Corporate Social Responsibility as a Source of Competitive Advantage: an Exploratory Case Study on P.S.O
Corporate Social Responsibility as a source of Competitive Advantage: An exploratory case study on P. S. O FALL 2011 Thesis Supervisor Sir Zohaib Sufyan Submitted By: Shahid Saleem 0811129 Tanzeel Shahed 0811136 Asad Ali 0811277 ACKNOWLEDGEMENT Foremost, we would like to thank our advisor Sir Zohaib Sufyan for his sincere efforts in guiding us for compiling this thesis. His continuous guidance, encouragement, patience and support from the start gave us tremendous help in understanding the subject.
In addition to this he was always available and accessible which again helped us in getting through with our research. Furthermore we would like to express our sincere gratitude to the entire P. S. O CSR committee; Ma’am Shamail Shah, Mr. Anil Kumar and Mr. Rizwan Ul Haque( former CSR member) for devoting their valuable time to our research and providing us utmost co-operation at all times. We would specially like to thank Mr. Vaqar. A Khan, General Manager Human Resources, training and organizational development, for guiding us along the correct lines with our research.
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We would also like to thank the entire SZABIST staff that was helpful in supporting our research work from the lab staff, to the library staff and the Executive Development Council for its timely preparation of our reference request letter. Special Thanks to Mr. Hafeez Abbasi, for his timely co-operation in checking our documents for plagiarism. Despite the tremendous workload, he managed to give us our plagiarism report promptly. In the end we would like to thank our parents for their unconditional love and support throughout our lives and it is because of their hard work that we have the opportunity of being what we are today.
Table of Contents Contents EXECUTIVE SUMMARY4 1 INTRODUCTION5 1. 1 BACKGROUND5 1. 2 PROBLEM STATEMENT6 1. 3 VARIABLES OF STUDY7 1. 4 RESEARCH OBJECTIVES8 1. 5 RESEARCH QUESTIONS8 1. 6 RESEARCH METHODOLOGY8 1. 7 SCOPE OF STUDY9 2 LITERATURE REVIEW10 2. 1 EVOLUTION OF CSR THEORIES11 2. 1. 1 THE PROFIT RESPONSIBILITY11 2. 1. 2 THE ECONOMIC RESPONSIBILITY12 2. 1. 3 THE STAKEHOLDER APPROACH13 2. 1. 4 DEVELOPING INTANGIBLE ASSETS FROM CSR14 3 THEOROTICAL FRAMEWORK19 4 ANALYSIS OF P. S. O CSR ACTIVITES21 4. 1 CSR OBJECTIVES OF P. S. O21 4. 1. 1 THE VISION21 4. 1. OBJECTIVES ACHIEVED THROUGH CSR22 4. 1. 3 DIAGNOSIS: BIRDS EYE VIEW ON CSR22 4. 2 IMPORTANCE OF CSR FOR P. S. O23 4. 3 IMPLEMENTATION OF CSR VALUES24 4. 4 CREATION OF INTANGIBLE ASSETS THROUGH CSR26 4. 5 INFLUENCES ON CSR OF SOCIAL ISSUES27 4. 6 MEASURE OF CSR ACTIVITIES27 4. 7 CSR IN TIMES OF FINANCIAL CRUNCH27 4. 8 BENEFITS GAINED THROUGH CSR28 5 CONCLUSION29 6 RECOMMENDATIONS31 7 LIMITATIONS33 8 AREAS OF FURTHER STUDY34 9 BENEFITS OF THE STUDY35 10 REFERENCES36 11 ANNEXURE 43 EXECUTIVE SUMMARY This study was conducted on the leading oil marketing company in Pakistan, P.
S. O (Pakistan State Oil). The purpose of this study was to find out * Whether Corporate social responsibility is a source of competitive advantage for the company or not. Usually it is seen as a marketing tool and our objective was to see whether it only promotes the company or does it really lead towards long term sustainability as previous studies have shown a link between CSR and sustainability. The study was a descriptive case study which involved * Interviews with CSR committee of P. S. O and * An analysis was done of the annual reports, Bulletins and other online material. P. S. O is actively involved in CSR and value generating activities for its stakeholders. It is actively engaged in corporate philanthropy and its efforts have been recognized by the CSR association of Pakistan. The conclusion of our study was that * Although P. S. O does carry out activities for the social, economic and environmental benefit of the society but it does not have a strategic CSR policy. * The current CSR policy of P. S. O is centered more towards philanthropic and community development work.
If work is done on a strategic CSR policy that integrates all its value generating activities in it than that would lead towards a competitive advantage. 1 INTRODUCTION Corporate social responsibility is a way of organizations to contribute positively to the society and community that businesses operate in. The objective of CSR for companies is to accept responsibilities for its actions and create a positive impact through its activities on environment, employees, customers, suppliers, shareholders and all members of the public sphere.
World over companies are integrating CSR into their business model to achieve competitive advantage, In Pakistan CSR activities are more focused on philanthropy and legal compliance (Waheed 2005). CSR can be a major source of competitive advantage as reputation of a business is a major factor for success. Good CSR programs contribute to the progress of society which in turns benefits the business in the long run as they are also part of the society. In this study, CSR as a competitive advantage would be analyzed for Pakistan State Oil which is actively engaged in CSR activities.
In an environment where social responsibility plays a significant role, every organization might play its own part but not all can integrate it into their corporate strategy. This paper would study upon this aspect and its potential to prove as a competitive advantage for a firm. 1. 1 BACKGROUND Corporate Social Responsibility is a wide reaching topic with many influencing factors and peculiarities (Bueble, 2009). The word first appeared in 1950s then it had been brought into highlight by Milton Friedman in 1970 where he noted that organizations are aware that they are sought to be socially responsible.
It was a time when firms were inclined and focused onto maximizing shareholder’s wealth. No one could clearly define the scope or the importance of this word till 1980s Since then, much has been written on the advantages good CSR policy would create in practice and on the potential it might offer for doing better financially (Keinert, 2008). When scandals evolving around Enron and Nike came into the limelight, it was then the importance of firms acting socially responsibly took off. The external environment can play a major role in the perceived value and success of an organization (Smith, 2008).
In today’s changing business world, companies cannot be measured on pro? ts alone. Although the de? nitions of CSR are varied and debated, it is widely recognized that as well as pro? t, CSR incorporates societal and environmental obligations to various stakeholders (McDonald and Lai, 2010). Corporations are a part of society and make a contribution to social life. In their role as main actors of the market economy system, corporations conduce to decentralized coordination of economic actions for the purpose of social cooperation for mutual success (Lin-Hi, 2008).
Few would disagree that there is some relationship between CSR practices and the ability of firms to achieve their objectives. In fact, the number of reported cases of companies convinced of the advantages of integrating CSR philosophy into their day-by-day operations provides sufficient evidence that CSR is a source of competitive advantage (Perrini, Pogutz and Tencati, 2006). Corporate Social Responsibility activities/expenditures on different avenues by companies are seen as modern tools for marketing.
Companies do various expenditures on various avenues and make information of such activities public for various reasons. Our efforts will be focused towards finding out through our research whether CSR activities are carried out by PSO in order to gain a competitive advantage. 1. 2 PROBLEM STATEMENT The aim of our study is to develop a concrete relationship of corporate social responsibility in providing a competitive advantage for an organization therefore establishing “Corporate Social Responsibility as source of competitive advantage” The problem identified here is that CSR is only seen as a charitable deed or a cost.
Many corporations in Pakistan do not have a proper CSR program and they only believe in giving charity. It is important to understand that CSR is providing a strategic platform for the development of society and business. For this study, the intangible resources we would be aiming to achieve and highlight are: * Innovation * Knowledge Management * Human Capital A developing nation like Pakistan needs to have social and economic progress. If corporations look at their core business values and align them with their CSR activities they would realize its significance as a core business strategy.
Through this case study, we would conduct a study on CSR, which helps a company build on its intangible assets, aid in developing a competitive advantage and proving back to its stakeholders, which altogether indirectly help in growth and expansion of the business. 1. 3 VARIABLES OF STUDY Go? mez and Manzanares (2011) devised a theoretical framework, which is explained in chapter 3, that was based on variables that formed the intangible assets that enables a company to develop Corporate Social Responsibility and provide a competitive advantage.
The variables were also covered by Helfat (1979), Denison (1990), Roberts and Dowling (2002) and Wright et al (2005), who had identified these variables as intangible assets which are as follows: * Innovation * Knowledge Management * Human Capital 1. 4 RESEARCH OBJECTIVES The objective of this research is to determine: * What social or economic factors influence CSR activities? * Are the companies using CSR only as a promotional tool? * How does it lead towards long term sustainability? * How does it align with the company’s objectives? 1. 5 RESEARCH QUESTIONS * Is Corporate Social responsibility a mere marketing tool? To establish whether a relationship exists between Corporate Social Responsibility and corporate strategy of a business? * Do CSR activities revolve around only promoting the company or does it lead to long term sustainability? 1. 6 RESEARCH METHODOLOGY The research will be a qualitative one and both primary and secondary sources of data will be obtained. The primary source of data will be obtained through employees of PSO that are directly involved with the CSR activities of the company. Data collection tool will be semi-structured interviews of these employees.
Convenience Sampling will be used as we will interview employees to whom we can get access to and it will be helpful in attaining basic data regarding our study. Secondary sources of data will be obtained from internal report, company’s web sites and other relevant material online. 1. 7 SCOPE OF STUDY The study will be based around finding how Corporate Social responsibility is a source of competitive advantage for an oil marketing company. The study will be limited to only one company i. e. Pakistan State Oil. It is the market leader in the oil marketing industry of Pakistan.
The sample size of the study will not be limited to a few individuals but will include all the necessary sources that can assist in this research. 2 LITERATURE REVIEW Corporate Social responsibility defined by Husted and Allen (2010), a term that is sometimes employed to cover all actions by the firm that are deemed ethical and/or benefit the society, and are pursued altruistically (Husted & Allen, 2010, p. 1). Keinert (2008) explored literature which revolved around the finding that a good CSR policy is bound to provide advantages when it is implemented and can allow a firm to provide results financially (Keinert, 2008).
Carroll (1991) had discovered that the term corporate social performance had emerged in recent years that encompassed the comprehensive concept of corporate social responsibility, responsiveness and the entire band of socially beneficial actions that a business undertakes (Carroll, 1991). Arli and Lamonso were able to measure the consumer perception and found that consumers preferred a firm to be more socially responsible rather than it being ethically responsible since the environment in which the study was conducted did not cater to the social issues intrinsically and hence it was a important factor for the stakeholders of the organization. Arli and Lamonso , 2010) Those firms that believe social action can alone be a vital part of their competitive advantage require a well-developed corporate social strategy that is fully integrated with the business (Husted & Allen, 2010, p. 3). Porter and Kramer (2002), wrote about a company’s charitable effort as a platform for improving the competitive abilities, defined as the business environment and its quality at a location or several locations where they might be operating. (Porter & Kramer, 2002).
Organizations that operate in an environment where social problems exist tend to play their part by being socially responsible to the society since the institution of government fails to do so. ( Olowokudejo and Aduloju , 2011) Hanke & Stark devised a framework that attuned CSR activities a company does based on 3 important stakeholders, that is, the government, the civil society and the business itself. They found that the organizations play an important role in developing a society and that its strategy is dictated based upon the environment it operates in and the legislation that prevails around it.
Olowokudejo and Aduloju (2011) found out that the organizations that operate in an environment where social problems exist, tend to play their part by being socially responsible to the society since the institution of government fails to do so. (Ololwkudejo and Aduloju , 2011) Brammer and A. Millington (2008) concluded in their study that organizations that outperform socially did not exhibit any desirable result from CSR in the short run but in the measurement of the performance over the long run, the organization is able to perform who show exceptional degree of inclination towards strategically fulfilling the philanthropic activities. Brammer and Millington , 2008) 2. 1 EVOLUTION OF CSR THEORIES 2. 1. 1 THE PROFIT RESPONSIBILITY Friedman (1970) presented his theory on social responsibility in which he writes that when a free enterprise economic system prevails, a corporate executive is working for the owner of the organization. He is bestowed upon the responsibility to work for the owners and undertake business activities as they wish to carry out.
The prime desire of the owners is earn and profit from the economic activities while obeying the rules and regulations stated by the law and community in form of ethical custom (Friedman, 1970). Galbreath (2008) wrote elaborating Friedman’s (1970) believes taught that a firm does its part in meeting societal welfare by fulfilling its economic responsibilities which other institutions such as governments, educational institutions, social service organizations and similar institutes should adopt as their role in meeting societal welfare.
Galbreath, 2008) . Branco and Rodrigues reviewed that until recently CSR was seen as a tax saving incentive but nowadays, it is a social initiative that creates value for the stakeholders. The real return is generated when the firm creates value and social perceptions of its work within the community that translates within its employees, suppliers, customers and other stake holders. ( Branco and Rodrigues , 2006). 2. 1. 2 THE ECONOMIC RESPONSIBILITY
Drucker (1993) believed that Friedman’s views on societal benefits derived from focus of business on increasing profits was a superficial assessment of its duties as it should not waste resources and justify costs with benefits. A different conceptual perspective was presented by Carroll (1979). A four phased conceptualization of CSR contained the idea that a business is not only required to fulfill economic and legal obligations, but also ethical and philanthropic responsibilities towards the society as well. Carroll, 1979). The economic argument (sometimes termed the “enlightened self-interest” model) states that the amalgamation of Corporate Social Responsibility can lead to differentiation and competitive market advantage for the business (Hartman, Rubin & Dhanda, 2007). Carroll (1991) introduced a pyramid of corporate social responsibility which provided a framework to enable us to understand that firms do not only have an economic obligation as presented by Friedman, but also legal ethical and social responsibilities.
The pyramid highlighted the evolving nature of an organization’s economic, legal, moral and philanthropic performance whose adaption within the firm depended on factors such as the organization’s size, its management’s philosophy, corporate strategy, industry characteristics, the state of economy and other such influential factors. These factors are influential to the framework the pyramid of CSR provides in four component parts on the nature and kinds of philanthropic programs the firms carry out (Carroll, 1991).
Garcia de los Salmones tried to quantify and analyze the existence of a relationship of CSR and the perception of consumers about an organization. The study found out that in the short run, an organization would only see CSR as expenditure but a commitment to the society brings large returns for a company in the long run provided that the ethical and philanthropic code of conduct at the organization is in line with the strategy and hence the CSR initiatives would give returns. (Salmones , Crespo and Bosques , 2005) 2. 1. 3 THE STAKEHOLDER APPROACH
Freeman (1984) introduced a new Stakeholder Approach. The stakeholder approach was a major contribution towards the evolution of CSR as it not only focused on an organization but to all individuals, groups, and all external and internal stakeholders that can be affected as an outcome of managerial behavior based on decision on those groups. The Stakeholder Theory puts forward the argument that organizations have responsibilities to numerous stakeholders around it, both internal and external stakeholders to the organization.
Freeman points out that the core stakeholders are the shareholders to the organization which have been time and time again emphasized upon in various literatures (Freeman, 1984). Hanke & Stark (2009) devised a framework that attuned CSR activities a company does based on 3 important stakeholders, that is, the government, the civil society and the business itself. They found that the organizations play an important role in developing a society and that its strategy is dictated based upon the environment it operates in and the legislation that prevails around it (Hanke and Stark, 2009).
When value is generated for the stakeholders of the firm, it is creating value for shareholders ultimately. He stresses upon this as he argues that the only other way for firms to create value for its stakeholders, other than by just developing and selling products and services that the consumers want to buy, or providing employment to those ready to fill jobs, or capitalizing upon supplier-firm relationship, or being responsible socially within a community (Freeman, Wicks & Parmar, 2004). Creating value for stakeholders is important.
Miles Munilla & Darroch (2006) wrote on the importance of inclusion of stakeholders in the strategy formulation that encompasses the CSR Spectrum. They explored the importance of strategic conversations that occurs in an organization along with the relevant stakeholders that enables a firm to align the values inherited by the firm and the perception of the top management. (Miles Munilla & Darroch 2006) 2. 1. 4 DEVELOPING INTANGIBLE ASSETS FROM CSR Building up on the evolution of CSR, the stakeholder approach adheres to relevance and realities. Werther, Jr. nd Chandler (2010) argue that for any competitive advantage to be sustainable, the strategy must be adaptable to the broader environment in which the firm competes. The importance of CSR rests in the fact if CSR is done incorrectly or left ignored by an organization, it can hamper any form of competitive advantage the organization might have in the industry it operates. The Corporate Social Responsibility of a firm and the strategies implemented to it are chiefly concerned with the organization’s relationship to the societal context in which the organization operates.
Strategy dictates and is related to only to how the firm engages into the market place (its operational context). CSR takes into account the organization’s impact on the significant stakeholders (its societal context). Strategic CSR, hence, represents the intersection of the two (Werther Jr. and Chandler, 2010). Husted & Allen found a significant relationship between the positions where the organization places itself in respect to the social issues prevailing in the environment. They found that the social positioning alongside the prevailing issues in the society comes in a bid to form a social strategy. (Husted and Allen, 2007)
It connects the social dimension with the development of intangible resources and firm performance from the stakeholder perspective and the resource-based view of the firm (Go? mez and Manzanares, 2011). The resource based view highlights intangibles as a source of competitive advantage, which is also witnessed in the natural view as studies have shown that these intangible sources might enhance an organization’s responsibility performance. (Surroca, Tribo and Waddock, 2010). The resource based view proposes the the way in which an organization utilizes its endowed resources can generate a competitive advantage (Barney 1991).
Peterafa and Barney (2003) highlighted an analysis on the resource based view incorporates value creation from all perspectives that create value and ultimately provide a strategic competitive advantage. Resource based view is not just a theory, it encompasses all differential factors that play its role towards CSR. ( Peterafa and Barney , 2003) Mata, Fuerst and Barney (1995) were able to determine that IT managerial skills were a tested source of competitive advantage based upon the resource based view. ( Mata, Fuerst and Barney ,1995) .
Researchers have examined intangibles such as human resource, innovation, corporate reputation, corporate culture and their relationship to various dimensions of corporate responsibility. (Surroca,et al. , 2010. Ayuso, Rodriguez and Ricart (2006) elaborated that the resource based view highlights some qualifications for intangibles which enable them to attain a competitive advantage for the organization. Those qualifications require intangibles such as innovation, be based upon firm-specific resources and capabilities, to be unique and rare to the organization, difficult to imitate and non-sustainable.
The presence of these qualifications among those intangibles enables an organization to attain sustained competitive advantage for the organization. It renders to the clear conclusion that an organization can achieve a higher organizational performance provided that the organization is capable of working our collaborative relationships with the diverse stakeholders around it meanwhile it continues to effectively challenge the knowledge assets acquired into its innovation process(Ayuso, Rodriguez and Ricart, 2006).
Eisenhardt and Schoonhoven (1996) Studied that alliances with organizations can prove a pioneering strategy for the organization. It emphasized that an organization should enter into an alliance with an organization with similar strategic interests and build up on a innovation. Since new technologies and innovations are long term mobilizes, the partner should work on it while the organization enjoys the consumption of sustainable resources. ( Eisenhardt and Schoonhoven 1996) .
McGrath were able to determine in their study that innovation did hold a strategic importance yet the returns on it could not be quantified or ascertained before introducing them. They add to the Knowledge Management but the measurement of returns termed as ‘rents’ need theoretical conditions to enable any form of prediction. ( McGrath , MacMillan and Venkataraman , 1996). The term “corporate social innovation” was first introduced by Rosabeth Moss Kanter (1999) who puts forward the argument that firms should learn from problems that a society faces and come up with products that help them cater to these unmet needs.
CSR lever innovation by catering to a specific demand of a consumer as EDF states: Customers, confronted with prices that tend to increase, also expect energy eco efficient solutions. The ability to meet such expectations can provide a competitive edge. The EDF Group is committed to eco-efficiency, which aims at finding the most effective and economically competitive solutions for managing energy consumption and limiting greenhouse gas (GHG) emissions (Sustainability Report, EDF 2008 as cited in Lanoizele? 2011, p. 87). Highlighting upon the resource based view for intangibles such as Knowledge Management, researchers have emphasized and argued that the sources of an organization’s external knowledge are imitable easily by its competitors. The real edge might lay in the fact that an organization’s overall effectiveness is determined through the way the organization is influenced from their own Knowledge Management resources to generate unique knowledge management competencies(Gold, Malhotra, & Segars, 2001).
Halawi, McCarthy & Aronson (2006) believed that enduring advantage comes from adopting knowledge management systems to provide support what the organization is already capable of doing well and also to add value to resources that it possesses that cannot be obtained and procured by its competitors with ease. They further suggested that for a firm’s organizational knowledge to proffer sustainable competitive advantage, it ought to possess the following four characteristics: it should be valuable, host rarity, imperfectly imitable and non-substitutable or imperfectly substitutable.
A criterion for the implementation of Knowledge Management is to comprehend and develop the framework and infrastructure elements essential to support the acquisition, management, and transmission of implicit and explicit organizational knowledge. There are three areas of importance from the literature on organizational knowledge framework and infrastructure; these are the emphasis on people, process and technology. Innovations that aid in exploiting and utilizing an organization’s assets are likely to add value to those resources, and the competitive advantage that is consequential outcome is likely, to be sustainable.
The literature on Knowledge Management lays emphasis on the importance of a sharing culture to help and foster a knowledge management focus (Halawi, McCarthy & Aronson, 2006). Tangible resources might fail to produce a competitive advantage more often than intangible resources. In particular, intangible organization endowed resources such as knowledge enable organizations to add value to procured factors of production. Meso, Smith established that the knowledge management serves as a long term component of CSR and found out that knowledge can be take tangible and intangible forms.
When technologies, databases, etc. take proprietary form, they add to the firms knowledge base as knowledge assets. Similarly, intangible knowledge is tacit and adds value only when a strategic move is made towards it. Therefore, intangible knowledge is a resource based intangible asset as the resource based view highlights. (Meso and Smith , 2000) Significant chunks of an organization’s knowledge reside in human capital (Hitt, Bierman, Shimizu & Kochhar, 2001).
Wright, McMahan & McWilliams (1994) deduced that when the demand and supply for labor is variable and heterogeneous, the characteristics of human capital normally distributed, organization’s possess unique histories, social complexity and casual ambiguity characterize work processes, and human capital can be transferred acress technologies, the human capital has the potential to provide a source of competitive advantage for the organization (Wright, McMahan & McWilliams, 1994).
Boxall (1996) suggested that an organization experiences human resource advantage when the organization builds up on it and sustains competitive advantage largely through the quality of its human capital and organizational processes. The ‘human resource advantage’ pointed out through the resource-based view of the firm is generated from sources placed in exceptional human capital and superior human processes.
This not only helps to highlight the importance on implementing preordained competitive scenarios but also a great emphasis is then stressed upon building strategic capability and on developing a sustainable, long term flexibility of the organization (Boxall, 1996).
Hatch and Dyer (2004) conducted a detailed study exploring the relationship of human capital in providing competitive advantage and found out that the resource that a firm employs can lead to a competitive advantage when the selection of it is based on criteria required as the suitable employee and is screened through the appropriate tests resulting in the best talent for the company (Hatch & Dyer 2004). 3 THEOROTICAL FRAMEWORK The model figure 1 shows the relationship between CSR, the firm’s performance and intangible resources.
Figure 3. 1 (Go? mez and Manzanares 2011) The Figure 3. 1 was adopted from the study of Go? mez and Manzanares (2011) from the intangible resources culture and leadership was omitted since it did not support the industrial structure prevailing in the study. The aspect of human development was modified to social development as a assessment and control performance content. The Figure 3. 1 shows that the first step of a CSR strategy is stakeholder’s influence and strategic objectives of a firm.
Therefore the initial step of a strategic CSR program is the examination of stakeholder’s perspectives and business strategic objectives. (Sharp and Zaitman,2010). The next stage is the communication of these objectives to the stakeholders that matter to the organization. Then the CSR strategy is implemented that result in social, economic and environmental impacts. The results have to be evaluated to substantiate their benefits and costs. (Steiner and Steiner, 2000).
The inspection should be based on the precedent related to financial performance and the development of intangible assets that have been created or augmented. Sanchez and Sotorrio (2007) found a non linear relationship that positively existed between the returns gained from social performance and the financial performance of the organization across its study and reaffirmed that the creation of value through the organizational reputation was a result of a strategic move towards corporate social responsibility (Sanchez and Sotorrio , 2007).
These inspections can be made through criterions or indexes that are developed by independent bodies. Institutions such as Global Reporting Initiative (GRI) are taking the initiative of developing an index that can create those 4 ANALYSIS OF P. S. O CSR ACTIVITES To determine whether CSR is a source of competitive advantage or not, we conducted an exploratory case study on Pakistan’s largest oil marketing company, P. S. O. This company realizes its social responsibilities and has been one of the most active companies in promoting CSR.
Our methodological framework consisted of qualitative primary data (gathered from interview with four corporate managers). In addition to this secondary data was collected by obtaining information published by the company on its CSR wing. 4. 1 CSR OBJECTIVES OF P. S. O 4. 1. 1 THE VISION P. S. O has established itself along the economic front and emerged as a leading Oil Marketing Company in Pakistan. To achieve and sustain this position it adheres to its values and strategies incorporating them to its advantage. The mission statement of P.
S. O states “We are committed to leadership in energy market through competitive advantage in providing the highest quality petroleum products and services to our customers based on: * Professionally trained, high-quality, motivated workforce that works as a team in an environment which recognizes and rewards performance, innovation and creativity and provides for personal growth and development. * Lowest-cost operations and assured access to long-term and cost-effective supply sources. * Sustained growth in earnings in real terms. Highly ethical, safe, environment-friendly and socially responsible business practices. ” The mission statement of the company on the whole revolves around essential elements of innovation, knowledge areas, and human development, and being socially responsible in the environment it conducts its profit-making activities. As these elements are concretely embedded in the values of P. S. O, they guide the objectives that P. S. O strives to achieve. 4. 1. 2 OBJECTIVES ACHIEVED THROUGH CSR P. S. O (2011) defines three values specific to the elements present in its
Mission Statement clarify what the organization treasures and strives for. The CSR value of P. S. O states: “We promote Health, Safety and Environment culture both internally and externally. We emphasize on community development and aspire to make society a better place to live in. ” Similarly, Integrity is another value P. S. O promotes for the Human Development aspect. The value stresses the need to adhere to business ethics in the actions and decisions, maintain professional and personal honesty, commitment and dedication to ensure the struggle for success.
The value also emphasizes they should reach out and develop the employees, communities and environment. Innovation is a resourceful value as P. S. O states “We are committed to continuous improvement, both in New Products and processes as well as those existing already. […]”. This value consolidates the effort of the company in line with its Mission Statement enabling it to fulfill its objectives (P. S. O, 2011) 4. 1. 3 DIAGNOSIS: BIRDS EYE VIEW ON CSR The analysis on P. S. O required both primary and secondary study. The CSR department was approached for the analysis through semi-structured interviews.
They were the core contributors in providing us with sufficient material to study upon. We can chart out that the CSR initiatives of PSO include Education, Healthcare, Community Building, Women Empowerment, Child Welfare and Sports Development. P. S. O realizes its social commitments towards the society and believes in giving back to the community. P. S. O is committed to being an innovative and proactive company that believes in providing value to its stakeholders and believes in social, economic and environmental well being of the society.
The initiative under various main heads have included work on development of school with The Citizen Foundation, fight against cancer, fight against thalassemia and other collaborations with NGOs. Similarly, Women Empowerment, Community Development, Child Welfare and Sports Development have been on the organization’s struggle to provide back to the community. The management believes that the organization in any environment must give back to the society; therefore, P. S. O is responsible in the environment it operates.
This ideology has set in to a great extent within the organization Since all stakeholders are affected as an outcome of this objective of the organization, it is necessary to reach out to the stakeholders and involve them as one of the respondents elaborated. Therefore, the organization communicates its CSR initiatives through Annual Reports, Websites and CSR bulletins to all of its stakeholders. P. S. O cares for the environment and its efforts have also been recognized by the CSR association of Pakistan. This helps draft and build up the image of P. S.
O that promotes the corporate culture of responsibility towards the community. In 2010 P. S. O was awarded the Best Efforts in Environmental Sector by the CSR Association of Pakistan, and this was awarded in addition to its recognition of CSR EXCELLENCE AWARD along with Best Efforts in the Health Sector. CSR is a core competency enabled strategy as according to the responses of the sample since no direct competitor is engaged in values that are prevailing at P. S. O which have given it a an edge over the competitors on other fronts such as retail networks and product variety. . 2 IMPORTANCE OF CSR FOR P. S. O In light of the interview conducted of the four managers three responded that CSR as a value generating strategy whilst one remained neutral. P. S. O believes that CSR helps them create a positive image in the society and that it is not seen as merely a marketing tool. Our sample unanimously lay primary emphasis on describing why P. S. O goes about to undertake CSR. P. S. O inculcates that the organization has a social obligation to give back to the community. This value is present in every employee at the organization.
The strategic importance lied in the fact that it got together all the employees of different departments on a common platform. It also satisfied the internal urge of employees to do something that contributed towards the betterment of society and gave employees a break from their same old routine thus motivating them and strengthening their association with the company. Just recently P. S. O sent a team comprising of company employees to help out in the flood relief work. The employees themselves were enthusiastic to contribute in any desired way. (Kumar,2011) This helps P. S.
O in enhancing its values and emphasize on the element of human capital. Our sample strongly believed that CSR is value generative for P. S. O highlighting on its significance and importance on the whole. Tax levies is one of the incentives that encourage the company to engage in the CSR activities. 4. 3 IMPLEMENTATION OF CSR VALUES Each Value at P. S. O holds its own importance and degree of implementation but all values are catered to and help P. S. O align them with its business strategy. In the field of innovation, P. S. O has made a huge leap. It has innovated on all fronts and continues to as we were told.
The innovation it concentrates on is largely on the products and business activities it conducts. Since their core business activity ultimately harms the environment to harness the thirst for the world’s hunger for energy, it strives to minimize the damage. This concern has helped them develop a diesel fuel by the name of Green-XL diesel. This fuel helps in reducing carbon emissions of diesel engine cars which means more mileage and better performance for the consumer. E-10 fuel which is an ethanol based fuel was also developed which is again a cost-effective solution for fuel consumers. (P. S. O, 2011) P.
S. O is further researching possibilities to come up with improved lubricants and fuels. It’s innovative product include the LPG Auto gas that is an alternate to natural gas and helps consumers look for low cost alternates in times of energy shortage in the country. In order to ensure that all of the products are environment friendly P. S. O discourages its suppliers to use substances that are harmful to human health or the environment. Thus, it merges all stakeholders to contribute to the Values at every front. Knowledge Management comprises of processes and ethics that the organization upholds.
Knowledge Management is an important value since any information, data, processes, developments from any stakeholder would add up to the Knowledge Management base. Primary contributions to this value come from within the firm through the processes gained from innovation, research and development occurring through those fronts. Secondary contributors generate when P. S. O shares knowledge with its customers by designing different Public service campaigns related to Road safety and Fuel conservation giving them tips on how they can reduce the risk of accidents and save on fuel costs.
One example that surfaced in our interviews was that in order to reduce the reliance of Pakistan on imported fuel, P. S. O is in the process of developing a local alternate known as Bio-Diesel. A pilot project has been established at Pipri Marshalling Yard (PMY), Karachi, where Jathropa plants are being grown. This plant can be grown at barren land and requires very less water. Bio-Diesel can be extracted from these plants. An agreement is being developed with the government of Balochistan to develop a Jathropa model farm at Pir Sawaei Uthal, District Lasbella.
This will help the local population get employment and training will be provided to them to learn modern farming methods. This exchange of knowledge would not only contribute largely to the Value of Knowledge Management, but will also help P. S. O create a workforce that assists them in making this sustainable product. Human Development as a value focuses on the employees as a source of value contributors. CSR has been highlighted as a platform where all employees can gather, contribute and work towards.
The value generated has its unique importance since employees attain critical knowledge, have expertise, and provide a layout on which other employees can work to generate even greater value. Some may possess knowledge concerning innovation, while some might be able to highlight the key areas of success regarding that innovation. The amount of contribution multiplies the outcome of the effort by all and since the initiatives undertaken accommodate a wide array of fields, employees gain more opportunities to contribute and bring about additional value for this core Value.
It not only would accentuate value but also reinforce the culture of ethics that prevails and employees would largely support it while motivation from involvement and being a part of CSR would strengthen those values. In its sustainability report of 2011 P. S. O realizes the challenges that the Pakistan economy faces in the wake of rising import bills. The company has to work towards long term sustainability in order to stay afloat in these tough market conditions. Sustainability is a core of the business model of P. S. O that can be achieved through innovative products, best management practices and supply chain processes. . 4 CREATION OF INTANGIBLE ASSETS THROUGH CSR Rating of Intangible Assets: Human Capital, Innovation and Knowledge Management. (Highest = 1, Lowest = 10) Respondent Name| Designation| Human Capital| Innovation| Knowledge Management| Shumail Shah| Chairperson CSR | 2| 6| 4| Rizwan-Ul-Haque| Manager T & OD (Former Member CSR)| 1| 1| 5| Anil Kumar| Secretary CSR| 3| 4| 4| The result of one evaluation that we have tabulated above depicts the employee considerations of the three Intangible values and their importance considered by them.
The interviewed sample strongly believed that Human Capital was the most value generative considered as an integer to CSR initiatives, followed by Knowledge Management. Innovation has been considered as a minimal contributor. When questioned upon this response and presence of innovation front already within the organization, respondents argued that since CSR cannot directly control innovation, its importance is considered less relative to other two variables. 4. 5 INFLUENCES ON CSR OF SOCIAL ISSUES The level of CSR activities and type of it changes in accordance with the social issues that pertain in the society.
The respondents told us that in 2005 earthquake and 2009 floods the focus of the CSR activities changed as they focused more towards relief work, rehabilitation and building of essential facilities such as schools and hospitals. 4. 6 MEASURE OF CSR ACTIVITIES P. S. O wants to make sure that it does the right thing and contribute its money in the right concerns. In order to do so they make sure that if they do social and community building activities it is done through the right N. G. O. Attention is given to the fact that they have proper documents such s NTN ( National Tax Number), Tax exemption certificates and other important documents. Proof of proper use of funds is also asked from N. G. Os and they are required to present documented proof so that there is no misuse of funds. Also every three months a progress report and proposal is shown to the board of directors that evaluate the performance of the CSR committee. (Kumar, 2011) 4. 7 CSR IN TIMES OF FINANCIAL CRUNCH P. S. O has faced cash shortage due to the circular debt but that has not affected their CSR activities.
It has given the company an opportunity to streamline its operations and take cost cutting measures. The budget for the flood relief was increased from Rs. 60 million to 100 million in the current year. (Kumar,2011) Even taking a glance at their profit statements for the last two years it can be seen that the company has made profits. During the nationwide floods in the year 2010 P. S. O faced a loss of Rs. 2. 9 billion due to damage that was caused to its infrastructure, despite this fact it kept its 90% retail outlets operational throughout the country. (CSR, 2011). In this period only P.
S. O fuelled more than 500 relief flights that went around the country to carry out the relief activities. Furthermore, Pakistan Center for Philanthropy is one body that conducts the scale at which the companies in Pakistan. P. S. O was ranked 5th in 2008 for the volume of its contribution and 11th in 2009, which was higher than its competitors. 4. 8 BENEFITS GAINED THROUGH CSR The advantages recognized by the respondents include * Positive brand image and association in the mind of the consumers. * Employee motivation and harmony as the employees of different departments get together. Tax levies are given to the company by the government that leads to increase in profits and create value for shareholders. * Helps in achieving company objectives. * Gives company mileage for future projects in areas where it is not established but plans to do so. It will already have a positive association through its CSR activities in the mind of the people of that region. 5 CONCLUSION The conclusion of this study is that: * P. S. O does carry out CSR activities for the social, economic and environmental benefit of the society but does not realize the significance of a strategic CSR policy.
The company’s sustainability report does state that it believes in creating value for its stakeholders other than profits. It views sustainability as a notion that goes beyond CSR but it should be integrated into its CSR policy and objectives through a CSR plan. The plan should go beyond the social and philanthropic activities that are the usual norm in the Pakistani market. * P. S. O was given the “CSR National Excellence Award” from the CSR association of Pakistan for the year 2010 which was an expected one as the company was informed beforehand.
The other two awards for “Best Efforts in Environmental Sector” and “The Best Operations in Health Sector” were surprise awards. (Kumar,2011) This shows that the company does business practices that are recognized by the external bodies but it is not integrated in the CSR policy and guidelines of the company. CSR association of Pakistan should provide a proper framework and criteria on which it should award any organization and this shall serve as a guideline for all other firms on how they should go about their CSR programs. The current CSR policy of P. S. O is centered more towards philanthropic and community development work. If the focus remains on the philanthropic part than CSR will merely be viewed as a marketing tool. The main proposition of this study is that integration of CSR into business strategy does create a competitive advantage as it leads to creation of intangible assets such as innovation, knowledge management and human capital. Although P. S. O does achieve this through it sustainable business model, there is still a need to understand the real essence of a proper CSR action plan which can engage all stakeholders of the business and lead towards the long term competitive edge of P.
S. O. Every organization can play its part given the resources it has. P. S. O is in the energy sector of the economy and has worked towards creating products and still is that are leading towards economic efficiency. * Moreover, the study is unable to determine any competitive advantage that the organization may be experiencing since the lack of a proper framework such as GRI does not exist as such within the organization in the broader spectrum, restraining us from access to the relevant data and enough material that might enable us to measure any competitive advantage.
This can be further studied in future researches. 6 RECOMMENDATIONS In our study conducted on Pakistan’s Largest Oil Marketing Company, we found out a few things that P. S. O must look into in order to ensure that their efforts towards corporate social responsibility are more than mere acts of spending. * P. S. O should align the objectives of C. S. R along with the company’s objectives through a proper CSR policy that not only exists in their values but also holds strategic importance, so that there is a goal met when the company spends money on corporate social responsibility acts. There should be more involvement from the employee’s side so that there is an even greater sense of ownership inculcated in the employees minds. * The CSR committee of P. S. O should be merged with the Health, Safety and Environment committee of P. S. O and should work as a single entity on a single comprehensive CSR plan so that it further helps enhancing the intangible assets mentioned in our study. * A method should be devised through which P. S. O actually rates and evaluates whether there has been improvement in the philanthropic activities in a quantifiable manner based upon the GRI framework. Human Capital development and Knowledge management should be further focused upon so that the company’s spending bears more fruit than just marketing of the company or a goal of spending a certain amount by the company being achieved. * P. S. O must focus its efforts towards ensuring that C. S. R is looked at from this new perspective that caters to a company’s needs internally as well as externally, giving it a competitive advantage. * They should collaborate with engineering universities that impart knowledge and utilize it to create more channels of research and exhibit pace in the development of their stake in alternative energies. LIMITATIONS The limitations to this study are as follows:- * The data from the interviews might be biased in some cases. * A company may be unwilling to reveal its true motives behind certain practices. Also, a company’s internal policies are kept confidential, and as far as further activities that have been planned out by the companies may be kept hidden form the general public so that when the company finally conducts all its activities, it would have a greater effect later on. * The effectiveness of the study may be affected due to such variables explained above. Another limitation that is their in our study is that we are choosing only one company. The rationale behind this that we will be able to effectively be able to gauge how a Pakistani oil marketing company uses CSR initiates to gain even more support, and maintain edge over its competitors. Also, because our aim and focus will be narrowed down to just one company, we will ensure that we effectively are able to gauge the link between conducting CSR activities and their use as a tool to create a link with the community at large. 8 AREAS OF FURTHER STUDY
In the future studies, a larger sample size of companies can be considered and a comparative study can be done between them. Moreover, feasibility of implementation of GRI framework can be studied upon as GRI has still to been able to grasp within the Pakistani industries. 9 BENEFITS OF THE STUDY * It will help in developing an understanding of the concept of CSR of the leading oil marketing company of Pakistan. * Generally the market follows the trend of the leaders in the market and so this study will help in understanding the scenario that is in Pakistan. This study will also help in understanding the importance of a good CSR strategy that can lead to long term sustainability and create a competitive edge for a firm. * It can further help us develop an understanding of whether CSR is all about doing philanthropic activities only. 10 REFERENCES * Alan D. Smith, (2008) “Corporate social responsibility practices in the pharmaceutical industry”, Business Strategy Series, Vol. 9 Iss: 6, pp. 306 – 315 * Annual Report (2011), Pakistan State Oil. Retrieved 28 October 2011, from website http://www. psopk. com/investors/pdf/corporate_objectives_2011. df * Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, Vol. 17 (1),pp. 99-120. * Boxall, P. (1996), The Strategic Hrm Debate and the Resource-Based View of the Firm. Human Resource Management Journal, 6: 59–75. doi: 10. 1111/j. 1748-8583. 1996. tb00412. x * Bueble, Elena, (2009), Corporate Social Responsibility: CSR Communication as an Instrument to Consumer-Relationship Marketing, GRIN Verlag * Brammer, Stephen, Millington Andrew, (2005), Corporate Reputation and Philanthropy: An Empirical Analysis, Journal of Business Ethics, Vol. 1, No. 1, pp. 29-44. * Brammer, Stephen, Millington Andrew, (2008), Does It Pay To Be Different? An Analysis Of The Relationship Between Corporate Social And Financial Performance, Strategic Management Journal Strat. Mgmt. J. , 29: 1325–1343 * Branco, Manuel Castelo, Lucia Lima Rodrigues, (2006) Corporate Social Responsibility and Resource-Based Perspectives, Journal of Business Ethics, Vol. 69, No. 2, pp. 111-132 * Bryan W. Husted, Bryan Husted, David Bruce Allen (2010), Corporate Social Strategy: Stakeholder Engagement and Competitive Advantage, pp. 1-3, Cambridge University Press. Carroll, Archie B. , (Oct. , 1979), A Three-Dimensional Conceptual Model of Corporate Performance, The Academy of Management Review, Vol. 4, No. 4 pp. 497-505 * Carroll, Archie B. , (1991), The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders, Business Horizons, Elsevier, vol. 34(4), pages 39-48. * CSR Bulletin 3rd Issue (2010), Pakistan State Oil. Retrieved 28 October 2011, from website http://www. psopk. com/csr/pdf/csr_3rd_issue. pdf. * Drucker, P. F. (1993) Post-Capitalist Society. New York, HarperCollins, pp. 01. * Eisenhardt, Kathleen M. , Claudia Bird Schoonhoven, (1996), Resource-Based View of Strategic Alliance Formation: Strategic and Social Effects in Entrepreneurial Firms, Organization Science, Vol. 7, No. 2, pp. 136-150 * Fatima Guadamillas-Gomez, Mario J. Donate-Manzanares, (2011) “Ethics and corporate social responsibility integrated into knowledge management and innovation technology: A case study”, Journal of Management Development, Vol. 30 Iss: 6, pp. 569 – 581 * Friedman, Milton, (September 13, 1970), The Social Responsibility of Business is to Increase
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Does the influence of CSR vary depending on the type of social issues? 5. How does PSO measure the effectiveness of CSR initiatives? Research Objectives: How does it align with the company’s objectives? 1. What are the objectives of P. S. O? 2. What objectives are achieved through CSR? Research Objectives: How does it lead towards long term sustainability? 1. What CSR initiatives has P. S. O taken in the past? 2. Given the financial crunch that P. S. O faces, do you think that it is feasible for the company to be conducting such activities? 3. What benefits can your company gain through CSR?