7 steps to developing a profitable CSR strategy
7 steps to developing a profitable CSR strategy
Asking if there is business value to a corporate responsibility or sustainability strategy is the wrong question. No one would ask if marketing strategy has business value; sometimes it does, sometimes it doesn’t, depending on its quality. The more relevant question is: What does your company need to do to ensure its CR strategy creates business value? That's tougher to answer for CR because compared to marketing, CR is new and people have a poorer understanding of the issues.
Our 15 years’ experience working in three multinationals have suggested how to develop a profitable CR strategy. We believe these lessons are broadly applicable and would help any company think clearly about CR and how to make it a contributing part of the business. In this article we discuss some of the keystones; the full framework can be read here.
1. Insist on profitability. Top management should require a focus on business value, not philanthropy, NGO management, or cause marketing. A company needs to think carefully about how CR can save or make money for its business, meet the challenge of a specific societal need, and create shared value by acting in its own best interests.
Companies struggle with “intangibles,” and the traditional business case is often short-sighted and poorly applied to issues such as CR. Regardless of the technical flaws of financial analysis, the effort should be profitable in the judgment of senior leadership. The guiding principle is that a good corporate responsibility strategy is about how to make money, not give it away.
Following this logic will allow companies to do far more social good than a traditional approach.
2. Link to the company’s core purpose. The core purpose of the enterprise is the beacon for finding a valuable CR strategy. As Drucker showed many years ago, successful companies have a reason-for-being beyond making money-- and the strategy must connect to it.
Autodesk created a database of sustainable building materials and incorporated it in their products. It’s such a simple way to have a great impact -- by putting sustainable choices at the fingertips of everyone who buys their software. Cisco uses virtualization for meetings traditionally held face-to-face, lowering the cost and carbon footprint of doing business. The travel industry now has a competitor they never expected.
IBM’s Smarter Planet program uses technology to control energy use and waste. Georgia-Pacific helps its customers “Reduce, Reuse and Recycle.” Whole Foods weaves a strong consistent story in its product, employment, and community efforts, apt for its brand promise. These companies vary on the “green” spectrum but all their CR efforts tie to their product and core business.
A cynic might say these are no more than marketing ploys. Our response: If a company makes money from good citizenship, it will be a better citizen. By doing what they do best to meet society’s needs each of these companies create shared value for their business and society.
The most important lesson of our experience is that sustainability is not a substitute for having a great product. The path to winning is to have a great product that integrates sustainability.
Customers are not willing to tradeoff the main promise of a product; they expect a great product that is sustainable. An effective sustainability strategy integrates the customer, society and the business; it does not compromise them. Companies that adopt popular causes are making safe choices, but ones with limited business value.
3. Understand customers. Companies either do not understand the diversity among customers or let their own biases draw a picture of their customers that may not be accurate. The debate on the value is polarized and takes the focus off the important question: Who cares and how much?
Below is the segmentation from the Yale/George Mason Six Americas Study, which analyzes Americans' interpretations of and responses to climate change. We have seen two other proprietary segmentations from leading research houses with shockingly similar results, especially as they had different samples and different purposes. This gives confidence in these findings.
The implications are profound:
- The 10 to 15 percent who are Alarmed will actively turn those concerns into market behaviors. (The proprietary results showed 20-25 percent make up this segment.)
- The 52 percent who are Concerned and Cautious care, but time and/or money stand in the way of acting. These people want sustainability, but it needs to be free and easy.
- The 25 percent who are Disengaged and Doubtful do not care or are unsure.
- The Dismissive 10 percent are actively hostile. They hate the issue of global warming but do care about other issues (see below).
A company needs to know who its customers are, how they fall on this spectrum and how these numbers will change over the life of their products. The Alarmed, Concerned and Cautious dropped from 70 percent in 2008 to 64 percent today. With economic recovery and environmental catastrophes, the number caring and acting will likely grow.
The chemical industry has been experimenting with environmentally friendly polyethylene made from sugar cane instead of oil and gas. The chemical properties are the same but the price is 10 to 20 percent higher. A high-volume commodity chemical made from green feedstock at price parity or price discount would be a tremendous win, appealing to all. However, if an industrial customer must pay more for a commodity that is “greener” but not better otherwise, then its end customers must be willing to pay more for the final product. The success depends how many of the end customers are Alarmed.
4. Focus on the right issues. Corporate responsibility and sustainability apply to a wide range of issues. The table below, from proprietary research, shows the relevance of 20 CR issues to the equivalent of the Concerned and Cautious.
The environmental and energy issues are more relevant than those associated with local economic opportunity. Note how low charity falls on the list, yet this is where most companies focus their CR efforts.
Energy and the environment encompass many issues. The table below shows the relevance of these issues to each segment.
5. Everyone finds energy costs, fuel prices, and energy independence personally relevant. The debate over global warming has obscured the importance of sustainability and environmental issues by taking attention away from issues that matter to everyone.
6. Use the organization properly. The CEO needs to support the search for value, reinforce the principle that CR strategy should be effective and profitable, and protect it in its early stages.
Once CR leaves the traditional safety of philanthropy and NGO management, it has no natural home. It cuts across the silos of marketing, finance, public policy, purchasing, legal and communications, so it needs air cover. Because sustainability threatens existing budgets, there will be attempts to kill the effort as it is being born. Besides, the middle layers who control budgets seem disproportionately Dismissive and need to be kept at bay.
7. Other benefits. A good CR strategy helps employee engagement, innovation, and collaboration. But the most important other benefit is CR turns people’s opinion of companies from a “Them” to an “Us.” People think of Exxon as Them. BP thought it could use sustainability to become an Us but the company's hypocrisy and errors have turned it back into Them -- a cautionary tale against faking it. Ben & Jerry’s is an Us, GE and IBM are back to being Us. Being an Us means citizens are comfortable with the idea of successful businesses.
When companies are seen to understand “we rise and fall together,” it shows they care and can be trusted.
Photo of currency graph topped with trees provided by Rufous via Shutterstock.