The Effects of CSR integration level on
organizational performance outcomes in
knowledge-based industries
Amsterdam Business School Master of Business Administration
Author: Igor Mikhalev (10241485)
mail@imikhalev.com
Academic Advisor: Prof. Dr. J. Strikwerda
Table of Contents
Table of Contents ... 2
Abstract ... 3
I. Introduction ... 4
II. Materials and Methods ... 6
A. CSP-CFP link ... 6
B. Relation of CSR integration level to CSR-FP link ... 11
C. CSP measurement methods ... 11
D. Integration level – from standalone to integrated into the corporate agenda/strategy ... 15
E. The case at the company ... 18
F. Survey model ... 24 G. Multi-criteria analysis... 25 III. Results ... 27 IV. Discussion ... 30 V. Conclusion ... 32 VI. References ... 34 VII. Appendices ... 37 A. Survey form ... 37
Abstract
The question of whether organizations should invest in CSR is being actively discussed in
academic literature. However, there is no common perspective on how to justify investments in CSR, where to start first, and how to measure the related (organizational) performance
outcome. In this paper, I took the predominantly positive relationship between Corporate Social Performance on Corporate Financial Performance (CSP to CFP link) as a given, as it has already been backed up by multiple research groups (Boaventura et al., 2012, Margolis &
Walsh, 2003). In my research I make an attempt to go beyond the CSP-CFP relationship, in order to investigate the core component that makes this CSP-SFP relation significantly strong. My focus therefore is the exploration of moderational relationship between the level of CSR
integration in organizations operating in knowledge-intensive industries and the CSP to CFP link itself. My research outcomes based on analysis of results show a substantially positive
correlation between the CSR integration level and the CSP to CFP link, suggest that in order to pursue optimum efficiency in a company’s CSP investments, one needs to focus on deeper integration of CSR into the organization in question.
Theoretic part of my research culminates into an attempt to suggest a practically applicable advice to ITethics, company sponsoring this paper. In order to do that, I further explore the CSR integration level variable in relation to the firm’s adaptive efficiency and innovation capability. I am unable to disclose names of respondents and evaluated companies, however this does not hinder the research outcomes and provides a solid foundation for further investigations on the subject.
I.
Introduction
Businesses in many industries are increasingly confronted with environmental and social
challenges. Rather than just focusing on short-term profits, stakeholders already expect firms to meet a triple-bottom line of economic, environmental and social value creation (Elkington, 1997). The increasing importance of sustainable development creates some new risks, but importantly, also new opportunities for businesses. Capturing these opportunities requires firms to come up with innovative solutions for tomorrow's markets expecting a social component integrated into a firm’s product or services, as well as its internal operating principles, relationships with environment, customers, and the rest of the stakeholders.
Sustainability seems to begin emerging as a valid topic for a next business case in corporations, and achieving “sustainable growth” (Ki-moon and Gore, 2009) is a popular theme in the social and political discussions.
Same time, a review of studies on CSP-CFP, suggests there is a mostly positive relationship, with little evidence of a negative relationship (Margolis & Walsh 2003). There are numerous
discussions, various studies, and partially contradictory findings on the CSP-CFP link, however during the past two years up until today, these started to converge, rendering the prevalence of consensus on existence of positive CSP-CFP relationship and uncovering a number of additional findings, caveats, and conditions to be taken into account. I found it more useful to investigate forces beyond the strength of CSP-CFP relationship based on CSR integration level (CSRINT) in knowledge-intensive industries.
I argue, that in knowledge-intensive industries, technology and software development in particular, in order to deliver on market’s expectations and exploit the innovation gap (see section 2D), benefit from positive differentiation, as well as from the associated financial performance impact, and develop strong adaptation and transformation capabilities in order to survive cycles of disruptive innovation, CSR efforts should be strategic, not responsive (Porter & Kramer, 2006), and most importantly, in order for it to be efficient and effective, CSR objectives should be codified throughout such aspects of organizational management as planning cycles,
HR, functions of executives, finance, IT, corporate culture, and organizational structure. This introduces the concept of the CSRINT that I present and explore further in this paper.
Some aspects of this research paper will interlink with objectives and advice to be delivered to the company ITethics sponsoring this research, however, outcomes of this paper are generally applicable to European and American organizations operating in knowledge-intensive
II.
Materials and Methods
In this research I am building on a variety of existing concepts, methodologies, and
management theories. In order to understand the thought process in my paper, below I list the main milestones of this process.
1. Understand CSP-CFP relationship and its history
2. Discuss influence of CSR integration level (CSRINT) on CSP-CFP link
3. Discuss available methodologies to measuring CSP performance and select the one of particular interest to this research, the one based on the outcome of one of the leading reputation measurement agencies, assuming reputation as a reliable proxy to measuring the actual state of CSP
4. Construct the main hypothesis, supporting the positive moderational influence of CSRINT on CSP-CFP link
5. Come up with a survey allowing for measuring CSRINT
6. Utilize multi-criteria decision evaluation approach in order to reliably elicit necessary insight from the CSRINT survey
7. Perform correlation analysis in order to statistically evaluate the main hypothesis Lastly, the resulting CSRINT concept will be applied to the practical case question, the assignment given by ITethics.
A. CSP-CFP link
It has become common for most European and American (and currently the trend continues in Asia) companies to engage – sometimes rigorously, sometimes as slow followers – in Corporate Social Responsibility (CSR) initiatives, manifested in Corporate Social Performance (CSP). In the definition of Wood, 1991, CSP is defined as ‘a business organization's configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and
observable outcomes as they relate to the firm's societal relationships’. From the financial perspective, it looks obvious that management started to think about the financial feedback of CSP activities.
Interestingly, researches have been debating the intriguing relationship between corporate financial performance and corporate social performance back in 1960s (Bragdon and Marlin, 1972). In the last years the relationship between CSP and CFP has by far become one of the most prominent research topics in the Corporate Social Responsibility and Sustainability
publications. Multiple studies on the relationship between these two variables were published. Van Beurden and Goessling (2008) include more than 35 studies, which were published after 1990 in their literature review on the CSP-CFP relationship.
Figure 1 – Scopus.com research trend on CSP-CFP
Weisheng et al. (2014) have just completed their study, reviewing 84 preceding research papers. The results of the authors' exploration of the overall CSP-CFP relationships in the 84 reviewed studies between 2002 and 2011 show that all the articles except for one investigate the causality of CSP on CFP, and a positive causal relationship between CSP and CFP is
confirmed by the majority. However, there is also a relatively large number of articles (21) reporting a non-significant causality of CSP on CFP. Only a very small number of articles point to a negative relationship between CSP on CFP. Conversely, only 25 studies amongst the 84
consider the impact of CFP on CSP. Amongst them, 15 studies confirm the positive impact of CFP on CSP.
Orlitzky et al. (2003) explored, in particular, the bidirectional causality between CSP and CFP. By examining the bidirectional causality within the same company, it is possible to see whether there is a virtuous or vicious cycle between the two variables with quick cycle times or
concurrent bidirectionality. Orlitzky et al. (2003) reported that CSP and CFP are in the circular dependency: companies yielding better revenues spend more because they do it, while same time, corporate social performance helps them to become more financially successful. Amongst the all the studies under their research, 37 examine the bidirectionality between CSP and CFP. Within these 37 studies, the detailed causal relationships in two directions diversify in different combinations (e.g. positive for CSP- > CFP but negative for CFP- > CSP), making it impossible to draw a conclusion on whether there is a virtuous or vicious cycle between CSP and CFP. The research findings thus contradict Beurden and Gössling’s (2008) work, which reveals that there is indeed clear empirical evidence for a positive correlation between corporate social and financial performance. These findings, however, are not significantly different from those of Margolis and Walsh (2001) and Orlitzky et al. (2003). Persistent inquiries into the overall relationship between CSR and CFP thus still seem a source of further investigations.
However, notwithstanding the impressive amount of studies (see figure 1), most of the recent researchers utilize data of the rating agency KLD (Kinder, Lydenberg and Domini). KLD
information was referenced as ‘the research standard at the moment’ (Waddock, 2003, p. 369). Regardless of what KLD can deliver, it is obvious, that this data alone cannot be used in all cases studying the link between CSP and CFP. Other studies use CSP data of the international rating agency Sustainalytics. CSP is envisioned as multidimensional structure that contains different activities in various areas (Inoue and Lee, 2010; Godfrey and Hatch, 2007). Details of this and other methods will be covered in the next chapter.
All in all, investing in CSP seems currently a “right thing to do” from the perspective of current generation of managers (see figure 2), however very little can be done to justify how and why exactly such investments will materialize in a “well-defined” performance improvement. As earlier mentioned, in this paper I focus only on influence of CSR integration level on CSP-CFP link, leaving the discussions on CSP-CFP causality aside and assuming a positive relationship
between CSP and CFP. In order to identify relative success and hence performance of CSP efforts, I use Reputation Index as a proxy. As it will be covered in details in the next chapter, I use the reputational study of Reputation Institute and focus particularly on organizations within Netherlands. Reputation Institute utilizes derived from ISO 26000 7-dimentional structure for such analysis:
1. Products and Services 2. CSR innovation 3. Workplace/staff 4. Governance 5. Citizenship 6. Leadership 7. Performance
Figure 2 – CSR-based perceived drivers of organizational performance and related outcomes
An important aspect in CFP-CSP relationship is the industry a company operates in. It is reasonable to assume that financial results of companies in specific industries might strongly correlate with a specific CSR activity that drives it (Inoue and Lee, 2010; Chand, 2006). Therefore the present study focuses on knowledge—intensive industries to minimize these industry-specific effects for industry-classes.
B. Relation of CSR integration level to CSR-FP link
As presented by Barnett and Salomon (2012), the U-shaped distribution of CSP-CFP relationship suggests that the highest CFP is achieved when CSP is significantly high. It was found, that companies with lower CSP have higher CFP than firms with average CSP, however firms with higher CSP have the highest CFP. This supports the theoretical argument that social
responsibility can be transformed into financial profit. This invites us to build the hypothesis H1 in order to elaborate on this research commissioned by ITethics.
Figure 3 – illustration of the main hypothesis
Hence H1:
Level of CSR integration positively moderates the relationship between CSP and CFP
As it is discussed in the next chapter, I argue that integrated approach to CSR significantly advances a firm’s CSP.
C. CSP measurement methods
In order to depart towards surveying and measuring CSR integration level, let us discuss currently available and used in contemporary research CSP measurement methods, as it will allow us to later on evaluate existence of relationship between CSP-CFP link and CSRINT, or lack thereof. Some of these methods are very technical and can be used in large-scale statistical
studies. In this case, I have selected the reputation measure-based CSP measurement method as described below.
1. Content analysis
This method is based on the mechanical evaluation of the content related to social
responsibility in relation to the company in question. Counting words, sentences, “mentions” on twitter or Facebook would be some examples of such method. Using this method assumes, that disclosure of CSR and CSP-related information is a good proxy for CSP itself.
2. Surveys carried out using questionnaires
Questionnaires can be sent to company managers and regular employees, analyzed by
researchers who after that will elaborate on the received answers and would give the appraisal of the CSP level by using their expert judgment and other survey evaluation techniques. This approach will not be entirely objective, as such questionnaires usually land on tables of company executives responsible for communication and therefore get skewed towards the desirable by a company outcome.
3. Reputational measurement
Such reputational measurements are usually carried out by rating agencies that will use certain subjective definition of company image or social performance in order to draw a specific rating score. Moskowitz and the journal, Business and Society Review, were one of the first to develop indicators of this type in 1972, one of the most used to date reputation indexes is Corporate Reputational Index (CRI). Fortune (journal), works on this classification of US companies using CRI starting 1983, and is constantly improving the approach using feedback of niche
professionals. The use of reputational ratings to come up with CSP measures dictates the adherence to the two hypotheses: (1) the “reputation” perceived by third parties is a legitimate proxy of responsible behavior actually practiced by companies and (2) the reputational
4. One-dimensional indicators
This method uses indicators that represent a measurement of a specific aspect of different CSR practices that firms can engage in. Some of the most used in the contemporary literature indicators are related to: philanthropy, client relationship, community relationship, and environmental practices.
5. Ethical rating
Such rating is usually constructed as a multivariate index created by a specialized agency. These agencies typically have their own ways of formalizing the result and following ranking. It is very difficult to map these ranking results with one another, hence one should rely on observation of related trends over time.
The CSP measurement methodology used in my research.
In the current research I have chosen to use the described above method (3) to measure comprehensive Corporate Social Performance of organizations I have surveyed for the CSR Integration level.
Index presented is (2014 – “Ranking The Brands.") “a perception about the degree of
admiration, positive feelings, esteem and trust an individual has for an organization. Reputation is rooted in an assessment of the performance of an organization over time, including in the past and with expectations about the future. Additionally, a reputation is only relevant in the context of comparison and it is always an average of what a subgroup believes to be true”. The reputation measurement is a standard framework that enables identification of factors that influence reputations and for assessed companies’ corporate reputations internationally. It is a standard tool for monitoring corporate reputations globally and across multiple stakeholder groups. The model tracks 23 key performance indicators contributing to seven dimensions of
reputation, that research has proven to be effective in getting stakeholders to support the company. The “pulse” part of the score is based on described above four statements regarding the good feeling, esteem, trust, and admiration that customers express towards a company. The “monitor” part evaluates the degree to which a certain dimension influences the emotional connection between a specific stakeholder group and a company, and it defines which
particular dimensions have the stgrongest impact on support and recommendation.
This particular report is stable overtime showing reputation trends across publicly listed Dutch companies and hence can serve as a good proxy for their CSP, as showed in the previous chapter.
The table below shows normalized reputation score coefficients for some of the major Dutch listed firms that I will use in my further analysis of their CSR integration level. These coefficients have been derived from the corresponding research of the Reputation Institute, which in turn observes dynamics of seven reputation dimensions and 23 underpinning key performance indicators.
Table I – reputation screening scores (2014) provided by Reputation Institute
Organization Rep Score Organization Rep Score
A 0.796 P 0.647 B 0.751 Q 0.641 C 0.745 R 0.64 D 0.745 S 0.636 E 0.702 T 0.634 F 0.693 U 0.623 G 0.69 V 0.621 H 0.685 W 0.621 I 0.681 X 0.619 J 0.668 Y 0.618 K 0.659 Z 0.611 L 0.656 AA 0.597 M 0.653 AB 0.595 N 0.65 AC 0.52 O 0.649 AD 0.512
Real company names have been substituted with character-based codes
D. Integration level – from standalone to integrated into the corporate agenda/strategy
From lack of awareness to standalone responsibility
Historically, for many organizations the business case for CSP is not easy to come up with. Missing (solid) evidence of financial impact of CSR initiatives prevented CSP from being an integral part of managerial practices.
Same time, this question has a very strong ties with investor and stakeholder relationships. Why would investors consider CSR-based projects if there is no clear monetary outcome evidence? However, as financial markets started to react to CSR-based initiatives, sometimes penalizing organizations through risks imposed by communities and NGOs (“license to
operate”), first CSR communication or management functions started to emerge. The first starting point for CSR initiatives was, at best, not even a department, but a separate
responsibility within a company (Figure 4), typically reporting into the head of communications. This situation imposed a wide spectrum of associated communication and prioritization issues,
because a separate department with no functional authority can hardly influence profit-driven initiatives of the rest of the company’s units.
Figure 4 – Standalone CSR department, difficult to influence the behavior in BU
Target budgeting and specific goals
Situation started changing during the past several years, when CSP started gaining strategic weight and companies started putting it forward in their strategy plans, in order to realize their differentiation potential and benefit from Stakeholder Influence Capacity (Barnett and
Salomon, 2012). Initiatives like integrated reporting have as well exposed the need to integrate the CSR staff deeper into the organization.
Figure 5 – CSR is now codified in objectives a BU receives from the board
Decentralization
Decentralized approach, where no single department has a responsibility for the oversight of CSP strategy and activities is increasingly prevalent, specifically in knowledge-intensive industries. A common pattern would be to see most programs associated with CSR hosted within local HR departments that hold additional responsibility for overseeing Philanthropy and Culture. Philanthropy unit might oversee relationships with community and community
engagement, while Culture – work-life balance. Other departments that have responsibility for some aspect of the CSR include Legal to handle ethics and privacy issues, and Workplace affairs, responsible for environmental issues. Local business units can define their own CSR policies and practices, however some of the policies like privacy and ethics are usually not negotiable. Advocates of this approach believe, that it introduces additional sense of ownership and meaning locally, which is indeed crucial for meaningful CSP.
Figure 6 – Decentralized CSR management
Convergence towards the line responsibility
Interestingly, during my face-to-face interviews I found, that organizations, and CSR
management in particular are seeking to completely dissolve standalone CSR departments or responsibilities in 7-10 years. This has yet to materialize, but the actual aspiration is such that line managers should be increasingly aware of CSR issues and CSR objectives should start being comprehensively codified in goals and objectives of BUs, departments, and individuals.
Personally I believe this trend will emerge and become active in several years, when businesses will better understand the importance of transformational values of CSR.
E. The case at the company
ITethics, the company that commenced this research, operates in the digital (software)
industry, showing an unprecedented in history, exponential cost-performance improvement in technologies opening perspectives for innovation. The assumption of ITethics is that CSP and CSRINT in particular are the right tools to utilize in face of these sometimes threatening yet introducing tremendous opportunities changes.
As we approach 2015, interactions between new and improved technologies further fuel the potential for disruptive innovations. Below I will summarize some of the most impressive and dominant instances of cost-performance improvement.
Figure 7 – computing cost-performance improvement
The cost of computing power (figure 7) has decreased significantly, from $222 per 1 million transistors in 1991 to $0.06 per 1 million transistors in 2013. Declining cost-performance curve catalyzes the processing power as the kernel of any IT infrastructure.
Similarly, the cost of data storage (figure 8) has decreased dramatically, from $569 for 1 GB of storage in 1991 to $0.03 for 1 GB in 2013. The declining cost-performance of computer storage creates opportunities for massive data analysis and related to it digital innovation.
Figure 9 – bandwidth cost-performance improvement
The cost of Internet bandwidth (figure 9) has also considerably declined, from $1,245 per 1 Gbps per second in 1998 to $23 per 1 Gbps in 2013. The diminishing cost-performance of bandwidth instigates richer communication and interaction, allowing for faster remote communication and technology outsourcing.
Additionally, the use of the Internet (figure 10) continues to increase. Starting 1989 to 2013, the percent of respondents using internet in the US grew from 0 to 71%.
Figure 11 – wireless subscriptions
Number of connected via wireless mobile devices increases dramatically. Starting 1984 to 2013, percent of wireless communications at home or at work increased from 0 to 100 percent. Wireless communication is additionally introduced by increasing use of smart devices. They contributed to 55 percent of all wireless subscriptions (figure 11) in 2012, in comparison to less than one percent in 2000.
The accelerating development of these fundamental technologies changes the business landscape, boosting innovation, creating opportunities for companies that can exploit these trends.
In previous decades, periods (or eras) of rapid innovation and disruption were followed by periods of silent reconciliation, and therefore industries could stabilize, hence the S-curve pattern held (Carlota Perez, 2003). Technology revolutions involved such fundamentals as the telephone, electricity, and nuclear energy. They experienced strong bursts of innovation in fundamental standards and technologies that after all stabilized. It rendered apparent winners that could remain in their leading positions for a very long time.
The S-curve based paradigm does not really exist anymore, hence cost-performance
breakthrough in foundational (digital) technologies is not expected to change its pace and slow down.
Figure 12 – innovation gap (advances in technology vs. labor productivity)
Although digital technologies and related fields continue to improve, we unfortunately cannot keep up with the change. The ever-increasing gap between exponential advancement in core technologies in digital industries and the pace of overall productivity advancement (figure 12) provides serious opportunities to dramatically improve and innovate in business. Next to innovations in services and products that, such innovations should also include methods to boost productivity of human work by finding new ways to tap into existing ecosystems. Such
options span from incremental shifts in services or products, to disruptive innovations and completely different organizational behaviors and processes.
Pressure of these trends has contributed to the management of ITethics raising the priority for this CSP research and CSR integration level variable is of the utmost interest, as it indirectly suggests how CSP efforts should be structured.
Let us evaluate these five trends (Forrester, Gartner, 2014):
Figure 13 – prevalence of trends in digital industries
1. Mobile 2. Social 3. Cloud 4. Big Data 5. Crowdfunding
Each of these trends imposes similar set of drivers required for successful operation in the new reality:
1. Being able to effectively engage with local communities or a community of end-users for successful rapid prototyping and development of new digital solutions, starting an organic flow of communication between community and the company
2. Flexible and rapid partnering and networking with other market players in pursuit of hybrid solutions based on prevailing at the current moment industry standards, asking for extreme degree of decision-making decentralization yet requiring strong governance for security, risk management, and other standards conformance
3. Transition from hardware, devices, and capital expenditures towards on-demand, software-only, and rapid, if not sporadic, operating expenditures, requiring rethinking of approaches to supplier management and governance
4. Empowering employees for decentralized decision-making, as the pace of change leaves no room for centralized coordination
ITethics, sponsoring and commencing the current research, is interested in learning and understanding whether a solid business case can be build based on acquired in this paper insights. Namely, exploiting the innovation gap by moving their knowledge and competencies towards advancing methodologies and efforts deepening CSR integration level, in order to embrace the additional innovation capacity (Eiríkur Hull, Rothenberg, 2008)
The management intends to evaluate an opportunity to invest in CSP and carefully consider the CSR integration level when executing this investment as an opportunity to acquire these
additional competencies allowing them to act on described above drivers. Beyond exploitation of opportunities presented by the innovation gap, these new competencies will allow them to be in a better shape conducting their business in knowledge-intensive industry, software and related services, in Europe and the US putting the CSR integration level in the strategic perspective.
F. Survey model
My survey (see appendix A for reference) has been designed to comprehensively assess the following fundamental criteria of CSR integration level:
1. Organizational structure: staff vs. line CSR responsibility
2. Degree of decentralization of decision-making authority in regards to CSR initiatives 3. CSR staff authority: advisory vs. functional authority
4. Annual planning approach: integrated vs. separate planning letter
5. Financing of CSR initiatives: CSR initiatives constrained with independent budget bracket vs. CSR issues can influence budget
6. Staff objectives in relation to inclusion of CSR issues: SMART/well-defined vs. allowing for multi-criteria evaluation and hence re-definition of initial commitments by employees 7. Performance appraisal process: strictly based on financial objectives vs. CSR objectives
8. Reporting: CSR reported on separately vs. CSR integrated in a company’s reporting
The survey has been conducted as a number of face-to-face and telephone interviews, involving mostly a variety of mid-level managers and executives. I have also involved employees not holding managerial positions, in order to positively contribute to representativeness of the sample.
G. Multi-criteria analysis
I apply multi-criteria analysis in the current research in order to evaluate CSR level integration components of responses of our respondents. The chosen multicriteria analysis approach that is included in my paper is a type of the linear additive evaluation model. See Keeney & Raiffa, 1993. This approach can be used if the evaluation criteria can be defined independently as far the selection is concerned. My model shows the way for an alternative (group of companies, in our case) to receive its score by combining the scores given in the other criteria. The resulting score is expressed as the product of the selection score in each criterion multiplied by the weight of this criterion. The final score selection results as the weighted sum of the sub-scores of all criteria. Assuming that I have n alternative selections (companies) {a1, a2, … ,an,} and m selected criteria {c1, c2, … cm} with corresponding weights {W1, W2, … Wm}, so, in case the score of the criteria for ai is {S i1, S i2, … Sim}, the total score of criterion i is given by the formula:
𝑆𝑎𝑖 = 𝑊1𝑆𝑖1+ 𝑊2𝑆𝑖2+ ⋯ + 𝑊𝑛𝑆𝑖𝑗 = ∑ 𝑊𝑗𝑆𝑖𝑗
𝑚
𝑗=1
Scores are provided for the five categories (criteria) that were analyzed in the second stage of the proposed model (m=5). Each category is arranged into a number of subcategories with related quantitative indicators in order to enable scoring. The weight of each criterion is
determined by a by analysis of existing companies. In my case, I have chosen shown in the table II below weights focusing on knowledge-intensive industries.
Scores for every criterion for the CSR evaluation follow a 5-degree scale, which corresponds to the following meanings:
1: Low level of CSR integration (0 – 0.15)
2: Moderate level of CSR integration without significant proposals (0.16 – 0.21) 3: Moderate level of CSR integration with improvement potential (0.22 – 0.35) 4: Good level of CSR integration (0.36 – 0.45)
III.
Results
I have conducted a survey among employees and management of a variety (7) of listed Dutch firms. Despite a modest number of participants I have been able to attract (n=17), I have acquired a solid foundation for ITethics to explore the subject further and have already come up with an outcome of a significant quality.
Table II – survey results
CSR integration aspect Org1 Org2 Org3 Org4 Org5 Org6 Org7
MCDM-coeff.
Org structure (Staff vs Line
responsibility) 0.4 0.1 0.4 0.3 0.3 0.5 0.1 0.9 Decision-making decentralization 0.2 0.4 0.2 0.1 0.4 0.9 0.9 0.6 Authority/remit of CSR (Advisory vs functional authority) 0.8 0.9 0.5 0.9 0.7 0.4 0.4 0.5 Planning (Separate vs CSR
integrated planning letter) 0.4 0.3 0.4 0.5 0.5 0.9 0.8 0.7 Finance (CSR within budget vs
CSR influences) 0.8 1 0.7 0.4 0.2 0.2 0.6 0.7 Objectives (SMART vs.
multi-criteria) 0.1 0.3 0.4 0.5 0 0.6 0.3 0.6
Performance appraisal (Financial
vs CSR criteria integrated) 0.8 0.8 0.9 0.1 0.6 1 0.2 0.7 Reporting (Separate vs Integrated) 0.6 0.8 0.4 0.4 0.9 0.4 0.3 0.2 MCDM-adjusted score 0.30 75 0.32 375 0.30 625 0.23 25 0.24 375 0.38 75 0.27 375
Figure 14 – CSR integration level aggregates, MCDM-normalized survey results
The next step is to calculate correlation between the MCDM-normalized set of results and corresponding Corporate Social Performance results collected earlier.
𝐶𝑜𝑟𝑟𝑒𝑙 (𝐶𝑆𝑅𝐼𝑁𝑇, 𝐶𝑆𝑃) = ∑( 𝑥 − 𝑥)(𝑦 − 𝑦) √∑( 𝑥 − 𝑥)2∑( 𝑦 − 𝑦)2
Where x and y are CSRINT and CSP vectors respectively
0.4 0.2 0.8 0.4 0.8 0.1 0.8 0.6 0.1 0.4 0.9 0.3 1 0.3 0.8 0.8 0.4 0.2 0.5 0.4 0.7 0.4 0.9 0.4 0.3 0.1 0.9 0.5 0.4 0.5 0.1 0.4 0.3 0.4 0.7 0.5 0.2 0 0.6 0.9 0.5 0.9 0.4 0.9 0.2 0.6 1 0.4 0.1 0.9 0.4 0.8 0.6 0.3 0.2 0.3
CSR integration aggregates
Table III - Normalized and MCDM-adjusted CSR integration ratings and the correlation coefficient CSRINT CSP Org B 0.3075 0.751 Org G 0.32375 0.69 Org E 0.30625 0.702 Org V 0.2325 0.621 Org Y 0.24375 0.618 Org R 0.3875 0.64 Org X 0.27375 0.619 Correlation 0.36821697
Figure 15 – CSRINT-CSP correlation, visual representation
Significance of the correlation outcome confirms my main hypothesis H1, hence, Level of CSR integration positively moderates the relationship between CSP and CFP.
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
Org B Org G Org E Org V Org Y Org R Org X
CSRINT CSP
IV.
Discussion
Looking beyond the outcome of my research, I would like to raise a follow-up discussion: what is behind the positive influence of the CSR integration level (CSRINT)? Why is CSRINT
particularly important for CSP? Barnett and Salomon (2012) presented Stakeholder Influence Capacity as one of the factors that was behind abnormally positive influence of CSP on CFP in case CSP receives a significant attention and investments. I as well believe, that Stakeholder Influence Capacity gets developed as a result of higher CSRINT, however this picture is incomplete.
Another dimension to answering this question would be the assumption, that a higher level of CSRINT boosts a firm’s adaptation capacity and hence adaptive efficiency, which is one of the key organizational capabilities currently nurtured by companies in ever-more changing business and geo-political climate, which would in turn increase a firm’s financial efficiency and survival chances in view of industry changes, especially disruptive. Adaptive efficiency, in turn, should be underpinned by superiority and accessibility of data, entrepreneurship amongst
employees/departments, cultural diversity, and decentralized decision-making, all of which is as well positively influenced by CSRINT.
To further explore the CSRINT in relation to CFP through adaptive efficiency and innovation in the existing academic literature, some Innovation Management literature has been reviewed through the perspective of CSR. The perceived characteristics of an innovation are, according to Rogers (1983), its relative advantage, compatibility, complexity, observability and trialability. Such characteristics can categorize different innovation options and assess which innovation option fits the company best. These innovation characteristics can assess and categorize CSR and CSRINT action options, to estimate their benefit to the organization. The following definitions are identical to those that Rogers provides; however, ‘CSR initiative’ replaces ‘innovation’.
- Relative advantage: The degree to which a CSR initiative is perceived as delivering better outcomes to organizations pursuing it versus refraining from it
- Compatibility: the degree to which a CSR initiative is perceived as being consistent with the existing values, needs and past experiences of potential adopters;
- Complexity: the degree to which the results of a CSR initiative are observable to others; - Trialability: the degree to which a CSR initiative may be experimented with before adoption or can contribute to enhancing of a firm’s experimentation capacity itself;
Moore and Benbasat (1991) include the characteristic ‘Voluntariness’, which fits CSR initiatives perfectly concerning that voluntariness is one of the characteristics of CSR described in the previous chapter. The definition of voluntariness, according to them is “the degree to which the implementation of a CSR initiative is perceived as being voluntary, or free of will”. These
dimensions resonate well with CSR initiatives in the context of a company’s situation. This meets the contextual character of CSR (Porter and Kramer, 2006), also recognized at innovation processes. I would like future researchers to address this question in more detail and
investigate actual forces underpinning this relationship.
Lastly, one of the limitations of my research is the number of respondents, extreme difficulty to get questions answered objectively, hence requiring for control-points in surveys. I would recommend using mainly face-to-face interviews in order to counteract subjective answers and avoid companies processing such surveys through their communication departments, skewing the outcome towards a better appealing one.
V.
Conclusion
In my research, notwithstanding several limitations and further discussion points explored in the previous chapter, I have confirmed a positive moderational relationship between CSP-CFP link and the CSR Integration level (CSRINT). I believe that it therefore becomes a reasonable and legitimate foundation for future research in effects of CSR integration and consideration of investments in CSRINT among companies not only with longer-term, rather philanthropic perspective, but as well for smaller and younger organizations operating within their short to mid-term outlook and expecting a concrete set of outcomes based on their CSP.
The advice delivered to the management of ITethics is twofold: firstly, it is continuing with strategic investment and research in CSRINT, and secondly, the proposed organizational structure to support these CSR integration efforts:
Board of Directors – task an existing board member with broad CSR responsibility and add CSR responsibilities to existing board committee. Designate a board member or members with responsibility for various aspects of ITethics’ CSR policies and activities. This person will receive information from executive and senior-level staff in the company about CSR issues and
challenges and offer counsel and guidance.
Executive level - add CSR responsibilities to existing board committee. Broaden the scope of the current committee to include the responsibility for CSR. The choice should include committees such as audit, environment, health and safety and public policy. And as social reporting
becomes more common, these committees may grow more involved in overseeing overall CSR policies and practices.
Choose a decentralized CSR structure; select (existing) separate department leaders, each with discrete CSR responsibilities.
Embed CSR into the company planning and budget processes. The ultimate goal of creating a CSR management system is to ensure that CSR considerations are a part of all business decisions.
Human Resources – develop processes for employees to raise CSR issues and concerns to appropriate decision makers and advocates. An open environment is one of the easiest ways to find valuable feedback on CSR issues and problems.
VI.
References
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VII.
Appendices
A. Survey form
Notes in bold are provided for reference in this paper only. They were not included in the survey in order to not disclose the research direction or give hints to respondents.
N Question Response
1 2 3 4 5 6 7 8 9 10
Org structure (Staff vs Line responsibility)
1 There is a specific department that presents us a separate list of CSR objectives vs CSR objectives are presented by our management directly
Decision-making decentralization
2 There is an authority within our company to deal with CSR investments and I am not a part of it vs I am personally aware and encouraged to make decisions and invest resources in my own or shared CSR initiatives
Authority/remit of CSR (Advisory vs functional authority)
3 CSR(communications) department can advise on how
to deal with CSR issues within our company vs CSR objectives are integrated wihin our functions
Planning (Separate vs CSR integrated planning letter)
4 Our planning letter is solely based on
budget/financial/growth targets and CSR planning (if exists) is planned separately vs CSR targets are integrated in the planning letter
Finance (CSR within budget vs CSR influences)
5 There a separate budget frame for CSR initiatives vs CSR initiatives and objectives are based upon budget integrated budget planning
Objectives (SMART vs. multi-criteria)
6 Our (annual) objectives, including CSR, SMART and well-defined vs allowing for multi-criteria evaluation and hence (re)definition of initial commitments
Performance appraisal (Financial vs CSR criteria integrated)
7 During performance appraisals of my department or
responsibility centre, only financial/growth criteria are utilized vs CSR criteria play a prominent role
Reporting (Separate vs Integrated)
8 Our company reports on CSR objectives
internally/separately vs CSR reporting is always integrated
