It’s been well-established that corporate social responsibility (CSR) initiatives are generally good for business, providing benefits like bolstered reputation and healthier bottom line, and for the society. But how to design these initiatives effectively is less clear.
“Many companies start with pet projects, philanthropy, or propaganda because these activities are quick and easy to decide on and implement,” Tracey S. Keys, Thomas W. Malnight and Kees van der Graaf wrote in an article published in McKinsey Quarterly, the flagship business publication of McKinsey & Company, a management consulting firm. “The question is how to move toward CSR strategies that focus on truly cocreating value for the business and society.”
The authors called attention to two CSR projects. One was by the Indian consumer goods company Hindustan Unilever Limited (HUL) called Project Shakti. “More than 70% of India’s population resides in rural villages scattered over large geographic areas with very low per-capita consumption rates. For multinationals, the cost of reaching and serving these rural markets is significant, as typical urban distribution approaches do not work,” the authors noted.
The company teamed up with self-help groups composed of female entrepreneurs, who were given training and the money to purchase HUL products that they sold in their respective villages. Project Shakti managed to provide work for 42,000 women and generate sales of nearly $100 million for the company.
Kericho, a program of Unilever Tea Kenya that sought to apply the company’s sustainability principles to tea production, helped shape the company’s ability to control the supply of tea and enhance its corporate reputation with both consumers and employees.
“For society, the initiative increased farmer revenue through a 10% to 15% premium paid above market prices. Additionally, it focused on topics of significant concern for governments and farmers alike, including improving farmer skills, environmental protection, and sustainable production methods (such as developing a self-sufficient ecosystem), as well as enhancing local associated jobs,” the authors said.
These examples, they noted, suggest three principles for moving towards the goal of cocreating value for business and society.
The first is to concentrate CSR efforts. “Management time and resources are limited, so the greatest opportunities will come from areas where the business significantly interacts with — and thus can have the greatest impact on — society. These are areas where the business not only can gain a deeper understanding of the mutual dependencies but also in which the highest potential for mutual benefit exists,” the authors said.
Next is to build a deeper understanding of the benefits. The authors said finding the potential for mutual value is not always straightforward, not even after selecting chosen areas of opportunity. Finding symmetry between the two sides and an openness to understanding issues from the business and societal perspectives are the key, they added.
Finally, there’s the need for businesses to find the right partners, those that benefit from their core activities and capabilities and from whom they can derive benefits as well. The authors pointed out that partnering is difficult, but parties may be more motivated if they pay attention to the the win-win potential of their partnership. “Relationships—particularly long-term ones that are built on a realistic understanding of the true strengths on both sides—have a greater opportunity of being successful and sustainable,” the authors said.
Mutual benefit in smart partnering is both a reasonable objective and an ingredient in long-term success. “But this commitment must be grounded in value-creation potential, just like any other strategic initiative. Each is an investment that should be evaluated with the same rigor in prioritization, planning, resourcing, and monitoring,” the authors said.
Companies have to set about defining the potential benefits for the business and society across several dimensions. One such dimension is time frame. The authors suggest being clear on both the short-term immediate objectives and long-term benefits. When it comes to the nature of benefits, it’s worth bearing in mind that some benefits will be tangible, like the revenue to be gained from having access to a new market, and others intangible, like developing a new capability or enhancing employee morale.
Of course, how benefits are to be shared between the business and society should be clear. “If they are one-sided, be careful you are not moving into the philanthropy or propaganda arena. Remember that if the aim is to create more value from partnering than you could do apart, then benefits must be shared appropriately.”
This task of defining benefits will not be always easy, the authors cautioned, “but a clear business case and story is important if you are to get the company, its shareholders, and its stakeholders on board.”