Business in Society - the Business for Starbucks CSR Activities - Case Study Example

Business in society: The business case for Starbuck’s CSR activities Executive summary The main aim of this study was to understand how Corporate Social Responsibility (CSR) helps in making financial and social gains for an organization. It studied the business premises on which the CSR strategies of Starbuck, a prominent coffee retail in the US, are based on. It further analyzed whether these strategies helped in gaining wider acceptance for Starbuck, increasing its financial performance and creating a brand value for the company. However, to analyze the business case of its CSR strategy, a through understanding of what consists of a business case for CSR was undertaken. This also included defining the boundaries of CSR. Once the premises for conducing a business case for a CSR initiative was established the case study of Starbuck was selected. The company was selected due to its clear-cut brand appeal and its ability to positions itself as a socially responsible organization, while establishing its business by sharing its CSR experiences with its consumers. Table of content Executive Summary…………………………………………………………Page 1 Table of Content……………………………………………………………..Page 2 Understanding business case for CSR……………………………………….Page 3-4 Defining CSR boundaries…………………………………………………....Page 4-5 Starbucks: A case study……………………………………………………...Page 5-8 Conclusions & Recommendations…………………………………………...Page 9 References…………………………………………………………………....Page 10 Understanding business case for CSR A company needs to do CSR on the fundamental basis that business and society goes hand-in-hand. While organizations form an integral part of the communities they operate in, for the business to succeed it is important for the society to be progressive as well. Therefore, a comprehensive CSR strategy that is based on ethics, values and long-term goals can offer various business benefits. Such a CSR strategy would ensure that the corporate goals are aligned with those of the communities they operate in. Further, it would help the company to maintain its reputation, secure its license for continual operation and reduce the company’s exposure to risks and liabilities (McWilliams 2000). For a CSR strategy to succeed, the company needs to formulate a business case that has long-term objectives and clearly define the amount of returns the company is expecting from its social spend. Such return-over-investment (ROI) is just not linked financially, but companies through an effective CSR campaign can create a strong reputation in the market. This in turn would help the company to ask for higher prices for its products and stocks, attract better talents, build long-term relations with suppliers and reduce crises (Burke 1996). Further, communities play an important role for deciding the company’s ability to function within a society. Therefore, in order to save its license to operate in a certain community, the company needs to build strong community commitments in its strategy. It should focus on building flourishing societies and a strong social fabric which would in turn help the company in creating a sustainable market for its products and services (Freeman 1991). Due to globalization, business dynamics have changed considerably in the last decade. Now, companies have to also focus on working for international communities in which they operate in and strategies their CSR policies as per their requirements. This would not only help the company being accepted by international communities easily but would also build strong value chain relations. Defining CSR boundaries However, it is often not easy to define to what extent a company should perform its corporate social responsibility. To define what the business should focus or be responsible for and to whom the benefits should reach is not an easy task. The companies need to create a right balance between doing as much as it is required by the law and creating an impact in the society by going beyond its capacity. Experts believe that supply chain forms an integral part of defining CSR boundaries. It has been seen that supply chains of even popular companies are attacked by the media and consumers alike in the recent times, due to lack of management, quality or human rights issues. Therefore, the companies need to definitely integrate supply chain in their CSR strategy and should assess their relations with the suppliers in a different light (Stigson 2003). Another key area of focus is to understand that the governments alone cannot address issues such as human rights, poverty and social conflicts (Brown 1997). Therefore, companies have a major challenge to overcome, especially in developing economies, that is of creating a congenial environment for their business to flourish. Thus, they can create CSR initiatives that help in developing ethical code of conduct, strong market and human resource improvement in such societies. This would also help the companies to sustain their businesses in the long term. In the next section, this paper would study the business case of Starbucks and analyze the CSR strategies adopted by the company. Starbucks: A case study The important question one need to address is how to customize CSR strategies according to the business need of a company. How a company should create a CSR initiative that would not only establish its reputation in the market but would also make it more competitive. Thus, companies need to create CSR initiatives that would provide them with long-term returns (Herremans 1993). For this study, I have selected Starbucks due to the unambiguous appeal of the brand name and the detailed information available on the company’s CSR agendas. Starbucks positions itself as an organization that stresses on being socially responsible that creates such an environment where people can interact and exchange social ideas on one hand, while establishing its business by sharing its CSR experiences with its consumers. According to Gobe (2002), the company’s work in creating a socially responsible image for itself is drafted as per the company’s image and brand name. For instance, in 1997, the Starbucks Foundation was established to provide literary to the underprivileged. Interestingly, this foundation received its initial donation from the founder and CEO of the company, Howard Shultz, who made a contribution of US$ 500,000. Further, Starbucks also accepted the fact that production of coffee through traditional means translated to exploitation of workers. Therefore, Starbucks attempts to counteract this by buying coffee beans through Fair Trade or using organic beans. However, it is interesting to understand that such a step taken by Starbucks was due to intense public and media scrutiny. In April 2000, Global Exchange, a big non-profit organization and a key influencer in anti-globalization movement, issued threats that it would boycott the company’s stores and other operations not only in Seattle but also across the US, citing exploitation of coffee growers by the company (Linton, 2004). Due to the tremendous media attention and the public outcry that the event generated, Starbucks was forced to incorporate some of the demands made by Global Exchange, which included signing an agreement with TransFair USA. The other demand that was met by Starbuck was selling of coffee that was Fair-Trade Certified in all the nationwide branches. Although, this step was taken due to external pressure, over the years, it has become an integral part of the company’s CSR thread. Presently, Starbucks is leveraging on its strong association with TransFair USA, to become the world’s largest fair-trade certified coffee seller. Further, this also created a very positive impact on Latin American coffee growers. The company generally procures its coffee certified with fair-trade from these traders. Fair trade movement endeavors to develop environmental as well as social conditions in which commodities play an important part in the production. The objective is developing the status of coffee producers earning low wages by helping them generate extra money from their coffee products as well as by solving their social problems like housing, education and health. Starbucks achieved this by creating distinct brands for alternative-trade products at their retail outlets. The company also created unique advertising campaigns to promote such products and thereby involved their consumers in the effort as well. Thus, it was a two-pronged approach taken by Starbucks that is of improving the lives of the coffee growers by buying products from them through fair trade movement, as well as creating brand value and consumer loyalty by promoting such products at a larger scale. The basic premise of alternative trade is insisting on creating a relationship based on interests of both the parties. In such a trade scheme, the importer is allowed to participate only if it engages in longer and closer relationships between the sellers and buyers. Further, they have to make sure that a greater share of their profits should reach the farmer. The importer needs to procure the coffee products directly from small coffee producing groups. However, these groups need to be in the list of the production registry. Additionally, the importer is bound to pay at least the minimum cost to the coffee producer, irrespective of the trend prevailing in the market. This helps in creating a social security net for these growers. With the participation of Starbucks, the Fair Trade movement gained greater momentum. As the US coffee drinkers contribute to around the world’s one fifth of coffee supply (Global Exchange 2006), the company leveraged on this advantage by tapping into the flourishing US coffee market. In fact in the fiscal year 2005, the company increased its purchase of coffee certified with fair trade significantly. It purchased around 11.5 million pounds of such coffee, which represented almost 3.7 per cent of its total coffee imports. This was around 10 per cent of the import of global fair trade certified coffee (Starbucks website, 2006). This CSR initiative gave not just strategic benefits to the company but also helped it garner better financial results in the 2006 fiscal year. As per the financial highlights of the 2006 fiscal year results, the company opened 2,199 stores in different parts of the world, a record in itself. Further, it generated net revenues of US$ 7.8 billion and net earnings of US$ 564 million. The consolidated net revenue increased by 22 per cent and net earnings increased from US$ 494 million in 2005 (Starbucks.com 2006). Further, Starbucks was selected for this study also due to its strong integration of CSR activities with employee development. As employees are the backbone of a company, Starbucks inculcate CSR strategies right into the employee manual. The company’s business conduct is best explained in its internal handbook given to new employees. This manual clearly states that the company’s reputation is based on its persistent resolution to uphold its central values and ethics. To uphold these principles, it is required to comply with the moral behavior and laws laid by the society and government, respectively (Starbucks website, 2006). The success of the CSR strategies employed by Starbucks is due to its ability to recognize that the company is an integral and dynamic part of the community that they operate in. Further, it believes in creating strong ethical and value-based standards even in its day-to-day operations. Therefore, this recognition about the dependability on the society and community for development has helped Starbucks in gaining not just financially, but also in creating a strong brand name for itself. Conclusions & Recommendations Corporate social responsibility is about analyzing the impact of a company’s activities on the society, the community and the environment (Herremans, 1993:601). Though, various researches have been carried out in this area, it is still difficult to find a definitive conclusion about the relationship between a company’s CSR strategy and its performance. Nonetheless, empirical data suggests that there is a correlation between CSR strategies and financial performance of a company. Further, a company can also leverage its CSR strategies to create a strong brand name and customer loyalty for itself. CSR is both challenging as well as provides ample opportunity to succeed, therefore, most corporates are making CSR a fundamental part of their business plan. Through, the Starbuck’s case study, this report has established that a comprehensive CSR strategy that is based on ethics and strong values can offer unambiguous business benefits. Such strategies helped Starbuck to accrue from the implementation of society-based programmes, which not just helped the company in monitoring the changes in social expectations but also helped to control risks as well as identify various market opportunities. This further aided Starbuck to align its corporate goals with its social values, and further improved its reputation and brand value. References: Brown, Tom J., Peter A. Dacin, 1997, January. The Company and the Product: Corporate Associations And Consumer Product Responses. Journal of Marketing, Vol. 61, No. 1, pp. 68-84. Burke, Lee, Jeanne M. Logsdon, 1996. How Corporate Social Responsibility Pays Off. Great Britain: Pergamon. Long Range Planning, Vol. 29, No. 4, pp. 495-502. Cooper, Stuart, 2004. Corporate Social Performance: A Stakeholder Approach. Ashgate: Burlington. Gobe, Marc, 2002. Citizen Brands. Allworth Press: New York, pp.71 Herremans, Irene M., Parporn Akathaporn and Morris McInnes, 1993. An Investigation of Corporate Social Responsibility Reputation and Economic Performance. Accounting Organizations and Society, Vol. 18, No. 7/8, 1993, pp. 687-605. Linton, April, Cindy Chiayuan Liou and Kelly Ann Shaw, 2004, December. A Taste of Trade Justice: Marketing Global Social Responsibility via Fair Trade Coffee. Globalizations, Vol. 1, No. 2, pp. 223-246. McWilliams, Abagail, Donald Siegel, 2000, May. Corporate Social Responsibility and Financial Performance: Correlation or Misspecification? Strategic Management Journal, Vol. 21, No. 5, pp. 603-609. Starbucks’ website. www.starbucks.com. 2006. Corporate Social Responsibility Report 2006. www.starbucks.com/aboutus/csr.asp Stigson, Björn, 2003. The business case for CSR. The World Business Council for Sustainable Development. Viewed February 4, 2010 . Freeman, R. Edward, Jeanne Liedtka, 1991, July-August. Corporate Social Responsibility: A Critical Approach. Business Horizons. pp. 92-98. Read More