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Corporate Social Responsibility

This month’s newsletter focuses on Corporate Social Responsibility (CSR) and pinpoints work carried out by HEC Paris’ Society and Organizations Center. Its research aims to show how a company will be ahead of its competitors when focusing not only on economic gain, the first pillar of competitive advantage, but also how it aligns its values and operations to contribute to a better society while preserving the natural environment. Taking care of our planet, its limited resources and people has therefore become an essential component of a firm’s legitimacy, the second pillar of competitive advantage. Finding solutions to our planet’s over-exploitation, and unequal access to multiple services is a source of good – and of growth.

Sowing the Seeds of CSR - Knowledge - 657px

Structure

Part 1
Sowing the Seeds of Corporate Social Responsibility
This month’s newsletter focuses on Corporate Social Responsibility (CSR) and pinpoints work carried out by HEC Paris’ Society and Organizations Center. Its research aims to show how a company will be ahead of its competitors when focusing not only on economic gain, the first pillar of competitive advantage, but also how it aligns its values and operations to contribute to a better society while preserving the natural environment. Taking care of our planet, its limited resources and people has therefore become an essential component of a firm’s legitimacy, the second pillar of competitive advantage. Finding solutions to our planet’s over-exploitation, and unequal access to multiple services is a source of good – and of growth.
Part 2
Peer conformity drives subsidiaries towards corporate social responsibility
In their recent examination of a multinational enterprise¸ Rodolphe Durand and Anne Jacqueminet observed that subsidiaries appear to weigh up the corporate social responsibility (CSR) demands coming from their headquarters (HQ) and their external environment. How much notice they take of HQ versus more local CSR demands depends on their specific context and competitive position. But with the right mechanisms, subsidiaries may go beyond the demands of headquarters and adopt additional CSR initiatives.
Part 3
Armor combines co-industrialization with human respect: Interview with Hubert de Boisredon
Whether technological or social, innovation is a driving force at Armor, the leading global provider of Thermal Transfer ribbon for barcode printing and the leading European producer of remanufactured ink cartridges for businesses. Hubert de Boisredon, who has been at the helm of this firm since 2004, has brought a "trust-based" style of management to the company. His guiding principle: using technological innovation for solutions to benefit humanity...
Part 4
How activists shape business and corporate strategy
As far removed as they seem to be from executive boardrooms, civil rights campaigners and environmental activists influence corporate strategy. By shaping social values, and thus the external environment in which firms operate, social movements can not only be a driving force behind corporate social initiatives, they can even work to guide firms into new areas of business.
Part 5
The Danone Case: How social innovation can help a multinational company reinvent itself
The ambition to change the world is at the heart of the most innovative entrepreneurial endeavors – be they those of Ford, yesterday, or, today, of Google. Nevertheless, an established company that nurtures such an ambition must also reinvent itself. Today, social business is the new frontier, in that it combines an ambition for development and the conquest of new markets. So, can environmental and social innovations become the levers of a transformation of big companies, not only improving their performance but also contributing to the invention of a new, more sustainable and more inclusive economy? The example of Danone provides a concrete framework to study the initiatives taken by multinational companies from first-world countries to address the low-income populations from emerging countries.
Part 6
Growth in renewables: not all down to policy
Governments have developed a wide range of initiatives and policies to support renewable energy generation as a key element of a low carbon future. At first glance, they seem to have worked, as renewable technologies have enjoyed significant growth. But new statistical analyses by Syed Basher, Andrea Masini and Sam Aflaki suggest more complex dynamics: policy is not the only driver for the increase in renewable energy technology development and application.

Part 1

Sowing the Seeds of Corporate Social Responsibility

Social Innovation

This month’s newsletter focuses on Corporate Social Responsibility (CSR) and pinpoints work carried out by HEC Paris’ Society and Organizations Center. Its research aims to show how a company will be ahead of its competitors when focusing not only on economic gain, the first pillar of competitive advantage, but also how it aligns its values and operations to contribute to a better society while preserving the natural environment. Taking care of our planet, its limited resources and people has therefore become an essential component of a firm’s legitimacy, the second pillar of competitive advantage. Finding solutions to our planet’s over-exploitation, and unequal access to multiple services is a source of good – and of growth.

Sowing the Seeds of CSR - Knowledge - 657px

The S&O Center, home of CSR at HEC Paris, advocates that a good business strategy should include such responsibility, with its multiple organizational and competitive dimensions, from managing national policies, subsidiaries, activists, social inequalities, to new business models (among others). 

With this in mind, the Center sets out to re-invent management and find alternative models to balance economic performance with environmental and social impact, both through its research and teaching. Its researchers and professors play a key role across the wide range of HEC Paris programs, by training students and managers to become leading players in the transformation of business and society. As a result both the Grande Ecole and MBA programs offer students an elective or certificate on Ethics & Sustainability and Ethics & Performance. These courses raise ethical questions and provide a framework that unveils common patterns of success and failure in managing ethics and corporate responsibilities.

In parallel to these courses, experience in the field is highly valued: first-year Master students have the opportunity to work for social entrepreneurs and NGOs via the FACT Impact program, which this week won best pedagogical initiative for 2016. MBA participants also have the option of participating in the Global Consulting Practicum (GCP) in partnership with the Wharton School. 

The S&O Center is also involved with HEC’s MSc in Sustainability and Social Innovation, the Certificate Social Business / Enterprise and Poverty, and the S&O Certificate. Last year it also launched two MOOCs. At the PhD level, the Medici Summer School, in collaboration with MIT and Bologna University, gathers 25 selected students from all over the world on a different theme every year: in June 2016, it focused on the topic of inequality in organizations. 

Finally, the S&O Center is also involved in Executive Education, recently launching the "Inclusive Business and Value Creation" open-enrolment program specifically designed for corporate executives. This program also welcomes social entrepreneurs, NGO executives, international aid agencies and impact investors. It aims to develop alternative business practices and is designed as an accelerator to help executives design, implement and scale projects or new business lines with social or environmental aims. The two yearly sessions comprise a core program and two different contexts, one in Honfleur (France) and the other in Johannesburg (South Africa).

All of the S&O Center’s activities are driven by its vision – to engrain a sense of CSR in the corporate mindset, now and in the future.

Related topics:
Social Innovation
Strategy
See structure

Part 2

Peer conformity drives subsidiaries towards corporate social responsibility

Strategy

In their recent examination of a multinational enterprise¸ Rodolphe Durand and Anne Jacqueminet observed that subsidiaries appear to weigh up the corporate social responsibility (CSR) demands coming from their headquarters (HQ) and their external environment. How much notice they take of HQ versus more local CSR demands depends on their specific context and competitive position. But with the right mechanisms, subsidiaries may go beyond the demands of headquarters and adopt additional CSR initiatives.

Peer conformity drives subsidiaries towards corporate social responsibility - Jacqueminet and Durand - ©Fotolia - pkproject

By definition Multinational Enterprises (MNEs) have many subsidiaries operating in or across several countries. How do MNEs control the implementation of policy and practice across subsidiaries? How is compliance monitored and, if necessary, enforced? While she worked as a sustainability consultant for an MNE, Anne Jacqueminet noticed that headquarters commonly have little understanding of how their subsidiaries implement corporate social responsibility (CSR) practices.

MNEs use CSR to ensure that subsidiaries do not just comply with the law but also cultural, ethical and environmental standards. Jacqueminet underlines its importance: “Organizations and multinationals are under particular scrutiny when it comes to CSR,” she stresses. “If there is any misconduct in a subsidiary the entire MNE faces a damaged reputation. They need to ensure that subsidiaries are consistent in implementing the objectives set out, yet formal controls for this are usually very limited.”

Balancing internal and external demands 

When considering CSR, a subsidiary is faced with demands from both inside and outside the organization, i.e. from two sets of constituents. Internally, headquarters will set out organization-wide policies with which it expects all ‘internal peer’ subsidiaries to comply. Externally, there are local demands that differ depending on each subsidiary’s location and local environment.

These demands can come from the state, regulators, local communities, suppliers, customers, local NGOs, the media, and even competitors or ‘external peers’. “We wanted to understand the extent to which subsidiaries get torn between these internal and external demands and how and why they choose which CSR practices to implement,” explains Jacqueminet. “The question is: who do they pay more attention to and why?”

The effect of ‘peer conformity’ 

Jacqueminet hypothesized that a subsidiary will be most affected by the set of peers that it perceives poses a greater threat. If its internal peers within the organization conform to corporate policy, the subsidiary in question will most likely follow suit, which results in enhanced attention to HQ’s demands, and ultimately increased CSR implementation. As Jacqueminet explains, “They are threatened by their internal peers and want to show HQ that they are conforming, that they are the ‘good kid’ at school.”

However, if it is the subsidiary’s external peers that conform to the CSR demands of the local environment, the subsidiary will likely adopt the alternative practices demanded by external constituents. Here, the external peers are most threatening and the subsidiary has to adopt local practices to keep up with the competition. Jacqueminet also had the notion that the attention of a subsidiary is limited – it gives priority to certain constituents at the expense of others – so if it pays more attention to the demands of one set of constituents, it will consequently decrease the attention it pays to the other.

 

When a subsidiary feels threatened by its external peers, the CSR demands of the local environment were upheld at the expense of those from HQ.


CSR complexity

The implementation of CSR practices by MNEs is notoriously complex and difficult to observe because MNEs are so large, and subsidiaries face many competing demands. “There are many diverse issues under the CSR umbrella,” Jacqueminet remarks. “When you look at CSR conformity, there is a lot of heterogeneity within an organization. It is hard to see what drives subsidiaries to conform.” With this in mind, Jacqueminet narrowed her investigation to subsidiary implementation of health and safety, gender diversity and environmental biodiversity practices. These are three CSR practices of key importance to the energy and environmental sector associated with the particular MNE in question.

Compliance with HQ drives initiative 

Analyzing questionnaire responses from more than 300 subsidiary managers, Jacqueminet and Durand were able to conclude that when a subsidiary feels threatened by its external peers, the CSR demands of the local environment were upheld at the expense of those from HQ. “Interestingly, however, when the threat comes from their internal environment, not only do subsidiaries conform to the demands of headquarters, they also increase their attention to the local demands,” says Jacqueminet. They find new ideas and show initiative, which is highly valued by headquarters.” This goes against the idea that subsidiaries have limited ability to focus their attention; in fact, they can pay attention to headquarters and the local environment simultaneously. Jacqueminet concludes: “This study has confirmed that subsidiaries are greatly influenced by their peers when it comes to CSR implementation. But we have also been able to show that subsidiaries are not passive recipients of demands or mere imitators of their peers; they actively choose to allocate their attention and this depends on their competitive environment.”

Practical Applications

Image - Social Networks
“Instead of trying to increase top-down pressure to implement CSR policies through monitoring and enforcing,” suggests Jacqueminet, “HQ should reward conformity and stimulate internal competition for resources. This should drive subsidiaries to implement the policies more thoroughly throughout the organization. It should drive conformity, but also foster initiative.” Jacqueminet recommends that subsidiaries also need to balance the attention they give to internal and external demands to meet the highest standards CSR practice. “To be most valued by headquarters, a subsidiary must not just comply with HQ’s demands, but also show some initiatives in its CSR activity.”

Methodology

methodology
Jacqueminet and Durand’s study focused on a single multinational enterprise (MNE). Their chosen corporation is a world leader in gas and electricity production and supply with a presence in over 70 countries and interests in infrastructure development and in energy and environmental services. The researchers conducted a survey relating to CSR practices in 101 subsidiaries of the MNE; questions focused on health and safety, gender diversity and environmental biodiversity practices. They sent the survey to six managers in each subsidiary; over 300 responses were returned. The pair used simultaneous equation modeling to evaluate the attention subsidiaries pay to CSR demands and the extent to which they implement CSR policy. As the MNE’s subsidiary structure is typical of many multi-domestic companies, the researchers were able to generalize their findings to some extent.
Based on an interview with Anne Jacqueminet on her paper “Peer conformity, attention, and heterogeneous implementation of practices in MNEs”, co-authored with Rodolphe Durand (Journal of International Business Studies, 2015).
See structure

Part 3

Armor combines co-industrialization with human respect: Interview with Hubert de Boisredon

Whether technological or social, innovation is a driving force at Armor, the leading global provider of Thermal Transfer ribbon for barcode printing and the leading European producer of remanufactured ink cartridges for businesses. Hubert de Boisredon, who has been at the helm of this firm since 2004, has brought a "trust-based" style of management to the company. His guiding principle: using technological innovation for solutions to benefit humanity...

Hubert de Boisredon : Armor combines co-industrialization with human respect ©Armor - Thomas Raffoux

Innovating is the mantra of many intermediate-sized firms: for Armor, industrial innovation is "in its genes"...

Armor started making carbon paper in 1922. It then started producing ribbons for typewriters, fax paper rolls, ink and toner cartridges, followed by thermal transfer ribbons for printing barcodes, our main business line today. The company has steadily developed innovative solutions based on its expertise in ink and thin-layer coating on thin films. In 2010, Armor used this expertise once again, this time to make a commitment to renewable energy. First, by making flexible organic photovoltaic film, free of rare metals, followed by aluminum current collector film coated with a protective solution to improve electric battery performance. 

Would you say your aim is to build a profitable business model that addresses social issues?  

Yes, absolutely. Armor strives to be a high-tech industrial company that responds to the challenges facing society today. For example, through thermal transfer printing for packaging and bar-coded labels, we ensure safety for assets and for people - numerous food industry crises have demonstrated the crucial importance of traceability. Additionally, through OWA, Armor has initiated the first method for 100% recycled printing in keeping with a circular economy whereby companies combine responsible printing with environmental preservation.

Similarly, the production of coated collectors for electric batteries addresses an environmental issue at a time when electric mobility is rapidly increasing. Finally, the new generation of photovoltaic films will make solar energy available to a greater number of people. Armor aims to address issues facing society today through technological innovations: these ambitions come together in our profitable business model. 

Early in your career you founded Contigo ("With You"), an organization for microcredit in Chili: is this where your social-minded approach to business comes from? 

A friend of mine, Laurent Marbacher (H.86), and I created a bank for microcredit in the spirit of Muhammad Yunus's Grameen Bank, which was little-known at the time. It was an unforgettable experience and we developed the project in cooperation with people from the deprived neighborhoods of Santiago de Chili, in order to create businesses starting out with nothing. This responded to a social problem: how to provide access to bank credit to the more than 400,000 Chilean micro businesses excluded from it.

We were among the pioneers of microcredit in Latin America: these loans led to the creation of some 50,000 companies and the creation of over 100,000 jobs. When the project was handed over to Chilean teams seven years later, five Chilean banks started following in our footsteps, providing fresh impetus for the country's economy. 

What did you find appealing about Armor?

I was 29 when I came back to France and joined Rhône-Poulenc in order to do something completely different, try a career in the field of industrial marketing, which led me to work in Asia. All in all, it was a fascinating experience in global management, but I missed the agility, independence and intensity of taking full responsibility for all aspects of a firm. That's what I liked about Armor: it's an intermediate-sized enterprise with international scope that develops innovative solutions for highly-specialized industrial needs. I wanted the freedom to develop a long-term project, helping teams grow around me and establishing a style of management based on trust, with a precise capitalistic and industrial strategy, which would bear fruit in time. On a smaller scale, Armor is like a little Michelin in Nantes: this link between a business and its region reveals another side of the economy.  

Is your trust-based management style an example of the social innovation you call for, much like “shared labor-relations dialogue?"

Yes, in my opinion a management style based on trust is the key to uniting teams, creating excitement, freeing up energy and increasing the corporate spirit. Armor's success is not based on me. It is instead based on everyone who works here: each employee can contribute to progress, provided that positive initiatives are recognized. In Chile I was astounded by the micro-entrepreneurs' potential for initiative.

They were usually very poor people, but they demonstrated exceptional ingenuity for creating businesses in all fields!  As for "shared labor-relations dialogue", I believe it is important in the same way: everything relies on this dialogue, which includes a relationship based on trust with the partners who love their company...if we respect and listen to each other, if we talk about what is best for the company and the individuals who comprise it, there are many areas in which we can build extraordinary things together. This dialogue has enabled us to sign many agreements extending beyond the requirements of the law, whether for training young people, seniors, etc. 

What exactly does your co-industrialization strategy consist of and what are the prospects between now and 2020?  

Armor has grown steadily over the past ten years to become the top global player in the thermal transfer field today. We manufacture nearly all our semi-finished products (jumbo inked reels) in Nantes. The reels are then cut into tailor-made ribbons for industrial printing in facilities located as close to our customers as possible. Specifically, this means that Armor has an industrial cutting plant in Nantes as an extension of its production chain for all of Europe, as well as nearly ten slitting plants located on all the continents.

A strategy for keeping jobs in France: relying on a very competitive plant in France (based on the automation of its processes without reducing the workforce) to serve rapidly expanding markets throughout the world, and thus fuel growth in France. This model has already generated a yearly growth of 8% per year, and should allow us to exceed a turnover of €300 million in 2020. 

So this model, which represents the opposite of offshoring, respects humanist values?

It all comes down to the quality of individual relationships. Taking time to listen to an employee talk about his projects, concerns or aspirations gives him the neces-sary ingredients to persevere with renewed energy. Similarly, our approach to wel-coming disabled people is based on our belief that there is a place for fragility at Armor.

Contrary to popular belief, the presence of a disabled person does not jeopardize the development of the company, it creates a space for living together - by daring to ask for help, the spiral of competition between individuals is broken. When you have a fragile person in your team, unless you are completely inhuman, it provides an opportunity for discovering the other and taking initiative. This ultimately creates more efficient teams.

Armor handicap 2016

You and your management team took control of the company through a CMII (industrial and innovation capital management corporation) operation: was this the appropriate response for Armor's development? 

Until 2008, Armor was a family-owned intermediate-sized enterprise, and it was then sold to an investment fund that wanted to dispose of its stake in 2013. Armor ran the risk of being sold to other investors with a short-term financial outlook, or sold to a competitor who would have broken up the company...So my management team and I decided to propose a takeover plan, not through a traditional LBO but according to specific terms and conditions for building entrepreneurial and social capitalism.

We reinvested the totality of our previous investment in this new transaction, thus going into debt again, and we chose to associate all interested employees in this capital transaction, regardless of category of personnel.  We strive to build a long-term industrial and innovation project: a large portion of profits have been invested in R&D in order to develop new activities, such as solar energy or films for electric batteries. This requires long-term capital stability.

See structure

Part 4

How activists shape business and corporate strategy

Strategy

As far removed as they seem to be from executive boardrooms, civil rights campaigners and environmental activists influence corporate strategy. By shaping social values, and thus the external environment in which firms operate, social movements can not only be a driving force behind corporate social initiatives, they can even work to guide firms into new areas of business.

How activists shape business and corporate strategy - @Fotolia - gustavofrazao

In a 1970 essay for the New York Times Magazine, Milton Friedman, America’s most famous free-market economist, argued that, “The social responsibility of business is to increase its profits.” And yet, companies increasingly engage in activities that are not purely about making money, with all sorts of corporate initiatives aiming to contribute to health, education or environmental protection.

From large mining companies' projects against malaria and distributing scholarships to local students to Starbucks' and other coffee companies fair trade policies, examples of what has been labeled “corporate social responsibility” abound. Indeed, as states have gradually become unable or unwilling to do so, businesses are increasingly perceived as responsible for addressing social issues. But how does social pressure change the way business is done? Panikos Georgallis, now a research fellow at the University of Michigan in the US, examined the influence of social movements on business and corporate strategy for his Ph.D. at HEC Paris, and followed up with an article that looks specifically at social movements and corporate social initiatives.  

The rise of social movements

Why in the first place should social movements be linked to corporate social initiatives, or more generally to corporations? “The tradition in social sciences has long been to study how such movements identify unjust practices, then target the state so that it enacts policies,” says the researcher. But state power has become weaker with the deregulation and globalization of the past three decades, while corporate power has increased — and not just in the Western world where deregulation began: “By addressing companies directly, bypassing the state, social movements have been successful, sometimes at least, in bringing more attention to issues (if not in bringing about social change).” Besides, as he writes in his essay, social movements are driven by ideology, and “a vision of society cannot but include economic life”. Hence the expectations around corporate policy that firms respect gender equality and treat men and women equally, limit activities that are harmful to the natural environment, and so on. 

 

Ideological shifts manifest not only in society at large, but also within corporations.


How social movements induce corporate social initiatives

How do social movements push firms to engage in activities that further some social good (or at least appear to)? In his article, the researcher identifies mechanisms at three different levels, mechanisms that of course do not function independently but rather interact.

Firstly, SMOs (social movement organizations) shape the organizational field in which firms operate (the business environment). They bring issues to the forefront of the public agenda and shift the expectations of critical stakeholders such as consumers, investors, the general public, legislators, and so on, who together give firms what Panikos Georgallis calls “a social license to operate”. Without that license, a firm loses its legitimacy, which hurts business. “Take the huge oil company BP. After the Deepwater Horizon disaster, during which it was seen as having violated social norms, its share price dropped,” notes the researcher, adding that such damage is very hard to repair. He says that legitimacy is even more salient with consumer goods, citing Nike's issues with labor practices in Asia. “Not only must you have a reputation for good products, your strategy must be acceptable to society for consumers to buy and for analysts to recommend your shares.”

Secondly, activists may also operate at the organization level, targeting a specific firm through public demonstrations, civil lawsuits or other forms of direct action. As Georgallis writes, “The ability to shape companies' reputation is one of the most important weapons in activists' arsenal.” Such action directly impacts bottom lines. He also cites shareholder activism, by which an activist may raise issues within a company using equity, as a less common, but growing, form of pressure.

Thirdly, ideological shifts manifest not only in society at large, but also within corporations. The attention that managers assign to issues, as well as their assessment of feasibility and urgency of social initiatives, are likely to be influenced by social movement activity. As the values of managers change — such as, for example with the increasing weight of environmentalism over the years — so do firm behaviors. 

Guiding firms into new areas

In his Ph.D. dissertation, Panikos Georgallis also took a closer look at one less-studied aspect of activism, whereby SMOs induce firms to operate in new areas of business, rather than simply trying to drive them away from others. There are many collaborative, rather than confrontational, ways that activists can guide firms into new fields. Taking the example of renewable energies (already an area of personal interest to the researcher), Georgallis reveals how environmentalists worked to induce demand and build a market for firms to enter: “In several European countries, Greenpeace campaigners convinced households to install solar panels, or gathered signatures of supporters who said they would purchase some once the tariffs were more affordable.”

This not only showed companies that the photovoltaic industry was a viable one, but also shaped public policy. “It's no coincidence that the first countries to support renewable energy were those with strong environmental movements, such as Germany for solar energy and Denmark for wind energy.” Of course, as he points out, social pressures produce more effects when relevant to the company's core business. “Social signals about renewable energies won't matter much to Procter & Gamble: they'll matter more to energy companies... if they call themselves so, like Shell or BP, who were among the early entrants in the photovoltaic industry, but not Exxon, which has a harder stance as an 'oil' company.”

A main finding from both of Georgallis’ works is the embeddedness of firms within society. “They don't operate in a void,” he says, adding that an interesting effect of activism driving firms into new areas of business is the way this creates diversity in industries. His work is a natural fit for HEC Paris 'Society and Organizations Center' (SnO), where he prepared his thesis (two chapters of which were co-written with the academic director of SnO, Rodolphe Durand).

Applications

Focus - Application pour les marques
This stream of research offers evidence that social movements can exert substantive impact on companies' behavior, as they shape both peripheral activities (such as their social initiatives) and more fundamental strategic decisions (such as expansion decisions). Managers must pay close attention to the expectations of civil society, and analyze how these expectations impact the business landscape by, for example, informing public policy, shaping competitors reactions, or inducing demand for new products. The increased intervention of social movements in markets suggests that ignoring these actors is dangerous for companies' reputation, legitimacy, and eventually for their bottom line.

Methodology

methodology
“The link between social movements and corporate social initiatives: Toward a multi-level theory” is a mainly a theoretical essay, so the author drew upon the extant literature. For the empirical chapters of his dissertation “From opposition to support: The influence of social movement organizations on firm strategy”, he relied primarily on quantitative statistical techniques based on a dataset of solar cell manufacturers. He also interviewed professionals from the photovoltaic industry, lobbyists and trade groups, and studied the Greenpeace International Archive.
Based on an interview with Panikos Georgallis and his research on activists.
See structure

Part 5

The Danone Case: How social innovation can help a multinational company reinvent itself

Social Innovation

The ambition to change the world is at the heart of the most innovative entrepreneurial endeavors – be they those of Ford, yesterday, or, today, of Google. Nevertheless, an established company that nurtures such an ambition must also reinvent itself. Today, social business is the new frontier, in that it combines an ambition for development and the conquest of new markets. So, can environmental and social innovations become the levers of a transformation of big companies, not only improving their performance but also contributing to the invention of a new, more sustainable and more inclusive economy? The example of Danone provides a concrete framework to study the initiatives taken by multinational companies from first-world countries to address the low-income populations from emerging countries.

The Danone Case, or how social innovation can help a multinational company reinvent itself by Bénédicte Faivre-Tavignot - Children in the streets ©Renaud Douci/ONG SOLIDARITÉS INTERNATIONAL

The environmental and social innovations that are emerging today are being met with both enthusiasm and skepticism. Pr. Muhammad Yunus’ “social business” and C.K. Pralahad’s “base of the pyramid”, in particular, are the subject of heated discussions. Some activists see them as the promise of a better tomorrow. Others see it as a cosmetic overlay – a “social greenwashing” of sorts – that will basically change nothing. But while this debate is far from settled, some answers are emerging already. And probably the best way to tackle the issue is to take a close look on the relevant companies themselves. Some of them have taken the lead on the subject and it is now possible to learn from their experience.

New models are being put to the test 

Let us briefly go over the two major reference models. The first one, “social business,” as defined by Pr. Muhammad Yunus (2010), is business whose “goal is to solve some of the social, economic, and environmental burdens that affect humanity: hunger, lack of housing, health, pollution, ignorance…” Organizations created for this purpose should in principle generate profits; however these profits, in Pr.Yunus’ strict definition, are to be invested back.

Now to the second reference model. The term “base of the pyramid” (sometimes referred to by its acronym BOP) comes from the findings of C. K. Prahalad and S. Hart. It is used to refer to low-income populations; it is also used to describe the economic models devised to give these people access to a number of products and services. The aim is to reconcile the fight against poverty with the profit motive: here, the societal goal converges with the economic objective.

Academic literature, to date, only has unsatisfactory answers to provide to the questions posed in this paper. In the field of Strategy and Corporate Social Responsibility (CSR), for example, a vast plethora of studies focuses on the why: why should companies adopt a more socially responsible behavior? Is it a mandatory quid pro quo for greater competitiveness?

Few are the studies, however, which focus on the how – that is to say, how the implementation procedures of CSR are actually being carried out. In addition, such finer studies cast new light on the very strategic innovations and overhauls that are giving companies newfound capability to meet the intense societal and environmental challenges faced by our economy.

The authors who have studied the societal models of access to goods and services that either fall in the social business category or in the “base of the pyramid” one have shown a keen interest in their implementation modalities, yet without hesitating to point their limits. However, very few studies have focused on the very stakes these approaches constitute for businesses, or on their transformational potential.

It turns out there is one simple reason for that: so far, very few large companies have really taken the subject seriously. And it is in this context that the Danone case stands out. Over a period of more than a decade (starting in the early 2000s), the company has been launching social business and base of the pyramid projects with the explicit intention of making them a lever of strategic renewal.

It is therefore possible to study this case not in terms of principles and values (i.e. “is Danone true to the values it fosters?”), but from a much more operational angle, relying on the analytical frameworks of strategy specialists (“Have Danone’s choices paved the way for its strategic renewal?”).

The approach developed by Crossan and Bedrow, two strategy researchers, provides an effective analysis framework to understand and evaluate the choices of the agri-food multinational company. Christened “the 4 I’s” (standing for Intuition, Interpretation, Integration, and Institutionalization), this approach makes it possible to analyze the organizational learning process behind the strategic renewal of a company.

Specifically, the goal is to carry out an analysis of the process, to understand how the insights of leaders and of “champions” at Danone (intuition process) have led to social projects (through processes of interpretation and integration), and were able to have more widespread impact on the company (institutionalization process).But this learning process is not limited to a “top down” dissemination of the leaders’ intuitions.

It is also about growing an interest in the skills developed by field managers and employees of Social Business or BOP initiatives, while wondering whether these skills are actually spreading through the organization and if so, along which modalities. Lastly, a basic question has to come to mind: do the skills thusly developed have a strategic character?

At Danone, the answer is yes. Social Business or BOP projects have played a significant role in the process of strategic renewal undertaken by the firm in the early 2000s. Far from being a simple matter of communication, these projects are levers for organizational transformation; provided a few conditions are met that we shall emphasize in this paper.

Manager intuition & field experience

The insights of a few leaders and “champions” constitute the starting point. In the late 1990s, the company, which was then considered a model in termes of CSR, was faced with a challenge that took the leaders by surprise. They perceived there were social and strategic limits to the European “social” company model, which merely set out to treat its employees well. If a company wanted to continue to stand out from the crowd in this field, it had to go beyond its routines and reinvent its practices. The gradual opening of trade borders and access to foreign markets simultaneously led executives to consider major overhauls in the marketing of their products. They saw the need to broaden their target and to no longer confine themselves to the more affluent classes with premium and expensive products.

It is in this context that a few BOP initiatives were attempted at first, which turned out not to be convincing. At that point Danone’s management understood they probably must go beyond the simple adaptation of their products; and social business, which primarily targets the poorest classes, seemed likely to yield disruptive innovations in this direction, even if this meant they had to climb their way upwards inside the pyramid at a later point. Indeed, it induced very strong constraints (very low cost and ambitious poverty reduction goals) and the co-creation that it promoted with new stakeholders (NGOs, local communities) encouraged thinking outside the box.

These intuitions then became the subject of an interpretation endeavor. They were discussed in the steering committee and more widely within the firm, as well as with external stakeholders and experts such as Muhammad Yunus.This maturation stage was to be followed by an integration phase, with the launch of experiences as Grameen Danone in Bangladesh or Lemateki in Senegal.

Grameen Danone Food Limited (GFDL) is a joint venture between Danone and the Grameen Group and is based on the model of social business. GFDL ‘s first product was the shokti doi, a recipe developed to satisfy the taste and nutritional needs of children (one yogurt covers 30 % of their daily requirement of vitamin A, iron, zinc and iodine). The product was first distributed in rural areas, by the so-called shokti ladies, street vendors who received a fixed commission on each sale.

Lemateki is a social business whose goal is to improve the nutrition of Senegalese schoolchildren. It is primarily concerned with improving health and education, and therefore, with advancing equal opportunities for children living in suburban areas. The aim is also to encourage education regarding nutrition and hygiene in schools, in partnership with the Ministry of Education.

Both these projects were closely scrutinized, leading to new intuitions and interpretations following an iterative process. Leaders and champions notably realized that fresh dairy products – which are Danone’s core business – are not the most suitable products to target people with very low income, all the more in tropical countries.Both the Bangladeshi and Senegalese projects then inspired many other business units in emerging countries, such as Indonesia and India, but also in developed countries (Poland and France), thanks to dynamics of reverse innovation.

The institutionalization of these intuitions was also conducted by:

(1) Developing a strategy to now reach 1 billion consumers and thus to make products more accessible;

(2) Implementing a specific organization, promoting the decentralization of innovation in emerging countries through incubators that brought together local stakeholders and people from headquarters who were sufficiently open-minded to violate in-house standards. At the same time the involvement of leaders in the governance of social projects was institutionalized through the establishment of bodies such as the “Social Innovation Committee”: composed of several of the firm’s leaders, it was the body that made the decision to launch various social projects;

(3) The definition of processes, especially in the field of Human Resources, assessment procedures and knowledge management. Of particular note was an initiative called “For All Track”: it gave Danone managers the opportunity to spend two weeks, or one month, or six months, etc., in the field, for social business projects. Incentive systems were also of critical importance: for example, executive bonuses got to be calculated on the basis of one third (1/3 economic, 1/3 third managerial, 1/3 societal).

In terms of knowledge management, several leverage mechanisms were implemented. “Social innovation labs”, once a year, reunited the people involved in social business projects and the base of the pyramid, along with other stakeholders in the industry and NGO representatives. These reunions enabled the exchange of practices. Strategic thinking seminars were facilitated within subsidiary executive committees by a team from the headquarters. Lastly, a true social network, both internal and external, was built around danone.communities: 30% of French employees invested in shares of the danone.communities mutual fund, and thus the Annual General Meeting of danone.communities, which takes place the same day as the General Meeting of shareholders, regularly reunites over 1000 people.

Intertwined with this top-down dissemination of insights formulated at the highest level is a bottom-up approach, coming from the field and led in the mindset of an experiment: it consists in the emergence of new individual skills which proceed to become collective and eventually organizational. This is a pivotal point: the strategic vision and the top-down process explained above are a necessary but not sufficient condition for the transformation of the company, especially in a relatively decentralized company like Danone. It is in the field that profound changes in the representations, behaviors and practices are taking place and being experimented with.At individual level, the development of truly new skills can be observed in terms both of know-how and soft skills, especially among employees directly involved with the projects. At first, this translates into a true unlearning phase.

New know-how and new soft skills 

The models developed by Danone, such as Grameen Danone in Bangladesh or Lemateki in Senegal, are veritable disruptive innovation labs that radically challenge the entire value chain.

At R & D level, radically new products were developed or industrialized, such as yogurt enriched with nutrients in Bangladesh, or the “pouch,” a kind of carton composed of local grain and a little milk, whose rare feat is that it can be stored at room temperature, in Senegal, thanks to the invention of an innovative and frugal method, which is extremely energy-efficient.

The supply chain also underwent a small revolution with the implementation of a local resource supply (in milk and cereal) and with the local distribution of products, notably through a network of rickshaws and the “shokti ladies” who sell products door-to-door.

At the industrial level, an equally revolutionary concept – the micro-factory, or even, the container factory – was introduced. It was associated with a model of efficient capital development. The use of renewable energies such as “bio-digesters” was also sought after.

Finally, innovative financing was implemented, such as solidarity-based employee savings and the danone.communities mutual fund, or new investing guarantee schemes created for the occasion by the French Development Agency which consisted in covering 50% of any impairment losses incurred by Social Business projects.These new skills, which concern both the firm’s organization as a whole and its individuals, were coupled with new soft skills based on equally new representations.

The stakeholders thus began by unlearning, by questioning their ways of thinking and acting. Coming from a behavior focused on products, in search of ever greater sophistication and somehow disconnected with reality and with consumers, they learned to observe, listen, and once more immerse themselves into actualities. They inverted the approach and gave it a fresh start – this time deriving from the needs, expectations, habits and constraints of individuals so as to design often simpler and better tailored offers.

They thus understood that they knew very little about the world of low-income consumers, and that it is also was important to co-create with them and with stakeholders close to them (NGOs, associations). At the origin of Social Business initiatives, the partnership with Grameen Bank was decisive: it is the one that put Danone employees in touch with poor consumers in Bangladesh and has been a major driver of disruptive innovation. Professor Yunus, founder of Grameen, was actually the one to suggest a relocated model to the leaders of Danone, based on small production units, with a double objective – to fight malnutrition, and to create jobs.

People at Danone went from simply carrying out orders to discovering they also could become entrepreneurs (or “intrapreneurs”), capable of acting creatively despite limited resources – in a much more frugal mode but with energy increased tenfold… because, in their new action, they found meaning that was hitherto missing.Lastly, a different relationship with time itself emerged as well: the rediscovery of lenghty time. For the law of “always faster” no longer works in such contexts. The hyper efficiency attitude gave way to a more patient and modest behavior.

Beyond the projects, a company that reinvents itself

These new individual skills could have been limited to a few of the projects’ personnel – those directly involved in the field – and at the end of the day, could have had but a minute impact on the organization as a whole. However, by observing the company for over a decade, one realizes these skills gradually transformed into collective skills (at group level) and organizational ones (at firm structure level).

Especially worthy of note was the renewed capacity of the company as a whole to focus on consumer needs, in a quest for accessibility and simplicity, rather than perpetually seeking to increase the sophistication of products. But also, a new skill in terms of supply and distribution, and in particular conerning last-mile delivery. Also notable were, first, the enabling of co-creation with external stakeholders, such as Grameen or the NGO Care, and secondly, the ability to develop disruptive business models, with low capital intensity.

In turn, emerging from these collective capabilities, two organizational skills appeared: the capacity to design disruptive products, henceforth able to reach all of the pyramid, and not just its wealthier classes; and the ability to handle a certain ambiguity between the societal and the strategic approach – and to turn this very ambiguity into a lever for competitiveness.

The transition from individual to collective and then organizational skills stems from a bottom-up process of sharing best practices, a pollination of sorts. Such pollination involves an element of spontaneity: employees have many natural opportunities to share their experience; and from this, they gradually get to form a social network.

In parallel, this pollination is also organized as a factor of the multiplication of experiments and other measures of Knowledge Management type, and then refers to more top-down processes described earlier in the institutionalization process. It also greatly depends on the strategic intent of the leaders.

Keys to success

A number of key factors can henceforth be identified to understand the success of this strategic renewal.

Firstly, a strong consensus, within the executive team, around strategic renewal and around what is at stake behind societal projects. Secondly, swiftly putting experiments into practice so as to materialize the initial intuitions; and then, the implementation of levers towards the institutionalization of such practices. Worthy of notice is a relatively decentralized organization, which promotes field innovation, data reporting and the dissemination of innovations. Among these levers, a human resources policy that actively contributes to strategic renewal by all the means at its disposal: through recruitment, career management, calculation of bonuses and training. This policy also includes the recognition of skills acquired in-house through social business and BOP projects, as well as processes to formalize and disseminate training.

Another key factor of success, which is pivotal for strategic renewal, is none other than the acceptance and acknowledgement of a long training time. This is a major challenge for a publicly traded multinational company, a priori subject to the law of short term and to the vagaries of markets, but all the more necessary given that these social business and BOP initiatives are precisely inducing true paradigm shifts and disruptions.

Danone’s experience allows to measure the underlying transformative potential of societal projects of access to goods and services, of a confrontation with the reality of poverty and of the implementation of initiatives for and with people with low income.

The direct economic impact of the first projects undertaken by the Danone group, such as the social businesses in Bangladesh and Senegal is still limited, both in terms of social impact and of the profitability for the subsidiaries concerned: the learning time required to achieve breakeven results is longer than expected. The challenge, however, is broader. What is at stake is the very role of that transformational lever: to reconnect with the actual needs of low-income populations, and, with them, to devise a novel approach of co-creation, and more frugal and entrepreneurial action modes. All in all, to bring about a reality check.

The Danone case shows a number of disruptions in the representations and behavior of its stakeholders. In particular, among the committed individuals that work in the field of SB and BOP projects, a new relationship emerges at once towards economic activity, the fellow man or woman, oneself, and even time. And these developments can spread throughout a whole firm’s organization by a number of processes, be they bottom-up, top-down, or of a pollination type… provided that company leaders know how to stay the course, keeping their sights on strategic renewal, beyond the ebbs and flows of conjuncture and market pressures.

Note: Danone, along with Schneider Electric, Renault, and Direction Générale de la Cohésion Sociale, is a sponsor of the Social Business/Enterprise & Poverty Chair, which is co-chaired by M. Yunus and M. Hirsch.   ***** This article was initially published in Paris Innovation Review
See structure

Part 6

Growth in renewables: not all down to policy

Energy

Governments have developed a wide range of initiatives and policies to support renewable energy generation as a key element of a low carbon future. At first glance, they seem to have worked, as renewable technologies have enjoyed significant growth. But new statistical analyses by Syed Basher, Andrea Masini and Sam Aflaki suggest more complex dynamics: policy is not the only driver for the increase in renewable energy technology development and application.

Growth in renewables: not all down to policy - ©Fotolia - @nt

Governments and policy-makers all know that renewable energy helps to reduce overall carbon emissions and helps countries meet stiff targets in emissions reduction. Over the past decade, they have developed a variety of regulatory instruments and policy initiatives to promote and accelerate renewable technology development and application. “Feed-in-tariffs are a good example,” Andrea Masini explains. “Individual homeowners install solar panels on their roof and the excess electricity generated is fed into the grid.

The homeowner gets paid a premium price for it, subsidized by the government.” But as the case of feed-in tariffs demonstrates, many policy interventions have been costly. “Countries such as Spain have encountered financial problems as a result of policies that left them paying too much for renewable energy,” Masini adds. “Rather than blindly throwing money at the emissions problem, policy effectiveness needs to be evaluated.” 

Which policies work best? 

Masini and co-workers examined previous statistical studies and noticed that they did not take the intrinsic statistical properties of the data into account. “If the increase in diffusion of renewables over the last 20 years is endogenous, then diffusion will continue, although probably at a different rate, regardless of whether a policy is implemented,” he explains.

With this realization, Masini was concerned that if renewable energy technologies have a natural diffusion, simple statistical analysis will overestimate the impact of policy. He says it is like looking at the amount of food children eat and concluding that because they eat they grow, although children would naturally grow anyway at least to a certain extent. “With renewable energy technologies, how much of the market growth is natural and how much is a result of policy?” Masini asks. 

 

People thought that by increasing the investment you would see an equivalent increase in technology penetration.

 

The search for natural evolution

Working in collaboration with Syed Basher and Sam Aflaki, Masini applied rigorous statistical tests on data from 19 developed countries between 1990 and 2012. The team analyzed how much renewable energy technologies contributed to electricity production in each country. Test results uncovered an interesting trend: a background increase in renewable technologies over time. “We found that the time series has a unit root.

For each country analyzed, the electricity generated from renewable sources naturally evolves and increases. It did not display what we call stationary mean-reverting behavior,” Masini explains. “We live in an age where increased awareness and concerns over global warming have led the population to naturally want more renewables and cleaner technologies – irrespective of policies and support given by government for those technologies.”

Masini illustrates this finding using the example of feed-in tariffs. “If for every dollar that goes towards a feed-in tariff you see a 1% increase in photovoltaic penetration,” he explains, “people thought that by increasing the investment you would see an equivalent increase in technology penetration. In fact, that 1% increase does not come entirely from the feed-in tariff dollar, perhaps half comes from the incentivization scheme, but the other half comes from natural renewable diffusion.

"Although the right policies accelerate the process, part of this penetration would have happened anyway as a result of other drivers, such as the desire of an increasing part of the population to adopt products and services of greater environmental quality. ”

Limitations

The level of economic development in the countries studied should not be ignored, Masini warns. In the 19 countries scrutinized, where people’s basic needs – food, water, health and education – are fulfilled, people are inclined to demand better environmental services. “It would be interesting to repeat our analysis for countries with less advanced economies, where priorities are directed at economic growth and not environmental performance,” Masini notes.

“Our analysis also pooled all the renewable energies into one pot. A more refined analysis, looking at each renewable technology on its own, might reveal which technologies are most sensitive to policy intervention.”

Underlying renewable technology diffusion and the impact of policy

The presence of an underlying trend in renewables uptake implies that the impact of renewable energy policies is overestimated by common simple statistical analysis. The ramifications are serious.

“Be careful,” Masini warns policy analysts. “Because simple statistical analysis cannot be used to analyze the impact of policy on the diffusion of renewable. Technologies would diffuse even if the policies were not implemented, perhaps at a lower rate, but they would still diffuse. Policies are important and helpful, but they are clearly not the only way to support these technologies”.

Applications

Focus - Application pour les marques
“Policy makers need to wake up,” stresses Masini. “They need a coherent and more robust approach to assessing the diffusion of renewables and the impact of their initiatives.” He also suggests that the renewables market is more finely tuned than previously thought. The underlying natural growth in renewables means that any shock to the system that leads to a decline in renewables could have long-lasting, even permanent effects – it would be difficult to make up for lost time and develop policies to increase diffusion beyond the natural increase, he warns. In light of these findings Masini argues that policy should focus not on subsidizing renewables but on stimulating economic growth. “When the economy grows, people start to want better environmental services and cleaner technologies,” he says. “So economic growth will provide companies an incentive to offer more of these technologies, invest in research and development, and deploy environmental innovations.”

Methodology

methodology
Using the IEA’s World Energy Balance dataset, Basher, Masini and Aflaki examined the contribution of renewable energy sources to energy production in 19 OECD countries (EU-15, plus Australia, Canada, Japan and the US) from 1990 to 2012. They performed individual and panel unit root tests to investigate the time series properties of the contribution of renewable energy to the energy mix. This statistical approach revealed an intrinsic property of the data generating process underlying the renewable energy technology diffusion, which was neglected in previous studies.
Based on an interview with Andrea Masini on his paper “Time series properties of the renewable energy diffusion process: Implications for energy policy design and assessment”, co-authored with Syed Basher and Sam Aflaki (Renewable and Sustainable Energy Reviews, 2015).
Andrea Masini Associate Dean HEC MBA
Andrea Masini
Associate Professor
Sam Aflaki
Associate Professor

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