MBA Notes World

What is Job Enlargement?

2012-01-08T20:22:00.003+05:30

Job enlargement (sometimes also referred to as “horizontal loading”) involves the addition of extra, similar, tasks to a job.

In job enlargement, the job itself remains essentially unchanged. However, by widening the range of tasks that need to be performed, hopefully the employee will experience less repetition and monotony that are common on production lines which rely upon the division of labour.

With job enlargement, the employee rarely needs to acquire new skills to carry out the additional task, and the motivational benefits of job enrichment are not usually experienced.

One important negative aspect is that job enlargement is sometimes viewed by employees as a requirement to carry out more work for the same amount of pay.

What is Human Resource Management ("HRM")?

2012-01-03T16:00:00.000+05:30

You often see phrases like these in the annual reports of major businesses:

“Our people are our greatest asset”
“Nothing is more important than our employees”

You see them so often that it is tempting to treat them as clichés. However, behind the cliché lies an important truth, which is that the human element plays a major part in the success of every business.

Effective human resource management has become more important in recent times. Here are some reasons why:

Most businesses now provide services rather than produce goods – people are the critical resource in the quality and customer service level of any service business
Competitiveness requires a business to be efficient and productive – this is difficult unless the workforce is well motivated, has the right skills and is effectively organised
The move towards fewer layers of management hierarchy (flatter organisational structures) has placed greater emphasis on delegation and communication

As a result, if a business is to be successful and achieve its objectives, then it needs to manage its human resources effectively. So step forward “human resource management”!

“The design, implementation and maintenance of strategies to manage people for optimum business performance”

In other words, HRM is about how people are managed by a business in order to meet the strategic objectives of the business. The functional objectives set for HRM need to be consistent with the corporate objectives.

The key is to remember that HRM is a strategic approach. HRM uses a variety of tools to help meet the strategic needs of the business, each of which needs together in an integrated way. The key tools are:

Workforce planning
Recruitment & selection
Training & development
Rewarding and motivating staff
Communication
Roles and responsibilities (organisational structures)

What is marketing?

2012-01-03T15:53:00.000+05:30

There are many different definitions of marketing. Consider some of the following alternative definitions:

“The all-embracing function that links the business with customer needs and wants in order to get the right product to the right place at the right time”

“The achievement of corporate goals through meeting and exceeding customer needs better than the competition”

“The management process that identifies, anticipates and supplies customer requirements efficiently and profitably”

“Marketing may be defined as a set of human activities directed at facilitating and consummating exchanges”

Which definition is right? In short, they all are. They all try to embody the essence of marketing:

Marketing is about meeting the needs and wants of customers
Marketing is a business-wide function – it is not something that operates alone from other business activities;
Marketing is about understanding customers and finding ways to provide products or services which customers demand

To help put things into context, you may find it helpful to often refer to the following diagram which summarises the key elements of marketing and their relationships:

What is Stock control?

2012-01-03T15:10:00.000+05:30

Managing stock effectively is important for any business, because without enough stock, production and sales will grind to a halt. Stock control involves careful planning to ensure that the business has sufficient stock of the right quality available at the right time.

Stock can mean different things and depends on the industry the firm operates in. It includes:

Raw materials and components from suppliers
Work in progress or part finished goods made within the business
Finished goods ready to dispatch to customers
Consumables and materials used by service businesses

In order to meet customer orders, product has to be available from stock – although some firms are able to arrange deliveries Just in Time, see below. If a business does not have the necessary stock to meet orders, this can lead to a loss of sales and a damaged business reputation. This is sometimes called a ‘stock-out’.

It is important therefore that a business either holds sufficient stocks to meet actual and anticipated orders, or can get stocks quickly enough to meet those orders. For a high street retailer, in practice this means having product on the shelves.

However, there are many costs of holding stock, so a business does not wish to hold too much stock either.

The costs of holding stock include:

The opportunity cost of working capital tied up in stock that could have been used for another purpose
Storage costs – the rent, heating, lighting and security costs of a warehouse or additional factory or office space
Bank interest , if the stock is financed by an overdraft or a loan
Risk of damage to stock by fire, flood, theft etc; most businesses would insure against this, so there is the cost of insurance
Stock may become obsolete if buyer tastes change in favour of new or better products
Stock may perish or deteriorate – especially with food products

Stock Control - application and evaluation

2012-01-03T15:09:00.000+05:30

When a stock control situation is presented in an examination, it is likely to be in the context of a business that is facing change.

Candidates need to interpret and apply stock control principles to the particular situation, and make practical suggestions to help address the question.

Examples might include:

A business that is growing will need to review its re-order and buffer stock levels, and the frequency and size of orders
Look out for seasonality in a business; larger or more frequent orders may be needed in busy times
If the supplier is having trouble supplying goods on time, the firm might need to re-order at an earlier point (or seek a new supplier!)
Does the firm have a back-up supplier in case of delays?
Could small additional orders be made with a supplier as a stop gap if the firm’s stock runs out suddenly?

Note - these orders would be more expensive because of extra transport costs and lower discount level

4 Factors that businesses must consider in determining pricing policy

2012-01-03T15:07:00.000+05:30

The factors that businesses must consider in determining pricing policy can be summarised in four categories:

(1) Costs: In order to make a profit, a business should ensure that its products are priced above their total average cost. In the short-term, it may be acceptable to price below total cost if this price exceeds the marginal cost of production – so that the sale still produces a positive contribution to fixed costs.

(2) Competitors: If the business is a monopolist, then it can set any price. At the other extreme, if a firm operates under conditions of perfect competition, it has no choice and must accept the market price. The reality is usually somewhere in between. In such cases the chosen price needs to be very carefully considered relative to those of close competitors.

(3) Customers: Consideration of customer expectations about price must be addressed. Ideally, a business should attempt to quantify its demand curve to estimate what volume of sales will be achieved at given prices.

(4) Business Objectives: Possible pricing objectives include:

To maximise profits
To achieve a target return on investment
To achieve a target sales figure
To achieve a target market share
To match the competition, rather than lead the market

How does the Price of a Product connect with the Business Objectives?!

2012-01-03T15:03:00.000+05:30

The pricing objectives of businesses are generally related to satisfying one of five common strategic objectives:

Objective 1: To Maximise Profits
Although the ‘maximisation of profits’ can have negative connotations for ‘the public’, in economic theory, one function of ‘profit’ is to attract new entrants to the market and the additional suppliers keep prices at a reasonable level. By seeking to differentiate their product from those of other suppliers, new entrants also expand the choice to consumers, and may vary prices as niche markets develop

Objective 2: To Meet a Specific Target Return on Investment (or on net sales)
Assuming a standard volume operation (i.e. production and sales) target pricing is concerned with determining the necessary mark-up (on cost) per unit sold, to achieve the overall target profit goal. Target return pricing is effective as an overall performance measure of the entire product line, but for individual items within the line, certain strategic pricing considerations may require the raising or lowering of the standard price.

Objective 3: To Achieve a Target Sales Level
Many businesses measure their success in terms of overall revenues. This is often a proxy for market share. Pricing strategies with this objective in mind usually focus on setting price that maximises the volumes sold.

Objective 4: To Maintain or Enhance Market Share
As an organisational goal, the achievement of a desired share of the market is generally linked to increased profitability. An offensive market share strategy involves attaining increased market share, by lowering prices in the short term. This can lead to increased sales, which in the longer term can lead to lower costs (through benefits of scale and experience) and ultimately to higher prices due to increased volume/market share.

Objective 5: To Meet or Prevent Competition
Prices are set at a level that reflects the average industry price, with small adjustments made for unique features of the company’s specific product(s). Firms that adopt this objective must work ‘backwards’ from price and tailor costs to enable the desired margin to be delivered.

Why is Market Share important? The Profit Impact of Market Strategy ("PIMS") analysis

2012-01-03T11:56:00.000+05:30

An important piece of research in the 1960's provided the basis for understanding the importance of market share - and emphasised the implications for marketing and business strategy.

The Profit Impact of Market Strategy ("PIMS") analysis was developed at General Electric in the 1960's and is now maintained by the Strategic Planning Institute. The PIMS database provides evidence of the impact of various marketing strategies on business success.

The most important factor to emerge from the PIMS data is the link between profitability and relative market share. PIMS found (and continues to find) a link between market share and the return a business makes on its investment. The higher the market share - the higher the return on investment. This is probably as a result of economies of scale. Economies of scale due to increasing market share are particularly evident in purchasing and the utilisation of fixed assets.

Case Study on Market Share – Dixons (UK example – it is an electrical retailer like Harvey Norman)

Dixons is widely regarded as the dominant electrical retailer in the UK. What does dominant mean? It refers to the fact that Dixons (which is the market leader) has a very high relative market share. In other words, it is substantially bigger than the next largest competitor. This can be illustrated by the chart below which lists the leading UK electrical retailers in 2000.

How might Dixon's market dominance enable it to further increase its market share? Many retail analysts believe that the electrical retailing market provides advantages to larger businesses. In recent years, Dixons, along with the number two Comet, has been able to thrive while other retailers have suffered. The reasons for the advantages of size include:

Buying advantage: An ability to use size to source product more cheaply is a clear advantage in an industry that faces rapidly declining consumer prices

Volume advantage: As a low-margin business, retailers that can sell in high volumes are in the best position to gain market share

Access to new products: The largest retailers typically have first-mover advantage in stocking new "in demand" products that have just been released

Advertising scale: As a price-led business, access to national advertising provides the ability to keep customers regularly informed of the latest product deals. This helps to reinforce customer perception of value, in addition to strengthening the Dixons Group brands

Access to retail property: With the continuing trend towards out-of-town, larger destination stores that offer a broader range of choice, and with restrictive planning laws limiting opportunities, the larger electrical retailers have both the financial and operational capacity to secure such important new sites.

Demographic Segmentation

2012-01-03T11:50:00.000+05:30

Demographic segmentation consists of dividing the market into groups based on variables such as age, gender family size, income, occupation, education, religion, race and nationality.

As you might expect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups.

This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available to help with the demographic segmentation process.

The main demographic segmentation variables are summarised below:

Age
Consumer needs and wants change with age although they may still wish to consumer the same types of product. So Marketers design, package and promote products differently to meet the wants of different age groups. Good examples include the marketing of toothpaste (contrast the branding of toothpaste for children and adults) and toys (with many age-based segments).

Life-cycle stage
A consumer stage in the life-cycle is an important variable - particularly in markets such as leisure and tourism. For example, contrast the product and promotional approach of Club 18-30 holidays with the slightly more refined and sedate approach adopted by Saga Holidays.

Gender
Gender segmentation is widely used in consumer marketing. The best examples include clothing, hairdressing, magazines and toiletries and cosmetics.

Income
Another popular basis for segmentation. Many companies target affluent consumers with luxury goods and convenience services. Good examples include Coutts bank; Moet & Chandon champagne and Elegant Resorts - an up-market travel company. By contrast, many companies focus on marketing products that appeal directly to consumers with relatively low incomes. Examples include Aldi (a discount food retailer).

Social class
Many Marketers believe that a consumers "perceived" social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products & services. There is a clear link here with income-based segmentation.

Lifestyle
Marketers are increasingly interested in the effect of consumer "lifestyles" on demand. Unfortunately, there are many different lifestyle categorisation systems, many of them designed by advertising and marketing agencies as a way of winning new marketing clients and campaigns!

Behavioural Segmentation

2012-01-03T11:45:00.003+05:30

Behavioural segmentation divides customers into groups based on the way they respond to, use or know of a product.

Behavioural segments can group consumers in terms of:

Occasions

When a product is consumed or purchased. For example, cereals have traditionally been marketed as a breakfast-related product. Kelloggs have always encouraged consumers to eat breakfast cereals on the "occasion" of getting up. More recently, they have tried to extend the consumption of cereals by promoting the product as an ideal, anytime snack food.

Usage

Some markets can be segmented into light, medium and heavy user groups

Loyalty

Loyal consumers - those who buy one brand all or most of the time - are valuable customers. Many companies try to segment their markets into those where loyal customers can be found and retained compared with segments where customers rarely display any product loyalty. The holiday market is an excellent example of this. The "mass-market" overseas tour operators such as flight Centre, WebJet and First Choice have very low levels of customer loyalty - which means that customers need to be recruited again every year. Compare this with specialist, niche operators such as Laskarina which has customers who have travelled with the brand in each of the last 15-20 years.

Benefits Sought

An important form of behavioural segmentation. Benefit segmentation requires Marketers to understand and find the main benefits customers look for in a product. An excellent example is the toothpaste market where research has found four main "benefit segments" - economic; medicinal, cosmetic and taste.

Geographic Segmentation

2012-01-03T11:45:00.002+05:30

Geographic segmentation tries to divide markets into different geographical units: these units include:

Regions: e.g. in the Australia these might be NSW, Queensland or (at a more detailed level) major metropolitan areas (Sydney, etc)

Countries: perhaps categorised by size, development or membership of geographic region

City / Town size: e.g. population within ranges or above a certain level

Population density: e.g. urban, suburban, rural, semi-rural

Climate: e.g. Northern, Southern

Geographic segmentation is an important process - particularly for multi-national and global businesses and brands. Many such companies have regional and national marketing programmes which alter their products, advertising and promotion to meet the individual needs of geographic units.

Bases of Market Segmentation

2012-01-03T11:41:00.000+05:30

It is widely thought in marketing that than segmentation is an art, not a science. The key task is to find the variable, or variables that split the market into actionable segments.

There are two types of segmentation variables:
(1) Needs
(2) Profilers

The basic criteria for segmenting a market are customer needs. To find the needs of customers in a market, it is necessary to undertake market research.

Profilers are the descriptive, measurable customer characteristics (such as location, age, nationality, gender, income) that can be used to inform a segmentation exercise.

The most common profilers used in customer segmentation include the following:
Profiler Examples
Geographic

Region of the country
Urban or rural

Demographic

Age, sex, family size
Income, occupation, education
Religion, race, nationality

Psychographic

Social class
Lifestyle type
Personality type

Behavioural

Product usage - e.g. light, medium ,heavy users
Brand loyalty: none, medium, high
Type of user (e.g. with meals, special occasions)

6 Reasons to Segment your Markets

2012-01-03T11:38:00.000+05:30

There are several important reasons why businesses should attempt to segment their markets carefully. These are summarised below

1. Better matching of customer needs: Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution

2. Enhanced profits for business: Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits

3.Better opportunities for growth: Market segmentation can build sales. For example, customers can be encouraged to "trade-up" after being introduced to a particular product with an introductory, lower-priced product

4. Retain more customers: Customer circumstances change, for example they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life ("life-cycle"), a business can retain customers who might otherwise switch to competing products and brands
5.Target marketing communications: Businesses need to deliver their marketing message to a relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high / unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost

6.Gain share of the market segment: Unless a business has a strong or leading share of a market, it is unlikely to be maximising its profitability. Minor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves.

Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers the opportunity for smaller firms to compete with bigger ones.

Workforce Planning

2012-01-02T22:32:00.000+05:30

For most businesses, large or small, the task of identifying what work needs doing and who should do it is a continuous challenge! It is rare that a business of any size operates for long without having to recruit or remove employees. For example, consider why a business might need to recruit staff:

Business expansion due to

Increasing sales of existing products
Developing new products
Entering new markets

Existing employees leave:

To work with competitors or other local employers
Due to factors such as retirement, sick leave, maternity leave

Business needs employees with new skills
Business is relocating – and not all of existing workforce want to move to new location

The world of work is also changing rapidly:

Increase in part-time working
Increased number of single-parent families
More women seeking work
Ageing population

Greater emphasis on flexible working hours
Technology allows employees to communicate more effectively whilst apart
People rarely stay in the same job for life

Businesses need to understand and respond to these changes if they are to recruit staff of the right standard – and keep them!

So what is workforce planning?

Workforce planning is about deciding how many and what types of workers are required

There are several steps involved in workforce planning:

The workforce plan establishes what vacancies exist
Managers produce a job description and job specification for each post

Job description

Detailed explanation of the roles and responsibilities of the post advertised
Most applicants will ask for this before applying for the job
Refers to the post available rather than the person

Job specification

Sets out the kind of qualifications, skills, experience and personal attributes a successful candidate should possess.
A vital tool in assessing the suitability of job applicants
Refers to the person rather than the post

Integrated delivery systems

2012-01-02T21:31:00.000+05:30

Determining the right IDS model requires assessing the motivation of the physicians and hospital considering partnering in an IDS. Failures will occur if motivations / incentives are not aligned and expectations / accountabilities are not formalized.

Successful IDS models can physicians and hospitals the opportunity to partner together to impact the quality, availability and cost of healthcare in their community.

There are several IDS models, three are summarized here:

Direct Employment: Physicians are employed by a hospital and assigned their professional fees to that hospital. Compensation must be fair market value and may include incentive compensation models.

Foundation Model: Tends to be an appealing model where physicians desire to retain more independence and autonomy than they perceive would be available in a Direct Employment model.

MSO Model: MSO may be either an independent entity or a subsidiary of the hospital. Physicians can purchase services and lease assets from the MSO with the goal being lower overhead due to achieving economies of scale.

There are several operational, financial and legal pros and cons to these models:

Direct Employment

· Compensation and benefits directly from hospital

· Professional fees assigned to hospital

· Potential for Provider Based Billing

· Compensation must be fair market value, can include incentive programs

· Physicians may only receive compensation associated with professional services provided directly by that provider

· Physician leadership and management skills development essential

Foundation Model

· Foundation owns the revenue and clinics

· Foundation is typically not-for-profit, achieving tax-exempt status ties to several requirements

o Limit physician representation on the board to no more than 20%

o Tied to whether the Foundation and hospital provide a “system of care”

· Physicians typically serve on management committees Compensation

· Physicians enter into a PSA agreement to provide professional services at the Foundation clinic sites

· Often the preferred model when physicians desire to remain more independent than they may be as hospital employees

· Physician organization responsible for developing their own compensation and benefit structure

· Foundation pays a rate to the Physician Organization for professional services ($/wRVU)

· Goals of the Physician Group may not always align with the goals of the Foundation

MSO Model

· MSO may provide management and administrative services to a closed or open physician population

· MSO may acquire asset from physicians joining the MSO and lease the use of these assets back to the physicians

· Goal is to achieve economies of scale for physicians purchasing services/assets

· Professional fees are retained by the physicians

· If MSO is not hospital owned - Physicians may provide ancillary services and retain the associated fees

Direct Employment in Hospital Management

2012-01-02T21:28:00.002+05:30

At first glance Direct Employment can appear to result in a $50,000 - $100,000 loss per provider. It is important to consider the downstream effect of Direct Employment. Estimates are that for every dollar of revenue generated in a physician practice between $6.40 and $10.32 is billed elsewhere in the healthcare system.

Do not overlook the need to develop a strong Physician Leadership structure. May physicians will be attracted to this model as they believe it will allow them to defer all non-clinical decisions to the hospital. Employing large numbers of physicians who lack interest in the non-clinical elements of healthcare will result in physicians who are not vested in the success of the practice/clinic. Physicians must be partners in the process. The hospital must provide opportunity for leadership, management skills training and mentoring with skilled administrative team partners.

A sense of autonomy and control are the biggest barriers to physician interest in this model. A well structure Physician Leadership will contribute to the employed physicians gaining a sense of autonomy and control as they partner with the hospital to provide professional services in a model they participated in building, maintaining and growing.

Aligning financial incentives is also important in this model. Well developed incentive plans will reward the physicians for hard work and reinforce key initiatives of the hospital.

Foundation Model in Hospital Management

2012-01-02T21:27:00.000+05:30

The Foundation Model can be an appealing approach for physicians who perceive direct employment would result in loss of independence and autonomy.

There are added legal implications to this model which cannot be overlooked and tend to make this model more cumbersome to execute and maintain.
The Foundation owns the clinics, the revenue stream and the insurance contracts. The physician group may find the lack of control over the revenue stream and insurance contract to be a dis-incentive to pursuing this model.

The physician group contracting to provide professional services to the Foundation clinics is responsible for developing and managing their own compensation model. Since the physician group has a separate management infrastructure than the Foundation under this model there is the inherent risk that the goals of the physician group and the goals of the Foundation may shift out of alignment. If this occurs the relationship between the physician group and the Foundation may be at risk. The two parties would need to work hard to maintain alignment in order for this model to succeed.

MSO Model

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MSOs may be independent organizations or may be owned by the hospital. MSO wholly owned by a hospital will still be faced with Stark regulations and may also find it harder to attract physicians to purchase services as it may be perceived that by doing to the physician is showing preference to that hospital.

The success of an MSO is contingent upon achieving economies of scale and maintaining management team that holds the skill set necessary to manage professional service operations. Much of the literature indicates that a target physician customer base of at least 100 providers in necessary to begin seeing the economies of scale desired in this model. An efficiently run MSO provides physicians the opportunity to purchase services and potentially lease asset at a rate lower than providing those services or owning those assets independently.

A well run MSO will be appealing to physicians as it allows them to maintain autonomy, retain their professional fees, render ancillary services, retain the ancillary fees, and purchase management expertise that they may not otherwise be able to afford.

History of Corporate Social Responsibility

2011-08-10T22:38:00.000+05:30

The view that a business can have obligations that extend beyond economic role is not new in many respects. Throughout recorded history the roles of organizations producing goods and services for the marketplace were frequently linked with and include political, social, and/or military roles. For example, throughout the early evolutionary stages of company development in England (where organizations such as the Hudson Bay Company and the East India Company received broad mandates), there was a public policy understanding that corporations were to help achieve societal objectives such as the exploration of colonial territory, setting up settlements, providing transportation services, developing bank and financial services, etc.

During the nineteenth century, the corporation as a business form of organization evolved rapidly in the US. It took on a commercial form that spelled out responsibilities of the board of directors and management to shareholders (i.e. fiduciary duty). In this later evolutionary form, public policy frequently addressed specific social domains such as health and safety for workers, consumer protection, labour practices, environmental protection, etc. Thus, corporations responded to social responsibilities because they were obligated to be in compliance with the law and public policy. They also responded voluntarily to market demands that reflected consumer morals and social tastes. By the mid-point of the twentieth century, corporate social responsibility was being discussed in the US by business management experts such as Peter Drucker and in business literatures CSR emerged and continues to be a key business management, marketing, and accounting concern in the US, Europe, Canada, and other nations.

Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. Companies there made profits unhindered except by fulfilling their duty to pay taxes. Then they donated a certain share of the profits to charitable causes. It is seen as tainting the act for the company to receive any benefit from the giving. The first generation of CSR this way showed how companies can be responsible in ways that do not detract from and may contribute to commercial success. Corporate philanthropy is the practice of companies of all sizes and sectors making charitable contributions to address a variety of social, economic and other issues as part of an overall corporate citizenship strategy.

The second generation is now developing where companies and whole industries see CSR as an integral part of the long term business strategy. Now a days lot of companies are taking it seriously for good of business. From a progressive business perspective, CSR usually involves focusing on new opportunities as a way to respond to inter-related economic, societal and environmental demands in the marketplace. Many firms believe that this focus provides a clear competitive advantage and stimulates corporate innovation.

In the last decade, CSR and related concepts such as corporate citizenship and corporate sustainability have expanded. This has perhaps occurred in response to new challenges such as those emanating from increased globalization on the agenda of business managers as well as for related stakeholder communities. It is now more a part of both the vocabulary and agenda of academics, professionals, non governmental organizations, consumer groups, employees, suppliers, shareholders, and investors.

A third generation of CSR is needed in order to make a significant contribution to addressing poverty and environmental degradation. This will go beyond voluntary approaches by individual companies and will involve leadership companies and organizations influencing the market in which they operate and how it is regulated to re-mould whole markets towards sustainability.

10 reasons why CSR is important for your business

2011-08-10T22:28:00.003+05:30

Corporations are motivated to involve stakeholders in their decision-making and to address societal challenges because today’s stakeholders are increasingly aware of the importance and impact of corporate decisions upon society and the environment. The stakeholders can reward or punish corporations. Corporations can be motivated to change their corporate behaviour in response to the business case which a CSR approach potentially promises. This includes:

1) stronger financial performance and profitability (e.g. through eco-efficiency),

2) improved accountability to and assessments from the investment community,

3) enhanced employee commitment,

4) decreased vulnerability through stronger relationships with communities, and

5) improved reputation and branding.

CSR is about how companies manage the business processes to produce an overall positive impact on society.

Here we find that companies need to answer two aspects of their operations:

1) The quality of their management - both in terms of people and processes (the inner circle).

2) The nature and quantity of their impact on society in the various areas.

Outside, stakeholders are taking an increasing interest in the activity of the company. Most look to the outer circle - what the company has actually done, good or bad, in terms of its products and services, in terms of its impact on the environment and on local communities, or in how it treats and develops its workforce. It is believed that this model may be more sustainable because here social responsibility becomes an integral part of the wealth creation process, which if managed properly should enhance the competitiveness of business and maximize the value of wealth creation to society. When times get hard, there is the incentive to practice CSR more.

Since the early 1980s, a significant body of CSR research has centred around the debate over whether there is a relationship between good Corporate Social Performance ( CSP) and strong financial performance and what kind of relationships exist. Today businesses are becoming increasingly interested in the idea of the ‘Triple Bottom Line’ (TBL). This idea focuses not just on the economic value of the businesses that they may gain from acting in certain way, but also on the value that they may accrue to the company’s bottomline by engaging in environmentally and socially beneficial practices. The three ‘line’ represent the economy, the environment and the society and are all dependent on each other. Whether companies do actually take each line into account is difficult to measure as the arguments surrounding financial benefits of the company from being socially responsive are not clear cut.

Although positive relationships have been found, there are several difficulties inherent in measuring these linkages. One problem is that it is not clear whether social responsibility leads to increased financial performance or whether better profits lead to more funds being available to devote to CSR activities. The other issue is that profit is an incomplete measure of social performance (Lantos 2001). Yet another is the difficulty of developing a consistent set of measures that define CSR or CSP.

The following factors are taken into account for understanding the importance of CSR:

Globalization and the associated growth in competition
Increased size and influence of companies
War for talent, companies competing for expertise
Increased importance of intangible assets

1. Improved Financial Performance:

While it remains difficult to determine a direct causal relationship between increased accountability and financial performance, a variety of studies suggest that such a link exists. For example, according to 2002 Global Investor Opinion Survey released by McKinsey & Company, a majority of investors are prepared to pay a premium for companies exhibiting high governance standards. Premiums averaged 12-14 percent in North America and Western Europe; 20-25 percent in Asia and Latin America; and over 30 percent in Eastern Europe and Africa. The study also found that more than 60 percent of investors state that governance considerations might lead them to avoid individual companies with poor governance.

2. Heightened Public Credibility:

Companies that demonstrate a willingness to provide information that is credible, verifiable, and accessible can garner increased trust among stakeholders. Forthright and candid reporting about company achievements as well as performance shortfalls helps companies create a public reputation for honesty. At the same time, companies that make a public commitment to increase accountability and transparency need to ensure that they have robust systems for implementation, lest the company risk negative public backlash for failing to live up to its commitments.

3. Reduced Costs:

The enhanced communication that is often part of corporate accountability efforts can help build trust between companies and stakeholders, which can reduce costly conflict and improve decision-making. Companies that proactively and effectively engage shareholders and address their concerns can reduce the costs associated with shareholder proposals. In addition, social and environmental reporting efforts can help identify the effectiveness of various programmes and policies, often improving operating efficiencies and reducing costs. Reporting information can also help identify priorities to ensure that company is achieving the greatest possible impact with available resources.

4. Increased Attractiveness to Investors:

Investors — whether shareholders invested in socially responsible funds that screen companies for social and environmental attributes, or large institutions — welcome the increased disclosure that comes with corporate accountability. A growing number of investors are including non-financial metrics in their analysis of the quality of their investments. New metrics cover labour and environmental practices; board diversity, independence, and other corporate governance issues; and a wide variety of other social and environmental criteria. Research suggests investors may be willing to pay higher prices for the stock of companies considered to be accountable. For example, a 2000 survey of 200 large institutional investors conducted by McKinsey & Co., the World Bank, and Institutional Investor’s regional institutes found that three-quarters of stackholders consider board practices as important as financial performance when evaluating companies for investment. The study also found that more than 80 percent of investors would be willing to pay more for the shares of a well-governed company than for a poorly governed company with comparable financial performance.

5. Improved Relationships with Stakeholders:

Companies that make an effort to be transparent and accountable for their actions and decisions are better able to build trust among their stakeholders. This engagement helps companies understand how community groups and other stakeholders perceive them, and educates them about future issues and concerns that may affect their operations. The information gained can help companies better define priorities and ensure business activities align with professed business principles or ethical codes. Many government agencies and stakeholders look favourably at companies that self-identify and publicly disclose accountability challenges and demonstrate that they are working to solve them. Best practice solutions include the development of management systems that reduce the likelihood of recurrence.

6. Early Identification of Potential Liabilities:

The strategic information that can come from efforts to develop a more accountable company — including social and environmental auditing and reporting and stakeholder dialogue — can identify practices or situations that could pose liabilities to a company. Early identification can provide companies with the opportunity to resolve problems before they result in costly legal actions or negative public exposure. Issues that might surface more quickly in an accountable company include: environmental problems that could endanger public health, workplace discrimination or harassment that could result in lawsuits, marketing practices that do not price products or services equitably, or hiring practices that inadvertently give unfair advantage to certain populations. Social and environmental auditing and reporting can also identify where company practices may be in violation of government regulations or the standards or expectations of key stakeholder groups.

7. Marketplace Advantages:

Accountability can make entry and success in new markets easier by helping establish direct relationships with key customers and business partners. These relationships can contribute to innovation in product development or delivery, help mitigate potential negative media coverage, and enhance market presence. Some companies have used dialogue with stakeholders to help make decisions on overseas investments and operations, or to overcome the challenges of operating in markets with different cultures, laws, and languages. For example, Unilever’s Indian subsidiary, Hindustan Lever, has worked with local stakeholders to develop a new delivery system for laundry detergent in Indian villages. The company was experiencing difficulty in selling its product until it was suggested by stakeholders that the company package its product in single-use quantities that would be affordable to local residents with limited disposable incomes.

8. Improved Overall Management:

Many companies that have developed clear CSR performance and accountability systems inside their organizations report experiencing an improvement in their management practices overall. Increasingly, companies are finding that the impact of systems designed to increase accountability for CSR performance is not limited to the CSR realm, but can also impact performance in other areas as the culture of the organization undergoes change. An analysis of Fortune 500 companies conducted at the Boston College, Carroll School of Management found that companies judged as treating their stakeholders well are rated by peers as also having superior management.

9. Improved Organizational Effectiveness:

The process of self-assessment and evaluation, which is part of increasing accountability can have beneficial impact on company operations. For example, social and environmental auditing and reporting give companies the opportunity to assemble and assess more comprehensive information on operations and impacts. This information can help coordinate and maximize efficiencies and collaborations across departments, facilities, and business units. Through this process, companies compile examples of successful programmes from various parts of their organizations and share the learnings throughout the company, leading to more effective and efficient policies and practices. Dialogue and partnerships with stakeholder groups can help companies build skills and competencies, or align company operations with overarching mission and values.

10. Decreased Risk of Adverse Publicity:

Accountable companies may be better prepared to address the concerns of customers or other stakeholders who might otherwise take negative action on social issues. For example, by engaging in a dialogue with stakeholders about their interests and concerns, and addressing those concerns in business implementation processes, companies may be able to head off or minimize the impacts of boycotts organized by consumer groups. Similarly, companies that proactively address the concerns of shareholders can reduce the risk of adverse publicity stemming from high-profile shareholder disputes.

CSR and Companies in India

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In India, most of the work done by companies is still in nature of philanthropy. Consider that of the six short listed companies for the Business World FICCI CSR award for year 2003, five ( Lupin, Canara Bank, Indal, Gujrat Ambuja and Wipro ) are involved in community development work. This means building roads, running schools and hospitals, creating income-generating schemes and similar projects . Only ITC’s CSR – its e-choupal project and others - has direct linkages with its business. This is understandable given that many of the traditional development indicators – life expectancy, infant and child mortality, sanitation facilities and access to primary education – are still abysmal for India. In fact even the government expects Corporate India to participate in welfare programmes even though it is a tacit admission that the state has failed to deliver even the most basic amenities. But of late experts argue that as India gets integrated into the global economy, companies should pick up projects that are business centric. The CSR initiatives should become a part of the business process.

In an era of no free lunches , the attraction that the business centric model of CSR holds is obvious. But if more Indian Companies are to adopt that, some other things , too, need to change besides mindsets and developmental needs. The links between good CSR and good business have to be established clearly. Sure even overseas there is still no way that the capital markets reward good CSR practices directly or are willing to ovelook other flaws in lieu of good CSR. But experience shows that substantial benefits do flow in different ways.

Research in West shows that investors are increasingly questioning companies on corporate social practices and are allying with those that have high respect for CSR. In fact there is a whole eco-system being built around this concept – with outfits like Ethical Investment Research Service, a U K based independent researcher of ethical, social and environmental practices advising outfits like Goldman Sachs, J P Morgan, Redit Suisse, Merill Lynch and Standard Life on CSR practices of companies. Moreover the likes of FTSE and Dow Jones are coming up with indices such as the FTSE 4 Good and the DOW Jones Sustainability World Index. The FTSE 4 Good is an index comprising stocks of companies with good practices. To be a part of FTSE 4 good family of indices one need to apply to the FTSE 4 Good applications committee. In the absence of all these , it’s quite unlikely that CSR in India will change from being more philanthropic to more business centric in the near future. Yet such developments taking place worldwide and also because India is developing as back office centre, movement towards business centric CSR models is possible.

Taking clue from the Business World FICCI CSR Awards, still it is not clear how much Indian companies invest in CSR but from the list of the companies that applied and evidence on ground suggest that time has come and is important for large companies to enter into business centric CSR models. However, considering India where so much is to be done, it doesn’t matter whether companies take business centric view or the philanthropic centric view.

Level I Principles of Social Responsibility - Measuring CSR

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This level of the CSR model is about the relationship between business and society at large and it has three major elements:

Legitimate concerns of business as a social institution and it frames the analytical view of the interrelationship between business and society.
Public responsibility concerns of the individual firm and its processes and outcomes within the framework of its own principles.
Managerial discretion whereby managers and other organisational members are moral actors. Within every domain of corporate social responsibility, they are obliged to exercise such discretion as is available to them, towards socially responsible outcomes.

Level II Processes of Social Responsibility - Measuring CSR

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Corporate social responsiveness is a business’s capacity to respond to social pressures. This suggests the ability of a business organization to survive through adaptation to its business environment. To do so, it must know as much as possible about this business environment, be capable of analyzing its data, and must react to the results of this analysis. But the environment of business is not static; it is a complex and ever changing set of circumstances. This environment can be unchanged for decades, if not centuries, and then it falls apart and is reformed like a kaleidoscope with increasing rapidity. The ability to successfully scan, interpret, and react to the business environment requires equally complex mechanisms.

Three elements are identified as basic elements of this level of the CSR model:

Business Environment Scanning: indicates the informational gathering arm of the business and the transmission of the gathered information throughout the organization.
Stakeholder Management: A stakeholder is defined as any group or individual who can affect or is affected by the achievement of the firm’s objectives. For example, owners, suppliers, employees, customers, competitors, governments; nonprofit organizations, environmental and consumer protection groups and others. Stakeholder Management refers to mapping the relationships of stakeholder to the firm (and among each other) whilst finding, listening and meeting their expectations and seeking to balance and meet legitimate concerns as a prerequisite of any measurement process.
Having identified the motivating principles of a firm and having determined the identities, relationships, and power of stakeholders, attempt then is to turn to the main issues which concern stakeholders.

Level III Outcomes - Measuring CSR

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The main focus of measurement is the third level of the CSR model. To determine if “CSR makes a difference”, all of the stakeholders relevant to an issue or complex of issues must be included in any assessment of performance. There are, again, three main categories:

Internal stakeholder effects – those that affect stakeholders within the firm. An examination of these might show how a corporate code of ethics affects the day to day decision making of the firm with reference to social responsibility. Similarly, it can be concerned with human resource policies such as the positive or negative effects of corporate hiring and employee benefits practices.

External stakeholder effects concern the impact of corporate actions on persons or groups outside the firm. This might involve such things as the negative effects of a product recall, the positive effects of community related corporate philanthropy, or assuming the natural environment as a stakeholder, the effects of toxic waste disposal.

External institutional effects refer to the effects upon the larger institution of business rather than on any particular stakeholder group. For example several environmental disasters made the public aware of the effect of business decisions on the general public. This new awareness brought about pressure for environmental regulation which then affected the entire institution of business rather than one specific firm.

The Global Reporting Initiative

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The Global Reporting Initiative (GRI) is a multi-stakeholder process and independent institution whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines. These Guidelines are for voluntary use by organizations for reporting on the economic, environmental, and social dimensions of their activities, products, and services. The GRI incorporates the active participation of representatives from business, accountancy, investment, environmental, human rights, research and labour organizations from around the world.

Started in 1997 by the Coalition for Environmentally Responsible Economies (CEREs), the GRI became independent in 2002, and is an official collaborating centre of the United Nations Environment Programme (UNEP) and works in cooperation with UN Secretary- General Kofi Annan’s Global Compact. The GRI’s Sustainability Reporting Guidelines (last revised in July 2002) address a broad range of corporate social responsibility issues related to an organization’s

(1) economic performance (e.g., wages and benefits, training, research and development),

(2) environmental performance (e.g., energy, water and materials use; greenhouse gas emissions, land use/biodiversity), and

(3) social performance (e.g., labor and human rights, workplace health and safety, employee retention).

In addition to the core GRI guidelines, GRI is also leading the development of a series of sector supplements to the guidelines, e.g., for the finance and mining communities. While the GRI promotes itself as a reporting framework/guideline only, it is having increasing influence in the debate on the ways and means a company should structure and govern its transparency and reporting, and general sustainability efforts.