This article is published in the June Edition of SME Advisor ME.
Author: Tatjana de Kerros for SME Advisor ME
Corporate social responsibility provides competitive advantage in an evolving business environment, says Tatjana de Kerros, an independent research analyst and consultant, specialising in entrepreneurship and private sector development for the GCC region.
The current economic and social climate in the UAE has put competitiveness, sustainability and responsible business at the top of the agenda. Whilst corporate social responsibility (CSR) practices have been controversially associated with improving brand recognition and enhancing a company’s reputation, this has neglected CSR’s potential of improving efficiency, productivity and market orientation. Rather, having a CSR strategy embedded within a business model not only serves in gaining a competitive advantage by increasing reputational appeal; but responds to changing stakeholder demands in an evolving environment.
The Dubai Chamber and PepsiCo launched the first comprehensive study of CSR and corporate governance in the UAE, finding that 42% of respondents believe that CSR increases productivity. However, 66% of companies in Dubai1 cited that a lack of awareness and financial resources prevented them from taking part in CSR initiatives.
Furthermore, another study conducted by the Dubai Chamber in 2009 revealed that only 48% of small and medium enterprise (SME) leaders were aware of CSR, a clear contrast to customers, of whom 55%2 said they would be more likely to be loyal to a company that is socially responsible.
Generally, SMEs refrain from taking part in CSR initiatives due the belief it requires large financial endowments, creates time and knowledge constraints, and adds pressure on an already strained workforce. Small business owners should be made aware that in reality, CSR does not have to be an add-on coming at extra cost and wasting valuable resources.
Rather, if CSR is integrated within the overall business strategy, it can be incorporated as a cost-advantage which emulates the core competences of the business. If an SME focuses on the value it already detains (within products, services or business processes), CSR can be successfully operationalised in organisational values and codes of conduct, without having to implement a radical and costly transformation.
In truth, SMEs have a better ability to initiate and scale responsible business practices than large companies. Their size allows them to be more responsive and flexible to market changes, there is less bureaucracy and more fluid decision-making.
CSR induces a direct engagement with stakeholders, be they suppliers, customers, competitors or society at large. It provides an opportunity to manage stakeholder relations strategically and harmonise multiple interests and priorities. In a survey conducted by the Sustainability Advisory Group in 2010, 65% of regional executives believe CSR is about “minimising negative and maximising positive impacts”3 and not about community investments. They also stated that CSR was implemented to attract new customers, draw and retain the best employees, and foster innovation within the workplace.
The concept of CSR needs to shift from actions relating to corporate philanthropy and cause-related marketing, to solutions which involve creating economic value in a way that promotes social value. The success of a venture can only be determined by optimising long-term financial performance, understanding consumer needs, as well broader influences which determine the business environment. Ignoring new market structure trends will create internal costs within the organisation that are much more costly than responsible business practices. CSR initiatives do not need to be fragmented, but can be achieved through new operating methods, utilising available technology and devising new management approaches.
Therefore, what are the economic benefits of embodying a CSR strategy at the core of the business model, and how can SMEs implement this without having to concede to trade-offs? How will it add value, open new market opportunities and drive growth?
Firstly, CSR promotes innovation within the organisation. By seeking to add value, it requires a change in the manner in which the business is run. Fostering innovation can be achieved through clearer leadership and management, using available technologies to enhance operational efficiency, determining a long-term vision for the organisation, investing in human capital, improving reporting and communication, and engaging in strategic partnerships. The more an organisation will develop innovation-capacity, the more it will be able to add value to the market and foster financial discipline which will be translated into social outputs.
Employees are the first stakeholders which drive a business to success, and should be the starting point for any CSR initiatives. For SMEs, employee engagement and retention are some of the most important factors to efficiency. Numerous studies have correlated that a positive environment within the workplace – which includes social benefits, training and welfare incentives – attracts a skilled workforce, enhances commitment and is cost-efficient. In addition, data provided by the Dubai Chamber shows that consumers will be influenced by the manner in which companies treat and pay their employees, and engage in other employee-related issues.
Investing in human capital produces difficult-to-trade assets, such as knowledge and trust, which can give a business its competitive advantage and foster an entrepreneurial culture. It also boosts organisational performance, as employees are provided with an opportunity to learn and align themselves with organisational goals.
Before targeting a variety of issues on the social agenda, it is easy for a business to forget that customers are at the heart of the business. They drive growth, sales, reputation and market-orientation. The first social responsibility of a business is to provide customer value through the provision of quality, safety and consistency. Being customer-oriented increases the ability of the organisation to respond swiftly to market changes and what influences customer needs.
This in turn greatly reduces risk and volatility, and does not require an overhaul of business strategy, and customer orientation becomes a key part of its CSR initiatives. Being aware that a serious shift in the business climate has led to consumers being more scrutinising towards the role and responsibility of business can lead to play substantial impact on reputation and long-term viability.
Lastly, there is no point for businesses to act socially responsible if there exists no awareness towards CSR activities. Creating awareness is the duty of all stakeholders – the public and private sector, as well as consumers, media and non-profit agencies. Communication is key, and the difficulty to communicate with stakeholders has been one of the main deterrents to embedding CSR practices in the region. Businesses need to develop the internal skills to communicate about their CSR activities through, for example, better reporting, auditing and transparency.
CSR is about building an ecosystem that rewards and incentivises responsible practices within the workplace, supply-chain, market-place, community and wider environment. A healthy society demands a vibrant private sector, as no social programme can rival it when it comes to generating employment, wealth and innovation. What should guide CSR is the ability to add value, which in turn generates new opportunities, particularly within an emerging market. It enables putting resources to use more efficiently, and yielding higher benefits.
Through cooperation and partnership, organisations can use their CSR efforts to improve the business environment in which they operate, aligning economic and social goals to develop sustainable, long-term prospects. CSR has gone beyond branding; it is now a tool for increased productivity which cannot be separated from the competitive context.
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1 Rettab, B., & Rahman, S. (2010). Dubai Dialogue: Sustainability Matters 2010. Dubai: Dubai Chamber Center for Responsible Business.
2 Belaid, R., & Ben Brik, A. (2009). Consumers View of Corporate Social Responsibility in the UAE. Dubai: Dubai Chamber Center for Responsible Business.
3 Sustainability Advisory Group. (2010). What do Middle Eastern Executives think about CSR? Dubai: Sustainability Advisory Group
4 Belaid, R., & Ben Brik, A. (2009). Consumers View of Corporate Social Responsibility in the UAE. Dubai: Dubai Chamber Center for Responsible Business.
Tatjana de Kerros is an independent research analyst and consultant, specialising in entrepreneurship and private sector development for the GCC region. Her clients include scholars, entrepreneurial support programmes and multinationals, and she is currently consulting for Sacha Orloff & Co for CSR intrapreneurship projects in the region. She is also a founding member of MENA400, an initiative led by KAUST and the Arab Foundation for Science and Technology. She previously managed entrepreneurship and media programs for an NGO in North Africa, and was a semi-finalist in the MIT Pan-Arabic Enterprise Forum 09-10.
Tatjana is the founder of The Entrepreneurialist, a blog that provides commentary and analysis on entrepreneurial initiatives in the GCC, and aims to bridge the knowledge and practice gap and foster collaboration, action-orientated solutions and best practices. Her aim is to contribute to building an ecology which fosters the emergence of high-growth enterprises in the region. She is a graduate in International Relations from the University of London, and will be pursuing a PhD in Entrepreneurship and Innovation Management in 2012.
Tatjana can be contacted: email@example.com Blog: http://www.theentrepreneurialist.net Twitter: @entrprnialist