Sustainability, Social Responsibility and Value Co ... - Science Direct

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ScienceDirect Procedia - Social and Behavioral Sciences 189 (2015) 314 – 319

XVIII Annual International Conference of the Society of Operations Management (SOM-14)

Sustainability, social responsibility and value co-creation: A case study based approach. Bijoylaxmi Sarmah,a,* Jamid Ul Islamb, Zillur Rahmanc a,b c

Research scholar, Department of Management Studies, IIT Roorkee, Uttarakhand (India). Associate Professor, Department of Management Studies, IIT Roorkee, Uttarakhand (India).

Abstract Any kind of value, whether it is functional, hedonic, and symbolic or cost value has to be co-created by working together with the stakeholders while meeting expectations that companies promise. With this goal in mind, MNCs are engaged in value creation with the community through supporting corporate social responsibility and sustainability programs. These programs ensure maximum stakeholder participation in value creation process, especially in the selection, design and delivery of such programs. These engagements always foster stakeholder action and instill a sense of pride and confidence in them. Furthermore, these programs help the stakeholders to gain trust and confidence by maintaining transparency. In this study, the researchers are trying to focus on an Indian reputed MNC ITC and its quest for building platform for co-creation of value by engaging in corporate social responsibility and sustainability initiatives. To meet these research objectives, case study methodology has been applied to analyze the process and impact of CSR and sustainability initiatives of ITC’s e-choupal. Information from published case studies in reputed journals and company sources has been used for further investigation into the area. Thus, this is an attempt to highlight present and future avenues of value co-creation through CSR and sustainability initiatives and to analyze its impact on the lives of community stakeholders. © 2015 2015The TheAuthors. Authors.Published Published Elsevier © by by Elsevier Ltd.Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the scientific committee of XVIII Annual International Conference of the Society of Peer-review under responsibility of the scientific committee of XVIII Annual International Conference of the Society of OperationsManagement Management (SOM-14). Operations (SOM-14). Keywords: E-Choupal; Sustainability; Social Responsibility; Value Co-Creation.

1. Introduction The World Business Council for Sustainable Development (2000) defines CSR as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the *

Corresponding Author, Tel.: +91-943-560-2884 E-mail address: [email protected]

1877-0428 © 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the scientific committee of XVIII Annual International Conference of the Society of Operations Management (SOM-14). doi:10.1016/j.sbspro.2015.03.227

Bijoylaxmi Sarmah et al. / Procedia - Social and Behavioral Sciences 189 (2015) 314 – 319

workforce and their families as well as of the local community and society at large”. A focus of CSR is also developing relationship between business, society and its key stakeholders such as employees, customers, investors, suppliers, communities, and special interest groups (Hick, 2000). For successful implementation of CSR initiatives in society, stakeholders can play a vital role in maintaining norms and ethical codes of conduct through engagement with the companies towards protecting the environment, human rights and resources of local communities (Reich, 1998). Companies have initiated CSR programs to meet diverse stakeholder expectations. But they are facing problems due to their ignorance of expectations and needs of the community/society. Hence, Companies are trying to go beyond their CSR activities by proactively working with community to achieve corporate sustainability goals. Corporate sustainability management has been defined by Salzmann et al. (2005) as “a strategic and profit-driven corporate response to environmental and social issues which are caused through the organization’s primary and secondary activities’’ in response to society's changing expectations (Pinkston and Carroll, 1996). A company’s CSR initiatives improve its visibility but simultaneously can create a negative perception as ‘prospering at the expense of the community’ among the social stakeholders. Hence, companies are at loggerheads and puzzled about their future strategic course of actions. A solution lies in aligning CSR/Sustainability programs in line with the need/expectations of stakeholders to get maximum benefits. That is why companies are devising action plans in consultation with internal and external stakeholders while exploring, creating and delivering value to society (Clarkson, 1995) that also can be co-created in interaction with other parties (Ramaswamy, 2008). Through this study, the researchers are trying to demonstrate the relationship between CSR, Corporate Sustainability and Value Co-Creation based on existing literature. The study also analyzes this relationship with the help of a published case to further establish that companies can also generate profit by including community members as partners in the CSR / Sustainability programs. 1.1 Literature Review Porter (1985) has introduced the concept of the ‘value chain’ to highlight the activities that products or services go through during their transformation process to reach the final consumer. Besides the monetary value, there is a growing interest of discussing other kinds of value that can be co-created with the members of the value chain. Value created in interaction with stakeholders is a result of sharing resources, knowledge, and technology leading to ultimate consumption. Prahalad and Ramaswamy (2004) propose that a unique value can be co-created by involving the end-user in the process of value creation that ultimately leads to co-creation of experience. Delivering superior value in business requires involvement and participation of a large number of parties, that makes coordination of business interactions more complex (Anderson et al., 2007) and leads to failures in coordinating actions in complex value chains, resulting in customer dissatisfaction. Therefore, it is important for the companies to select particular interested stakeholder groups to create a mutually profitable bonding. Companies are publishing CSR/Sustainability reports and achievements through corporate websites and annual reports to create a socially responsible image. However, Baumgartner and Ebner (2010) argue that the objectives of such publications and social programs are unclear and ambiguous. The problem lies in communicating sustainability orientation to internal stakeholders than to the external stakeholders due to the hassles involved in identification and understanding of stakeholders’ needs, interests and the value meaningful to them. To engage stakeholders as value chain members, companies identify and classify their stakeholders. Generally, the stakeholders are grouped as primary and secondary. Primary stakeholders include employees, customers, investors and suppliers having more influence on the company’s decisions and performance, while secondary stakeholders include media, trade associations, non-governmental organizations and other interest groups having less influence on a company’s performance (Koll et al., 2005). A balanced response to diverse stakeholder groups is required to satisfy key stakeholder groups and increase the organizational effectiveness. This is becoming a priority for companies with knowledge of the bottom-line of business (Greenley et al., 2004).

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Earlier, social responsibility programs were thought to promote sustainability. But later on, it was realized that CSR programs in itself are not enough to achieve the companies’ sustainability objectives. This has happened due to diverse issues in inclusivity of value chain partners and difficulties in identifying how sustainability value is distributed. Therefore, Stakeholder engagement is prerequisite for successful execution and implementation of any CSR program. ‘Stakeholder Engagement’ is required to involve stakeholders in a positive manner in organizational activities (Greenwood, 2007) by following the process of ‘establishing, developing and maintaining stakeholder relations, identification, consultation, communication, dialogue and exchange’(Burchell and Cook 2006; Greenwood 2007). Recently, stakeholder engagement has been defined as inclusion of activities undertaken to create opportunities for dialogue between an organization and one or more of its stakeholders, with the aim of providing an informed basis for the organization’s decisions (ISO 2010) where engagement is meant to be a mechanism to achieve a number of objectives including consent, control, co-operation, accountability and involvement as a method for enhancing trust. (Greenwood, 2007). 2. Research Methodology Case study methodology is used in the present study to obtain an answer of how stakeholders are creating value in co-creation (Yin, 1994).This research methodology is based on an embedded published case study. The case study entitled, ‘What works: ITC’s e-choupal and profitable rural transformation’(2003) has been published by University of Michigan, where the main focus of the study is community stakeholders’ involvement in the company’s value chain activities, that brought efficiency to the company’s performance and transformed lives of the farmers as suppliers to the company. Use of ICT (Information & Communication Technologies) has brought remarkable changes to both the company and community's lifestyle. 3. Discussion 3.1 Realignment of Corporate Social Responsibility (CSR), Corporate Sustainability (CS) and Value Co-Creation O’Riordan and Fairbrass (2008) had proposed a framework that identifies a series of four connected domain (Stakeholders, Context, Management Response and Event) that require consideration while devising CSR strategy and stakeholder dialogue practices. A firm’s CSR initiatives can lead to corporate sustainability with the help of engagement with the customers, employees, suppliers, community members and society at large. Stakeholder dialogue is an integral aspect CSR, corporate sustainability and value co-creation. Prahalad and Ramaswamy (2004) discussed at length about the importance of dialogue with customers in co-creating unique value for target customers and other stakeholders. These four domains of CSR are to be effective through dialogue between the firm and the target group in a particular environment (context).The outcome (Event) whether it is CSR or CS arrangement will be successful if there will be active engagement of the target group. This kind of engagement is made possible through face-to-face or interactive media. The result of this type of interaction help the target group to ‘co-create’ the value that is intended to receive by them. Hence, it is important to realign the CSR, CS programs with the concept of ‘cocreation’ to explore, create and deliver right kind of value to the right customers. 3.2

Indian Agriculture Sector: A Bird’s Eye View

The Indian agriculture sector contributes to 23% of GDP, although most of the Indian farmers have remained poor for many years. This discrepancy is due to the lack of information on various issues such as prices and market demands of agriculture inputs. However, traders take advantage of this situation and exploit both farmers and buyers through unfair practices in the market. This sector is also characterized by inefficient systems like fragmented farms, weak infrastructure and the involvement of numerous intermediaries. To provide a solution to these problems, ITC launched 'e-Choupal'. E-Choupal is a platform to reach to the poor village farmers trapped in a vicious cycle of factors like low risk taking ability, low investment, low productivity, weak market orientation, low value addition and low margin etc. The concern was very high for a market-led business model that can enhance the competitiveness leading to efficiencies and growth in rural incomes.


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3.3 ITC e-Choupal: At a Glance ITC is one of the India’s leading private companies and its International Business Division was created in 1990 as an agricultural trading company. ITC started its CSR initiative by launching a platform called ‘e-Choupal’ by placing computers with internet access in rural farming villages. This effort was made to enlighten the farmers by providing access to information along with re-engineering the procurement process for agricultural produce such as tobacco, soy, wheat, shrimp and other cropping systems in the villages of Indian states. This platform serves ITC to create a highly profitable distribution and product design channel for the company, catalyzing rural transformation. 3.4 Community involvement in e-Choupal initiatives ITC engages the local community people through their e-Choupal initiatives with the help of establishing IT network in Indian villages. Towards this, ITC selected and trained local farmers to manage and operate e-Choupals. A network of computers was set up in one of the farmer’s (Sanchalak) house that were linked to the Internet via phone lines or by a VSAT connection. This network can cover an average of 600 farmers in 10 surrounding villages. Establishing a single e-Choupal costs the company approximately US$3,000 to US$6,000 and maintenance cost of almost US$100 per year. But, the responsibility to manage village internet kiosks are on the farmers, who are known as ‘sanchalaks’. They help the farmers in collecting information and also act as facilitators. Through this platform, the farmers were made aware about ITC and its usefulness for their daily transaction purpose and also check commodity prices of local mandis as well as price trends worldwide. Moreover, it helped in finding information regarding various new and modern farming techniques and to order seed, fertilizer, and other daily required products from ITC or its partner organizations. Thus, it makes easier for them to get the products at comparatively lower prices than from retailers. 3.5 Benefits to farmer community In an ITC’s e-Choupal system, the farmers gain in various ways, such as accurate weighing of crops, faster processing time, prompt payment and easy access to a wide range of information regarding accurate market price and market trends. This helps the farmers decide when, where, and at what price to sell. Farmers selling directly to ITC through an e-Choupal typically receive a higher price for their crops than selling through the local mandi system. Thus, the system benefits in receiving inputs at cheaper price and higher yields of crops along with a sense of empowerment. The company buys directly from farmers and also transports it to a company owned processing center to get weighed electronically and for quality check. The farmers get their due payment for the crop and a transport fee. Thereby, bonus points are awarded to the farmers who come up with high quality crops that can be transacted with any ITC product. 3.6 Benefits to ITC ITC also benefits from lower net procurement costs that are saved by direct interactions with the farmers. The company is saving the commission fee that was paid earlier as transportation cost to the buying agents at the mandi. Besides, the company now exerts more control over the decisions of the farmers and the quality of agricultural inputs. The system helps the company to have direct access with the farmers and also enables them to get agriculture related information from planning to the supply of agricultural produce. ITC’s e-Choupal has covered approximately 1 million farmers of 11,000 villages of India till mid-2003. This system is expanding fast as a channel for distribution of company’s products. Thus, this system also acts as a source of innovation for new products by collecting required information from the customers. This also helps in reducing the logistics cost as the village Sanchalaks are helping in placing orders for the members of the villages for various products. Through this system, various additional services are provided to the farmers such as soil testing services, educational efforts to enhance quality of the agricultural output. As a part of CSR initiatives, it is also exploring avenues of partnership with banks to assist farmers with easy credit service, easy insurance facility, and similar other services to bring the quality life of the farmers.

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Moreover, farmers suggest about the supply of new products/services or expanding into additional crops. Thus, farmers are becoming partners in co-creating value for themselves and for the company, thereby proving to be an effective source of innovation. By integrating the farmers as members of the value chain, the farmers gain control over their choices and access to information that improves their productivity. ITC, through the system of transparency and empowerment to local community people is able to enhance mutual trust and fairness that ultimately makes the Indian agriculture sector efficient and competitive. Despite problems arising from infrastructure, the system has provided exposure to the farmer community to the external world, e.g., sanchalaks tracking future prices of commodities on the Chicago Board of Trade as well as local mandi prices and village children also use the computers for educational purposes. Hence, the e-Choupal model demonstrates how corporations can play a major role in recognizing and solving community problems through CSR initiatives by keeping community members as stakeholders for value co-creation. 4. Managerial Implications From this study, managers can learn how extensive knowledge of a particular area can be a stronghold of a corporation. With a commitment to transparency, mutual respect and fairness with stakeholders, managers can create wonders by building in sustainability into their businesses proactively. 5. Conclusions Keeping in view the three dimensions of Sustainability, ‘People, Planet and Profit’, multiple stakeholders are included in CSR and Sustainability strategies. As Ebner and Baumgartner (2006) suggest that corporate social responsibility initiatives should focus on the benefits delivered by all parties in the value chain that can create future value. However, integrity with other stakeholders can help the company in achieving profitable business outcomes while motivating the partners to pursue integrity. References Anderson, J. C., Kumar, N., & Narus, J. A. (2007). Value merchants: Demonstrating and documenting superior value in business markets. Harvard business press. Annamalai, K. & Rao, S. (2003). What works: Itc’s e-choupal and profitable rural transformation-web based information and procurement tools for Indian farmers. The digital dividend. University of Michigan. Baumgartner, R. J., & Ebner, D. (2010). Corporate sustainability strategies: sustainability profiles and maturity levels. Sustainable Development, 18 (2), 76-89. Burchell, J., & Cook, J. (2006). It's good to talk? Examining attitudes towards corporate social responsibility dialogue and engagement processes. Business Ethics: A European Review, 15 (2), 154-170. Clarkson, M. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of management review, 20 (1), 92-117. Ebner, D., & Baumgartner, R. J. (2006, September). The relationship between sustainable development and corporate social responsibility. In Corporate Responsibility Research Conference (CRRC), Dublin, Ireland (pp. 4-5). Greenley, G. E., Hooley, G. J., Broderick, A. J., & Rudd, J. M. (2004). Strategic planning differences between different multiple stakeholder orientation profiles. Journal of Strategic Marketing, 12 (3), 163-182. Greenwood, M. (2007). Stakeholder engagement: beyond the myth of corporate responsibility. Journal of Business Ethics, 315–327. Hick, S. (2000). Morals maketh the money. Australian CPA, Vol. 70, 72-73. ITC. (2014). e-choupal. Retrieved from www.itcportal.com: http://www.itcportal.com/businesses/agri-business/e-choupal.aspx Koll, O., Woodside, A. G., & Mühlbacher, H. (2005). Balanced versus focused responsiveness to core constituencies and organizational effectiveness. European Journal of Marketing, 39(9/10), 1166-1183. Maignan, I., Ferrell, O. C., & Ferrell, L. (2005). A stakeholder model for implementing social responsibility in marketing. European Journal of Marketing, 39 (9/10), 956-977. Noland & Phillips (2010). Stakeholder engagement, discourse ethics and strategic management. International Journal of Management. Wiley Online Library. O’Riordan, L. (2006). CSR and stakeholder dialogue: theory, concepts, and models for the pharmaceutical industry. MRes Dissertation. University of Bradford, Bradford).

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