Improve CSR in Your Value Chain through Collaboration
Businesses in the same value chain can reap great benefit by using a common strategy for corporate social responsibility (CSR).
Businesses in the same value chain can reap great benefit by using a common strategy for corporate social responsibility (CSR). This was the finding of a recent study by Aurélien Acquier (ESCP Paris), Thibault Daudigeos (Grenoble Ecole de Management) and Bertrand Valiorgue (ESG Clermont). “The question is no longer how a business can gain a competitive edge through CSR, but how a group of legally independent businesses can develop and enhance a common set of socially responsible practices,” says Acquier.
But the journey to collaborative value chain CSR is not without challenge. Businesses face many economic and political hurdles in creating and implementing a common strategy. For example:
- High expenses are often associated with the required operational and organizational changes.
- Power differences between partners can cause challenges, especially in deciding who pays the costs and who reaps the benefits of common initiatives.
- The process must ideally create sufficient economic value to share between all partners.
To better understand the barriers associated with collaborative CSR in the value chain, researchers applied the transaction cost theory. This theory considers the conditions involved in the rise of new markets and the required intra- and inter-firm governance structures. Based on the theory, researchers describe four possible scenarios for CSR collaboration in the value chain, including barriers associated with each and advice for overcoming these barriers:
- The value chain is centralized around a dominant actor and CSR initiatives require significant investment (technological, marketing, etc.) In this situation, the dominant actor will have a significant degree of control, as they will bear most of the costs and are subject to the greatest financial risk. The dominant partner could also reap the majority of the benefits. Because of the power imbalance, clear contracts between the dominant company and its partners should clearly identify roles, responsibilities and the allocation of financial costs and benefits.
- The value chain is centralized around a dominant actor but CSR initiatives do not require significant investment. In this case, it is important to equitably share investment in and benefits of CSR initiatives. These terms can again be outlined in a contract. There should also be a high degree of collaboration between partners in developing common practices, as the financial risk assumed by the dominant company is much lower than the first scenario.
- The value chain is decentralized and CSR initiatives require significant investment. The situation is complex because no single actor plays the role of project architect. The involvement and oversight of an independent third party organization can reduce the risk of a single partner reaping the majority of the benefit. To minimize the risk associated with collaboration in this complex and costly scenario, companies should also start by ensuring they have a secure, long-term market for their products.
- The value chain is decentralized and CSR initiatives do not require significant investment. This situation is characterized by the absence of a dominant partner to set the agenda, as well as little financial risk for the companies involved. In this scenario, a common set of rules may be difficult to enforce. Leveraging an external source of regulation, such as government regulation or third party certification, may help ensure adherence to the agreed upon CSR strategy.
Creating a collaborative strategy for value chain CSR implies that all companies involved depend on one another to some degree. However, collaborators are also legally independent organizations. In all cases, a governance structure that coordinates partner efforts and minimizes political and economic risk should be established.
Leverage the tips above to reap more benefit from value chain CSR through broad collaboration.