As the world business environment changes, so do the requirements for success and competitiveness. Because of the forces at work, building deeper and more strategic relationships with customers, suppliers, employees, communities and other stakeholders the corporate eco-system can become central to competitiveness and even survival.
Building these relationships can form the foundation for a new, progressive and people-centered corporate strategy which attacks the sources - not the symptoms - of challenges facing business today. This brings us to the increased importance of corporate social responsibility CSR. In Western Europe, Japan, and North America, an increasing number of companies are finding that it makes good business sense to fully integrate the interests and needs of customers, employees, suppliers, communities, and our planet - as well as to those of shareholders - into corporate strategies.
Over the long term, this approach can generate more profits and growth. Sometimes referred to as the "stakeholder concept", it implies that management's task is to seek an optimum balance in responding to the diverse needs of the various interest groups and constituencies affected by its decisions, that is by those that have a "stake" in the business. By including societal actors - - not just financial interests - - the stakeholder model assumes that enterprise has a social responsibility.
According to Rosabeth Moss Kanter, globalisation has set in motion forces that shift power from producers who make goods to customers who buy and use them. The outcome of the cold war was not so much a victory of capitalism over communism as it was a victory of market-based decision making over centrally planned economies.
In market economies, if any single factor distinguishes the successful company or business it is putting the customer first. Successful companies build lasting relationships with customers by focusing their whole organization on understanding what the customers want and on providing them superior quality, reliability and service. Tom Peters refers to this as "having a passion for customers.
A major cultural transformation is required to develop this customer focus particularly in Central and Eastern European companies and in state-owned enterprises in Western Europe now being privatized. It is thus not surprising that many companies in Eastern and Central Europe are finding it difficult to refocus their priorities on their customers. Probably the most important reason western companies are capturing markets in the former centrally planned economies is the priority which they give to developing close and responsive relationships with their customers. But does it really pay to spend so much time and money on customers?
Experience shows that companies which spend time and money on identifying what the customers want and on quality, reliability, and service are much more profitable.
Leaders in quality management are also growing faster than companies that are less conscious of this aspect of their business. Superior quality correlates closely with market share as well as with return on investment. It implies qualityrelationships with customers. Today the leaders concentrate on understanding their customers in order to improve the company's value proposition and to identify new markets. They spend more time with customers three and a half times as much for key accounts and investigate thoroughly the reasons for lost orders. Another reason for focusing on customers is the increasing evidence that the ethical conduct and environmental and social consciousness of companies make a difference in purchasing decisions.
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This evidence is supported by research of the Council on Economic Priorities CEP , a non-profit, USA-based, public service research organization founded in to carry out accurate and impartial analysis of the social and environmental records of corporations. The CEP information on over companies and its availability empowers consumers, investors, and activists to cast their economic vote with knowledge of corporations' performance on such factors as environment, community outreach, quality of life in the workplace, information disclosure, and the advancement of women and minorities.
The reputation of companies in these and other areas does influence consumers' choice of brands and producers and often leads to changing brands even if there is a price differential.
What is CSR?
Similar organisations which performenvironmental and social screening exist in Germany, United Kingdom, Switzerland, Sweden, India, and Japan. A Global Partners Working Group has been formed to disseminate and exchange company information and screening approaches. This intense focus on customers has also been referred to as "the marketing concept", which simply means that the purpose of a company is to serve customers and to satisfy their needs and desires. Under this concept, profit is a by-product, a reward for serving customers well. To achieve this, every activity of the company must be aimed at serving customers.
This concept, which has been discussed in management literature for nearly fifty years, is becoming a real competitive advantage today. There is something even spiritual about this service-centered concept and the organisational implications of making it work. Clearly it implies a different degree of ethical behaviour, of honesty in respecting specifications, in describing the product and services, in advertising and in all dealings with customers.
We spend a large percentage of our waking hours at work. Our work experience strongly shapes our identities, our sense of self-worth, and the extent to which we can contribute to community life. The quality of life in the workplace and on the job affects our whole life as well as that of our families. Socially responsible businesses are doing more to provide work which is meaningful and which helps employees develop and realize their potential.
They are seeking to provide fair wages, a healthy and safe work environment, and a climate of respect. Management practices and human resource policies often include empowerment of middle management and employees; better information throughout the company; better balance between work, family, and leisure; greater work force diversity; continual education and training; and concern for employability as well as job security. Companies are also finding that profit sharing and share ownership can enhance motivation and productivity and decrease employee turnover.
There is increasing evidence that those practices which provide more meaningful work and higher quality of life in the workplace have a very direct impact on profits through increased productivity, greater innovation, higher quality and reliability, and more skillful and committed people at all levels. Furthermore, many companies find that caring for employees results in greater customer satisfaction. One survey in the United Kingdom concluded that employee loyalty contributes to customer loyalty. Several studies have examined the relationship between good human resource policies and practices and financial performance.
Over the years, this group has gathered data on 3, "strategic business units", half of which are in Europe. These units were divided into those considered good or poor in the management of their human resources. The criteria used included the following: feeling of belonging, equitable compensation, absence of conflict, sense of accomplishment, participation in decisions, sharing of information, and willingness to change.
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The comparison of the financial results of these two groups - -those rated high on management of human resources and those rated low - - was quite revealing. For those enterprises operating in complex and turbulent environments, the difference in return on investment of good practices was But with increasing globalisation, privatisation and deregulation, stable environments are disappearing.
Another study of high performance work practices was based upon a survey of publicly held corporations in the United States. The practices covered included personnel selection, job design, information sharing, performance appraisal, promotion systems, attitude assessment, incentive systems, and labor-management participation. Their experience has shown that companies which have pushed responsibility down the line, flattened hierarchies, empowered front-line workers to make decisions, trained and educated them, shared information, and treated employees as partners trade at a premium on the stock market.
Profit sharing is an increasingly widespread practice. France, where one in four workers benefit from profit sharing, leads in worker participation since firms with 50 or more employees must, by law, share some of the profits with workers through a deferred profit sharing plan. Many economists cite three major benefits: it increases productivity, it stabilizes employment by making wages more flexible, and it may raise the total level of employment to the extent that it reduces the marginal cost of taking on one additional worker. An OECD study, which draws on the conclusions of nineteen different studies in France, Germany, Italy, United Kingdom and the United States, concludes that sharing profits significantly increases productivity.
Surveys of employers report that employees benefiting from such plans are more receptive to change. The other potential benefits cited above may be real, but are less conclusively supported. There are innumerable examples of what companies are doing to improve the quality of life in the workplace. Following this, a profit sharing plan was introduced together with an educational campaign to teach employees how to read and understand financial statements.
He asserts that these efforts have fostered greater collaboration among employees, enhanced the quality of life in the workplace, and increased the profitability of his hotels.
He designed high performance work systems around autonomous teams, little hierarchy in the structure, wide use of consultative decision making, no job titles or perks for managers, open office arrangement, and a share ownership plan for all employees and managers. Today the plant is said to have the highest productivity and the lowest turnover and absenteeism of any of the eighteen plants of this group in Europe.
With women such an important factor in the workplace today, companies are increasingly adopting programmes and policies to make work and the workplace more family-friendly. Companies are providing or helping employees to find day care centers and kindergartens. More generous parental leave policies are being developed. In addition to these policies and practices, some leading companies are finding that by changing work practices, work structure, and work culture in order to improve work-family integration, they can reap significant benefits in terms of productivity, employee commitment, innovation, lower turnover, and better quality.
In other words, work-family integration can become a competitive advantage. In sectors characterized by intense global competition such as automobiles and consumer electronics, relationships with business partners such as suppliers and in some cases even competitors can be critically important to competitive success. As noted above, in the machinery industry, erasing the company-supplier boundary is one of the two factors which differentiate the most successful companies. By developing long-term relationships and working closely with business partners, leaders are able to reduce complexity and costs and increase quality through joint engineering projects.
Selection of suppliers is no longer exclusively through competitive bidding.
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A new division of labor between suppliers and customers is reinventing some industries. The nurturing of relationships with alliance and joint venture partners and with franchisees, and considering them as extensions of the company, can be equally important. This change in the strategy or policy of procurement is of great significance because many companies in Eastern and Central Europe are suppliers - - actual or potential - - for western companies.
Western companies have considerably reduced the number of their suppliers and are carefully selecting those upon whom they rely. They are learning to consider their core suppliers as true partners in their business. They offer reasonable prices to ensure profitability for suppliers, they are fair in the terms and expectations, and they even involve suppliers in the new product development process. Rather than negotiating the lowest prices possible, they seek to offer fair prices.
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In exchange, they insist upon and receive quality and reliable delivery, and they benefit from another source of innovation. Rosabeth Moss Kanter, in her book "World Class", has offered a warning to suppliers, " As concerns suppliers and joint venture partners, being best in the neighborhood isn't good enough anymore. Companies as suppliers must look good against the best in the world just to survive in the neighborhood.
The President questioned whether the supplier could make a fair profit at that price, and eventually called in the supplier to renegotiate a fairer higher price. Not surprisingly, the supplier became a very loyal and valuable partner to Hewlett Packard. An excellent example of what not to do is the case of a large car manufacturer some years ago. In an attempt to cut costs, they made unreasonable demands on suppliers to reduce prices to the point that many could no longer earn a profit on their business with that company.
As a result, suppliers let quality decline and put their best engineers on work for other customers. Employees of suppliers' companies quickly learned not to give that customer priority. As a result, the quality of its cars declined as did its share of the automobile market. This was an expensive lesson for one of the world's largest corporations on how not to handle suppliers. But it does not seek to maximize profits short term.
TWIN pays "fair prices" and works closely with suppliers such as producers' cooperatives in Africa to develop their know-how and capacity to produce and process raw materials in a way that enhances stable employment and value added in developing countries. It stands out as a model of "fair trading" with these countries.