By Eric Santosa [1]
Corporate Social Responsibility (CSR) has become a buzz among corporations in Indonesia. This is particularly the case after Indonesian Government issued a new private company law on July 20, 2007 which makes CSR an obligatory for all private company operating in Indonesia. External pressures to conduct business practices in socially more responsible manner have put corporations in awkward situation where their roles in society become topic of debates [2]. In the dominant free market ideology [3], profit is the only bottom-line that underlies majority of corporation activities.
Such external pressures may mean that corporations are required to take the roles they are not equipped for, that is, to adopt, as John Elkington [4] has put it, the triple bottom-lines that include not only economic prosperity (profit) but environmental quality (planet) and social justice (people) as well. In such situation it is understandable that CSR are more often seen as a burden that impedes the company’s growth.
In international community the situation is very much similar. Pressures from international media, international NGOs, United Nation agencies and governments of developed countries demand that multi national corporations be held responsible for negative impacts of their business operations.
For example, the year 1990s had witnessed consumer boycotts of Royal Dutch Shell products that sparked as a response to its decision to sink the Brent Spar oil storage platform in the North Sea. The boycott had caused drops of up to 40% in sales in Germany alone. In the same decade Shell was criticized and held responsible for the hanging of activist Ken Saro-wiwa who was protesting against environmental damage caused by oil extraction and the Nigerian government’s failure to return oil revenue for community development. These and other simillar cases have posed international corporation with the fact that they could not deny the cost of neglecting environmental and social issues. From society’s point of view corporations are seen as culprits that should be monitored.
There is a growing consensus in international communities that corporate social initiatives is important for preventing corporations from future liabilities, and that the impact of business practices on environment and society should be monitored. The UN supports such initiatives through the foundation of the UN Global Compact Network that encourages businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation.
The consensus goes further to see CSR initiatives not only as prevention from liabilities. As Kotler & Lee [5] (2005) have observed, many corporations have smartly integrated CSR initiatives with their business strategy. DuPont for example has saved over $2 billion from reductions in energy use since 1990. McDonald’s has reduced its solid waste by 30% through using recycled materials for wrapping its foods. Such smart decisions have positioned the corporations not only in a better competitive advantage, but also in a good reputation as environmentally friendly corporations.
Kotler & Lee have identified four challenges for corporations to integrate CSR initiatives with business strategy: 1) Choosing a social issue deemed relevant for the business, 2) selecting initiatives or building a strategy to meet the issue, 3) Developing and implementing programs; and 4) Evaluating the impact on business and society.
These integrations of CSR initiatives into business strategy have been supported by innovative ideas from thinkers at universities. Michael Porter from Harvard Business School [6] in Boston in collaboration with Mark Kramer from Harvard Kennedy School of Government in Cambridge (Porter & Kramer, 2006) for example have proposed using value chain analysis [7] to integrate CSR initiatives and business strategy.
One of the main challenge for business leaders is to determine which social-environmental issues deemed relevant to integrate with business strategy. Porter’s value chain analysis helps business leaders to identify the relevant social issues through inside-out and outside-in linkages between business and society. The inside-out analysis starts with analysing value chain inside the corporation activities and proceeds with identifying possible impact of each internal activity on external practices in society. Thus for example, the supporting activities of technology development may have impacts on relationships with universities, ethical research practices, or recycling and conservation of raw materials. The outside-in analysis starts with identifying factors in society that may affect the corporation competitiveness. Porter & Kramer identify four main factors: 1) input factor conditions, such as human resources, administrative infrastructure, technology etc., 2) local rules that govern competition, 3) the nature and sophistication of local customers needs, and 4) related supporting industries.
Thus far, assuming relevant issues have been identified corporations are still left with the challenge of how to build effective and socially responsible business strategy and, how to evaluate its impact for the society. Porter [8] asserts that the essence of the strategy is choosing to perform activities differently than rivals do. Competitive strategy is about being different from rivals and yet at the same time relevant for segments of society that becomes the target. It means deliberately choosing a different set of activities to deliver a unique and relevant mix of values.
In line with this, socially responsible business strategy would consist of set of activities that are socially acceptable, that delivers a unique mix of values deemed relevant, and that contributes to the development of the society. Such strategy would increase the likelihood of sustainable competitive advantage of a corporation. What is crucial to meet this challenge is the understanding of current socio-cultural and economic practices in the society.
To meet the challenge a more integrated framework on social development and business operations in society is needed. This need is particularly pressing for developing countries like Indonesia which is marked by the diversity of traditional local cultures.
The existing mode of production, distribution of goods and consumption practices may be highly different from one local culture to another. There are big civilization gaps for example between big cities like Jakarta or Surabaya on the one hand, and Papua or Nusa Tenggara Timur on the other hand. New York and Jakarta may be culturally very much closer than Papua and Jakarta. Ignoring the existing mode of cultural economic practices would result in negative impact on society and impeding business growth in countries like Indonesia.
Cultural value chain analysis of society
The difference between the two framework concerns the levels of unit of analysis. Porter’s unit of analysis is at the institutional level of corporation. Value chain analysis is conducted at this level by breaking down the institutions into network of activities.
Similar mode of analysis can be done at sectoral level, for example, of agriculture industry. At this level the analysis is conducted by breaking down the industry into network of institutions. Still higher up the levels, we can start the analysis at the societal level. This societal level would consist not only of economic activity systems but also another activity systems that make up the totality of society, such as families, education, media, government, and religious activities.
The levels of unit of analysis is an analytical tools that enable us zooming in and out to observe a society through a macro-microscopic lens. Figure 1 illustrates the levels of analysis. In this context, we may conceive of Porter’s inside-out linkage as analysis that starts from lower level up, while the outside-in linkage starts from higher level down.
Society consists of network of activity systems that deliver values relevant for members of the society. Engestrom (1987) describes activity system as a complex system that consists of production, distribution, exchange and consumption activities involving human actors and their communities (see figure 2. Engestrom’s Activity System).
The socio-cultural position of community members can be analyzed using this activity system to identify the task culturally assigned to them (div. of labor), the rules that allow or prevent them from doing certain activities (rules), and cultural instruments they are skillful at using.
Engestrom’s activity system can be used for analysing not only economic activities. Family for example is an activity system whose Gegenstand is caring for its members (father, mother, sons and daughters). From economic point of view, family activities can also be seen as consumption activity systems.
At the societal level, a society can be described as consisting of four interconnected core activity systems: production, market (distribution-exchange), domestic (consumption), and leisure (surplus) activities.
Production is an activity system that produces goods and services that have use values. Market activity system then determines their exchange values/ prices and helps distributing them to relevant consumers. Domestic and leisure are activity systems where they are consumed. Domestic activity systems are where social-emotional values are produced. It is about caring and grooming people to be civilized members of society. Leisure is any activity conducted when people have surplus of time and/ or money. Creative leisure activity is where creativity, innovation and intelectual values are produced. It is an early sign of the growth of a society where surplus of time and money are invested into advancement of knowledge, technological innovations and arts. In return the advancement of knowledge and technological innovation would drive development of production activities to become more effective, efficient and of higher quality.
In a more complex and advance society we can find peripheral/ supporting activity systems separated from but yet connected to core activity systems. Each peripheral activity system can be seen as a differentiation or an extension of one or two core activity systems. For example, primary and secondary school activity systems can be seen as an extension of family/ domestic activity; higher education, an extension of both production and creative leisure activity systems; financial institutions, an extension of both exchange and surplus activity systems.
When a corporation would like to set up its operation in a given society, the question is how big is the cultural gap between the corporation and the society. If the cultural gap between a corporation and the society is too big and no good social change strategy is put in place then the business operation would result in negative impact or even in social unrest.
This is the case, for example, of Freeport operations in Papua. Before new order era, mode of production of communities in Papua were still of hunter-gatherer mode. Then a highly advance corporation like Freeport came to exploit natural resources there while ignoring the negative impact on environment and the existing social-cultural practices of Papuan people.
The disastrous complex problems that results are still felt even today [11]. The hostility towards Freeport will never disappear only by conducting charitable deeds for Papuan people.
Freeport would be an extreme example where the problems are very difficult involving big gaps of civilizations. Mining companies would likely face similar problems with Freeport. Other sectors outside mining may not face such problems. The scale of the problem would be determined by how big is the cultural gap between the corporation and the society.
Lessons learned from this case is that it is important to do research to understand current socio-cultural and economic practices of the society in which a corporation would like to operate; and to devise a good strategy for both business and social development.
Bottom line for a good strategy in this case is to establish a set of activities that take into account current socio-cultural economic practices, involve local people, and that introduce a little more advance form of activity systems.
This strategy must be contrasted to corporate charitable deeds like donations or in-kind contributions for members of the society. Charitable deeds do not necessarily introduce more advance form of activity system.
The corporation must have a set of activities in which donations or in-kind contributions may be used for advancing the current economic practices of the society. For example, suppose a corporation has decided to improve the quality of local human resources by advancing the form of education activities in the local society. To implement this, it is not enough to make donations for young people to go to school. It is also not enough to deliver in-kind contributions like school buildings, books or computers.
The strategy must start from analysis of the meaning of education for the society; what, how and why is it or is it not important for them; and how is it related to current mode of economic activities. For example, in many people living in poverty general education for young chilren means absence of cheap labor. The parents then would prefer their children working rather than going to school, even when it’s for free.
To sum up, Porter’s value chain analysis of corporation is useful for identifying key social issues deemed relevant for the corporations. However, a framework for working out good integrated social change and business strategy is still lacking. The cultural activity-based value chain analysis of society is proposed to help corporations working out good strategy for achieving sustainable growth of both business and society.
Footnotes
[1]The author is a market ethnographer, strategic planner, and brand consultant; He teaches Cultural Psychology, Social Change Management, and Qualitative Research Method at Atma Jaya Catholic University; He is also the founder of PT Bina Bisnis Lestari; Contact: eric.santosa@gmail.com or eric@omahsimbok.com
[2] For understanding the map of debates about CSR, see: May, S., et all. (Eds.) (2007). Debates over Corporate Social Responsibility. NY: Oxford University Press.
[3] This ideology was best exemplified by the title of Milton Friedman’s article in The New York Times Magazine, September 13, 1970: The Social Responsibility of Business is to Increase its Profits.
[4] See: Elkington, J. (1997). Cannibals with Forks: the Triple Bottom Line of 21st Century Business. Oxford, UK: Capstone Publishing Limited.
[5] Kotler & Lee (2005). Corporate Social Responsibility: Doing the most good for your company and your cause. New Jersey: John Wiley & Sons, Inc.
[6] Porter & Kramer (2006). Strategy and Society: the link between competitive advantage and corporate social responsibility. In Harvard Business Review, December 2006.
[7] Details of Porter’s value chain analysis can be found in Michael Porter’s book: competitive advantage: creating and sustaining superior performance, 1985.
[8] Porter (1996). What is Strategy? In Harvard Business Review, Nov-Dec 1996.
[9] The framework initially is developed in psychology based on Leontiev’s (1981) Cultural Historical Activity Theory and Engestrom’s (1987) activity system for analyzing human activity. Santosa (2007, 2009) develops the framework for analyzing market and economic activities.
[10] See Porter, 1996, p. 71
[11] Harian Kompas on Wednesday, July 15 2009 page 1 reported the shootings of Freeport workers at Timika, one of which an Australian citizen Drew Nicholas Grant.
Suggested readings
Elkington, J. (1997). Cannibals with Forks: the Triple Bottom Line of 21st Century Business. Oxford, UK: Capstone Publishing Limited.
Engeström, Y. (1987). Learning by expanding: an Activity Theoretical Approach to Developmental Research. Helsinki, Finland: Orienta-Konsultit Oy.
Friedman, M. (1970). The Social Responsibility of Business is to Increase its Profits. In The New York Times Magazine, September 13, 1970.
Kotler, P. & Lee (2005). Corporate Social Responsibility: Doing the most good for your company and your cause. New Jersey: John Wiley & Sons, Inc.
Leont'ev, A. N. (1981). The problem of activity in psychology. In James V. Wertsch (Ed.) The Concept of Activity in Soviet Psychology. New York: M.E. Sharpe Inc.
May, S., Cheney, & Roper, Eds. (2007). Debates over Corporate Social Responsibility. NY: Oxford University Press.
Porter, M. (1985). Competitive advantage: creating and sustaining superior performance. New York: The Free Press.
Porter, M. (1996). What is Strategy? In Harvard Business Review, Nov-Dec 1996.
Porter, M. & Kramer (2006). Strategy and Society: the link between competitive advantage and corporate social responsibility. In Harvard Business Review, December 2006.
Santosa, E. (2007). Contribution of Russian Activity Theory to Psychology in Indonesia. Jurnal Psikologi Sosial. Vol. 13, no. 3, p. 235-245.
Santosa, E. (2009). Activity theory: a later development of Vygotsky’s psychology. Unpublished paper.
About the author
For more than 10 years now, Eric spends most of his time living in two worlds: the academia and industry. He teaches Quantitative and Qualitative as Research Methodologies, Cultural Psychology, and Cultural Change Strategy, among others, at a renowned university in Jakarta.
He is also a freelance consultant in the capacity of a research technical advisor, strategic planner and brand consultant. He has worked with clients from various industries – mostly consumer goods, media that includes the internet, television and print; microfinance, mobile services.
His passion lies in exploring how products, brands and archetypal narratives may become meaningful for certain communities or segments of society. And Eric has a solid experience in doing this in both qualitative as well as quantitative research.
He can be reached at eric@omahsimbok.com or eric.santosa@gmail.com
No comments:
Post a Comment