Implications Of Firm Organizational Cost On Corporate Social Responsibility (CSR) Activities

Discussion

Discuss About The Implications Of Firm Organizational Cost?

The corporate social responsibility (CSR) is considered as the initiative of the company to asses as well as takes the responsibility of organizational impact on the social and environmental well-being (Lawrence & Weber, 2014). The companies have wide variety of reasons to engage in the CSR activities. This is considered as a commitment to improve the general infrastructure of the community. The important concepts of corporate social performance, stakeholder management, business ethics, sustainability and business ethics are all inter-related with the CSR activities of the firm. The CSR activities of a firm have positive impact on the customer perceptive of the company and the intent of them to purchase the company’s products or avail their services (Agarwal & Singh, 2016). There is also a positive impact of the CSR activities on the job-seeking intent as the potential candidates would be more likely to work for a socially responsible firm. These kinds of activities are responsible for greater brand reputation and greater goodwill in the market.

The CSR activities do not always increase the revenue of the company. There has been a growing debate about the financial viability of CSR initiatives. This essay would discuss the various aspects of the CSR initiatives including the advantages and disadvantages concerning it. The various management concepts concerning the topic would be discussed in an elaborate manner.

As opined by Harrison and Wicks (2013), the corporate social responsibility (CSR) is concerned with the self-regulation of the organizations which is integrated into the business model. These policies have an active compliance with various aspects of ethical standards and international legislations. Experts are striving to establish the positive relationship between the outcomes of CSR activities and the degree of certainty that it would bring positive outcomes for the company (Agarwal & Singh, 2016). The return on investment on the CSR activities needs to be justified.

It is important to understand the return to the stakeholders for understanding the contribution of CSR to the organizational effectiveness. The stakeholder theory focuses on the idea of “long term sustainability” of the multinational corporations which are dependent on various constituents (Hörisch, Freeman & Schaltegger, 2014). The stakeholders are considered as the important parts of the business entities as they help the organization to fulfill its mission (Agarwal & Singh, 2016). The stakeholders include the customers, employees, investors, governments, communities and others. These entities are said to form positive associations with the company and help the company to engage in lucrative opportunities (Kim, Kim & King, 2016). The stakeholders often view the CSR activities of the company by witnessing their level of success and their ability to impact the beneficiaries.

Advantages of CSR Process

According to Bojanic (2015), the means-end theory focuses on the fact that the purchase decisions made by the consumers are directly related to the product/service attributes and benefits obtained from them. The first benefit is related with the functional aspects in which the tangible as well as intangible characteristics are measured (Hörisch, Freeman & Schaltegger, 2014). The second benefit is concerned with psychosocial aspects in which the sociological and psychological well-being of the customers are being measured (Hörisch, Freeman & Schaltegger, 2014). The third factor is concerned with the values of the customers that decide the level of importance to them. This theory emphasizes on the fact that the consumers try to maximize these three benefits by making purchase decisions (Kumar et al., 2014). The CSR activities are also assumed to have high degree of benefits to the customers (Hörisch, Freeman & Schaltegger, 2014). The customers have either direct involvement with the customers or they get involved in the process by gaining mere knowledge.

There are various benefits of the CSR process, which have been grouped based on various approaches. CSR is a viable tool for gaining competitive advantage as the good works of the company would be appreciated by the public and they would purchase the products or services of the particular company (Sethi, Martell & Demir, 2017). The CSR activities also help in the development of the corporate image and corporate legitimacy (Hörisch, Freeman & Schaltegger, 2014). The company which engages itself in the matters of the society and engages in the community betterment are perceived better by the audiences. There is significant value creation through the process of CSR activities. There is an enhanced value creation for the organization, which would help the company to secure good manpower. It is obvious that more qualified candidates would be joining the organizations if it has a reputation of good CSR activities.

As commented by Bajic and Yurtoglu (2016), the CSR activities are often estimated by the profitability statements received from the financial statements. There are issues with the actual measurement of the CSR performance (Sethi, Martell & Demir, 2017). There have consensus issues on the operation aspect of CSR activities. There are also measurement challenges regarding CSR activities and there are no set standard procedures (Sethi, Martell & Demir, 2017). It has been argued that the CSR is an expensive task as the social activities incurs additional responses for the company (Tsai et al., 2015). The social actions do force the companies to make considerable investments in environmental affairs such as pollution control, deforestation, community sponsorships and donations to NGO or community bodies (Sethi, Martell & Demir, 2017). There are number of other expenses that are undertaken by the companies for keeping the CSR activities function smoothly. This often has an adverse impact on the profitability of the firm and there is stagnant financial performance.

Issues with Measuring CSR Performance

As defined by Chun et al. (2013), the corporate citizenship of a firm is concerned with the involvement of the social responsibility of a business entity which can meet ethical, legal and economic responsibilities of the firm (Tsai et al., 2015). The aim of the corporate citizenship is to ensure that there are higher living standards and high quality of life among the communities (Tsai et al., 2015). It is important to maintain the good socially responsible organizations in which there is encouragement of the investors and employees so that they can help in the growth and prosperity of the organizations.

There are several benefits of the corporate social responsibility on the financial profitability of the firm. However, research shows that a positive but weak correlation of the corporate citizenship and the financial performance of the firm (Christensen, Mackey & Whetten, 2014). The high spending on the CSR activities of the firm often hampers the financial profitability of the firm. There is a significant reduction in the return to the stakeholders, which leads to the increased prices to the customers (Chen & Lin, 2014). When the customers perceive that they are being charged extra for the same products or services, then they would consider their purchase decisions. There are instances when they switch brands and they may move to some other companies (Christensen, Mackey & Whetten, 2014). This would reduce the sales of the companies as there would less purchase, which may have severe impact on the profit generation of the firm. There can also be lowering of the wages of the employees as the firm may not be able to provide full compensation to all employees (Christensen, Mackey & Whetten, 2014). In an attempt to do cost cutting, the organization may witness more attrition rate. There can be lot of employees who would be willing to change the company and join a close rival (Christensen, Mackey & Whetten, 2014). This may have significant impact on the financial performance of the firm.

According to Situ, Tilt and Seet (2015), the corporate environmental reporting is concerned with the level of environmental burden. This is because of the fact that the companies do not disclose the perfect picture of how their decisions are affecting the environment. The legitimacy plays a vital role in the choices of the firms regarding the environmental disclosure (Christensen, Mackey & Whetten, 2014). There should be environmental performance metrics which would analyze the contribution of the company towards the environmental matters such as waste reduction, greenhouse gas reduction and water consumption.

Corporate Citizenship

It is important for the firms to be responsible and yet be profitable in terms of their financial performance. The firms have an objective of increasing the strategic profits and are sustainable in the long run. The stakeholders of the firm value the social efforts of the firm and should gain positive benefits when they are associated with the firm. It is important to generate more profits by the act of more product differentiation, which would help the company to satisfy the needs of more number of target audiences (Chun et al., 2013). This would also ensure that the audiences would make number of purchases from the company and hence it would be able to generate more profits. The firm should also be able to attract more number of competent staffs so that they would be able to serve the customers in a better way. The customers would return to the company if they get good services and good behavior from the staffs.

Conclusion

The modern day organizations face the challenge of being competitive and staying ahead of the rivals. At the same time, they do need to formulate some tricks so that they do not suffer financial losses. It is important for the companies to formulate important strategies so that they can continue with their CSR activities as well as gain sufficient financial profits. It is important that the firms should not suffer losses and engage in CSR activities. This essay showcased the important benefits of CSR activities and how it is beneficial for the company. It is also important to gain profits and this essay focused on the different aspects that tend to lower the financial profits of the firm. It has been argued that the CSR is an expensive task as the social activities incurs additional responses for the company as there are certain cost parameters that are related to it. However, the companies should aim for increasing the profits and at the same time, engaging in a variety of community activities.

References

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