From corporate social responsibility to corporate social entrepreneurship: A paradigm shift
Saturday, 19 December 2009
Nezam Uddin
HISTORY of business is as old as the history of civilisation. More precisely, it is as old as the history of agriculture. People at the earliest of stage of agriculture-based civilisation used to produce by them everything they need. Soon after, they realised that it is better to exchange goods, to focus on certain sector of production, in which they have special ability. This is what we call, now days, "specialisation of labour". Even though they don't know the theory, they did it quite naturally. They found it useful to daily life.
But, things were and are not that plain. Every problem offers some new horizon of opportunity, and every opportunity creates some new problems. This results in a continuous cycle of problem-opportunity game. Exchanging goods creates a new problem for fixing the value of goods being exchanged. Some goods are more precious, and needed most while others are less wanted.
Context also determines the value, sometimes. To solve this valuation problem, money came as a dominant solution. What we can trying to make here is that the entire human civilisation is a continuous flow of creating problem and opportunities. So all entities, involved in human civilisation always endeavour to remain dynamic, solving problems. Among them, business stands second in showing its dynamism, being change-seeker, change maker too. Industrial revolution, globalization, innovation of newer forms of business organisation etc., all can be symbolised as dynamism of business.
In early 1960s, the US businesses faced a new wave of demand from customers, that business should be socially aware. Obviously, this didn't come suddenly. It was a response to some gradual events. Before the industrial revolution in 17th century, business had less impact on the society. Market was then producer centric. The abundance of product, which was a result of industrial revolution, changed the situation radically and made it a customer centric market. Now customers have got the power to bargain with business as there were more producers to pursue customers.
With development of globalization, business went global and claimed more and more resources from society. It demanded not only material resources, but also intellectual resources to ensure its growth. With the increased demand, social equilibrium was impaired and different types of problems were created. Business was the root of the problem as it snatched more power from different institutions of society which was previously responsible for discharging different tasks of society. With this power shift, responsibilities of those tasks were eventually shifted towards business. The society as a whole was asking business to be attentive to those untapped area and this pressure get momentum in the early sixties of last century.
At that time, a new concept is developed to address this monumental pressure from different stakeholders; it was named "corporate social responsibility (CSR).
Mallen Baker defined CSR as, "CSR is about how companies manage the business processes to produce an overall positive impact on society." He used the following diagram to depict his definition.
His points are built around two bases; 1) The quality of firm's management - both in terms of people and processes (the inner circle); 2. The nature of, and quantity of, their impact on society, in different dimensions.
Wikipedia, the people's encyclopaedia, described this as "a form of corporate self-regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms."
CSR, as a concept, was evolved mainly from the USA. In the early at 1960s, the USA defined CSR as a philanthropic giving. Firms make profits, undisturbed, except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to social causes. But Europe redefined the concept. They put in a pro-active way. They said, firms will focus on operating the core business in a socially responsible way, in addition with investment in communities. While the US view was much more reactive, European view is proactive.
The shift between US views to European one is a result of increased public concern about business's impact on society. Time passes, and public understand more precisely that business is a dominant person that affect others in the society. So, it is evident that, this concern will continue to increase.
The factors that led to shift the views are listed below:
l Ethical consumerism;
l Globalization and market forces;
l Social awareness and education;
l Ethics training;
l Laws and regulation;
l Crises and their consequences; and,
l Stakeholder priorities
Ethical consumerism led to build a concern among consumers about their consumption impact on society. After this concern, they demanded the firms to react to those fatalities. Globalization increased competition by removing the border in free market economy. Then consumers have choices to choose among the best responding companies that conforms with their changing demands. Ethical consumerism is a result of social awareness that resulted from increased rate of education. In organisational domain, ethics intrudes also. This is because of ethics training. With growing public concern, government responded by enacting timely laws and regulations. By last 50 years, different catastrophic crisis have also led to this changed view of CSR. The credit for this can be passed along to business. All the factors combined created an aura that demanded proactive measures from firms to mitigate coming disasters.
So, it is time to advance the CSR concept. At Harvard University the concept of an advanced form of CSR, named Corporate Social Entrepreneurship (CSE) was promoted. A quick definition of CSE is, it is a process aimed at enabling businesses to develop more advanced and powerful forms of corporate social responsibility (CSR).
CSE embraces three different concepts: entrepreneurship, corporation and society. Firstly, CSE is all about entrepreneurship. It asks for taking initiatives to work for the betterment of society under corporate environment. Obviously, this will not hurt the corporation's motto of profit. Rather, it will enhance its viability to remain profitable. Thus, CSE will bring new output that will be translated as profit for corporation (economic value) and welfare to society (social value). This extended value-creation concept requires newer process within and across an organisation. Only firm's internal resources are not enough to achieve dual value goal. For example, in poverty alleviation, non-government organisations (NGOs) like Grameen Bank(GB) have years of experience. If a firm like Grameen Phone (GP) wants to work for allowing poverty as a supplementary goal of its business through its operation, it might not succeed if it relies only on its own management capacity. GP needs to join in with GB to share its management capacity. Together, the corporate management and the NGO management can result in a synergistic approach.
At this point of discussion, if we want a better definition of CSE, we might list the catalytic factors:
l Extending firm's domain;
l Leveraging resources, within & outside of firm; and,
l Dual goal - Economic & social value creation.
Veteran Harvard Professors (Austin, Leonard, Reficco, and Wei-Skillern) gave the definition of CSE in the following way. "The process of extending the firm's domain of competence and corresponding opportunity set through innovative leveraging of resources, both within and outside its direct control, aimed at the simultaneous creation of economic and social value."
Backdrop of CSE: It has been already mentioned that, CSE is the advanced form of CSR. However, we might list some specific reasons for the emergence of CSE replacing CSR concept.
These are:
lMarket has become saturated for CSR
l Firms failed to integrate CSR significantly into their organisation
l Traditional CSR is not sustainable thus creating debate and public concern.
l The is lack of dominant framework to move forward
l The needed framework in CSE
l CSE is a process for invigorating and advancing development of CSR.
Key elements: It is evident from this discussion that, aligning both social and economic goal within the border of a corporation is really a daunting task. It requires a total restructuring of the attitude of the firm and a change in the structure of relationship of different organisations within the society. However, the pre-requisite actions on the part of a corporation for ensuring CSE to work is being highlighted here. Since actions embrace: 1. Enabling environment; 2. The corporate social intrapreneur; 3. corporate purpose: values-based organisations; 4. Value creation and the double return; and, 5. Co-generating value.
An organisation that intends to initiate a CSE (corporate social enterprise) must be strongly and consciously willing to do so. As CSE requires disruptive changes in organisational structure and attitude, these changes must be brought in by the top managements. Authority should champion the changes within them and gradually replicate them all over the organisation. Without this enabling environment, other key requisite of CSE will fail to groom.
As CSE is a blend of entrepreneurship and corporate mechanism, firms need corporate entrepreneurs to start new projects on a regular basis. Corporate entrepreneurs are the employees who possess the entrepreneurship ability and are motivated to initiate any project voluntarily. Sometimes these entrepreneurs are termed as employeepreneurs. Firm must provide enough motivating factors to attract and retain such potential social entrepreneurs.
Traditional corporate values include profit maximization which is the result of, according to noble laureate Dr. Yunus, "narrowly defined capitalism". Corporations, as the noble laureate considers, can sustain themselves by maintaining social goals too. Certainly, this is a value shift from existing corporate philosophy. Corporate purpose must be redefined and revisited to ensure that a value-based organisation is established to motivate all its employees to work to achieve both social and economic goals.
Another relevant point here concerns the source of values that firm will deploy to motivate and control its employ in a CSE. As multinational companies (MNCs) are going highly international, it is a decent move to localise management to reflect the diversity in global culture. Like this, while creating a value-based organisation, a firm must give first priority to local values to direct, motivate and control its employees towards the social goals. In their book "Climate for change", two Texas Tech university researchers, Katharine Hayhoe and Andrew Farley, took Christian faith to combat global worming issue. "Together, we have talked to people who are asking whether or not climate change is real", the duo researchers said. ""They want to know if it's a genuine crisis that requires our attention or if the whole thing is just a lot of smoke and mirrors. They also want to know what the Bible says, if anything, about a Christian response."
These two researchers successfully transferred the theme of Bible's age old mandate, "Love God, love your neighbours and remember the poor" to raise public awareness and actions against climate change.
For a firm working in Bangladesh, the core value of CSE must the local values. Religion has proved its worth being the change agent in people's behaviour.
It is worthwhile at this stage how CZM, a corporate social enterprise (CSE) of Rahimafrooz manages Zakat money. It has successfully integrated Islamic Belief to its actions. Bottom line, here is that a firm must incorporate local values in CSE and religious values can best serve to motivate and illicit proper response among employees and stakeholders.
We already noted about creating dual values-economic and social values. In plain, it might seem that creating social value on part of a firm will lead to return. In short run, this might happen. Conrad van Oostrom, a Dutch CEO of OVG claimed that "going green pays nicely."
Finally, a CSE will work with other organisations in its area to create synergy and ensure efficient use of resources. The government of Bangladesh have a supply chain all over the country. For Rahimafrooz, it will be impossible to build such a big network instantly. So, they can join and work together. This will ensure usage of idle supply-chain on the part of the government part and save investment in building chain on firm's part.
Challenges: Obviously this poses great challenges and risks for a firm. It has rethink its current approach to CSR. Most firms find current payment through CSR portfolio easy and it yields modest benefit for an enterprise. So any rethinking will certainly be unwelcome by the responsible management.
CSE is disruptive, effecting changes in pursuit of new opportunity. New opportunity is one of the major reasons for the priority of CSE over CSR. But this disruptive change is hardly welcomed by the management.
Then there are factors relating to willingness and desire entrepreneurial redesign requires ensuring motivating factors for intrapreneurs. As CSE is a new concept, aligning management and entrepreneurship is a tough task. Necessary actions are needed to be taken by the top management to initiate required changes. Some of the managers might be convinced, while others might offer huge difficulties. Firms are less expert at managing social value creation.
Case of CZM: Center for Zakat Management (CZM) is a new generation CSE in Bangladesh, supported by Rahimafrooz(RA). This is an extended form of RA's previous Zakat Fund (ZF). CZM started its journey in June 2009. The main idea behind CZM is to ensure efficient and effective usage of Zakat money to alleviate poverty. Traditionally, Zakat is given in the form of sharis or lungis before Eid-ul-fitr. This is not a sustainable way to give Zakat and it is not the original essence of giving Zakat. The governing motive behind giving zakat is to empower the poor so that they become self-reliant. So, CZM aims to disburse Zakat money in such a way that this year's receiver will pay zakat within a few years in the near future.
Another major concern of CZM is to collect as much Zakat as possible. For this, it launched a month-long campaign last Ramadan in Dhaka city. The main messages of this campaign are built around the appeal of Islam. It is found that, citing verses from Quran has made a very positive impact on potential Zakat payers. Many of this year's payer are first time payers.
On the disbursement side, CZM gave faith-based motivation to the receiver to use the money efficiently. Currently we can't measure the effectiveness of this approach, but it is supposed to have positive results.
RA top management has performed a great role in rolling CZM. They are very willing to institutionalize the process of Zakat payment and disbursement. Their passion for Islam and poor has led to accept this concept which was the first of its kind to be given by one of their manager-level employee. This is the sign of an enabling environment that motivate social intrapreneurs. As the operating value, CZM accepted values of Islam that will motivate its employees and stakeholders. While recruiting, applicants are rigorously checked for their passion for Islam and poor. This is very logical, as without passion such a project might not succeed.
It is too early to comment on CZM's success as a CSE. But it is a good and timely start. Undoubtedly, CZM's success will start a new era of CSE in our country. The CSE is the future of CSR as public are not certain about the success of CSR approach. So it is high time for firms to revisit their CSR approach and do something more sustainable, for the business and the society. CSE can be a convincing solution.
(The writer can be reached at e-mail: nezam05@gmail.com)
HISTORY of business is as old as the history of civilisation. More precisely, it is as old as the history of agriculture. People at the earliest of stage of agriculture-based civilisation used to produce by them everything they need. Soon after, they realised that it is better to exchange goods, to focus on certain sector of production, in which they have special ability. This is what we call, now days, "specialisation of labour". Even though they don't know the theory, they did it quite naturally. They found it useful to daily life.
But, things were and are not that plain. Every problem offers some new horizon of opportunity, and every opportunity creates some new problems. This results in a continuous cycle of problem-opportunity game. Exchanging goods creates a new problem for fixing the value of goods being exchanged. Some goods are more precious, and needed most while others are less wanted.
Context also determines the value, sometimes. To solve this valuation problem, money came as a dominant solution. What we can trying to make here is that the entire human civilisation is a continuous flow of creating problem and opportunities. So all entities, involved in human civilisation always endeavour to remain dynamic, solving problems. Among them, business stands second in showing its dynamism, being change-seeker, change maker too. Industrial revolution, globalization, innovation of newer forms of business organisation etc., all can be symbolised as dynamism of business.
In early 1960s, the US businesses faced a new wave of demand from customers, that business should be socially aware. Obviously, this didn't come suddenly. It was a response to some gradual events. Before the industrial revolution in 17th century, business had less impact on the society. Market was then producer centric. The abundance of product, which was a result of industrial revolution, changed the situation radically and made it a customer centric market. Now customers have got the power to bargain with business as there were more producers to pursue customers.
With development of globalization, business went global and claimed more and more resources from society. It demanded not only material resources, but also intellectual resources to ensure its growth. With the increased demand, social equilibrium was impaired and different types of problems were created. Business was the root of the problem as it snatched more power from different institutions of society which was previously responsible for discharging different tasks of society. With this power shift, responsibilities of those tasks were eventually shifted towards business. The society as a whole was asking business to be attentive to those untapped area and this pressure get momentum in the early sixties of last century.
At that time, a new concept is developed to address this monumental pressure from different stakeholders; it was named "corporate social responsibility (CSR).
Mallen Baker defined CSR as, "CSR is about how companies manage the business processes to produce an overall positive impact on society." He used the following diagram to depict his definition.
His points are built around two bases; 1) The quality of firm's management - both in terms of people and processes (the inner circle); 2. The nature of, and quantity of, their impact on society, in different dimensions.
Wikipedia, the people's encyclopaedia, described this as "a form of corporate self-regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms."
CSR, as a concept, was evolved mainly from the USA. In the early at 1960s, the USA defined CSR as a philanthropic giving. Firms make profits, undisturbed, except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to social causes. But Europe redefined the concept. They put in a pro-active way. They said, firms will focus on operating the core business in a socially responsible way, in addition with investment in communities. While the US view was much more reactive, European view is proactive.
The shift between US views to European one is a result of increased public concern about business's impact on society. Time passes, and public understand more precisely that business is a dominant person that affect others in the society. So, it is evident that, this concern will continue to increase.
The factors that led to shift the views are listed below:
l Ethical consumerism;
l Globalization and market forces;
l Social awareness and education;
l Ethics training;
l Laws and regulation;
l Crises and their consequences; and,
l Stakeholder priorities
Ethical consumerism led to build a concern among consumers about their consumption impact on society. After this concern, they demanded the firms to react to those fatalities. Globalization increased competition by removing the border in free market economy. Then consumers have choices to choose among the best responding companies that conforms with their changing demands. Ethical consumerism is a result of social awareness that resulted from increased rate of education. In organisational domain, ethics intrudes also. This is because of ethics training. With growing public concern, government responded by enacting timely laws and regulations. By last 50 years, different catastrophic crisis have also led to this changed view of CSR. The credit for this can be passed along to business. All the factors combined created an aura that demanded proactive measures from firms to mitigate coming disasters.
So, it is time to advance the CSR concept. At Harvard University the concept of an advanced form of CSR, named Corporate Social Entrepreneurship (CSE) was promoted. A quick definition of CSE is, it is a process aimed at enabling businesses to develop more advanced and powerful forms of corporate social responsibility (CSR).
CSE embraces three different concepts: entrepreneurship, corporation and society. Firstly, CSE is all about entrepreneurship. It asks for taking initiatives to work for the betterment of society under corporate environment. Obviously, this will not hurt the corporation's motto of profit. Rather, it will enhance its viability to remain profitable. Thus, CSE will bring new output that will be translated as profit for corporation (economic value) and welfare to society (social value). This extended value-creation concept requires newer process within and across an organisation. Only firm's internal resources are not enough to achieve dual value goal. For example, in poverty alleviation, non-government organisations (NGOs) like Grameen Bank(GB) have years of experience. If a firm like Grameen Phone (GP) wants to work for allowing poverty as a supplementary goal of its business through its operation, it might not succeed if it relies only on its own management capacity. GP needs to join in with GB to share its management capacity. Together, the corporate management and the NGO management can result in a synergistic approach.
At this point of discussion, if we want a better definition of CSE, we might list the catalytic factors:
l Extending firm's domain;
l Leveraging resources, within & outside of firm; and,
l Dual goal - Economic & social value creation.
Veteran Harvard Professors (Austin, Leonard, Reficco, and Wei-Skillern) gave the definition of CSE in the following way. "The process of extending the firm's domain of competence and corresponding opportunity set through innovative leveraging of resources, both within and outside its direct control, aimed at the simultaneous creation of economic and social value."
Backdrop of CSE: It has been already mentioned that, CSE is the advanced form of CSR. However, we might list some specific reasons for the emergence of CSE replacing CSR concept.
These are:
lMarket has become saturated for CSR
l Firms failed to integrate CSR significantly into their organisation
l Traditional CSR is not sustainable thus creating debate and public concern.
l The is lack of dominant framework to move forward
l The needed framework in CSE
l CSE is a process for invigorating and advancing development of CSR.
Key elements: It is evident from this discussion that, aligning both social and economic goal within the border of a corporation is really a daunting task. It requires a total restructuring of the attitude of the firm and a change in the structure of relationship of different organisations within the society. However, the pre-requisite actions on the part of a corporation for ensuring CSE to work is being highlighted here. Since actions embrace: 1. Enabling environment; 2. The corporate social intrapreneur; 3. corporate purpose: values-based organisations; 4. Value creation and the double return; and, 5. Co-generating value.
An organisation that intends to initiate a CSE (corporate social enterprise) must be strongly and consciously willing to do so. As CSE requires disruptive changes in organisational structure and attitude, these changes must be brought in by the top managements. Authority should champion the changes within them and gradually replicate them all over the organisation. Without this enabling environment, other key requisite of CSE will fail to groom.
As CSE is a blend of entrepreneurship and corporate mechanism, firms need corporate entrepreneurs to start new projects on a regular basis. Corporate entrepreneurs are the employees who possess the entrepreneurship ability and are motivated to initiate any project voluntarily. Sometimes these entrepreneurs are termed as employeepreneurs. Firm must provide enough motivating factors to attract and retain such potential social entrepreneurs.
Traditional corporate values include profit maximization which is the result of, according to noble laureate Dr. Yunus, "narrowly defined capitalism". Corporations, as the noble laureate considers, can sustain themselves by maintaining social goals too. Certainly, this is a value shift from existing corporate philosophy. Corporate purpose must be redefined and revisited to ensure that a value-based organisation is established to motivate all its employees to work to achieve both social and economic goals.
Another relevant point here concerns the source of values that firm will deploy to motivate and control its employ in a CSE. As multinational companies (MNCs) are going highly international, it is a decent move to localise management to reflect the diversity in global culture. Like this, while creating a value-based organisation, a firm must give first priority to local values to direct, motivate and control its employees towards the social goals. In their book "Climate for change", two Texas Tech university researchers, Katharine Hayhoe and Andrew Farley, took Christian faith to combat global worming issue. "Together, we have talked to people who are asking whether or not climate change is real", the duo researchers said. ""They want to know if it's a genuine crisis that requires our attention or if the whole thing is just a lot of smoke and mirrors. They also want to know what the Bible says, if anything, about a Christian response."
These two researchers successfully transferred the theme of Bible's age old mandate, "Love God, love your neighbours and remember the poor" to raise public awareness and actions against climate change.
For a firm working in Bangladesh, the core value of CSE must the local values. Religion has proved its worth being the change agent in people's behaviour.
It is worthwhile at this stage how CZM, a corporate social enterprise (CSE) of Rahimafrooz manages Zakat money. It has successfully integrated Islamic Belief to its actions. Bottom line, here is that a firm must incorporate local values in CSE and religious values can best serve to motivate and illicit proper response among employees and stakeholders.
We already noted about creating dual values-economic and social values. In plain, it might seem that creating social value on part of a firm will lead to return. In short run, this might happen. Conrad van Oostrom, a Dutch CEO of OVG claimed that "going green pays nicely."
Finally, a CSE will work with other organisations in its area to create synergy and ensure efficient use of resources. The government of Bangladesh have a supply chain all over the country. For Rahimafrooz, it will be impossible to build such a big network instantly. So, they can join and work together. This will ensure usage of idle supply-chain on the part of the government part and save investment in building chain on firm's part.
Challenges: Obviously this poses great challenges and risks for a firm. It has rethink its current approach to CSR. Most firms find current payment through CSR portfolio easy and it yields modest benefit for an enterprise. So any rethinking will certainly be unwelcome by the responsible management.
CSE is disruptive, effecting changes in pursuit of new opportunity. New opportunity is one of the major reasons for the priority of CSE over CSR. But this disruptive change is hardly welcomed by the management.
Then there are factors relating to willingness and desire entrepreneurial redesign requires ensuring motivating factors for intrapreneurs. As CSE is a new concept, aligning management and entrepreneurship is a tough task. Necessary actions are needed to be taken by the top management to initiate required changes. Some of the managers might be convinced, while others might offer huge difficulties. Firms are less expert at managing social value creation.
Case of CZM: Center for Zakat Management (CZM) is a new generation CSE in Bangladesh, supported by Rahimafrooz(RA). This is an extended form of RA's previous Zakat Fund (ZF). CZM started its journey in June 2009. The main idea behind CZM is to ensure efficient and effective usage of Zakat money to alleviate poverty. Traditionally, Zakat is given in the form of sharis or lungis before Eid-ul-fitr. This is not a sustainable way to give Zakat and it is not the original essence of giving Zakat. The governing motive behind giving zakat is to empower the poor so that they become self-reliant. So, CZM aims to disburse Zakat money in such a way that this year's receiver will pay zakat within a few years in the near future.
Another major concern of CZM is to collect as much Zakat as possible. For this, it launched a month-long campaign last Ramadan in Dhaka city. The main messages of this campaign are built around the appeal of Islam. It is found that, citing verses from Quran has made a very positive impact on potential Zakat payers. Many of this year's payer are first time payers.
On the disbursement side, CZM gave faith-based motivation to the receiver to use the money efficiently. Currently we can't measure the effectiveness of this approach, but it is supposed to have positive results.
RA top management has performed a great role in rolling CZM. They are very willing to institutionalize the process of Zakat payment and disbursement. Their passion for Islam and poor has led to accept this concept which was the first of its kind to be given by one of their manager-level employee. This is the sign of an enabling environment that motivate social intrapreneurs. As the operating value, CZM accepted values of Islam that will motivate its employees and stakeholders. While recruiting, applicants are rigorously checked for their passion for Islam and poor. This is very logical, as without passion such a project might not succeed.
It is too early to comment on CZM's success as a CSE. But it is a good and timely start. Undoubtedly, CZM's success will start a new era of CSE in our country. The CSE is the future of CSR as public are not certain about the success of CSR approach. So it is high time for firms to revisit their CSR approach and do something more sustainable, for the business and the society. CSE can be a convincing solution.
(The writer can be reached at e-mail: nezam05@gmail.com)