Creating Social Sustainable business value
Creating a new business driver:
Creating social sustainable business
value
Peter van Barneveld
Creating social sustainable business
value
Author
Peter van Barneveld Student number: 2051729 Harinxmastraat 8 8621 BL Heeg Tel: +31 (0)6 30603845 E-mail: barneveld.peter@gmail.com Organization Company XYZ Education
Faculty of Economics and Business Specialization Business Development University of Groningen
Landleven 5
9747 AD Groningen
First supervisor: Dr. Ir. Hillen Second supervisor: Dr. Van der Bij
Company XYZ Creating Social Sustainable business value 3
Executive summary
ObjectiveThe objective of this study is to explore how shared value is created by firms (Porter and Kramer, 2006). Prerequisite of creating shared value is to create both business value and social value. Business value is defined as “enhancing the competitiveness of the company by increasing the
benefits relative to costs, not just benefits alone” (Porter and Kramer, 2006 p. 6), whereas social
value is defined in this paper as creating “products or systems that meet the performance
requirements and expectations of customer stakeholders without causing harm to the wellbeing of society and its members across different time periods” (Lindgreen, Antionco, Harness and van
der Sloot, 2009, p. 456). This social value is created by making use of social impact frameworks. A social impact framework measures the social impact of a product in the communities in which it operates (Hubbard, 2009). The social impact framework under research in this paper is called social impact framework XYZ (SIF XYZ)
It is neither indicated in literature nor in the business world what type(s) of business value is created when using a social impact framework on product level. For this reason, the following research question was derived:
“What business value is created when improving a product’s social impact along its life cycle?” Design
This paper is an exploratory research in the field of social impact measurement and value creation on product level. This paper initially reviewed the available literature to come towards sub-research question. The sub-sub-research questions were the guidelines used in order to gain new insights. This case-based study was executed at a large company in the Dutch chemical sector (Called Company XYZ). Fourteen respondents from the marketing and innovation disciplines were interviewed to gain insights and viewpoint with regard to the sub-research questions asked. The method employed was the semi-structured interview method. The study was conducted from June 2012 until September 2012.
Main research findings
Social impact frameworks create various types of business value. They can be summarized as follows:
Social impact frameworks are useable in product development: + They can create more market oriented products
+ They can create new ideas and product modifications (by offering new and inspirational social impacts on various stakeholders)
+ The social impacts can function as a filtering mechanism for new ideas
- But social impact frameworks may be too general; scheduling trends along the impacts might be necessary
Social impact frameworks facilitate market development
+ By creating a better customer relationship and customer loyalty (by creating trust, by helping customers with their sustainability problems and as new business topic to discuss) + By gaining preferred supplier status (by compliance or exceeding the supplier code of
Social impact frameworks reduces companies’ own risk and customer’s risk; it prevents damage to the brand
+ By indicating and paying attention to potential social hotspots
Social impact frameworks can create and highlight product level social differentiators:
+ Social differentiators create better customer access (by addressing more and higher level DMU members and departments)
- But no direct price premium can be gained
Company recommendations
This section is excluded from this paper as this chapter contains to many company-specific information.
Company XYZ Creating Social Sustainable business value 5
Foreword
The motivation for writing this report is to graduate for the master thesis Business Administration –Business development. I have worked with pleasure for more than six months on this promising new and emerging theme in business: social sustainability. My personal commitment to and enthusiasm for sustainability has resulted in an academic paper which seems promising both from a practical and academic perspective.
As noted above I have worked with a lot of pleasure on this report. The combination of writing a thesis and participating in a company’s operations was mutually complementary. COMPANY XYZ allowed me to do research in this interesting field while at the same deploying and applying the gained knowledge in various sustainability projects.
Kind regards, Peter van Barneveld
Index
Chapter 1 – Introduction... 8
Chapter 2 – Research problem and context ... 9
2.1 Business relevance: The business opportunity ... 9
2.1.1 Focus on the social impact of products ... 10
2.1.2 Content of SIF XYZ... 10
2.1.3 Business needs ... 11
2.2 Academic interpretation of the business opportunity ... 12
2.2.1 Recognition of social sustainability at COMPANY XYZ ... 12
2.2.2 Creating business value with SIF XYZ... 12
2.2.3 Requirements for using SIF XYZ ... 13
2.3 Academic relevance: literature analysis... 14
2.3.1. Introduction on social sustainability ... 14
2.3.2 Creating value with social sustainability... 17
2.4 Research objective, questions and conceptual model... 20
Chapter 3 – Methodology ... 22
Chapter 4 – Analysis ... 24
4.1 Recognition of social sustainability as business opportunity... 24
4.2 Social impact framework and new product development ... 25
4.3 Social impact framework and market development ... 27
4.4 Social impact framework and creating and capturing social differentiators... 28
4.4.1 Gaining premium prices with social sustainability... 28
4.4.2 Better buyer centre access with social sustainable product differentiators ... 29
4.5 Challenges of SIF XYZ... 30
Chapter 5 Conclusions... 32 5.1 Conclusion RQ 1 en RQ 4... 32 5.2 Conclusion RQ 2 ... 33 5.3 Conclusion RQ 3 ... 33 5.4 Conclusion RQ 5 ... 34 5.5 Conclusion RQ 6 ... 34 5.6 Conclusion RQ 7 ... 34
5.7 Evaluating the conceptual model and research question ... 35
Chapter 6 Company recommendations ... 1
Chapter 6 Company recommendations ... 36
Chapter 7 Scientific implications and limitations ... 37
7.1 The business perspective of social sustainability ... 37
7.2 Sustainable product development ... 38
7.3 Social sustainability and market development ... 38
7.4 Social sustainable differentiators, premium prices and customer access ... 39
7.5 Limitations ... 40
Literature list ... 41
APPENDIX 1 – Elaborated company description ... 49
Not included in this version. APPENDIX 2 – Exploratory Interviews to explore the business opportunity... 49
APPENDIX 2 – Exploratory Interviews to explore the business opportunity ... 50
Company XYZ Creating Social Sustainable business value 7
3.1 The emergence of sustainability ... 51
3.2 Triple Bottom Line ... 53
3.3 Social impact ... 54
3.4 Measurement ... 55
3.5 Sustainability as value creator ... 56
APPENDIX 4 - Measuring social impact... 57
APPENDIX 5 - Methodology ... 59
5.1 Method of analysis... 59
5.2 Sample... 60
5.3 Data collection process ... 61
5.5 Data analysis... 62
APPENDIX 6 – Interviews with business groups... 63
6.1 Interview guideline ... 63
6.2 Guiding presentation... 65
6.3 Sample list ... 65 APPENDIX 7 – Design specification for solution design... Error! Bookmark not defined. APPENDIX 8 – Making SIF XYZ work at Biobased plastics ... Error! Bookmark not defined. APPENDIX 9 – Internal SIF XYZ product example ... Error! Bookmark not defined.
Chapter 1 – Introduction
Sustainability is an emerging principle which has recently gained much attention both in the business world and in academic literature. This increase of attention towards sustainability is remarkable as the Brundtland Commission of the United Nations already raised their arrows to sustainability in the 1980’s. The Brundtland Commission defined the sustainability trend (rephrased to ‘sustainable development’) as “the development that meets the needs of the present
without compromising the ability of future generations to meet their own needs” (United Nations
General Assembly, 1987).
Since the 1980’s, companies started to embed sustainability in their businesses. Sustainability transformed into the term “Corporate Social Responsibility” (CSR), as a business implication of sustainability. CSR counts many activities of which philanthropy was perceived as the highest level of interpretation for a long time (Carroll, 1991). Nowadays, philanthropy is interpreted as a simple operationalization of CSR. CSR is generally interpreted from three different angles: People, Planet and Profit (3P). This approach was initiated by John Elkingtons’ book: “Cannibals
with forks: The Triple Bottom Line of 21stCentury Business (Elkington, 1998). The basic idea of
the triple bottom line is that a firm’s ultimate success or health is insufficiently measured by the traditional financial measurement indicators. The 3P approach is currently used beyond measuring performance; it is used as three pillars on which companies have to be concerned with (Marwijk, 2003). What became clear is that the people part of the triple bottom line is undervalued and underserved in literature. For this reason, this paper is solely focussing on the social pillar. The terms ‘people’ and ‘social’ are used interchangeably in literature. Some authors interpret social by including both the people and planet pillars and some authors use social only for the people pillar of CSR. This paper interprets ‘social’ and ‘people’ as one concept which excludes the planet pillar.
For the last few years, a discussion has started with regard to what business value CSR creates. This discussion was facilitated by the article of Porter and Kramer (2006). Porter and Kramer provoked a new trend for businesses: creating shared value. Creating shared value implies simultaneously improving the competitiveness of a company (business value) while advancing the economic and social conditions in the communities in which it operates (social value). Business value can be created on corporate, business and product level. This paper is an exploratory research focussing on how business value can be created by improving the people pillar of sustainability on product level. This research is exploratory as (1) there is neither a universally applied scientific nor business social impact framework yet and (2) the business value of social impact framework is not investigated in literature. This paper indicates the business value of product level social sustainability from a marketing and innovation perspective. This stream of literature is used, as these disciplines are primarily concerned with value creation on product level.
Business opportunity
The above stated academic problem is also reflected in the business world. This paper used Company XYZ to investigate how they are trying to create business value with a focus on social sustainability at the product level. COMPANY XYZ started recently with the development of its own social sustainability framework called SIF XYZ. SIF XYZ however, requires internal testing to indicate how and on what aspects it creates business value.
Company XYZ Creating Social Sustainable business value 9 As visualized in figure 1, this report started by defining the business opportunity for COMPANY XYZ. When the business opportunity was analysed, an academic interpretation of the business opportunity was developed. The literature review indicates the academic relevance of the study and elaborates both in breadth and in depth to the subject. From this literature review, research questions and a conceptual model were derived. This conceptual model is not based on hypotheses, but on research questions. As our research is highly exploratory, no hypothesis could be derived.
From the research questions, a methodology and questionnaire was developed and tested. The outcomes were analysed in chapter 4. From the analysis, both academic and company specific conclusions and recommendations were provided. This report ends with an academic reflection of the results.
Figure 1 Research model
Chapter 2 – Research problem and context
Chapter 2 aims to identify both the business opportunity and the academic relevance of this report. As noted in the introduction, the academic gap defined in this chapter is attempted to be solved via an empirical research at Company XYZ This chapter starts by defining the business relevance of this study. Both research questions and a conceptual model were developed in this chapter.
2.1 Business relevance: The business opportunity
This paper attempts to solve the academic gap that is based on the business opportunity via empirical analysis. For this research, the company used for analysis is COMPANY XYZ. This company is located in the Netherlands and is a multinational company operating in the chemical industry. COMPANY XYZ employs thousands of people and has an annual turnover of several billions.
The business opportunity described in this chapter was analysed by conducting preliminary internal interviews and by analysing the 2011 Annual COMPANY XYZ Report. The interviews were executed to get a comprehensive understanding of the internal opportunity perceived.
Chapter 2.2 Academic interpretation of the business opportunity
Chapter 2.3 Literature review Chapter 3: Methodology and questionnaire
development
Chapter 4 and 5: Analysis and conclusion Chapter 6: Company recommendations Chapter 2.1 Business opportunity analysis and
business needs
Chapter 2.4 Research objective, questions and conceptual model
Chapter 7: Academic contribution and
2.1.1 Focus on the social impact of products
In the last decade, COMPANY XYZ has embraced sustainability extensively. Initially, sustainability consisted of internal COMPANY XYZ programs: water usage, energy efficiency, working environment and greenhouse gas reduction. These programs were considered as a value
securer for COMPANY XYZ. Securing value means that the focus is on internal processes,
mainly to reduce risk. The risk reducing strategy was mainly related to prevention of reputation risk. Risk management from a sustainability perspective is important, as media and NGOs focus their attention nowadays a lot on environmental and social performances of companies. Moreover, customers of COMPANY XYZ demand more transparency regarding sustainability. COMPANY XYZ has decided to take into consideration product level.
Initially an ecological impact framework (called EIF XYZ) had been in place. However, the Board of Directors also desired a social impact framework. COMPANY XYZ started the project to develop a measurement method to assess the social impacts of products. This project was named SIF XYZ. SIF XYZ should, just as EIF XYZ, secure value (risk management) but also
create value for the company. Creating value implies for examples the development of products
that create competitive sustainability differentiators. SIF XYZ is designed to create and secure value of products up - and down in the value chain. The aim is not only to reduce the negative impacts but to create positive impacts as well. Positive effects on the lives of people involved in sourcing making and using products.
2.1.2 Content of SIF XYZ
As stated above, COMPANY XYZ desired a tool that indicated the social impact of a product along its life cycle. However, at that moment in time there was no off-the-shelf alternative for COMPANY XYZ, which resulted in the development of their new social impact framework. It is the aim to further develop and standardize the framework with peers, NGO’s and scientists. SIF XYZ is therefore mainly based on scientific documentations and international recognized standards. Main sources from which the content of SIF XYZ is derived are:
- The United Nations - UN millennium goals
- ILO standards – International Labour Organisation which stresses working conditions - UNEP/SETAC –Organization which provide guidelines for social life cycle assessments - GRI standards –Organization which provides reporting guidelines including sustainability - The Sustainability Consortium – Organization working on standardization of
Company XYZ Creating Social Sustainable business value 11
SIF XYZ impact categories
In terms of content, four social impact categories and their related indicators are identified by the SIF XYZ team. This content is based on international standards, scientific papers and internal COMPANY XYZ specialists. Examples of social impact categories can be found in appendix 4. The UNEP/SETAC (2009) guidelines for social impact measurement are used as basis for SIF XYZ. Their stakeholders and impact categories are summarized in figure 2.
The SIF XYZ framework counts various social impact categories and stakeholders to consider. The exact stakeholders and social impact categories are excluded in this report.
2.1.3 Business needs
The aim of this paper is to indicate how SIF XYZ creates business value by improving the impact of a product along its life cycle. COMPANY XYZ wants to get insight into how the SIF XYZ concept creates business value from a marketing and innovation perspective. COMPANY XYZ aims to create
value with sustainability. This implies that the SIF XYZ concept should be tested on its value added. Moreover, indicating the value of SIF XYZ is important for internal acceptance. COMPANY XYZ is searching for the answers on the following questions:
1. To what extent is the social sustainability trend recognized at COMPANY XYZ?
This question is important as it indicates to what extent practitioners recognize what happens out
there in terms of sustainability. Moreover, it indicates the timing of SIF XYZ. 2. To what extent does SIF XYZ create business value?
This question asks how the overall SIF XYZ concept creates value. By this it is indicated to what extent SIF XYZ fits the COMPANY XYZ sustainable growth strategy.
3. What do practitioners need in place to use the SIF XYZ concept?
This part will be the design part of this report. It makes concrete what the practitioners needs are regarding internal implementation of SIF XYZ. Gaining insight in what people need and how it can be used is necessary to prevent a top down approach.
Figure 2 Social impact categories and stakeholders to consider when assessing a product's social impact – UNEP/SETAC
2.2 Academic interpretation of the business opportunity
This chapter indicates how the COMPANY XYZ opportunity can be translated into academic terms. By this, it is identified in what academic areas the problem is located and what literature should be reviewed.
2.2.1 Recognition of social sustainability at COMPANY XYZ
The first business need of COMPANY XYZ is: To what extent is the social sustainability trend
recognized within COMPANY XYZ? This question is rather general and requires a general
academic approach. This question can be scientifically interpreted as to what extent the social pillar of sustainability is perceived by professionals as a valuable external trend; do they give it right of existence? This question challenges whether social sustainability has evolved as a concept within sustainability. In other words is it (1) discerned as a market trend and (2) is it separated from sustainability in general? This question deals with both the sustainability and the social sustainability literature streams. Section 2.3.1 defines how social sustainability is defined in the sustainability literature.
2.2.2 Creating business value with SIF XYZ
The second business need of COMPANY XYZ resonates: To what extent does SIF XYZ create
business value? This question is a rather in-depth question and requires further academic
interpretation.
Initially it must be explored what SIF XYZ means in academic terms. The UNEP/SETAC (2009) high-level guidelines for companies regarding the measurement of social impacts on product level. From these guidelines, scientists and companies use their own interpretation as there is no ‘off-the-shelf’ social impact measurement framework available at this moment. SIF XYZ is the COMPANY XYZ interpretation of how to measure the social impact on product level. To what extent SIF XYZ differs significantly from other social impact frameworks is investigated in the next section. Indicating whether SIF XYZ differs from other models is important as this might influence the academic relevance of this report (are the results generalizable?).
Another academic interpretation of the question “To what extent does the SIF XYZ
framework create business value?” is what creating business value implies. When considering
business value via product level sustainability, the marketing and innovation literature is used. It is suggested that the marketing and innovation literature is primarily concerned with value creation on product level (e.g. developing new sustainable products and capturing sustainable differentiators). In the marketing and innovation literature, it is attempted to indicate whether a sub-literature stream exists that is concerned with sustainability.
This section elaborates on the question in what respect SIF XYZ differs from other social impact models. Determining significant differences is important as it will affect the generalizability of the conclusions drawn in this paper. Fundamental differences among social impact measurement frameworks can be found along four criteria:
- Level of analysis - Methodology used - Stakeholders considered - Impact categories used
Company XYZ Creating Social Sustainable business value 13
Table 1 Benchmark of product level social impact frameworks
Table 1 is derived from the elaborated benchmark in appendix 4. In table 1, all social impact frameworks from different companies (e.g. BASF and COMPANY XYZ) and institutions/NGO’s (e.g. Planet 4 Earth and UNEP/SETAC) are benchmarked. From table 1, the following conclusions can be drawn:
- The social impact frameworks used for comparison in this section are all product-level based. The project-level social impact models (used at company, investment and project
level) are kept out of the analysis in this chapter.
- The methodologies deployed at product-level social impact frameworks are primarily LCA based. Models that are LCA based consider the impact of their product along their
whole life cycle. This implies that impacts are considered from the material extraction of the product, to production and use of the product. Although the frameworks are all LCA based, the data sources deployed to execute the LCA are rather different.
- The stakeholders considered by the product-level social impact frameworks are nearly the same.
- The social impact frameworks are differing significantly in their social impact categories/social end-points considered. It was noticed during the benchmark that social
impact categories considered in the frameworks are varying a lot, just as measurement of the social impact categories. It is exhaustive to indicate all impact categories used for each framework. SEEbalance uses for example more than 70 indicators versus 20 indicators of P4E. For this reason, the benchmark and this report does not draw any conclusions regarding the social impact dimension.
In sum, SIF XYZ is a valid method to test as there is no universally agreed social impact framework. When deriving conclusions, care should be taken when considering content (impact dimensions).
2.2.3 Requirements for using SIF XYZ
The third business need of COMPANY XYZ resonates: What do practitioners need in place to
use the SIF XYZ concept? This question elaborates on the second question by indicating what
users of a social impact framework require. Requirements can for example be processes,
Method Level of analysis
Methodology Data source Quantitative / Qualitative Stake holders considered S-LCA By UNEP/SETAC
Product LCA Data is gathered by trial-and-error by deploying multiple databases
Mix Employees, end-users, communities and society
SEEbalance
By BASF
Product LCA External database and company specific (expert judgement)
Quantitatively Employees, end-users and communities
P4E
By planet 4 earth
Product LCA Company specific (self-assessment questionnaires)
Mix Employees, end-users and communities
SIF XYZ
By COMPANY XYZ
Product Not included in this version due to confidentiality
structures, tools and governance of roles and responsibilities. This question does not require any further academic interpretation.
2.3 Academic relevance: literature analysis
Chapter 2.3 elaborates on the business opportunity as defined in section 2.1 and 2.2. Initially the general sustainability and social sustainability literature was reviewed to introduce the subject and to indicate the relevance of study. Secondly, a review of the innovation and marketing literature regarding value creation is provided. This paper does not include any hypotheses as this paper is characterized by exploratory research and deploys qualitative research methods. This makes the confirmation or refusal of hypotheses difficult. For this reason, sub-questions are derived instead of hypotheses. This research aims to gain new insights in the sub-questions stated in this chapter.
2.3.1. Introduction on social sustainability
This introduction of the literature review tries to sketch the context of social sustainability. Section 2.3.1 is a summary of the elaborated literature review attached in appendix 3. It is suggested to read appendix 3 to gain a broader and deeper understanding of the context of the problem.
The emergence of corporate social sustainability
Why do some companies commit themselves to sustainability and why some not? This question has been answered by various academic theories. One of the most fundamental and widely used theories in this field is the ‘stakeholder theory’ of Freeman (1984). He stated already more than two decades ago that the idea behind sustainability is that managers should pay attention to various parties who might be able to influence the firms’ outcomes positive or negatively. This implies that managers have obligations to those beyond shareholders. The stakeholder theory of Freeman (1984) was the fundamental principle behind Corporate Social Responsibility (CSR) which gained interest in the 1970’s. The emphasis on CSR was stimulated by the fact that many multinational corporations incorporated the term ‘stakeholder’. Corporate social responsibility is a form of self-regulation in the business model regarding sustainability. CSR is, consistent with McWilliams and Siegel (2001), defined as “situations where the firm goes beyond compliance
and engages in actions that appear to further some social good, beyond the interests of the firm and that which is required by law”. But what does CSR imply for companies? Firms can commit
themselves in various degrees to CSR. The most widely used and accepted concept to measure the degree of CSR attention is of Carroll (1991). This framework states that CSR consists out of four levels of CSR: economic, legal, ethical and philanthropic. Philanthropy was considered as the highest level of CSR commitment. The business sense to commit to CSR is increasing rapidly. Customers for example, demand more performance-transparency towards sustainability. Moreover, they perceive sustainability as an integral part of the quality and performance of products.
The people pillar of sustainability
In the previous section, the relation between sustainability and CSR is explained. However, sustainability and CSR can be further operationalized. Sustainability is often considered from the triple bottom line (3BL) perspective: people, planet and profit. The 3BL concept within sustainability was founded by John Elkingtons’ book: “Cannibals with forks: The Triple Bottom
Company XYZ Creating Social Sustainable business value 15
Line of 21st Century Business. The basic idea of the 3BL was that a firm’s ultimate success or
health is insufficiently measured by the traditional financial measurement indicators. From the triple bottom line, the planet and profit pillars are already well defined in literature. Contrary to the planet impact, the people sustainability pillar stayed underexposed in literature. It is suggested that the focus on social sustainability is nourished again recently as a result of various social sustainable events that have occurred. Nike for example, which engaged in child labour practises and Apple and its supplier Foxconn regarding working conditions facilitated this wave of attention regarding social sustainability (The Economist, 2012). The terms ‘people’ and ‘social’ are used interchangeably in literature. Some authors interpret social as both people and planet pillars and some authors use social only for as the people pillar of CSR. This paper interprets ‘social’ and ‘people’ as one concept which excludes the planet pillar.
Social impact
To create value with the social pillar of sustainability, it must become clear on what impact categories a company can improve upon. But what is social impact exactly? According to Hubbard (2009) social impact is “the social performance generally refers to the impact a firms’
products (and its suppliers) has on the communities in which it works” (p.180). Hubbard’s social
impact definition is the working definition of social impact in this paper.
The UNEP/SETAC proposed several guidelines regarding social impact categories/endpoints. From these guidelines, several sustainable front-runners developed their own product level social impact measurement framework.
But, why does the impact of firms matter? As said above, because it is both a mix of intrinsic motivation (top management commitment) and external expectations (customers, governments). All firms have, next to economic impact, also impact on the ecological and societal dimensions. Their power to influence is enormous, sometimes even bigger than governments (Saul, 2010). The (potential) large social impact of firms can be intended or unintended, negative or positive and long term or short term (Wainwright, 2002). It is important for an organization and other interest groups to get insight in the social impact of products, as consumers and other organizations (e.g. governmental or NGO’s) discern this (UNEP/SETAC, 2009).
Measuring social impact
When considering social impact on product level, the UNEP/SETAC organization advocates taking a Life Cycle Assessment (LCA) approach. The LCA approach implies that responsibility should be taken all over the supply chain up to the end-user and disposal (see figure 3). Determining a product’s social impact thus goes beyond responsibility of the own firm. Measuring the social impacts via a life cycle approach is called a ‘social impact framework’ in this paper. The word ‘framework’ is used as all these stakeholders and impact categories are considered as a framework of lenses through which a product’s social impact can be determined.
When considering social sustainability on product level, lessons can be learned from the well-defined Ecological LCA (E-LCA). The planet impacts on product level are already well well-defined in literature. The LCA was originally initiated by Coca-Cola in 1969. They started primarily in
the solid waste of total manufacturing (e.g. packaging). At the moment, the responsibility regarding greenhouse gas emissions is a focal area (Hunt and Franklin, 1996). However, it has taken more than twenty years before environmental scientists agreed on the environmental life cycle approach in the nineties. This led to the standardized eco-indicators.
The business value of sustainability
This section elaborates on the model of Carroll (1991), where philanthropy was considered as the highest level of CSR commitment. Recently, philanthropic activities are considered as insufficient when it is related to its business value. It is considered as a too simplistic form of CSR. This trend towards a more business focussed CSR strategy was facilitated by the revolutionary article of Porter and Kramer (2006). Porter and Kramer state that companies should aim for shared value (see figure 5). They stated that companies should move away from CSR as a necessity towards a sustainable model which generates both business
value and social value. Porter and Kramer state that
creating shared value is the new wave of business innovation and growth.
An important question which is still open for answer is how companies can create business value via social sustainability. This paper investigates how business value (Y-axis of figure 5) can be created by using a product-level social impact framework (which creates social value, see X-axis of figure 4). This study is relevant as existing guidelines for implementation lack empirical support (Lindgreen and Swaen, 2010). This gap in literature between creating shared value via a product level social impact framework is undervalued and underexposed in literature.
Conclusion
In the sections above, various elements regarding sustainability were elaborated: CSR, social sustainability and social impact. It was also mentioned that CSR consists of people, planet and profit, of which the people pillar is underexposed in literature.
Also the concept of creating shared value was defined (Porter and Kramer, 2006). Creating shared value implies that both social- and business value should be created. In terms of Porter and Kramer (2006), the social value in this paper is created by using a product level social impact framework. By this, social responsible products are
developed. However, it is unclear what business
value is created when a product’s social impact is
improved. Business value is defined in this paper as
enhancing the competitiveness of the company by increasing the benefits relative to costs, not just benefits alone (Porter and Kramer, 2006 p. 6) The
next section tries to identify what the business value can be of using a social impact framework.
The above mentioned is visualized in figure 5.
Figure 4 Creating shared value vs. Philanthropy
Figure 5 Creating shared value by using a social impact framework
Company XYZ Creating Social Sustainable business value 17
2.3.2 Creating value with social sustainability
This section elaborates on the crucial question of this paper regarding how a social impact framework can create business value. To answer the main research question, several sub-questions are indicated in this section. They are summarized in chapter 2.4. During the exploration among extant literature in this field, the researcher observed that the social sustainability innovation and marketing literature was very scarce. For this reason, this chapter includes the ecological sustainability literature as well. This section is used as input for the empirical analysis.
Social sustainability trend recognize as a source of revenue growth
The triple bottom line (Elkington, 1998) had its influence both on corporate and on innovation management. The extant literature regarding new product development (NPD) and innovation management concluded that a solid emphasis on innovation is a key success factor for business (Cooper, 2001; Zhang and Doll, 2001). Applying sustainability in the field of innovation management is important from two perspectives: a moral perspective and a business perspective (Salzmann et al. 2008). The first perspective is derived from the ‘iron law of responsibility’ (Davis, 1973, p. 314), which stresses the role that corporations have to solve societal and environmental problems.
The second perspective, the business perspective, gains more ground nowadays (Hansen, Grosse-Dunker, Reichwald (2009). Hart (1997) noticed that very few executives recognize that environmental challenges might become a significant source of revenue growth. Greening can for example be a revenue driver as it is linked to strategy and technology development.
For this paper it is interesting to investigate (1) whether social sustainability is discerned as a sustainability trend (does it has a right of existence?) and (2) whether social sustainability is recognized as an opportunity. For this paper it is suggested that social sustainability is perceived as a new source of revenue growth by marketers and innovation managers. Recognizing the social sustainability trend as a source of new ideas and revenue growth is perceived as a prerequisite to make social impact frameworks work on product level. From this section, the following sub-question can be derived:
Sub-question: To what extent is social sustainability recognized as a source of revenue growth? Social sustainability stimulator for new product development
The business perspective to engage in sustainability as described by Salzmann et al. (2008) is formulated differently by Day (1998) and Hart (1997) who call this vision pull. Vision pull reflects the principal of recognizing sustainability as a new source of ideas and business opportunities as explained above. Recognizing social sustainability as a source of ideas and business opportunity may result in the development of new products. Unitl recently, developing products for upcoming new markets and problems was only advocated by NGOs and the voluntary sector (Hockerts, 2008). Developing products for upcoming market and social developments is highly related to social entrepreneurship which is defined as: “a novel solution
to a social problem that is more effective, efficient, sustainable, or just than existing solutions and for which the value created accrues primarily to society as a whole rather than private individuals” (Stanford Social Innovation Review, 2012).
However, the commercial sector also develops new products that are based on social problems. Take for example WalMart, which developed a new medication subscription ($4, - per month) to make drugs public available for the large majority of poor people (Saul, 2010).
For this paper it is also valuable to test whether a social impact framework facilitates the development of new products. Has a social impact framework for example, the potential to generate incremental and/or radical innovations? Or can a social impact framework be inspirational for new product development because a Life Cycle approach is employed? How social impact frameworks can contribute in new product development is not indicated yet and thus requires more research. For this reason, the following research question is developed:
Research question: To what extent does a social impact framework stimulate new product development?
Social sustainability as product differentiator
Belz (2006) categorizes customers in three appreciation categories with regard to sustainability. The first category of customers (often pioneers) considers sustainability as a primary concern. Sustainable product differentiators are in this context a unique selling point to customers. At the second category of customers, sustainability does play a role at the customers, but not a dominant role. Other drivers as price, functionality durability and performance are equally important. The last option is that customers see sustainability as an integral part of the quality and performance of a product.
It is interesting to investigate to what extent customers appreciate social sustainable characteristics of products relative to other drivers as price and quality. Lindgreen, Antionco, Harness and van der Sloot (2009) investigated this for high-tech products (MRI scanners of Philips). Their study is conducted in the healthcare sector, in which it is suggested that customers are more concerned with social impacts than in other sectors. The following conclusions were drawn from their study:
- One of the most significant conclusions was that environmental aspects were by far less important than social aspects of the product. Only hazardous substances of the product were considered as important;
- Another significant finding was that price and performance are still the primary purchase criteria. Second and third level purchase criteria are the ecological and social sustainable characteristics of a product.
When indicating the position of social sustainable product differentiators, marketers and innovation managers can indicate how much resources they must spend on creating and communicating social sustainability product differentiators. For our study, not the position of social sustainability is investigated, but whether social impact frameworks have the capacity to create or capture product level social differentiators. This is relevant to investigate as social sustainable differentiators are considered as second or third level purchase criteria (Lindgreen et al. 2009). For this reason, the following research question is developed:
Research question: To what extent does a social impact framework facilitate the creation and capturing of social product differentiators?
Company XYZ Creating Social Sustainable business value 19
Social sustainability for better customer access
In line with the previous section, Lindgreen et al. (2009) focused as well on the participants in decision making unit (DMU) regarding their appreciation of sustainability. Another word for DMU is buying centre, which is a group of people responsible for major purchase decisions. The relationship between customer perceptions of a product’s social sustainability and the influence on their purchase decision is important. Lindgreen et al. (2009) concluded that the attention to different purchase criteria (drivers) differ among DMU members. However, they do not derive any conclusions from this observation. It can for example be the case that the real decision
makers in the buying centre are not interested in social sustainability, but the decision influencers
are. This should be further investigated. It is suggested that social sustainable products create a better customer access by addressing different DMU members (e.g. sustainability champions, marketers) with social sustainability performances. To investigate this, the following research question is developed:
Research question: To what extent do social sustainable product differentiators facilitate better DMU/buying centre access?
Social sustainability recognized as risk reducer
Besides revenue growth, Hart (2011) noticed that sustainability has become an important area for risk reduction and reengineering. Using sustainability as a risk reducer gained attention in the 1970’s as a result of the increased attention to harmful substances to the environment. It is not defined in literature whether social sustainability is perceived as a risk reducer as well. Davis (1973) stressed that a firm’s risk is a motivator for extensive attention towards CSR. Hockerts (2008) operationalizes this risk with regard to CSR in twofold:
- Litigation risk: Having a strong responsibility policy reduces the chance of being litigated on sustainability issues. Litigations have a strong influence on the shareholder value. - Regulatory risk: Not preparing a company for upcoming sustainability regulations can put
a company at huge competitive disadvantage.
Thus, it can be concluded that acting responsible is a kind of insurance from losing business value. However, the studies of Hockerts (2008) and Davis (1973) vary in twofold from our study: (1) they focus on CSR and not on product level sustainability and (2) they focus mainly on ecological and not on social sustainability. This paper takes a broad perspective on risk reduction with regard to social sustainability on product level. It suggests that using a social impact framework helps to indicate ´social hotspots´ in value chains and thus prevents NGOs and media from litigating or attacking companies for their bad social. Hockerts (2008) frames risk reduction in litigation and regulatory risk. However, this paper tries to investigate risk reduction from a broader perspective with the aim of investigating more options of risk reduction. For this reason, the following research question is investigated:
Other potential business values
Hockerts (2009) investigated to what extent high- and low-committed companies attain value from their CSR activities. In his study he recognizes the importance of social branding. He indicates that companies that focus on CSR (and thus commit to sustainability branding) can attain in the following benefits:
o Premium pricing: Whether sustainable superior products can gain a price premium is one of
the most important on-going sustainability debates in literature (e.g. Charter and Polonsky, 1999). The question whether clients are willing to pay a premium for social or ecological superior products is not answered yet. The respondents of Hockerts’s (2008) study were not very optimistic about this issue. For this paper, it is valuable to get insight in either gaining premium for (1) products that have social sustainable product differentiators and (2) for companies that commit to product level social sustainability. It is suggested that price premiums can be charged to customers when addressing social sustainability. This is suggested as social impact frameworks address social hotspots and thus reduces risks for customers. Contrary to this, gaining premium prices for social superior products is expected as customers can for example use the social differentiators in their own marketing as well. o Market development: It is not perceived by the respondents of Hockerts (2008) that the
acquisition of new customer is stimulated by CSR activities. This statement is different than the suggestion of McWilliams and Siegel (2001) and Peach (2005a) which suggested that sustainability offers the opportunity to enlarge the customer base. In both studies it is unclear
how new customers can be acquired via CSR activities.
For our study, it is also valuable to indicate whether product level social sustainability attract new or retain customers. It is suggested that those customers that take sustainability as a real issue, prefer to do business with suppliers who pay as well extensive attention to sustainability. This research investigates why companies using a social impact framework, can retain or acquire customers.
Research question: To what extent can companies gain a price premium because of having (1) a social impact framework in place and/or (2) having social superior products?
Research question: To what extent does a social impact framework result in retaining and acquiring customers?
2.4 Research objective, questions and conceptual model
The objective of this research is to give COMPANY XYZ more and better insights in their business opportunity via academic research. The business opportunity is indicated in section 2.1 and is academically interpreted in section 2.2. Section 2.3 elaborates on the problem statement by developing research questions.
It must be considered that this paper is an exploratory research in the academic fields of (1) social impact measurement and (2) sustainability marketing and innovation. The purpose of exploratory research is to gain familiarity and new insights in the new phenomenon. These new insights can be used for input for further investigation.
Basically this paper aims to indicate how companies can create shared value by using a product level social impact framework. However, creating shared value consists of two elements: (1) creating social value (e.g. via sustainability initiatives) and (2) creating business value (e.g. profit). Until now, it is not defined yet what the business value of a social impact framework is.
Company XYZ Creating Social Sustainable business value 21 This paper is trying to indicate the business value of a social impact framework. From the stated research objective, a research question can be developed. This research question sounds as following:
“What business value is created when improving a product’s social impact along its life cycle?”
From the literature review (section 2.3), several sub-research questions are derived. By answering the sub-research questions, it is tried to answer the main research question. The research questions sound as follows:
o Research question 1: To what extent is social sustainability recognized as a source of
revenue growth?
o Research question 2: To what extent does a social impact framework stimulate new
product development?
o Research question 3: To what extent does a social impact framework result in retaining
and acquiring customers?
o Research question 4: To what extent does a social impact framework facilitate risk
reduction?
o Research question 5: To what extent does a social impact framework facilitate the
creation and capturing of social differentiators?
Research question 6: To what extent can companies gain a price premium because
of having (1) a social impact framework in place and/or (2) having social superior products?
Research question 7: To what extent do social sustainable product differentiators
facilitate better buying centre access?
o Research question 8: What do users of a social impact frameworks require before using
it?
From these above stated research question, a conceptual model is drawn (see figure 6). The conceptual model visualizes the relationships between the research questions. The conceptual model will be tested via an empirical analysis at Company XYZ Figure 6 Conceptual model
Paying attention to social sustainability via social impact framework Creates and highlights social differentiators Reducing litigation and
regulatory risk Improving
customer access RQ 1 H3 Gaining premium prices RQ2 Creating business value Facilitates new product development Facilitates market development Social sustainability as source of revenue growth RQ5 RQ6 RQ7 RQ3 RQ4 Social impact framework user needs RQ8
Chapter 3 – Methodology
In this section, the methodology of this paper is summarized. The elaborated methodology section can be found in appendix 5. Appendix 5 has interwoven all three determinants of a quality research: controllability, reliability and validity (Swanborn, 1996).
Data gathering
This study is an exploratory research in the field of social impact measurement. This implies that it is important to discover ideas, feelings and preliminary insights. For this reason, the semi-structured interview method was used in addition to the literature review of section 2.3. The interviews were used to get a broader understanding of the research questions derived from literature. Semi-structured interviews are different from the structured interview by being more flexible, allowing to bring up new questions during the interview. Disadvantage of the semi-structured interview method is that the method is qualitative and not quantitative based. The conclusions derived from qualitative studies cannot be generalized for the population at large. No document analysis prior to the interviews was executed due to the fact that this is a new and emerging area of which no internal documentation exists. This study is thus limited to the semi-structured interview method. The interview guideline was tested at two respondents (see appendix 6.3).
Respondent selection
As stated in section 2.3, the marketing and innovation disciplines are considered as the most prominent group of people that are concerned with value creation on product level. For this reason and due to time limitations, other disciplines than the marketing and innovation disciplines were excluded from this research. Due to time limitations and the qualitative character of this study, only a limited amount of people were interviewed. For this study fourteen respondents were interviewed. Fourteen respondents were enough to reach the ‘point of saturation’ (Van Aken et al., 2007) which implied that respondents did not come up with major new interview outcomes (all possible outcomes were gained).
The respondents were selected based on the following criteria:
- Respondents must be either from marketing or innovation disciplines - Respondents must be equally spread across the companies’ business groups - Respondents should be both managers and non-managers, Dutch and Non-Dutch - Respondents should be familiar and non-familiar with social impact improvement
Selection of company
To indicate the business value created when using a social impact framework, it would be wise to study this phenomenon in multiple companies across various nations. However, this study limits itself to a case study at Company XYZ due to time limitations (six month time period) and resource limitations (one single researcher was assigned). However, COMPANY XYZ would be a proper company to explore the idea of social sustainability as COMPANY XYZ is perceived as a sustainability leader (highly ranked in many independent sustainability assessments). Next to the above mentioned, COMPANY XYZ is a multinational company present in many continents. This implies that also non-Dutch respondents are included in the sample of this study. Lastly, COMPANY XYZ is operating in the chemical sector which is highly monitored and regulated to foster sustainable behavior (e.g. European institution regarding Registration, Evaluation,
Authorisation and Restriction of Chemical substances by the EU). This implies that sustainability
Company XYZ Creating Social Sustainable business value 23 front running industry makes this research highly relevant. From this study, predictions can be made for other industries in which sustainability is an emerging theme.
Selection of social impact framework
Lastly, it must be underpinned why SIF XYZ is taken as the phenomenon for investigation. Initially, COMPANY XYZ already defined their own social impact framework which includes content derived on international standards. This concept is finished and is ready for testing (timing issue). Next to this, the SIF XYZ concept is scientifically based, which make conclusions to a large degree generalizeable. Lastly, SIF XYZ is not diverging significantly from other social impact frameworks in terms of level of analysis, methodology used and stakeholders considered (see section 2.2). This makes SIF XYZ a proper tool as representation of the phenomenon: creating business value via social impact frameworks. SIF XYZ is considered as one of the few product level social impact frameworks that is in this sophisticated stage of development.
Data analysis
The data of this report was analyzed by deploying two methods. Initially, an interview guideline was developed based on the sub-questions of chapter 2.4. The interview guideline was tested on its logic and structure at two test-respondents. The guideline was split up in four themes (introduction - SIF XYZ - value creation - closure). By this, the interviewer guided the interviewee through four themes with each theme containing related sub-questions. During the interview, the researcher could structure the interview-outcomes according to the themes and sub-questions stated (“putting answers in boxes”). This allows the researcher to use ‘coding’ during the interview and not only after the interview.
Secondly, when all transcripts were worked out, a second data analysis round was initiated. As all outcomes were already located in the right ‘box’, all interview-outcomes in each box were listed and accumulated in tables. By this, the most prominent outcomes became clear.
Limitations
Limitations of this study are multiple. Initially, only one company in one single industry was used for analysis. Moreover, the phenomenon that is tested (SIF XYZ) is not fully generalizable; it contains much company-specific content.
Next to the above mentioned, only a limited number of respondents are interviewed in this study. Although each respondent is considered as a specialist, their results are difficult to generalize for the entire population. Moreover, the only method employed for the analysis is the semi-structured interview method. This could make the results dependent on the method of analysis.
Next to this, it must be noticed that for many respondents, SIF XYZ and social sustainability is a new phenomenon. This implies that respondents have different perceptions about social sustainability and SIF XYZ. To minimize this heterogeneity in perceptions, a guiding presentation was developed to provide the respondent with equal content. This guiding presentation is attached in appendix 6.2. These limitations are evaluated on their applicability and consequences in chapter 7.5.
Chapter 4 – Analysis
In this section, all fourteen interview transcripts are reviewed and analysed based on the research questions and conceptual model derived in chapter 2.4. This chapter is structured according to the conceptual model; each research question is elaborated in a chapter. The aim of this chapter is to answer the main research question: What business value is created when improving a product’s
social impact along its life cycle? From this analysis, conclusions are drawn in the next chapter.
Research question 8 of the conceptual model is used for the design part of this paper and is thus not elaborated in this chapter. For this paper, the following terminology is used to define the significance of interview outcomes:
- Small minority (1-3 respondents) - significant minority (4-6) - Majority (7-9 respondents) – significant majority (10-14)
4.1 Recognition of social sustainability as business opportunity
This section elaborates on the sub-research question: to what extent is social sustainability
recognized as a source of revenue growth? Table 2 summarized the outcomes of the interviews.
From table 2 it can be concluded that the social sustainability trend is recognized as an opportunity by a significant majority of the respondents. However, this table does not indicate
how respondents indicate the social sustainability trend as an opportunity.
T h em e Respondent 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Total Social sustainability trend is recognized as an opportunity X X X X X X X X X X X X 12
Table 2 Respondents that recognized the social sustainability trend as an opportunity
Table 3 indicates how respondents perceive social sustainability as an opportunity. It was suggested in the literature review that social sustainability would be perceived as a new source of revenue growth. Table 2 partly supports this suggestion.
Perception that social sustainability is an opportunity
#
mentioned
Motivation # mentioned
Yes 12 Risk reducer for COMPANY XYZ and customer; it protects the brand from potential damage
6 Social sustainability offers new potential to differentiate a company upon
4
Other reasons 3
Table 3 Perception of social sustainability as an opportunity
Revenue growth is perceived by a significant minority as creating differentiators for COMPANY XYZ and their products. Probably, respondents perceive the creation of differentiators is a mean to revenue growth. In the past, COMPANY XYZ also embraced ecological sustainability as an opportunity of which sustainable differentiators were created. Respondents perceived that social sustainability offers this opportunity again. It can be concluded from table 3 that the trend is not primarily recognized as a new source of revenue growth, but as well as an opportunity to reduce the potential risks. A focus on social sustainability reduces the chance of backfire and thus
Company XYZ Creating Social Sustainable business value 25 secures the COMPANY XYZ brand. The perception regarding social sustainability as a risk reducer is an interpretation of sub-research question 4: to what extent does a social impact
framework facilitate risk reduction? This section question was derived from Davis (1973) and
Hockerts (2008) which stresses risk reduction as motivation for companies to commit to sustainability. In the context of this paper, risk reduction is mainly perceived as a risk reduction regarding damage for the own and the customer’s brand. This is of major importance in the business-to-business industry as the OEM’s in the market are currently attacked by NGOs on their social sustainable behaviour (e.g. Apple and is troubles regarding working conditions at their supplier Foxconn).
Respondents that do not recognize social sustainability as opportunity
The motivations of the small minority that does not perceive social sustainability as an opportunity are not contradictory to the outcomes of table 3. However, their motivations are very valuable notes that can be taken into account additionally to what is concluded above. The two respondents who did not agreed gave the following motivation:
1. “The social sustainability trend is still very young and will become more apparent in
2017-2018. Moreover, the developments of laws and standards will be derived by governmental institutions pretty soon, it is more something that companies are obliged to comply to (it is a minimum criteria)”
This respondent suggests that social sustainability is still too fragile; compliance to governmental regulations is perceived as satisfactory. His motivation is a good side-comment regarding the timing when companies should fully embrace social sustainability as an opportunity.
2. “Until now, other sustainability issues (e.g. biodiversity) are much more interesting than people issues”
The second respondent is a respondent involved in biobased products. From this respondent, it should be taken into account that ecological and social sustainability are differently valued in different product groups. To confirm this difference, an additional analysis was executed regarding social sustainability in biobased products of COMPANY XYZ. This analysis is however excluded from this report due to confidentiality.
4.2 Social impact framework and new product development
The second research question sounds as: To what extent does a social impact framework
stimulates new product development? From table 4, it can be concluded that the significant
majority of respondents indicated that a social impact framework (in this context SIF XYZ) facilitates product development.
T h em e Respondent 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Total SIF XYZ facilitate product development X X X X X X X X X X X 11
Table 5 Motivation why SIF XYZ can be used in product development
Table 4 indicates only how many respondents favoured a social impact framework for product development. Table 5 complements table 4 by indicating why a social impact framework is useable for product development.
The conclusions that can be drawn from table 5 reads as follows:
- Social impact frameworks that are LCA based facilitate product development by considering more stakeholders in the value chain than only the direct customer. This
is especially valid for business-to-business firms that are located far in the supply chain. - Social impact frameworks facilitate product development by structuring in
stimulating the ideation process. Ideation is characterized by Koen et al. (2002) as
ambiguous, often chaotic and with a great deal of uncertainty. A social impact framework can make this fuzzy front end more structured by proposing fixed stakeholder groups with aligned impact categories. A social impact framework does not only remove the fuzziness from the ideation process, it is also fosters the generation of new ideas, as some stakeholders or impact categories are under- or not yet considered.
- Social impact framework facilitates the new product development process by filtering ideas. Contrary to the creation of new ideas it can be concluded that social
impact frameworks can function as a tool to filter ideas or product modifications. By this, product managers are forced to develop product with better social impacts.
From table 4, it can also be concluded that a small minority is not in favour of using a social impact framework for new product development. None of these interview outcomes showed contradictory outcomes to what is concluded above. Only one respondent generated a valuable comment which is an additional to the conclusions drawn above:
- “If SIF XYZ would identify some own very specific trends which fall are under the social responsibility umbrella, it could become a product development tool”. Creating new ideas
and products out of relevant business trends are considered as more relevant than creating new ideas and products out of stakeholder groups and social impact categories. By identifying business group relevant market trends along the social impact categories, social impact framework gain practical interpretation; what do social impacts mean for their business?
Perception why SIF XYZ facilitates product development
# mentioned Motivation of respondents
SIF XYZ facilitates to think ahead in the value chain
3 SIF XYZ helps employees (especially technicians) to become more market oriented by considering a life cycle approach. A life cycle approach considers impacts beyond the direct customer.
Structures and facilitates the ideation process
5 SIF XYZ can function as a checklist of social issues to consider. SIF XYZ considers different stakeholders on different impact categories. Some impact categories are totally new and some offer a new insight for employees. This helps to generate new (social) ideas or product modifications.
Functions as steering mechanism 2 SIF XYZ helps businesses to steer new ideas and products towards the sustainability strategy of COMPANY XYZ. SIF XYZ could for example help to filter ideas.
