Corporate Social Responsibiliity In The Hospitality Industry

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A white paper on current CSR practices in the hospitality industry and the significant variance between espoused values and the necessary performance based measurement to support them.

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Corporate Social Responsibiliity In The Hospitality Industry

  1. 1. Corporate Social Responsibility in the Hospitality Industry 1Running head: Corporate Social Responsibility in the Hospitality Industry Corporate Social Responsibility in the Hospitality Industry Cecil J. Hopper September 16, 2010
  2. 2. Corporate Social Responsibility in the Hospitality Industry 2 Introduction The popularity of corporate social responsibility, or CSR, has gained steadily since the1990s in response to the shareholder value revolution that swept the capitalist world earlier in20th century (Programme, 2002). Philanthropic activities are common place and business ethicsis so widely regarded as essential to commerce that most MBA programs now require numerouscourses on the subject. In the hospitality industry, green promotions are immensely popularbecause of the inversely proportional relationship between production and expenses. What is notto love about a marketing strategy that actually decreases costs while increasing revenue?However, like most things in life, with great success comes great responsibility and recentstudies indicate that businesses are failing to fulfill the commitment that comes withimplementing corporate social responsibility, and in particular, environmentally consciousmarketing campaigns. Are we seeing a new round of unethical business practice based on theproven marketability of social efforts? Moreover, should CSR be implemented at all, or do suchefforts require organizations to be remiss in their fiduciary duties to shareholders? There aresome organizations which have successfully integrated CSR programs and are making a genuineimpact on stakeholders and their communities, so what is the answer and why are there so manyopposing views? CSR Gone Wrong CSR initiatives can go wrong in a number of ways and abundant examples are readilyavailable throughout the hospitality industry. In any business, you cannot manage what youcannot measure and lack of timely quantitative analysis is a major challenge in optimizing CSRinitiatives. Quite simply, there is “a significant gap between the business and sustainability goalscompanies are setting for themselves and what they are actually doing to attain them”
  3. 3. Corporate Social Responsibility in the Hospitality Industry 3(Riddleberger, 2009 para. 5). Reducing carbon dioxide is probably one of the most popular CSRinitiatives in the market place today, but only 19 percent of respondents in a recent survey byIBM on sustainability issues and their place in corporate strategies were collecting emissioninformation often enough to make an impact. The majority surveyed did so every three months,which is sufficient to populate quarterly reports and satisfy shareholders, but not adequateenough to bring about sufficient organizational change and decrease environmental impact(Riddleberger, 2009). What remains to be seen is whether this lack of thorough follow through isan intentional practice meant to deceive consumers, ignorance, or an example of new culture inits infancy. Countless hotels, resorts and restaurants are already marketing CSR, highlightinginitiatives to reduce environmental impact, so are they also falling victim to the same challenges? When the absence of adequate follow through becomes an intentional effort to minecorporate social responsibility for revenue generating opportunities in spite of the negativeeffects to the community, companies are then engaged in the act of Greenwashing. In a shockingfinding, the IBM sustainability survey reports that only 30 percent of respondents are collectingdata often enough to make necessary strategic decisions to improve sustainability in 8 maincategories, but 69 percent are using CSR to help create new revenue generating tactics(Riddleberger, 2009). In fact, companies like Royal Dutch Shell, Coca-Cola and Nestle allactively market their CSR programs, and have all been accused of Greenwashing. This is notsurprising considering that in a 2007 study of 454 products, 26 percent were found to be unableto substantiate the environmental claims they made (TerraChoice, 2007). CSR Benefits With numerous firms having difficulty executing their CSR programs and with manymore involved in Greenwashing, does CSR have a legitimate place in business? Like any good
  4. 4. Corporate Social Responsibility in the Hospitality Industry 4capitalist would suggest, that is up to the consumer to decide and in a recent study, 76 percent ofconsumers report a willingness to pay more for a product from a socially responsible companyand over half are willing to pay 6 percent or more (Lester, Osman, & Beil, 2009). In thehospitality industry, sustainability issues are of key importance amongst corporate travelers. Athird of business travelers are reported to look for hotels that are environmentally conscious.Even more important in a time when hospitality firms are struggling with profitability, 28percent of those surveyed reported a willingness to pay up to 10 percent more for greenaccommodations (Stark, 2009). Examining CSR Those are very encouraging numbers for any business and it is great news for anyhotelier. So why then even examine the legitimacy of sustainability practices? With countlessreports, articles and blogs promoting everything from saving electricity by installing new lightbulbs to marketing recycled amenities, is another assessment of green practices really necessary?Each of those questions is legitimate until one considers the findings by IBM’s sustainabilitysurvey. If there is indeed such a gap between the promises being made in marketing campaignsand those results being cultivated by organizations, how long will it be before the purchasingpublic becomes aware? Hospitality organizations need to be as committed to improvingsustainability efforts as they are to marketing them and in order to accomplish this, accurate datamust be collected regularly so that management can make essential operational modifications.Failing to do so means falling short of ethical obligations and should be scrutinized to the sameextent as any other form of deceptive advertising.
  5. 5. Corporate Social Responsibility in the Hospitality Industry 5 CSR in Practice In order to address the questions posed by IBM to the international business community,but gain statistics specific to the hospitality industry, an informal survey was conducted online.Respondents were solicited from the following group discussion boards on LinkedIn.com:Hospitality Superstars, Hotel Industry Professionals Worldwide, Hotel Online Distribution &Hotel Revenue Management Professionals group, HSMAI and Revenue ManagementProfessionals. The results of this assessment demonstrate little difference from the CSR practicesof hospitality industry professionals and the companies surveyed by IBM and are provided inAppendix A. The survey came with three main findings. First, hoteliers are aware of CSR’spowerful marketing potential, but have only recently begun integration with marketing strategies.Second, hoteliers mean well, as the majority of respondents reported setting sustainability goalsfor their organizations. Third, the majority of hoteliers are failing to effectively conduct thenecessary performance based measurements essential to attaining sustainability goals. Amongst those surveyed, 80 percent reported that CSR is a part of their marketing orrevenue generating strategy. Although that finding was not surprising, the relative maturity ofthese efforts was unexpected. The majority of respondents have only recently integrated CSR,doing so within the last two years and 25 percent have only incorporated CSR strategies withinthe past year (Hopper, 2010). This is important to note because with such little experience in acomplex arena, it is no wonder that appropriately executed approaches are in such short supply.Studies such as this will be important for hoteliers so that they can gain sufficient information tocreate and effectively implement CSR. Cautious selection of sustainability efforts and carefulanalysis of those initiatives will assist hoteliers in avoiding some of the pitfalls which haveplagued other industries.
  6. 6. Corporate Social Responsibility in the Hospitality Industry 6 It appears as though the hotel industry is on the right track, as industry professionals haveidentified the opportunities CSR integrated marketing strategies can provide for businesses.Even more significant, 80 percent of respondents are setting sustainability goals like reducingwater usage, carbon dioxide emissions, electricity, etc (Hopper, 2010). This is important toorganizations because doing so not only increases goal-relevant behavior, but discourages workhabits that are goal-irrelevant (Kreitner & Kinicki, 2008). For instance, associates inorganizations that have set goals to reduce water usage will be just as motivated to decreasewater usage as they are to avoid practices that are known to waste water. Although this conceptseems overly simplistic, it is important to an overall strategy that is aimed at building awarenessof environmental impact. Additionally, the importance of goal setting as a motivating techniquecannot be understated, as there is evidence to support a directly proportional relationshipbetween intrinsically motivated employees and shareholder returns (Serchuk, 2009). Of thesurvey findings, evidence of sufficient goal setting was the most encouraging. Nevertheless,there is one essential component to the successful execution of goal achievement which is absentand that is measurement. The most impactful finding of this study indicates that hoteliers are doing no better thanother industries when it comes to conducting timely performance based measurements in aneffort to meet or exceed sustainability goals. Of those respondents who have integrated CSR intotheir marketing strategies, 47 percent conduct no performance based measurements.Additionally, of the 53 percent that measured results regularly, only half did so more than once aquarter (Hopper, 2010). In order to bring about change, organizations need to measure theirprogress often enough to implement the systemic modifications required to mitigateenvironmental impact and that is only occurring within a fraction of the companies surveyed
  7. 7. Corporate Social Responsibility in the Hospitality Industry 7(Riddleberger, 2009). The similar findings from IBM and LinkedIn.com should be encouragingto anyone doubting the accuracy of the hospitality survey. Whereas the IBM study found that 69percent of respondents focused on CSR as a revenue generating strategy, the hospitality studyfound that 80 percent did so. The slight variance can be attributed to the manner in which thesurveys were conducted, as the hospitality study reached out to organizations online, elicitingresponses from those who already had an inertest or involvement in CSR. In either case, both thedata sets indicate that additional work is required in order for corporate social responsibility tolive up to the latter part of its name. Consequences of Responsibility Although current business environments dictate that organizations are mostly intrinsicallymotivated to conduct or accurately report on CSR, future regulation may provide more extrinsicmotivation. In an example of the augmented responsibility companies have in the eyes of theconsumer, the legal element of social responsibility has become increasingly regulated byGovernments, which comes as a direct result of citizen demand. Not only have consumersincreased their expectation of ethical business practices, but judicial systems are alsotransforming to reflect changing of civilian sentiment. In fact, Denmark was the first country towrite CSR into law. On January 1, 2009, the Danish government began requiring its largestcompanies to include CSR information its annual reports. (Danish Commerce and CompaniesAgency, 2009). Although hotels, resorts and other organizations stateside are in no immediatedanger of legal repercussions due to CSR missteps, events such as this should raise awarenessamongst hoteliers, restaurateurs and marketers to not only provide sufficient evidence of socialand environmental impact, but to be transparent about the actual efforts put forth to achieve thoseresults.
  8. 8. Corporate Social Responsibility in the Hospitality Industry 8 Challenges to Philanthropy In the hospitality survey, the issue of philanthropy was also addressed, as it is anotherimportant component in corporate social responsibility. Among those queried, 20 percentreported that philanthropic activates were part of their CSR strategy (Hopper, 2010). Although asmall percentage of the overall respondents, it is worth mentioning that even philanthropy has itsopponents. CSR critics believe that if a firm is unable to fuse their business plans with CSRinitiatives, they should only contribute to causes for which the company is in a better position tobargain with than shareholders. Such an example would be a coffee company contributing to fairtrade organizations or a recruiting firm contributing to professional development programs inemerging markets. In both instances, the firms donating would most likely have an existingrelationship due to their complimenting business models and would be better positioned to makecontributions that would optimize social impact than would an individual. Unless such anarrangement can be crated, critics state that executives should not peruse personally preferredcauses with corporate donations, as this would be a conflict of interest. For example, if a GMdecided to contribute to a Save Our Shores, an organization dedicated to stopping the threat ofUS offshore drilling, some stakeholders in favor of tapping these oil supplies would takeopposition. In such a situation, the ethical alternative would be redirect profits to shareholders sothat they could contribute to the society in a manner of their choosing (MOR, 2009). The primary objective of any business is quite simple: to maximize shareholder wealth(Brigham & Ehrhardt, 2008). Actions such as the aforementioned philanthropic activities whichredirect earnings to causes that neither increase shareholder wealth nor support organizationalobjectives are irresponsible (Brigham & Ehrhardt, 2008). In fact, because businesses have a
  9. 9. Corporate Social Responsibility in the Hospitality Industry 9fiduciary duty to shareholders to abide by this primary objective, executing any strategy whichundermines this goal, no matter how well intended, is immoral. This is obviously more pertinentto those hospitality organizations operating within a publicly held company, however; conflictingstakeholder opinions are just as important for those independents and privately held companiesconsidering philanthropic activities. When CSR Works When a corporate social responsibility strategy is in lockstep with a company businessmodel, then that strategy becomes successful, sustainable and most importantly, profitable. Ashining example is Reuters Market Light, an informational service created in 2007 that deliverscrop, weather and commodity information via mobile phones to farms in rural India (MOR,2009). This company is contributing to society in a way that is profitable, rather than beinglucrative and then allocating a small percentage to the most popular cause of the day, orcommitting 80 percent of its marketing capital to highlight environmental products that comprisea fraction of their overall business. There is no need to increase the accuracy and submissiontimes of data specifically to support CSR, nor do they need to conduct a specific marketingcampaign to build awareness of social contributions. As this organizations efforts to increaseprofitability improve, so will contributions to society. The Sustainable Tourism Paradox It is difficult to imagine such a perfect balance in the hospitality industry, as many hotelsand resorts derive their profit from increasing human passage to environments that wouldotherwise benefit from reduced traffic. In the resort market, the author believes that outside ofurban areas which have already devastated natural environments, environmentally friendly, orsustainable tourism is a contradiction in terms.
  10. 10. Corporate Social Responsibility in the Hospitality Industry 10 Take for instance the new Swedish luxury property, Treehotel. The idea behind theinnovative new property, which is located in the forest treetops of Swedish Lapland, is that thehotel blends with the natural environment and minimizes physical and visual disruption to thelandscape. Combine this with the locally cultivated and sustainable materials used inconstruction and what results is an environmental marketing extravaganza poised to penetratemultiple markets ranging from upscale leisure clientele to environmental enthusiasts, all underthe guise of sustainability (MacCarthy, 2010). However, with plans to create 20 units and theaverage European hotel occupancy at 61 percent, this equates to 12.2 occupied units per night or4,453 rooms per year (Brandt & Kenna, 2010). Should each of these rooms be occupied by twoguests, the result would be an additional 8,906 persons vacationing in an ecosystem otherwiseuninhabited by human beings. One of the primary challenges that hotel guests bring to natural environments is theproduction of solid waste, which in Sweden is reported to be 5.7kg per week per household(Finnveden, Johansson, Lind, & Moberg, 2000). An estimated solid waste output can bedetermined by converting the average number of occupied room nights into weeks, a practicethat is used in the timeshare industry. With 52 weeks in the year and 12.2 occupied units perweek, the total estimated number of occupied weeks is 634.4 which would equate to 3,616.08 kgof solid waste per year. Although this number is staggering, solid waste disposal is but onenegative externality associated with human traffic. Additional issues which also need to beaddressed include: water consumption, electricity usage, toiletry transportation and wildlifehabitat loss. However contradictory CSR in the form of sustainable tourism is in the resort industry,some hospitality products can achieve social responsibility in urban markets, others are efficient
  11. 11. Corporate Social Responsibility in the Hospitality Industry 11in creating sustainable tourism efforts at existing locations that mitigate damage to fragileecosystems and even more simply reduce environmental impact through sustainablehousekeeping practices. The element by Westin is an example of a green concept that attempts tointegrate the urban hotel business model with sustainability initiatives. By requiring brand wideLEED building certification and incorporating amenities that will assist guests with keeping theirgreen routines while traveling, this new product is positioned to effectively target thoseconsumers willing to pay more for green products while also capitalizing on the social benefitsof green facilities (Starwoodhotels.com, 2008). Conclusion As CSR initiatives in the hospitality industry mature, there will no doubt be improvementin the practices designed to support them. Part of the problem with conducting performancebased measurements is the time consuming nature of data collection and aggregation. Someorganizations still struggle with the information gathering required to facilitate successfulrevenue management and marketing activities, much less the additional personnel, metrics andcoordination needed to amass sufficient weekly sustainability results. As hoteliers and hospitalityprofessionals gain experience in this new arena, the processes used to facilitate data collectionwill increase in efficiency and become more prevalent in hotels, resorts and restaurants. One wayto aid this advancement is increased industry collaboration, as the most successful companieswill seek out the assistance of industry groups, customers and third parties (Riddleberger, 2009).Just like comparing average daily rates in a hotel’s competitive set to attain the best revenue peravailable room, hotels, resorts and restaurants should compare CSR metrics with analogousorganizations to render the best results.
  12. 12. Corporate Social Responsibility in the Hospitality Industry 12 There are as many opinions on the CSR debate as there are business models, and thereinlies the issue. What works for one organization does not necessarily work for all. However, withbusiness practices becoming more transparent and social challenges presenting themselves at anincreasing pace, CSR will continue to play an escalating role in the daily lives of hoteliers andrestaurateurs. As those responsibilities increase, companies will need to improve CSR datamanagement, present it to shareholders and stakeholders on a more frequent basis and advancethe processes devised to take action on those results. These efforts will help distinguish the linebetween inefficient execution and unethical practices, such as Greenwashing, so that corporatesocial responsibility is able to thrive as a prolific hospitality business practice.
  13. 13. Corporate Social Responsibility in the Hospitality Industry 13Appendix A
  14. 14. Corporate Social Responsibility in the Hospitality Industry 14
  15. 15. Corporate Social Responsibility in the Hospitality Industry 15
  16. 16. Corporate Social Responsibility in the Hospitality Industry 16 ReferencesBrandt, N., & Kenna, A. (2010, August 16). European hotelslLure investors as properties hold their value. Retrieved august 16, 2010, from Bloomberg.com: http://www.bloomberg.com/news/2010-08-16/european-hotels-lure-investors-as- properties-hold-their-value-in-downturn.htmlBrigham, E. F., & Ehrhardt, M. (2008). Financial Management. Mason: Cengage Learning.Finnveden, G., Johansson, J., Lind, P., & Moberg, A. (2000). Life cycle assessments of energy from solid waste. Stockholm: Stockholms University.Hopper, C. (2010, September 19). Corporate Social Responsibility in the Hospitality Industry: Survey. Retrieved from Survey Monkey.com: http://www.surveymonkey.com/MySurvey_Responses.aspx?sm=m9L%2b1wpZ%2bxvx 3q3sFKguqSrXSwSoO92zK44VGMipIYY%3dKreitner, R., & Kinicki, A. (2008). Organizational Behavior. New York: McGraw-Hill.Lester, B., Osman, S., & Beil, E. (2009, June). Corporate Citzenship Study. Retrieved July 12, 2009, from tripplepundit.com: http://www.burson- marsteller.com/Innovation_and_insights/blogs_and_podcasts/BM_Blog/Documents/Corp orate%20Citizenship%20Executive%20Summary.pdfMacCarthy, C. (2010, July 24). A luxury hotel in Swedens treetops. Retrieved August 18, 2010, from Financial Times.com: http://www.ft.com/cms/s/2/75d76d40-95e8-11df-bbb4- 00144feab49a.htmlMOR, R. V. (2009, April 20). The Key to Successful Corporate Social Responsibility in India. Retrieved July 12, 2009, from Wall Street Journal : http://online.wsj.com/article/SB124019930116534151.html
  17. 17. Corporate Social Responsibility in the Hospitality Industry 17Programme, U. N. (2002). Good News & Bad The Media, Corporate Social Responsibility and Sustainable Development. The Beacon Press.Riddleberger, E. (2009, July 1). Corporate Social Responsibility: Much More Talk Than Action. Retrieved July 12, 2009, from Forbes.com: http://www.forbes.com/2009/07/01/corporate- social-responsibility-leadership-citizenship-ibm.htmlSerchuk, D. (2009, August 24). Shareholders Win When Employees Are Motivated. Retrieved September 28, 2009, from Forbes.com: http://www.forbes.com/2009/08/23/employee- motivation-stocks-intelligent-investing-returns.htmlStark, A. (2009). Communicate your green commitment . Hotel & Motel Management , 224 (1), 8.Starwoodhotels.com. (2008, April 21). Starwood newest hotel brand launches this summer making it chic and easy to be eco-friendly. Retrieved September 29, 2009, from starwoodhotels.com: http://www.starwoodhotels.com/Media/Graphics/Microsites/Promotions/EL_LEED/ELM 9578_PressRelease_R5.pdfTerraChoice. (2007, November 1). The "Six Sins of Greenwashing". Retrieved July 12, 2009, from TerraChoice.com: http://www.terrachoice.com/files/6_sins.pdf

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