CSR is good business practice

According to the Harvard Business Review, Corporate Social Responsibility is good business practice.  It encourages innovation, attracts customers, enhances customer satisfaction and bolsters public relations. I think the bigger picture is putting the business focus on serving the community beyond the dollars and cents involved.

‘Good’ companies launch more new products

19 April 2012 Harvard Business Review

Corporate social responsibility is becoming a clear priority: more than 6,000 companies in 135 countries have adopted the UN’s Global Compact, agreeing to align their operations with 10 principles relating to human rights, labour, environment and corruption. But CSR remains controversial because of its impact on the bottom line. Critics charge that it saps firms – and shareholders – of capital. Proponents argue that it attracts consumers, enhances customer satisfaction and bolsters public relations.

Our research reveals another benefit: corporate social responsibility programs can make a company more innovative. Viewed through this lens, CSR is not a peripheral activity but can become a pivotal component of competitiveness and growth.

We studied 128 firms in all major industry sectors from 2001 to 2004, examining the relationship between CSR engagement (as measured by an outside index) and the number of new products introduced. After controlling for variables such as size, financial leverage, and market stability and performing statistical regressions to determine causality, we found that companies in the top third in terms of CSR activities brought out, on average, 47 new products a year, while companies in the bottom third brought out only 12.

What accounts for this effect? We believe that because CSR strengthens relationships with external stakeholders, including customers, suppliers, nonprofits and governments, it provides access to a wide body of knowledge. This helps a company stay abreast of evolving market preferences and new technologies and facilitates “creative leaps.”

We also discovered that not all companies reap the same innovation rewards from their CSR endeavours. The higher the investment in research and development, the greater the stimulating effect, especially on pioneering, or first-of-a-kind, innovations.

Marketplace dynamics play a role as well, with the impact of CSR activities magnified for companies in highly competitive environments. Competitive intensity typically fuels organisational learning and thus better equips firms to capitalise on new information. Firms facing strong competition derive more incremental innovations from their CSR endeavours.

In an era of open innovation and rapidly diversifying knowledge, companies can no longer rely solely on internal resources; they must find ways to bring external ideas into the firm. CSR can be a powerful catalyst for doing that. When designing and implementing CSR initiatives, managers should think about their company’s strategic imperatives as well as the social and public relations benefits; carefully co-ordinate CSR programs with R&D investments; and consider the degree of rivalry they face. They might also regard CSR as a crucial capital investment, not an operational cost.

Xueming Luo is the Eunice & James L. West Distinguished Professor of Marketing at the University of Texas, Arlington and a distinguished honorary professor at Funan University in ChinaShuili Du is an assistant professor of marketing at Simmons School of Management.

Harvard Business Review


©2012 Harvard Business School Publishing Corp

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