Concept of different sustainability and CSR development stages

It might be difficult to measure and categorize CSR and sustainability progresses among companies, since the concepts are considered as abstract and hard to operationalize. In this part, two theories are presented and they aim to assess companies in their development process in terms of sustainability.

The pyramid of corporate social responsibility

Carroll (1991) suggests that there are four components of social responsibilities; economic, legal, ethical and philanthropic. These four components could be depicted as a pyramid. The economic component functions as the base upon which all the other components rest, it then built upwards through the legal, ethical and philanthropic components. The pyramid does not propose a sequential advancement, instead, organizations should aim to fulfill all the components simultaneously. In the following section each component is described.

Economic responsibilities

The underlying assumption in the economic component is that business organizations were created as economic entities producing goods and services whilst making an acceptable profit in the process. This idea then emerged into conducting business with maximising earnings per share and being as profitable as possible. Further, an organization needs to maintain a strong competitive position in the market and a high level of operation efficiency.

Legal responsibilities

The legal component involves an organization’s responsibility to comply with various federal, state and local regulations set up by the government and perform in a consistent manner to the expectations of legal obligations. Moreover, organizations should only produce goods and services that meet the minimal legal requirements.

Ethical responsibilities

This component discusses that organizations should act in accordance to emerging societal values which are not codified into law. The ethical responsibilities embody standards, norms and expectations that reflect stakeholder concerns. This component is in a constant and dynamic interplay with the legal responsibility component. This means that the ethical component is pushing the legal component to broaden or expand whilst placing more demanding expectations on business practices above the requirements of the law at the same time.

Philanthropic responsibilities

Philanthropic responsibilities could be described as more discretionary or voluntary business actions as they are not expected in an ethical or moral sense like the ethical responsibilities are.

Philanthropic responsibilities could be engaging in programs to improve quality of life or contributing with different resources to the community.

Figure 4. The Pyramid of Corporate Social Responsibility by Carroll (1991).

To conclude, with the help of Carroll’s pyramid, organizations could carefully and deliberately consider what actions in regard to economic, legal, ethical and philanthropic responsibilities, need to be taken with respect to the identified stakeholder groups. In that way, organizations are able to develop priorities and make both long-term and short-term decisions involving several stakeholder interests.

Stages of change

Nidumolu et al. (2009) argue that sustainability is a key driver of innovation. Further, they discuss that by treating sustainability as a goal, companies are able to develop competencies that are hard for competitors to imitate, which in turn will lead to competitive advantage. As sustainability will be an integral part of development, Nidumolu et al. (2009) have identified five distinct stages of change. During each stage companies will face different challenges and, hence, must develop new capabilities accordingly in order to tackle these challenges. In the following parts, each stage of development is described in detail.

Stage 1: Viewing compliance as opportunity

The first steps companies must take in terms of sustainability usually arise from legal regulations.

However, regulations regarding the environmental or social aspect can vary depending on which country, state, region, or even city the business is located in. Consequently, companies need to be aware of the different legal standards that might apply to their business operations. In this stage, Nidumolu et al. (2009) point out several opportunities that companies can capture due to actively complying with the law. Firstly, they discuss the importance to strive for complying with the most stringent regulations, instead of adhere to the lowest standards. The reason for this is that these emerging rules might be enforced shortly after. In that way, companies might gain more time to experiment with new materials, technologies and processes in order to find sustainable alternatives. Arguably, companies in the frontline of law compliance might naturally see business opportunities first. Secondly, they stress that companies can impact on antagonistic regulators and turn them into allies by leading the way via shaping new regulations in an earlier phase.

Lastly, by complying with stringent global standards, companies could save money, as they do not need to manage different components in the business operations separately for each market.

Instead, when enforcing a single norm to all the operations worldwide, companies could benefit from economies of scale.

Stage 2: Making value chains sustainable

Nidumolu et al. (2009) explain that once companies have learned to keep pace with legal regulations, most companies become more proactive about environmental issues. At the second stage, companies start to work with suppliers and retailers to develop environmental-friendly raw materials and components, and focus on reducing the consumption of non-renewable resources and waste. By analyzing different links individually in the value chain, companies can develop new sustainable operations accordingly. Nidumolu et al. give several examples how companies can proceed in this stage. In terms of suppliers, companies could induce them to become more conscious about the environmental challenges by offering incentives. Another example is to restructure the operations in the supply chain that lead to greater energy efficiency. Also changes in the workplace might contribute to a more sustainable value chain, for instance, offering home office as this reduces travel time, travel costs and energy use. Companies can also recapture some of the lost value of returned products by reusing them. This results not only in a more profitable business with cost consciousness but also in a change in attitudes focusing on preventing environmental damage and reducing waste. Arguably, when companies analyze their business activities and make their value chains more environment-friendly, it may lead to monetary benefits in the long run.

Stage 3: Designing sustainable products and services

In regard to that Nidumolu et al. (2009) discuss that consumers tend to become more sustainability-conscious in general as well, companies should redesign existing products or create new ones in order to match the emerging consumer demands in the third stage. It is crucial for companies to capitalize competencies and tools, which were acquired at earlier stages of the development process. By being in the frontline in every stage, companies can strengthen their competitive advantage and introduce new sustainable products before its competitors. In order to develop new sustainable alternatives, companies have to understand consumer concerns and demands as well as examine the product life cycle carefully. As most companies are moving into

new markets beyond their existing expertise, it is argued that the need to collaborate with nongovernmental organizations (NGOs) is beneficial as well.

Stage 4: Developing new business models

Besides developing new sustainable products, Nidumolu et al. (2009) highlights the importance of creating a sustainable business model as well. This often entails rethinking the customer value proposition and discovering how to deliver a new one. It requires companies to explore alternatives to existing business practices and to understand how to meet customers’ expectations and needs differently. Arguably, companies should critically assess existing business models and act entrepreneurially to develop new delivery mechanisms of value propositions. Furthermore, new technology innovations could provide the ability to challenge conventional business models.

As companies will become more adept at this in the fourth stage, this development will lead to the final stage of sustainable innovation instinctively.

Stage 5: Creating new-practice platforms

In this stage, Nidumolu et al. (2009) argue that new business practices will change existing paradigms. In order to develop innovations that create sustainable next-practice platforms, companies must question the implicit assumptions behind existing business practises. By critically assessing the status quo, companies and people in general could change. Nidumolu et al.

(2009) explain that this was the case that led to today’s industrial and service economy. Hence, raising new questions about scarce resources will create disruptive innovations.