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Why are operations the most vulnerable sector of any company when considering CSR?
I. Introduction
As globalization continues, the earth's natural processes transform local problems into international issues along with the development of international commercial activities. Few communities are being left untouched by major environmental issues and social problems. As one of the most active and influential elements of the human society, the business world has been required, for several decades, to shoulder more responsibility by their consumers and society in general.
The concept of corporate social responsibility (CSR) draws more and more attention from all sectors of society, and is considered as an issue that we cannot afford to ignore.
As we take into account the increasingly serious environmental problems and social issues such as inequitable growth, corporate social responsibility can no longer be used as a slogan or a tool of self-glorification, but rather as a pressing task for all companies, who contribute to these problems. In a day and age when technology allows us to be informed in real time, strategies such as "green-washing" may only accelerate the deterioration of a company's image.
Consequently, the CSR should be treated as an issue that can be solved only by creating synergies between several functions within a company.
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From establishing product concepts or services to manufacturing, from delivering goods to recycling waste, every single step of the process may have an enormous impact on whether a company decides to become socially responsible. For this reason operations management is at the core of the CSR discussion, given that it involves the design and control of the production process.
Though the principles of operations management and that of CSR have factors in common, such as reducing waste and energy saving, the traditional vision of cutting cost as more as possible conflict with the spirit of sharing value with all shareholders, making operations management the most vulnerable function when considering CSR.
The objective for operations managers, increasing profits with less resource, can be quite affected by the value of corporate social responsibility.
In this essay, we try to respond the question: Why are operations the most vulnerable sector of any company when considering CSR? After presenting several main concepts and the background of this problematic, we will give three reasons to answer the question above with analysis and examples. Finally, we will put forward our proposals and previsions then come to a conclusion.
II. Concepts and background
1. Corporate social responsibility
Corporate social responsibility (CSR) is a concept firstly raised by Andrew Carnegie (1835-1919) and developed in the USA. According to him, a businessman should, first of all, accumulate his capital, and then distribute his fortune to society. As he said: “Man who dies rich dies disgraced…If you want to be happy, set a goal that commands your thoughts, liberates your energy and inspires your hopes.” (Banerjee, 2007)
After this initial definition, the concept of CSR drew more attention from both academic circles and the business world in the second half of the twentieth century. According to Howard R. Bowen, enterprises should make and practice the policies that aim to create values desired by the society (Bowen, 1953). On the contrary, Milton Friedman insisted that the only duty of corporations is to augment the fortune for their shareholders. Is his article on the New York Times in 1970, he said: “The social responsibility of business is to make profit.”
Since the first decade of the twenty first century Concern from governments and appeals from non-government organizations put this issue under the spot light. In 2001, the European Commission defines the CSR as “the voluntary integration of social, environmental firms in their business operations and their relationships with all internal and external stakeholders (...) in order to fully comply with applicable legal requirements, invest in human capital and respect its environment (ecology and territory)” (European Commission, 2001). Moreover, we can observe a combination of concepts from corporate social responsibility and sustainable development.
2. Operations management
Operations management is the activity of managing the resources which produce and deliver products and services. A close relation with products and main services makes the operations function central to all kinds of organizations. It is one of the three cores of business, with the marketing (including sales) function, and the product / service development.
Rather than an isolated island within a company, the operations function is involved in a high degree of interaction with others. For example, it has to keep in touch with product development function to assure that the firm has the capabilities to manufacture the design of a new product. For the same reason, there is a synergy between operations function and marketing that helps match the sales power with production. (Nigel Slack et al., 2010)
The importance of this integrated way of working has been known for long time, but it is the development of information system that makes it possible. Thanks to systems like Electronic Data Interchange (EDI) and Enterprise Resource Planning (ERP), companies can, on one hand, facilitate the communication with their partners and suppliers, and promote the collaboration among functions. In order to compete in an ever-changing global economy, enterprises make an emphasis on the efficiency and productivity of their manufacturing process, aiming to maximize advantages on price, quality, as well as satisfaction of costumers. The important role of operations management in the company, and the influence it exerts to other echelons of the value chain, make it crucial for managers to consider when they think about environmental and social issues.
3. Background: evolutions on global market
During the last three decades, we can observe that two elements are changing rapidly in the business world, the continuous development of international trade and production, and the wide use of the Internet. We cannot talk about CSR or operations management without considering these issues.
International trade and production
Once a business reaches a certain economic level, it usually aspires to reach an international level (Czinkota & Ronkainen, 2004). This sort of ambition will lead to a series of actions and changes in the strategy of the operations functions.
For instance, problems in adaptation to the economic environment and culture in the target country, may cause repercussions on materials sourcing or the integration of products. Even a change of format or packaging requires coordination between the marketing department and the operations function. At the same time, trans-national delivery demands a higher degree of reliability and efficiency from the supply chain, demanding significant improvements of operations management.
On the other hand, more and more multinationals locate their facilities in third world countries, raising environmental and social problems in the host country. While they benefit form relatively low cost of raw material, energy and labor, these industrial giants leave behind high levels of pollution ad cause a scarcity in resources (DeTienne & Lewis, 2005). Globalization has not eliminated the inequality between countries, but rather has aggravated the problem.
Wider use of Internet
First, the explosion of e-commerce has profoundly altered the way we do business. Especially when we talk about selling online, satisfaction of customers is no longer determined only by products themselves, but also deeply influenced by the performance of supply chain, manifesting mainly by issues of delivery and after sale service (Lannoo & Ankri, 2007). Whether taking care of these tasks internally, or outsourcing to third-party companies, companies and their operations function will be faced with unprecedented challenges and risks. Second, the Internet serves as a tool for all members of the society to be informed, to understand and even monitor a company. In many countries like France, annual reports of listed companies are now required to include a CSR report. Along with economic performances of these firms, their contribution to communities and the environment is also be available on their official web sites. In this case, managers have to take more voluntary and effective actions to fulfill their promises to the public.
III. Major reasons for vulnerability
1. Outside pressures
There is no doubt that some of companies give priority to value creation for all shareholders such as the Body Shop. However, in reality, most companies make an effort to achieve their CSR goals largely because of increasing pressures from all sectors of society. Some of these requirements are focusing on the production process and delivery of goods, and thus put tremendous stress on the operations function.
First of all, we could compare Traditional and Modern views of Corporate Social Responsibility applied to Operational Management.
Within the company, operational management works as an integration of several functions such as: Engineering or Manufacturing (Inventory, Planning, Material Flow, Quality etc.), Distribution (Suppliers, Transport), accounting etc.; with interrelated operations such as: Finance, Human Resources, Marketing and etc. This can be applied to any type of organization, regardless of its sector (Manufacturing, HealthCare, Wholesaling, Retail, Banking etc.)
Modern CSR approach creates vulnerabilities to Operational Management because even seemingly insignificant change or disturbance in one participant (function) can influence whole loop of Supply Chain, which can therefore negatively influence company’s behavior in regards to Social Corporate Responsibility and even affect the goals for efficient Operations Management. There are eight possible competitive priorities (goals), which fall into four groups:
In the event of such disturbance, most of companies tend to forget their tactics and strategies regarding CSR/ long-term or sustainability goals and use to short-term solutions, no matter what the price to the environment, society, employees, consumers or stakeholders. We have concluded that most important vulnerabilities within the Organization are:
* New concepts and re-design (products and services)
It is quite clear that creation of new concepts and re-design of products/services is crucial for every company. The first step or designing, creating new or modifying product is generating ideas which furthermore need to be properly tested, feasibility study conducted, no matter how great the ideas seems to be. The process is lengthy and complicated: Therefore, the re-design itself can become CSR problem due to: * Waste Management, additional energy consumption, recyclability * Social impact of the product and Customer Safety
* Layoffs (employees and suppliers) in case of restructuring or failure.
For example, Michelin has failed to launch its run-flat PAX tire, which could be driven while being damaged, at highway speeds, for a hundred miles or more. Unfortunately, in order to use these tires, the under-body of the cars would need to be redesigned, new equipment and new skills would need to be acquired by the mechanics. As Michelin failed to analyze complete consumption chain of this new concept, the production line had to be discontinued. This was not only a commercial fail, but looking from the CSR point of view, it also had negative social impact such as layoffs, the time and resources used up for R&D, Marketing and other operations which could have been used for more efficient and value-added products. (Harvard Business Review 2007)
* Transportation/ Logistics
The location of the headquarters/warehouse and any other business unit has an important impact on Operations management and is one of the most vulnerable points when considering CSR. Transportation can have significant environmental impact: business flights, employee commuting and the movement of goods may cause emissions and leaks, including air pollutants, greenhouse gases and water pollution. As transportation is unavoidable for a manufacturing firm, operations management helps to reduce the impact, however due to complexity of the interrelated operations it can become vulnerable.
For example, Company A is a supplier of Raw Materials; Company B is a customer, which needs Raw Materials to manufacture goods. In the event of a raw material production delay in Company A, scheduled standard delivery might need to be re-scheduled to a special express dedicated delivery to the Company B because, let’s say, due to this delay and bad planning Company B will have a production stop. Such delivery would be considered inefficient, as it is costly, fuel inefficient, increases pollution, pressurizes truck driver, moving from standard procedures to special procedures, additional pressure and stress for employees from both companies etc. One may argue, that the production stop would cause more negative impact than the rushed delivery, however it is difficult to weight the impact, there is the need to address root causes. If the planning and security stock from both sides was well managed, the express delivery would not have been necessary.
To conclude, no matter how efficient Logistics processes are created within the company, human error is unavoidable; therefore Operations Management becomes vulnerable when considering CSR.
* Waste and Recycle
One of the most tragic examples of an operational failure is Chernobyl disaster in 1986, polluting and creating toxicity and waste problems. Not only companies need to manage the basic production safety and reduce accident rate, but they also need to recycle as much possible, manage day-to-day waste safely and create lean product life cycle. However, these processes are subject to vulnerability when considering SCR as there could be a graver damage made by conducting these operations.
Recycling
Companies such as HP who organize the recycling of the old cartridges or companies such as Nespresso who collect used coffee capsules, shows a great example of how to reduce the environmental impact of its products. However as great as it might appear, many other aspects need to be taken into consideration, for example supply chain system needs to be created to collect and transport these used items, special environmentally friendly bags or boxes for the pick-up point’s needs to be produced. Remembering Michelin case, where it failed to analyses it’s complete consumption chain, HP and Nespresso had to find a way to encourage consumer to bring back their empty cartridges and capsules. In their cases, it is successful, however it is vulnerable and could become a failure if the participation level of consumer is low.
Waste
Most significant waste issue is well noticeable in chemical industry or any other industry where waste is hazardous or is non-recyclable or non-reusable. The solution would be to improve the operation processes and to avoid unnecessary waste, however this is proven to be impossible due to human error and especially in chemical industry where chemical reactions can create unusable waste. The hazardous waste management is controlled by the legislation and will be discussed later on in the essay.
Not only materials are considered to be waste, but also energy and labor waste – companies try to be more efficient by implementing just-in-time and lean process, however there is a clear vulnerability when considering CSR: at what price do company’s adopt their just in time principles? Overcrowded and polluted roads would be most direct negative impacts, but there are also other social impacts, which will be discussed in more detail in “organization evolution” section.
* Organizational evolution
Performance Measure There is no doubt that Performance Measure is highly important in Operational Management as well as for any other part of the business, however measuring and setting standards have negative social consequences, especially for the employees. Reduction of costs and prices, increasing customer experience, quality conformance, the speed of delivery, reliability of delivery could cause serious stress and working hour’s fluctuations for the employees.
An example of the employee struggle to meet the set performance level is making data look better than it is by leaving out certain information, some company’s set high un-reasonable standards or in some quarters the performance cannot be met due to external factors causing stress.
Continuous Improvement
Kaizen is a Japanese system promoting Continuous Improvement or in other worlds never ending journey of improvements. There are many approaches such as the Deming Cycle (Plan, Do, Act, Check), tools and techniques to conduct the Continuous Improvement process. The benefits for efficiency and profit are unquestionable, however when considering CSR we can find many vulnerabilities.
A good example of Continuous Improvement is Business Process re-engineering (BPR) which is a way of reconfiguration of processes in an appropriate level to provide highest value to the customers and improving critical areas. However again, at what cost when considering CSR? As BPR requires organizational change which requires changes in staff attitudes and could possibly result in loss of positions for many, reduction of responsibilities for others, the fear for Hire and Fire. Also, as tasks become more efficient, they also become more repetitive and less challenging. (T.Hill 2005)
To summarize: Main social considerations of operations management decisions 2. Outside Partners
As the world continues to expand we are starting to understand the consequences that our development has not only on the environment but also on society. Due to this new consciousness we have seen the emergence of different attempts to confront these environmental and social issues. Corporate Social Responsibility or CSR is one of the most commonly used concepts within the business world. Historically CSR has been only partially integrated as a philanthropic effort. Little by little the environmental issues caused by everyday operations of a company have also integrated the concept of CSR. With this change in definition, companies have actively trying to reduce their impact on the environment and society. As an essential function of a company, Operations Managements is constantly affected by these decisions. If, for example, a company decides to reduce their packaging it will be the operations department that will have to manage this change.
Suppliers
When we consider the impacts on Operations Management when integrating CSR to a company, we must go farther and analyze the impact on all outside partners such as suppliers. When we decide to integrate a CSR action, especially within the manufacturing process we need our suppliers to integrate the same change on their process. As customers begin to become more conscientious about environmental and societal issues they are demanding companies to make many changes. Within the clothing industry this green movement was reflected by customers asking for organically grown cotton to be used in the manufacturing of products such as Nike. In this kind of situation we see how the responsibility immediately falls on the supplier to change their process. This sort of sudden changes leaves the operations function of a company quite vulnerable, as they have to trust that their suppliers will be able to change their process without increasing costs.
When there is a synergy between a manufacture and its suppliers such changes can be made with collaborations. A great example of this is how the company Esquel managed to give their customer the organic cotton they needed by managing their whole supplier chain. Instead of just demanding their own suppliers to supply the needed product they worked with 1st and 2nd tier suppliers and built a sustainable procurement chain (H. Lee 2010).
In the last few years we have seen how many manufacturing companies who have simply demanded certain changes to their suppliers, but do not think about make an effort to assist in this change, and most importantly they do not control the whole procurement chain. This was the case of Mattel who made it clear to its 1st tier suppliers that no lead paint could be used when manufacturing its products, yet it never thought of auditing its 2nd tier suppliers or furthermore the outsourced production its main supplier had. This type of opaque supply chain makes operations very vulnerable and can cause, like in Mattel's case severe financial repercussions (N. Sun 2007).
The new shared-value concept developed by Porter and Kramer has introduced the idea that by collaborating with all the actors in a value chain we can create value while still respecting CSR. A company that has been able to smoothly transition into this new shared-value concept is Toyota. The deep relation that exists between Toyota and its manufacturers has allowed them to naturally apply changes that create a win-win situation for them and its suppliers. The Toyota company culture naturally includes the idea of shared-value and has a long-term mentality (Spear Bowen 1999).
Operations Management and Csr. (2016, Dec 13). Retrieved from https://studymoose.com/operations-management-and-csr-essay
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