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Living up to the challenges: Competitive and Responsible Business

Event:
18th CEEMAN Annual Conference
Italy - Naples | 2010
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We often see a trade-off between these two concepts. If you are responsible at the expense of competitiveness, it means that you will see responsibility as a cost. But is there no way to reconcile the two? Is it possible to have the two at the same time: to be responsible without compromising competitiveness and the other way around? Ask your MBA students what was the last time they attended a meeting on corporate social responsibility that got them really excited? I think that two out of 50 will raise a hand. When you ask them what happens during such meetings, they will tell you that it is just a lot of “bla-bla”. How relevant is responsibility to you in your daily operations? Not much.

I was asked to speak about competitiveness and responsibility and the
seeming paradox between the two. We often see a trade-off between these two concepts. If you are responsible at the expense of competitiveness, it means that you will see responsibility as a cost. But is there no way to reconcile the two? Is it possible to have the two at the same time: to be responsible without compromising competitiveness and the other way around?
Ask your MBA students what was the last time they attended a meeting on corporate social responsibility that got them really excited? I think that two out of 50 will raise a hand. When you ask them what happens during such meetings, they will tell you that it is just a lot of “bla-bla”. How relevant is responsibility to you in your daily operations? Not much.

A couple of years ago, I was approached by an energy production and distribution company. They have a diverse portfolio, some of which is nuclear, some is oil, and some is coal. They wanted me to help them with their responsibility strategy. Before doing that, I decided to make some interviews with key managers of the company. They had a big research and development department and I chose its head. He had a PhD in climate change and I thought that he would be on “my side.” I called him and had barely said a couple of sentences when he interrupted me and said, “Let me tell you something, lady”. I think I will forever have that “lady” on my resume. He went on to tell me that responsibility is a complete waste of time and if he could have his way he would never even talk to me. He saw responsibility as a public relations exercise that is totally irrelevant to business in every other respect.
I think that there are many people like him. They view responsibility as a cost. But something else is going on, too. And that change in connected to the central issue of (hopefully!) every company: value creation. And how do you do that? More than ten years ago I taught undergraduates. I asked them how value could be created and this is what they said. “You get some money, find some people, put them together in a room and ask them to invent something that somebody will buy. That is how value is created.” While it is, of course, overly-simplified, it is a very good and elegant way to think of a competitive advantage. In most cases, it is located in one or two main areas. Apple competes on people. Wal-Mart competes on facilities and operations. Some financial companies compete on capital. Harley Davidson competes on customers. It is useful to think about the key sources of your competitive advantage. And this is exactly where the big change is coming: the things that we compete on are shifting.
The first big trend that marks this shift is radical transparency. Never before did we live in a time where transparency was so important. If I produced a chair 100 years ago, there would be nobody to tell me what I could do with it. There were nearly no government regulations or other guidelines that would specify how that chair should be designed and produced. However, we now live in a world of declining resources and rising expectations. In the past, raw materials had a stable price. Labor was cheap and there were no regulations. Capital was in the hands of a very small group of people. Now, all of us who have a pension fund, are investors by default.
The second big trend that is changing the way we compete is declining resources. The world’s resources are declining and this is not only true of oil.Food is even more critical because everybody eats; anybody here who does not eat? According to British Petroleum Statistical Review and Alternatives, at current consumption levels oil reserves are expected to last for about 40 years. Gold reserves will be depleted in less than 40 years. A 20-year longitudinal study showed that 43 garden crops have shown a decline in their levels of protein, calcium, phosphorus, iron, riboflavin, and vitamin C. In the 19 th century,
one species went extinct every year. By 1975, that rate had soared to 1,000 a year. By the year 2000, that figure was 40,000 a year. According to Stanford University, all commercial fish may be lost by 2048. If you think of all this, you will see that responsibility is not just a public relations exercise. It should be part of your strategy.

Finally, the third trend re-shaping the way we compete is increasing expectations. The number of non-profit organizations dedicated to social and environmental concerns worldwide has surpassed one million. Consumers are also
exerting pressure for a lifestyle of health and sustainability. The market for that
has reached 35 million adult consumers only in the US. In UK, ethical consumerism was worth GBP 35 billion in 2007, a 15% increase on 2006.
Investors are expecting a new level of performance and a new type of management. Social responsibility investment rose from just two funds in 1970 to
11% of the assets. A pension fund manager once told me that the fund’s clients would become pensioners in 30 years. Unless they can be sure that a
company would exist in 30 years, they would not invest in it.
Increasing expectations, declining resources and radical transparency are
changing the way we think about responsibility. This is no longer a public
relations job. It is no longer just about safety and preservation of the environment. It is becoming a crucial element of business strategy. It is about product
creation and value change management, about finance and risk management, about customers and product development.
We need a new way of thinking. Focusing only on shareholder value is unsustainable. But the traditional philanthropic approach of taking money out of
the shareholders’ pockets and giving it to stakeholders is equally unacceptable. We have to find a place where the two meet. We should not look for a
trade-off between the two. It is not a matter of “either or”. There are a lot of
opportunities to create value for both – a true sustainable value.        
Take, for example, the automotive industry. Here, there is an explosion of
sustainable value. Customers demand strong environmental performance.
However, when companies hear about responsibility and sustainability as an
element of strategy, they perceive it as a sideline, as a Band-Aid that you
stick to your normal business practice. In that way, it becomes a matter of a
few green products. Or it becomes a basic energy efficiency program. Sometimes, companies set up sustainability departments. Of course, that is a step
forward but it is not good enough.
In contrast to such “bolt-on” approach to sustainability, the best of the best
companies embed their sustainability effort throughout their operations. It
becomes the foundation of how they design products and run their business.
It is about focusing on all levels of value creation. It involves a focus on stakeholders as co-designers. Responsibility and sustainability is everybody’s job; it
is not confined to a particular department.
Embedded sustainability becomes the big new competitive advantage. It
can be a source of creating value via risk management and operational
efficiency, but much beyond that, it is a source of new product development.
Furthermore, it can also be a way of creating or entering new markets. It can
help you reinvent your brand and reduce risk.
The good news is that sustainability is entering the essence of business much
faster than we can imagine it. One good example is Erste Bank of Austria,
which is quite active in Central and Eastern Europe. It is owned by a foundation and 30% of the bank’s profits go to that foundation. The foundation uses
the bank’s competences to address social needs. They are active in microlending, micro-insurance and micro-saving, all of which satisfy social needs.
Erste Bank already has a full micro-finance operation in Romania and it has
been so successful that they decided to do it in every market where they
operate.
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How many of you think of Wal-Mart as a responsible company? It is one of
the most hated companies, the symbol of everything that is associated with a
lack of responsibility. But in 2005, Wal-Mart started to rethink its operations. Its
goal is to be fully powered by renewable energy, create zero waste, and sell
products that sustain the environment and its national resources. To achieve
these global goals, the company decided for its stores and fleet to become
25% more efficient in three to seven years, and achieve a 25% reduction in
solid waste in three years. One of the early projects Wal-Mart took on focused
on packaging. They started thinking whether they needed all the packaging
that they had been using. They found out that by just cutting out a few square
centimeters of package from each product that they sold they would save
3,425 tons of corrugated materials, 1,358 barrels of oil, 5,190 trees, 727 shipping
containers, and USD 3.5 million in transportation costs. Responsibility is not anymore a cost to a company. It is not something that erodes your competitiveness. And it is not something that is just nice to do.
The implication for managers is that they have to embed responsibility and
sustainability in their businesses. As management educators, we need to
embed responsibility in our curricula. It should not be an elective. It should
be part of strategy, marketing, logistics and operations and any core course
in management education. We also need new forms of education that will
help young and aspiring managers understand the importance of responsibility and sustainability. But the good news is that, perhaps for the first time in
modern business history, we do not need to choose between responsibility
and competitiveness. In contrast, solid managing of social and environmental
performance of a company becomes an exceptional source of competitive
advantage. And that is a shift worth noticing.

Event:
18th CEEMAN Annual Conference: New Global Performance Challenges and Implications for Management Development
Categories:
Management and Strategy
Business
Filmed:
September 2010
Published from:
April 2012
Citation:
Nadya Zhexembayeva, Living up to the challenges: Competitive and Responsible Business, (IEDC - Bled School of Management), http://www.iedc.si/
Accessed: June 23 2017,
Available at: http://video.ceeman.org/lectures/237/2010_ceemanac_caserta_zhexembayeva_lccr
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Dr. Nadya Zhexembayeva serves as Chair of Sustainable Development at IEDC-Bled School of Management, where she teaches leadership, organizational behavior, and sustainability strategy. More >>
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