Doing Good Doing Better
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Doing good, doing better. Changing the fundamentals for long term profit and growth

Doing good, doing better. Changing the fundamentals for long term profit and growth

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Doing Good Doing Better Document Transcript

  • 1. Doing good, doing better. Changing the Fundamentals for Long Term Profitability and Growth 2008
  • 2. Whitepaper: Doing good, doing better. Table of Contents 1 Introduction .......................................................................................................3 2 A new Era .........................................................................................................4 3 Definitions .........................................................................................................5 3.1 Sustainability ............................................................................................5 3.2 Corporate Social Responsibility ...............................................................5 4 Challenges and Opportunities related to Corporate Sustainability ...................5 4.1 Taking the Perspective of the Finnish Industry Challenges .....................5 4.2 Opportunities............................................................................................7 5 Trendy or Sustainable?.....................................................................................8 6 Sense of urgency?..........................................................................................10 7 Finpro’s Role...................................................................................................10 8 Authors ...........................................................................................................11 9 Appendix.........................................................................................................12 9.1 Corporate Governance...........................................................................12 9.2 Corporate Citizenship.............................................................................12 9.3 Corporate Sustainability .........................................................................12 10 Literature.........................................................................................................13 Table of Figures Figure 1: Example of a fast growing sector. .................................................................................................................4 Figure 2: The four areas of competitive context ...........................................................................................................7 Figure 3: Visualization of Competitive Edge.................................................................................................................9 Figure 4: The four sustainability challenges facing a company..................................................................................13 Editor Kristina Modee, Senior Consultant, Region Europe, Munich, Germany office +49 89 542 6470, mobile +49 172 8631 429, kristina.modee@finpro.fi © Finpro -2-
  • 3. Whitepaper: Doing good, doing better. 1 Introduction Acting in a responsible way towards the community is nothing new for most companies – they have been doing this since their foundation; through the creation of work places, through active involvement in local communities, through sponsoring and similar activities. What is new, however, is the increased attention firms are getting from various stakeholders1 concerning their actions on the market. “Consumer intimacy” is a global phenomenon and a result of the growing importance of the user/ consumer perspective. Even in traditional industries such as construction, the community perspective has taken over and the success of a project is no longer only judged by the functional purpose of a project, but by issues such as its societal impact, mobility options, environmental impact, space convertibility… In other words, additional to functionality, the social consequences of a project is growing in importance. The impacts of climate change have also led to the emergence of strategic challenges in several industry sectors in areas such as raw materials, water, mobility, renewable energies, alimentation, etc. Globalization and external pressure from NGOs have led to the need to take responsibility for production and working conditions within global supply chains. The financial markets are also increasingly getting interested in the sustainability performance of the companies in which they invest. Many companies have already taken action to meet these challenges, but often these activities have been island solutions, not integrated in the main company strategy. Examples are implementations of environmental management systems such as ISO 14001, increased stakeholder communications (mainly through PR departments), introduction of codes of conducts, health & work place security activities. In particular there has been a divide between environmental matters and social aspects of company operations. 1 Stakeholders are individuals or groups that have a material or immaterial claim on a company [2]. © Finpro -3-
  • 4. Whitepaper: Doing good, doing better. 2 A new Era Due to the increased pressure arising from the globalization of markets (costs, competition…) as well as the diminishing role of the state, business has, however, now entered into a new era. In this era companies are no longer being measured solely by traditional indicators of success such as profits, dividends and jobs created. Additional measures of social worth now include an organization’s relationships with its employees, its communities, its customers and the physical environment [3]. This requires a broader approach involving all company processes, products, stakeholders, markets – in short: sustainability has to be integrated into the overall main company strategy. For firms doing international business, this means an additional risk due to higher demands and expectations from foreign customers and other stakeholders, but also a large potential through possibilities of new products or services, differentiation, image improvement, increased efficiency, marketing, etc. Figure 1: Example of a fast growing sector. © Finpro -4-
  • 5. Whitepaper: Doing good, doing better. 3 Definitions 3.1 Sustainability The origins of the world sustainable can be found in the beginning of the 19th century in the forestry. The definition was “to cut down only so much wood in one year that the forest could yield and still grow enough wood to be continuously harvested in coming years”. Today the definition of the Brundtland-Commission (1983) is the most valid: Sustainable Development is a development that meets the needs of the present without compromising the ability of future generations to meet their needs. 3.2 Corporate Social Responsibility According to the definition stated by the European Commission, CSR constitutes the integration in company operations of voluntary actions directed towards the solution of social and environmental problems in the society. Furthermore, the concept constitutes the basis for the commitment of engaging relevant stakeholder in a continuous dialogue with the company [4]. This means that CSR- activities are going further than legal obligations and are always on a voluntary basis. Sustainable Development is a development that meets the needs of the present without compromising the ability of fu-ture generations to meet their needs. 4 Challenges and Opportunities related to Corporate Sustainability 4.1 Taking the Perspective of the Finnish Industry - Challenges The vision of an economic sustainable development, which takes social responsibility and environmental protection into account, has grown stronger over the last 15 years. Business is required to take more responsibility for societal problems and companies are given a central role in delivering on the promise of this vision. The concepts of Corporate Social Responsibility and Corporate Sustainability are therefore becoming essential parts of all companies’ strategies. For Finnish companies that need to internationalize at an early stage due to the small home market, this development creates a number of challenges: • Transparency and accountability First of all, like all companies around the world, companies in Finland face the task of responding to the increasing pressure of various stakeholders to give account of their business operations since customers are increasingly looking behind the brand. This needs to be done in a transparent and credible way otherwise companies may suffer from image loss and reduced customer acceptance. Nokia, one of the leaders in CSR today, suffered from a massive loss of reputation in Germany in the beginning 2008 due to its closure of a © Finpro -5-
  • 6. Whitepaper: Doing good, doing better. production facility in Bochum and its communication policy related to this. Interestingly, not only the image itself was damaged, but also the views on quality, price-performance ratio and employer attractiveness changed dramatically. [5] As of July 2008, the image still has not recovered and is now at the same level as Sagem. • Increasing demands on members of the supply chain Finnish companies with international activities are quite often engaged in business-to-business operations. This means that they normally are part of a larger company’s supply chain. These business clients are to a growing extent expecting sustainable operations from their suppliers. If this condition is not met, they will find other suppliers elsewhere. On the other hand, Finnish companies must also be in the position to control and monitor the sustainability of the operations of their own suppliers. • Confusion regarding meaning and methods Each company operates within its own context and has its specific core competences and sustainability issues. The planning, implementation and control of management methods or systems to improve the sustainability of operations therefore need to be matched and adjusted to fit the conditions of the individual company. There is, however, already today a great number of different sustainability tools and concepts. Furthermore, there are also differrent understandings of what corporate sustainability really means. From such a wide field of possible solutions, a company must be able to choose the option best suited for its operations. • It’s no longer “what” to do but “how” to do it. On global and partly saturated markets differentiation increasingly lies in how things are done rather than what products are sold. Where the “what” leads to revenue growth, the “how” leads to profit, not least because customers reward “good” companies and thus are less resistant to pay a premium price. “The point is sustainability cannot be simply about being nice. It has to be about business logic.”2 2 Patrick Cescau, CEO Unilever, 2008 [6] © Finpro -6-
  • 7. Whitepaper: Doing good, doing better. 4.2 Opportunities Although the current development brings challenges, one must not forget the many opportunities and chances that may arise through a consequent consideration of sustainability issues: • Cost-efficiency There can be a lot of potential to save costs in the streamlining of production processes in order to reduce the input of raw materials, water or energy and improving waste handling systems. • Enhanced Competitiveness Every company operates within a competitive context (see fig. 2), which significantly affects its ability to carry out its strategy, especially in the long run. Social and environmental conditions form a key part in this context. Ensuring the health of the competitive context benefits both the company and the community [10]. • Innovation & New Markets Many opportunities to pioneer innovations to benefit both society and a company’s own competitiveness can arise in the product offering and the value chain. Toyota’s response to concerns over automobile emissions is an example. Prius, the hybrid electric/gasoline vehicle has given Toyota a lead so substantial that Ford and other car companies are licensing the technology. Toyota has created a unique position with customers and is well on its way to establish its technology as the world standard [7]. Figure 2: The four areas of competitive context Context for Firm Strategy and Rivalry The rules and incentives that govern competition Factor (Input) Conditions Local Demand Conditions Presence of high-quality, specialized The Nature and Sophistication of local inputs available to firms customer needs Related and Supporting Industries The local availability of supporting industries needs Source: Porter & Kramer, 2006 • New Marketing Possibilities © Finpro -7-
  • 8. Whitepaper: Doing good, doing better. Marketing sustainable products is more difficult than marketing conventional products because normally, one cannot see or taste the benefits of e.g. good working conditions or low emissions. At the same time sustainable marketing releases new potential of differentiation by reaching out to the emotions of customers. Nowadays for instance, the sale of fridges without an energy class branding is unimaginable. This type of classification would also be possible for several other products. Increasingly, customers are also demanding information on the environmental footprint of products. Those companies succeeding in measuring and communicating this in the most trustworthy will have a major advantage. • Better Image & Reputation Through higher quality products, through transparency and credibility, through the combination of benefits both for society and the company and by caring more on how things are being done, the image of the company can be raised considerably. This leads to higher acceptance of the company’s products and increases the willingness of customers to pay a “sustainability” premium. It will also make it easer for the company to find cooperation partners, suppliers and employees. • Higher Employee Motivation Employees want to work for a company with a good image, taking into account environmental and social aspects of its business. Individuals are increasingly looking to align their personal values with their careers. This raises the motivation among employees, lowering the number of sick days and personnel fluctuation. The cost of hiring employee sinks. A survey from 2003 already then suggested that three in five people want to work for a company whose values are consistent with their own and that they will stay with the organization whilst this consistency remains [8]. "A new breed of job seeker is placing ethical issues above financial incetives when considering a job offer. Future job packages need to reflect this new found ethical consciousness among job seekers if companies are to maintain their appeal."3 5 Trendy or Sustainable? It is not only about the impact of trends and signals, such as LOHAS (Lifestyle Of Health And Sustainability), FUD (Fear, Uncertainty, Doubt), blue (water) to replace green, … nor about SRI (Social Responsible Investment), greenhouse gasses, CO2, carbon emission management, … nor about methodologies to address these such as ecological footprints, green sigma, … It is fundamental; it is about already ongoing changing business fundaments. 3 Keith Robinon, Website Director, totaljobs.com [8] © Finpro -8-
  • 9. Whitepaper: Doing good, doing better. Let’s forget about trends and focus on industry disruption during the last years. In food industry, traceability and especially the information of it to the end of the value chain changed the business. Interesting is that not the industry but the consumers, motivated by their food safety concern, and government bodies were the drivers behind the change. The energy sector is also facing a similar upheaval, partly due to legislation (e.g. liberalization of the markets) and partly due to rising energy prices. Consumers will play an equally important part in this sector as in the food industry. The impact of user / consumer concerns, besides safety, such as “save the planet” (ecological), “doing things right” (social responsibility and responsiveness), “caring” (e.g. take care of consumers’ health) will have an impact on business, regardless of the industry you are in. The impact (be it limited, moderate or substantial in negative of positive way) will depend on your efforts. For most industries this is no “shocking news” but the difficulty is not in understanding new ideas, but in escaping from old ideas. Consequently, companies better address and respond to it over time. Timely adopters (rather than first movers) can obtain a sustainable advantage and find a competitive edge. Once this stage has been reached, the risk can be found in the temptation to lay back and stop evolving. The basis for today’s competitive edge will, however, over time become mainstream. This means that “today’s competitive edge is tomorrow’s competitiveness” 4as in Fig. 3 below. Therefore, companies need to continuously reinvent themselves so that they can keep their competitive edge. Corporate Sustainability helps companies reach this goal. Figure 3: Visualization of Competitive Edge Time high COMPETITIVENESS COMPETITIVE EDGE (needed for existence) (needed for excellence) Relevance for Markets (buyers) TRASH BIN FOOLS GOLD low low Different from high Competitors “The challenge now is to create a unified environmental and social responsibility policy for the whole group. … A company that behaves ethically stands out from the competition in its field”.5 4 Petri Uusitalo (North) during Finpro’s A2 workshop, February 2008 5 Kati Ihamäki, environmental director at Finnair in “Blue Wings”, April 2008 © Finpro -9-
  • 10. Whitepaper: Doing good, doing better. 6 Sense of urgency? It happened in food, it is happening in energy … Do You doubt it will happen in Your industry, affect Your business? It is a matter of time and timing is cru-cial in business. The timeframe depends on the industry’s user/consumer exposure and connectivity. This connectivity is linked to the consumers’ wellbeing, i.e. when products or services have an impact on consumers’ health or the health of their children. Your industry might be stronger connected than expected. Therefore, we propose for you to analyze Your industry sensitiveness, to follow what happens in other industries and to act accordingly in order to turn this opportunity into a competitive advantage (rather than a risk). Finpro industry and cross-industrial expert teams can be your partner in this process. 7 Finpro’s Role Finpro’s role is, together with other national institutions, to support Finnish companies in their internationalization processes. We try to reduce the risks and costs associated with doing business abroad. A further important part of our work is to identify changes in the business landscape world wide and to enable Finnish companies taking advantage of these. Today, sustainability is something which poses both great risks and great opportunities for Finnish companies. • Analyzing different options Here Finpro can help in analyzing different options on how to handle specific sustainability issues for individual industry sectors. We can provide benchmarks and best cases on how to deal with them, provide the opportunity to discuss with companies, organizations or experts from other countries and regions. Thanks to our extensive network, this is something we can do at both a global and local level. • Identify opportunities We are in the unique position to be represented through local experts on all major markets. This makes it possible for Finpro to identify opportunities and potentials related to sustainability issues and relevant for the Finnish industry at an early stage. Together with our Finnish innovation partners, we can conceptualize these opportunities and test them with the companies on foreign markets. • Utilizing “Cross-Pollination” Sustainability is something which does not halt before a specific industry sector or segment. It disperses throughout the complete industry and the complete value chains. Through the different Core Industries and the cooperation between them, Finpro possesses the means to see the big picture and to be able to act accordingly. © Finpro - 10 -
  • 11. Whitepaper: Doing good, doing better. 8 Authors Kristina Modée, Senior Consultant and Market Expert for Energy & Environment Email: kristina.modee@finpro.fi, Tel. +49 172 863 14 29 Marc Borremans, Head of Finpro’s Construction & Logistics Industry Email: marc.borremans@finpro.fi, Tel. +32 477 234 852 © Finpro - 11 -
  • 12. Whitepaper: Doing good, doing better. 9 Appendix 9.1 Corporate Governance CG concerns the impact of management-, control- and incentive structures on company performance. Thus the main questions related to CG are: Who within the company should make and/or exert influence on decisions? And how can managers be controlled so that they act in accordance with company goals? [9]. 9.2 Corporate Citizenship For corporate social activities several concepts are used of which corporate citizenship is one. This is usually defined as all activities in addition to the normal operations of a company that try to solve societal problems. Normally, they are limited to the local communities of a company and relate to e.g. donations, sponsoring, corporate foundations and corporate volunteering6 [4]. 9.3 Corporate Sustainability Corporate sustainability means that a company systematically tries to improve its operational impacts not only to deal with ecological and social sustainability challenges, but also in order to meet economic targets. This is often referred to as the “Triple Bottom Line” which stands for the expansion of traditional reporting framework to take into account environmental and social performance in addition to financial performance [10]. A company trying to act in a sustainable way faces different challenges (see also fig. 4): 1. Ecological challenge – how can the negative environmental impact of corporate operations be minimized? (ecological effectiveness) 2. Social challenge – how can socially undesirable effects of corporate operations be minimized? (social effectiveness) 3. Economic challenge concerning the management of environmental and social aspects – how can environmental and social activities be implemented as cost efficient and profitable as possible for the company? (ecoefficiency and socioefficiency) 4. Integration challenge – consolidation of the above mentioned challenges as well as the integration of sustainability management into the general management of the company [11]. 6 Corporate Volunteering describes the activity in which company employees (more or less voluntarily) are directly involved in the work of social projects. The triple bottom line-phrase was first coined by John Elkington who later founded the British consulting firm SustainAbility in London. © Finpro - 12 -
  • 13. Whitepaper: Doing good, doing better. Figure 4: The four sustainability challenges facing a company Economic Effectiveness Economy 3 Eco-Efficiency 4 3 Socio-Efficiency Integration Ecology Social 1 Eco-Effectiveness 2 Socio-Effectiveness Source: Schaltegger et. Al (2008): Sustainability Management in Business Enterprises, p. 6 10 Literature [1] Dyllick, T. & Schmid-Schönbein, O. (2006): Nachhaltigkeit in der Unternehmens-strategie: Mainstreaming Sustainability. 8. St. Galler Forum für Nachhaltigkeitsmana-gement. Institut für Wirtschaft und Ökologie, Universität St. Gallen / E2 Management Consulting [2] Schaltegger, S. & Petersen, H. (2007): Einführung in das Nachhaltigkeitsmanage-ment. MBA Studiengang Sustainability Management. Centre for Sustainability Mana-gement, Leuphana, Universität Lüneburg. [3] Valentino, B. (2006): Corporate Social Responsibility – Corporate Social Innovation. 4th Forum on China Corporate Social Responsibility. Beijing, Oct. 18, 2006. [4] Loew, T. et al (2004): Bedeutung der CSR-Diskussion für Nachhaltigkeit und die Anforderungen an Unternehmen. Kurzfassung. future e.V., Institut für Ökologische Forschung, Bundesministerium für Umweltschutz, Naturschutz und Reaktorsicherheit. Berlin [5] Umweltdialog (2008): Nokia erlebt Imageverlust, Marken-Monitor BrandIndex. http://www.umweltdialog.de/umweltdialog/unternehmen/2008-01-21_Nokia_erlebt_Imageverlust.php [6] Skapinger, M. (2008): “Taking a hard line on soft soap”. The Monday Interview. Fi-nancial Times, 07.07.2008. p. 16 [7] Porter, M. & Kramer, M. (2006): „Strategy & Society. The Link between Competitive Advantage and Corporate Social Responsibility.” Harvard Business Review. December 2006 [8] Business in the Community & Arthur D. Little (2003): The Business Case for Corpo-rate Responsibility. Beacon Press, UK. [9] Schwerk, A. (2007): Strategisches gesellschaftliches Engagement und gute Corpo-rate Governance. Backhaus-Maul, H. et al. „Corporate Citizenship in Deutschland“. VS Verlag [10] Wikipedia (2008): Triple Bottom Line. http://en.wikipedia.org/wiki/Triple_bottom_line (Accessed: 17.06.08) © Finpro - 13 -
  • 14. Whitepaper: Doing good, doing better. [11] Schaltegger, S. et al (2007): Sustainability Management in Business Enterprises. Concepts and Instruments for Sustainable Organisation Management. Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, Berlin © Finpro - 14 -