Corporate Social Engagement in South Africa

How can companies address social issues with a strategic framework that creates shared value?


Bachelor Thesis, 2014
62 Pages, Grade: 1,0

Excerpt

Table of Contents

ENSURANCE

LIST OF ABBREVIATIONS

LIST OF FIGURES

INTRODUCTION
PERSONAL MOTIVATION, RELEVANCE AND HYPOTHESIS
METHODOLOGY
LIMITATIONS AND TIMEFRAME
THIS THESIS IS SUBJECT TO SEVERAL RESTRICTIONS AND LIMITATIONS, WHICH COULD NOT BE AVOIDED, AND
INFLUENCE THE OUTCOME AND CHARACTER OF THE RESEARCH

THEORETICAL FRAMEWORK
DEVELOPMENT OF CORPORATE ENGAGEMENT
TERMINOLOGY OF PORTER & KRAMER
Corporate Philanthropy
Corporate Philanthropy and Competitive Advantage
Competitive Advantage and CSR
Creating Shared Value

RESEARCH
SOUTH AFRICAN CONTEXT
EXPLANATION OF COMPANY SELECTION

COMPANY ANALYSIS
DIAGRAMMATIC OVERVIEW
BEST PRACTICES
Nestlé
Vodacom
SABMiller
Coca-Cola
Anglo American
Woolworths
Standard Bank
BMW
GlaxoSmithKline

CONCLUSION

CRITIQUES

RECOMMENDATION

OUTLOOK

REFERENCES

Ensurance

Ich versichere dass ich die vorstehende Arbeit selbstständig ohne fremde Hilfe gefertigt und keine

anderen als die angegebenen Quellen und Hilfsmittel benutzt und alle Zitate kenntlich gemacht habe. Diese Arbeit hat in gleicher oder ähnlicher Form noch keiner Prüfungsbehörde vorgelegen.

John-Patrick Grande

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1 - Africa Income Pyramid (Salvanayagam; 2012)

Figure 2 - Development of Terminology (self-made based on Porter; 1999/2002/2006/2011)

Figure 3 - Maximizing Philanthrophy's Value (Porter & Kramer; 2002: p.9)

Figure 4 - Responsive versus Strategic CSR (Kramer ; 2006)

Figure 5 - Looking Inside Out: GIZ; 2012 the Social Impact of the Value Chain (Porter & Kramer; 2006: p.8)

Figure 6 - Looking Outside In: Social Influences on Competitiveness (Porter & Kramer; 2006: p.9)

Figure 7 - Illustrative Business and Social results by Level of Shared Value (FSG (2); 2011: p.3)

Figure 8- CSR versus CSV (TechSangram ; 2012)

Figure 9 - The Disconnect by Geography (Kiron; 2013: p.9)

Figure 10 - Social Issues by industry (Kiron: p.7)

Figure 11 - Companies and Focal Areas (self-made based on Trialogue; 2013, Rollin; 2011, FSG; 2012, Kiron et al; 2013, various dialogues with locals and the company reports & case studies)

Figure 12 - Creating Shared Value at Nestlé (Nestlé; 2011: p.4)

Figure 13 - Progress Measurement at Nestlé (Nestlé; 2011: p.155)

Figure 14 - Progress Measurement at Vodacom (Vodacom Group Ltd; 2013: p.15)

Figure 15 - Progress Measurement at SABMiller (SABMiller plc ; 2013 : p.7)

Figure 16 - The Coca-Cola System (Coca-Cola; 2011: p.17)

Figure 17 - Progress Measurement at Coca-Cola (Coca-Cola; 2011: p.19)

Figure 18 - Focal Areas of Anglo American (Anglo American; 2012:p.8)

Figure 19 - Influence and control over factors (Standard Bank; 2013: p.26)

Figure 20 - Progress Measurement at Standard Bank (Standard Bank; 2013: p.19)

Figure 21 - Creating Value at BMW (BMW; 2013: p.15)

Figure 22 - Sustainability at BMW (BMW; 2013: p. 10)

Figure 23 - Creating Value at GSK (GlaxoSmithKline; 2013: p.7)

Figure 24 - Global Health burden (cutout from GlaxoSmithKline; 2013: p.14)

Figure 25 - Commitment (GlaxoSmithKline; 2013: p.26)

Introduction

Personal Motivation, Relevance and Hypothesis

The best motivational basis for writing an insightful and useful thesis is indisputably personal interest. Therefore, I have chosen this topic, as there are several reasons why I regard this to be an interesting field of research.

Firstly, I myself have developed an interest for the country of South Africa, as I have spent mysemester abroad at the DUT in Durban. This results in deeper insight into the society at handand the people who having to deal with the social problems. As an international businessstudent one consequently questions the way business is done in this country and the means ofcorporate engagement. Resulting from our Business Ethics class, in which we were given theassignment to write about an ethical issue in a foreign country, I have already acquiredknowledge about the ethical landscape in South Africa. I realized that this field is especiallydifficult and broad regarding the Apartheid stricken country. Discussions and meetings withSouth African locals in Durban who have a certain insight into the governmental and/orbusiness practices underlying the theory have then further deepened my desire to pursuit furtherresearch in this direction.

As to the scientific relevance, corporate engagement still constitutes an immensely importantrole and even more so in emerging economies. So companies are constantly looking for ways ofimproving their responsible behavior in society. Companies seldom have the desire to analyzeall the concepts available in the pool of corporate social engagement approaches. This thesis issupposed to give companies a guideline on how to successfully integrate one of these conceptsand thereby generate social and economic leverage in the environment of a developing economythat is South Africa.

Hypothesis of the research:

The concept of“Creating Shared Value”by Michael E. Porter and Mark Kramer may serve as a guideline for companies doing business in South Africa, regarding how corporate engagement should be handled.

Methodology

The main part of the thesis consists namely of two parts, the setting of the theoretical framework in form of a text analysis and the research part, which consists of several case studies in South Africa regarding applications of Creating Shared Value.

The thesis will trace the general development of corporate engagement and ultimately focus onone specific concept, Creating Shared Value. In doing so, it is managed to keep a clear andfocused mind in regard to the sheer complexity of the topic. The multitude of possible attemptscould not be assessed in a single piece of work, at least not to a degree which would move inbetween the limitations concerning timeframe and workload of this thesis. The specificdevelopment and distinction of CSV in comparison to other similar approaches is described inmore detail.

Following this, the context for corporate engagement in South Africa is set. This is ensued by reasoning for the choice of companies selected and an explanation as to why these were chosen to be further analyzed as best practices. Afterwards the companies, which have been selected, are analyzed in regard to their best practice fields. Furthermore, the results from the analysis are merged with critiques of the concept to constitute the conclusion, which leads to the final recommendation for companies which are doing business in South Africa or are planning to do so. Lastly, an outlook will be given, as to how this field might develop, especially regarding the special requirements of the South African society.

Limitations and Timeframe

This thesis is subject to several restrictions and limitations, which could not be avoided, and influence the outcome and character of the research.

First of all the limitedness of the time frame consequently leads to limitations of the methods ofresearch. The time allocated to the compilation of this thesis was set to eight weeks starting onthe date of registration. This leaves little room for extensive analysis of each and everycompany, so a selection method had to be developed in order to fit the time fence. Anotheraspect that had to be applied in order to conform to the scope was restricting the analysis tosolely one concept. As the field of corporate engagement is so diversified and broad, one thesiscould not possibly focus on more than one of these concepts and produce meaningful results.Many good theories are left unnoticed, but this is a necessary measure to ensure avoidance of a scattering of resources. Consequently, the general overview of corporate engagement provided in this here thesis is limited and only shallow in comparison to the significance and importance of many concepts that are produced in this research area. So the sole purpose served by this superficial description of an overall development is to get a slightly broader picture and a rough sense of the environment from which the dealt with theory has evolved from.

Furthermore, unrestricted access to certain insights of the analyzed companies via internalreports was not possible, as the information needed is often confidential in nature, as a majorcompany pointed out upon request for company insights. Therefore, the research is subject tothe availability of publicly accessible information like external reports and third party research.This results in some information being withheld and other being whitewashed. Even majorresearch in the area is in a great measure being funded by the firms which are mentioned anddescribed as best-practice examples. For example the HBR article by Porter and Kramer wasgreatly funded by Nestlé, other research performed by FSG was supported by Nestlé, HP andIntercontinental Hotels Group.

Lastly this thesis constitutes a work of qualitative research, meaning that it is subjective innature. As the research is greatly limited to the available literature and much of themeasurement and judgment is left to the researcher. Certain assessment criteria had to bedeveloped by the author and the interpretation of all findings is based on the researcher’sverdict.

Theoretical Framework

Development of Corporate Engagement

“Look there is no definite definition (of corporate engagement), but have a look here so that wecan use something reasonable and move on to IMPLEMENTATION!” (Hopkins; 2011).Definitions of corporate engagement demonstrate various similar, but also entirely diverseconcepts and attitudes which all try to grasp the immensely complex and mutually dependentties of the social and business sectors and their respective environments (Rollin; 2011: 10/17).

The idea of social engagement of businesses is not a new one, as the first prominent approach tothe modern definition of social responsibility was coined by Howard R. Bowen in his book “Social Responsibilities of the Businessman.” in 1953 (Anderson, 1998: p.3, Van den Ende;2004: p.17), but has never been as prominent as nowadays (Smith; 2003: p.3). But over the last 30 years it was tried to suitably specify the equilibrium between corporate and social roles (Van den Ende; 2004: p.13) and lately social responsibility has increasingly become an integral part of corporate management (Münstermann; 2007: p.1).

A wide array of terms is used to describe the engagement of business in society and often they are treated as interchangeable. Sustainability, Corporate Social Responsibility, Business Ethics, Corporate Citizenship, Corporate Accountability, just to name a few are all concepts that link business to society in some manner (Van den Ende; 2004: p.2).

Whilst Bowen (Rollin; 2011: p.6) has described it as addressing “concerns of public regarding business and societal relationships”, the European Community takes it a step further, by including the voluntary character of such engagement, whereas the World Bank includes another issue, development of society and business (Rollin; 2011: 17).

But there are gradual shifts in the discussions, whilst many support the thesis that both aspectsare essential in order to run a business successfully, a divide is still at hand, with some leaningmore towards the economic aspects and others sympathizing with the social responsibility ofbusinesses (Van den Ende; 2004: p.3). Today the question no longer is whether businessesshould take socially responsible action, but much rather how (Smith; 2003: p.31)? In pastdecades the main concern of business, some would argue, even the only one (Friedman; 1970),was producing positive economic results, whereas now legal, ethical, moral and social impactshave to be included in the decision-making process, value chains and the overall businessprocess (Van den Ende; 2004: p.4). This is mostly due to increased criticism towardscorporations from society. Protests during global meetings like the World Trade Organization(WTO), and actions which aim to shame individual companies and their actions, are furtherreaching through mass-media, social networks and the technologies at hand for distributing andexchanging information on a global level (Smith; 2003: p.16). Furthermore, expectationstowards businesses have increased greatly during the last decade, due to several reasons. Forexample, many governments have missed the opportunity to find solutions to several gravesocietal problems, so the world community has placed this responsibility among the shouldersof one of the world’s strongest and most influential participators, business (Smith; 2003: p.5,Van den Ende; 2004: p.iii). Also, the globalization of economic relationships has resulted inoperation in countries which offer different and sometimes even lower standards of living and if corporations exploit these conditions, the wide exposure of abusive behavior through the tech age media has immense negative reputational consequences (Smith; 2003: p.6).

Still, companies tend to navigate externally regarding corporate engagement (Münstermann;2007: p.18) but to change this, management needs to incorporate a new mind set, as “toxicleaders drive unethical culture and behavior (). We need more good leaders and role models.”(Bradshaw; 2012). These issues cannot be perceived as being only peripheral or nice-to-have;they cannot be managed isolated from the core business, but have to be fully integrated acrossall levels. (pwc; 2013: p1)

In one point, most of the management thinkers that support social engagement agree: theexisting potential for both society and businesses is being exhausted insufficiently. This possibledegree of leverage can only be achieved if social engagement goes far beyond the differenttypes of sponsoring and charity of financial and material means (Münstermann; 2007: p.3).

Particularly tackling less developed parts of the world appeals on companies to regard the bottom of the wealth distribution pyramid (see Figure 1) as potential business partners in the process of generating mutual benefit. (Rollin; 2011: p.11)

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Figure 1 - Africa Income Pyramid (Salvanayagam; 2012)

An approach which not only describes a concept, which inherits exactly this, but also shows how social engagement has and could develop, is formulated by Porter & Kramer. The concepts developed by them are described and explained in the next chapters, finally leading to the concept used in the analysis part.

Terminology of Porter & Kramer

After the general development of corporate engagement has been clarified, the theoretical development of societal engagement of businesses as described by Porter and Kramer in various publications will be assessed.

illustration not visible in this excerpt

Figure 2 - Development of Terminology (self-made based on Porter; 1999/2002/2006/2011)

The above featured diagram (see Figure 2) shows the development in accordance with thepublications of Porter and Kramer on corporate engagement. This particular diagram will bereferred to along the development stages, but a general description will be at hand right now. Atthe bottom of the pyramid “Corporate Philanthropy” is located, as this is where Porter andKramer initiate their discussion. It is followed by “(Strategic) Corporate Philanthropy”, “CSR”and “CSV”, with “Competitive Advantage” overlapping these three stages. Along the sides twoarrows show two major changes, these will be assessed in the following chapters. Towards thetip of the pyramid, the “Value Creation” is increased, whereas the “Corporate Spending withoutReturns” decreases accordingly.

Corporate Philanthropy

In 1999 the first of many popular publications on the topic of corporate engagement has been published by Michael E. Porter and Mark R. Kramer. In the article “Philanthropy’s New Agenda: Creating Value”, which was published in the Harvard Business Review Nov-Dec 1999, the two of them started the process of criticizing the way business was dealing with its social responsibility for the first time. (Porter & Kramer; 1999)

They were convinced that only few companies integrate their social roles into their businessstrategically and are satisfied with simply making monetary and material contributions in anyway. They argue that by doing so, companies “fall short of their potential” (Porter & Kramer;1999: p.122).

“Scattered funding, arm’s length relationships with grantees, and a lack of awareness of outcomes ()” (Porter & Kramer; 1999: p. 130) are several problems, which lead to limited leverage and value creation, resulting in large costs of social investments producing little to no returns for the company (see Figure 2Figure 2 - Development of Terminology (self-made based on Porter; 1999/2002/2006/2011)).

In the eyes of Porter and Kramer companies should lead the way in progressing socialdevelopment, but they have to make a strategic attempt, which includes a measuring process ofthe outcome (Porter & Kramer; 1999: p.122). There are of course companies that already aligntheir philanthropy with their strategy, but none do this in entirety. First companies must assesstheir positioning, find important societal problems and analyze the possible influence which thecompany can have on this particular area. If other companies or organizations already focus onthis area, it might be possible to establish cooperations in order to leverage the overall outcomeMore energy must be invested into the selection of grantees and their performance (Porter &Kramer; 1999: p. 123). Of course strengths and weaknesses play an important role in theselection process. Which problems best suit the company, has to be decided uniquely,depending on industry, market position and other criteria (Porter & Kramer; 1999: p.130). Scaleis another important factor, as big corporations may have enough resources, so that a spreadacross several social problems might still make sense. But each of these operations will need aseparate strategic orientation and process. Proposals and selection of grantees must be placed inalignment with the strategic orientation of the company in regard to philanthropic actions.(Porter & Kramer; 1999: p.130) The concept of creating value is already present at this stage ofdevelopment, but it is still at an early stage: “A foundation creates value when it achieves an equivalent social benefit with fewer dollars or creates greater social benefit for comparable cost.” (Porter & Kramer; 1999: p. 126)

Corporate Philanthropy and Competitive Advantage

The next step of development describes the connection between Competitive Advantage andCorporate Philanthropy to a state of Strategic Philanthropy (Porter & Kramer; 2002). The firststage of Philanthropy still constitutes an alteration of advertising and PR, trying to improve thecorporate image, which can be seen especially when more resources are spent on the promotionof good practice than actual societal support (Porter & Kramer; 2002: p.5). As already describedin the first critic of past philanthropic actions of companies (Porter & Kramer; 1999), actionswere often diffuse and lacking focus. The only possible return which could be generated inthose cases would be through the creation of goodwill. But the problem of goodwill is alwaysthat it cannot be traced back to an explicit source and is only indirectly influential to returns(Porter & Kramer; 2002: p.6). So companies saw themselves in a “no-win situation” (Porter &Kramer; 2006: p.5), with investors pushing them to decrease corporate charity while critics callfor an even higher engagement.

Porter and Kramer are confident that a mere higher giving will not solve any problems at all, butonly increase the expectations towards businesses and at the same time making it impossible todefend this lavish use of resources in front of shareholders. The authors state that a separation ofsocial engagement from the core business is at hand, making actions both ineffective andunprofitable (Porter & Kramer; 2002: p.15). At the time most companies simply spend moneyon social investments at the expense of economic results (Porter & Kramer; 2002: p.6).

A strategic approach to philanthropy on the other hand should be embedded into business practice and developed with sophisticated social and business objectives (Porter & Kramer; 2002: p.6/p.15). “() Charitable efforts can be used to improve their competitive context ()” (Porter & Kramer; 2002: p.6) by matching societal and economic aims and thereby increasing business in the long run. “The more a social improvement relates to a company’s business, the more it leads to economic benefit as well.” (See Figure 3).

illustration not visible in this excerpt

Figure 3 - Maximizing Philanthrophy's Value (Porter & Kramer; 2002: p.9)

So at this stage, Porter and Kramer encourage companies to relocate their focus from fixing andgreen-washing their actions with solely philanthropic actions to a fixation on significant impactsin the working environment and societal context of the company’s business (Porter & Kramer;2002: p.14/p.15). Companies should stick to their advice that the “acid test of good (strategic)philanthropy is whether the desired social change is so beneficial to the company that theorganization would pursue the change even if no one ever knew about it” (Porter & Kramer;2002: p.15).

Competitive Advantage and CSR

As the top half of the pyramid is now reached (see Figure 2), the social engagement accordingto Porter & Kramer has become more essential to the firm. CSR has become an unavoidablepriority for any business (Porter & Kramer; 2006: p. 1). Since their last paper on corporateengagement, they argue, much has been done in this field of practice. But two major mistakesare still being made: business and society are still opposed, when they should be regarded asbeing mutually dependent instead. Secondly companies are forced by external pressures andsome naive managers to think of CSR in generic ways (Porter & Kramer; 2006: p.1) or as meremarketing material. They encourage using their framework which is meant to give guidancealong the lines of a company’s core business. CSR must finally be seen as “more than a cost, a constraint or a charitable deed” (Porter & Kramer; 2006: p.2). They present CSR as a possiblesource for “opportunity, innovation, and competitive advantage” (Porter & Kramer; 2006: p.2).

Justifications for CSR are still either a moral obligation, license to operate or reputation, whichoften result in either reactive green washing via extensive media campaigns or as building abuffer in case of a reputational downfall (Porter & Kramer; 2006: p.3). The weakness of theseattempts is, as already stated the focus on a god given tension between society and business.

In order to create a competitive advantage by making use of CSR practices, Porter and Kramer suggest a prioritization process (see Figure 4; Porter; 2006: p. 7/p.11).

illustration not visible in this excerpt

Figure 4 - Responsive versus Strategic CSR (Kramer ; 2006)

They describe three major distinctions to make: Generic issues, Value Chain Social Impacts andSocial Dimensions of Competitive Context (Porter & Kramer; 2006: p.7). What is described asGeneric issues, are social problems that are not directly tangent to the company and these can beunderstood as general problems, which the company cannot influence well enough. Value ChainSocial Impacts already pose a great opportunity and risk for the business, as these define thoseareas of society which are immediately influenced by everyday business. The last area focuseson the societal deficits that have an outside-in impact and can therefore greatly increase or damage a company’s economic competitiveness (Porter & Kramer 2006: p.7; see Figure 5 &Figure 6).

Figure 5 - Looking Inside Out: GIZ; 2012 the Social Impact of the Value Chain (Porter & Kramer; 2006: p.8)

illustration not visible in this excerpt

Figure 6 - Looking Outside In: Social Influences on Competitiveness (Porter & Kramer; 2006: p.9)

In general what this prioritization aims for is to define which social problems are closest to the core business, as these fields offer the biggest chance for leverage economically and socially. This simplified categorization helps to identify the important intersections, both inside-out and outside-in, of society and business and to choose which issues are worth addressing.

When companies manage to move from the “fragmented, defensive posture to an integrated,affirmative approach (...)(and)() move away from an emphasis on image to an emphasis onsubstance ()” (Porter & Kramer; 2006: p.13), the positive results will be more evident. Theauthors demand that CSR should be viewed more like other business related processes, researchand development for instance, as long-term strategic decisions and investments. Furthermore,CSR should be more selective than it is now. Instead of spreading resources across a myriad offields without creating real results neither for society nor business, CSR has to be focused andstrategically orientated. But most importantly CSR should not be seen as part of marketing and public relations, the focus should shift more to creating a shared value. (Porter & Kramer; 2006:p.13)

Creating Shared Value

At the top of the value creation pyramid lays the newest concept by Porter and Kramer: CreatingShared Value. This paper deals mainly with the application of this here concept, as it constitutesa maximum creation of shared value with minimal no-return investments (See Figure 2).

In the eyes of the authors, CSV reinvents capitalism as a whole and thereby releases an outburstof innovational and growth forces. (Porter & Kramer; 2011: p.1) It is often believed the problemwith societal engagement of companies is that businesses is pressured and forced into certainpaths of being engaged with society. While this is certainly true, some faults are sourced on thecompany side. Their outdated attempt of breeding value still focusses on short term effectsdirectly producing economic results. In the process they often ignore opportunities based on realcustomer needs, as well as stimulants and effects triggered by and influencing business gravely(Porter & Kramer; 2011: p.4). Porter and Kramer have found out that many companies are stuckin a social responsibility mentality which treats societal issues as being extraneous anddisconnected from the core of business (Schneider; 2012: p.139). The solution they found iscalled CSV and all in all, the concept targets the creation of economic value by also creatingsocietal value and offering solutions for the deficiencies and problems. At the center of all aconnection between business and society is again propagated, but additional focus is applied toan overall expansion of the value pool instead of a reallocation of resources from profits tosocial support (Porter & Kramer; 2011: p.5). From the authors’ perspectives there are threebasic ways of approach:

Reconceiving products and services

This aspect includes finding nouveau chances for differentiation orrepositioning of existing products and/or services in an existing market, as wellas realizing new capabilities in nontraditional markets. This includes non-formalmarkets, base of the pyramid customers and otherwise disadvantaged potentialcustomers. In general underserved markets are discovered and tapped via novel

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Details

Title
Corporate Social Engagement in South Africa
Subtitle
How can companies address social issues with a strategic framework that creates shared value?
College
University of Applied Sciences Dortmund
Course
Business English - Social Engagement
Grade
1,0
Author
Year
2014
Pages
62
Catalog Number
V284642
ISBN (eBook)
9783656843320
ISBN (Book)
9783656843337
File size
1726 KB
Language
English
Tags
corporate, social, engagement, south, africa
Quote paper
John-Patrick Grande (Author), 2014, Corporate Social Engagement in South Africa, Munich, GRIN Verlag, https://www.grin.com/document/284642

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