integrating business and social needs takes more than
good intentions and strong leadership. It requires adjustments
in organization, reporting relationships,
and incentives. Few companies have engaged operating
management in processes that identify and prioritize social
issues based on their salience to business operations
and their importance to the company’s competitive context.
Even fewer have unified their philanthropy with the
management of their CSR efforts, much less sought to
embed a social dimension into their core value proposition.
Doing these things requires a far different approach
to both CSR and philanthropy than the one prevalent
today. Companies must shift from a fragmented, defensive
posture to an integrated, affirmative approach. The
focus must move away from an emphasis on image to an
emphasis on substance.
The current preoccupation with measuring stakeholder
satisfaction has it backwards. What needs to be measured
is social impact. Operating managers must understand
the importance of the outside-in influence of competitive
context, while people with responsibility for CSR initiatives
must have a granular understanding of every activity
in the value chain. Value chain and competitive-context
investments in CSR need to be incorporated into the performance
measures of managers with P&L responsibility.
These transformations require more than a broadening
of job definition; they require overcoming a number of
long-standing prejudices. Many operating managers have
developed an ingrained us-versus-them mind-set that responds
defensively to the discussion of any social issue,
just as many NGOs view askance the pursuit of social
value for profit. These attitudes must change if companies
want to leverage the social dimension of corporate
strategy.
Strategy is always about making choices, and success
in corporate social responsibility is no different. It is about
choosing which social issues to focus on. The short-term
performance pressures companies face rule out indiscriminate
investments in social value creation. They suggest,
instead, that creating shared value should be viewed like
research and development, as a long-term investment in
a company’s future competitiveness. The billions of dollars
already being spent on CSR and corporate philanthropy
would generate far more benefit to both business
and society if consistently invested using the principles
we have outlined.
While responsive CSR depends on being a good corporate
citizen and addressing every social harm the business
creates, strategic CSR is far more selective. Companies
are called on to address hundreds of social issues, but
only a few represent opportunities to make a real difference
to society or to confer a competitive advantage. Organizations
that make the right choices and build focused,
proactive, and integrated social initiatives in
concert with their core strategies will increasingly distance
themselves from the pack.