August 6, 2010Doug Hadden
Many observers see the British Petroleum (BP) oil spill as a seminal moment in Corporate Social Responsibility (CSR). Chrystia Freeland in the Washington Post has gone so far as to suggest that CSR has finally been exposed as the “fetish encouraged by the philanthropies that feed off it and funded by the corporate executives who have found that it serves their bottom line.” Beyond Petroleum, the BP CSR campaign tag line went well beyond. There seems to be no top kill to stop the big blog spill. The CSR blog reaction firestorm has been illuminating. Many observers have presented some thoughtful analysis of what the gulf spill means to CSR. (More on that later.)
CSR is a relatively new concept. It is fraught with confusion because many observers can’t visualize how being corporately responsible can be anything but expensive (and pretentious). Others, see it as a marketing ploy by greedy business. Or a misguided hippie 1960s flashback. Or Scrooge-type guilt. Or the latest business fad.
I’d like to suggest a framework to visualize the evolution of CSR.
Stage 1: The Business of Business is Business
(Follows Milton Friedman’s famous viewpoint).
- Realization: Business leaders recognize the Profit is required to sustain business.
- CSR POV: CSR is a cost and serves no useful purpose to increase profitability and does not add to shareholder value.
- CSR Risk: Government regulation means the business must be in “compliance”.
- CSR Threat: There is risk that competitors that practice CSR may gain competitive advantage.
- CSR Opportunity: Fake Social Responsibility marketing efforts.
Step 2: Business Embraces CSR
- Realization: People and Planet sustainability is required to sustain Profit in the business. Exploiting the environment will result in loss of necessary resources for the business. Exploiting people will result in less customers.
- CSR POV: CSR increases profitability because it grows the supply chain and ensures enough customers.
- CSR Risk: The holistic view of environmental and social sustainability leading to sustainable business is difficult to measure. Business needs to improve outcome measurements.
- CSR Threat: CSR arms race develops. Large enterprises can leverage high profits for philanthropy. On the other hand, marketing noise can make it difficult for buyers to know the difference between real and fake CSR.
- CSR Opportunity: People prefer to buy from ethical businesses.
Step 3: For Profit Social Enterprise (FOPSE)
- Realization: Profit drives innovation
- CSR POV: Profit can be a more effective feedback loop for success in solving social or environmental issues. FOPSE may be more effective than the non-profit model for solving some issues.
- CSR Risk: FOPSE requires questioning traditional business models. (In this case, BP must not only be “beyond petroleum” but petroleum free.) FOPSE companies compete against mainstream organizations with well-understood value propositions.
- CSR Threat: FOPSEs tend to be smaller businesses competing against very large companies. Those larger companies, especially those with real CSR initiatives, can out market FOPSEs.
- CSR Opportunity: FOPSE is disruptive and can create sustainable competitive advantage.
FreeBalance FOPSE Experience
FreeBalance is a For Profit Social Enterprise (FOPSE) software company that helps governments around the world to leverage robust Government Resource Planning (GRP) technology to accelerate country growth. Our mission is governance because good governance is required for economic development. We’ve published a guide on how to become a FOPSE. Here’s our experience to date:
The CSR exercise helped FreeBalance to change the traditional business model used by software companies.
The customer-centric approach needed as a FOPSE has helped FreeBalance grow significantly while competitors have stagnant results.
The FOPSE approach has been very successful to differentiate FreeBalance globally.
CSR is positively related to profit.