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Fine-Tuning Corporate Social Responsibility

A recent IBM study shows a hefty percentage of top officers don't quite connect with customer concerns. IBM's George Pohle discusses how to change that

Top managements of companies around the world are confronting a growing chorus of demands to articulate their corporate social responsibility strategies, yet 76% of top executives polled by IBM (IBM) acknowledge they don't truly understand their customers' concerns.

George Pohle, a vice-president and global leader for business strategy consulting at IBM, says his unit wants to help managements develop software tools for understanding these issues. He recently talked with Armchair MBA columnist William J. Holstein.

Here are edited excerpts from their discussion.

Your study shows that customers want companies to play a leading role in social responsibility. Is that a new development?

I'm not sure it's a new development, but the amount of power and influence that these customers are now able to exercise has increased substantially and therefore it has become a top-level management issue. When consumers can leverage channels like the Internet to connect with one another and to identify and distribute information about companies, all of a sudden there is a shift in power toward the consumer or other stakeholder organizations.

So it's not necessarily businesses buying from other businesses driving this trend. It's more about consumers and consumer-related groups?

It's as much a consumer-driven approach as it is a business-to-business issue. That said, there are a lot of corporations that are taking some leadership positions. For example, Wal-Mart (WMT) is driving a number of compliance issues related to sustainability with their upstream channel partners, or suppliers. That's one example of business-to-business activity.

For years, corporate social responsibility (CSR) was an add-on to businesses and was basically a kind of marketing. But now it seems customers want companies to embed social responsibility into their strategies, right?

That's right. In the past, when many of us were going to business school, the focus was on shareholder value. Now with the influence these other stakeholders have, it is really about a broader definition of "who are the folks you're trying to please while running your business?" It's about shareholders and other stakeholders, as opposed to focusing only on shareholder value.

But many CEOs don't really believe that, do they?

Actually, some of the data we've got says differently. CEOs of 68% of the companies we talked to really are focusing their CSR efforts on growth opportunities. To be sure, 96% of the companies we talked to try to fully comply with all the legal and regulatory issues. They certainly don't want to get sued. But more recently, there has been a shift to use the CSR lens to find new growth opportunities.

Of that 68%, about 50% of them have started looking at CSR as a growth platform only in the past couple of years. There's something happening, and it's happening pretty quickly.

How can CSR be a growth opportunity?

Here's an example: There's a company in Mexico, Cemex (CX), the large cement company. They discovered there were a lot of individuals, as opposed to companies, who would love to buy their cement to build their houses. They generally are a much poorer population and they do build their own homes. The problem was that they couldn't afford the cement.

Cemex identified that issue and said, "Look, we've got to be able to create a platform for these people to improve their lots in life and to make our materials available to them." The best way to do that was to create some financing structures that allowed these low-income folks to be able to pay for cement to increase the size of their homes. That solution not only helps people but it also provides financial growth and new revenue streams for Cemex. They've been growing in that segment of the market by 250% a year.

What's an American example?

Take Starbucks (SBUX). One of the core value propositions Starbucks offers to consumers is the notion of fair-trade coffee. To a significant portion of loyal Starbucks customers, that's a big deal.

One thing that's important is you have to really understand what your customers are looking for. Every Starbucks customer doesn't necessarily care about fair-trade policies, but many do. Every company needs to understand in more detail what are the key needs their customer groups have and then figure out what they can do to address those needs.

About 76% of the companies we talked to didn't understand exactly what their customers were looking for with regard to CSR, and only 17% had ever had a conversation with customers about it, meaning 83% had never done so.

Are U.S. consumers attaching a greater sense of social responsibility to their purchases of things like Nike (NKE) shoes made in China?

These issues are driving actual purchasing. About 60% of consumers indicate that when they make purchase decisions they do take into account social and environmental factors. The second point is that about a quarter of them don't feel they have a socially responsible alternative and if they did, they would switch brands.

On the flip side, we have clients who have 25,000 to 50,000 suppliers. If you're trying to manage your brands in such a way that you have to take into account the actions of these suppliers when they aren't part of your company, you need to go way beyond the level of responsibility and accountability that you had to go through before.

In the case of Nike, what's interesting is that they've changed their policy. Instead of trying to protect information about where they do production, they share it much more openly. If anyone, including a nongovernmental organization (NGO) or a consumer, indicates there's a problem with one of their suppliers, Nike will take action. Nike has enfranchised groups that would have typically come after it, and turned a problem into an opportunity.

If U.S. consumers are shifting from the attitude that they just want to buy the best product at the best price, is that a major development?

Yes, it's taking place in America and everywhere. When we ran the study, we looked for differences across geographies, from Europe to the Americas to Asia, and we weren't able to find any significant differences.

How should CEOs take these new ideas into their thinking? What do they do differently?

Three things. One is that they have to focus on CSR not for permission to do business, just complying on laws and regulations, but as a growth platform. Two is to move from the point where they're simply reacting to different constituents and organizations finding out things about them to becoming much more transparent about sharing information.

Lastly, they need to move from limiting the exposure that a customer or an NGO has to their company to being a lot more engaged with all constituents—NGOs or government groups or consumer groups or individual consumers. Changing the nature of that relationship toward becoming more collaborative is imperative.

Why have these activist groups become so powerful?

They're more powerful because they can scale more rapidly and it's much easier to share information, leveraging the Internet. In the 1970s a consumer may have written to a company as part of a letter-writing campaign. But today an individual consumer can videotape the effluent from a chemical plant and post it on YouTube and create a whole community of outraged consumers. That level of influence is unprecedented. It's not just the Internet. There are a whole slew of other technologies like digital video recorders.

What is IBM's interest in this trend?

First is that we've been a leader in social responsibility for quite a while. But the other commercial reason is that we have a consulting practice that has interest in doing this and has a lot of capabilities that can help our clients deal with how they can become more sensitive corporate citizens.

Does that involve technological solutions?

It involves everything from supplier management systems to carbon footprint management. We have a combination of services plus technology that allow us to help clients with these issues.

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