What Is Corporate Social Responsibility? Corporate Social Responsibility In A Nutshell

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Corporate social responsibility (CSR) is a self-regulating business model that helps an organization remain socially accountable to itself, its stakeholders, and the general public. Corporate social responsibility is typically categorized into four types: environmental, ethical, philantropic, and economic.

Aspect Explanation
Definition Corporate Social Responsibility (CSR) is a business approach that encourages companies to consider the social, environmental, and ethical impacts of their operations and to take proactive steps to mitigate harm and promote positive contributions to society and the environment. It involves a commitment to ethical behavior, sustainability, and stakeholder engagement. CSR initiatives can encompass a wide range of activities, including philanthropy, environmental sustainability efforts, ethical labor practices, and community engagement. CSR is driven by the belief that businesses should be accountable for their impact on society beyond purely financial considerations and that they have a role to play in addressing societal challenges.
Key Concepts Ethical Conduct: CSR encourages businesses to uphold ethical standards in all their activities. – Sustainability: Companies should aim for sustainable practices to minimize environmental impact. – Stakeholder Engagement: Engaging with stakeholders, including employees, customers, communities, and shareholders, is essential. – Transparency: Transparency in reporting CSR efforts is crucial for accountability. – Social Impact: CSR initiatives should aim to have a positive impact on society. – Environmental Responsibility: Companies should reduce their environmental footprint and promote conservation.
Characteristics Ethical Practices: CSR emphasizes ethical behavior and responsible business conduct. – Sustainability Initiatives: Companies implement sustainability measures to reduce their environmental impact. – Community Engagement: Engaging with local communities through philanthropy and volunteerism is common. – Stakeholder Collaboration: Collaboration with various stakeholders helps shape CSR strategies. – Impact Reporting: Companies report on their CSR efforts and outcomes transparently. – Diversity and Inclusion: Promoting diversity and inclusion is often part of CSR initiatives.
Implications Positive Reputation: Effective CSR can enhance a company’s reputation and brand value. – Risk Mitigation: CSR efforts can mitigate risks associated with ethical lapses or environmental issues. – Competitive Advantage: CSR can give businesses a competitive edge by appealing to socially conscious consumers. – Employee Engagement: CSR can boost employee morale and attract top talent. – Environmental Stewardship: Companies contribute to environmental sustainability through CSR. – Regulatory Compliance: CSR can help businesses comply with evolving regulations.
Advantages Enhanced Reputation: CSR enhances a company’s reputation and brand image. – Customer Loyalty: Socially responsible companies often enjoy greater customer loyalty. – Employee Satisfaction: CSR initiatives improve employee morale and job satisfaction. – Competitive Edge: It provides a competitive advantage in the market. – Risk Reduction: CSR mitigates risks associated with unethical or unsustainable practices. – Positive Impact: Companies contribute positively to society and the environment.
Drawbacks Costs: Implementing CSR initiatives can be costly in terms of resources and investment. – Greenwashing: Some companies may engage in superficial CSR efforts for marketing purposes (greenwashing). – Complexity: Managing and reporting CSR activities can be complex and require expertise. – Measuring Impact: Measuring the direct impact of CSR initiatives can be challenging. – Consumer Skepticism: Consumers may be skeptical of CSR efforts if they perceive them as insincere. – Stakeholder Conflicts: Balancing the interests of various stakeholders can be challenging.
Applications CSR is applied across various industries and sectors, including technology, finance, healthcare, retail, and manufacturing. Companies of all sizes, from small businesses to multinational corporations, engage in CSR efforts.
Use Cases Environmental Sustainability: Companies implement eco-friendly practices and reduce carbon footprints. – Philanthropy: Donations to charitable causes and community support initiatives are common. – Ethical Labor Practices: Ensuring fair labor practices, including ethical sourcing and labor rights. – Diversity and Inclusion: Promoting diversity in the workplace and creating an inclusive culture. – Transparency and Reporting: Regular reporting on CSR activities to stakeholders and the public. – Product Responsibility: Ensuring products meet ethical and safety standards. – Community Engagement: Involvement in local communities through volunteering and support.

Understanding corporate social responsibility

For most of recorded history, businesses have been driven by the singular desire to turn a profit, with money-making potential impacting every action taken or initiative pursued.

However, modern businesses have started to realize that they must do more than simply maximize profits for shareholders and executives. They now have a social responsibility to act in the best interests of employees, consumers, and society as a whole.

Corporate social responsibility is a form of self-regulation where the business strives to become socially accountable. While there is no single way to implement CSR principles, employees, consumers, and other stakeholders are now more likely to choose a brand that contributes to society in some shape or form.

To illustrate the importance of corporate social responsibility, a 2017 study found that 63% of American citizens hoped businesses would drive social and environmental change without being forced to do so by the government. Almost 75% said they would not do business with a company if it supported an issue contradictory to their own beliefs.

Corporate social responsibility types

Corporate social responsibility is typically categorized into four types:

Environmental

One of the most common forms of CSR is environmental responsibility. Here, companies seek to become environmentally friendly by reducing their greenhouse gas emissions and increasing their reliance on renewable energy. Alternatively, some companies choose to offset their environmental impact by planting trees or funding scientific research.

Ethical

Or any practice that compels the organization to behave in a fair and ethical manner, including the equitable treatment of stakeholders, leadership, investors, suppliers, employees, and customers. Ethical responsibility may also be demonstrated by an organization paying above minimum wage or making a commitment to avoid sourcing products from child labor.

Philanthropic

Where a business aims to make a positive impact on society by donating to charities, non-profits, or a similar organization of their own making. Certified B Corporations are a new kind of business type that balances purpose with profit. These organisations are legally required to consider the impact of their decisions on stakeholders.

Economic

The foundation for environmental, ethical, and philanthropic responsibility for without profit, the business would not survive long enough to implement other initiatives. 

Corporate social responsibility case studies

Who are the companies leading the way in corporate social responsibility? 

Let’s take a look at three examples below:

Starbucks

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Starbucks is a retail company that sells beverages (primarily consisting of coffee-related drinks) and food. In 2018, Starbucks had 52% of company-operated stores vs. 48% of licensed stores. The revenues for company-operated stores accounted for 80% of total revenues, thus making Starbucks a chain business model. 

On its website, Starbucks states that “It’s our commitment to do things that are good to people, each other and the planet. From the way we buy our coffee, to minimising environmental impact, to being involved in local communities.” To that end, Starbucks only purchases responsibly grown, ethically traded coffee. The company is also on a mission to donate 100 million coffee trees to suppliers by 2025 and also offers a pioneering college program for its employees.

Lego

Over the years, the Danish toy company has invested millions of dollars into addressing climate change and reducing waste. The company has an ambitious goal to go carbon neutral by 2022. It also recently launched the Lego Replay scheme, where unwanted Lego bricks are donated and redistributed to children in need.

TOMS

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The strategy was popularized by TOMS Shoes in 2006, with the shoe company donating a new pair of shoes to a child in a developing country for every pair of shoes sold to a consumer.  The one-for-one business model is based on the idea that for every consumer purchase, an equivalent or similar product is given away to someone in need.

A shoe, eyewear, and apparel company that was founded with corporate social responsibility embedded in its mission. TOMS donates a pair of shoes to disadvantaged children from more than 50 countries with every customer purchase. The company also has a strong environmental focus, with shoes made from hemp, organic cotton, and recycled polyester. Shoe boxes are also made from 80% consumer waste and printed with soy-based ink.

Key takeaways:

  • Corporate social responsibility (CSR) is a business model helping an organization remain socially accountable to itself, its stakeholders, and the general public. Most consumers now expect businesses to adopt CSR principles before they make a purchase.
  • Corporate social responsibility is broadly divided into four different types: environmental, ethical, philanthropic, and economic. The latter is important in ensuring the business remains viable long enough to make a positive impact.
  • Starbucks is a company with established corporate social responsibility principles, sourcing fair-trade coffee beans and donating coffee plants to its farmers. Danish toy company Lego is reducing toy waste and donating used bricks to those in need, while shoe company TOMS matches every shoe purchase with a donation to disadvantaged children in over 50 countries.

Read Next: ESG Criteria, Competitive Intelligence.

Connected Business Model Types And Frameworks

What’s A Business Model

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An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.

Business Model Innovation

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Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.

Level of Digitalization

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Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.

Digital Business Model

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A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.

Tech Business Model

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A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Platform Business Model

platform-business-modelsplatform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

AI Business Model

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Blockchain Business Model

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A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Asymmetric Business Models

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In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

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In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Open-Core Business Model

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While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Cloud Business Models

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Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google’s CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).

Open Source Business Model

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Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

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The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

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A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Marketplace Business Models

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A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

B2B vs B2C Business Model

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B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.

B2B2C Business Model

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A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

D2C Business Model

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Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

C2C Business Model

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The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.

Retail Business Model

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A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

Wholesale Business Model

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The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Crowdsourcing Business Model

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The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Franchising Business Model

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In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

Brokerage Business Model

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Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.

Dropshipping Business Model

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Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.

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