Tuesday, May 5, 2020
Corporate Social Responsibility and Financial Performance
Question: Discuss about the Corporate Social Responsibility and Financial Performance. Answer: Introduction A common saying has it that The secret to enjoying a fruit is in sharing it with others. Nowhere more than in the current business environment does this saying resonate. Consumers are becoming increasingly concerned about the operations of the companies they purchase products from and the impact they have on the society (Crane 2008). This report aims to explore Corporate Social Responsibility. What is it? And why are companies increasingly adopting the same? It will also unveil two strategies. First, the diversification strategy, second the integration one, and examples of companies embracing these strategies. Corporate Social Responsibility (CSR) According to Caramela (2016), CSR implies those practices over and above the business operations of a firm, which are meant to benefit the community where the company operates. These activities range from environmental initiatives, green energy efforts, equal employment opportunity, volunteering to a worthy society cause, and philanthropic activities (Smith 2012). Crane (2008) observes that there have been controversies surrounding CSR. On one hand, some companies claim that it is not their core mandate and that it diverts them from their primary objective, to maximize shareholder wealth. To these companies, CSR is nothing more than A window dressing affair. On the other hand there are other firms that have entrenched CSR into their strategies. McWilliams and Siegel (2000) infer that CSR became popular in the late 90s when governments, civil society groups, customers, and suppliers urged firms to give back to the society where they operated. Today many customers and suppliers are choosing to do business with companies adhering to CSR to the detriment of those averse to it. Firms can therefore capture more market share by adopting CSR. Customers are choosing to get behind companies for what they stand for, even more than what they produce (Smith 2012). Examples of companies that exalt CSR include Google with their green energy initiative and Microsoft for their philanthropic efforts (Dill 2014). In Australia firms are recognized for CSR mainly based on their drive for innovation and building relationships with their stakeholders. Based on these criteria, the firms popular with CSR are Arup, NAB and Westpac, Telstrar, and BHP Billiton among others (Smerdon 2015). Diversification Strategy Among the four growth strategies suggested by the Ansoff Matrix, diversification features prominently. The strategy involves a firm developing completely new products in an entirely new market. The primary aim of this strategy is to protect the firm from an economic shock from an unfavorable business event such as increased competitive rivalry or substitute products. The firm usually has another product in another market segment (Robbins et al. 2015). There are three ways of diversification growth strategy. To begin with, is horizontal diversification that involves introduction of new products into an existing market. For instance, a telecommunication firm offering only voice calls may consider offering data packages to the existing customers. This is an expensive move as it involves researching the market and training new staff to handle the new business. Then there is concentric diversification which involves a company adding new but related products to an already existing line of products in a new market. An example a fish manufacturing firm may decide to produce cooking oil for a new market (Dat-Shappard 2013). Lastly, there is conglomerate diversification, which involves a firm adding new products or services to a completely unrelated product line. It may involve acquisitions of viable businesses. An online shop may for example, decide to acquire a money transfer company so as to aid it in selling its products to customers more securely(Suttle 2016). Examples of companies pursuing diversification strategy include Sirtex Medical a firm that deals with medical equipments to fight cancer. It has presence in America, Europe and Asia. The firm was originally manufacturing medical devices and equipment but diversified into medicine and distribution to capitalize on the market. Ainsworth Game Technology is another company pursuing diversification. It is present in many countries in Europe, Asia and Pacific where it manufactures gaming machines. However due to a large market in casinos, the company is now producing electronic gambling equipment (Dat-Shappard 2013). Integration Strategy Where a business is facing threat of increasing bargaining power of the suppliers and buyers, it may consider the integration growth strategy. There are two forms of integration strategy; vertical integration and horizontal integration (Robbins et al. 2015). A firm may choose to grow through vertical integration in two ways. To start with, it may choose vertical backward integration. In this strategy, the firm chooses to control its supplies where the suppliers have acquired intense bargaining power. An example is where a fish manufacturing company chooses to rear their own fish to get rid of suppliers. Going on, the same firm may choose vertical forward integration where the distributors are threatening its business. An example would be the firm opening its online store to get rid of wholesalers and retailers (Nieuwenhuizen, Rossouw and Badenhorst 2008). In horizontal integration, a firm chooses growth by combining its operations with those of another company in related business. This works especially where two competitors combine. This way, the company is better positioned to fight off competitors due to economies of scale (Robbins et al. 2015). Examples of companies that have pursued integration strategy include EBay in America by purchasing PayPal a money transaction company to aid in secure payments by its customers. In Australia, Woolworths and Lowes created a joint venture called Masters in the hardware market to compete with Bunnings (Robbins et al. 2015). Conclusion To remain competitive, businesses have to resort to what the customers want. In this regard, many businesses have embraced corporate social responsibility as a means to harness new markets. Although there have been controversies surrounding CSR, with firms claiming that its not a core business, an equal number of companies are reaping the benefits from adopting CSR. The report has touched on two growth strategies namely, diversification and integration. The various forms of these strategies and examples thereof have been provided. It is recommended that firms join the CSR bandwagon as it not only empowers future customers, but also leads to health competition in the market. References Caramela, S. (2016). What is Corporate Social Responsibility?. [online] Business News Daily. Available at: https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html [Accessed 16 Dec. 2016]. Crane, A. (2008). The Oxford handbook of corporate social responsibility. 1st ed. Oxford: Oxford University Press Inc., pp.6-9. Dat-Shappard, D. (2013). 4 Australian companies with international diversification. [online] Motley Fool Australia. Available at: https://www.fool.com.au/2013/11/28/4-australian-companies-with-international-diversification/ [Accessed 16 Dec. 2016]. Dill, K. (2014). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/kathryndill/2014/12/08/the-companies-with-the-best-csr-reputations/#78662652a812 [Accessed 16 Dec. 2016]. McWilliams, A. and Siegel, D. (2000). Corporate social responsibility and financial performance: correlation or misspecification?. Strategic Management Journal, 21(5), pp.603-609. Nieuwenhuizen, C., Rossouw, D. and Badenhorst, J. (2008). Business management. 1st ed. Cape Town, South Africa: Juta, pp.55-56. Robbins, S., Bergman, R., Stagg, I. and Coulter, M. (2015). Management. 7th ed. Melbourne: Pearson, pp.300-303. Smerdon, X. (2015). Australias CSR Top 10 Revealed | PBA. [online] Pro Bono Australia. Available at: https://probonoaustralia.com.au/news/2015/06/australias-csr-top-10-revealed/ [Accessed 16 Dec. 2016]. Smith, J. (2012). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/jacquelynsmith/2012/12/10/the-companies-with-the-best-csr-reputations/#77a30837a727 [Accessed 16 Dec. 2016]. Suttle, R. (2016). Growth Strategies in Business. [online] Smallbusiness.chron.com. Available at: https://smallbusiness.chron.com/growth-strategies-business-4510.html [Accessed 16 Dec. 2016].