a crucial first footstep.

Theater one: focusing on philanthropy.

Programs in this theater are not designed to produce profits or direct improve business organization performance. Examples include donations of money or equipment to civic organizations, engagement with community initiatives, and back up for employee volunteering.

Theater 2: improving operational effectiveness.

Programs in this theater office within existing business models to deliver social or environmental benefits in ways that support a company's operations across the value chain, often improving efficiency and effectiveness. Thus they may—but don't always—increase acquirement, decrease costs, or both. Examples include sustainability initiatives that reduce resource apply, waste, or emissions, which may in plow reduce costs; and investments in employee working conditions, health care, or education, which may enhance productivity, retention, and company reputation.

Theater three: transforming the business model.

Programs in this theater create new forms of business specifically to address social or environmental challenges. Improved business organisation performance—a requirement of initiatives in this theater—is predicated on achieving social or environmental results. Hindustan Unilever'due south Project Shakti ("empowerment") in Bharat provides a good example. Instead of using its customary wholesaler-to-retailer distribution model to attain remote villages, the company recruits village women, provides them with access to microfinance loans, and trains them in selling soaps, detergents, and other products door-to-door. More than than 65,000 women entrepreneurs now participate, nigh doubling their household incomes, on average, while increasing rural access to hygiene products and thus contributing to public health. These social gains accept been met by business gains for the company: As of 2012 Project Shakti had accomplished more than than $100 million in sales. Its success has led Unilever to roll out similar programs in other parts of the globe.

As Project Shakti demonstrates, theater three programs need not exist comprehensive. Nearly are narrow initiatives undertaken with a focused market segment or production line in mind, but with meaning potential to alter the visitor's social or environmental touch and financial performance. Theater three initiatives about always telephone call for a new business concern model rather than incremental extensions.

Although each CSR activity can be assigned principally to a single theater, the boundaries are porous: Programs in one theater can influence and complement those in another or even drift. For example, a theater ane initiative might improve the company's reputation and consequently increase sales. Thus, while it was not designed to bulldoze business results, it may terminate upward doing so and as a result migrate to theater two. The valuable make reputations of Tata in India, Grupo Bimbo in Mexico, and Target in the United states, to name only a few, are congenital in office on those companies' philanthropic and community engagement.

Similarly, activities in theater 2 may requite rise to new concern models and thereby migrate to theater 3. Consider IKEA: Its People & Planet initiative calls for its unabridged supply concatenation to be 100% sustainable by 2020, even every bit the company aims to double sales past the aforementioned year. This aggressive goal is driving the development of new business models to shut the post-consumer recycling loop. IKEA will have to radically change how it designs furniture and, fifty-fifty more important, devise new models for collecting and recycling used article of furniture.

Developing a Unified Exercise Platform

One time managers have inventoried their business firm'southward CSR activities, they tin begin the rigorous undertaking of bringing subject field and coherence to the portfolio as a whole. Cartoon on the experience of participants in HBS's CSR executive education program and our research and consultancy with companies, nosotros have developed a iv-step process for doing then. The steps are often interactive and iterative and needn't be followed in sequence, though all 4 must exist executed. Companies seeking to coordinate established portfolios should begin with step one, which emphasizes rationalizing the programs within each theater. Companies building their get-go portfolios should start with stride iv, which focuses on developing an interdisciplinary strategy.

one. Pruning and Adjustment Programs Within Theaters

While it may be unsurprising that CSR programs are often poorly coordinated across theaters, our enquiry reveals that poor coordination is common fifty-fifty within theaters. Thus the initial footstep for many firms is to bring coherence to the existing programs in each theater. To practise so, they must reduce or eliminate initiatives that do not address an of import social or environmental problem in keeping with the company's purpose, identity, and values. For instance, a fast-food operator will be meliorate served by a program that collects excess nutrient from supply chain partners and delivers it to local food pantries than by an employee claret-donation programme.

Let'due south look at how the big midwestern bank PNC unified a multitude of theater ane philanthropic and customs service projects, spread beyond numerous business units, behind a single cause. With $100 one thousand thousand in funding for the period 2010 to 2015, its Abound Upwardly Great initiative provides school-readiness resources to underserved populations where the bank operates. Until the advent of the program, each PNC market had a CSR upkeep that regional managers allocated every bit they idea all-time, resulting in a well-intentioned simply incoherent array of initiatives. Roughly xxx% of amass funds were going to the arts, 25% to sports, twenty% to civic activities, 5% to pedagogy, and iii% to wellness. And so-CEO Jim Rohr unified PNC behind Grow Up Smashing considering of his long-standing commitment to early childhood education, the eagerness of many employees to engage with a local cause, and the program's alignment with the depository financial institution's community-development-oriented identity. By pruning its disparate CSR programs, gradually easing out those without an early education focus, and encouraging regional managers to redirect their discretionary budgets to early education, PNC has built a well-funded initiative that correlates better with its employees' motivations and is likely to yield significant benefits to the communities the bank serves and relies on.

The family unit-owned Mexican blistering company Grupo Bimbo demonstrates alignment in theater two. Bimbo is the largest baker in Mexico, with a workforce of nearly 100,000 and a similar number of small retailers in its network. Its comprehensive CSR programs focus on social welfare: Information technology provides gratuitous educational services to help employees complete high school and offers supplementary medical care and fiscal assist for dependents' care to close the gaps in regime wellness coverage. It also has a strong microfinance program to aid its mom-and-pop retailers manage working-capital shortages and pay for small capital additions. As theater ii initiatives, these are all explicitly intended to increase efficiency and effectiveness, and indeed they have improved employee operation and memory and strengthened Bimbo's distribution concatenation.

Aligning, then, is not about putting all your eggs in one basket, though that sometimes helps. It is about collecting activities that are consequent with the company's concern purpose and have a valuable social goal that the company cares about. Sooner or subsequently activities that don't fit these criteria have to go.

2. Developing Metrics to Gauge Operation

Just as the goals of programs vary widely from theater to theater, so do the definitions of what constitutes success. For case, theater ane programs, as we've noted, are not designed to generate revenue or reduce costs, whereas theater three initiatives are. Therefore, measuring top- or bottom-line impacts would exist irrelevant for the former but is essential for the latter.

Gauging the success of a theater one program requires measuring its nonfinancial outputs. For Abound Up Great, PNC tracks the volunteer hours its employees spend reading to children and the increases in those children's comprehension, along with the grant funding it provides to develop educational materials, the number of children receiving those materials, and the resulting improvement in school performance. It also measures additional funding that flows into early childhood education programs from other entities as a effect of its advocacy efforts. Partnering with nonprofits or other third-political party evaluators tin help companies credibly estimate the social impact of their theater one activities.

Coordinating initiatives does not mean they all address the same social or environmental challenge. It ways they form a coherent portfolio in keeping with the firm'south purpose and values.

Because theater two programs may generate acquirement or reduce costs, measuring their operation calls on more-familiar, tangible approaches. These might include quantifying how free energy- and waste product-reduction initiatives impact the superlative or bottom line and improve air or water quality. Such measurements are commonly captured in corporations' almanac sustainability reports. UPS, for example, enlists an contained auditing business firm to evaluate its progress on energy use and carbon emissions reductions and reports both the cost savings and the resource savings. Its most recent sustainability report includes its total CO2 emissions, the carbon emissions per mile driven by its armada, the ground packages delivered per gallon of fuel used, and the number of miles driven by its alternative-fuel delivery vehicles. The report demonstrates both the ecology benefits of the company's emissions reductions and the bottom-line benefits of its reduced fuel use.

Not all theater two financial benefits are realized shortly subsequently investments are made, all the same, so companies looking for business organisation gains from activities in this sphere need an ongoing system to track net present value. If benefits practice not match expectations, corrective measures may be chosen for. And regardless of exactly how these factors affect business operation, a visitor must mensurate and study initiatives' social and environmental benefits. This enables it to approximate whether its investment has produced the desired societal gains—although sometimes theater two investments are fabricated in anticipation of regulatory changes or market requirements and are best viewed as simply the cost of doing business organisation.

Because they mostly involve new business models, theater three initiatives have item measurement challenges. Consider Jain Irrigation, a global drip-irrigation-equipment supplier headquartered in India. Jain's shared-value concern model was explicitly designed to do good India'southward small, chiefly depression-income farming landholders. Drip irrigation technology not just conserves water in a water-stressed surround but also supplies it in a controlled fashion, which helps increment agricultural yields. The visitor offers farmers microfinance loans to help them buy its equipment, provides technical advice to assist them increase productivity, and buys their output at guaranteed prices.

Since creating societal value is essential to concern success in this theater, firms must develop measures both of the social or ecology value produced by a new business model and of the fiscal results, and must demonstrate how the ii are connected. In Jain's case, the improvement in crop yields was dramatic. For a typical investment of $500 per hectare, farmers increased their gross income per hectare by anywhere from $500 to $six,000, depending on their crops. The added value created for its customers enabled Jain to boost its top line while retaining its operating profit percentage.

Crucially for theater iii initiatives, companies must demonstrate superior social or environmental value for their external stakeholders while maintaining or improving internal bottom-line targets—a goal sometimes accessible only in the long run. That'south why these initiatives, unlike those in theater 2, may involve risky business organisation decisions. Still, if successful, they can transform companies into net positive contributors to societal well-being. These are questions every business should ask: Does our cardinal business concern enhance society? Do any of our products and activities diminish that goal, and if so, how can we mitigate or reverse them?

3. Coordinating Programs Across Theaters

Coordination beyond theaters does non mean that all initiatives should necessarily accost the aforementioned social or ecology challenge. It means that taken together, they form a coherent portfolio, i whose initiatives are mutually reinforcing and consistent with the business firm's business purpose and values.

Ambuja Cements, an Indian subsidiary of the Swiss conglomerate Holcim, illustrates such coordination. The founders of the company expressed a deep commitment to the communities where it sourced limestone and operated cement-production kilns. Ambuja'south CSR initiatives, encompassing both broad social welfare efforts and ecology conservation and protection programs, reflect that commitment. For many years after their inception they were largely theater 1 initiatives, managed past the Ambuja Foundation. But when Holcim acquired a decision-making stake in the company, in 2008, it brought with it a more comprehensive focus on ecology and social sustainability. Past 2010 Ambuja had initiated several found-level environmental sustainability programs, mainly in theater two, to complement its corporate foundation programs. These included improved water management in the visitor's plants, peculiarly in drought-prone areas, and a concerted effort to increase the employ of alternative fuels.

Using our 4-step methodology, Ambuja began in 2010 to proactively coordinate its portfolio of CSR activities beyond theaters. For example, its alternative fuels plan, in theater two, led to the expansion of a theater ane programme for educating farmers nearly productivity practices, which at present also includes instruction on recovering corn stalks, rice husks, and other farm waste—materials the company buys for use as biofuel.

In some other case of cross-theater coordination, Ambuja's logistics managers identified the trucking fleet every bit an operational adventure. The trucks were almost all owned by subcontractors, who frequently drove dangerously through villages as they transported limestone and cement. The managers realized that an accident could incur the villagers' wrath and potentially halt trucking operations. So they asked the Ambuja Foundation to launch a driving condom program, which was later expanded to include wellness education on booze, tobacco, and HIV/AIDS. Here, too, a supply concatenation requirement in theater ii sparked an pedagogy program in theater one.

In a third example, a "water neutral" program in theater two, involving Ambuja's mining operations, led to a highly successful plan for "water recharge" (the replenishment of aquifers and other groundwater systems) in theater i, which gained meaning financial support from the local government. Equally a result, the adjoining farmland has go much more productive and the visitor'southward tracts of mined state, which would otherwise be fallow, take go arable. All this has enabled the visitor to push for an aggressive business-model transformation in theater 3, where it can offer reclaimed country with good water (plus cash compensation) in commutation for new country to mine. Ambuja is at present aiming to kickoff its plastic consumption by burning more than waste plastic as fuel in its kilns than information technology uses to bundle its cement, and information technology is besides attempting to significantly decrease its carbon emissions.

4. Developing an Interdisciplinary CSR Strategy

Coordinated support for CSR initiatives at the meridian levels of executive management is critical to success; we heard this consistently from CSR professionals during our inquiry. Ideally companies should establish a position to be filled by someone whose primary responsibility is to integrate initiatives beyond all three theaters—regularly convening the cardinal players in each theater to ensure ongoing advice and alignment—fifty-fifty if responsibility for individual initiatives remains dispersed.

All the same such coordination is all likewise rare, and the range of purposes underlying initiatives from theater to theater and the broad variation in those initiatives' management plant major barriers for many companies. Purely philanthropic programs often reside with managers who take titles such as VP of corporate (or customs) affairs; these CSR leaders ordinarily report to the HR chief and thus are two levels removed from the CEO. Alternatively, at large companies the caput of the corporate foundation may handle philanthropy and community giving. Theater two initiatives are typically run by operations managers (and sometimes by ecology specialists), who may take a dotted-line reporting relationship to the VP of sustainability or the principal sustainability officer. CEOs, sometimes in concert with ane or two senior managers, are more likely to get directly involved with shared-value initiatives, but our research indicates that this occurs at simply most xxx% of companies; in some cases CSOs have oversight, and ofttimes no single executive is in charge of these programs. With responsibilities spread among iii sets of individuals at 3 different levels, information technology'south no surprise that companies often struggle to mold a coherent CSR vision.

In one instance of cross-theater coordination, logistics managers identified the trucking armada every bit an operational run a risk and asked for a driving safety plan, which was later extended to health education.

In our research and consultancy we've seen two effective approaches to CSR strategy evolution, one top downward and the other largely bottom up. The latter approach showtime:

In 2010 Ambuja established sustainability committees, which have oversight of all social and ecology activities, at both the institute and the corporate levels. The found-level committee meets every month and funnels bug of companywide importance, such as driver safety preparation and alternative fuels, up to the corporate-level committee. Both groups include representatives from the Ambuja Foundation. The corporate committee also includes regional heads, who oversee the visitor'due south plants; the foundation'south head; and the heads of corporate functions such as marketing and sales, Hour, procurement, and state conquering. At each corporate-level meeting, members hash out bug flagged by the plant-level committee along with concerns of their ain. This process has enabled the coordination of theater i and theater two activities and the stretch toward a theater three transformation of Ambuja's business model that we've described. The aspirational CSR goals of the company are to give back more information technology takes from the community and to clean more than it pollutes in its manufacturing operations—a vision fabricated possible only by this active input from beyond Ambuja and the effective coordination beyond the three theaters.

IKEA has developed its blueprints in a top-down manner. When the company hired Steve Howard as its CSO, in 2011, it appointed him to its seven-person executive management group. This group, which includes the heads of all the operating divisions, sets the company's vision and develops its strategy. Its work has facilitated the simultaneous pursuit of ambitious growth and bold sustainability plans we mentioned earlier, along with a social welfare initiative known as the IKEA Style—an array of programs related to preventing child labor and maintaining other labor standards throughout the supply chain. The sustainability calendar thus crafted at the top is existence executed throughout the company.

It's neither applied nor logical for all companies to appoint in the same types of CSR, since CSR programs are driven past various factors including the industry and the societal environments in which businesses operate and the motivations of the people who staff, run, and govern each visitor. For example, although a manufacturing company may take rich opportunities to reduce its environmental touch on, a financial services company may be hard-pressed to do and then—merely it may be vastly more successful in the social sphere, with significant initiatives supporting financial inclusion and literacy. In a country lacking sufficient government funding for public health, a company's philanthropic funding for clean h2o and sanitation may be far more valuable to the customs than carbon mitigation initiatives to reduce climate impact, while a society that enjoys robust government provision for social welfare services may identify greater importance on environmental conservation programs.

Best-practices companies operate coordinated and interdependent programs across the CSR portfolio. Some of their initiatives indeed create shared value; some, though intended to practise so, create more value for society than for the business firm; and some are intended to create value primarily for society. Yet all have one thing in common: They are aligned with the companies' business purpose, the values of the companies' important stakeholders, and the needs of the communities in which the companies operate. These companies, of course, stand up in stark contrast to those that are focused solely on creating value for their shareholders.

A version of this article appeared in the January–February 2015 issue of Harvard Business organisation Review.

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Source: https://hbr.org/2015/01/the-truth-about-csr

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