Corporate Social Responsibility As A Source Of Competitive Advantage:

Corporate social responsibility (CSR) has been an important issue in business management since decades. The study proposes a research model from a strategic management perspective. On the foundation of social identity theory and resource-based perspective in developing this argument, the article theorizes CSR as a resource-generating activity by creating support networks, relationships and management

Introduction

The effectiveness and productivity of an organization had always been of great concern to all business organizations and managers. Many variables in organizational structure and system had been identified to evaluate the efficiency and effectiveness of management systems in organizations. These variables encompass a wider aspect of organizational life, such as tangible infrastructure, budgets and investments, and employee work attitudes. Companies are exploring new areas where they can develop infrastructure and better institutional climate for their employees to sustain their profits in strong competition.

Corporate social responsibility (CSR) has been touted as an effective management tool to strengthen the organizations’ performance through a better image in stakeholder’s mind and also because of their responsible behavior toward society and environment. Although CSR has been more prevalent in those organizations that are more exposed to environment and are more prone toward creating contamination, the interest in using CSR as a strategy is increasing in every type of business. Since the 1980s, there has been a series of reforms taking shape in the business, resulting from the increased awareness on the importance of quality management and business role toward society.

CSR as an area of practice is moving toward responsible competition, and the movement of CSR has been through many transitions in its concept and application because of the environmental activism and government regulations, whereas the legal requirements by government are becoming more and more stringent for compliance.

In Asia Pacific, most of the companies are focusing on their markets in order to build efficient outcomes. In Pakistan, it is in the recent times that CSR is coming into the mainstream of business applications and in academia. Although corporate philanthropy is yet in initial stages (largely confined to legal compliance), some companies have now started to use their CSR related activities for their corporate branding as well.

In today’s highly competitive global business market, the Business in Pakistan is facing acute problems in almost every industry in terms of acquisition of resources and also profitability. This is also destabilizing the economic situation of the country. The present study focuses on an industry and society relationship from a CSR perspective.

CSR and Reputational capital

CSR is like an insurance policy against negative events of a firm, and proactive social activities achieve and maintain good reputations. The studies in CSR and reputation relationship have been related to many stakeholders such as bankers and investors, corporate financial performance, a company’s reputation and sense of loyalty among customers and employees. Some researchers has concluded that there exists a link between CSR and reputation based on the notion of value priorities. The individual’s perception about CSR activities is very important to build reputation generated by such activities for an organization.

Reputations are outcomes of a competitive process in which firms signal their key characteristics to stakeholders to maximize their socioeconomic and moral status. Reputation is additional to the market value of a firm and that can be attributed for an organization to be a responsible citizen. It is generally believed that corporations’ social responsibility activities can be used for image enhancement of an organization, which can build more legitimacy in the eyes of its stakeholders. Corporations’ social responsibility toward environmental management, economic growth and philanthropy are categorized as external CSR activities, and help in building reputations and goodwill of organizations.

CSR and perceived organizational performance

Perceived organizational performance has been studied from a social responsibility perspective. Although much literature exists for the relationship between CSR and a firm’s FP, evidence is also found for the relationship between CSR and perceived financial performance of company.

CSR activities build reputation in the eyes of stakeholders, which in turn builds perceptions of organizational performance. From a reputation-building perspective, perceived organizational performance complements good reputations that are established among stakeholders and corporate social performance.

Social investments are generally made to build organizational legitimacy and good reputations, which are actually perceived in the minds of stakeholders. In addition, certain responsible behaviours are formed to demonstrate the concern of an organization for its employees’ well-being (internal social responsibility). Therefore, it would be useful to study the impact of CSR on perceived organizational performance as well. The philosophy of CSR encourages organizations not only to study economic outcomes, but also the social and environmental consequences that an organization shows to its stakeholders.

CSR and Corporate Financial Performance

Much of the literature in social responsibility has focused on the link between firms’ social responsibility and FP, particularly profitability. This is maybe to bring into perspective a strong case for justifying CSR investment for the business. Researchers have found statistically strong correlation between a firm’s social performance and FP and a positive relationship between CSR investments and a firm’s profitability. Most of the research that links CSR to profitability has concluded that CSR investments reap better financial returns to organizations, both in marketing measures and in accounting measures.

Conclusion

A framework for a corporate social responsibility strategy was drafted as a consequence of the development of the main question, considering the basic elements of values, the understanding of the relationship with and importance of stakeholders, the analysis of internal resources and skills, opportunities in the external environment and industry structure. The competitive advantage that stems from social responsibility can be seen through the direct influence of its resources, creating an improvement in reputation and image, the retention of exceptional people, employee motivation, aggregate value, better economic performance provided by social responsibility aligned with corporate strategy, innovative and efficient projects, better environmental performance, better social performance and improvement in corporate governance. Such elements are intangible resources; they are rare, irreplaceable, inimitable and valuable.

CSR strategies resolve the existing tension between social objectives and profitability, as society and shareholders expect both and the results should be positive. Thus, it is important for companies to take into account the strategic actions of social responsibility, which can bring positive results in both economic as well as social terms, thereby resolving the issue of the social objective of the organisation.