Executives are increasingly confronted with stakeholders that emphasize the social and environmental consequences their companies’ activities have (Porter & Kramer, 2007; Filho et al., 2010). Managers encounter demands from these stakeholders that urge them to allocate resources in favor of corporate social responsibility [CSR] (McWilliams & Siegel, 2001). These demands have led to a greater awareness of CSR in companies. Yet, the activities deployed to respond on this pressure from stakeholders are not as productive as possibly could be. A separate view on social responsibility and business strategies and a lack of knowledge about their interrelationship is often considered to be the reason for this inadequacy. (Husted & Allen, 2001; Porter & Kramer, 2007).
The many vague definitions and different views of CSR in relation to business strategy from scholars and practicers have led to a deficiency of understanding what CSR encompasses and the function it has, can have and should have in organizational strategy. Porter & Kramer (2007) state that “CSR can be much more than a cost, a constraint, or a charitable deed – it can be a source of opportunity, innovation, and competitive advantage”. It is argued that CSR in the context of strategy formulation leads to positive effects on the company’ performance (Husted & Allen, 2001; Porter & Kramer, 2007; Filho et al., 2010). Yet, some scholars conclude that the correlation between CSR and (financial) performance is neutral (McWilliams & Siegel, 2001) and depends to a great extent on how the concept is defined and which stakeholders are taken into account (Maon et al., 2009; Filho et al., 2010; Hillman & Keim, 2010).
Although the developments in the CSR research and the perceived pressure by companies’ executives to act on the concept, few theories focussing on the possible applications and outputs in businesses are broadly accepted. Research on the concept of CSR has led to the identification and categorization of ‘social issues’ in society and the corporate involvement within (Porter & Kramer, 2007; Maon et al., 2009). Many scholars assert that social responsibility in strategizing should be seen as a stakeholder oriented concept in which the different stakeholders are categorized based on their interrelation with businesses (Husted & Allen, 2001; Maon et al, 2009). Frameworks to identify the aspects of social strategy and the proposed intertwining with business strategy are implied by different scholars. Yet, additional empirical and theoretical research on the relation of strategy and social responsibility is needed. Due to the ambiguity of the CSR concept and consequently, its numerous definitions, it is hard to get empirical results that can be reliably compared with each other.
Business are in the need of theoretical frameworks to integrate social strategies in business strategies in order to respond properly to stakeholders and competition. Therefore, in this literature review the following preliminary research question will be answered:
How do companies integrate corporate social responsibility into their business strategies?
The next chapter will explicate the theoretical background of this paper. First the concepts of business strategy and corporate social responsibility will be separately discussed. Thereafter, the interrelationship between the two concepts in current literature will be explored.
2. Theoretical background
2.1. Business strategy
There are many different definitions of business strategy. A broadly accepted definition was given by Porter (1996). He argues that strategy is about “being different” and adds that “it means deliberately choosing a different set of activities to deliver a unique mix of value”. Husted & Allen (2001) refer to strategy as: ‘the plans, investments, and actions taken to achieve sustainable competitive advantage and both superior economic and social performance’. The latter makes a distinction between business strategy (economic issues) and social strategy (social issues) and refer to corporate strategy as the combination of these two strategies. In this paper, no distinction is made between corporate strategy (which can include multiple businesses and business units) and business strategy. The terms business- and corporate strategy in this paper denote strategies in general. From the earlier mentioned definitions of strategy, it is recognized that competitive advantage is the core concept of strategy and thus should be the leading intent when strategizing.
2.1.1. Competitive advantage
Competitive advantage is a widely discussed concept in te literature. Most theories an frameworks are based on the definition go Barney (1991). According to this author, the creation of competitive advantage occurs through the implementation of strategies that add value and create benefits for one company when another company fails to do so. Competitive advantage can be achieved through internal resources or a group of internal resources from the firm. However, to obtain this advantage, the resources must be (1) valuable, (2) rare, (3) inimitable and (4) non-substitutable. This is also referred to as the research based view [RBV]. The theory assumes that businesses are bundles of heterogeneous resources and capabilities that are imperfectly transferable across businesses. However, the concept remains very broad and generic because measurement of the resources that can lead to competitive advantages include intangible elements as corporate culture and long-term relationships with suppliers and customers.
2.2. Corporate Social Responsibility
The concept of CSR is extensively discussed in both theory as practice. The definition of the concept still remains a topic of discussion among scholars. This has led to a difficulty in interpreting and comparing different studies concerned with the topic. A comprehensive definition however is given by McWilliams & Siegel (2001), defining CSR as “actions that appear to further some social good, beyond the interests of the firm and that which is required by law” adding that, to them, CSR also means “going beyond obeying the law”. More general, CSR is about improving the social and environmental consequences of companies’ activities.
These social and environmental issues/consequences can be prioritized based on the degree to which companies affect them with their activities: (1) generic social issues are important to society, but do not significantly affect the companies’ operations; nor do they affect competitiveness in the long run. (2) Value chain social impact includes social issues that are significantly affected by company activities in the regular course of business. (3) The social dimension of competitive context is a question of an external environment that significantly affects the direction and competitiveness of the company in the location it operates (Porter & Kramer, 2007). Based on this categorization it can be concluded that there is a hierarchy of importance in social issues and CSR should be discussed as a stakeholder oriented concept (Maon et al., 2009).
It is clear that companies and society are closely connected and influence each other. Companies should therefore not only strive for shareholders wealth but commit themselves with a strong focus on all their stakeholders and the impact companies’ have on them. Companies can act on this in two ways: with responsive CSR (acting as expected by stakeholders) and strategic CSR (choosing an unique position which lead to competitive advantage) (Porter & Kramer, 2007).
Social objectives should be achieved by integrating CSR into the organization’s strategy (Husted & Allen, 2001; Maon et al., 2009). The intertwining of social strategy with business strategy presumably not only result in positive societal an environmental consequences but also result in a positive impact on the overall performance of companies. Husted & Allen (2001) therefore integrated the social responsibility component directly into the context of strategy and defined corporate social strategy as “the firm’s positioning with respect to social issues in order to achieve long-term social objectives and create competitive advantage”.
The CSR strategy formulation and implementation as an organizational operation should be seen as a change process. Based on three case studies, Maon et al. (2009) designed a framework that identifies four stages and nine steps that can be used by managers when developing and implementing CSR into their companies. This model is based on a constant dialogue with the stakeholders.
2.3. Business strategy & CSR
The competitive context wherein every company operates significantly affects the way it carries out its strategy. A key part of this context is formed by social conditions. Many scholars have written about implications of CSR – which deals with social conditions – in business strategies. Many concluded that the integration of social aspects in business strategy can lead to competitive advantage when approached strategically. Still, the productiveness an effects of the strategic actions undertaken by most companies in this light are doubtful. The reason for this is binary according to Porter & Kramer, 2007. First, business and society are perceived as two separate divergent elements which lead to tension whilst the two are interdependent. Second, companies are pressed to think of corporate social responsibility in generic ways instead of in the way most appropriate to each firm’s strategy. CSR initiatives should be intertwined with corporate strategy and operations. Only then CSR will lead to better performance and competitive advantage (Hillman et al., 2001; Husted & Allen, 2001; Porter & Kramer, 2007; Maon et al., 2009; Filho et al., 2010). It seems however, that most undertakings concerning CSR are not strategically approached and mostly function to show their so-called social involvement outside the firm. These undertakings are very dubious since it doesn’t actually serve society and fails to genuinely contributes to companies’ performance.
When recognizing competitive advantage as the core concept of strategy, CSR can be looked at from the earlier mentioned RBV (Barney, 1991); a with CSR intertwined strategy will consequently develop valuable resources that will lead to this intent. Filho et al. (2010) identified the following (intangible) elements linked to CSR that result in such competitive advantage: “enhanced reputation and image, retention of exceptional people, employee motivation, aggregate value and better economic performance due to the alignment of social responsibility and corporate strategy as well as innovative and efficient social projects, better environmental performance, better social performance and enhanced corporate governance.”
Despite the consensus among most scholars about the possible benefits of integrating CSR in strategy, empirical research has not resulted in an indisputable answer on the assumed (positive) interrelationship between CSR and performance. It is hard to measure the long-term overall effects of social strategy. Especially due to the intangibility and the abundance of the elements presumably involved. Empirical studies have mainly focused on short-term financial performance. However, long term advantages of CSR that may not directly turn in to better financial performance are conceivably more valuable. As an example, the revolution of electronically powered cars can be analyzed. The first car manufacturers who committed themselves to building these cars, over time built, a competitive advantage from the environmental benefits of its hybrid technology.
McWilliams & Siegel (2001) found that there is a neutral relationship between CSR and financial performance and that firms should conduct a cost/benefit analysis to determine the level of resources that should be devoted to CSR in a specific firm. Hillman et al. (2001) analyzed 308 firms with a focus on the interrelationships of stakeholders, shareholders and social issues. They concluded that contributing to social issues only lead to increased shareholder wealth when related to primary stakeholders (employees, customers, suppliers, and communities). When social activities do not build better relations with these primary stakeholders, no competitive advantage will be achieved. In addition they state that with the implementation of social elements in strategy, this comes at the cost of missed opportunities to increase shareholder value. Yet, in this study long-term advantages are unknown as well.
Porter & Kramer (2007) argue that firms in order to analyze their prospects in CSR should use the same frameworks that guide their core business choices. Husted & Allen (2001) agree on this and designed two models to indicate the traditional view of business strategy and social responsibility and the ‘Integrated View of Business and Social Strategy’. Accordingly, based on a case study and a literature review, Filho et al. (2010) came up with a framework that was designed to enhance the comprehension of the relation between CSR and competitive advantage in strategy formulation of firms. In this framework essential elements of the external environment are explored in order to subsume in the social strategy. The authors conclude that strategic CSR performance and perception change both the internal and in the external environment positively. These consonant frameworks identify the following aspects that should be taken into account when formulating a social corporate strategy: (1) resources and competences, (2) organizational values, (3) structure of industry, (4) stakeholders. Filho et al. (2010) adds market opportunities as fifth element.