Too often, executives have viewed corporate social responsibility (CSR) as just another source of pressure or passing fad. But as customers, employees, and suppliers—and, indeed, society more broadly—place increasing importance on CSR, some leaders have started to look at it as a creative opportunity to fundamentally strengthen their businesses while contributing to society at the same time. They view CSR as central to their overall strategies, helping them to creatively address key business issues.
The big challenge for executives is how to develop an approach that can truly deliver on these lofty ambitions—and, as of yet, few have found the way. However, some innovative companies have managed to overcome this hurdle, with smart partnering emerging as one way to create value for both the business and society simultaneously. Smart partnering focuses on key areas of impact between business and society and develops creative solutions that draw on the complementary capabilities of both to address major challenges that affect each partner. In this article, we build on lessons from smart partnering to provide a practical way forward for leaders to assess the true opportunities of CSR.
What You Will Learn
- 1 Mapping the CSR space
- 2 Focusing CSR choices: Guiding principles
- 3 Building the business case
- 4 Implementing CSR with consistency and determination
- 5 What’s a leader to do?
Mapping the CSR space
There is no single accepted definition of CSR, which leads to plenty of confusion about what constitutes a CSR activity. We can begin to develop a working definition of CSR by thinking about its dual objectives—benefiting business and society—and the range of potential benefits in each case (Exhibit 1).
Many businesses pursue CSR activities that can best be termed pet projects, as they reflect the personal interests of individual senior executives. While these activities may be presented with much noise and fanfare, they usually offer minimal benefits to either business or society. In the middle are efforts that can make both sides feel good but that generate limited and often one-sided benefits. With philanthropy, for example, corporate donations confer the majority of benefits on society (with potential but often questionable reputational benefits to the business). Similarly, in what’s best referred to as propaganda, CSR activities are focused primarily on building a company’s reputation with little real benefit to society. Some cynics suggest that this form of CSR is at best a form of advertising—and potentially dangerous if it exposes a gap between the company’s words and actions.
None of these approaches realize the opportunities for significant shared value creation that have been achieved through smart partnering. In such ventures, the focus of the business moves beyond avoiding risks or enhancing reputation and toward improving its core value creation ability by addressing major strategic issues or challenges. For society, the focus shifts from maintaining minimum standards or seeking funding to improving employment, the overall quality of life, and living standards. The key is for each party to tap into the resources and expertise of the other, finding creative solutions to critical social and businesses challenges.
So how does this work? The examples in the two accompanying sidebars (see “Addressing rural distribution challenges in India” and “Ensuring sustainable supplies of critical raw materials”) illustrate smart partnering initiatives at Unilever. Both address long-term strategic challenges facing the company and help to build creative partnerships that accrue significant benefits to both sides.
Initial questions for any leader should be, “Where have you focused CSR activities in the past?” and, more important, “Where should you focus them for the future?” All organizations have to balance limited resources and effort, so the challenge is how best to deploy yours to maximize the benefits to your business (and your shareholders and stakeholders), as well as to society. Start by mapping your current portfolio of CSR initiatives on the framework shown in Exhibit 1 and ask: What are the objectives of our current initiatives? What benefits are being created, and who realizes these? Which of these initiatives helps us to address our key strategic challenges and opportunities?
Focusing CSR choices: Guiding principles
Companies are likely to have activities scattered across the map, but that’s not where they have to stay—nor is it how the benefits of CSR are maximized. Many companies start with pet projects, philanthropy, or propaganda because these activities are quick and easy to decide on and implement. The question is how to move toward CSR strategies that focus on truly cocreating value for the business and society. The accompanying examples suggest three principles for moving toward this goal.
- Concentrate your CSR efforts. Management time and resources are limited, so the greatest opportunities will come from areas where the business significantly interacts with—and thus can have the greatest impact on—society. These are areas where the business not only can gain a deeper understanding of the mutual dependencies but also in which the highest potential for mutual benefit exists.
- Build a deep understanding of the benefits. Even after selecting your chosen areas of opportunity, finding the potential for mutual value creation is not always straightforward. The key is finding symmetry between the two sides and being open enough to understand issues both from a business and a societal perspective.
- Find the right partners. These will be those that benefit from your core business activities and capabilities—and that you can benefit from in turn. Partnering is difficult, but when both sides see win–win potential there is greater motivation to realize the substantial benefits. Relationships—particularly long-term ones that are built on a realistic understanding of the true strengths on both sides—have a greater opportunity of being successful and sustainable.
Applying these principles to choosing the appropriate CSR opportunities prompts additional questions—namely: What are the one or two critical areas in our business where we interface with and have an impact on society and where significant opportunities exist for both sides if we can creatively adjust the relationship? What are the core long-term needs for us and for society that can be addressed as a result? What resources or capabilities do we need, and what do we have to offer in realizing the opportunities?
Building the business case
In smart partnering, mutual benefit is not only a reasonable objective, it is also required to ensure long-term success. But this commitment must be grounded in value-creation potential, just like any other strategic initiative. Each is an investment that should be evaluated with the same rigor in prioritization, planning, resourcing, and monitoring.
Now you need to define the array of potential benefits for both the business and for society. This will not always be easy, but a clear business case and story is important if you are to get the company, its shareholders, and its stakeholders on board.
You can assess the benefits across the following three dimensions:
- Time frame. Be clear on both the short-term immediate objectives and the long-term benefits. In smart partnering, the time frame is important, as initiatives can be complex and take time to realize their full potential.
- Nature of benefits. Some benefits will be tangible, such as revenue from gaining access to a new market. Others will be equally significant, but intangible, such as developing a new capability or enhancing employee morale.
- Benefit split. Be clear about how benefits are to be shared between the business and society. If they are one-sided, be careful you are not moving into the philanthropy or propaganda arena. Remember that if the aim is to create more value from partnering than you could do apart, then benefits must be shared appropriately.
Exhibit 2 outlines two contrasting benefit arrays for the Unilever examples discussed in the accompanying sidebars. With Project Shakti, the short-term tangible benefits are extremely clear and powerful, while in the case of Kericho the long-term intangible benefits are strategically critical for both the business and the communities in which it operates. Remember that it is not essential to have benefits in every section of the matrix. However, if you are struggling with any of the dimensions—for example, there are no long-term or tangible benefits or if most of the benefits are one-sided—go back and ask if this is a real partnering opportunity where significant mutual value creation is possible.
As you develop a clear array of benefits, a business case, and a story to communicate to all stakeholders, ask: Do we have a clear understanding of the entire array of benefits and the associated business case, on which we can focus, assess, and manage the potential CSR activity? Does the activity focus on fundamental value creation opportunities where we can really partner with society to realize simultaneous benefits? Are the opportunities significant, scalable, and supportive of our overall strategic priorities?
Implementing CSR with consistency and determination
Partnering, as we all know, can be challenging. It requires planning and hard work to assess potential mutual benefits, establish trust, and build and manage the activities, internally as well as externally. But is it worth it? Companies at the forefront of such partnering suggest the answer is a resounding yes, but an additional two principles need to be followed to ensure success:
Go in with a long-term commitment. Having a positive impact on societal issues such as living standards is not a “quick fix” project. Leaders who want to partner therefore need to have a long-term mind-set backed up by solid promises and measurable commitments and actions. Your initiative must demonstrate added value to both shareholders and stakeholders over time.
Engage the entire workforce and lead by example. Your workforce can be one of your greatest assets and beneficiaries when it comes to CSR activities. Increasingly, employees are choosing to work for organizations whose values resonate with their own. Attracting and retaining talent will be a growing challenge in the future, so activities that build on core values and inspire employees are key. Unilever, along with other leaders in smart partnering, actively engages its employees in such initiatives, seeing improved motivation, loyalty, and ability to attract and retain talent as a result. Engaging the workforce starts at the top. Leaders must be prepared to make a personal commitment if the activities are to realize their full potential.
This is the tough bit of the process: taking action, rather than speaking about it, and keeping up the momentum even when targets are far in the future. As you plan the implementation of your chosen initiatives and follow through, ask: Can we build the commitment we need across the organization to make this happen—and are we as leaders willing to lead by example? Have we planned effectively to ensure that implementation is successful, with resources, milestones, measurement, and accountability? How can we manage the initiative, focusing on the total array of benefits sought, not just the short-term financials?
What’s a leader to do?
When it comes to CSR, there are no easy answers on what to do or how to do it. A company’s interactions and interdependencies with society are many and complex. However, it is clear that approaching CSR as a feel-good or quick-fix exercise runs the risk of missing huge opportunities for both the business and society. Taking a step-by-step approach and following the principles outlined here offers leaders a way to identify and drive mutual value creation. But it will demand a shift in mind-set: the smart partnering view is that CSR is about doing good business and creatively addressing significant issues that face business and society, not simply feeling good. And smart partnering is not for the faint of heart. It requires greater focus, work, and long-term commitment than do many standard CSR pet projects, philanthropic activities, and propaganda campaigns, but the rewards are potentially much greater for both sides.
Continuing the conversation—Authors’ response to reader comments
In January 2010, the authors reviewed our readers’ comments on their original article and weighed in on the conversation with new insights and suggestions.
Many thanks to those who read and considered the ideas in our article “Making the most of corporate social responsibility”—and particularly to those who shared their thoughts and experiences on smart partnering. As many rightly pointed out, there has been a groundswell of interest in CSR, as well as a growing number of powerful examples of smart partnering. This momentum reflects an improved understanding of the potential benefits to companies and the increasing maturity of social organizations. Both see the potential for mutually creating value.
Our aim was to advance the debate on how to make CSR an integral part of core strategic thinking rather than a feel-good add-on to it. Where should we take this conversation? Many of the responses came from academics or from executives responsible for CSR activities in their firms. While this is natural, it raises the question of how best to engage (or help these executives to engage) senior business leaders who make strategic choices and set the direction of companies—particularly the next generation of leaders, who face more pressing global and societal issues than ever before.
Our work, that of others in this field, and the input of McKinsey Quarterly readers suggest that there are three basic challenges to making smart partnering a strategic imperative and opportunity for companies. They also suggest ways to overcome those challenges.
1. Get CSR on the strategy table
For CSR to achieve its potential, it must focus on key areas of interaction between a firm and its environment and address value creation activities at the center of the strategic agenda. The challenge is to get innovative CSR thinking on the table when business strategies are being explored and decided. How can we make CSR approaches an integral part of the strategic toolbox for business unit leaders?
First, the potential benefits of CSR, notably smart partnering, need to be demonstrated in practice if mainstream senior business leaders are to recognize the significant opportunities it offers. That is why sharing your and our examples is so important. Next, key CSR executives must be part of core strategy processes. Ultimately, CSR must cease to be a separate function and become part of the skill set of all business leaders as an innovative way to solve critical problems.
2. Stretch your strategic ambition for CSR
Several readers spoke of favorably received CSR activities within their organizations in the realms of philanthropy and partnering. As we suggested, the starting point in any CSR strategy should be to outline the CSR activities a company already undertakes and to be clear on their intent and fit within the overall portfolio. Where CSR activities are primarily philanthropic in nature, they can create a strong base for building a company’s reputation and engaging employees. Philanthropy also has other obvious advantages: it is relatively easy to undertake, can often be set off against tax, and requires less effort and commitment across the organization.
The questions with this approach are: What benefits are being left on the table, both for society and the business? What opportunities are being missed? The challenge is to stretch strategic ambitions for CSR and to move actively toward smart partnering, where the biggest opportunities are to be found. Stretching means going beyond common practice. While it is extremely encouraging to see a growing recognition of the benefits of CSR for building employee engagement, this is only the tip of the iceberg. In the examples we described, the benefits matrices set out much broader ambitions and arrays of benefits (short and long term, tangible and intangible) for both society and core business strategies. How can you stretch your company’s ambitions in a similar way? Whom do you need to involve, particularly among mainstream business leaders, to gain new perspectives and challenge conventional wisdom?
3. Reinforce your core values, internally and externally
When corporate visions and strategies are described, there is often a reference to core values, which shape individual behavior and expectations about how we work and interact together. But we often limit discussions about values to internal behavior and actions. As several readers noted, shouldn’t senior executives also be held accountable for how companies live core values in their interactions with all stakeholders?
Businesses have an impact on societies, and vice versa, so there is a need to recognize the mutual responsibilities that this entails. Within societies, trust in businesses is low, public scrutiny of firms is constant, customer choice criteria include the reputations and values of suppliers, and the next generation of leaders will choose employers whose values match their own. For businesses, one potential challenge is whether the way they operate externally—not just internally—will ultimately have an impact on their “license to operate.” Many companies that approach CSR strategically recognize this symbiosis and build on strong values, living them internally and externally.
Clearly, we do not advocate smart-partnering initiatives solely because they reinforce a company’s core values; this is heading into the realm of propaganda. But as you consider the benefits of a potential initiative, do explicitly consider its impact on your corporate values. If you cannot see a direct link to them, think about how you could create one—for example, reinforcing values through employee involvement or building additional external relationships based on the initiative.
What’s your next step? First, engage with key senior business leaders to identify two or three critical interactions with society. Then for each, map out what you have to offer in capabilities, knowledge, resources, relationships, and so on that would make a difference in addressing the challenges you have identified, both for your business and society. Consider what ideal partners could offer to complement the things you bring to these challenges. For the Unilever–Kericho example in our original article, a critical interaction with society involved raw materials (in particular, tea). Mapping the possible complementary strengths of a partnership could produce a kind of balance sheet.
Use the balance sheets you have developed as a starting point in identifying issues and discussing them with key internal stakeholders and potential external partners. In a world of burgeoning technology, we may even one day see some type of CSR “dating agency” where potential partners could share their balance sheets. As discussions progress, a balance sheet can also help you and your partners construct the benefits array and business case for your smart-partnering initiative.
In this sort of process, experienced CSR executives can really start to move CSR onto the strategic agenda by engaging executives on real business challenges. That means helping these executives to identify the opportunities, share concrete examples, think more broadly about solutions, and move forward.
Smart partnering is good business. Our readers’ experiences and ideas confirm that momentum is building toward a time when CSR will be absorbed into core strategy and business activities rather than treated as an orphan in need of a special label. With your help, this momentum will build. Share your experiences, shape your activity portfolios, develop your balance sheets and benefits matrices, and challenge the business community to keep changing mind-sets for the better.